I've always been impressed how certain people can get away at times with elaborate flim flams. The recent arrest of Bernie Maddof is one such demonstration of this type of fraud and those who are duped. Normally it requires a mark, or victim, who is manipulated by their greed, honesty or compassion. Often these schemes are elaborate and can be perpetuated by the innocent and masterminded by those thinking they are providing others some type of better existence. Meanwhile capitalizing in the beginning with massive profits, which later leave their unknowing victims in bankruptcy or foreclosure.
This scenario is relevant in regards to the Mortgage Merge Account. Hailed as some great innovation brought to us by the land down under, it has turned into a nightmare that strangles many of it's victims. Offered by neighbors, friends and relatives, the victims think they are following the council of family or religious leaders by eliminating their mortgage. In reality they are creating the seeds of their destruction.
It all started the summer of 2006 in my home state of Utah. A group of average mortgage originators decided with the help of a couple insurance guy's to adopt a growing underground movement that used debt against debt. Yep, you heard that correctly. You take additional debt to leverage down the longer term debt you receive when getting a mortgage. The best way at the time was to get a equity line from the bank and then pay a nice salesmen $3500 dollars, which of course you could slap on that same Equity line, and now a little graph you could see on a web page would tell you when to pay your payment, how much to pay, and when you would be free!!! Wow....just $3500 and you didn't even have to really take it out of your checking account to do it!! Cool!!! Oh, and that small rainy day fund you have, you really don't need it, just put it in with the Equity Line and the software will help you pay your home off that much faster. Oh yes, did I forget to mention....you can make extra income by selling this to others as well.....oh your not a mortgage lender....no worries, anyone can sell this and isn't it wise to help others pay off their mortgages earlier.
Yes indeed, paying off the mortgage had become more important then curing cancer. The mortgage was evil and a vile hinderance to retirement and it should be taken out at any cost. We'll that's a slight exaggeration, but so did the salespeople who pitched the MMA product. Hey Mr. homeowner, you don't even have to CHANGE, just keep what you doing now, and you'll have that house paid off in 8 years!! Yes, it did sound too good to be true, and even a mortgage professional like msyelf was taken in for a short time.
But like most confidence games, circumstances can quickly change. Either it's a ponzi scheme and the organizer of the fraud runs out of new investors to pay the returns on the old investments and it collapses, or market changes swiftly cause the collapse of the fraud and the "mark" is left holding the bag. Guess what's happened to these MMA programs, there now crashing and burning.
What most people didn't realize is that the MMA couldn't predict future real etate markets. It's not a bad idea if the market is perpetually increasing each year. But you have one or two severe downturns, or an extended downturn of more then 20%, and look out! Now these same people who thought they had accumulated a 100k in savings and equity are now just staring at an empty wallet and bank account. Their good friend has long since stopped selling the snake oil. They're probably already invited you to attend some meeting they know nothing about, but it's cool and you should just check it out....(oh yeah...it's not just soap....it's SUPER soap!!"
So now your $3500 is long gone. You actually owe now a first and a HELOC that has been converted to a second mortgage because your in a declining market and the bank closed your equity line! Your also probably worried about losing your job and realizing that you have little in your reserves because you've needed them to fund your massive mortgage payment! Yes the confidence man struck once again, and now your one of those guys you read about in the paper, oh and someone is trying to deliver you papers from your wife who moved out a few weeks ago....oh crap!