My feelings about HELOC abuse keep changing, and I am not angry anymore. How do you feel when you think about this now?
Asking Price: $830,000
Address: 12 Rutherford Irvine, CA 92602
{book}
I’m at peace, I’m the man
Buying stocks on the day of the crash
On the loose, I’m a truck
All the rolling hills, I’ll flatten ’em out, yeah
It’s herd behavior, uh huh
It’s evolution, baby
…
This land is mine, this land is free
…
Admire me, admire my home
…
I crawled the earth, but now I’m higher
2010, watch it go to fire
It’s evolution, baby
Do the evolution
Come on, come on, come on
Do the Evolution — Pearl Jam
Change is a constant in our society. The rules evolve, and our relationship to money and housing changes. When people bought houses in the late 90s, they either put 20% down, or they used an FHA financing program. Prices fell for 6 years, and the market was dominated by conventional mortgages; there were few alternatives available (much like today).
In such an environment, few were borrowing their home equity to sustain personal spending. The path to spending addiction through HELOC abuse can release the inner Darth Vader in any of us. This wasn’t a problem because lenders were not enabling it in the late 90s — then came The Great Housing Bubble.
Once lenders started loaning money to anyone and begging people to take it, those who might be tempted by the Dark Side found it increasingly difficult to resist — if they saw a reason to resist at all. Why not spend the money when real estate always goes up? Those who failed to recognize the trap willingly spent to their own destruction.
People do not wake up one day and decide to become addicted to HELOC money; it creeps up on them in a series of small borrowings for “necessities” they are entitled to. We have all seen the pattern of ever-increasing borrowing that crescendos with an Option ARM and ultimately a short sale or foreclosure.
In a series of small increments many people gradually and consistently increased their dependence on their home equity and spent it as fast as it accumulated. The best of people can be seduced by such a powerful Force and the desire to direct it.
Heroic characters like Anakin Skywalker succumb to their own vices and weaknesses with tragic results, but sometimes these stories end with success and absolution. These characters are not alone. Many who suffer from HELOC addiction can be reformed and their lives atoned. Stories of redemption will abound when this crisis has past.
Whether people overcome their HELOC addiction or not, everyone is going to have to learn to live without HELOC money for the foreseeable future, perhaps a decade. The trees didn’t grow to the sky. Will the toxin of kool aid addiction and HELOC abuse persist for that long? Or will the addiction simply resurface once the supply of easy money comes back?
The Secret Wish-Fulfilling Tree
Last year I wrote a parable that came to mind:
A weary traveler was on a
quest to satisfy his deepest longings and desires. He traveled from
place to place, but no matter where he went or what he tried, nothing
would quite satisfy him. One day, exhausted from his search, he
happened to sit beneath a magical wish-fulfilling tree. He thought to
himself, “Perhaps it is not so good to desire so much. It has not
brought me any lasting satisfaction, but I am tired, and I could use
something to eat and drink…” No sooner had he thought this when
delicious food and drink appeared for him to enjoy. “Wow,” he
exclaimed, “this is fantastic, but it would be nice to have someone to
share this bounty with.” As soon as the thought occurred, a companion
appeared to enjoy the feast. His desires replete for the moment, he
thought to himself, “This is very strange. Everywhere I have traveled I
have wanted and found no satisfaction, and here at this tree, I can
have anything I desire. I wonder if there is something magic in this
tree? I wonder if it is inhabited by some spirit? I wonder if it is a
goblin that will consume me?” And, as soon he had this thought, a goblin
appeared, and consumed him.
HELOCs enabled people to satisfy
their hunger for vacations, consumer goods and the like and live well
beyond their means. This went on for an astonishingly long time. Many
of these people became accustomed to living off the extra “income”
coming from their houses. Like the goblin in the parable, the magic
wish-fulfilling house consumed them, and now they have lost their
house, their credit and themselves.
How long with the residue of this lifestyle continue to impact our prices? How many knife catchers are buying because they think the market has bottomed and the housing ATM will soon be dispensing $20 bills like toilet paper? Has cool aid intoxication become such a part of the culture that it has a measurable effect on fundamentals?
HELOC abuse was everywhere. There are the few Millionaire’s Next Door, but you are far more likely to find the HELOC Abuser Next Door than you are the millionaire.
Asking Price: $830,000
Income Requirement: $207,500
Downpayment Needed: $166,000
Purchase Price: $919,465
Purchase Date: 7/31/2009
Address: 12 Rutherford Irvine, CA 92602
| Beds: | 3 |
| Baths: | 3 |
| Sq. Ft.: | 2,200 |
| $/Sq. Ft.: | $377 |
| Lot Size: | 4,844
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Contemporary |
| Stories: | 1 |
| Year Built: | 2003 |
| Community: | Northpark |
| County: | Orange |
| MLS#: | S586150 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 3 days |
Very nice 3 bedroom 2 1/2 bath on a cul de sac in the gated communityof Bella Rosa. Large center isle kitchen with granite
counters/backsplash, 18′ tile flooring,plantation shutters,breakfast
nook,partial w/w carpet, fireplace, ceramic tile in master
bath,separate tile shower stall,large walk in closet, mirrored
wardrobes, laundry room,built in BBQ and firepit,association resort-
like pool, spa, cabanas and state of the art gym.
- If this property sells for its current asking price, the sales price will be 51% higher than the original sales price of $548,500 back on 5/27/2003. The original owner used a $438,750 first mortgage, and a $109,750 downpayment.
- A few months later on 10/20/2003, he opened a HELOC for $100,000 to gain access to the downpayment.
- Then there was a series of refinances (can I abbreviate the description, or should I detail every loan?)
- On 2/20/2007 the final refinance was $860,000.
- On 5/15/2007 the last HELOC was $115,000.
- Total property debt is $975,000.
- Total mortgage equity withdrawal is $536,250.
It must have been a great ride….
I no longer know how to feel about HELOC abuse when I see it. I am not angry anymore. I still feel a bit of awe and perhaps a sneaking sense of admiration for what they pulled off. I imagine how my life might have turned out differently if I made different choices. It would have been a great deal of fun while the money lasted.
I have no regrets about failing to game the system. We all want the money to spend, but is holding up a bank the best way to get it? How many Bonnie and Clydes did we create?
I hope people will come forward and tell their stories. I want to hear their Truths, and their rationalizations. HELOC abuse is a cultural phenomenon that defines the 00s.
When a problem gets this large, people of all walks of life and all manners of character get caught up in it. There will be interesting stories of good people who ruthlessly default and ordinary people whose financial lives are wildly enriched or utterly destroyed.
In the end, we need to deal with our emotions concerning HELOC abuse and the impact it had on our society. The financial fallout is painful but short lived, but for many the emotional repercussions will linger much longer.
So, how do you feel about HELOC abuse now?
{book4}
When I wrote this post, I came across Predictions for 2008 written on 1/1/2008. It was an interesting trip down memory lane. I have enabled comments on the old post if you want to add the perspective of history or tell someone from years ago how wrong they were….
I was never angry about HELOC abuse.
I am pissed that the government gets involved and uses taxpayer funds to bail out banks and borowers. Both should be allowed to fail.
The problem is that if the government had allowed them to fail, it would have caused the second Great Depression. Bailing them out was the least worst choice.
The jury is still out on whether we have avoided the 2nd Great Depression.
-Darth
Yes … you’re right about that. But by bailing out and subsidizing most of the economy, the government has likely robbed future tax payers of the same life we have enjoyed. And this is all being done because we don’t want to live within our means. It’s a selfish act.
Besides … the governments one trick pony (bailout USA), is nothing more than a temporary fix from the plunge protection team. Ultimately, we’re just kicking the can down the road for an even larger debacle.
What’s the moral of the story … hmm … you can’t rehab a drunk by giving him more liquor.
So, you think life would be better (either now or in the future) if the top ten banks in the United States all failed at once? Okay…
NO … what I was suggesting was that this generation created this mess, NOT our children’s generation. We should have to correct it ourselves. We should not be printing more money, becoming more enslaved to foreign countries, creating more moral hazard, subsidizing more private sectors.
The choices were, as I see it:
1. Bail out the banks.
2. Let them all fail at once.
Does anybody have an option other than those two? Does anybody dispute that choice #2 would have caused a depression comparable to the 1930’s? Such a depression would have long term negative consequences much more dramatic than the ones you list.
Like I said, bailing out the banks was the least worst choice. It doesn’t mean it was a good choice-it just means between two lousy options, it sucked the least.
Yes, I do. Then the people would see that the emperor was wearing no clothes. Instead of the proper people taking the drubbing the rest of us are going to get rampant inflation for the next fifteen years as the govt keeps running the printing presses on $100 bills.
You mean bail out the banks that have gotten to big right? Citi, JPM, B of A, Wamu, Wachovia, etc?
One thing I have learned, in the United States when something fails from poor management there are equally talented business people that will come in and take that business.
The energy markets didnt crash with the Enron debacle, the Air travel market has not crashed with all their problems, people still buy cars etc.
I will say this however, a lot of filthy rich snake oil salesmen and politicians would have been scrambling for income and donations that is for sure.
I say let them fail and let the chips fall where they must.
How about the following:
3. Nationalize Citi and BofA
4. Let AIG fail but put the interbank lending backstops in place
5. Implement Stiglitz’ plan to offer everyone who is underwater on their mortgage a 4.5% 30 year fixed mortgage backed by the US Govt
6. Re instate Glass Steagal
7. Implement a 2 year 90% surtax on all compensation that is more than 100 times the median income with the tax earmarked for the bailout fund
8. Cap all salaries at companies receiving bailout funds to the salary of, say, the president of the US.
Is that enough? Would any of them be any less outrageous than what was actually implemented – paying off Goldman from Taxpayer funds thru AIG CDS?
We’re simply pulling sales forward by 15-20 years. There’s a price to pay for that. Instead of suffering a few years of depression now, we’ll suffer a couple decades of agonizingly slow growth and a dramatic loss in our quality of life.
Lee has nailed it – our children and our children’s children have been enlisted (via debt) to pay for the Boomers comfy retirement. What do they care? They’ll be dead when the shit hits the fan.
You hit it right on the head. Its the boomers! The boomer generation was one of the most selfish and greedy generations from a cultural and societal point of view. Boomers were and are concerned with what impacts them directly and immediately. The indirect consequence of a choice has no bearing in a boomers mind. Today there concern is refill and maintain my retirement account at all costs. America will become a much better country as the Gen X’ers and millenials come to power.
Sorry for the rant.
The Great Depression lasted a decade, until World War II. In fact, The Great Depression probably helped cause World War II, by creating a situation where Hilter was able to come to power in Germany. So, do you think ten years of a miserable economy, followed by World War III, would have been a worse outcome (for us, as well as our children and our children’s children) than bailing out some banks today? Because I don’t think that would be an unlikely outcome if the US government did nothing.
Geotpf-
Many of us want true change in America. I’m not talking about pipe-dream change Obama was selling last year. I’m talking about true economic change. That change will not arrive with the statuesque being preserved, that includes these rotten banks being preserved.
The Great Depression was a consequence of foolish economic choices … much like the ones of the last 10 years or so. The pain families suffered also resulted in economic reform, The New Deal, expanding infrastructure, The Greatest Generation, The American Dream, The 21st Amendment (repeal prohibition), and on, and on, and on. A lot of good things occurred during, and right after The Great Depression … many of these changes would have never arrived without a recalibration in people’s attitudes.
With that said, a growing number of Americans are finally waking up, and saying we want reform!
There are spenders and savers in every generation. It is a waste of effort to generalize about any generation. I did not contribute to this mess and I see many other boomers like me.
Just because you know of some boomers that are greedy or selfish, does not mean that all boomers are. We are a large diverse group.
There are a lot of Gen X’ers that overpaid for their house and may walk, but that does not mean all Gen X’ers are all deadbeats.
Sorry for the rant
Failure of the banks would not have created another depression. That is a lie promulgated by Paulson, Bernanke, et al. The depression is still in effect and now will be more drawn out, more extreme, and enrich more bankers at the expense of the taxpayers.
That about sums it up…….if you are talking about preventing a depression then it’s already too late.
I am so sick of that rebuttal. We are delaying the inevitable. Letting them fail allows smaller, conservative, intelligent companies to grow. It curbs the mass delusion. Now we just perpetuate it. 21st century folly.
Let us not confuse the “apparent cause” of the bailout (those homeowners who were not financially responsible) with the injustice of a bailout.
How are they different?
Well, as IR has mentioned before, homeowners have contracts which legally allow them to default (at least in Calfornia). It would be unjust if they somehow got to spend imaginary gains yet keep the real estate.
In contrast, financial institutions that were too big to fail got to have their cake and eat it too.
Competition had driven these financial institutions to adopt business practices that were not sound. These bad loans began to catch up with them and affected performance and solvency.
In a free market, businesses must manage risk and when they fail to do so, must suffer the consequences including failure.
Because our leaders are too political to pay the piper and permit the extreme pain and panic that would accompany a systemic failure (and tarnish their own careers), they chose injustice instead.
Politics wasn’t the issue-the government leaders were looking out for the best interests of the country. I’m amazed at how many people think not stopping a Great Depression-sized economy calamity would have been a good idea. Do you guys like 20-30%+ unemployment for years? That is what you are advocating.
We’re already at a national unemployment rate of 16%:
http://www.bls.gov/news.release/empsit.t12.htm
Look at the “U-6” number. That’s calculated the way unemployment was calculated in the ’30s. (U-3 is what the papers report.) That’ll go up before Christmas.
So we have the worst of both worlds. Expensively bailing out the banks and creating a huge moral hazard for the future, and unemployment numbers that rival the 1930s. What was the upside again?
The government leaders were looking out for the best interests of the country? I can see we have no grounds for discussion as our views on reality are 180 degrees opposite.
Stopping bank failures did not stop a depression. It only enriched a bunch of bankers. Printing money and giving it to banks does nothing to create economic prosperity.
I am mad because my bank gave me a HELOC and now I want to use it to refinish my basement (adding a bedrm and a bath, plus living area.)
MY LTV is currently 65% (even after the fall.)
I had plenty of room on my HELOC before the crash, but now its frozen.
I have the cash to pay for it, but I want to finance half of it – which will bring my LTV up to 70%.
Still no go.
SO I’m a little perturbed at the HELOC abusers, since I can’t use mine in the manner its supposed to be used.
I had a $30,000 business line of credit with American Express, and they closed it for no reason. I had a zero balance, and I’m blessed with a 800+ fico score. The banks are looking to reduce their exposure to future loss. They know that this BS ain’t over.
My dear IR, if you’re not still outraged by HELOC abuse then you’re suffering from Stockholm Syndrome.
An entire industry has sprung up and flourished in this country called Defense lawyers who’s sole strategy is to delay delay delay a criminal prosecution…be it rape, murder, extortion, racketeering etc etc, because they know that as time goes by moral outrage diminishes (not justifiably, it’s just the way our brains work) until finally it is possible to find 12 citizens who’s memories are not acute enough to remember or care about all the heinous details and thus are easy to manipulate.
Repent my friend, repent! :red: Theft is theft and the crime does not become less odious because of the passage of time.
I had not thought about that possibility.
Stockholm Syndrome from Wikipedia:
“Stockholm syndrome is a psychological response sometimes seen in abducted hostages, in which the hostage shows signs of loyalty to the hostage-taker, regardless of the danger or risk in which they have been placed.
The Stockholm Syndrome is a psychological shift that occurs in captives when they are threatened gravely but shown acts of kindness by their captors. Captives who exhibit the syndrome tend to sympathize with and think highly of their captors, at times believing that the captors are showing them favor stemming from inherent kindness. Such captives fail to recognize that their captors’ choices are essentially self-serving.”
Perhaps I should still be outraged, but I can’t take the persistent anger. If I start believing HELOC abuse is justifiable, then I have gone over to the Dark Side.
I think you are more understanding the motivations of heloc abusers than justifying it. I was thinking about whether heloc abusers shifted savings into 401k or other accounts that are protected in bankruptcy and are planning on using that as a shield. The other main bk protected asset is the homestead, and we see how well that is holding up.
Heloc abuse on its own is fine, but lots of heloc money went into 5-10% dp’s for specuvestment properties.
The only real lesson my HS econ teacher drilled was ‘there is no free lunch’. Heloc’s were viewed as a free lunch, and we are now paying for that lunch. I hope banks wise up, but state & local govts should enact laws saying that an appraisal needed for a heloc should ratchet up the tax assessed value – make the loans a little less free.
“Sprung up”? Such a system has existed since the country’s founding-in fact, it’s a key portion of the constitution.
You really need to reread your history books. The Federal Reserve was created in 1913, along with the fractional reserve banking system. The gold standard was removed in 1971. Easy credit can only exist in a fiat based monetary system.
LMAO!
🙂
Ask me again after the recession/stimus spending is LNG gone and the govt finally raises taxes to start paying off the national & state debts…
Typos – should be
Ask me again long after the recession/stimulus spending is long gone and taxes go up to cover the national and state debts. Then ask me again when I retire and get a much mch worse retirement than the baby boomers before me who had fun with the heloc and govt spending spree money…
Gate community?
2200 sq feet?
Irvine?
Absolutely ridiculous…
With those HOAs, the first thing will go out will be the gates, then they got to maintain their streets.
Idiots.
What are they afraid of? People with pitchforks storming them?
I continue to be upset since I as a taxpayer ended up paying for this catastrophe. A few managed to take the rest of the country for a ride. And I am even more upset about the banks and regulators who let this happen. All this in a country that has supposedly the most sophisticated and regulated financial system in the world? Looks more like stone age to me…Thanks Alan Greenspan – the market will fix it, we don’t need regulation – yeah, right.
Marc-
No matter how pissed you become, you can’t stop it from happening. Let the anger go.
At the root of this, we have the best of intentions (making the dream of homeownership a reality to the masses) goes completely south.
The regulator, OFHEO, which has ONE JOB – to watch FNMA and FMAC, raised numerous flags on the practices of those institutions.
Congress didn’t care.
https://www.youtube.com/watch?v=Yga7TlsA-1A
Tell me again how MORE regulation would have fixed this mess?
Wall Street will keep finding ways around regulations. This will always happen, but we still need some regulation changes. More important than more regulation is smarter regulation, the enforcement of regulation AND allowing big banks to fail. Failure teaches some good lessons. The bad side of failure is that often the average CEO gets a few million as a thank you package while the average workers get their life savings destroyed.
Regulation appears to have worked fine in Vermont
Vermont Mortgage Laws Shut the Door on Bust — and Boom
http://online.wsj.com/article/SB125054188939938015.html
18′ tile flooring… that is one big friggin’ tile!
As a fellow Irvine renter for the last 10 years, I, too, used to get mad about HELOC abuse. Now I’m happy I can sleep at night, knowing that I haven’t stolen any money or trashed my credit.
What’s the stat for %age of foreclosures that are a result of heloc abuse?
If it’s for fake boobs…I’m all for it!
/sarc
I make distinctions by how the HELOC money was used:
There is a series in the NYT about a street in Moreno Valley (first one is http://www.nytimes.com/2009/08/23/us/23bethone.html?_r=1) I feel sorry for the guy who used (part of?) his equity and more to get a truck – apparently for long-haul trucking work, not play or image/show. Not at all for anyone who used it for a Mercedes, vacations and consumer goods, or to flip speculative properties.
Yes they were all foolish, but in my opinion fundamentally different attempts to get ahead in life.
I would imagine a common use for HELOC money was to prop up a failing small business. The purchase of that truck certainly qualifies.
yea — I’m still mad. Mad at the abusers, especially the ones who still don’t think there was anything wrong with HELOC abuse. They were entitled! I’m mad at the government that let’s the abuse continue as they choose who the winners and losers are.
I’m mad at those just living in their non-repossessed McMansion rent free for months (years) after sucking every dime out of it. Shouldn’t the free rent be taxed as income at the very least?
I’m mad because I have to fund someone else’s purchase of a new car by $3000 to $4500.
When Injustice is this blatant and widespread, people get pissed!
Irvine Renter,
Here is the reason that you should be angry. They didn’t spend the banks money, they spent your money my friend.
You know the drill. Banks Lose money and should fail <------ Government pays LOTS of money to prevent bank failures <------ Government will bleed you dry to get that money. The losses of the banks are being taken directly out of our pockets. How do I know this? The banks still exist. So, we will all be punished by what these people did. Being angry about it is probably not the best option, but we can't forget the reality is that the guy who spent $500,000 just blew through 30 years of someones disposable income living the high life that wasn't his to live. We will all pay for his wifes boob job and trips to Tahiti. The funny thing is that we won't hear stories. Most if not all of these people thought and still think that they deserved what they spent from their houses. They were entitled to it. Its disgusting.
The TARP funds are, at least in theory, loans. Organizations like BoA and Wells Fargo will eventually pay back the government in full, with interest. Now, completely failed organizations like AIG and GM will never pay back their TARP loans-but in those sorts of cases, the owners of the failed companies, the stock holders, lost between 99% and 100% of their investment.
I came on to IHB to put off doing my required online counseling before I sign my bankruptcy papers this week…
When my then husband and I bought in 2005, we used a $267,500 first and a $75,000 HELOC for a $342,500. The only cash we put down was for a portion of the closing costs, which was about $5,000.
One year later, our house appraised at $370,000, and we re-fi’d to a $296,000 first and a $45,000 HELOC. We’d qualified for another $75,000 one, and thought about taking that extra $30,000 out to pay off credit cards and student loans, but in the end decided that we didn’t want to gamble the house. (Hahahahaha!)
Three years later, I’m very glad we made the decision we did. Either way we decided, I’d still probably be stuck with bankruptcy because of the divorce, this way none of his separate bills got paid (Which we would have paid with that money). That’s the only thing that would make this situation worse for me!
I see others I know who have been using the ‘housing atm’ and are now losing their houses, but it’s what we all deserve. It doesn’t matter what the money was used for, it’s now time to pay the piper.
If I could do it all over again, I would not have bought the house, just used that money to pay of bills and saved for a down payment for a house now or in the next year or so!
Not that this will matter here:
(Deleted Name), 48, and his wife live on disability checks totaling $1,500 a month. They recently became homeless and moved to an Orange County Catholic Worker shelter in Santa Ana. (Deleted Name) took on cooking many of the turkeys served to hundreds of people at the home Wednesday.
These people became disabled after buying today’s featured home.
Now I know there will be numerous nasty things said about affording the mortgages, but the fact is, we don’t have the facts……period. Another fact is equity belongs to people to use as they see fit. It’s no one else’s business, bailouts or not (which is mostly not, so it doesn’t even matter). It’s nice that they are trying to be of service to others. I’m sorry that they had to be ridiculed here today.
That wasn’t the right person, but the former owners are also involved in Catholic charity work. The owner lauched a business in 2005, so that’s where some of the money was used. Still not my business.
Newport Skipper…huh? I’m not clear on what you’re talking about in these 3 posts.
I just can’t get myself worked up over other peoples decisions, especially when I don’t have enough facts. Many people have been hurt badly by this recession, but I don’t see any acknowledgment that it could play a role in any of these cases.
Should they be required to pay back the amount owed?
Equity is not a right. It’s a loan. Should they be required to pay back the loan? A business loan or otherwise?
Right…but you require a bank willing to go the distance to collect. It’s just like any other debt. A HELOC is inherently recourse (unless used for purchase).
But, like any other debt, it can be cancelled, discharged in bankruptcy, etc…
To fix HELOC abuse, you can’t get it at the end, you have to attack it from the front. Otherwise, you’ll end up shutting off a legitimate process for discharging debt for insolvent people.
I’m glad you figured that out.
While there are heloc’s used for medical expenses or other ‘appropriate’ expenses, there are also cases of abuse.
The other option would have been to sell the house, move to something smaller, and use the profit as savings. Is the idea that a family in a bind financially might have to trade down that bad? Would anything near that level of sympathy be given to renters not wanting to move to a smaller place?
http://www.economist.com/businessfinance/displayStory.cfm?story_id=14258851&source=hptextfeature
great article
Hey that evolution picture is kinda sexy. Where can I see a full reso of that?
Right click on the image and select the option “view image.” That should open the full resolution version.
The Romans really knew how to live…
Yeah, that was a beautiful image (wish I could find some info on who the artist is, etc.). Thanks for posting it, IR.
I’m not angry at the people who took out HELOC and lost their homes. I’m angry at the government for bailing out the banks who gave them money.
I don’t think this would have caused the second great depression by letting banks fail. And what makes anyone think that bailing out the banks won’t cause a depression in the future.
I agree with J.O. I would not be so angry about the bailout if the $$ came with requirements/plans to break up the mega banks. The top 20 are still ‘too big to fail’ while the regulators have no problem killing the small and regional banks. All the $$ thrown at solving this mess has led to no less risk in the financial system, and that’s infuriating.
I think it was a two-part ping pong process:
1) Borrowers/debtors upgraded lifestyle slowly using traditional credit cards (trips, home upgrades) and traditional loan products (car loans).
2) Said borrowers realize they’re in debt up to their eyeballs…along comes a HELOC promising really low interest rates and interest that’s tax deductible. It’s a prudent thing to do, right? Housing prices “never go down” and why pay 12-14% APR when you can pay 7% and have it be tax deductible?
So the borrower does the prudent thing and refinances mountains of debt into a neat little HELOC/2nd.
The root cause is consumption. Technically speaking, HELOC was the prudent thing to do as the issue at the time was interest payments, not real estate collapse. The average borrower doesn’t understand GRM, Case-Schiller, or rental parity.
There are even people who don’t understand APR, there was a recent study on payday borrowers not knowing that 500% APR is bad. Those HELOC debt consolidators look smart by comparison.
True, I suppose, but a lot of people were doing more than just “consolidating debts” with their $250,000 HELOCs….
True, you can justify just about anything. Ahh…it’s been years since I had a real vacation (cuh-ching); oh, my car is starting to smell (cuh-ching); time to upgrade our computers; hey new phone, i want it; it’s been a long week, let’s eat out.
I still think in the end it was debt feeding debt due to rampant consumption easily justified since there’s plenty of money, even if you were buying benzes and boobs…
I’ll admit, I got caught up with it, I’m only human…I’ve got high CC balances as a result, and this payment hangover sucks. Good thing I learned now vs. later.
I can’t really blame the borrowers for taking the easy money, or for walking away when the only penalty is losing the house they couldn’t afford anyway. I blame the banks for giving money away and not having better sense. I blame the bankers’ cronies in the government for robbing the rest of us to prop them up.
And no, not all of the banks would have failed. Some of them actually continued to make responsible lending decisions. Even if a lot of them did fail at once, other old and new banks would have stepped forward to fill the void. America may need a banking system, but it doesn’t need Citi or BofA or Chase or WaMu or Wachovia or Wells Fargo or any other particular bank.
I was half expecting you’d use the beautiful Ani Difranco song, “Angry Any More.” https://www.youtube.com/watch?v=M65EoJUKgAY
Thank you for the song. When the mood strikes, I will use that one — probably soon.
I’m still mad. However, I recognized that being angry about it is emotionally draining. So I try not to focus too much on it. The people who abused the system, the banks who let them do it, and the government bailing them out… reading stories of people who squatted in a house for 12 months and then got a mod that didn’t require them to pay back the 12 months of ‘free rent’ in a lump sum really gets to me. So yeah, I’m still mad. I blame everyone involved. Banks, brokers, the government, realtards, and the squatters.
If you are still angry, remember the money they spent did go somewhere, perhaps into your pocket eventually. The actual HELOC signees were not the only ones benefiting from the HELOC abuse. You probably didn’t mind taking their money when they spent it at your business, the store, hotel, or restaurant where you work, etc.
As IR has pointed out before, the derailing of the HELOC money train will make the recovery that much harder, as a fair amount of consumption was financed through such money, especially in California.
How does 1176 days on the market sound? Sounds to me like stupid greedy sellers.
http://www.redfin.com/CA/Irvine/145-Danbrook-92603/home/5944262
I wonder if the owner forgot it is for sale?
That and it’s 100ft from the freeway.