Middle Class HELOC Abuse

Country House — Blur

The posts we do on over-the-top HELOC abuse are gripping because the dollar amounts are so large. However, focusing only on the extreme cases gives the impression of HELOC abuse is an unusual behavior of a few spectacular cases. HELOC abuse is not unusual or uncommon: it is widespread, and it is going to pummel the middle class.

What possesses people to borrow and spend so much money that they lose their homes? The simple answer is that they didn’t think they would lose their homes. Most believed their house values would go up forever and their house would pay off all their debts. All they had to do was continually refinance with very low interest rates and service the debt will a little of their work income. It never occurred to them that they might actually be required to pay down this debt with their wage income. But even if people drank the kool aid and believed this pathological nonsense, why did they take the money out and spend it? Why not let it accumulate and build wealth? Our song today is about being caught up in the “rat race” and leaving it all behind for a house in the country. Many people who spent their equity were caught up in the rat race trying to “keep up with the Jones’s.” It is sad really.

I received an email from a reader some time ago telling the story of what happened to his group of friends during the bubble. A few of his buddies really drank the kool aid and began separating themselves from the rest of group. They were spending beyond their means acting rich and feeling superior to the members of their old clique. The remaining group that either rented or lived within their means remained friends and watched with amazement as their former friends spent lavishly entertaining the “in” crowd and worked to increase their social status. As you might imagine, the bills are now coming due and the housing ATM has been turned off. The illusion of wealth and status these people created is disappearing as well. Not surprisingly, the fiscally responsible members of the old circle of friends are responding with a mix of sadness and schadenfreude. Stories like this are more the rule than the exception.

Today’s featured property is a typical, middle-class Irvine house. Perhaps a little above median, but certainly the kind of home a family making $125,000 a year (middle class in Irvine) should be able to afford. It is another sad and common story of HELOC abuse on a middle-class scale.

6 Cabot Kitchen

Asking Price: $675,000IrvineRenter

Income Requirement: $168,750

Downpayment Needed: $135,000

Monthly Equity Burn: $5,625

Total Property Debt: $688,750

Purchase Price: $298,409

Purchase Date: 8/27/1999

Address: 6 Cabot, Irvine, CA 92620

Short Sale

Beds: 4
Baths: 3
Sq. Ft.: 2,061
$/Sq. Ft.: $328
Lot Size: 3,975

Sq. Ft.

Property Type: Single Family Residence
Style: Cape Cod
Year Built: 1978
Stories: 2 Levels
Area: Northwood
County: Orange
MLS#: U7004861
Source: SoCalMLS
Status: Active
On Redfin: 12 days

Cul-de-sac location. Home is in move-in condition. Roof is only 2 years
old. Cozy family room with fireplace. Motivated seller.



Like many stories of this type, it started during a time of fiscal responsibility and sane lending practices. The property was purchased in 1999 for $298,409 with 20% down. These people did not take their first sip of kool aid until 2003 when their refinanced their first mortgage and took out about $20,000. It must have tasted good because two months later they opened a HELOC for $85,750. Then in December of 2003 they opened two HELOCs for $137,000 and $10,000 respectively. In 2004, they succumbed to the full effects of kool aid intoxication and refinanced their first mortgage for $440,000. It is unclear whether or not this paid off the HELOCs. In 2005 they took out an Option ARM for $475,000, and three months later opened a HELOC for $100,000. Finally, In January of 2007, they took out a $580,000 Option ARM with a $108,750 stand-alone second. When they were done with these refinancings, the total debt on the property was $688,750, and the total mortgage equity withdrawal was $449,950 ($688,750 – $238,800 = $449,950.)

When you look at the photos if this property, I don’t think a reasonable argument can be made that these people spend nearly $450,000 on property improvements. With the frequency and size of the withdrawals, I think we can rule out investment or family catastrophe. It certainly looks like these people spent themselves out of their home.

So how widespread is this phenomenon? I don’t have any statistics. Perhaps someone can find out how many short sales or foreclosures actually sold for a profit. I do know that I have no trouble finding examples of these properties here in Irvine. I could profile one every day. Most of them are the ordinary HELOC abuse patterns like today’s sellers. It is widespread enough to force many distressed properties on the market and drive prices lower, and as prices fall, the problem will get worse as more and more properties become distressed by the falling values.

Do any of you have acquaintances, friends or relatives who have spent themselves into financial oblivion? What is their story?


(so the story begins)
City dweller
Successful fella
Thought to himself:
oops, Ive got a lot of money
Caught in a rat race
Im a professional cynic
But my hearts not in it
Im paying the price of living life at the limit
Caught up in the centurys anxiety

Yes, it preys on him
Hes getting thin
(try the simple life)

He lives in a house
A very big house
In the country
Watching afternoon repeats
And the food he eats
In the country

He takes all manner of pills
And piles up analyst bills
In the country
Oh, its like an animal farm
Thats the rural charm
In the country

Hes got morning glory and lifes a different story
Everythings going jackanory
Touched with his own mortality
Hes reading balzac, knocking back prozac
Its a helping hand that makes you feel wonderfully bland
Oh, its a centurys remedy
For the faint at heart
A new start
(try the simple life)

Country House — Blur

95 thoughts on “Middle Class HELOC Abuse

  1. cara

    Wow, they really like mirrors don’t they? I mean really, who wants to sit in a huge couch staring at yourself? Move-in condition? Taking down a mirrored wall is no easy task…

          1. Priced_Out_IT_Guy

            Vader: “Luke, you do not yet realize your importance. You have only begun to discover the power of your hidden equity. Join me, and I will complete your training. With our combined strength, we can end the destructive conflict of you being a middle class Jedi, driving a rusty Tatoonie Land Speeder and bring order to Orange County. Luke, join me, and we could finance a brand new 2008 Land Cruiser that could do the Kessel Run in less than 12 parsecs!”

            Luke: “I’ll never join you!”

            Vader: “If you only knew the power of the Dark Side. Obi-Wan never told you how much your house appreciated since ’96.”

            Luke: “He tolddme enough! He told me housing only appreciates 4.5% annually!”

            Vader: “No. Luke, your house appreciated 20% annually!”

            Luke: “No. No. That’s not true. That’s Impossible!”

            Vader: “Search your feelings, you know it to be true!”

      1. lawyerliz

        Hee heeheeheehee.
        Also, haahahahahahahah…..

        Also a hearty guffaw to all the respondents.

        Thanks az that’s great.

  2. Jill

    I don’t have any stories about HELOC abuse from my social circle. Most of my friends (like my husband and myself) are hell bent on paying down our mortgages as quickly as possible. We don’t have granite counter tops or a Navigator in the driveway (I wouldn’t be caught dead in one) or $500 pocketbooks (I bought my last purse for $20 on the strip in Vegas when the strap broke on the one I was using). We can afford more (we didn’t get the stimulus rebate) but choose to spend and live way, way below our means. I’m making red beans and rice for dinner today in my outdatd kitchen -it feels a lot better to have money in the bank than a Viking range.

    1. r€nato

      You’re awesome Jill. Got a cute, single sister? 😉

      There’s a social-life impact involved with being frugal (not the same as being cheap). So many people have bought into the Visa ‘live for today, don’t worry about the bills’ borrow-and-spend culture, you can literally be a social pariah for refusing to join in.

      1. r€nato

        …adding, my mother is a real pro at finding bargains at thrift stores. I’m talking designer label goods. She’s always dressed well and she pays a fraction of a fraction of retail.

        My folks have money now, but she still shops the thrift stores and I think that makes her mega-awesome in my book. She set a great example for me. Retail is for suckers 😉

      2. Jill

        Hey thanks Renato! Actually I’m the youngest but I have a cute 55 year old sister who is a widow. My parents were raised in the Depression and we grew up with a huge garden and a mother who filled the root cellar with canned veggies. I tend to gravitate towards friends with similar values.

        1. r€nato

          My mother was born and raised in wartime Italy, to a poor family; I think that explains her frugality, which has served her (and me) well throughout her life.

          Time and time again throughout my own life, I’ve seen examples of people who thought the gravy train would run on and on forever, only to find out that it almost always doesn’t, for most people. I could tell you so many stories along those lines… and that’s before the housing bubble/HELOC craze hit.

          I’m sitting in a pretty safe position today because when my gravy train was chugging along, I did some very wise things. I bought a lot of future security for only $40,000 back in 1995. I know of a friend who had a $70,000 windfall the following year… and he blew it all in a year. He’s not doing so well these days.

    2. buster

      Red beans and rice on Monday — you must be from New Orleans. Reminds me of living there and going to a place called Dunbar’s on Ferret. Real cooking by real people.

      1. irv

        If you have NOLA roots, any chance you attended the big annual crawfish boil in Westcliff/Newport Beach on Saturday? There were probably 200 people there…

    3. Tom

      Jill, why are you hell bent on paying off your mortgages as soon as possible? This is a common misnomer, that doing so is a “fiscally wise” act, when in actuality, there might be better options. Ever heard of discretionary debt? I just had to jump in here, and play the contrarian. “Owning” a home, outright, with no mortgage on it, is oftentimes *not* the best use of your money. It kind of sounded like you equated “paying off mortgages as soon as possible” with “makes good financial sense”, and that is not necessarily true. -Tom

      1. lawyerliz

        My house is paid off. It was a goal to relieve
        our minds, not to get rich off of.

        There are many worthy goals which are only partly

      2. Jill

        Hi Tom – I know that a lot of people think paying down a mortgage early is not the optimal financial decision to make but I’m not sure there is a safer vehicle for investment at the moment where we are guaranteed to earn 5.6%. We fund our 401Ks and have a large emergency fund in Emigrant. I don’t believe the stock market is going to perform well for the next several years so we’re paying extra towards the principal each month. We also would like to retire in our 50’s (we are 42) and that would be hard to do with a mortgage payment.

      3. Chris

        Not necessarily true ONLY if you can beat the mortgage interest plus the tax deduction that goes with it every single year.

        Stocks? Have you heard the word called *risk*? Perhaps you can perform better but not all the folks (including myself). My Schedule B outshines my Schedule D every freaking year since the late 90s (and that was BEFORE the tech bomb). Now you tell me whether I made bad financial sense by paying off my mortgage (well, I have none…I rent now).

        Oh well, I guess hitting 7 figure net worth by not doing the stock market is awfully weird…even perhaps outright a lie.

        Go figure……

        1. Nars

          Math check – You need to beat the mortgage rate MINUS the tax savings on an after-tax basis.

          Have you ever hear of Treasuries. With the 30 year (mortgage matching duration) bond at 4.57%
          and fed tax exempt, you’re in striking range.

      4. Don


        2 reasons to pay off the house.

        1. You are guaranteed a “rate of return” by paying off the house – let’s say Jill’s mortgage is 6%. Unless you can get 6% with a government guarantee, why wouldn’t you pay off the house? Sure, you may get more in the stock markets, etc., but you may also get far less than the 6% she is paying herself. Remember, when you invest in the market, you are essentially turning your money over to the idiots that created both the stock market bubble and the housing bubble.

        If interest rates go up to the point where Jill can exceed 6% on a federally insured investment, then she should consider other options other than paying off the house.

        2. Most people don’t know that at 62, you can get a reverse mortgage, but instead of taking the
        money out, you leave it in the reverse mortgage account, and it earns a form of interest, historically about 5.5% (tax free, and guaranteed by the federal gov’t). Assuming Jill’s house is worth $550,000 she would start with about $275,000 in her account – assunming she has no existing mortgage.

        If Jill is like most people today, she doesn’t have a pension (I read recently it is now down to 11% of Americans have a pension, which seems to low, but maybe). And if she lives to 65, there is a 20% chance she will live to be 95 (this number I’m sure of, and the perecentage tends to go up every year). Does she have alternative assets to carry herself that long?

        At 65 she can leave the money outlined above in her reverse mortgage, and start to tap it if necessary when she is in her mid 70’s, when she will have well over $500K. Even with inflation, that should provide for a comfortable living for the rest of her life. If it ends up she doesn’t use the reverse mortgage money, her heirs get the home – she does not start to pay interest until she takes money out.

        So by paying her mortgage off early, she is in the position to put away additional money for retirement once the mortgage is paid off, and can take advantage of the reverse mortgage in the manner I outlined above.

        Today about 35% of the people turning 65 have no mortgage – 10 years ago it was over 50%. This is part of the result of the madness over the past 5-7 years. I feel sorry for these people that still have a mortgage to pay at that age. Remember, you have to eventually pay off the mortgage, or conversely you’ve got to make a ton of money and have consistent strong returns every year, or you have to keep working.

        Tom, the key phrase in your comments was “there might be better options”. There may be, and there may not be. Some people are genuinely good at investments, however most people that think they are good are just lucky to have started/stopped some kind of investment tactic at the right time – I for one prefer the security of knowing that my assets are consistently growing every month.

  3. george8

    Since it is in a nice Northwood location, I’d give 5% increase compounded from 1999 sale price:

    $463K in 2008, $510k in 2010.

    A knife catcher buys it today at $610k, will lose $50k per year in equity for the next two year.

    Using GRM 170 and $3000 rent. it works out to be $510k as well.

      1. george8

        If this is the case, my estimate was way too optimistic.

        At $2500 and GRM 170, it makes $425k.

        1. westwood

          When did a GRM of 170 become the norm? I seem to recall 120-145 was the range, and to be very careful at 145.

          1. george8

            I thought a decent Northwood location might demand GRM 170. And imo it was confirmed by the inflation/growth adjusted price from 1999 as calculated above.

            If you use GRM 140 and $2500 rent, you get $350k. Even as bearish as I am, I do not think it will get there.

          2. IrvineRenter

            I have been using a GRM of 160 because with the lower interest rates, the GRM is a bit higher. If interest rates climb back up to 8% or higher, breakeven GRMs for an owner-occupant will fall to around 145 — which is where the market bottomed in 1997.

          3. Quincy k

            Finally, some logic spoken to the illogical. If two-year treasuries are yielding two, which is what many people believe will be the interest rate environnment for an indefinate period, any talk of 150 GRM’s will only be for undesireable and overbuilt areas.

            Trying to correlate 1997 with today’s precarious financial conditions is just ignorant.

          4. Surfing in Newport

            GRM’s are more closely related to the spread between mortgage rates and inflation. To the extent that the credit crisis is causing a higher spread, then GRM’s should be going down, not up.

      2. Chuck Ponzi

        I’m afraid you’d have 20 people lined up to rent it at 2500/month.

        It’d easily rent for 2900/mo within a week.

        Chuck Ponzi

    1. ipoplaya

      Someone will probably pay close to list for it…

      Price decreases aren’t coming as frequently as before and some buyers are paying 2005, even early 2006 prices:


      Mortgage rates are down again to start the week as well, making it even easier for to sign those purchase contracts.

      1. george8

        I do not doubt it – still plenty of knife catchers out there. The higher they pay to catch this falling knife, the more equity losses will be baked in for years to come.

      2. Rocker

        From CalculatedRisk:

        “It sounds like volumes are only increasing in the lowest priced, and hardest hit areas. Transaction volumes are probably picking up because of all the REO sales in these areas.

        This doesn’t mean prices have bottomed – especially in real terms – but the increase in transaction volume might indicate that most of the nominal price decline has already occurred for some low end areas.”

        Irvine is everything but low end, but certainly has been hit with REOs and Foreclosures.

    2. politrix

      What fundamentals is the 5% appreciation based on if this appreciated only 1.4% for the all of 90’s?

      5% still sounds like a bit like an ATM. That would make the house appreciate twice as fast as the money on your savings account.

      1. george8

        Historically, housing has been a good hedge against inflation. I used 5% as an educational call to illustrate some possible pricing outcomes.

        Many others have used 3% and 4% for this purpose. 1.4% might be too low from long term point of view.

        However, you certainly can use it to see what might happen.

  4. r€nato

    I don’t personally have any stories of HELOC abuse, but then I don’t live in Cali where it was really bad. During the two stints I spent living there, I did hear a lot of stories of people on the HELOC bandwagon and other stories where I strongly suspected that people were funding their lifestyles with the housing ATM.

    One of the reasons I decided southern Cal wasn’t for me, was the very pervasive ‘keep up with the Joneses’ ethos. As I pointed out above, it’s easy to feel like a social pariah if you refuse to join the borrow-and-spend culture; doubly or triply so in SoCal, I discovered. I know you aren’t all like that (especially the commenters here), but it sure seemed rather widespread and I’ve had that confirmed by California refugees I know.

    1. Formerbanker

      I don’t know – i think the “keep up with the Jones'” is everywhere – I’ve lived east coast and west coast, and have been here since mid-90’s. Have friends from all walks of life and levels of wealth//my observation is that the newer the community one lives in, the more prevalent ‘keeping up with the Jones’ seems to be, however. Consistent with my theory, seems more prevalent in Irvine/Ladera/Newport Coast type areas than say, an old town like Laguna Beach. There just seem to be more ‘new’ communities in SoCal than many other parts of the country.

      1. CK

        Keeping up with the Jones is indeed everywhere. Often people feel the need to come to IHB to point out something along the lines of “look at you shallow people in California — all y’all are gittin yours now”. I guess it is always fun to point your finger at somebody you percieve to be more f’d up than you, and the West Coast is an easy mark for the folks in tornado alley.

        I grew up in the Midwest, and have been in California since 1995. It’s no different here than back there. It’s just that back in the Midwest it was all about who had the biggest boat, RV, cabin on the lake — or even who spent the most time in church on Sunday. Here there is a pecking order by Bimmer series (3-5-7) or who has more cc’s of silicone stuffed in their chest.

        At its core it is all the same, just a different definition of what “keeping up” means from region to region.

        1. Chris

          It’s everywhere…even in f-ed up third world countries like you wouldn’t believe.

          If you have to keep up with the Joneses, you got a self esteem issue.

  5. NoWow!way

    It is hard to mine for that kind of information because finances are considered very personal.

    I will say that many people in the tech fields have been “under employed” for a number of years now. Outsourcing has hit many jobs in telecom and other service industries. I know people who have been forced into early retirement. Some people chose to pull money out to finance homes for their children or to finance college expenses. “Everyone” seemed to be living pretty well and I think there was a group think that the music wouldn’t stop. And if it did, it wouldn’t be such the nightmare that it is.

    Older homes like this one may have needed work on the roof, painting, tenting for critters etc… it is shocking how fast all that kind of stuff adds up.

    Serial refi’s have been a staple of the under employed. Wages for the most part have been stagnant for a number of years for a number of professions/jobs, too. I think many middle class people took on additional debt waiting for their job to “come back”.

  6. r€nato

    I think many middle class people took on additional debt waiting for their job to “come back”.

    All the more reason to live below one’s means… “the gravy train seldom runs forever”… I say this so often I begin to sound like a broken record and annoy people. I’m so grateful that – for a variety of reasons – I’ve been the kind of person who refuses to jump on the bandwagon just because everyone else is.

    1. MalibuRenter

      I went from a steady job to unsteady self employment. Six figures one month, no income at all the next few months, wildly volatile. Then one of my clients brought me onboard. I make more money than I’ve ever done before. Still, I have no illusions that it’s guaranteed for 10-30 years. My wife and I have saved a ton of money. We don’t want to have something like a job loss give us trouble.

  7. cara

    2 stories, one HELOC one not.

    While I tend to attract conservative friends, one of my friends attracts train-wrecks. She was unfolding one of these train-wreck stories to me this weekend trying to figure out how to help this woman (to which my answer was let her rent out your ample 2 room 3/4 bath basement and drive your old contour that you refuse to get rid of). And from the story, the best spin one could put on it, is that at the time her first son was born out of wedlock (by choice at a decent age like 27), this woman felt she needed to buy a condo in order to satisfy the state of virginia that she should retain primary custody over her son. Given that she’s now feeling that she has no choice but to give in to foreclosure (which may or may not be true), I’m guessing she overpaid for a condo she can’t afford and did so at a teaser rate, that may even have been interest-only. Then again given the rest of the story of her life, I want to tell my friend, run, run don’t walk away from this woman.

    The other is my oldest sister, who decided with her husband to get out of the rat race and build a house out in the middle of nowhere on his parents land, and have her raise the kids while he worked as a principle in a nearby school. This after giving up on jobs in accounting, which made plenty. Needless to say his salary and her freelance accounting and web design did not bring in the funds for the lifestyle he felt he should be providing for his kids. He then blamed this on her for not managing things well enough. Given her angry reaction to the fact that I will soon be in a position to buy due to the downturn, I’m guessing she must have funded their lifestyle at least partially through HELOCs. Because they built their house for less than $200k ten years ago, so there’s no other reasonable explanation for them having difficulty paying the mortgage twice last summer. What did they spend it on? Florida vacations, and farm animals (they have like 3-10 cows depending on new births, and maybe 10 chickens?).

    1. CPA1

      Yes, tell your friend to run away from the single mother and not help her. That woman obviously doesn’t deserve any help.

      Good for you.

      1. cara

        It was the other parts of the story that made me want to say “run”, that were inappropriate to bring up here.
        The financial problems themselves just indicate a history of being taken advantage of. After deciding that there was no good way out of her condo she decided she needed to “secure the family” car, a 3year old leased BMW. So she paid extra to buy it out of the lease early with a 5 year loan. A BMW, just what she needs when she may be getting a serious financial hit. And seeing a sucker in front of them, they sold her an $8000 extended lifetime warranty. She can’t afford this car payment, any more than she can afford a real mortgage payment, and now instead of being in a lease she could get out of easily soon, she’s underwater on a car now too. This is a woman who needs serious credit counseling. But where does she look for it? At online for-profit foreclosure specialists.

        All of that led me to say, lead her to real financial counseling help. But then all the stories from her sordid life come out and I say, okay she needs an overall social worker too. But the problem is, it’s really difficult to help someone who’s fighting so hard tooth and nail to keep the lifestyle she feels she and her kids deserve. On her current path, everything is going to have to crash before she can turn things around, and I don’t want her taking my friend down with her (as has happened to my friend before). And really, do you think someone who’s standard for “securing the car before my credit is wrecked” is a BMW, is going to accept the help she needs and my friend could give?

        1. Chill Bear

          Perhaps the father would be a more appropriate parent for her child.

          Given that she felt compelled to purchase to ensure the court awarded her custody, looks like he may have had a much stronger case than he may have believed.

          Oh wait… Dad’s an idiot. I saw it on TV.

  8. NoWow!way

    We’ve got a comp killer coming up in the neighborhood soon on Nutmeg. Older couple with less than 100k left on the property. The husband just passed away and they have chosen a realtor to sell. I don’t know what price they will list. But it will be listed to sell asap, I guarantee it.

    Another story:
    Steelcase is closing a division in OC and transferring employees to Texas, if they choose to move. Friends of ours are trying to decide if they want to keep their home in El Toro and rent it out or sell and move for good. Another old timer in their neighborhood who owed zero on the property killed the comps by asking for and selling for $150k than other comps. Of course it was very upsetting for all the folks in the neighborhood, but there is a sad understanding that the oldtimers HAVE put in their time and they can name their price. That particular home sold in three days with multiple offers.

    There is a couple in the neighborhood – both have lost their jobs and have some modest “consulting” that they do, but have been serial refi’ing for at least 4 years. They are “nearly” retirement age, but have essentially been forced to retire early. I predict that there are a number of boomers that will be in this situation.

  9. Crayzei

    One of my close friends got caught up in the real-estate boom. He flipped his house every two years and bought a bigger house. He also started to use some of his HELOC to fund other properties. In the end, he had five properties in three different states. His wife quit working to take care of their four kids.

    Even before the downturn, I told him to reduce his risk. He felt this was his big “chance” to secure a future for his family. He never finished college, and while he works in the IT industry, he’ll never make six figures in his line of work. I told him that he also had to protect his family.

    When the market started to go downwards, he put most of his properties up for sale. Unfortunately, none of them sold. He is now facing bankruptcy, and has had to move him, his wife, and four kids our of their primary home into a rental. All of his properties are in foreclosure.

    He is now bitter. He feels that the government, banks, mortgage companies changed the rules of the game. Before the downturn, he was told that he could always refinance b/c of his good credit. He felt encouraged by everyone to borrow more. When the credit markets tightened, he couldn’t get HELOCs to fund his outstanding mortgage obligations, and he couldn’t refinance at lower rates.

    I remember him telling me that he made $70K/year, but he had outstanding mortgages for $1.5MM. I asked him if that was too much leverage, but he assured me that he could handle it. I feel badly that he’s found otherwise.

    1. IrvineRenter

      “He is now bitter. He feels that the government, banks, mortgage companies changed the rules of the game. Before the downturn, he was told that he could always refinance b/c of his good credit. He felt encouraged by everyone to borrow more. When the credit markets tightened, he couldn’t get HELOCs to fund his outstanding mortgage obligations, and he couldn’t refinance at lower rates. ”

      The definition of kool aid intoxication. Thank you.

    1. Chris

      Better yet, maybe people will finally realize they need to act their interests/dividends payment to their bank accounts….why bother worrying about wages 🙂

  10. DeadBeatRenter

    My house has been on the market since Friday and not a single offer. The last house I sold in 2003 was sold in less than 3 hours. I don’t understand? It’s priced 30 percent below peak. :gulp:

  11. tenmagnet

    People constantly criticize the “keeping up with the Jones” mentality.
    However, that phrase is so over-used and always in the wrong context.
    Nobody wants to keep up, that’s a loser’s mentality.
    It’s about staying ahead, surging forward, and putting as much space between you and the Jones’ as possible.
    I think that’s more accurate, at least in my case.

    1. ipoplaya

      In honor of you Ten, I’m putting in an offer today… It’s definitely a trophy house, you would approve.

      Going to offer $100.00 over list although I suspect it will go for $100-150K over list so I’m going to come up a bit shy.

      1. tenmagnet

        That’s fantastic news Ipop.
        You used my favorite word again “trophy” house, so I definitely approve.
        In the spirit of the up coming Olympics, nobody is shooting for the Bronze.
        Way to reach out and go for the gold.
        Hopefully, you’re bold move will inspire others to reach for and achieve the dream.
        Good Luck with the offer, make us proud!

      2. irv

        Congrats and good luck, my man. I hope you don’t abandon IHB once you settle into that new trophy house.

        1. ipoplaya

          LOL, given it’s a best-and-final one shot REO deal and I expect to be beat out by many other offers, I don’t see leaving the IHB anytime soon…

          My offer is $465K below the late 2006 sales price on the house, or 33% off. Someone will come with around 75-80% below peak price I think.

    2. IrvineRenter

      “It’s about staying ahead, surging forward, and putting as much space between you and the Jones’ as possible.
      I think that’s more accurate, at least in my case.”

      I hope you reach a point in your life where you are only competing against yourself in a contest to live up to your own abilities. You will be much happier measuring your performance against your own capabilities than the imagined achievements of others.

      1. tenmagnet

        Doesn’t Happiness = You trouncing the performance and achievements of others with a spectacular performance of your own.

        1. IrvineRenter

          True happiness is found without comparison to others at all. The spectacular performance is much more satisfying when measured against your own capabilities.

          Although grinding a competitor into pulp does have a short-lived feeling of satisfaction that can be very intense, it is shaky ground for building one’s sense of self worth because there is almost always someone better. Also, it requires frequent doses of the same experience to maintain the high whereas peak performance as measured against your own capabilities does not.

          Do you ever obtain satisfaction from practicing your favorite sport alone? Do you find joy in making 10 consecutive free-throws or hitting 10 consecutive 300-yard drives even if nobody is there to witness it? I do.

          1. CK

            If I ever hit a 300 yard drive I would be very happy. But since I’d then never shut up about it, I suppose that isn’t a good example of “inner happiness”.

          2. ipoplaya

            Easy CK. Just make sure you have the wind at your back and a nice steep downhill fairway so the ball just keeps rolling and rolling…

          3. irv

            Wow, IrvineRenter vs. tenmagnet in a confrontation of IR’s karmic oneness against ten’s secular humanism. There’s something philosophically significant about this debate, I just don’t know what it is…

          4. lawyerliz

            Secular humanist is quite like buddhism.

            What ten is an epicurian, if you are feeling
            nice, or a follower of Dionysis perhaps.

            I am drawing a blank on the name of the Greek school of philosophy that held that pursuing pleasure was likely to make you happiest.

            Maybe epicurianism.

          5. IrvineRenter

            “If I ever hit a 300 yard drive I would be very happy. But since I’d then never shut up about it, I suppose that isn’t a good example of “inner happiness”.”

            I will admit, when I really nail one on the driving range, I occasionally look up to see if anyone noticed…

          6. Rocker


            I have arrived to similar conclusions as you.

            Regarding competition, certainly the competition is against yourself and you experience deeper and more permanent happiness when it comes from internal satisfaction and no externals are involved like destroying your opponent, what I like about competition is the challenge component of it, but competition is not the only source of challenge.

            What you are experiencing when doing something and feeling extremely happy and satisfied about it, is what positive psychologists call entering “in the zone” or “flow”, where you are completely absorbed and immersed in what you do and you are truly enjoying it, similar to what artists like painters, sculptors, musical artists report experiencing, and is one way to encourage in yourself truly happiness.

            Since you have an inclination about behavioral finance, also you are open to disclose your own emotions and the research that you have done to try to explain it to yourself why are you feeling that way (schadenfreude) and at the same being open to read material from Buddhism (again your Schadenfreude post is a good example of it) I want to share with you the following NPR audio clip about “Authentic Happiness” , this is something I found really interesting, specifically helped me to understand the “in the zone” or “flow” moments that I have lonely experienced, there are some cases being reported of people talking to themselves, barely eating, sleeping or drinking water, completely absorbed by the task that they really enjoy.

            Also you will find Dr. Seligman (Authentic Happiness book author) wisely talking about the 3 levels of happiness: The Pleasant Life, The Good Life and The Meaningful Life, I’m sure you’ll find them fascinating. Dr. Seligman books are not armchair speculation, his books are based on multi-year research.

            [url=http://www.npr.org/templates/story/story.php?storyId=1150359]NPR: Positive Psychology[/url]

            [url=http://www.amazon.com/gp/product/0743222970]Book: Authentic Happiness[/url]

            [url=http://www.authentichappiness.org]Website: Authentic Happiness[/url]

  12. MalibuRenter

    At a house I previously rented, the landlord refinanced several times while I was there (1998-2003). He bought the house for about $600k in 1996. He must have been well over $1.2 million by 2004.

    He had a compulsive spending problem, particularly home shopping. In the storage area were numerous unopened gadgets and small appliances. He also had gone from a good engineering job to being a cook and selling healthclub memberships. He was basically lost/rudderless and trying to figure out what to do.

    Oh, and the house was in Malibu, with an ocean view. I’ve known a number of people there who were very house poor.

    By contrast, our next door neighbor had refinanced several times, but always for the outstanding principal. They were paying $1200 a month for a nice place with a stunning view. They bought it for $230k in 1992.

  13. Blueberry Pie

    I have an acquaintance who has seemingly had unlimited cash for the past 7 or 8 years. He has moved houses multiple times. Remodeling each one. He has spent quite a bit of this time unemployed, or partially employed.

    We’ve never been able to figure out where all his money comes from. New boats, trucks and motorhomes every year.

    It’s been a big mystery. It’s hard to imagine that he’d even be able to service HELOC debt.

    1. Chris

      He’s probably living off dividends and interests.

      Try it with $3 mill generating approx 6% per year (and perhaps offloading the capital somewhere else where Uncle Sam can’t tax the earning) and you got yourself a nice living.

  14. Blueberry Pie

    I don’t think it’s drugs. But it wouldn’t surprise me to find out that he’s been subsidized by parents/grandparents. The only part that doesn’t make sense is that his brother seems to just scrape by.

  15. politrix

    For all the bearishness on this board, I still find it somewhat bullish. People are still talking about something that was worth $300k a few years ago going for $500k now? If Irvine is full of people like this then maybe the bubble will in fact never go away… But other than that I don’t see why this house would cost more than $350k for the next 10-20 years until we see *significant* devaluation in the dollar.

    1. required

      The reason this site comes across that way is because 90% of those posting here DO NOT live in Irvine. They are most likely living out in Phoenix and kill hours of their time adding to the comment count here.

  16. Jeff

    My ex-wife approached me a few months ago to ask for an increase in my child support payment. It appears that she and her husband drank the kool-aid. It was not only elective surgeries, remodels, and swimmning pool additions. He left his job in 2006 to start his own business in the construction industry. As you can imagine, now their home is in jeopardy.

    I offered to have the kids come live with me and my wife and we would not ask for any child support from her. That would not do at all and now she has decided to pursue the issue in court. I will keep all informed as to whether mortgate resets and HELOC abuse hold up in Family Court.

    1. lawyerliz

      Best of luck, Jeff.

      I have found family court judges even more whimsical, in a horrid kind of way, than regular judges, which is why I refuse to do that type of

      May I ask what state you are in?

    2. as

      good luck…..when the tech boom went down in 1999 my ex wife had taken her millions in the divorce and put it in that stuff. She lost her ass and went back to court…..the judge threw out the original settlement which was a year old and made me give her another half of what I had…….divorce court is not court……
      I think you stand a better chance on child support if it has been in place for a while.
      bottom line is that spenders are rewarded in divorce court and workers and savers are screwed. In fact that is what drove the divorce in the first place.

  17. TurtleRidgeRenter

    I know a family in the Chicago suburbs who spent themselves out of their home. They purchased their 1907 south-suburban arts-and-crafts era bungalow in 1985 for $25,000. Took money out of that house from about 2000 to 2007 to finance new Cadillacs, SUVs, and invest in a failing women’s workout gym. All the debt of the business came from the home. When the business finally failed in 2007, the wife was all stressed out (it was her gym) and they owed over $400,000 on their house.

    The house sold a couple months ago for $110,000. The family now lives in rental housing, the couple now works for other people, and the teen daughter never married her boyfriend, they had a baby, by not marrying she could qualify for ADC.

    1. TurtleRidgeRenter

      I meant to say: All the debt of the business was paid for by the home. (Taking on new loans on the home to pour into the losing business.)

      Also, the big home improvement project they did was to add a Jacuzzi hottub… in the basement! Ew. The humidity and drainage problems that resulted from this DYI “improvement” transformed the interior of the house into moldy mush. Hence, the $110,000 sale price this year.

    2. Laura Louzader

      An arts-and-crafts bungalow in the south ‘burbs that sold for $110K this year….. that would have to be Berwyn, Maywood, Cicero, Lansing, Evergreen Park, Park Forest- the least desirable part of the Chicago area. Only south and west city are worse.

      How on Earth EVER were they able to pull $400K out of a house like that in an area like that?

      From other points in your comment, I can see what a sense of responsibility they have passed on to their daughter.

  18. lendingmaestro

    HELOC abuse is everywhere and anywhere. That’s all I can really say. All walks of life, all income levels, property types and ethnicities.

    Debt, like Heroin doesn’t care about anything. My extremely bearish outlook on the markets in general is based on what I’ve experienced day in and day out far the last 4 years.

    You cannot underestimate the power of the collective mentality of the masses. People are capable of anything, no matter how stupid when they see others doing the same thing.

    1. springmom

      When we moved to Irvine about 6 yrs. ago, my husband kept asking where all the people who were buying homes got their money and how they could afford the outrageous prices. I told him I thought they either inherited homes or money, were really renting or were living off their credit cards since we knew that they could all not be doctors, lawyers, etc. I didn’t even know HELOC’s existed or that you could abuse them so much. The first time I read one of these HELOC abuse entries on this blog, I was absolutely dumbfounded. Then I thought back to a few years ago when I lived in Dallas and remembered a friend’s sister all of a sudden started living the good life by maxing out her credit cards and then just applying for new ones. She eventually filed for bankruptcy. You would think her family had learned, but no a few years later my friend did the same thing as her sister!

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