This was supposed to be my evening off, but then I ran across this thing…
This is from Darren Meade, who says he really wants to get you into a great loan:
Congratulations on your decision to own real estate!
Housing prices have appreciated at record levels in recent years, so you were wise to make this investment. On average, housing prices have risen over 56% nationally during the five years ending in June 2006. Some homeowners have even seen the value of their home increase over 100% during this same period.
Times are beginning to change, however. It was just announced that for the first time in 11 years, national housing prices fell in value. Not only did home prices fall 1.7% compared to a year ago, the price decline was the steepest in 38 years. Last week, USA Today reported that the National Association of Realtors projects that prices will continue to fall through the end of this year. The reason for this projection is that home sellers are reluctant to reduce their asking prices even in the face of rising inventories. With more homes for buyers to choose from, those homeowners who have to sell may do so at lower prices.
What does this mean to me?
Now is the time to think about the future for you and your family. As home prices are starting to decline, there may never be a better time to reposition your equity and employ those funds elsewhere. [emphasis mine]
In other words, "Do you have any equity left? You had better suck it out now, so you can end up upside down on your mortgage. "
He claims this is so you can free up cash flow to devote to savings and provide a cash cushion for emergencies. I guess if you need an excuse, any excuse will do. In the world I live in, banks charge more for loans than they pay for savings. This sounds more like a plan to precipitate a crisis than to protect people from one.
Meade says:
Being homeless as a teenager has given me a special LOVE for the mortgage industry well beyond helping you find a great loan. I want to help you build a great life. No one should ever have to lose there (sic) home and live on the street, especially when you have already spent half your life building your career, your family, and your future.
He’s right about one thing, no one should ever have to lose their home. It’s a lot easier to hang onto though, if a piece of it is actually yours.
I love it! Let’s leverage to the hilt then lose value and that guarantees I’ll never be homeless!!! What are these people thinking????
Sadly since the Reagan Revolution discrepancies between the wealthy and working class have widened to proportions unheard of. The follies with the internet taught some an extreme lesson but this government promoted housing fiasco in the back drop of declining real wages should spell the end of our society. Americans are nothing more than Ralph Kramdens. They latch onto whatever television claims is hot and quietly disappear rather than complain or protest. And this housing bubble is undoubtedly the largest perpetrated fraud ever. The internet scandal left many Americans poorer and a few of your lawmakers quite wealthy. How many went to jail? tHIS CLOWN MENTIONED IN YOUR PIECE above is just another example of my commentary. Praying on naive stupid people. And for that society rewards him with a salary , when times are good, substantially higher than a medical doctor. And this guy in the ad probably has no education. Just a sad event in this final chapter
I really, really hope that people aren’t falling for this stuff anymore. It’s scary how many people are living lives that they can’t afford. The So. Scottsdale gym that I go to has 20 somethings in BMWs, Mercedes, Range Rovers…how much debt do these people have?
Formerly known as boner…
The people who fall for this are going to be in a world of hurt for awhile and are going to learn the hard way but I worry about how it indirectly affects the rest of us and the economy.
This is the same guy that told us “there is no bubble” and “it’s all media hype”…
Darren Meade and his “Victory Lenders” company are about as perfect of an indicator of the type of people in the lending business.
And banks are still buying their paper…
Can you say conflict of interest?
John Doe-
It looks like he’s promoting a NELOC “no equity line of credit,” instead of a HELOC. I would think that interchanging those in the manner he seems to be advocating would be considered some type of fraud.
The lender however, will have those NELOCs bundled and sold before the ink is dry on the docs though- so perhaps the lender doesn’t care.
Windy -
you said: “… but I worry about how it indirectly affects the rest of us and the economy.” I said exactly the same thing in a July 5th comment, and twist dragooned me into writing posts about it! We know almost nothing about Greater Chicago, have you got any spare time?
Twist
You’re right on there.
When I sold my L.A. home in 04, an acquaintance of mine was adamant that I should not sell it, just leverage every last penny of it (basically the same strategy).
When I told him that housing prices might go down, he told me not to worry, that would be the bank’s problem. [small fix, JM] I observed that I couldn’t cover the monthly nut with the rent on the place if I rented it. He said, no worry, just let the bank take it back, you now have your “equity”.
He was in the lending biz… that was 2 years ago. This guy’s just late to the party.
I think everyone is giving this guy more credit than he deserves. He is merely a screwdriver salesman who is trying to sell his wares. It does not matter that you might need a hammer or a saw…. he wants to fit you with a brand new screwdriver… because…. he gets paid when he sells new screwdrivers…. It’s really just that simple.
Hello Everyone -
My name is Darren Meade, and I’ve noted you have chosen to comment on a few artciles I’ve written.
First the advice is that the great appreciation in Real Estate has cooled. Given a moderate decline of appreciation across the country, now might be the time to reposition your equity.
There’s an excellent book on some repositioning strategies called ‘Missed Fortune 101′ by Doug Andrews.
I believe that everyone should benefit and earn money in the same manner the banks operate on the principleof arbitrage.
This of course depends on your overall financial plan. Often people do not realize or think about the simple fact that the largest financial asset they have is their home.
It is my belief that you should manage this asset in an overall financial plan. In regards to Home Equity Lines of Credit, I actually do not favor those as I believe the cost is to high.
Additionally, most HELOC’s can be canceled by the Bank at anytime. Many of my clients in
New Orleans found this out after Katrina. Many thought they planned ahead, but the notes were canceled and they had to borrower at an even higher interest rate.
I note John Doe said :
Darren: Actually this is not the same strategy. I’m advising people who have made a good amount of appreciation in their home, to take that money out since home prices declined Nationally. I suggest this because as a country we have the worst savings rate. Housing Inventory has also increased, some people like yourself cannot afford to pay the mortgage on their home if they try to rent it. They may then try to sell, but in many markets home sit for 4-6 months. The Realtors often do not disclose such. Desperate, I then receive calls where people now want to try and refinance. However because the home is listed for sale, many of the lenders will not allow them to refinance. Then these poor people wind up having to get a hard money loan.
Darren: Between 04-06 even with the decline, in my local market you would have made a 38% appreciation on your home. I am sorry you could not afford to hold on long enough to make that profit. I’d ask though, what other investment do you feel will provide a safer yield than Real Estate?
Also, you gain that appreciation figure based on the value of the home. Often you have secured this investment with 10-20% of the value of the home.
Best Regards,
Darren Meade
Hello All -
Since someone was kind enough to take a qoute from my article, I wanted to include what they left out in error:
“The greatest opportunity to control your money can and should begin with your mortgage. The rate of interest you pay on your mortgage is typically the lowest interest rate you can obtain. The tax deductibility of your mortgage interest can drive the effective interest rate you are paying to below 4.00% depending upon your tax bracket at current interest rates.
Consolidating non-tax preferred interest accounts, including charge cards and automobile loans, can free up cash flow to devote to savings and provide a cash cushion for emergencies.
Three out of five people do not have an IRA account. Nearly one in three people do not participate in their company’s 401K program. There is no better time to start investing in your future than today.
In many cases, homeowners who restructured their debt have saved over $700 a month in cash flow. By investing these savings into an investment vehicle yielding 8.00%, your money will grow to over $1 million in 30 years. Stocks have earned 12% on average annually in the post-war era. Obtaining a similar return on a $700 a month investment would result in your money growing to nearly $2.5 million.”
The article was a suggestion to take out some of the highest appreciation in equity in the last decade, and place it into a safe investment vehicle.
Best Regards,
Darren Meade
Darren -
Thanks for your thoughts. I expect twist and our West Coast readers will likely have responses later in the day.
Welcome, Mr. Meade.
I appreciate your candor when referring to your strategy as arbitrage. A great many investors - seasoned investors - have lost a great deal of money in arbitrage.
To suggest that an arbitrage-based strategy is a safe investment strategy or even that it’s suitable for reirement investments is just mind boggling.
One last point: your math fails to account for the cost of the money (4%) and overstates the average annual return of the stock market (7%, not 12%). The annual gain will be closer to 2%, not 8%.
Darren,
There are a couple of holes in your argument… Yes I’m familiar with the book you reference, Missed Fortune. Good read for anyone who already understands the concept of leverage and risk.
However, I don’t get my investment advice from people who sell books on investing in the same asset class that drove them to bankruptcy. Yes, that means I would not take investment advice from Doug Andrews about real estate. Precious metals, stocks, etc? Maybe, but not real estate. He does not show enough fiscal restraint, nor does he appreciate the typical person’s financial acumen. Yes, while he tries to raise it through his writing, most people cannot understand financial arbitrage better than the underwear gnomes in South Park.
Example:
Step 1: Steal Underwear
Step 2:
Step 3: Profit!!!
Most people think of residential real estate in equally simple terms:
Step 1: Buy house
Step 2:
Step 3: Profit!!!
You make some interesting, although useless points. Housing prices go up and they go down. In San Diego, they have gone down by at least 4.4% (Median), and educated professionals accept the median number skews the change to the upside. You say returns in your area have been 38% (I’m sure you’re basing this on median, not same-property sale, but I’ll play along). OK, but returns in San Diego have been less than 0%. That’s like me picking a single stock on a specific date and touting that as typical for the asset class. According to NASD rules, that would be fraud and I could be stripped of my license and never allowed to consult on securities for the rest of my life. However, in real estate, not only is it not allowed, this kind of “selling” is encouraged. Or, at least it will be until somepeople burned by “salesmen” file a class action suit, and the profession gets locked down tigher than a gnat’s A$$ streted over a hula hoop.
And as for my personal gains… I don’t wish I had held on to my home. I have made more money in the stock market (after accounting for holding costs, cost of money, repairs, maintenance, taxes, and commissions and fees) than I could have with my old home.
And, frankly, this is where I find yours and Mr. Andrew’s concepts fundamentall flawed. No, not flawed in conception, but in fundamentals… debt is not wealth. If housing prices go up, it does nothing to help a person. The only thing that helps people is when rates go down. Conversely, when rates go up, this is not neutral, is is bad. In the end, home price gains have been primarily supported by increasing wages, increased availability of credit, and low rates. Most here believe that #2 and #3 will be changing in the very near future. And, most jobs are under cost pressure due to global wage arbitrage (there’s that word again). If the the legs of the stool get shorter, what happens to the “step up”?
You have repeatedly told us on your Victory Lender’s website that there is no bubble, but there clearly is one. So, tell me, how do you sell that one?
Let me see if I have this winning financial strategy straight:
1. Significantly increase the risk of losing my house, if I should have a financial setback, by refinancing it (in a depreciating market) to suck all the cash out.
2. Take my equity cash and follow investment strategies promoted by a guy who gets paid to convince me to overleverage my house, and whose qualifications appear to be limited to being able to broker mortgage loans.
3. Hope and pray that the investment vehicles that are recommended to me by Mr. Meade’s firm are sound, will appreciate over the long-term at a better rate than my house, and will provide enough income to off-set the cost of the money I have borrowed against my house.
For me, any investment strategy that advocates greatly increasing the leverage and risk of my most important and utilitiarian asset, my home, is foolish and dangerous. I suspect that most readers of this site are wise enough to see through this “investment advice” as nothing more than an attempt to get more people to apply for a mortgage from Mr. Meade’s company.