Sunday, October 19, 2008

Losing Your ReFi in Wharton

There were some crazy aspects to the Great Housing Bubble. Mortgage burning parties gave way to serial refinancing - usually with cash out to boot. People thought it was perfectly normal to pay off a mortgage using a HELOC. Equity withdrawal showed that one understood how to take advantage of ones money - we often forgot that we borrowed "our" money from the bank. If debt was good, more of it was better. All this was true until the bubble burst (or depending on your locale it deflated). Now those that bought into the believed all the bubble hype are in the most trouble. And the more one bought into the hype the more trouble they are in.

People who could have had a nice little equity nest egg instead cashed out every cent available. Many are left with nothing. The lucky serial cash-out refinancers are left underwater. The unlucky ones are foreclosed on. This brings us to today's example, a serial cash-out refinancer who borrowed on the house and lost. Lets take a look -

Here is the property -

Here is the property info -

  • Condo/Townhome/Coop Property
  • Status: Active
  • County: Morris
  • Year Built: 1983
  • 2 total bedroom(s)
  • 1.5 total bath(s)
  • 1 total full bath(s)
  • 1 total half bath(s)
  • 6 total rooms
  • Type: Townhouse-Interior
  • Dining room
  • Basement
  • Dining room is Formal Dining Room
  • Basement is Finished
  • Fireplace(s)
  • Fireplace features: Living Room
  • Pool features: In-Ground Pool, Outdoor Pool
  • Swimming pool(s)
  • 1 car garage
  • Attached parking
  • Heating features: Gas-Natural
  • Forced air heat
  • Central air conditioning
  • Interior features: Carpeting
  • Exterior construction: Wood Shingle
  • Roofing: Asphalt Shingle
  • Community features: Association Fee Includes: Maintenance-Exterior
  • Pets allowed
  • Approximately 0.16 acre(s)
  • Lot size is less than 1/2 acre
  • Utilities present: Public Sewer,Public Water,All Utilities Underground
  • Call agent for details on association fee info.

(Sorry about the layout - had trouble trying to fix it after cut and paste)

Here are the financials -
  • The property was purchased for $118,000 in February 1998.
  • The original mortgage in 1998 is not available on the database.
  • A HELOC was opened in August 2000 for $25,000 with Chase.
  • In February 2003 a HELOC was opened for $73,594 with Wells Fargo.
  • A second mortgage for $68,047 was taken in August 2003 with Wells Fargo.
  • The condo was refinanced in October 2004 for $236,000 with an ARM from Decision One.
  • In January 2006 the property was refinanced for $276,250 with Countrywide.
  • The foreclosure process started in May 2007 with the filing of a Lis Pendens.
  • The property is currently an REO for sale through a realtor for $257,900.
Over the course of the 10 years of ownership a total of $158,250 was extracted either through cash-our ReFis or HELOCs. That amounts to an average of $15,825 per year that the property was contributing to the owner's lifestyle. Perhaps some of the money went into the property, but since the cashing out was habitual it was probably spent on other indulgences as well.

Now that the property went into foreclosure after the last Refi the property has cost the lender $33,824 after the standard realtor fees are factored in.

If the owner had handled the property different they could have netted approximately $126,000 for the property. Instead they chose to extract all of the equity - plus some extra at market peak - out of the property. Now they do not have the any accumulated equity nor do they have the property and good credit. Foreclosures have a lot of negative consequences - and those are just some. We now can look back on bubble logic and see how dangerous serial refinancing could be to ones wallet.

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