Posted on 12/11/2006 8:58:01 AM PST by Doghouse Riley
EVERY day, Will Hertzberg owns a little less of his three-bedroom house in Corona. Like hundreds of thousands of other homeowners around the state, Hertzberg has a mortgage that lets him choose how much he pays each month. Like many of them, he always chooses to pay as little as possible.....But his debt is swelling, and his mortgage company controls his fate.
"I am rather screwed," he said.
....
Hertzberg bought his house 11 years ago for $129,995..... Comparable homes in his neighborhood fetch more than $400,000...... Over the years he has taken out $190,000 in cash through refinancings......Hertzberg's home equity paid off his credit cards, financed trips around the world that allowed him to indulge his passion for photography, bought a $32,000 Toyota Avalon and enabled some lousy investments. "Free money always has the unfortunate effect of making people go overboard," said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump's "How to Get Rich." "You'd be surprised how fast $190,000 can go."
(Excerpt) Read more at latimes.com ...
The issue with the fellow in the article is that 1: he refi'ed into a neg-am loan, and 2: spent the cash-out proceeds on trash. Why on earth people took refi money to buy cars when "free-money" auto loans were widely available is beyond logic. You don't mention the nature of your loan. Your HELOC as you know doesn't disturb your original purchase money loan.
Without trying to be plug the refi business, IMO rates could go a tad lower into next year. So, it may behoove you to refi your improvements and whatever appreciation you've achieved/undergone into a new first loan at your next oppty. If you can get 1: your appreciation since purchase and 2: your improvements; into a new 5.5-5.8% loan, or lower, of course, that would likely be viewed as a smart thing to do. If your purchase-money loan is already close to 5.0%, you're probably better off not disturbing it.
From my view (a long way east of California), I am amazed that there are people that are able to live there. With the cost of housing, I just don't understand how these people can afford it.
For instance, a friend of the family recently moved to California, near San Jose, I think (though not positive). He's a construction worker. He bought a small ranch for $400,000. How can he POSSIBLY afford that house? For a traditional mortgage, he'd be paying over $2500 a month, not counting taxes or PMI.
I'm almost certain that he bought the house with an interest only loan or with an ARM, as I'm sure that everyone in California does, with the assumption that property values will continue to go up--and, at that point, they can sell, pay off the mortgage, and buy a new, bigger house that they cannot afford.
Someday, the real estate market in California will stop rising like it has been, and there are going to be a lot of people left holding the bag. It will be ugly.
Depends on the nature of the remodel (adding well-built square footage=good, adding cosmetics or gadgets=not so good) and whether your overall equity is continuing to grow (you need to be aware of what houses are selling, not listing, for in your neighborhood to monitor this).
I am in a traditional 15 year loan - amazing how quick the principle owed goes down...
He seems like a good credit risk to me.>off
It has nothing to do with the loan to value ratio.
This idiots problem is he cant pay the mortgage. He took a toxic 'suicide' pay option loan and is neg amming himself to death. He said he cant pay the principal plus interest payments. It's only going to get worse.
He has two options at this point. He can get a better paying job and try to sell, paying the extra costs to close out early or even try to keep the house.
OR
He gets foreclosed on.
20% of Californias have loans like this. There is going to be a monumental crash when these people cant pay their mortgages and house values have gone down. The bad credit loan market is going to dry up and alrady several mortgage companies have gone under, not having the cash to absorb bad loans kicked back to them. There are not many buyers who can or want to pay hyperinflated prices for these homes. Without a conveyerbelt feeding new buyers to allow these suicide loaners to flip after 2 years, and with prices coming down, refi will not be an option.
The ponzi scheme is popping.
Ponzi scheme. And its ending.
Biggest. Moron. Ever.
Who's impressed by an Avalon? It's the Grand Marquis of Japanese cars.
Call it what you wish, but millions of people have made trillions of dollars in home appreciation. Most people call spending money and making a profit an investment though.
This is just horrible. This guy bought a home for $129K and it is now worth over $400K. The guy has used this money to travel around the world, buy SUV's, and make many bad investments and he still has equity in his house. What a tragic story.
You are right on that. Smart folks are leaving and illegals are moving in. Who is going to buy all these $400,000-500,000 houses? You'd better believe one thing is the government is going to fight lowering assessments. So they will be screwed. I don't own a home because I don't want the added debt at this time. I will buy one on my terms. The good thing is now I can live anywhere I like within range of an airport so when I wish to buy I have a lot of options. I was in a financial mess once in my life and my credit is nearly perfect now and the slave yoke of financing is light and I like it like that.
Debt makes you powerless and I couldn't imagine doing something so foolish as getting a home equity loan for $190,000 and blowing it. I hope he has a lot of comic books and travel pictures because he is going to need them.
Yes. When I was in law school, a friend of mine got a job clerking in San Diego. He was going to take an apartment with his wife, so he put an ad on the Internet looking for a place. He wanted a two bedroom and said he was willing to pay $2500 a month.
He got two responses, one of which was from a guy who was willing to rent him a one bedroom for $5000 a month and another from a guy who wrote him just to say that he would never find an apartment for that price.
When I think of things like this, I just have to shake my head.
Wow. The guy drives a $32,000 Toyota Avalon. Comic book sales on E-bay must be good!
This guy has spent impulsively and the fact that he can't make a payment is part of that general character problem.
Many lenders will give you the loan without 10 seconds on what the out years will bring.
This guy will probably foreclose since the market is slow. He could have listed the house months ago and maybe walked away with 60-70,000.
Why? The guy has made about $300K tax free. He got to travel around the world and buy nice vehicles and even gamble on some tech stocks. The guy still has about $100K of equity in his house. Yes, he could have been wiser with his money, but he's doing just fine. I am trying to figure out where the tragedy is.
Gees, was that San Diego or La Jolla and Del Mar?
The general tone of the Times articles and many others lately, is that the loans are evil. Of course, the responsibility is on the borrower; and the loan officer for full disclosure.
Easy to figure it out. Times wants the Dem control congress & senate to do something for these poor folks who can not help themselves. Probably, reporters of times also are doing the same thing.
I really don't know; I just know it was the San Diego area.
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