Agreed. It would have been a good plan if the upswing had kept on going like NAR and Alan Nevin said it would. Just think, had they sold in 2005 instead of refinancing, they would have cleared a lot of money even after taxes.

Regardless, the reality on this one is that the lender for the 2nd is going to get scalped on this by the time the holding costs and costs of sale are factored in. They’re facing a loss of at least $200k right now, and that’s if the house sells at the list price.

Even though the loan was probably sold off in the secondary market, there would probably be a buy-back clause in it for an NOD within this 2-year window. That means the lender may very well be on the hook for the entire loss. You gotta wonder how many losses like this any lender can take.