4runner, thats an excellent point, I can see that theory making sense, and I can see how so many up here would practice it. after all, no one here wants to look desperate, and before you know it they have bailed out of the neighborhood when the home goes into foreclosure and they don’t have to face as much shame.

One of the guys I know that is going into foreclosure told me his story. He and the wife make about 100k per year combined income. Bought his home for around 250k-300k new.. as it appreciated he refied the heck out of it, and HELOC’ed it, bought and sold a number of cars/suvs, then bought a big dually diesel truck (60+k) and a big toybox(60+k), then bought quads, dirtbikes/riding gear for the whole family(25+k). A year or two later and he realizes that he can’t afford all these payments. He decides to try to sell the house. He moves his family out to a rental. The house has been listed for about 6 months… no takers. Three wimpy price reductions later and no dice.. he has now stopped paying the mortgage, and has come to terms with foreclosure. In fact, it doesn’t even seem to bother him in the least..

he puts it like this.. “the worst part of it is that I will have a ding on my credit, oh well, the cool part is that we love our rental, and I get to keep all the toys.” I told him, yeah, in this country, your credit will be good enough to allow you to do the same thing again in a few years.

Point of my story.. banks and lenders are so stupid to allow these crazy loans and HELOCs up to 100%LTV. There is no way that they know if the home owner is going to put the money into the home. In this case, they have no rights to anything that he purchased with the home equity line. The only collateral they have is the home, which is now worth much less than the total of all the loans. I suspect there are many more like this guy.