Comments on: Foreclosed Homeowners’ Rate of Return http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html like a friend telling you about money ... Fri, 10 Sep 2010 02:38:28 -0400 http://wordpress.org/?v=2.8 hourly 1 By: Wai Yip Tung http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html/comment-page-1#comment-2522 Wai Yip Tung Fri, 07 Aug 2009 17:40:49 +0000 http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html#comment-2522 Aha - Non-Recourse Debt! Learned something new today. http://www.investopedia.com/terms/n/nonrecoursedebt.asp Aha – Non-Recourse Debt! Learned something new today.

http://www.investopedia.com/terms/n/nonrecoursedebt.asp

]]> By: TFB http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html/comment-page-1#comment-2519 TFB Fri, 07 Aug 2009 16:58:35 +0000 http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html#comment-2519 Wai Yip Tung - Yes, it's possible. The lender has to sue the homeowner in order to recover the loss. In practice it doesn't happen even if the homeowner has money in the bank. Read more about it under "Legal system is swift but generous to defaulters" in the research paper I linked to in my previous post <a href="http://thefinancebuff.com/2008/10/why-the-united-states-is-more-prone-to-housing-problems.html" rel="nofollow">Why the United States Is More Prone to Housing Problems</a>. Wai Yip Tung – Yes, it’s possible. The lender has to sue the homeowner in order to recover the loss. In practice it doesn’t happen even if the homeowner has money in the bank. Read more about it under “Legal system is swift but generous to defaulters” in the research paper I linked to in my previous post Why the United States Is More Prone to Housing Problems.

]]> By: Wai Yip Tung http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html/comment-page-1#comment-2518 Wai Yip Tung Fri, 07 Aug 2009 15:59:37 +0000 http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html#comment-2518 It is gratifying to have $18k to spend on cars and vacation. But if the final outcome is no house and no cash, then I won't consider it a profit. What I really wonder is say I originally want to use the $18k for traveling around the world. Then I lost my job and living on my saving for 6 months. At the same time I watched the house price plummeted. I come to realize there is no way I can keep the house. The money is still in the bank, or maybe it is in a shoebox. Can I default and walk away with the money? If the lenders knows the cash is still there can they have a claim on it? The number that I've used is semi-realistic in my region. The number in your example is like toy money in my market. Just how sad for me to slave so much on housing :( I'm just curious if it is possible for foreclosed owner to actually profit from the house while the lender lose big money. It is gratifying to have $18k to spend on cars and vacation. But if the final outcome is no house and no cash, then I won’t consider it a profit. What I really wonder is say I originally want to use the $18k for traveling around the world. Then I lost my job and living on my saving for 6 months. At the same time I watched the house price plummeted. I come to realize there is no way I can keep the house. The money is still in the bank, or maybe it is in a shoebox. Can I default and walk away with the money? If the lenders knows the cash is still there can they have a claim on it?

The number that I’ve used is semi-realistic in my region. The number in your example is like toy money in my market. Just how sad for me to slave so much on housing :( I’m just curious if it is possible for foreclosed owner to actually profit from the house while the lender lose big money.

]]> By: TFB http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html/comment-page-1#comment-2516 TFB Fri, 07 Aug 2009 00:20:55 +0000 http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html#comment-2516 Wai Yip Tung - In a nutshell, yes, although the numbers don't have to be that dramatic and the money doesn't have to stay in the bank. Let me give a more realistic example. Buy a house worth $200K with 5% down ($10K) and $190K in 80/15 piggyback loans. When the value of house goes to $260K, refinance both loans to one loan at 80% LTV ($208K) and get $18K cashout after paying off the $190K old loans. The $18K can be used for food, clothes, cars, vacation, kids' college tuition and what have you. At the time of foreclosure, there's no money in the bank. The homeowner still made 80% ($10K down, $18K out). The lender theoretically can go after the homeowner for the deficiency, but they don't do that in practice because there is no money in the bank. Wai Yip Tung – In a nutshell, yes, although the numbers don’t have to be that dramatic and the money doesn’t have to stay in the bank. Let me give a more realistic example. Buy a house worth $200K with 5% down ($10K) and $190K in 80/15 piggyback loans. When the value of house goes to $260K, refinance both loans to one loan at 80% LTV ($208K) and get $18K cashout after paying off the $190K old loans. The $18K can be used for food, clothes, cars, vacation, kids’ college tuition and what have you. At the time of foreclosure, there’s no money in the bank. The homeowner still made 80% ($10K down, $18K out).

The lender theoretically can go after the homeowner for the deficiency, but they don’t do that in practice because there is no money in the bank.

]]> By: Wai Yip Tung http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html/comment-page-1#comment-2514 Wai Yip Tung Thu, 06 Aug 2009 19:21:00 +0000 http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html#comment-2514 The foreclosed homeowners made money? How? I thought they all have negative equity, and losing all their down payment, right?. Otherwise they would have sell the home themselves. Let me see if I understand the scheme correctly. Say I bought a 500K home with 0% down. House price then shot up to 1mil. I take out 300K HELOC. House price fall back to 500k. I default on both loan. My credit is ruined. But I walk away with 300K of free money in the bank? That's infinite returns on investment. Is it how one can make money from foreclosure? Wouldn't the lenders have a claim on my cash? The foreclosed homeowners made money? How? I thought they all have negative equity, and losing all their down payment, right?. Otherwise they would have sell the home themselves.

Let me see if I understand the scheme correctly.

Say I bought a 500K home with 0% down. House price then shot up to 1mil. I take out 300K HELOC. House price fall back to 500k. I default on both loan. My credit is ruined. But I walk away with 300K of free money in the bank? That’s infinite returns on investment. Is it how one can make money from foreclosure? Wouldn’t the lenders have a claim on my cash?

]]> By: Jeff http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html/comment-page-1#comment-2506 Jeff Wed, 05 Aug 2009 12:35:49 +0000 http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html#comment-2506 Of course walking away is a reasonable strategy. The mortgage loan is a non-recourse loan, the guy walking away got free rent, money to boot, and no extra liability. If you're loan is in default, I can only assume that your credit rating is already in the crapper, so there's not much more to lose at that point. Of course walking away is a reasonable strategy. The mortgage loan is a non-recourse loan, the guy walking away got free rent, money to boot, and no extra liability. If you’re loan is in default, I can only assume that your credit rating is already in the crapper, so there’s not much more to lose at that point.

]]> By: indexfundfan http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html/comment-page-1#comment-2501 indexfundfan Mon, 03 Aug 2009 19:44:17 +0000 http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html#comment-2501 Good idea. Sometimes you really feel that the financially irresponsible people are being rewarded. Good idea. Sometimes you really feel that the financially irresponsible people are being rewarded.

]]> By: Dave C. http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html/comment-page-1#comment-2499 Dave C. Mon, 03 Aug 2009 13:12:20 +0000 http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html#comment-2499 All I can say is, "wow". I suppose Wall Street doesn't have a monopoly on financial sneakiness, it looks like Main Street has a view tricks up their sleeves too. All I can say is, “wow”. I suppose Wall Street doesn’t have a monopoly on financial sneakiness, it looks like Main Street has a view tricks up their sleeves too.

]]> By: The Incidental Economist http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html/comment-page-1#comment-2497 The Incidental Economist Mon, 03 Aug 2009 10:19:25 +0000 http://thefinancebuff.com/2009/08/foreclosed-homeowners-rate-of-return.html#comment-2497 Such a good point. It isn't just the large financial institutions that can profit when times are good and get bailed out when times are bad. Doesn't the put option have some bad implications for your credit though? If one can factor that in to some calculation and show one is still ahead then maybe this is a rational strategy. Yikes. Such a good point. It isn’t just the large financial institutions that can profit when times are good and get bailed out when times are bad. Doesn’t the put option have some bad implications for your credit though? If one can factor that in to some calculation and show one is still ahead then maybe this is a rational strategy. Yikes.

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