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Special Reports
Home Equity Lending
'HE, Handled Properly, Can Help Financially'
Urging cautious use of HELOCs.
By Amilda Dymi
In times when many Americans face unprecedented debt levels and bankruptcy claims,
at least one debt management and personal finance expert cautions that misused home-equity loans can damage one's
finances in the long run.
Home-equity can turn into a very valuable financial tool if used properly as part
of a financial plan, said Andy Schweitzer, chief executive of Gulfstream Financial Corp., commenting on strategies
people in financial distress could use in 2007. "If it's properly handled, with professionals utilizing wise
strategy ... if these things are laid out, they can be used as a brilliant tool for the client," he said.
"If not, it really can be a cement life boat people think will carry them into the next step. It won't. If
you move your debt so much into the home, it becomes so expensive you cannot live there anymore. It is not intended
to be a cow you go take milk from every time you're thirsty."
Obviously Mr. Schweitzer does not believe in stripping one's home off of equity.
When using home equity people try to use an asset that they own as a planning
tool, he said, but usually they simply get a home equity line of credit with the lowest monthly payment they can
get, which often is a revolving home-equity credit line. "Essentially that is a large credit card. It is not
a good tool, it's that customers simply don't know," he said. "But it can give a mortgage professional
a reason to call a client and say, 'I know I put you in that 30-year mortgage, I think I've got something here
that can get your house paid off in eight years,' " said the Gulfstream Financial Corp. chief executive.
Lack of knowledge, he said, will continue to bring homeowners to a bank and ask
for and get the wrong solution for their situation.
Home equity line of credit products out there are "very hazardous for the
homeowner unless it's properly managed," he said, since, for instance, customers have the option to pay as
little as 1% on their loan although the interest rate on it is at about 7%, so in the end the difference is added
to the mortgage balance, which keeps going higher forcing the homeowner to recast the mortgage most probably at
market rate and on a higher balance.
That point can be reached in one or two years.
For a mortgage professional it is a matter of strategizing for their clients avoiding
"short-term cures that have long-term consequences."
He said home-equity loans may reduce monthly payments but can extend those payments
over the long term, even for decades.
Mr. Schweitzer is a debt management expert whose company assists families and
individuals to get out of debt within 10 years through its Liability Portfolio Management program, thus avoiding
to consolidate consumer debt into home-equity financing.
Gulfstream Financial Corp. uses mortgage products as part of a customized financial
plan it creates for. It is a three-step process that starts with the origination of a property-based financing,
he said, "in order to reduce the demand for a budget coming from the liability portfolio." An overview
of the personal financial statement shows available assets and liabilities focusing on the liability side of it.
"We treat the liability side of a person's financial statement as a portfolio-demanding
management," he said, which is not a traditional approach. "What we find commonly among our clients,
who generally are higher-income earners, typically a firefighter making $65,000 or a nurse making $60,000 ... increasingly
we find their liability portfolio is approximating one times their income. So if you included a home-equity credit
line, car loans and student loans, we're already at $100,000," Mr. Schweitzer said. "That is a portfolio
that if they continue to mismanage will destroy their family and take their home," he said "There is
a statistical correlation between financial problems and marital problems," said the Fort Lauderdale company's
chief executive.
The Gulfstream Financial Corp. solution starts with the property financing "to
suppress the payment" and then apply a layer of technology, he said. "We've got to run an intellectual
property, a proprietary system we've developed in over 10 years that gives us the best application of resources,"
he said.
For example, if a customer's cash flow into his liability portfolio is $4,000
a month, using restructured financing, it may be reduced to $3,000 a month.
Technology, he said, may suggest there is probably another $1,000 in pure capital
"and here's the best thing to do with it," which can mean sending an extra $400 to this creditor, and
an additional $200 to another creditor. "Every month the technology is running amortization schedules on every
credit line for every client prioritizing the resources," he said. "So we reliably can in about eight
to eight-and-a-half years average liquidate all the liabilities including the mortgages without increasing penalties
and compromising credit rating. And that is very fast."
If one channels a $4,000 cash flow into the liability portfolio, he said, in about
two years their non-secured obligations are liquidated, then the homeowner can spend the next six years liquidating
property loans. So far, Gulfstream Financial Corp. has been working with firefighters, nurses, teachers and other
city workers often referred to as "the working poor."
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