Happy to pay for your home-equity loan, neighbor.
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President Stimulus has unleashed the sound and the fury. Two-hundred billion for capital investment that's nothing more than cash for clunkers X 50. Also $50 billion for infrastructure. Listen Jackwagon, maybe you should have thought of that with your first stimulus. And just this afternoon, a brand new loan-mod program that has some distressing details. Ultimately it's a stealth bailout for banks and mortgage-debtors who borrowed to finance a luxury lifestyle, and now can't afford to pay it back.
Congratulations! You're going to be paying for your neighbor's home-equity loan.
The program must resolve a stubborn problem that has hindered every other modification program: how to deal with second mortgages. The program says second liens must be reduced so that the total mortgage debt is less than 115% of the home's current value. The government will make payments for banks to reduce those loans, but banks have been very reluctant to write down seconds that are current.
The big-picture aim of the program is to prevent walkaways, as it targets houseowners who are current on their payments but facing a negative equity situation where their house is worth less than the outstanding mortgage. It's essentially a government sponsored, taxpayer-funded mortgage program for principal writedown.
There are 2 problems. Mortgage holders don't deserve a writedown at the expense of everyone else, and 2nd, 3rd (4th and 5th -- see below) mortgages are being included.
This is an affront to taxpayers and must be stopped. The thought of borrowed dollars from the next generation being used to writedown deadbeat home-equity loans for the irresponsible, is not pleasant. Keith Jurow has an important piece on HELOCs this morning. Check out this example:
Although the average outstanding HELOC balance is roughly $49,000 now, this figure hides the real problem. The average HELOC written in California for residential purchase in 2004 was $150,000 and in 2005 was $139,000. Hundreds of thousands of Californians took out a HELOC and then refinanced it several times to pull cash out from their growing equity. Here is an example of how it worked from a recent post on IrvineHousingBlog:
"The original sales price is not clear from my records, but it looks as if the buyers paid about $1,200,000 in 1997. There was a $900,000 loan which I assume was 80% of the total purchase price. The original owners were a couple, and after the point where only the wife is on title in 2004 -- presumably after a divorce -- the HELOC abuse became truly remarkable.
- On 3/11/2004 the wife appears alone on title, and the first mortgage is $999,800.
- On 8/30/2004 she refinanced with a $1,000,000 first mortgage.
- On 12/28/2005 she refinanced with a $2,170,000 first mortgage.
- On 2/1/2006 she got a HELOC for $250,000.
- On 8/22/2006 she refinanced with an Option ARM for $2,500,000.
- On 11/15/2006 she opened a HELOC for $490,000.
- On 8/1/2007 she refinanced with another Option ARM for $3,225,000.
- On 10/22/2007 she opened a HELOC for $500,000.
- Total property debt is $3,725,000.
- Total mortgage equity withdrawal is $2,725,200 during a four-year stretch."
Of the 13.2 million outstanding HELOCs, it is not far-fetched to estimate that at least 95% of these borrowers are in "negative equity" when you add the first and second liens together. For California, the figure could be 98%.
DB here. A quick list of what you'll be paying for: Luxury cars and SUVs, swimming pools, vacation homes, boats, boob jobs, plastic surgeries, big fat diamonds for wives & girlfriends, European vacations, weeks at the beach in Bali, cars for the kids, country-club memberships, designer dresses, that fun weekend in Paris, the time in Mallorca when they saw Paris Hilton blow coke off a monkey's butt, tennis and golf lessons for the kids, a personal trainer for mom, a hair transplant for dad, and those really cute dog outfits -- in every color.
Pretty much anything you can imagine, that bill is coming to you. Multiple HELOCs were cash-flow rivers flowing through bubble states like honey down a grizzly bear's ass. Everybody who was anybody financed their lifestyle through house-ATM withdrawal machinations. And now, Obama wants you to pay for it.
This should be the final straw for voter outrage. The frugal and wise are being asked to carry the bloated and profligate.
Call the White House now @ 202-456-1414 and tell the switchboard operator how you feel about the new houseowner bailout and especially the part about bailing out underwater home-equity loans.
Write off those 3 helocs Mr. Deadbeat, the taxpayer thinks you need a hand.
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