Mortgage Equity Withdrawal

Mortgage Equity Withdrawal

Mortgage Equity Withdrawal or MEW is the process of obtaining cash through refinancing residential real estate using the accumulated equity as collateral for the loan. Before MEW, a homeowner would have to wait until the property was sold to get their equity converted to cash. Apparently, this was deemed an inefficient use of capital, so lenders found ways to “liberate” this equity with home equity lines of credit or cash-out mortgage refinancing. The impact of MEW on equity is obvious; it reduces it by increasing the loan balance. It has been noted that equity is a fantasy and debt is real, and MEW is the process of living the fantasy with the addition of very real debt. MEW has been utilized by homeowners for home improvement for decades, but the widespread use of this money for consumer spending was an innovation of The Great Housing Bubble. Since consumer spending is almost 70% of the US economy, mortgage equity withdrawal was the primary mechanism of economic growth after the recession of 2001 – a recession caused by the deflation of another asset bubble, the NASDAQ technology stock bubble.

Many people who extracted their home equity lost their homes for lack of ability to refinance or make their new payments. After so many people lost their homes due to their own reckless borrowing, it is natural to wonder why these people did it. Why did they risk their home for a little spending money? First, it was not just a little money. Many markets saw home values increase at a rate equal to the median income. It was as if their home was another breadwinner. The lure of this easy money was too much for many to resist. Also, during the bubble rally people really believed their house values would go up forever, and they would always have the ability to refinance enormous debts at low interest rates and maintain very low debt service costs. Most people did not think it possible they would end up in circumstances where they would lose their homes; however, they did lose their homes; they were wrong, very wrong. Given these beliefs, the equity accumulating in their house was “free money” they just needed to access in order to live and to spend like rich people. Even though they were consuming their net worth, and making themselves poor, they believed they were rich, and they needed to spend accordingly.

Mortgage Equity Withdrawal 1991-2007

Most homeowners do not save money for major improvements and required maintenance, and these homeowners often take out home equity lines of credit as a method of mortgage equity withdrawal to fund home improvement projects. The logic here is that renovations improve the property so an increase in property value offsets the additional debt. In reality, home improvement project rarely adds value on a dollar-for-dollar basis, particularly with exterior enhancements which often only return 50 cents on the dollar in value. The home-improvement craze was so common that the term pergraniteel was coined to describe the Pergo fake wood floors, granite countertops, and steel appliances that were popular at the time.

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Much of the money homeowners borrowed fueled consumer spending and reinforced poor financial management techniques. It was common during the bubble rally for people to run up enormous credit card bills then refinance every year and pay them off. It is foolish enough to finance consumer spending, but it is even more foolish to pay for this spending over the 30-year term of a typical mortgage. The consumptive value fades quickly, but the debt endures for a very long time. Many people responded to the “free money” their house was earning by liberating their equity as soon as they could so they could buy cars, take vacations, and generally live the good life. This borrow and spend mentality was actually encouraged by lenders who were eager to make these loans and even the government who was benefiting by economic expansion and higher tax receipts.

Gross Domestic Product with and without the effect of Mortgage Equity Withdrawal

GDP with and without MEW

The recession of 2001 was caused by the collapse of stock prices and the resulting diminishment of corporate investment. The recession was shallow, but the economy had difficulty recovering mostly due to continued erosion of manufacturing jobs. The Federal Reserve under Alan Greenspan was desperate reignite economic growth, so the FED funds rate was lowered to 1% and kept there for more than a year. It was hoped this increased liquidity would go into business investment to restart the troubled economy; instead, it went into mortgage loans and consumer’s pockets through mortgage equity withdrawal. Basically, the entire recovery from 2001 through 2005 was an illusion creating by excessive borrowing and rampant spending by homeowners. The economy did not grow through production, it grew through consumption.

There are many theories as to the decline and fall of the Roman Empire. One of the more intriguing is the idea that Rome fell because it was weakened by the parasitic nature of Rome itself. Rome existed to consume the resources of the empire. Boats would come to the city loaded with goods and leave the city empty. Consumption kept the masses happy and thereby quelled civil unrest. The Roman Empire was the world’s only superpower with an unsurpassed military might. Equally unsurpassed was its ability to consume resources. Does any of this sound like the United States? The United States has clearly become a consumer nation, and the government does not have a problem with borrowing huge sums of money to keep the economic engine of consumption going. In early 2008, the Congress passed a “stimulus” package where many people would receive direct gifts of money to go spend and keep the economy going. Since the Federal Government was already running a deficit, this money was borrowed from future tax receipts and given to the populace to spend. With house prices crashing, direct handouts of borrowed government money were necessary to make up for the loss of borrowed private sector money that used to be available through mortgage equity withdrawal.

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The BeatlesThe best things in life are free

But you can keep 'em for the birds and bees

Now give me money (that's what I want)

That's what I want (that's what I want)

That's what I want (that's what I want), yeah

That's what I want

Your lovin' gives me a thrill

But your lovin' don't pay my bills

Now give me money (that's what I want)

That's what I want (that's what I want)

That's what I want (that's what I want), yeah

That's what I want

Money don't get everything, it's true

What it don't get, I can't use

Now give me money (that's what I want)

That's what I want (that's what I want)

That's what I want (that's what I want), yeah

That's what I want

Money (That's What I Want) – The Beatles

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How common was this phenomenon of mortgage equity withdrawal? We have profiled many examples of it, and today's property is yet another. Now give me money, that's what I want…

29 Columbus Inside

Asking Price: $615,000IrvineRenter

Income Requirement: $153,750

Downpayment Needed: $123,000

Monthly Equity Burn: $5,125

Purchase Price: $204,000

Purchase Date: 4/16/1996

Address: 29 Columbus, Irvine, CA 92620

Beds: 3
Baths: 2
Sq. Ft.: 1,504
$/Sq. Ft.: $409
Lot Size: 5,000 Sq. Ft.
Type: Single Family Residence
Style: Colonial, Traditional
Year Built: 1979
Stories: One Level
Area: Northwood
County: Orange
MLS#: S521575
Status: Active
On Redfin: 25 days

Turkey Back on the market!!! REDUCED TO THE RIDICULOUS AND WHAT A DEAL!!!!!!!!! What an opportunity!!! Wonderful single level home with breakfast nook. Recently remodeled kitchen & bathrooms, newer carpeting and wide baseboards create a nice theme as you are warmed by the custom tuscan colors throughout in this wonderful single level. Extra LARGE living room/dining room with fireplace for those large family gatherings. Lush atrium brings the outside in. Down the street from parks and nearby schools. Turnkey!!! Preforeclosure

REDUCED TO THE RIDICULOUS AND WHAT A DEAL!!!!!!!!! It is writing with ALL CAPS and numerous exclamation points that reduces this listing to the ridiculous.

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Notice this property was purchased in 1996 for just over $200,000, and now it is a preforeclosure selling for over $600,000? How is that possible? Mortgage equity withdrawal.

  • In 1996, this property was originally purchased with a first mortgage of only $142,000, and the buyer put $62,000 down.
  • In early 2001, they opened a HELOC for $60,000 — their first step toward the Dark Side.
  • In 2002, they refinanced for $227,000 pulling out all their equity at the time.
  • In 2003 they opened another $100,000 HELOC.
  • In 2004 the HELOC was $189,800.
  • In 2005 the HELOC was increased again to $250,000.
  • In 2007 the HELOC was increased to $318,000.

The sum of their debts appears to be $545,000, so unless their is more debt not recorded in the public record, there may still be some equity in this property. So why is it in foreclosure? The owners probably cannot make their payments. The credit crunch is a problem of borrower insolvency, and this borrower is likely insolvent. Maybe they will get lucky and sell this property to pay off their debts?

You can see the steady pattern of mortgage equity withdrawal that almost exactly mirrors the mortgage equity withdrawal chart.

Of course, these people are selling their home now, and the HELOC income stream is coming to an end. So what does this mean for our borrow-and-spend economy? It is likely we are going to experience a severe consumer spending recession. Borrowers like today's featured seller are being cut off from credit, and their wild spending is going to stop. Today's property owner is one of many who are facing the same circumstances. The cumulative impact of the loss of this massive spending stimulus from all these homeowners is going to be catastrophic to our economy. If the whole nation is going into a spending recession due to this phenomenon, imagine how bad it is going to be here in the conspicuous consumption capital of the world — Orange County, California.

120 thoughts on “Mortgage Equity Withdrawal”

  1. Another listing without all the photos to prove indeed money was spent to improve it?

    The only kitchen photo looks old and tired. This featured home will be lucky to sell for $450k ($300/sf) in today’s market.
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  2. No self control, buying a house in 1996 for $204K and 12 years later, giving the house back to the bank. Whomever these people are I’m sure they will regret this in their twilight years. Instead had they had a little self control, they could be sitting on a $400k equity and a miniscule monthly payment. Pitiful.

  3. People will do anything to feel rich for a while.

    I had my feel rich experience after hurricane Andrew, when everything we had was destroyed, and had to be replaced. The insurance company was generous (never again). The house was effectively brand new, all the furniture and fittings were new, and better than when we bought, every thing fit in its spot and harmonized, etc.

    It was nice.

    But having done that once, I have no desire to do it again, except that when we bought this house, it needed every surface refreshed and a new kitchen. So I did do it again, only didn’t need new furniture. Got good stuff to last a lifetime, and it still looks good.

    Anyway, I would have never have borrowed against equity, unless it was to improve just before sale. And the please would not have been worth the worry about making the payments. Apparently most people simply do not worry about making payments. I don’t understand it.

  4. That’s just plain Tom Foolary. I will never understand people that do this.

    These people figure that money grows on trees which entitles them to go and pull all that phoney equity out of their house; assuming that someone else will roll in on their Joker money-throwing float and pay off their bills later on.

    Did any of the participants ever ask themselves “Isn’t someone going to have to actually pay for all of this spending (that I am engaging in) eventually?”

    “Can this cycle of more and more credit go on forever?”

    “Is my house REALLY worth that much money if people have to actually use their own money to buy it?”

    They could have spent the past 11-12 years paying down the principle and be 1/3 the way done. It was apparantly much more of a good time to jump on the gravy train and ride it into financial ruin.

    Anyone who buys a house today is throwing their money away to pay for someone else partying it up. If they don’t comprehend it then they are suckers too and deserve to lose their money.

  5. Interesting poll. I checked the last box, but I don’t agree with the comment.

    I would like to point out to many of the posters here that prevailing financial geniuses (Ric Edelman, Rich Dad etc.)all highly recommended using your house as an asset to be leveraged into greater wealth. It was a strongly recommended way to manage your finances. Why let that money sit dead in your house when it could be working for you somewhere else? That is how the rich stay wealthy and how business operate everyday. The MSM also road on that train. It is a bit disingenuous for contrarians to call people stupid when they believed the “experts”

    That said, many many people obviously took this advice and did the wrong thing…they spent the money on useless junk and not saleable assets leveraging their base.

    Several years ago we were thinking about buying a bigger home. We have two boys and a grandmother living with us and we have a two bedroom townhome. We looked at SF homes in our neighborhood and just laughed at the $700k + prices. Heck we couldn’t have afforded to buy the house we were already in. We decided what we really needed was to a place to get away for the weekends and let the boys run wild and experience nature. We still didn’t know how to afford it, but it was better than being chained to a gigantic mortgage we would never be able to afford.

    I was speaking to my boss about all of this and he mentioned that we should get an interest only HELOC and use it to buy the land. That’s how he was going to buy his $800k home. We looked into it and thought it would work for us. We did have to prove income so I guess we go a full doc line. We have owned our house since 1994 so a bunch of equity. We got a LOC for $150k. We bought some land YEAH! And the boys loved it. We didn’t have quite enough to build an actual cabin so we extended the amount to $250k or 80% of the total value at the time. While we still haven’t finished our cabin…we don’t have electricity or plumbing. Our house has now fallen in value so that now we are even with both loans. Are we struggling to make the payments? No but it certainly a large part of our budget. Our idea was to roll the HELOC over to the land after we were done to move the note off our primary residence. It doesn’t look like we will be able to do that now.

    My point is we feel we used the money wisely and we still have something to show for it. Did we use the money for other things? A few…we redid the floors in our house, redid a bathroom I hated and paid off a few credit card bills, but we didn’t go on vacations or even buy a new car.
    The market has turned on us and we hope to finish the project and close out the LOC before we get horrible 1970’s interest rates. I don’t think we will be able to roll them into one loan like we had originally planned, but that’s the way of things. The truth is if we had to sell our house we would be lucky to break even. I am not sure how we would scrape together the dough if we were upside down. Not because we were stupid or greedy, but because we wanted something for the boys and for us to get away from the DC area. To show them a different way and to give them something that we both had as kids, that not many people do these days.

    Just one homeowners story.

  6. I forgot to mention that my boss fired me a month after we took his advice. I hope his house drops in value 50%.

  7. New home – was it in Keys Gate?

    My mom’s house was destroyed (Homestead) by Andrew. I used to live there, too, near Avocado & Krome. I have some fond memories of Homestead, though my mom left after Andrew and never returned. When I was there, they were growing a substantial amount of tomatoes, limes, and avocados, but it seems these days the land just has houses on it and no longer provides so much valuable exports.

    It’s kind of funny: Andrew was an event that nearly wiped Homestead off the map, but in an ironic way it also put Homestead on the map.

  8. You really have to be independent in this world. That way, if you are wrong, you at least can blame yourself. The few times I’ve taken advice from others in this life turned out to be bad ideas. I thankfully no longer take anyone’s BS advice unless I’m paying for it. And even when I’m paying for it I take it with a huge grain of salt. People know me as staunchly independent and a strict non-conformist. But they also respect me.

    There are a few fundamentals truths in life. One of them is that increasing your debts increases your risks by a lot. That should never be forgotten. There is no money “sitting in your house”. If you sell it, you have money. If you borrow against it, you amplify your risks and increase your costs. These idiot authors get rich telling people what they want to hear. As long as you look at it that way, you could reasonably attempt to manage your risks, recognizing them, or you could just not take the risk to begin with. You took the risk, and IMHO, you blew it. I successfully helped steer a colleague away from borrowing against his OC house to buy a speculative “vacation house” in Florida. (Two years ago!) I did that by reminding him repeatedly that he was taking a fat risk. He did the right thing and passed.

  9. Here’s another home owner’s story: In 1978, when we were both 28, we bought our first (and so far, only) house. Since my husband’s family had had its house reposessed when he was a boy, paying off the mortgage ASAP was his top priority. And by ~1984, we had one more payment to go. But we refinanced for ~$20,000 and bought a piece of vacation property. We paid the new mortgage off two years later and have owned our house and the vacation property free and clear since then.

    After we paid off the new mortgage, we lived on one salary and saved the other one (and also the salary from my husband’s weekend job for the couple of years that he had one). That’s how we were able to retire in 2007, at age 57.

    It worked for us.

    We did two really smart things to get to this position.

    One–we lived within our means and had a plan.

    Two–We were born in 1950, so 20-somethings in our generation with moderate incomes could buy a house if they had a plan, and there were still defined benefit pension plans to be had.

    #1 we can take credit for. #2, not so much.

  10. There are always “financial geniuses” that are advocating foolish ideas. That doesn’t let people off the hook for following bad advice.

    As for the $250k LOC for the vacation land… you couldn’t afford a reasonably sized home for your family, but you thought you could afford a vacation property???

    I’m not sure if you’ve heard of a thing called “parks” or “campgrounds”, or “hotels”. My parents took us on a bunch of vacations, and didn’t have to take out a loan to pay for us to stay in a national park.

    That $250K LOC is probably costing you at least $15k a year in interest, plus the property tax on your cabin. How many weeks a year do you use it? How many weeks could you stay at a KOA campground, state park, or national park for that $?

  11. “Apparently most people simply do not worry about making payments.”

    That’s because of the 11th Commandment “Thy house value shalt only rise”.

  12. Nah, it was in Deerwood, due east about a mile from Countrywalk.
    Sw 152nd Street.

    We had a small home in Brevard and fled. Watching the hurricane news, we said, that destroyed McDonald’s, that looks like our McD’s.

    And so it was. The anemometer at the zoo blew away at 164, I understand.

  13. Thank you for sharing your story.

    I do have a couple of observations. It seems from your description that you have found justification for the borrowing and spending, but the reasoning does not seem to match the results. You took out the money to “invest” in land, but it wasn’t an investment, it was the purchase of a consumer good that has not and will not ever show a return on the investment, certainly not one in excess of your interest rate. You were not following the advice of the experts, you were using their advice to justify getting something you wanted. The advice of these experts was not bad. Borrowing money from a home to invest in something returning in excess of your interest rate is a workable idea (it is difficult to execute, but in theory it is not a bad idea.) You didn’t do that. The best thing you could do is sell the property for whatever you can get and pay down the HELOC. When an investment goes bad, you cut your losses. I suspect you won’t do that because the property was never really an investment.

    The emotional reasons you used to convince yourself to spend the HELOC money (“redid a bathroom I hated,” et cetera) are very common. I imagine everyone who took money out of their homes has a similar story. The same arguments can be used to justify cars, vacations, and the like — you only live once, you know. You said you have something tangible to show for the spending, but one could also argue having the memories of vacations and non-tangible items is just as important.

    In the end, people who borrow from their house and do not acquire assets in excess of the value of that borrowing have spent the money. Now they have to pay it off, sell their house and hope someone else pays it off, or go into foreclosure and let their lender eat it.

  14. I’m not sure if you’ve heard of a thing called “parks” or “campgrounds”, or “hotels”. My parents took us on a bunch of vacations, and didn’t have to take out a loan to pay for us to stay in a national park.

    That $250K LOC is probably costing you at least $15k a year in interest, plus the property tax on your cabin. How many weeks a year do you use it? How many weeks could you stay at a KOA campground, state park, or national park for that $?

    Believe me I think of that every month. I think the point here is we were buying on emotion not sense. Are we managing it…yes. Could we have waited to buy until we saved more money? Yes but would we have missed the opportuntiy to use it with the boys. It is not a retirement home. It for breaking free of the city. A bigger house would not have alleviated our need for relief from city life. This was the realization we came too. Truth is we are paying now what we would have paid for the bigger house. It won’t make sense to many I guess, but we needed something different than most.

    Again with the experts…when you are told something over and over and over you start to think it is the right way to go. Hindsight is 20/20. We would still do it, but maybe a little differently. We feel like sometimes you do have to move forward with the decision right or wrong and not be frozen by experts or advice.

  15. “In 2002, they refinanced for $227,000 pulling out all their equity at the time”.

    OMG!! Banks were doing 100% helloc back in 2002 as well? This is news to me! If this is the case, I am sure we will hit the bottom below 2002-2001 prices. I am sure when more and more people get layoff pink slips and we fall in recession gutter, a lot of people who cashed out some or all their equity from home purchased around 2000 or later, will end up in default simply because they cannot support mortgage payments. payment on $200K home is manageable but if over the past period of 7 years one increased its debt by 100%, good luck!

    I consider myself fortunate to have dug myself out of this debt prison 7 years ago. When I graduated in 1998 and married 2 years later, I was piling on debt on my credit cards and I had $25,000 balance. That was the time we were looking to buy in Ladera ranch where new townhomes were for sale around $215K (year 2001). We decided to rid off the debt first. Well, we considered ourselves very unfortunate to have missed out on the opportunity to own a home and have substantial equity, at the same time we are glad that we chose to be financially responsible people. Today, I have no debt and have good cash and boy am I glad when I look at other people around me who are in deep trouble!

  16. Hmmmm wrote…
    ” It is a bit disingenuous for contrarians to call people stupid when they believed the “experts””

    Not at all. Actually, it’s rather stupid to believe “experts” when you know they not only have a stake in being “right” but that they don’t have your personal best interest at heart and, like experts in many fields, they can be wrong. Willful ignorance is no excuse.

    We all want things for our families. That need however doesn’t outweigh the ramifications of the decision.

  17. You haven’t really said anything different which refutes the remarks you’re responding to.

    In other words, you wanted it, you thought you deserved it so you did it. Oh, and you were misled by others.

    Am I missing something?

  18. I took out money from my HELOC to do an education IRA contribution and allow me to continue maxing 401k at a time when the wife wasn’t working after we had our 1st child and cash was thin.

    I’d expect the value of the assets I acquired with that money, both with preferential tax treatments, will far exceed the cost of the funds…

  19. “Why let that money sit dead in your house when it could be working for you somewhere else”

    Probably because if you leave it dead then you don’t pay additional interest for the convenience of borrowing it?

    We got a LOC for $150k. We bought some land

    You speculated the market and used bubble equity to invest in more real-estate. Lots of people did this and went bust.

    That said, many many people obviously took this advice and did the wrong thing…they spent the money on useless junk

    So it is OK to use bubble equity to buy more real-estate, but buying a Hummer H2 is totally WRONG.

    I am assuming that your logic is assuming this because real-estate only goes up in value. Otherwise, there is no real difference.

    My point is we feel we used the money wisely and we still have something to show for it.

    More debt and an additional depreciating property. The American Dream.

    Keep making those payments.

  20. Yes, blame the “experts”.

    The guy on the Fox News channel had the word “Expert” next to his name – he must totally be one then! Just like the guy wearing the white coat on the “Lose 50 pounds in 1 week while eating nothing but Pizza and Cheese Doodles informercial”

  21. You haven’t really said anything different which refutes the remarks you’re responding to.

    In other words, you wanted it, you thought you deserved it so you did it. Oh, and you were misled by others.

    Am I missing something?

    We did want to do it, I never said we thought we were owed it or deserved it. We weren’t misled by others.
    That would indicate regret. We don’t regret it. At least not today.

    We have never considered it an “investment ” in the traditional sense. We were investing in living I guess. It sounds stupid when I write it. I don’t think it’s an entitlement. We save and invest as we are told to do. We wanted to do somehting diffeent this time.

    As far as vacations and stuff. Sometimes you do what you know. My parents had a little lakehouse and we spent every summer there. We never went on vacation. Maybe once we went to a friends beach house. We bought the mountain place because that is what we know. Sometimes in life you jump in and see what happens. We still don’t know. We are trying to provide something for our family to enjoy and to remember. I expect we won’t know if we have been successful for some time. I hope we have a long time to build good memories.

  22. I cashed out about 15K (back up to 80% on a conv fixed) in 02 so I could put it mostly in gold mining companies. Have not regretted that decision, trust me.

  23. I’ve spending at least 3 hours a day looking for condo/townhome rentals in Irvine for the oast two weeks. Yesterday I found and researched 17 vacant units here in Irvine. What I found was both disheartening and terrifying.

    Through my research on sites like Realquest, I found that 12 of the 17 properties were UNDERWATER. 8 of these properties were built prior to 1999 so that means the homeowners kept sucking out cash. I can also see the recorded deeds. The properties that still had some equity still had large mortgages on them, sometimes two mortgages.

    Only one property was held free and clear. The home was purchased by an investor for cash from a foreclosure auction for 502k. Amazingly he listed the property for 569k but hasn’t sold it in a year, and now it is less worth than his initial investment. Aside from this property, only one other would be cash flow positive out of the 17 I researched yesterday.

    Even if these units get rented how long can the owners hold out? How long will they be willing to lose thousands per month in payments on depreciating assets? After this weekend I have decided it is too damn risky to rent from a private owner in this market.

  24. There are always “financial geniuses” that are advocating foolish ideas.

    Charles Ponzi, anyone?

  25. Mortgage Equity Withdrawal

    The new term should be Mortgage Equity Withdrawal Syndrome. Characterized by DTs, cold sweats, and panic attacks, brought about by overleveraging on a declining asset and possible looming foreclosure.

  26. I wonder what the HELOC money was used for. We’re all assuming it was for junk – fancy cars, new clothes, Carribean vacations, jewelry, etc. It would be interesting to know.

    Also, it would be interesting to chart HELOC withdrawals in OC with retail sales in OC. I wonder what retail sales would really be without HELOC withdrawals.

  27. I rent from an owner who purchased in the 70’s, and used to live here. She’s a perfect landlord. Doesn’t bother us, allows us to have a large dog, and only increases the rent rarely (and modestly). And has no debts on this home (or the one she lives in). Needless to say we pay our (quite reasonable) rent on time so as not to push our luck.

    That’s the kind of landlord you want to look for. They may be hard to find, however, since they’ll have a tendency to get “snapped up”. I wouldn’t give up!

  28. Most are letting themselves believe that it is all going to magically turn around in another couple of years, the music is going to start playing again, and we will all be taking out jumbo mortgages to buy houses from each other again.

    They days when we will all quit our day jobs and become realtors again.

    The days hen money gets tight, we’ll just call our mortgage pimps and have them inflate the value of our property and send some more cash.

    The days when there will always be a line of people waiting to transfer our debt to theirs.

    The days when people will not have to put any of their own money into a transaction.

    The days when the bank will accept all of the risk.

    The days when house values only rise.

    The days when adding a granite countertop to a kitchen doubles the value of a house.

    The days when we all get together to eat cheese and sip wine while talking about our networth while watching episodes of ‘Flip This House’.

    Oh yes, the good times are on their way. Just have to hold out a little longer!

  29. “He did the right thing and passed”.

    Remember people, “Friends don’t let friends make offers”.

    Good job Zoiks.

  30. Great stats, LM. Thanks. I went through the same process of searching for a new rental a couple of months ago — and ultimately elected to stay with IAC for the peace of mind. We got the pleasure of meeting a couple of these real estate barons/forced landlords in our process. What a collection of creeps. I wouldn’t have given any of these characters $1 dollar, much less a month deposit. Very unscientific survey on my part, but it seems to me like most of the flippers who got caught up in this mania were big time losers, who will now need to go back to flipping burgers or the insurgency or something. Good riddance.

  31. Wait a minute, wait a minute.

    How far out of DC was this land?

    It was bought a fairly long time ago?

    I’m from Balto, and it is at least possible that someday a profit might be made on the land.

  32. I think a lot of people underestimate the use of mortgage debt by self-employed individuals. Orange County is a haven for entrepreneurs. I read somewhere a few years back that there are more businesses in OC than there are residents. This translates into lots of MEW.

    How many people were encouraged to leave their 8-5 jobs and start their own business in the past 7 years? Those vacated jobs were then filled. If you are self-employed, the cheapest, quickest way to go was to take equity out of your house. The money is not taxed upon withdrawal, and the interest payments are tax-deductible.

    Sure there were many people who took money out to buy a 7 series BMW, designer jeans, and a closet full of Affliction t-shirts, but many used it for business. Now that the economy is slowing, and MEW is contracting many SE persons will fall on hard times.

  33. Thanks for sharing your story, Hmmmm.

    I think MEW to buy real estate is a lesser sin than using “equity” to buy a car or take a vacation. It *is* an asset, albeit one that is currently declining in value. Unlike a car or a vacation, it will not go to zero. Also, if you do it responsibly, you are shifting the equity in your primary home to equity in the vacation home, so theoretically, if you got in a tight spot, you should be able to sell and “re-capture” that equity. Of course, property values are now declining, so that may no longer be the case. Anyone who invested in real estate and didn’t take into consideration that property values might decline made a serious mistake. And with a higher debt load, you’d need to have the cash flow to make higher payments.

    I think IR is right in his critique, though. There’s a lot of “wants” disquised as “needs” or, dare I say, “entitlements” in your post. Your kids don’t need or deserve a vacation home. I bet few people on this board had vacation homes as kids, and most probably don’t have them now for their kids. That’s a luxury. And based on your story, it is a luxury you couldn’t afford without stretching yourself to your financial limit and risking your family’s financial future. Good luck to you. I hope it works out.

  34. Had an interesting conversation with a friend over the weekend.. She told me her two married kids, both couples with children have I/O ten year loans. I didn’t comment to her that both of her kids are essentially renting their homes from the bank! She went on to say that her daughters mortgage was $400K and that this loan was the only way they could get into the house. What strikes me is that both couples have 4 new vehicles between them. One of them drives a bimmer. I can’t fathom how midthirties people think paying interest only on a home is a good thing, while making car payments (probably on a six year note) on a rapidly depreciating asset. They also take very nice vacations and have toys. Blows my mind!!! Doesn’t anybody save money for anything anymore? Do people really plan to rent/pay mortgage on “their” home for 40+ years?

  35. I’ve often shuddered to think what IR would say about me if he ever profiled my house. We bought in 2001 on a 30 year fixed with a 10% second and refinaced a couple times as rates dropped. Each time I refinanced, the bank offered to waive our fees and closing costs if we included a HELOC, so we did. We never withdrew any money from them (and eventually paid off our original second balance), but the title reports will show an ever increasing second mortgage. In early 2006, we knew the bubble was peaking and it had been a while since we refinanced, so we opened up a very large HELOC to capture what we felt was the peak value of our home. The HELOC sits empty in case of an emergency, we’ve never withdrawn a penny, but if we had to sell today it would certainly be for less than the combined first and HELOC listed on the records. I’m sure IR would have some choice words for our stupidity and frivolity… :)

  36. You are talking about fairly sophisticated tax minimization strategies. I would guess that the vast majority of individuals possess neither the skills nor inclination to engage in such schemes.

    As a CFO your primary job is managing sources and uses of cash/financing. Using the bank model, by utilizing cheap sources of financing to invest at higher rates of return is fundamental to that process.

  37. Well, not that tax sophisticated. As a CPA for over 20 years, I’ve found that the more “sophisticated” something is, the less beneficial it is to the taxpayer (but more beneficial to CPAs and those who market the strategy – yeah for us!).

    Instead of an educational IRA – try an inflation protected savings bond. The income is deferred until withdrawn and is completely tax free if used for higher education expense. But here’s the pluses —

    If you choose NOT to use it for education purposes, the income is STILL tax deferred so you can cash it out after retirement when you are in a lower tax bracket. And it COMPLETELY state tax free (not deferred, tax exempt). So there is a lot more flexibility. Of course, you won’t hear about these as education savings vehicles because nobody makes any (of your) money recommending them. You buy them direct from the US Treasury at http://www.treasurydirect.gov.

  38. The land is 3.5 hours away in the panhandle of West Virginia. We had to look far to get out of the DC suburban area. It is actually closer to Pittsburgh.

    I think there is a small misunderstanding on my post. We didn’t buy the land to make a profit in it. It is really remote and I have a hard time believing we will make money on it at the end. While I don’t think land will always go up, I do think land will hold a value. More or less it seems these days.

    We bought it to give our children and us an opportunity that our parents gave to us. Is it a luxury? Yes I guess it is. But in honesty we didn’t see it that way. I do see it differnt now. We always considered beach vacations, crusies, skiing trips, private schools etc a luxury b/c we don’t do any of those. It is an interesting perspective b/c as has been pointed out we could have done all of that for less than buying the land and building the cabin.

    Well, we are in it now and we hope that in 10 or 15 years we will be able to get back out. We will just have to see. I guess we learn by doing … both good and bad.

  39. I would agree with the realtor if they took out the words “TO” AND “THE” in the phrase “REDUCED TO THE RIDICULOUS:.

  40. My theory is that any listing that has to tell you how low priced it is (i.e., “priced to sell” or “won’t last long”) is not priced low enough.

  41. Skek actually is following very sound financial advice. While you are gainfully employed and financially solid, it makes sense to open a HELOC as and emergency source of funds. The discipline comes in using it only for an emergency.

    Get laid off and need urgent surgery – use the HELOC. Kid gets accepted to Harvard and need some cash to cover tuition – use the HELOC. Found extensive mold in the kitchen and need a $25,000 repair/remodel – use the HELOC.

    We’ve had a HELOC on our place we bought in 1991 and never used it, but it’s nice to know it’s there if we have a true emergency.

  42. If the listing on your property read “short sale!!!!!” or “preforecloser!!!!!” then we would surely have a lot to say, it’s pretty much a guarantee that all of the HELOC money was tapped when you see that.

  43. Thanks, buster! Although Skekky’s definition of a true emergency is the 2009 Aston Martin V8 Vantage…! Now that’s an asset that will never decline in value. J/k.

  44. I would certainly look that way in the public records. I don’t think your house would be marketed as “preforeclosure” though.

  45. True dat. Btw, I don’t think IR is misreading any of his posts. There is plenty of ancillary evidence that these folks have done exactly what he says they are doing.

  46. buster – I wasn’t aware there were inflation protected educaton bonds. I do purchase EE/E bonds but they are not inflation protected per se like TIPS. Are you saying that the income is tax-free on TIPS if you use to finance education expenses? EE/E interest rates are variable at least, but they aren’t even equivalent to inflation…

  47. How do you know what they spent the equity money on? How do you know that it wasn’t spent on medical bills or the long-term care of an elderly parent? Leave your Irvine bubble for a moment and think about the large numbers of un- and under-insured in this country that more and more includes middle-class earners. You are very quick to pass judgement; and unless you know what they spent the money on, it is very presumptuous of you to take them to task for their debt, and I’m sure that regardless they are well aware of their predicament and don’t need your input.

  48. I am blown away by how much our economy under Bush’s reign has depended upon “phantom equity”.

    Wouldn’t that be something if all this unwinds during the rest of the year so that when Bush leaves office we will have a war in Iraq (similarily, the result of “phantom” WMD’s) AND the stock market is lower than what it was when he took office?

    That would be quite a legacy wouldn’t it!

    “The king, the king’s to blame…”
    Except in a democracy, the king is really a manifestation of the populace. So, really, we are to blame.

  49. Buying a depreciating asset with home equity is no different than buying a depreciating asset with a credit card. Debt is debt.

  50. In my opinion, the housing bubble was deliberate. What better way for the maladministration to keep the American public anesthatized, than to engineer the inflation of property prices.

    As long as the public was fat, dumb and happy with their bubbleicious appreciation and unlimited access to MEWs, they didn’t complain bitterly about an illegal war and the crony profiteers.

  51. I like reading stories like yours. It shows that people can be responsible and disciplined even when everyone else is not. Thank you.

  52. I was fortunate to find a good landlord, but I don’t live in one of the new communities. I would like to find a place in Woodbury, but I doubt it is possible to find a landlord who isn’t distressed there. Ditto for Quail Hill and Northwood II.

  53. Yes, the income is tax free if used to fund higher education expenses. This is true of all savings bonds issued today. TIPS are the same as any other savings bond except that they offer a fairly low 1% or so REAL rate of return. That is, they pay 1% or so plus a rate equal to the change in an inflation index (I think it’s the CPI, but I’m not positive.).

    They are so popular with big investors that the Treasury is now limiting the purchase to just $5,000 per year. It used to be $30,000 per year in electronic form and $30,000 in paper form but the rich people figured out what a good deal they were so they have to limit them now.

  54. So what you are saying is that there are circumstances in life that justify borrowing $400,000 against your house and losing it in a foreclosure?

  55. Do people really plan to rent/pay mortgage on “their” home for 40+ years

    No – they do not; that is the crux of the entire problem.

    The exit strategy for these types of people is not to pay the mortgage off. They plan to “make the payments” long enough for the house to double in value. Transfer the debt onto the next greater fool. From then on, it’s not their problem.

    They plan to make the payments “long enough”.

    Not a bad strategy if you bought in 2002 or prior.

    They will be sorry when they try to move in a few years.

  56. If you need to buy a car, and have equity, why not finance the purchase with home equity vs. an auto loan or lease? You can work that vehicle purchase into an income tax deduction…

    I paid all cash for my IS300 (long gone now that I have kiddies) back in 2002 via a HELOC and then refinanced my 1st and HELOC into a new mortgage in 2003. The effective interest rate on the financing for my car purchase is/was 2.5% after tax deduction, or 4-5% less than what I would have paid at the time.

    Personally, I’d rather less interest overall to anyone…

  57. Are you postulating that the realtor might be full of S and hyping the ad?

    Quite the cynical crowd in here today!

  58. hey buster, wondering if you can interpret the below:

    Education Tax Exclusion

    The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution.

    http://www.treasurydirect.gov/indiv/planning/plan_education.htm

    This makes no reference to the income from TIPS being excluded from tax, only EE and I. Can you point me to a reference somewhere that would indicate as such?

  59. It would make sense to do that so long as you were religious about paying down the balance every month.

    I see the average lamb of a homeowner buying the car on equity and paying next to nothing down; figuring the next guy to buy the house can pay for it.

  60. Borrowing against equity does make in California because of Prop 13.

    If -and only if- you borrow to rebuild, then the net effect is that you can build yourself an almost brand new home ( save one wall to call it a “remodel” ) and still keep the benefits of Prop 13.

    Look at it from my point of view ( copied by many others in my neighborhood ). You buy a 1500/2000 sq foot home. Live in it for several years and then when you want to move up, take an equity loan, rebuild the house and then refinance it all into a first.

    The end result is a “move up” home, a lower first mortgage than if you had bought ( you didn’t pay profit to some seller ) and MUCH lower real estate taxes.

    Of course this only works if you’re in the right neighborhood and you don’t already have the biggest house.

  61. One more question buster. It would appear that the income exclusion for EE and I bonds (I couldn’t find an IRS form to exclude the income from TIPS) is limited according to one’s income:

    http://www.irs.gov/pub/irs-pdf/f8815.pdf

    Is this true? Looks to me that if a married filing joint couple has a MAGI over $128K, they can’t exclude this income at all… Am I reading that right? That doesn’t seem to jibe with your idea of high net worth types using them to save for education. Wouldn’t high new worth types normally have a MaGI over $128K? I’m confused…

  62. Will the bank honor the HELOC now if the combined 1st and 2nd exceed the value ( or some threshold thereof ) of your home?

  63. Being a foreigner, I have the “luxury” of being an outisider, so I step back from the point where you are and ask myself:

    Where’s the outrage people?

    Why nobody is protesting?

    GWB is retarded, Why they don’t see it?

  64. IrvineRenter, you really outdid yourself today. A more complete picture of the economic situation in this country has never been delivered in a single post in any blog, in any article, anywhere. Your writing is superb, and the example of today’s sad little house illustrates the opening consumerism concepts you explained so well. This stuff is dynamite.

    I’ve worked at shopping malls for the past 7 years: Fashion Island, Tyson’s Corner, and back again at Fashion Island. I’ve been shocked at the amount of spending. People loaded with big shopping bags, and it’s not even Christmas. And the folks are so stressed out if the store is sold out of something, it’s the end of the world. Then you drive past the houses, and all the garages are filled to the brim with stuff, cars parked outside. There is a huge amount of retail therapy going on, not just in Irvine, but all over the country.

    Once again, I am looking forward to you and your wife’s housewarming party in Shady Canyon.

  65. I’ve thought about that — I’ve seen the reports of various banks freezing HELOCs and not permitting any more borrowing, so I could see them sending that kind of notice at some point (especially if things get worse) or refusing to lend the money if they thought I was over 100% LTV. On the other hand, this is a smaller private bank where I know my “relationship manager,” so I think they’d give me a chance to explain what I was doing before they shut me down. And on an income basis, it wouldn’t be a close call — I’d still be well below 3x income/28% DTI.

  66. I maxed my HELOC just in case OCTFCU decided to limit their downside risk and terminate my line.

    It’s costing me around a point every month on the $100K, but I feel so much safer having the cash it’s worth the piece of mind…

  67. It is very easy to spend 400T on medical bills, that is all I am saying. You should not presume to know what they did with the money. You can point out a fact without adding the drama of embellishment.

  68. JN, it’s an unfortunate sign of the times that this kind of simplistic, conspiracy theory nonsense passes for political discourse. “Engineer the inflation of property prices.” Do you have any idea how many different, independent parties had to act to “engineer the inflation of property prices.” Do you honestly think that George Bush called up all the banks, hedge funds, investment advisors, fund managers and wealthy individuals, including foreigners, and said “hey guys, I want to keep the American public anesthatized so that I can start an illegal war for the benefit of my crony profiteers — do you mind making billions in risky loans and then investing in them? Sure, eventually you’ll all go bankrupt and put the American banking system in jeopardy, but by then, I’ll have invaded Iraq!” Who forced each individual consumer to take out a risky loan and buy more house than they needed? Who forced people to leave their jobs and become real estate agents and mortgage brokers? Who forced people to buy houses in order to flip them? I could go on, but your comment is absolutely stunning in its stupidity.

    Let me guess, you think Bush is so diabolical and omnipotent that he could pull off the greatest economic con ever conceived, yet I’m sure you also think he’s too stupid to be president? At least your buddy the “foreigner living the US” thinks so. I bet you lay awake at night and see black helicopters circling your house? I bet you tell your friends in hushed tones about the time you were kidnapped by aliens and probed. The Bush administration has been a bitter disappointment in a lot of areas, but this kind of drivel is worthless.

  69. Dear foreigner, see above.

    So, Bush’s America is so bad that you leave your country to live here? You certainly don’t have to. Feel free to move to whatever country offers you more opportunities and freedoms. How about you worry about your country and we’ll worry about ours? Thanks for your concern.

  70. And when it really hits the fan, the next prez is left holding the bag.

    “Except in a democracy, the king is really a manifestation of the populace. So, really, we are to blame.”

    This presupposes we live in a democracy… but now I’m getting off topic. :)

    On a related note though – and I’m in the Portland, OR area – its hard for first time buyers who are only *now* first time buyers (i.e. not in the market at all during the last 4 years)… its hard to know where to start. I can see things have to cool off, even here – especially with condos which the market is *flooded* with.

    Still I know a house in 2001 sold for $170 and now they say its worth $300k… but then again, maybe it is? Its hard to get perspective. And at the same time, if that’s worth $300 — then aren’t these ones going for $340 in a cooler part of town a good deal? Especially if they were $399 a year ago?

    Its hard to get perspective without anything to compare things too, except for a roller coaster housing market… which, experts say, didn’t affect Portland.. where prices are still rising.

    Except they aren’t?

  71. Skek,

    Your comments are silly and aren’t called for. People work all over the world — in 1st world, 2nd world and 3rd world countries, get paid well, and can have a good time doing it. I’ve been ‘deployed’ to China and had a ball. It doesn’t mean there is more freedom or opportunity, etc. These are all just empty, subjective words people throw around to avoid criticism that makes them uncomfortable. People work all over and its their right to have an opinion of the environment they’re in.

    It’s a legitimate question. Where is the outrage? Well, one answer would be that it was partially muffled by a lot of monopoly-money that will shortly dry up. This has been alluded to in the comments and in the post.

    There are many legitimate answers to this legitimate question. But these don’t relate to the housing in Irvine, California so I imagine they would best debated heatedly on another blog.

  72. Protesting what exactly. Perhaps we should all dump fruit on the highways? That’ll show’em!!!

  73. “The economy did not grow through production, it grew through consumption.”

    Just to clarify, the economy usually DOES grow with consumption. Because the idea is that by increased consumption, there will be increased output and therefore more revenue and profit and disposable income, etc. The problem today is that the consumption increased without the increase in production. Or more accurately, the pace of consumption (increasing housing prices) was far greater than the pace of production (increased housing construction). People just decided to pay more for the same good, by leaps and bounds.

    By the way the GDP graph sums up very nicely the situation we are in today.

  74. I disagree that someone from another country calling the President of the United States “retarded” is a legitimate or useful opinion. I’d say that is what is “silly” and “not called for.” Frankly, it’s offensive. I think you are doing your best to spin the ramblings of a couple of idiots into a coherent argument (in part because I suspect you agree with the underlying conclusion — which is fine), but you ignored the content of my post in favor of arguing a straw man about working in China and you are putting arguments into JN and Foreigner’s mouths that they didn’t make. I suspect you could do a better job of “criticizing” Bush than they have, and reasonable people can certainly debate the government’s role in the bubble, but the kind of derangement exhibited above is hardly that. You’d do yourself a favor by distancing yourself from it too.

    I do agree with you that this debate is better suited for another forum, so I’ll stand down on the politics.

  75. I am going to reiterate my previous point IPO. MOST people don’t have the skills or discipline to take advantage of tax minimization and/or cheap financing. They better stick with cash investments and plain vanilla structures. Your model works great for you, because presumably you are fully aware of the risk exposures you are taking and the vehicles you are utilizing.

    In reality the financial gurus are 100% right on the idea of using home equity as a cheap source of financing to fund higher yielding investments. This is finance 101. The problems arise when things go wrong, markets like what we’ve seen this year erode principal and confidence.

  76. Tell me, what would I find in New Orleans exactly? Poverty, crime, the destitute, social inequality?

    C’mon, why don’t you go to Cuba, and then we can talk about protest.

  77. A better idea would be to visit Sudan. I’m sure its much worse there than in the USA. Don’t like the heathcare system? Try the healthcare system in Darfur!

    Personally, I hold the U.S. to a slightly higher standard than an economically crippled, 3rd or 2nd world nation.

    New Orleans is an open sore that has been left to fester. You’ve never been to Iraq pre 1991. You likely don’t have a friend who died there.

    If you think things in the US couldn’t have been handled better than they were, there’s not much to discuss.

    This is way off topic.

  78. Skek — hey – I am going to retract my vitriol as, for whatever reason, I really didn’t see the ‘retarded’ line in the original post.

    Urgh…. my disappointment in humanity just grew.

    Still the “don’t like it, move to another country” argument is a personal pet peeve. Calling people retards is a bigger one though. I’m sorry I missed it. It’s Monday.

  79. Ipop –

    The exclusion applies to the I-bonds (see original post, I called them “an inflation protected savings bond” instead of I-Bond, so I guess I wasn’t too clear.)

    If you are worried about the MAGI exclusion limits, you can put them in the recipient/beneficiary’s name (assuming the income of an 18-year old student won’t exceed the MAGI). And if you didn’t do that upfront, you can gift it to them later.

  80. Of course, if you have a decent income, you are probably in AMT so you really don’t get the income tax deduction for the MEW attributable to buying a car.

  81. Not always for fancy junk. I know some families who took excessive HELOCs to finance their kids’ college costs. Unfortunately, there was no other way to pay for their education. The family I am talking about is a working class family, sent 3 kids to college and it nearly bankrupt them. The first one got into his first-choice Ivy league (how could you say no?), second – to a very reputable out of state school, and the third – to USC film school (again, parents could not stomach telling the kid – sorry, you can’t go because we are too poor…) Kids were smart and got scholarships and worked part-time while in college, but at 30K/year + housing – this was still not enough.

  82. My garage is half full, but not with just plain stuff, it’s my kid’s rock band stuff: drums kit, guitars (2), basses (2), keyboards (2), amps (3), speaker cabs (3), mixers (2), mikes (3) and a couple hundred feet of wires and AC cords.

    It’s not stuff, it’s the future of Rock’n’Roll.

    And it’s LOUD! ;-D

    The amazing thing is that these High Schoolers already play better then the college bands of my youth. I’ve told my son that he’ll have no problems getting free beer once he gets into college…. but if I find out I’ll have to cut his allowance and send him into the Marines. ;-D

  83. I dunno about _that_ strategy.

    We maxed out our 401K loans but that’s our own money and we’re paying ourselves and hedging our 401Ks, plus we got some serious money in our credit union.

    Borrowing from someone else is making them rich.

  84. Eh amigo, I reckon you take yo’ “luxury” and git yo’ butt back to wherever you came from.

    If Dubya is so retarded then why is he on the White House while all you can do is post asinine stuff like that?

    Anyone who makes it to the White House is most definitely NOT a dumb person in any way, shape or form.

    Now, do you want to discuss French Democracy, the EU Parliament, Venezuelan Governance, Chinese Freedoms or Free Markets in the Asian Tigers? Then by all means say something. Otherwise I suggest you keep your useless drivel off to yourself.

  85. I’m not using the word “retarded” as an insult, I’m using it to describe a person unfit for the skill level that her job demands.

    And that’s the best 1 word that I have to describe the lack of intellectual coherency, sometimes dyslexic vocabulary displayed by GWB many times in public.

    Watch this:

    http://www.youtube.com/watch?v=Pa3J-L29iT8

    It wouldn’t be surprising that after he leaves the presidency they will find something wrong in him, as it happened with Ronald Reagan in his 2nd term of his presidency, when he was already showing signs of Alzheimer’s disease, it’s documented that he already was forgetting things, names or where he was or what he just did, but the white house didn’t say anything.

  86. For people that were offended by my comments, I can tell them that after living here since 2000, I can perfectly departmentalize the following 4 things:

    US presidency, US people, US foreign policies and Capitalism

    People from other countries think that all of them mean the same: a mean country thirsty for blood and natural resources of poor countries and its habitants are the same.

    And I tell to my countrymen, not all those things mean the same, sometimes they overlap but they are unrelated, and take out the US people of that, they don’t have anything to do with that because I’ve witnessed many times how generous and optimists they always are, that’s the American spirit, that’s what created the Americana lifestyle: music, food, art.

  87. Nice try. The man has lived under intense public scrutiny for nearly 8 years. Of course he’s going to make some goofs. You’ve written two posts on this board and they are both moronic and one of them is illiterate. Based on that track record, I’d take GWB’s intellect over yours any day, my friend.

    Your use of the term “retarded” was obviously meant as an insult to Bush. Further, it is offensive to anyone who suffers from a learning disability. Trying to claim otherwise is an insult to our intelligence.

  88. “If you need to buy a car, and have equity, why not finance the purchase with home equity vs. an auto loan or lease?”

    Because you’r then securing the auto with your HOME vs the auto itself. That’s dumb.

  89. Leave the name calling of our president to the people that were foolish enough to vote for him in the first place;-)

  90. You’re not entitled to say who stays or who leaves this or any other country, and as long as I obey the laws, as I’ve been doing it, I’m not leaving, amigo, and I’m as legal as you or your ancestors were.

  91. Who cares how you are securing the auto if you can save 4-5 points per month in interest?

    Actually, by saving the interest expense thereby lowering monthly spending, wouldn’t a person doing this be decreasing their overall risk of personal default? By purchasing this way, isn’t one actually reducing one’s financial risk?

    At least if you lose the house to the bank, you’ll still have the car! Might not be the case if the car was financed direct.

  92. Have you paid off your mortgage yet? If not, you’re still paying 2.5% after tax for your IS300, even though it’s long gone.

  93. Nah, I sold the Lexus to CarMax (great place to sell a used car by the way in my limited experience) and used that cash to help fund my SUV purchase. I am paying 2.5% on the SUV though… It’s gonna go up soon. I’ll be paying 3% once I refi, but that is still probably about half the typical auto finance rate unless you get a dealer finance incentive.

  94. I am no fan of President Bush and I am offended when a foreigner comes here and insults the U.S. It reveals a boorish clod, especially when it comes from someone who has been here for such a short time. Although the youtube videos are humorous, short clips, out of context can make anyone look foolish.

    I will say this about President Bush: He may not be stupid but I do think he is evil, untruthful, and he is certainly no patriot of United States.

    Before you flame away: ask yourselves this: is this war about protecting the lives of Americans and, if so, how you can reconcile an open border policy and these pictures with that position?

    http://www.abqtrib.com/photos/2007/may/29/5774/

    http://graphics.boston.com/resize/bonzai-fba/AP_Photo/2008/02/20/1203485368_2561/539w.jpg

  95. “How do you know what they spent the equity money on? How do you know that it wasn’t spent on medical bills or the long-term care of an elderly parent?”

    It would be outrageous for an elderly person to ask a child/grandchild/whatever to pay $400k for a few years of their care.

    In the real world, most people wouldn’t have the money to offer it, and most people wouldn’t have the available credit to do it. And even if they did, the “elderly” should do the honorable thing in that case. Most old folks I know absolutely do not want to send their families to the poor house to stretch their lives out longer. (Ask all the illegals around here what they’d do if their elder needed $400k of care.)

    That said, we really should offer a nationalized baseline medical coverage in this country. It’s an appropriate application of shared risk.

  96. The economy has only added medical jobs, hospitals grew, in the last 5-6 years, funded mostly by the baby boomers retiring and living off medical, a government entitlement. Everything else has shrunk and the expansion of any growth was all debt created.

    I just hate hearing how the government changed the definition of manufacturing, government started counting people who maker burgers at fast food places as being in a “manufacturing” job. The government then bragged ~150,000 manufacturing jobs were added to the economy last year. The government stopped releasing M3 data of the money supply, they have taken down economic websites that reported economic data from the Fed.

    The government is obfuscating the reality, this recession is going to be soo bad, whoever is president is going to have a huge mess and they will be blamed for it.

    About the analogy to Rome. Rome did indeed live on imports. They loved stuff from the East. Augustus bragged on his tomb as an achievement that he was the Emperor who opened trade to India. The Romans loved it. You can still find Roman GOLD coins as far as China, basically boats left Egypt along the coast to Arab states, India, traders took the coins as far as Vietnam and then even China. The empire survived on gold, all it flowed out of the empire. When the enormous gold mines finally ran dry the empire collapsed and they were overrun. I see that the US just prints more money. Germany knows better what happens, but they did it for strategic reasons to pay for the war reparations. Is the US devaluing the currency for strategic reasons, of course. The dollar is like a global currency, inflating it is like a tax not just on the American populace when their savings drop 15% purchasing power, but the entire world pays that price with their US dollars and bonds/debt in hand. The Chinese aren’t stupid, they will buy higher performing investments than bonds like the Arab and Norwegian investment funds do.

    I’ve come across a lot of people who took the money and ran, and others who drank coolaid and lost it all. A neighbor of mine took 400,000 over 3 years out of a house that eventually was foreclosed. It sold at foreclosure for 495K, those mortgage companies folded too.

  97. Yes, I took an equity loan in the hope that my business would be able to become profitable. It seemed like a reasonable thing to do. However it is really very risky, and I knew it, and it did not work out for me. If I had better options I certainly would have chosen them. There was no bail out for me, just the hard pavement, but I made money when I sold the house.

  98. People will do anything to feel rich for a while.

    Stay the night at the Ritz Carlton. It is a lot cheaper in the long run.

  99. Well, making improvement on raw land is a pretty good use of funds, I would say, but since it has not been finished yet, (a bank would not lend on it) you can’t say that you did the smart thing…yet.

  100. I used to think that to protest and demostrate was the American Way, like the Boston Tea Party, but clearly it is the exception. Most people are too busy paying bills to care, the rest too afraid of what people might think. The People are manipulated like sheep, and passed out spending money like little children.

  101. Bush is a lying war criminal who is directly responsible for the deaths of many thousands. The sooner that he is brought to justice, the better off for mankind.

    Signed, An American.

  102. Isn’t there something about medical that does not help the GDP? I mean the more money spent on medical is actually a detriment to the economy as a whole?

  103. Yup, #2 is right, especially the defined benefit pension plans. You were fortunate to be a part of this trend, but it’s all over now. From the Gen-Xers (and the youngest Baby Boomers) on, pensions are a dream of the past. I live waaaay beneath my means, but with the healthcare situation in its current state, and the absence of defined benefit pensions (at least for most of us), I will probably be working until I’m 80. Oh well.

  104. Do some more homework on how Greenspan of the Fed and the Bush administration pushed the ‘ownership society’ with lowered interest rates. Campaigns pushing home ownership started at the top. This stuff started after 9/11. Do some research instead of just namecalling.
    It’s not all Bush either allowing this mess to happen…Clinton upon the advocacy of Greenspan deregulated banking by repealing the 1934 Banking Reform Act and this allowed banks to gamble in RE debt derivatives…now trillion$ in worthless investment interest rate contracts. The Fed created this bubble with deregulation and non-regulation of derivatives and the underlying predatory and fraudulent lending practices that created toxic mortgage waste.

  105. Time to be aware of the corruption. There’s tons of off-shore accounts and plans to live in other countries. The elite are ‘international’. They are going to Costa Rica, Dubai, New Zealand, South America. The Nazis fled to other countries. Wake up. Don’t be so naive about reality you Bush/Cheney(neo-con) apologists and enablers.

  106. I could hook you up with mine. He is offshore and owns several properties. Has a brand new never lived-in available in Woodbury right now for $3,200.

  107. saved yourself in the end there. there is no lower case of stupidity then blaming the president for the downcycles or lauding him for the boom cycles. the economy is cyclical, period, stay in office long enough and you will have both.

  108. uh, the war is against a diehard group of powerhungry extremists who lust to murder Americans for our support of Israel and to force the withdrawl of troops from the holy land Saudi Arabia. Is it worth fighting them to support our ally and to be able to operate militarily from a position of strength? If so, in what battlefield would you rather fight them then in Iraq? Iraq is a much better field for the technically superior force than Afganistan.

  109. Are the “original prices” on this blog adjusted for inflation to present-day dollars? I saw a post a while ago where a 3 bedroom condo in Irvine sold for about $180K in 1979. That seems a little steep at nearly 4 times the median house price of 1979 in a non-superbubble housing market.

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