Sunday, May 25, 2008

Boonton Refi Fun

Todays example is someone who caught the cash out refi-fever. During the peak when the house price continued to rise things were going well - but once the bubble started deflating this homedebtor lost everything. They lost the house and the second income that refinancing and HELOCs were providing. Here is a look at the recently foreclosure and currently bank-owned property:

Here is a look at the property info:

BedroomsStyleLotYear BuiltBathroomsGarageSquare FeetPrice
5 Single Family Home 21780 1958 3
2300 $449,000

Here is a look at the financials:
  • The property was purchased May 2003 for $225,000.
  • The first mortgage in May 2003 was for $213,750 with Quicken Loans.
  • The mortgage was refinanced in August 2003 for $220,000 with Atlantic Home Loans.
  • The mortgage was refinanced again in May 2005 this time for $345,000 with an ARM through American Home Mortgage Acceptance.
  • A HELOC was taken in November 2005 for $25,000 also through American Home Mortgage Acceptance.
  • The mortgage was refinanced again in May 2006 for $381,000 with an ARM with Quicken Loans.
  • A second mortgage was also taken in May 2006 for $30,000 also with Quicken Loans.
  • The foreclosure process started in December 2006.
  • The property is currently bank owned and for sale at $434,900, reduced down from $449,000.
When the owner purchased the property they were able to come up with $11,250 - which was a 5% down payment. While that is not huge, during the Great Housing Bubble that was a decent down payment, after all people regularly put 0% down. However within three months of buying the house they pulled $6,250 of the down payment back out with a refi. The owners did pretty well for almost two years, then they pulled the rest of the down payment $5,000 plus another $120,000 taking out a total of $125,000 of equity out. Six months later another $25,000 was pulled out. And yet another six months after that another $41,000 was taken out through a refi and second mortgage.

It took less than two years between from when the refinancing started to when the property went into foreclosure. During that time the owners took out $186,000. That averages to $46,500 per year tax free the second income provided the own through the home equity.

If the bank gets the full asking price, after the 6% standard realtor's commission the bank will get $408,806 which means the bank will stand to lose approximately $2,000. Not a huge loss on the property but when adding in the foreclosure costs just breaking even will probably cost north of $50,000.

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