[quote=ltsdd][quote=HLS][quote=ltsdd]It’s conceivable for someone to buy a house, say in 2002 for $500K with 0% down. House value goes up to $1m in 2007. Refi with 125% cash out. Stash the roughly $700K that they cashed out somewhere. Filed for bankruptcy. Heck, they don’t even have to wait for the bk record to go away. That’s plenty of cash to perhaps scoop up a similar house during the downturn. Now, 7 years later, bk record went away – continue to step two (refi cash out)….[/quote]
Uh-Huh….and how many people do you personally know who did this ?[/quote]
Would you think it would be possible if it’s “the last 7 or 8 or 9 years” instead of “the last 6 years”? Would you care to share why you think such a scenario is not possible?[/quote]
ltsdd, I’ll share with you why I think your scenario wasn’t possible. In the 2001-2002 era, the only “zero down” mortgages available were VA loans. And at that time, the VA had a $359,650 loan limit for 1-4 units. That $700K “mattress money” you’re talking about here was likely borrowed at an exorbitant interest rate, since it was a 125% LTV loan in an era of rampant “fog-a-mirror,” get-a-loan” financing. Do you actually believe a loan for $1.2M taken out in 2007 is still sustainable (irrespective of the borrowers actual monthly incomes)? What would you surmise has happened to this loan by now? Do you actually think these borrowers were ever able to refinance this loan beginning in 2007 (within months of taking it out)? How about in 2009? How about when it invariably got “recast” and its monthly payments “adjusted” in 2012 to capture all that missing principal and interest for 5 years (assuming those borrowers hadn’t lost the property to FC by then)? Assuming arguendo that they did indeed mattress the money instead of blow all or most of it (doubtful) and spent it on lower-cost properties, they would have had to pay all cash for those properties since they were supposedly “bankrupt” and grossly “overmortgaged” as well. So that cash is tied up in these “lesser” propertie(s) and perhaps they held back some of the $700K to keep making payments on their (formerly $1.2M) albatross.
What do you suggest these borrowers tell their BK trustee as to what they did with $700K that they just borrowed when they refied “cash out” at 125% LTV on their home? How are they going to get their BK case discharged if they have the cash to pay their bills? Moreover, how are they going to get a BK judge to let them keep their “automatic stay” from foreclosure on this $1.2M home that they are underwater on that they want to “reaffirm.” If they are keeping up exorbitant payments on this home when it is underwater with all or part of the $700K they took out of it, do you think a BK court will let them keep the luxury home whilst stiffing the rest of their creditors when they own lesser properties to move into? Did it occur to you that as BK Chapter 7 filers, they could be forced to sell one or more of their free and clear properties to pay creditors?
I’ve seen this kind of stuff before, including 4 Chapter 7 filings one after another in 28 years (the 29th year being 2004 where same debtors began borrowing on their house (purch ~1982) for a total of 4 times (until early 2007) instead of filing another Chapter 7. Said borrowers are in their late 60’s today. Why don’t you take a stab at what their current “net worth” is?
My (educated) guess is that your scenario as described was a monopoly game that very quickly went south and these people have absolutely nothing to show for it today, except perhaps 1-2 steady jobs if neither one got sick, got too old or otherwise lost their job in the ensuing years.
