Am I the only one feeling like a chump?

[no_such_reality]

In another thread

We see a recent home deal:
This property sold new in July 2004 for $999,500.

The owners re-fi’d in May 2005, with a first mortgage of $1,169,000 and a 2nd of $331,000 – the total loan balance was around $1,500,000.

Am I the only honest person on the board feeling like a chump? I mean, why am I busting my butt working and producing, I could be living in a posh $1.3 million dollar home for the last year and half, maybe more, with $500K in the bank.

Do a teaser ARM, make the min payments, refi, bank the cash, let the Neg Am loan roll for 29 months making minimum payments and walk away.

Maybe before NODding in Sept, buy another place no money down, neg am loan, run it 29 months, walk away.

Heck, when the market was strong, I could probably have bought another place in early 2005 for a million for 100% financing, refied at peak around January, and pocketed how much? Another 20-30%, maybe more with some lax appraisals, maybe have $800K or more courtesy of appreciation and just float on out of the Neg Am period and default. No capital gains taxes, I haven’t gained anything…

Sure, my credit rating and conscious might be dinged, but $800K in the bank is a pretty good sauve. Is the bank going to come after it? They can try, but if they either foreclose and erase the debt or let it ride through a judicial process.

I don’t know if I blame people for doing it anymore. The dumb banks where literally giving people 10 years of income for having a property 10 months.

sorry for the rant, but I’m starting to lean towards blaming the banks for people’s idiocy. If they’re going to make it that easy for people to get that much money…

[FormerOwner]

You’re not the only one. This kind of thing now seems to be EXTREMELY common. People are sucking out all all the equity in their homes and then some. Everyone knows the “appraisals” are inflated to begin with and then some banks even have 125% loans. Gee, some people might end up with a 135% loan to value ratio even before the market begins to drop. What a joke!

In the greed to sell more loans, banks appear to have been loaning out as much $$ as possible to as many people as possible. These loans are so crazy, the people at the banks HAD to know the borrowers would end up not paying back the loans. If I’m a responsible bank and I that see a prospective borrower bought a house in 2002 for 500K with zero down, now he wants to refi all the way up to the 900K “appraised” value and suck out 400K from the bank, what are my chances of getting that 900K back. Slim and none! I wonder if most of these people blew that 400K or whatever amount on yellow Hummers and toy trailers or if they still have the cash. I wonder how many of the banks will try to get the money back since these would be non-purchase money loans with recourse. Technically, I think the banks can sue these people. Anyone know how practical it is for the banks to do this?

[TheBreeze]

I’ve thought about doing this. I just don’t know if it would work that well. Aren’t you personally liable on the loan no matter what? If so, couldn’t the bank come after any assets you have? I don’t think it would be as easy to make off with the money as you think it is.

On the other hand, you could just go to Vegas, put it all on black, and if you hit, pay off your debts and have a nice tidy sum left over. If you don’t hit, well you’ve only lost the bank’s money and you can declare bankruptcy. It wouldn’t be the morally correct thing to do, but it’s not like you’d be taking advantage of some inept person. The banks knew what they were doing. Unfortunately, it will probably be the taxpayers that end up paying for a lot of the banks’ carelessness.

[TheBreeze]

I wonder how many of the banks will try to get the money back since these would be non-purchase money loans with recourse. Technically, I think the banks can sue these people. Anyone know how practical it is for the banks to do this?

I’m sure the banks will try it if the amount owed is large enough. Of course, once it gets to that point, the loan will be a money loser for the bank.

The banks sure do make it tempting to try and rip them off. If you don’t have any money saved up or any assets, why not buy a house using stated income, then re-finance every chance you get and throw that money into risky investments? You might hit it big. Even if you don’t, it was the house’s money anyway and didn’t cost you a dime.

[FormerOwner]

You might hit it big. Even if you don’t, it was the house’s money anyway and didn’t cost you a dime.

I think most of our economy has been running on this principle for roughly the last decade or so; dot-coms, biotechs, real estate “investors”, small businesses, you name it. Not many people bother trying to make responsible conservative decisions since everything they do is with other people’s money – either banks or investors.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

I think anyone who is not the CEO (or exec) of one of these big home builders has to feel like a chump (or will feel like one when we have to bale out the banks via the government).

If you think you feel like a chump now, just wait until the boomers try to withdraw from their 401K’s.

[blahblahblah]

Doesn’t the new bankruptcy law mean that it will be harder for people to walk away from these mortgage obligations? Or was that just for credit cards?

[The-Shoveler]

You will know your a chump when :

1) The government stops paying out Social Security benefits so they can meet the pension demands of government employee’s (who don’t pay SS tax). And your not a government employee.

2) The Stock market has gone all K-Mart on you before you could get your 401K money out.

[Cow_tipping]

Cash outs are hard money. The original purchases are soft money. I dunno what exactly, but they can come after you and put you in jail I believe for stiffing hard money.
However … lets see, that will be about 2-3 million people going to jail in the next 3-4 years. NFL … Not F*(king Likely.
Cool.
Srinath.

[(former)FormerSanDiegan]

You cannot simply walk away from a re-fi or cash-out.

The only loan that you can “walk away” from is an original purchase loan. This is called a non-recourse loan. In this case the bank cannot come after you for other assets. The exception to this is when fraud is committed.

However, any refinance loan is no longer considered non-recourse. Same thing for Home equity products and cash-outs. All of these are subject to recourse, in which case the bank can go after other assets.

So, no you are not a chump. The person who re-fied and cashed out only to go into default will see their due, assuming they haven’t fled the country and assuming they didn’t steal someone else’s identity to get the loans.

[kicksavedave]

On the other hand, you could just go to Vegas, put it all on black, and if you hit, pay off your debts and have a nice tidy sum left over. If you don’t hit, well you’ve only lost the bank’s money and you can declare bankruptcy.
—————————————————-

True story, last year a buddy of mine took out a $350K HELOC on his nice newport beach home which had about $500K in equity. He put it ALL into one stock, on tips from “friends” that it was about to explode. Unfortunately, they “meant to say” implode, the stock is now about 15% of his buy in price (he did manage to cost basis adjust on his way down the toilet). He finally dumped it after losing most of the 350.

So now he owes roughly $300K at 8 or 9% for a big huge steaming pile of nothing.

He’d have been infintiely better off putting it all on black. Less stress, less time wasted.

Oh, and now that $500K in equity, is down to zero (or negative) because the house has decpreciated a ton since this happened. He even tried to sell and couldn’t get close to his price.

DOH!

[DaisyDuke]

Since the statistics in the US demonstrate that we are in “negative savings”, they certainly weren’t putting the $$ in CDs or other savings/retirement accounts.

[garysears]

I’m a government employee and I pay SS tax. I don’t know anyone who doesn’t. Of course I’m not holding out hope that I will ever see any of that money again.

[PerryChase]

The employees do pay SS Tax. But do Federal agencies pay SS tax like private employers do? I don’t know. But I think not, since that would reflect negatively on the budget.

[PerryChase]

you’re not the only one, no_such_reality.

Well, think about it, the banks have been doing exactly what you’re talking about use other people’s money. But what they do is legit so they are not risking criminal prosecution. The CEOs have been getting fat and happy playing with other people’s money. I’ve learned that often times life is about form rather than substance.

Thanks to OCrenter, here’s a story of exactly what you’re talking about.
http://bubbletracking.blogspot.com/2007/02/fraudera-ranch-its-family-affair.html

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