We’re back…… Using home equity as ATM’s!!!!

[paulflorez]

There should be less restrictive HELOCs which base the high price off of average appreciation over several decades (more conservative estimate) but let you spend it on whatever you want and then HELOCs which take whatever the appraiser says but requires oversight so that you invest in something that will actually improve your financial situation (home improvement, pay off higher interest student loan debt, etc).

Or more generally, something that keeps people from at least directly using equity to buy junk that only depreciates in value.

It’s obvious that the consequences of unbridled freedom of credit for the individual cannot be limited to the individual. When the economy tanks, it affects even those who do not abuse credit and make smart financial decisions. Reasonable limitations should be put in place and more oversight is definitely needed. While I’m somewhat happy my home value is going up, I’m actually more worried about another bubble developing in this more-demand-than-inventory environment. I’d rather have slower growth of my home value and economic stability over the long term.

I’m tired of this attitude that short term gains are worth destroying long term viability. It destroys households, businesses and seriously threatens our economy.

[bearishgurl]

Good post, paulflorez.

I just don’t see how it’s possible for a lender to “police” what a borrower does with his/her HELOC proceeds.

The only “reasonable limitations” that I know of in “technically” non-purchase-money RE lending is in the case of a construction loan, where a lender will release to the general contractor only that portion which is now due for work completed or materials to be purchased.

A typical construction-loan borrower can’t use this type of loan as he wishes and doesn’t usually have direct access to the proceeds.

[livinincali]

[quote=bearishgurl]
I just don’t see how it’s possible for a lender to “police” what a borrower does with his/her HELOC proceeds.
[/quote]

I personally don’t think lenders should police what you do with the money. I do think the lenders should establish the interest rate at a level that corresponds with the risk. Of course when you have the tax payers to bail you out risk pricing goes out the window.

The problem with lending these days is nobody bothers to price the risk anymore. Everyone expects the tax payer bailout. If you actually made the lenders eat their losses when things went bad than you’d probably see HELOCs with 10% interest rates rather than 5%.

[spdrun]

There should be less restrictive HELOCs which base the high price off of average appreciation over several decades (more conservative estimate) but let you spend it on whatever you want and then HELOCs which take whatever the appraiser says but requires oversight so that you invest in something that will actually improve your financial situation (home improvement, pay off higher interest student loan debt, etc).

That makes zero sense. If the less restrictive HELOC is based on average appreciation going forward, then people could borrow MORE than the more restrictive HELOC (which is based on a % of current appraised value). Shouldn’t this be the other way around?

[no_such_reality]

Hey, it’s their house, they can spend it any way they want.

They also can just STFU when they can’t afford the payments and the bank comes and takes it.

[spdrun]

^^^

Agreed. Perhaps include a default deed-in-lieu clause in case of x missed payments in a row in all new HELOC agreements.

[Coronita]

[quote=SK in CV]I hope no one is using helocs or cash out refi’s so that they might have cash on hand to buy additional investment properties. That would be so irresponsible. Kinda like fueling the bubble.[/quote]

Why? I think that would be a great idea.. afterall, everyone else did it…i love this….First time, it was accidental.. second time it’s intentional… Now we really can join the party….

[Coronita]

[quote=no_such_reality]Hey, it’s their house, they can spend it any way they want.

They also can just STFU when they can’t afford the payments and the bank comes and takes it.[/quote]

Part 2 however is never gonna happen… there is no sense of personal accountablity in this country. Remember, it’s always the bank’s fault. The bank made me do it… yeah, that’s right….

I couldn’t stand no longer being able to keep up with the jones, so I needed to leverage my home to buy my (insert name brand car here)…

[earlyretirement]

I said it before and I’ll say it again. The VAST majority of the people out there vastly overestimate their investment skills/abilities/timing.

I’m not saying everyone. But I’m comfortable with saying the vast majority of people out there. Everyone thinks they will do wonderful and their leverage/arbitrage play will work out for them. Especially in a stock market like this where it keeps going up. Everyone thinks they are some genius or guru. (Kind of like in the dot com days…. and the real estate bubble years).

Yet they won’t admit they probably $hit their pants during the financial crash and the Great Recession. Where no matter how many times they tried to catch a falling knife their hands got awfully bloody. Nope. They won’t admit that.

I’ve seen it time and time again over the last twenty years.

The people that leverage will always argue how they will always do smart and wise and fantastic things with the money that make it a smart or wise investment. Yes, sometimes it is. But lots of time it doesn’t turn out well for them.

And in many of those cases, you’ll never hear from them. They will tell you about their best investments but never about their worst investments or leverage plays that didn’t turn out well.

Human nature….

[spdrun]

I creamed in my pants, repeatedly, when the Dow fell below 10k and the news about property values started breaking.

[Coronita]

[quote=spdrun]I creamed in my pants, repeatedly, when the Dow fell below 10k and the news about property values started breaking.[/quote]

Why? So your 401k starts looking like a 201k… Big deal…Relatively speaking so does everyone else’s….Some people’s probably looks more like a 301k other’s look more like a 101k.

Actually, I guess my life is based on relative to everyone else… If I get screwed, are there people that didn’t get screwed as me? Yes… Ok.. Are there people that got screwed more then me? Yes… Ok… So relatively speaking I’m average screwed versus some people slightly less screwed versus some people much more screwed….

And frankly the way I’ve seen a lot of people handle their finances, I has to take some serious effort to get more screwed than a lot of people who are already pretty much screwed even before they started leveraging.

Look at all the people who the moment they start “feeling” slightly better, as soon as they can barely afford to make the bare minimum payment on an expensive car, or the moment that they have access to credit they spend it on a discretionary big ticket item and have virtually $0 savings and $0 net worth as a result. How much worse can you really do than that? I mean you have to be completely reckless to do worse than that…

[spdrun]

Why? So your 401k starts looking like a 201k…

Because I had no 401k or 201k or whatever, just a decent freelance gig and a non-trivial bank account. (And no interest in investing prior to the 2008 crash, but that changed in the ensuing months and years.)

[Coronita]

[quote=spdrun]

Why? So your 401k starts looking like a 201k…

Because I had no 401k or 201k or whatever, just a decent freelance gig and a non-trivial bank account. (And no interest in investing prior to the 2008 crash, but that changed in the ensuing months and years.)[/quote]

You’re never gonna time things right..You’re never gonna be able to pull out right before a run up and sit it out exactly when the market is going down or short the market on the way down exactly when it’s going down.. You’ll be wrong some of the time. You’ll lose money some of the time. Hopefully you’re right more often then your wrong, otherwise you’re just better off sticking with index funds or a mixture of passive stuff.

[spdrun]

Yeah, but you’d have had to have been Stevie Wonder not to see the 2008 crash and foreclosuremageddon as some sort of business opportunity.

[CA renter]

[quote=paulflorez]There should be less restrictive HELOCs which base the high price off of average appreciation over several decades (more conservative estimate) but let you spend it on whatever you want and then HELOCs which take whatever the appraiser says but requires oversight so that you invest in something that will actually improve your financial situation (home improvement, pay off higher interest student loan debt, etc).

Or more generally, something that keeps people from at least directly using equity to buy junk that only depreciates in value.

It’s obvious that the consequences of unbridled freedom of credit for the individual cannot be limited to the individual. When the economy tanks, it affects even those who do not abuse credit and make smart financial decisions. Reasonable limitations should be put in place and more oversight is definitely needed. While I’m somewhat happy my home value is going up, I’m actually more worried about another bubble developing in this more-demand-than-inventory environment. I’d rather have slower growth of my home value and economic stability over the long term.

I’m tired of this attitude that short term gains are worth destroying long term viability. It destroys households, businesses and seriously threatens our economy.[/quote]

Could not agree more!

[Author]

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