Frequently Asked Questions
Banking—The New Section 7F Loans
 

1. Under Section 7F, lenders receive a much smaller profit than they do under the current scheme. What incentive is there for lenders to support NESARA?
2. Under Section 7F, borrowers first repay the principal on a loan before paying the monetization fee. What happens if a person pays the principal, obtains 100% equity in the home and then refuses to pay the monetization fee?
3. Are mortgage loans being canceled once NESARA becomes law?
4. Can I prepay my mortgage under the new laws?
    

Under Section 7F, lenders receive a much smaller profit than they do under the current scheme. What incentive is there for lenders to support NESARA?

A lot of incentive!

Take a look at the equations. Observe that under today’s methods the typical cost factor for a 30-year note is approximately 2.5. That means borrowers pay approximately 2.5 times the principal they borrowed.

Under NESARA that cost factor changes to approximately 1.5, meaning borrowers pay back approximately one half times the principal they borrowed.

In other words, lenders receive approximately three times the amount on one 30-year note than they would under NESARA. At first glance, this observation seems to argue that lenders have no incentive to support NESARA.

However, observe that the terms of a loan under NESARA are much shorter with principal being repaid before the monetization fee. Under NESARA, a 15-year note repays principal in about 10 years. In other words, lenders can make three loans under Section 7F in the same 30 year period as they do now under current methods. Therefore, lenders earn less profit per loan but make up that difference in higher volume for the same 30 year period. The difference is that those profits are obtained through three lenders rather than only one.

Better yet, lenders will see principal repaid before they start collecting the monetization fee. This change in lending practice will do several things for lenders because risk is greatly reduced.

1. Lenders watch borrowers build equity much faster. By building equity much faster borrowers remain highly motivated to pay the loan in full.
2. Because loan terms are shortened and the overall debt burdened reduced, lenders need not always foreclose but will be more willing to work with borrowers during difficult times.
3. Because equity is built much faster, should borrowers unfortunately default on a loan, lenders will see a much better return on foreclosures because of the higher equity.
4. By repaying principal up front, lenders will free reserves much faster which will allow lenders to make more loans.
5. By repaying principal up front, insurance is no longer needed as practiced under the facade of FDIC.
6. As borrowers build equity much faster for current loans, they provide lenders much better collateral when applying for future loans.
7. By greatly reducing risk, bank failures should become an historical note (other than fraud or criminal activity of course).

Lenders receive no part of their profit for several years, therefore lenders are compensated by collecting a monthly service fee to cover the bookkeeping costs over the life of the loan.

Of course, borrowers come out ahead too because the term of the indentured servitude is drastically reduced. Everybody wins!
 

Under Section 7F, borrowers first repay the principal on a loan before paying the monetization fee. What happens if a person pays the principal, obtains 100% equity in the home and then refuses to pay the monetization fee?

Should attempts with the borrower to reconcile prove fruitless, the same thing would happen as what happens now—the lender will sue the borrower and probably will move the court to foreclose. Remember that although borrowers first repay the principal, by no means does that provide borrowers with an escape to not pay the monetization fee. Before the lender will provide a borrower the funds, the borrower will sign a promissory note as is practiced today. That note will be enforceable in a court of law. Remember also that the mortgage is filed at the recorder’s office and serves as a notice of lien, which will thwart future sales if borrowers try to sell immediately after repaying the principal. In other words, don’t worry about that part of the rules changing—they won’t. Lenders have the right to be protected and they will.
 

Are mortgage loans being canceled once NESARA becomes law?

No.

Existing loans are merely recalculated under the new equations retroactive to the loan origination date. What will happen through these recalculations, however, is that many home owners will find that under the new loan equations they will no longer have a mortgage.

Although the new equations will affect all mortgages, not all homeowners will find themselves immediately debt free. On a typical 30-year fixed rate note, borrowers will have to have paid into the mortgage for approximately 17 years in order to see themselves suddenly debt free from a mortgage. For a typical 15-year note, the term is reduced to approximately 12 years.

For those borrowers who have paid fewer years, those people will not yet be debt free from a mortgage, but the recalculated loan will greatly shorten the remaining mortgage term by approximately 13 years for a 3-year note and 3 years for a 15-year note.

For those borrowers who have paid more than 17 years, their mortgages will be recalculated as being paid in full, but they will receive no financial rebate. In other words, nobody gets less than they bargained for, but some people get more. Regardless, those people too suddenly find themselves mortgage free.

Because lenders recalculate loans according to the new equations, lenders will charge a monthly service fee retroactive to the origination date.

We have an Excel spreadsheet available on line so you can calculate how your mortgage will be affected during the conversion. We also have some static examples on line. See the What’s In It For Me? section of the web site.
 

Can I prepay my mortgage under the new laws?

Absolutely. However, before we discuss possibilities, let’s establish some foundations.

Under section 7F of the bill, compound interest is no longer allowed for secured loans made on a fractional reserve basis. For most people, this will apply only to home mortgages, home equity loans, and business loans (auto loans will qualify under the new rules, but the term of the loan and the amount borrowed will render savings insignificant, if any at all).

NESARA replaces compound interest with a new monetization fee. Within these guidelines, principal is required to be paid first before the lender can start collecting the fee.

Like current loans, lenders provide amortization schedules to help borrowers understand the payments and costs. Lenders will still do the same under NESARA. The schedules will look somewhat different because principal is paid before the monetization fee, but the schedules will be functionally the same.

Lenders often provide borrowers a schedule that is based upon equal payments throughout the lifetime of the loan. Many people pay off their debts using these schedules.

However, occasionally a few people are financially able to make larger payments to extinguish the loan sooner and become debt free. Under the current system, borrowers can save significant amounts because with compounded interest, the lender’s profit is always based upon the remaining unpaid balance. Under NESARA, borrowers can still save significant sums, but the calculations work differently.

Like today, under NESARA lenders will assume borrowers will make equal payments. Lenders therefore will calculate ahead of time, both for their own projections of profit and also to help borrowers understand the terms of the loan, what the monetization fee will be.

Like today, if a borrower decides to prepay principal, those efforts will change the final monetization fee. Technically, since the monetization fee is paid only after the principal is paid in full, the fee is not truly calculated until the principal is paid. However, for many people who make equal payments, this technicality becomes moot. Nonetheless, prepayment of principal will change the final monetization fee, and when the principal is paid in full, the lender must recalculate the actual monetization fee owed.

How the borrower decides to pay that monetization fee will depend greatly upon the original contract and upon the lender and borrower.

Say that the final monetization fee for a given loan is established at $62,500. As we have previously discussed, the borrower could continue equal payments until paying off the debt, just as per the original contract. There are two extremes with this option. The borrower could continue making the same larger payments as he made to pay off the principal early, or the borrower can “relax” and make smaller equal payments through the remaining life of the original contract. Either option will not change the monetization fee, but continuing the larger payments will reduce the total service fees paid.

Yet, suppose the borrower inherited a significant sum of money and wanted to immediately pay off the loan in a lump sum payment. Despite foregoing a small amount of money through lost service fees, the banker will appreciate getting all of his profit immediately, expressing his appreciation in a discount called the “present value of money” so the monetization fee effectively becomes less. (Spreadsheets contain a built-in formula for calculating the present value of a number of future equal payments.)

This lump sum payment amounts to the equivalent of making a deposit in a savings account of something less than the $62,500 and then using that amount plus the interest the account would earn to pay off the debt in the agreed amount of time. The banker has no choice in this because the borrower could go down the street to the banker’s competitor and set up an account to pay the original lender.

Matters can become more complicated when you consider the bank’s position. What would the bank do with the money if they had it today? Because the money is all profit, they could distribute it to the stockholders, but if they were short of capital or reserves, they could add the money to those accounts and make more money with additional loans starting today. Or the banker might split the money among the options.

Also, the banker would need to consider the total deal. Consider a family condo owner upgrading after 10 years. Under the new laws, the bank’s Financial Holding Company is in the real estate business and also sells insurance! They could refinance the condo to a new owner and finance the old owner’s upgrade purchase at the same time, selling homeowner and loan cancellation life insurance to both! By keeping the bank monetization fee low the bank can charge its prepayment fee, take that money as profit and leverage it as capital or reserves to make even more money, making 2 or 3 loans where it only had one! In these cases every deal could be different!

NESARA changes the rules and only specifies the general conditions and sets limits; NESARA does not specify the equations or the options within the limits. The equations seen on this web site provide foundations only.

If you are experienced in the lending field you might see why, if NESARA becomes law, every textbook on banking and economics will be obsolete. You also should be able to see why NESARA will create an economic boom of Biblical proportions. Do you think Barnes and Noble might be interested in a “How to —” book written by you explaining the new rules to consumers and teaching them what to ask for? How about a road show? Seminars for bankers and investors? How about fuzzy logic software—non-linear multi-variable—computer programs built to maximize returns on the new rules for bankers, investors and consumers? Do you think Bill Gates, Ted Turner, and Donald Trump might get together with a Financial Holding Company and set up to provide services on the web? The possibilities are endless! Talk about starting a revolution!