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Here is another example of people I don't feel too sorry for... When I was house-hunting after the crash, I noticed that the loan history of most of the short

Here is another example of people I don't feel too sorry for... When I was house-hunting after the crash, I noticed that the loan history of most of the short sales (underwater mortgages) I looked at followed the same pattern: - Buy house with minimal down payment. - Over 5-10 years or so as the market climbed, refinance with ever-larger cash-out mortgages. - After the crash, apply for short sale, forcing the bank to take a loss. So, for example, I might see a house with $750k loan on short sale for $350k. But on closer inspection of the history, find that they put $15k down on a $250k house, then pocketed $500k in cash-outs. Sure, they "lost their home", but at the end of the day it feels more like bank robbery to me. Now they probably didn't have all that cash sitting in a bank somewhere. It was probably all spent on one thing or another. But they still got the advantage of spending that $500k. (Not necessarily wisely. The one I remember details of lost both his house and his wife because he blew it all on racing toys.) Yes, there were certainly plenty of people who were legitimately burned in that whole mess. I'm just mentioning that from what I saw, more often than not there were huge cash-outs involved.

jwhitlark 8y ago
Yea, I saw several instances of people who milked it for all it was worth, then retired and left everyone else to clean up the mess.
fierro 8y ago
wait, can you explain this to me? How does refinancing the home in this example give them a 500k windfall? eli5 plz
- shanedog 8y ago
  Assume his home was worth 1mm at the peak. He got a new loan for $750 k, paid off his old loan of ~$250k, and pocketed the difference.
  - fierro 8y ago
    right, but now he has much bigger monthly payments, and still owes that 500k back... so it seems all he did here was get a big loan....
    - diggernet 8y ago
      That is true. But then he stops making the payments. The bank either forecloses and takes the house to settle the loan, or he sells it in a short sale for $350K and the bank writes off the difference. Worst case, he has to file bankruptcy and maybe pay income tax on the amount forgiven. Either way, he still got to spend the $500K on...whatever. Now that I think about it (and these are pure anecdotes), at the time I heard tales of people using the money from refinancing to buy a smaller home with cash. Then they'd move into that and let the first house get foreclosed on (because their paid-in-full primary residence is protected in bankruptcy).

jwhitlark 8y ago

Yea, I saw several instances of people who milked it for all it was worth, then retired and left everyone else to clean up the mess.

fierro 8y ago

wait, can you explain this to me? How does refinancing the home in this example give them a 500k windfall? eli5 plz

shanedog 8y ago
Assume his home was worth 1mm at the peak. He got a new loan for $750 k, paid off his old loan of ~$250k, and pocketed the difference.
- fierro 8y ago
  right, but now he has much bigger monthly payments, and still owes that 500k back... so it seems all he did here was get a big loan....
  - diggernet 8y ago
    That is true. But then he stops making the payments. The bank either forecloses and takes the house to settle the loan, or he sells it in a short sale for $350K and the bank writes off the difference. Worst case, he has to file bankruptcy and maybe pay income tax on the amount forgiven. Either way, he still got to spend the $500K on...whatever. Now that I think about it (and these are pure anecdotes), at the time I heard tales of people using the money from refinancing to buy a smaller home with cash. Then they'd move into that and let the first house get foreclosed on (because their paid-in-full primary residence is protected in bankruptcy).