Silently Craving — Michael Kiske

The Second Noble Truth of the Buddha is that all suffering is caused by craving. People who took out HELOCs to fuel consumer spending gave in to craving, and they are about to endure a period of extreme suffering in their lives. People crave for just about everything they believe money can buy: cars, boats, vacations, status, lovers, self-esteem, and many other things or states of mind. HELOCs enabled people to obtain things that would have been denied to them under ordinary circumstances. When people obtain objects of their desire, it leads to a temporary state of satiation followed by an even more intense wanting. It is like drinking salt water: you think it helps, but drinking it makes you even more dehydrated and causes you to crave water even more. Those that drank the kool aid of the Great Housing Bubble took out HELOCS and tried to satisfy the craving beast inside. It didn’t work. What is worse for them is that they are now accustomed to feeding this craving beast a steady diet of whatever it wants. Once this beast learns to feed regularly, it causes even more suffering when it is not fed. The HELOCs which bought the food to feed the craving beast are drying up. The housing ATM is broken.

It is my hope that profiling these stories of HELOC abuse does more than satisfy the beast of schadenfreude within all of us (that leads to suffering through separateness.) I hope these stories serve as a lasting lesson to people. It is common for people to react with envy to the rampant consumer spending these stories contain, but take a moment to consider the pain the hangover must be causing. These HELOC abusers are losing their houses, their lifestyles, their illusions of wealth, and their real money. Each of us must struggle between the unskillful desire to revel in their pain and skillful practice of feeling empathy for their plight. I know I do. It is important to move beyond schadenfreude lest we become trapped in the same feedback loop always needing another fix of someone else’s pain to make us feel whole and happy.

In the meantime, enjoy today’s post about another HELOC abuser who took out $600,000 over a 4 year period. Where do you think they will be finding that $150,000 a year supplemental income in this recession? 😉

Asking Price: $715,000

Income Requirement: $178,750

Downpayment Needed: $143,000

Monthly Equity Burn: $5,958

Purchase Price: $312,000

Purchase Date: 4/9/2002

Address: 1 Spring Buck, Irvine, CA 92614

Beds:	5
Baths:	5
Sq. Ft.:	2,200
$/Sq. Ft.:	$325
Lot Size:	3,024 Sq. Ft.
Property Type:	Single Family Residence
Style:	Traditional
Year Built:	1980
Stories:	2 Levels
Area:	Woodbridge
County:	Orange
MLS#:	S509664
Status:	Active
On Redfin:	194 days
Unsold in 90+ days

Gourmet Kitchen with pergraniteel.

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These homeowners did particularly well during the bubble rally. The bought the house in April 2002 for $312,000 putting a paltry $15,600 down. In March of 2005, they refinanced with a $446,200 first mortgage and a $100,000 second. This pulled out their initial $15,600 “investment” and put an additional $234,800 in their pocket. Then in October of 2005, they refinanced again and got a $711,200 loan pulling out an additional $165,000. Then, as if that wasn’t enough, they opened a HELOC for $150,000 in November of 2005. This was a hard working house, but it wasn’t done quite yet. In November of 2006, they took out a stand-alone second mortgage for $200,000 and probably paid off the HELOC. That is a total of $599,800 in mortgage equity withdrawal in 4 1/2 years. They put in $15,600 and took out $599,800. That is a good return on your investment, and it would have been if they had sold it at the peak. Of course, they probably thought the house would go on providing them with an additional $150,000 a year in income for perpetuity, and there was no sense in firing such a stellar performer. Since they didn’t sell and only “put” it to the lender, they will now have to deal with bad credit and the loss of that $150,000 a year income.

The Law of Karma states, “For every event that occurs, there will follow another event
whose existence was caused by the first, and this second event will be
pleasant or unpleasant according as its cause was skillful or
unskillful.” Taking out all that HELOC money might have been fun, but it wasn’t particularly skillful. If the Law of Karma holds true, these people will experience unpleasant times ahead. Personally, when the knowledge of their suffering only makes me feel sad, I will know I will have moved beyond my suffering caused by my own, unskillful reaction to the Great Housing Bubble. I am not there yet.

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The biggest fires are burning
And I will try to get back, I’m returning
You keep your head down singing
And all you get is over-pressure-craving

Let me try a word once known
Let me try a different tone
Touch me; do not drift with the flow
Silently it’s creeping in
Silently with no warning
Suddenly we meet the other shore
And there’s no more – to try!

Silently Craving — Michael Kiske

Tear the Roof Off The Sucker (Give Up The Funk) — Parliament

Tear the roof off? Remember when Jim Cramer said we should plow under the Inland Empire? That might be a bit extreme, but these lazy houses need to be punished somehow, don’t they? Houses used to provide a steady supplemental income, and now they don’t. Think about all the people out there who became accustomed to the free money their houses were generating. If I were one of them, I would be pretty angry.

Today’s featured property is another in our endless series on HELOC abuse. For any of you that thought this was not common, I hope all these posts are opening your eyes to the reality of the situation. HELOC abuse is everywhere, and these people are watching their supplemental income disappear which in turn is taking down our local economy. Are these cases the exception rather than the rule? It really doesn’t matter, does it? There are enough of these properties to materially impact the market. These are properties that would not ordinarily be for sale. They are added market inventory, and when they become REOs, they will be sold at whatever price the market will bear. Market prices are set at the fringes. It doesn’t matter if 95% of homeowners where responsible (they weren’t) because all of those who were not responsible are going into foreclosure and causing the precipitous price declines we are currently witnessing. The vast majority of HELOC abusers are going to lose their homes, and the resulting REOs are going to continue to pummel the market for some time to come.

So what happened to today’s sellers? They took out $726,500 and exercised their “put” option leaving the lender holding the bag.

Asking Price: $950,000

Income Requirement: $237,500

Downpayment Needed: $190,000

Monthly Equity Burn: $7,916

Purchase Price: $381,500

Purchase Date: 6/26/1996

Address: 7 Mountainbrook, Irvine, CA 92620

As-is condition and no interior photos? Hmmm…

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Why do I think these sellers gave up? They listed the property for $1,200,000 on February 9, 2008 which would have been enough money to pay off all their debts and commissions. When it didn’t sell (big surprise), they lowered their asking price to $950,000: they gave up. It is hard to feel too sorry for them. They had a good time while the rally lasted.

This house was purchased for $381,500 in June of 1996. They put 25% down and financed $285,900. That is a conservative, responsible purchase. On 12/15/2000, they had their first sip of kool aid when they refinanced for $420,000 taking out all their equity plus an additional 40 large. The kool aid must have tasted good because in April of 2002, they refinanced for $495,000 taking out another 75 large. In 2006, they got serious about getting that free money. In February of 2006, they opened a HELOC for $150,000. In June of 2006, they refinanced with an Option ARM for a whopping $868,000. That is an additional withdrawal from the housing ATM of $373,000 (including the HELOC.) Then in July, they opened another HELOC for $250,000. It looks as if they took out this money. The total debt of the last refinance and HELOC is $1,118,000. If they could have sold the house for $1,200,000, they would have would have broken even. If they hadn’t taken out the HELOC, why would this be sold in an As-Is condition for $950,000 with no other price reductions? If they didn’t tap the HELOC, a sale at $950,000 would still leave them with some equity. It doesn’t appear there is any more equity left for them. That is what happens when you spend that free money.

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Tear the roof off, we’re gonna tear the roof off the mother, sucker
Tear the roof off the sucker

Ow, we want the funk
Give up the funk
Ow, we need the funk
We gotta have that funk

Tear the Roof Off The Sucker (Give Up The Funk) — Parliament