Sunday, August 31, 2008

HELOC Extraction in Lake Hopatcong

It would seem that people who bought well before the Great Housing Bubble would be immune to the current foreclosure crisis. Sure if one bought in 2006 it may be understandable that they are underwater. It seems like common sense that if one purchased in 1997 they would be safe.

But foreclosures are a big net. The underwater crowd is not just limited to those that bought late in the housing boom. The second big composition of the underwater group involves those that extracted all their equity and then some. These owners also find themselves owing significantly more than their house is worth. In some ways this group is a much sadder group. They had something that they gambled away. That appears to be what happened in today's featured example.

Here is a view of the house -

Here is the property info -

Single Family Property, County: Morris, Approximately 0.17 acre(s), Year Built: 1961, Parking space(s): 4, Fireplace(s), Den, Laundry room, Hardwood floors

Here are the financials -
  • The property was purchased in May 1997 for $115,000.
  • The original mortgage taken in May 1997 is not available on the database.
  • Three subsequent mortgages were taken in 1998 but none are available on the database.
  • The mortgage was refinanced in March 2002 for $152,000 with Chase Manhattan Bank.
  • In March 2003 a second mortgage for $28,300 was taken with Chase Manhattan Bank.
  • A cash-out refinance was taken in October 2003 for $223,250 with an ARM through BNC Mortgage Inc.
  • In January 2004 a cash-out refinance was taken, this time for $259,250 with an ARM from Home Loan and Investment Bank.
  • Another cash-our refi was taken for $282,000 in March 2005, another ARM this time with Citimortgage.
  • A HELOC was opened in July 2005 for $33,000 through Citibank.
  • In June 2006 another cash-out refi was taken with Countrywide with an ARM for $335,000.
  • The foreclosure process started with the filing of a Lis Pendens in January 2007.
  • The property is currently for sale through a realtor for $235,900 reduced from $258,900.
Due to the limited info on the database we do not know how much was put down on the initial purchase. But we do know that within five years any down payment plus another $37,000 was extracted. Also it is interesting to note the habitual equity extraction of the homeowner. In 10 years of home ownership equity was extracted 10 different times. Sometimes through a HELOC, other times through a cash-out ReFi.

By the time of foreclosure the owners extracted at least $220,000 out of the property. That averages out to a second income of $22,000 per year. Not a bad second income just for purchasing a home and signing a few papers.

Unfortunately the loss will also be significant. The current loss will be a minimum of at least $113,254 if the house sells for the full asking price and standard realtor fees.

Look at the other ironic part of this example - the loss it almost the same as the original purchase price and the equity extracted is almost the same as the current purchase price.

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