After six years of declines, lending for so-called Helocs will rise 30 percent to $79.6 billion in 2012, the highest level since the start of the financial crisis in 2008, according to the economics research unit of Moodys Corp. Originations next year will jump another 31 percent to $104 billion, it projected.
Uh oh, House Equity Loans Make Comeback
By Patrick Follow Mon, 26 Nov 2012, 10:37am 3,253 views 55 comments
In Menlo Park CA 94025
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errc says
I didn't say it was flawless, nothing is flawless. The upside far exceeds the downside. That is why you take the money out and your risk is limited to 30%, 20% whatever and let the bank have 80%. There is no clawback. The bank gets the interest (which is costing approx the rate of inflation) and I get the money
If you can think about the downside, what about the upside? Would you risk 300K for 5M-10M? All I can lose is 300K, my upside is unlimited. that sounds like a good bet.
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tatupu70 says
Well do you have any historical references that allow for an apples to apples comparison to our current situation?
I can't really find a point of reference to compare todays world to similar instances in history. How did we exit ZIRP the last time after 30 years of falling rates? Did we have similar imbalances in our population pyramid threatening a halt to perpetual growth? Were people in generally so heavily indebted? Younger folks with school loans, older/everyone else with cc debts and mortgage debts and auto debts etc.? Does any of that matter?
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Maybe on the heloc part but you can't heloc the entire mortgage and you can only deduct heloc interest up to 100k.
If you're investing over that amount, you can just move it to Form 4952 Investment Interest Expense Deduction.
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errc says
Obviously things are different now than they were in 2000 just like how things were different in 2000 than in 1990 and so on. Just wanted to point out that rising interest rates and falling home prices would be historically unusual.
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You mean we can get this sub-zero gigantic fridge for only $14/mth for 30 years. Lets get 2!
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SFace says
I think I have a pretty decent understanding of how leverage works, and what risk entails.
How is it possible to have virtually unlimited potential upside with such small risk? That sounds too good to be true.
Ill admit, I likely overthink things like this. That's the problem with having come equipped from the manufacturer with a brain that autonomously wanders and wonders over the implications of actions. History has taught me, that when something seems too good to be true, it usually is.
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tatupu70 says
And this is giving me deja vu tatupa. So long as we're musing about potential outcomes of the future,,,,,
Imagine a scenario where you woke up tomm and there was no place on the planet to borrow money to buy housing for anything less than 10%?
What affect would that have on house prices and affordability metrics?
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Dublin, CA
It would be nice if it were possible to organize a movement where people prepay the principal and live like poor college students for 7 years while they do it. Literally, outside of necessities throw everything into mortgage prepayments. Lets see how "fit" these businesses really are - lets witness who survives this consumer revolt induced recession. Those businesses that do will truly thrive several years later when consumer is truly deleveraged.
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SFace, I think that you are a very small minority in the HELOC world. If most people know how to USE debt, rather than BE USED by it, we might be in a very different situation economically. Thanks for the thoughtful explanations. It is good to know, and I might try to put it to use on a smaller scale someday.
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Kevin says
Just keep in mind your credit is constantly being monitored by your creditors either by hard or usually soft enquiry. If you overuse your credit these days it will be reduced in a FLASH. One creditor reduces your credit line which changes your ratio of available credit and leads to another creditor pulling back and it all falls like dominos, and so does your credit score. It's called Universal Default.
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bmwman91 says
I just tell it like it is even if it is something Patrick probably doesn't want to hear.
One of the thing I was vocal about is how useless Patrick's rent/buy calculator is. It's too one dimensional and applying it would be disastrous.
If you used that calculator, you would never buy in Palo Alto, San Francisco, which is exactly the opposite of reality.
In 2009, the default setting was 1% rent and 0% Appreciciation and 7 years ownership. You don't need a calculator to figure out the outcome. Rent is unknown, appreciation is unknown and even fixed cost of is unknown.
Renting is better than buying based on unknown scenerio, controlled results. you can make any outcome if you adjust the factors that come up with the outcome.
Well, there are other possible scenerio, what if rents go up by 8%, price by 8% and interest down? So focusing on the calculator is useless, spend the time to study what drives the outcome, study how our government and federal reserve react, weigh the risk with the rewards.
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You don't have to accept my assumptions. The calculator is extremely useful for testing various assumptions, all of the ones you mention.
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bmwman91 says
I think I hear someone laughing off the bow of their yacht.
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FunTime says
I'm on a BOAT motherf*cker!
(reference to an SNL sketch)
I'd be laughing too. Most people get used BY debt, to the advantage of those that give it out.
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bmwman91 says
I've taken to thinking it's not most, but all. How else do I explain the income of a banker, or financier, with little education and fairly common people skills?
Maybe it is just most, and that is still the difference between making thousands a year and making millions.
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SFace says
Unless, of course, you find the scientific method useful. You know, that method where you test hypotheses and learn? That method has a pretty great track record for predicting future results. It's what led to this situation where we can type at each other about how a bunch of smart people like us have incomes several orders of magnitude less than the people who simply hold our money for us.
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bmwman91 says
Well, we get to decide if we want to be the 1%er or the 99%er. Apparently, SFace doesn't fit the profile of the 99%er. :)
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E-man says
That is false. Unless you have no problem sacrificing your sense of self respect and whoring yourself out in someone elses game. But hey, some people really flourish in the role of a whore,,,,,
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errc says
Errc,
I wouldn't call it unlimited potential, but the potential return is very lucrative. It's in fact possible to leverage $50k to $100k and make $1M. We're well on our way to make it happen by the summer of 2013.
As SFace said, the goal is to transfer as much risk as possible to the lenders. Thanks to the recent upswing in real estate prices coupled with buying below fair market value earlier in the year, we will likely walk away with cash in our pocket when we do our cash-out refinance early next year.
Our most recent acquisition was $150k. We spent $2k to polish it up. Rented for $1,650. Comparables are $200k-$220k. You do the math with 75% cash-out refinance based on comparables. What if these units are selling for $240k by the end of next year? 12 months seasoning required.
So yes. You over think it.
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You guys are just being dishonest, whether or not its intentional or not is besides the point. You're not transferring risk to the lender. You are just fine with using the government as a weapn against the working class folks. The lender is not taking on any risk, they have already shifted all risk to the taxpayer, and your ilk seems to have no qualms with participating in the graft.
Enjoy it while you can, because it won't last!
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errc says
We are all whores actually. We exchange our time for money. So why not exchange it to the highest bidder. :)
I used to work hard for money. 12-20 hours per day were normal. Then I got a little older and saw better business models. The kinds of business model that keep generating income even after you've dropped dead. Real estate investment seems to be the low hanging fruit so I chose this path.
I can make money with OPM such as a HELOC or private hard money. I can use other people's credit to make money. I found my business partner right here on Patnet. Patrick, Iwog, SFace, EBguy and a few others on here know who my business partner is. Yes, I'm using his credit to buy investment properties. I share 1/2 of the profit with him. My rentals are generating a net positive cash-flow of $50k/year.
There's no shame in making money, and there is no such a thing as job security. Don't believe me? Ask edvard.
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errc says
Well, as long as you know when to get off the gravy train. Don't believe me? Ask Roberto & Zephyr.
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There's no shame in making money
Of course not, and if laying on your back and spreading your legs for a living leaves you sleeping well and can still look yourself in the mirror, well then more power to you.
I do take issue with some folks means of "making money", but that's a personal problem lol. As you say, if you can't beat um, join um. Fuck all to what's right and what's wrong. Some people go to church on sundays, some people vote democrat, to make themselves feel ok with their actions. I strive to do what's right in the first place,,,,,
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errc says
Not sure what we're doing is wrong. I'm a buddist and I go to the temple 2-3 times a year. I don't eat meat twice a month. I'm busting my behind to give my kids, nieces and nephews a head start when they grow up. I have to bend over backward sometimes to help my parents and my in-law parents because that's my responsibility.
How many of you spend $5k/month to pay for your parents' and your in-law parents' food, utilities, mortgage payments, property taxes, and insurance? Yeah, I didn't think there were that many of you. It's time to repay your parents for their sacrifices. Remember that an average baby boomer doesn't have that much savings in their bank account.
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I don't need to be reminded. My parents have no money, no retiremnet, no healthcare, they are renters and my dad is currently unemployed.
Not sure what you mean by "not sure what were doing is wrong". It sounds like you question whether or not its right though, but hey, plenty of people seem to easily stomach using the government as a weapon against their fellow man
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E-man says
Well, you're the one that said the above statement. I don't see what I'm doing is wrong or effing with anyone. I don't ask for the government to back my losses. Insolvency will take care of all that. Isn't that right iwog? :)
Like you said about your parents' situation. I strive hard to make sure that the previous generation, my generation and the next generation don't rely on the government. Real estate just happens to fit my business model, and the opportunity presented itself when I was ready.
Remember I was a newbie investor 4 years ago. Not only I know how to find deals below FMV, I learned how to buy properties at the courthouse steps while 99% of the realtors and brokers don't know how to do it although they have been in the business over 30 years. It was the will and determination that led me here. Nothing more, nothing less.
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And you took it out of context. Its all in your head
As you say, if you can't beat um, join um. Fuck all to what's right and what's wrong.
I take issue with this cavalier attitude people take towards being trapped within a system (of corruption). Fuck all to what's right or wrong, I'm not free to decide what's right or wrong, the system decides for me. :)
Personally, that's as anti american a mindset as someone can have, but that's just a personal problem. I'm going to bed, good luck eman
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do you consider transferring student loan debts to personal debts, then filing for bankruptcy and passing the costs to the creditors who in turn pass the costs to other consumers, the right thing to do??
this "American mindset" is so confusing.
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errc says
Of course it would be horrible for house prices and affordability.
Imagine now what the probability of that happening is? I'd say it's about the same as aliens landing in Washington--thus my previous statement.
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Dublin, CA
When someone takes out a heloc or does a cash-out refi, isn't that just basically getting cash that you have to pay back? Seems to me like it's a form of debt, no? It's definitely not like getting free money in the bank account. So why is it being discussed and treated as some sort of gravy train?
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dublin hillz says
As long as you operate on the assumption that the house never goes DOWN in value, you can always sell it to pay back the loans. Some call it gambling, some call it investing. I think that it just depends on the perspective of the participant. If the house does go down in value, you can always just walk away and file bankruptcy. SFace or E-Man can clarify, but I think that the bank cannot go after the money if it was invested in certain things. People that use the money for boats and cars are the dumbasses because those can be repossessed and then they are left with nothing at all.
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dublin hillz says
You are correct that equity to cash conversion is just a transaction to borrow from yourself.
The key is the cost...
10-20 years ago, that cost was burdomsome. 6% - 10%
now, not so much. When cash cost to borrow (say 2.5% net of tax deduction) is running at a rate less than inflation (say 3%), borrowing is an asset.
Would you loan me 200K at the rate of 3% (Prime +1) where you retain secondary collataral and I have the option to prepay or never pay back (other than the revolving portion) anytime? If you say hell no, then the other side is obvioulsy a hell yeah. Do you know how else you can borrow large sums of money for less, not even close.
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dublin hillz says
It use to have to be paid back, but not in today's world.... The current trend is to cash out refi or take a massive HELOC and stop paying.....
When you finally get kicked out with the foreclosure, you take all the extracted cash from the refinancing plus the money you saved by not paying for years and you go buy a nice house in the hills with CASH!! No recourse, just mortgage forgiveness!!
What a country!!
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E-man says
Parents should consider the children they bring into this world a life time committment, not have them in the hopes they will be taken care of in their old age. What a loser mentality! Your parents and other relatives obviously didn't plan for their future well enough. That's THEIR bad. They're lucky to have someone like you. Unless I was fabulously wealthy I'd save my money for my wife and the children I brought into the world and let everyone else eat cat food if they refuse to figure a way to make it in this world. IMO all these mooches in your life are laughing at you behind your back at best and resenting you at worst.
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bmwman91 says
i hear in CA trustees can go after your IRA if it involves in questionable activities and there is a limit on how much you can put in your 401K per year.
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errc says
Me and Eman comes from up a competitive environment, if you don't fight for it, you're not going to get it. Have you ever felt what it is like to be mediocre in a sixth grade exam and permanently fall off the education track at 12 years old? You're not school material at 12 years old?
Society has changed and it will be more competitive, harder. That's just the reality of it. My father had the same vision 20 years ago, the next generation will be harder than the last. Working hard is a commodity, you can pay anyone to work hard, making smart goals, smart decisions and execution is the real difference maker.
The US is a great country, you earn wealth and you essentially keep it for generations if your kids don't screw it up. Japan took everything from China during WWII just like someone from Saigon can be rich to bum overnight during the fall of Saigon. Who knows how the US ends up, but it is by far the most stable country in the world and there is a chance to change lives for generations. Money and assets do not stop working. A smart person don't suddenly become dumb and what you learn and experience will become your asset. (unless of course certain brain conditions)
In the end, you either give to charity or become a charity case. You'll have to take care of yourself first before you can be an asset to others.
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errc says
I guess I don't read enough of your post to understand your personality. If it were from SFace, Iwog, Roberto, Troy, Bob, tatupu, or BMWman, I would understand without an issue.
My apology. Have a good night the day after. :)
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ELC says
What can I say? We just don't share the same family value. Helping comes from the heart. You shouldn't wait for your parents to ask.
Good luck to your parents and your in-law parents.
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E-man says
Don't get me wrong. I've given plenty of money to friends and family when they really needed it. "Having has more to do with giving than receiving." It's just not to do it on a continuing basis where they become dependant on you while cutting into your own ability to save. Same goes with Government aid. They get dependant on the money then resent the Goverment for keeping them down. Then when the Government will eventually be forced to make cuts it will be trajedy.
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E-man says
I know how each of you voted in the election.