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FIB - Scams 101

Re: Nothing but dark linings

Posted By: Marco
Date: Thursday, April 5, 2007, at 2:02 a.m.(pst)

In Response To: Re: Nothing but dark linings (Mark)

>> Too many red flags. The "friends" who have been trying to
>> sell us on the Mili group say that they want to help families. If you
>> truly wanted to help families you would be a non-profit. The last comment
>> I heard was that Mili Group is now going to "help" the ELDERLY!
>> My goodness.

While I don't entirely disagree with you post the part about "if you truly wanted to help families you would be a non-profit" is quite a stretch of reality. There are many caring and sincere people in various professions that care about their clients that aren't non-profit. A doctor for example, I believe although I may be delusional, goes into medicine to "help families". There is a cost however. The office (or hospital) they work out of, the assistants and other employees, medical equipment, insurance, etc. That doctor also may have a family to provide for or am I wrong? To suggest that people with integrity who are caring and sincere about helping other people should work for free doesn't work in our society and especially in a profession which instructs others how to become wealthy.

Now on to the real reason for my post. I have been a loan officer for four years. I've also been a real estate agent and RealtorŪ for over a year now. I hope my experience in this field will provide some clarity on the topic.

The concept The Mili Group is promoting is by no means new. I've heard it a million times pitched as a "business opportunity" from various sources. In reality though any loan agent who's been in the business long enough will eventually stumble across this technique.

Regarding the real estate bubble and further depreciation of real estate values. First bear in mind that over 70% of all the wealth in this country is in real estate holdings (whether residential or commercial). Secondly, real estate is stratified based on price. For example, in San Jose where I specialize, there are areas which are actually appreciating greatly and areas which are depreciating. So yes some areas may continue to depreciate while other grow at astonishing rates. Which ones? If I knew the real answer to that I'd be off making BILLIONS of dollars right now.

Historically, real estate will always increase in value over long periods of time. I'm referring to 5 to 10 year cycles here. Is it safe to bet on that? Historically, yes! The trick is knowing where to invest. All we can really do is analyze the information currently on hand such as economic indicators, census data, etc. while applying this knowledge to what has occurred historically.

Sub-prime lenders have been facing a lot of heat. It started with the closing of Own It Mortgage a few months ago. It was unexpected and rather sudden. They completely shut down from one minute to the next. None of the account executive even knew it was going to happen. This caused investors to worry about the market's health especially with the rise in foreclosure rates increasing 27% year over year. Investors tightened the requirements on loans they'd purchase. Keep in mind many of the investors buying into these "high-risk" loans were pension and insurance funds. Companies that don't like to take a lot of risk. Those "market realities" cause sub-prime lenders to restrict their credit criteria, documentation type and loan programs.

The people getting foreclosed on from what I have read isn't good people who could honestly afforded the mortgage...it's people who committed loan fraud to enter into the property. Lying about their income, employment history, etc. These were people betting that they could hold onto their home for a year, sell it, and make $100,000. Shame to the real estate agents and loan officer that allowed those people to get away with it. Don't worry it's catching up to all of them. Just type "mortgage broker" + "fraud" into google to see what I mean.

A person with a 620 credit score and working at some company (as in steady wages) could easily qualify for a 100% loan 6 months ago stating his income. Why does someone who makes steady wages need to state their income? Could it be because they're lying. So now, the base line from what I've seen with my lenders is 640 and only full doc (show pay stubs and tax returns to verify income). The criteria has changed and so it's not as easy to get a loan anymore. Will this have an effect on the real estate market...of course! In what sense is the question. Obviously as more and more of these borrowers are priced out of the market there will be more and more people renting. The increase in demand for rental units will help maintain and most like contribute to appreciation in income producing property. This will continue until, lending guideline are lightened or wages increase to the point where more people can afford to buy homes which again will cause a rise in price depending on demand.

I apologize for the rant, it's almost over I promise.

The Mili Group from what I gather from friends involved and a "business presentation" is this:
1) They are a real estate brokerage
2) They are a mortgage brokerage
3) They are an insurance brokerage
and
4) They are an MLM (network marketing) company

Network marketing in and of itself is not a bad thing. It actually is a great business model. The issue I have with MLM is that at some point once the momentum has slowed, the people who come last have no chance at the kind of success experienced by the people who came first. It's really a personal decision as to whether or not you like the business model.

To the guy that swears by World Savings and how stable their index is (the Cost Of Savings Index - COSI). From January 2006 to January 2007 the COSI has gone from 3.36% to 4.73%. That's an increase of 1.37% in one year! What does that mean to all the people you and Mili have put into that loan over the last year. Their REQUIRED interest payment has risen 1.37% of the loan balance while their minimum payment increased by a few buck (7.5% increase of the previous minimum payment amount). In other words, they're adding more onto their principal faster now with every month that passes only they think they're still paying 1.95%. That's dangerous. You see the Pay Option ARM you're touting off the roof tops adjusts on a monthly basis...which means worse case scenario their payment can jump by 2% of the loan balance from month to month.

If you really knew the implications of that program you wouldn't recommend it to your worse enemy...well maybe your worse enemy. There are other lenders with a much more "predictable" solution. It's called the Hybrid Option ARM. It provides the same low "minimum" payment option only the payments (Minimum, I/O, etc) are fixed for five years. There are many lenders that offer it. ABC (American Brokers Conduit) is probably the best prices for Alt-A and All American Finance can go to 640 credit scores up to 95% (I believe - I need to recheck their guideline it may have changes recently).

I provide this info so you can share it with your associates and be responsible. Advise your clients properly. It's their home and their life your toying with.

Also keep in mind that the Pay Option ARM isn't new. It's existed for many years and it was created for a purpose. The program was designed for self-employed and commission based employees who could qualify (income wise) normally but had large fluctuations in cash flow from month to month. The minimum payment was Worlds Savings answer for those type of borrowers. When the borrower experienced a tight month they could pay the minimum and make up for it when more cash was available.

It turns out the program is extremely valuable as an investment tool due to it's high leverage capability. But there are risks and with any investment they need to be managed appropriately. Planning is the key. Just keep in mind a plan CAN fail. If you wouldn't put your elderly mother into that program then don't put a client into it. You make make a good $10-15K right now...but you'll never escape the havoc those unhappy people will cause to your life and career.

To anyone interested in The Mili Group I say give it a listen. Then trust your gut. If you don't like the business model then seek other avenues. If you don't agree with there financial programs and wealth building concepts then look for other avenues. You will not be successful in it if you are against it. Simple.

It's not a scam but it is risky. Both for you as an agent and for your clients. If you do join please take the time to understand the products and their implications.

If you have any questions feel free to send me an email.

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