Posted by Frugal on 30th May 2008
The recent article on calculatedrisk.blogspot.com is going to strike fear into irresponsible lenders’ heart. Stated income HELOC debt is dischargeable in the bankruptcy court. Oops! Where are they going to get their money back? And will they be ever so stupid again to do stated income loans?
Here is a segment of story:
The debtors, the Hills, bought their home in El Sobrante, California, twenty years ago for $220,000. After at least five refinances, their total debt on the home at the time they filed for Chapter 7 in April of 2007 was $683,000. Mr. Hill worked for an automobile parts wholesaler; Mrs. Hill had a business distributing free periodicals. According to the court, their combined annual income never exceeded $65,000.
In April 2006, the Hills refinanced their existing $100,000 second lien through a mortgage broker with National City. Their new loan was an equity line of $200,000; after paying off the old lien and other consumer debt, the Hills received $60,000 in cash. On this application the Hills stated their annual income as $145,716. The property appraised for $785,000.
By October 2006 the Hills were short of money again, and applied directly to National City to have their HELOC limit increased to $250,000 to obtain an additional $50,000 in cash. On this application, six months later, the Hills’ annual income was stated as $190,800, and the appraised value was $856,000.
The housing bubble certainly was great for many willing spenders who have simply taken advantage of the system and used up all the money that they can. Huge bills on credit cards paid off. New car after another. Constant vacations. Now what?
With banks and lenders taking all the losses, everyone loses. There is not many choices left. Hyper-inflation is probably etched into the rocky roads ahead already.
The saddest truth about the whole thing is that we can’t even jail these liars, because the jail is going to totally over-fill with all these liars and irresponsible bankers.
As I have commented many times, you just can’t squeeze money out of these deadbeats. If they’ve got no money (after they spent it all), they’ve got no money. You can ask them to work for 100 years at the minimum living standards, and they may still not be able to pay back the debts. Of course, such obvious truth was never apparent to Wallstreet bankers. They are too filthy rich to see or understand at the level of debtors.