I Wonder if Ray Got a Letter Too

The Federal Trade Commission has published a press release "FTC Warns Mortgage Advertisers and Media That Ads May Be Deceptive". On this page is a link to a sample letter they sent out.

The press release included the following:

For example, some ads touted rates as low as “1%” but failed to disclose adequately:

* that the stated rate was a “payment rate” – not the interest rate – that applied only during the loan’s initial period;
* that low advertised payments applied for only a short period; and
* the loan’s Annual Percentage Rate, the uniform measure of the cost of credit that enables consumers to shop for and compare mortgage offerings.

Some ads promoted only incredibly low monthly payments but failed to disclose adequately the terms of repayment, including payment increases and a final balloon payment.

I wonder if Ray Vinson got one about his "No-Spin Mortgage". Perhaps so -- I haven't heard any such ads from him or Bill O'Reilly recently. I was never able to find out any details about his loans on his web site, just an application form. What do you think the chances are that I would have found out if I'd taken the trouble to apply?

While over at the FTC website, you might want to check out their page with links to articles with consumer information about mortgages.

Your Dinner is About to Be Interrupted

Having my evening interrupted with telemarketing phone calls is an unpleasant but receding memory. Many states including my own passed do-not-call legislation in 2002. The fine print is that the registrations for the lists automatically expire after 5 years. After all, many people move and we don't want the person who "inherits" the old number be deprived of the wonderful experience of having their dinners interrupted by someone pitching timeshares. So if you signed up for your state's do-not-call list in 2002, that registration may be expiring if you didn't sign up again. Wisconsin and Pennsylvania are two such states.

The national do-not-call legislation was enacted in 2003 also with a provision for 5-year expiration of registrations, so if you've registered for that list your registration is still in effect and won't expire before next year.

Last year I got a now-rare phone call from a telepest. After giving them a hard time and filling out a complaint on the web site of my state attorney-general, I checked-up on my registration to make sure it hadn't expired. While I was at it, I went ahead and re-registered my phone number protecting me until 2011.

If you haven't registered your phone number on the national do-not-call list, you should do it now. Even if you have already registered, why not re-register it now that you're thinking about it so that you won't have a gap in your protection next year if you forget to renew it?

The registration process is fairly simple. Just go to the National Do Not Call Registry and fill in their form. You will need to give them an email address to verify your registration. Make sure that you follow the instructions in the email to compete the registration process. The web site also offers the capability to verify your registration.

I'm a Winner!!!!!

I received a sweepstakes mailing. It has a scratch-off panel, from which I uncovered a Royal Flush. This entitled me to the grand prize of a $5000 gift certificate. Being rather skeptical, I noted the tiny asterisk next to the prize description and looked at the fine print.

The prizes and odds are:
--$250 Racing Gift Certificate, Odds 1:121,398
--$500 Gift Certificate, Odds 1:121,398
--$5000 Gift Certificate, Odds 121,396:121,398
Look at that again. The odds of winning either $250 or $500 are almost nil. But the odds of winning $5000 are almost 100%. But it's not in cash, but rather a "gift certificate". And the "gift certificate" is really a coupon good only for a car at the car dealer sending this out, probably with the price jacked up to cover the $5000.

Further, they offer $3781.42 of "Down Payment Assistance". The cynic in me expects that "Down Payment Assistance" means that you are allowed to reduce the size of your down payment and borrow it instead.

I believe that if it's too good to be true, then it's probably not true. I'm not wasting any time going after my "prize", as it would be a booby prize instead. And I will keep this in mind the next time I'm in the market for a car.

A "No-Spin" Mortgage?

I've heard Ray Vinson on the radio advertising a $72,000 mortgage loan for only $299 a month. In some of Ray's commercials I've heard Bill O'Reilly endorse Ray's "No-Spin Mortgage". Ray goes on to brag about how he's "saved" people hundreds of dollars a month.

I went to Ray's web site to see if he had any details on this wonderful mortgage, but if he had any they were well hidden. I brought out my financial analysis tool, Excel, and calculated that a 30-year fixed rate loan at the terms stated would require that the interest APR would need to be about 2.88%.

I didn't think that interest rates were that low, and at www.bankrate.com found that a 30-year fixed rate mortgage with zero points is running somewhere around 6%, or twice that. Looking around a bit, I saw an ad by Quicken Loans offering $200,000 for $585 a month. While the amounts are different the ratio of loan amount to payment is similar to that for what Ray is touting.

So I clicked on the link in the ad, and was rewarded with an explanation for the wonderful rate. In the fine print for the ad:

Rate is variable and subject to change. After the initial fixed-rate period, the rate will adjust every 6 months. The initial, minimum payment on a 30-year $200,000, 5-year Adjustable Rate Loan and 80% LTV is $583, with 3.25 points due at closing. The minimum payment is based on a rate that is implied solely for the purpose of calculating the minimum payment which in this example is 3.5%. Interest will accrue at a rate of 6.50%. Paying only the minimum payment will result in deferred interest or negative amortization since you will not be paying all of the interest that is owed each month. The unpaid interest is added to principal. Interest can be deferred until the outstanding principal balance is 15% (10% in New York) higher than the original loan amount. If the maximum limit is reached during the first 5 years, the payment automatically converts to an interest only payment. In this example, the maximum limit will be reached in the 53rd month, which is when the loan amount reaches $172,500.00. At this point, the minimum payment will convert to an interest-only payment of $1,245.50. After 5 years, the interest only payment is $1,437.11. After 10 years, the principal and interest payment is $1852.37. The Annual Percentage Rate is 7.533%. Rates could change daily. Actual payments and rates may vary depending on individual client situation and current rates. Some restrictions may apply.

So let me summarize: You're not really "saving" money on this loan. While your cash flow for the first few months after taking out the loan is reduced, you're going deeper in debt as the interest you didn't pay gets added to the loan balance. And when you took out the loan, you immediately went further in debt by $6500 (3.25 points on $200K) plus probably $2K - $3K of closing costs. The example in the fine print is also erroneous or at best confusing. With negative amortization (paying less than the interest) the loan balance will not be $172,500 after 53 months, it will be over $238K. And in reality will probably be higher when the interest rate adjusts above 6.5%.

The devil will be sure to point out all that high-interest-rate credit card debt that was retired when the mortgage was taken out from Quicken. True, you're paying a lower rate on that debt. But you're also paying interest on the $6500 in points you added to the loan, and will be paying interest for another 30 years or so. Perhaps even when you think you'd like to be retired. And if you refinanced from a mortgage that had a lower rate, you're paying a higher interest rate on that amount as well.

Plus, someone who would be suckered in by this deal probably will forget about the forthcoming doubling to tripling of their mortgage payment, and run up the balances on the credit cards, again. When their mortgage payments balloon up, they'll really be in a pickle and this time could find themselves on the street when their house is foreclosed. Learn more about these loans from this Federal Reserve pamphlet or this one.

If you're contemplating such a loan -- don't do it!!! Look for an alternative. Eat Ramen noodles for awhile and pay down the credit cards directly. If it's too late and you already have one of these loans, stop making only the minimum payments. Stop using your credit card and pay them off as quickly as you can. After your credit cards are taken care of, put all the payments against your mortgage so that you finish paying it off sooner. Read more about Dave Ramsey's debt snowball.

If your monthly payments are less than the interest being charged by the mortgage company and the credit card companies, you're not "saving" money. You're getting deeper and deeper in debt.

Is Ray Vinson's mortgage like this? Can't say for sure since he won't tell us. But I sure know which way I'd be betting. I think Bill O'Reilly's "No-Spin Zone" is really "Only-Bill-Gets-to-Spin Zone" but that's off the topic. I'd be interested to hear from someone who's has a mortgage brokered by Ray, either from Vinson Mortgage or from American Equity Mortgage.

In any financial transaction, be sure to find the fine print and read it carefully. And this goes double if you're looking at a "No-Spin" mortgage from Ray Vinson.