A week ago, Larry Roberts of the Irvine Housing Blog provided South Coast Homes with a HELOC (home equity line of credit) case that he classified as 
‘abuse.’
Roberts exposes HELOC ‘abuse’ cases on the Irvine Housing Blog and even rips into the homeowners who dared to borrow as much as they did, according to the public records he digs up and studies.
Roberts gave me some more examples of this ‘abuse,’ and I decided to throw them at Lender Norm Bour, owner of Mortgage Accelerator Plus of Laguna Hills.
Here are the cases Roberts deems as ‘abuse,’ and following those are Bour’s take on them from a lender’s perspective.
This home is listed at $1,295,000 in San Clemente Southwest:
- “The home is bought in 1989 for $605,000.
- Homeowners take out a first mortgage of $480,000 on 10/31/1997 and a second mortgage of $30,000 in the same day.
- Homeowners refinance the first mortgage on 7/30/2001 at $535,000.
- Homeowners refinance the first mortgage on 4/02/2003 at $650,000.
- Homeowners open a HELOC of $43,000 on 11/25/2003.
- Homeowners take out an Option ARM of $875,000 on 8/16/2006.
- Homeowners open a HELOC of $100,000 on 5/07/2007.
- Homeowners take out a stand-alone second mortgage of $10,000 on 12/28/2007.”
Here’s why Roberts says it’s ‘abuse’:
“This is the typical pattern of a HELOC abuser. Notice the numerous refinances and the steady increase in the mortgage balance. These people were making tens of thousands of dollars each year from owning their house. It was like having another breadwinner. The total debt on this property is now $985,000 which is just over double the mortgage debt they had in 1997.”
This home is listed at $1,650,000 in San Clemente Central:
- “The home is bought in 1996 for $317,000.
- Homeowners take out a first mortgage of $375,000 on 11/04/1999.
- Homeowners open a HELOC of $100,000 on 12/08/1999.
- Homeowners refinance the first mortgage on 8/28/2002 at $550,000.
- Homeowners open a HELOC of $300,000 on 1/06/2004.
- Homeowners refinance the first mortgage on 03/13/2006 at $850,000 (Notice it was the sum of the two previous loans).
- Homeowners open a HELOC of $350,000 on 5/11/2006.
- Homeowners refinance the first mortgage on 1/30/2008 at $1,400,000.”
Here’s why Roberts says it’s ‘abuse’:
“The original sales price is probably not correct. Even the records say the price is unconfirmed. Since there was a $370,000 first mortgage issued on the date of purchase, it is likely that the actual purchase price was greater than $370,000. There was no 100% financing back in 1996. You can see a steady increase in borrowing in increments from $100,000 to $350,000 up through January of 2008 when the borrower refinanced all the previous loans with a $1,400,000 first mortgage. This property had about $1,000,000 in mortgage equity withdrawal.”
Bour agrees with Roberts and says this is happening all over south O.C. but offers a different term:
“How about HELOC (or mortgage) stupidity, since that is really what this is. Abuse insinuates that someone took advantage of someone else without their consent or to perpetrate some type of fraud. In these situations that Larry mentions there are without exaggerations THOUSANDS of stupid victims and perpetrators here.
- Stupid #1: The lenders who made high LTV loans to anyone that could breathe. No sense in going into detail, this topic has been beat to dead.
- Stupid #2: The borrowers who thought:
a) that real estate would always go up so the piggy back (loan) was eternal.
b) that the 2/ 3 or 5 year ARM window was enough for them to be able to afford it when that adjustment came. They could barely afford it to begin with, so where was logic?
C) negative amortization meant nothing. It is counter intuitive to everything that I preach, which is mortgage elimination, not mortgage balance increases.
I could go on and on. I think his examples are 100% accurate and on the money and he could dig up this data until he exhausted himself. And this is NOT just a California, O.C. or coastal thing, it was nationwide.”
Click HERE to see other cases Roberts found in San Clemente.
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“Abuse insinuates that someone took advantage of someone else without their consent or to perpetrate some type of fraud.”
Since these borrowers are not paying this money back, and since we as US taxpayers are going to end up paying the bill, it certainly looks like abuse to me.
Perhaps since they may have “intended” to repay the loan–something that required a future buyer to borrow even more and pay even more–they did not intentionally perpetrate a fraud, but the results of their actions is the same.
“In these situations that Larry mentions there are without exaggerations THOUSANDS of stupid victims and perpetrators here.”
I guess this is quite common, isn’t it?
More common than you realize.
There is no point in bailing these people out! There crying wolf.
Tell that to Obama and Co.
Would someone be willing to compile these nation-wide abuse records and dump them on Obama’s desk for him to study.
Why are he and his administration people championing for these abusers’ causes?
Are they (Obama included) HELOC abusers themselves and in need of to be bailed out?
Just common outlaws.
or commom thieves.
How about an expose’ on what these “homeowners” did with the HELOC money? Vegas trips? College Tuition? Remodeled kitchen? Fake augmentations? I think it would be very interesting to see how they BLEW the money.
The big SUV’s or Hummers, the RV’s, the boats, the stay at home moms who lived off the refi’s. So much of OC is fake - fake augmentations (for mom and the daughters), fake teeth, fake faces, fake mortgages, but God forbid any of them carry a fake purse.
We’re glad we left and are back in the land of normal.
Common sense - You are very correct in your assumptions. I know a couple who now owe double what they paid for their Fullerton home because of her fake augmentations (cougar wife).
Hope those “boobs” and “buttocks” are worth the stress of being severly upside down!
I prefer the term “equity bandits” because that is what they are. They are common low life thieves with no intention of paying back the money. While taxpayers foot the bill for the bank bailouts and lose interest on money we are saving. The whole country and world is suffering because of the greed, dishonesty and outright theft by these “equity bandits”. Who needs to risk doing time in the Federal Pen when you can just keep refi ing your home and taking out money tax free every year. BTW, I don’t think most of these folks are sorry for their actions. They suffer from an extreme case of self entitlement.
please, who are the idiots who loaned the money. The banking business is 100% to blame in my opinion. Would you blame an 18 year old drop out if the Ferrari dealer leased him a car.
Every industry is responsible for their losses exxcet the banking industry, we have bailed them out twice in 20 years. Now we have to regulate the hellll out of them because they are incompetent to do their job. They loan to people who will not pay, give credit cards to people who will not pay, every industry is forced to evaluate its customer and take respnsibilty for dead beats, the banks need to step up and start doing their job.
Stick it to the man.
Not all HELOC borrowers are abusers. If used responsibly, HELOCs are good refinance vehicles. Yes, many people habitually used HELOCs as ATMs, but in many cases the lenders were more calculating and abusive than the borrowers.
I used my HELOC to pay off a rental (2% less interest then and now at almost 5% less) and to buy a Honda (lower rate than dealerships). However, I was stunned that my lender’s walk-by appraisal was 30% above recent flat-line sales. I actually asked if they went to the right house, the brown single-story with white trim. What about the weekly warnings that OC homes were 30% overpriced, not under?
I didn’t want that much. I used only what I planned. But it’s easy to see how lenders created a market for borrowers to get in over their heads and fall into the slippery black hole of low-cost, no-point refinances every year.
While I agree it is stupidity all the way around, the article wasn’t clear that the properties were in default. The first one listed anyway has the debt at well below the asking price and I guess the 2nd one as well since the analysis showed that the 1st included the total debt.
Of course many of us could see that this was stupidity and knew that home prices do not always appreciate so that borrowers can bail themselves out by refinancing, using their appreciation. And now we find out that it wasn’t just the lenders and borrowers, but the loans got sliced and diced and the supposedly sophisticated financial people who handled that slicing and dicing apparently didn’t do their due diligence before investing and so much of the financial institutions are in trouble (although some did not make those mistakes) and this spread to the whole economy.
And part of the scary thing is that while loose lending standards were a big part of the economic melt down, our President is pushing for loosening up lending so that people can spend more and boost the economy, ignoring the fact that loose lending led us into the mess. Not to mention the huge increase in the Federal debt with apparently no end in sight.