DUmmy coalition_unwilling admits his ignorance, refreshing at the DUmp:
coalition_unwilling (1000+ posts) Sat Aug-22-09 03:19 PM
Question about the foreclosure crisis: how did homeowners "take out" money
from their homes?
If I had a mortgage for $250,000 and the value of my home increased to $300,000, I understand that I could re-fi at $300,000, use the proceeds to pay off the original mortgage and have $50,000 left over to buy the Escalade or Hummer.
But I would then have to make mortgage payments on a $300,000 mortgage (presumably higher monthly P&I payments).
So in what sense did I take money out of the house (or use the house "as an ATM")? I'm having a little trouble understanding the metaphors being used, I suppose.
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x6369693MineralMan (1000+ posts) Sat Aug-22-09 03:27 PM
And even worse, some took out equity lines of credit, then
used the money to put down payments on cars, boats, and expensive toys. So, not only were they paying interest on their home equity loans but on the things they bought using their equity money to get credit for other things.
Many foolish decisions were made by folks who though there was no ceiling to the housing market.
DUmmy Skimmer explains, although his AdBot millions make him immune to such concerns:
Skinner ADMIN (1000+ posts) Sat Aug-22-09 03:33 PM
I think the problem was not that people got attached to their homes.
The problem is that home values stopped increasing, and started decreasing. The homeowner who buys a home for $300,000 (and has a mortgage for $240,000) can get out of trouble if the value of the house keeps going up -- just sell it. But if the value of the house falls below the value of the mortgage, then you *can't* sell it. If you owe $240,000 on your mortgage and you sell the house for $200,000, then you still owe $40,000! If you can't come up with that additional $40,000, then you can't sell your house.
Add to that the fact that many mortgages were short-term adjustable rate mortgages. Homeowners thought they could always re-finance or sell before the rate re-set. But they were "underwater" on the mortgage so they couldn't sell the house and no bank would re-finance. So the rate re-sets, and suddenly they are supposed to pay a mortgage that is double what it used to be!
DUmmy abumbyanyothername checks in to state the official DUmp position on financial responsibility:
abumbyanyothername (1000+ posts) Sat Aug-22-09 03:30 PM
But why is that a disaster?
At that point the homeowner is forced to make a good decision and leave an overpriced asset in an overheated market.
Essentially, the borrower just screwed the bank.
DesertFlower (1000+ posts) Sat Aug-22-09 03:27 PM
we had a conversation yesterday
with someone whose home went into forclosure. when he bought it he put about $100,000 down. the house cost close to $300.000. the value went up and the restaurant he owned ran into trouble, so he took equity out of the house. then 2 years ago he opened another restaurant. again, he took money out of the house. his mortgage payment went up to $4,000 a month. he and his wife are now living in a rental house.
abumbyanyothername (1000+ posts) Sat Aug-22-09 03:31 PM
8. Do they still have the restaurants?
Good deal then.
Bank got screwed? Cool!
DUmmy tularetom describes a DUmp success story:
tularetom (1000+ posts) Sat Aug-22-09 03:27 PM
If you walked away from your mortgage you would still own the car free and clear
So in essence you would have a hummer or escalade that you didn't pay for and the bank would own a $250,000 home that they had loaned you $300,000 on.
And they can't come after your car.
Your credit is damaged.
But the bank is ****ed. As are their shareholders.
Every DUmmy's dream.
