patrick.net

All that money is smoked and did not help economy when it needed most of it.

@E-man.

Thanks for the info (as always). ..too busy in Asia to have much time keep up, but glad to get the facts.

I think the original intent was for Homeowners to use that money to renovate their homes. I bet most people did that.

E-man says

Cash-out refinance is the best.

Can you still do that even if your first mortgage is underwater? Also, what about loan modifications? If it's really that easy to get out of it, most people would get out, no problem.

Most of them are interest only for the first 10 years. So even if enough people are unable to get out of their HELOCs (and I don't know if they are and how many), we won't see much HELOC-caused defaults in the next 2 years. People continued to refinance until 2008.

tdeloco says

I think the original intent was for Homeowners to use that money to renovate their homes. I bet most people did that.

You'd think that, wouldn't you? That's the way it was back east, when I took out a small HELOC to renovate/restore a fine old craftsman/folk victorian I had. Seemed there was a lot of scrutiny by the bank as to what I was doing with the money.

Then I moved to CA and what did I see at every turn? Regular folks with luxury cars, RVs, vacations, you name it bought with HELOC money. I actually thought it was illegal but no, you can spend your magical equity on anything, and there is no recourse if you default.

Just anecdotal but suffice to say, a lot of people got free money and didn't ever pay it back - and it's a travesty.

E-man says

It is golden to live in CA. No wonder why they call it the Golden State. :>)

And it's no wonder the state is bankrupt.

Thanks E-man.

So yeah, bankruptcies and loan mods can take care of the problem. Refis work if the mortgage is not underwater.

Are CA mortgages still non-recourse after refinancing? I thought they become recourse loans.

E-man says

He moved to Montana to retire & bought a nice property for cash in late 2006. Who cares about credit when you can pay cash.

I know someone like that too, he moved to Pennsylvania last year. Left his old property here for a short sale / foreclosure.

Bankruptcy seems like the #1 way to get away from these...

tdeloco says

Are CA mortgages still non-recourse after refinancing? I thought they become recourse loans.

Nope. It becomes recourse after refinancing, but it doesn't really matter unless you're a high networth person. Why? Because the bank can sue you for the deficiency if you walk away from an underwatered mortgage. Also, there might be some tax implications too.

American in Japan says

Bankruptcy seems like the #1 way to get away from these...

Actually, it depends. It's a case by case basis. One size can fit a lot of people, but it doesn't fit all.

Interesting and helpful comments...thanks for the info, especially E-man!