Sunday, February 15, 2009

Serial Refiancing in Mount Olive Turns Homeowner into Homedebtor

This is the definition of the serial refinancer - a homedebtor relying on mortgage refinancing to maintain artificially low debt service payments or fuel a lifestyle of consumption. If you took cash out perpetually it was to fuel an unaffordable lifestyle. If you refinance to get lower rates or terms (with no money out) you are probably one of the few that were not buying into the bubble's equity fun.

One problem with the serial refinancer was that is was easy to go from a homeowner into a homedebtor. A homedebtor is a homeowner who is overextended with a mortgage they cannot afford often due to their own desires for more home or more spending money. Some homedebtors bought a house beyond their means and usually used a Option ARM AKA Pick-A-Payment AKA Suicide Loan to obtain their dream property. Other homedebtors had their properties within reach of realistically owning their property but chose to withdraw all equity and then some.

Any available funds the property could provide was spent with the owners constantly refinancing to withdraw any new equity that was available. If only $10,000 was available they would extract it, if $100,000 plus was available that would be gone immediately. Which brings us to today's featured property about a homeowner become a homedebtor using their property as an ATM and withdrawing, withdrawing, withdrawing. Lets take a look -

Here is the property -

The front of the house.
The living room or family room.
The master bedroom.

Here is the property info -

  • Status: Active
  • County: Morris
  • Year Built: 1948
  • 4 total bedroom(s)
  • 3 total bath(s)
  • 3 total full bath(s)
  • 10 total rooms
  • Style: Colonial
  • Master bedroom
  • Living room
  • Dining room
  • Family room
  • Kitchen
  • Den
  • Office
  • Basement
  • Bathroom(s) on main floor
  • Master bedroom is 18x14,Includes: Full Bath, Walk-In Closet
  • Living room is 16x12
  • Dining room is 14x11,Formal Dining Room
  • Kitchen is 12x09
  • Basement is Full, Unfinished, Walkout
  • Parking space(s): 2
  • Heating features: 1 Unit, Baseboard - Hotwater, Multi-Zone,Oil Water Heater, Water Heater From Furnace,Oil
  • Cooling features: 1 Unit, Ceiling Fan
  • Exterior construction: Vinyl Siding
  • Roofing: Asphalt Shingle
  • Pets allowed
  • Approximate lot is 50X125
  • Lot features: Level Lot, Open Lot
  • Approximately 0.14 acre(s)
  • Lot size is less than 1/2 acre
  • Utilities present: Cable TV Available, Public Sewer, Public Water, Electric Service
  • High School: MT.Olive HS

Here are the financials -

  • The property was purchased for $113,000 in April 2000.
  • The first mortgage at the time of purchase was for $112,075 with Huntington Mortgage.
  • The property owner took Refi with cash out the following October of 2000 for $144,576.58 with Household Financial Corp.
  • One the same day as the Refi a HELOC was opened for $10,000 also with Household Financial Corp.
  • In July 2002 the property underwent another Cash-Out ReFi, this time for $180,000 using an ARM with Long Beach Mortgage Co.
  • Another Cash-Out Refi occurred in April 2004 for $200,000 also with an ARM from Alliance Mortgage Banking Corp.
  • The following July of 2004 the property was refinanced again for $210,500 with Fleet National Bank.
  • A Home Equity Loan for $25,000 was obtained in September 2004 with Domestic Bank.
  • In January 2006 another ReFi with Cash-Out was taken for $388,000 using an ARM with First Interstate Financial Corp.
  • The next May (2006) the property owners obtained another Cash-Out ReFi for $429,300 using an ARM with Balloon mortgage with WMC Mortgage.
  • A HELOC was obtained for $20,000 in August 2007 through American General Financial Services.
  • The foreclosure process started in August 2008 with the filing of a Les Pendens for the WMC mortgage.
  • The property is currently for sale through a realtor for $299,000.
  • Taxes for the 2008 were $6,397.12.

The owner may be our record for the most mortgages in the shortest amount of time. During 9 years of ownership they signed 10 different mortgages against their property, averaging more than once per year.

When the house was purchased at what was the beginning of the bubble, the homeowner put down a hefty $925 to purchase the property which was about 0.8% of the purchase price. After just 6 months of ownership the first venture into Refinancing with Cash-Out was utilized taking all of the original investment of $925 out of the property plus another $31,576.58 with the option of taking another $10,000. After another 9 months and another ReFi with Cash-Out and the equity withdrawal was $67,000.

That money must have lasted for some time since it was not for another 21 months until the next Cash-Out ReFi took place extracting another $20,000 totalling $87,000 withdrawn from the property so far. Probably before the ink was dry and just 3 months later another Cash-Out ReFi occurred withdrawing another $10,500 for a total withdrawal of $97,500 on top of the original down payment withdrawal. And another 2 months later a HEL withdrew another $25,000 for a total withdrawal of $122,500.

The HEL must have lasted for some time since the next equity withdrawal did not occur for another 17 months. But this Cash-Out ReFi was a hefty one adding another $152,500 for a total withdrawal at this point of $275,000. And 5 months after that a Cash-Out ReFi was taken yet again extracting another $41,300 for a total equity withdrawal of $316,300. Obviously that was not sufficient since 15 months later a HELOC for another $20,000 was taken. If this HELOC was utilized the homeowners, actually they were home debtors at this point, had withdrawn a total of $363,300 in less the 9 years of ownership. (Side note - somehow we do not think this money was spent on landscaping or furniture.)

The property provided the home debtor with a second income of approximately $40,000 per year. However that second income was not enough to pay the mortgage since the foreclosure process started a year after the last HELOC was opened.

Now that the house is for sale with a realtor someone, with the foreclosure and withdrawal history it is obviously the lender, will be losing about $168,240 on this property. That loss is based on the property selling for full asking price while the realtor receives the standard commission. That is a huge loss on the property.

Perhaps an interested party wants to partake in the luxury this property can provide. With a 20% down payment of $59,800 and a fixed 30 year rate at today's Bankrate average of 5.26% the monthly payment for the property would be $1,322.35 plus a tax payment of about $533 and your payments would be $1,855.44. Of course, this is before insurance and utilities.


W.C. Varones said...

Holy smokes!

Who needs a job when you can just live off your home equity?

Maybe that should be Obama's plan to stimulate the economy: let everybody keep hitting the housing ATM even if the house is underwater. After all, we've got to get rid of this evil mark-to-market accounting, right?

NJHH said...

There was a whole contingent of homedebtors because they used their houses as ATM. While many took as much if not more than this owner not everyone did it so frequently.

How many people would ReFi in 3 months? Been doing this over a year now and never saw anything this often. It sounds like they would like in a new rate before even signing on a different mortgage.