I heard this on the radio on my way home last week. A lady called a talk show program about her foreclosure story. I’m paraphrasing here:
The bank foreclosed my home recently. It was my family home of 35 years. I raised my kids in it. I love it. The bank was WaMu. I begged them to let me keep it but they wouldn’t work with me. I had a loan of $745,000. They sold the house for a little over $300,000.
Whenever the media talks about foreclosures, I conjure up an image of first-time buyers who bought their home in the last few years. They paid the market price at the time, which turns out to be too high by today’s standard. They got an adjustable rate mortgage with a teaser rate. After the rate reset to fully indexed rate, they couldn’t pay the full monthly payment. This story on the radio reminded me that’s not always the case. People can refinance themselves to foreclosure too.
I wasn’t able to find statistics on foreclosures from purchase loans versus from refinance loans. But because there are far more refinance loans than purchase loans, I’m guessing there are also more foreclosures from refinance loans than from purchase loans. In the case of this lady who called the radio program, she lived in the house for 35 years. 35 years ago, the house was probably worth less than $50k. If she took out a 30-year loan at that time, it should’ve been paid off already. She would’ve owned the home free and clear. What was she doing with WaMu on a house she owned free and clear? How could a house purchased for less than $50k end up having a $745k loan? Where did the money go?
Who’s the victim of this foreclosure, the lady or the bank? After taking so much money from her home, she calls the radio program complaining about how unfair the bank was. The best way to prevent foreclosure is paying the bank per the loan agreement. The bank is not interested in taking any house. The bank is interested in getting paid as promised.
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You are correct that the lady is an idiot. Houses are not cash machines, they are a place to live.
That said there has to be fraud all over the place for the borrowing to exceed 2x the value of the home. Who is responsible for oversight and enforcement? HUD? FBI? At a minimum, there has to be interstate mail fraud by several parties, which is a federal offense.
Harry Sit says
Ted – Just to be clear, the ~$300k selling price is the post-foreclosure auction price. At the time the loan was taken out, the house probably had an appraised value of over $750k.
A fool and their (borrowed) money are soon parted.
Agree with your comments.
People need to have some personal responsibility.
There may be some fraud in some cases, either on the part of lenders or appraisers or both. In this scenario, however, even inflated values and lose lending cannot explain the lack of sound decision making and middle-school level math skills required to manage your own income and expenses.
Monica Key says
I bought my house, and lived in it, making all payments….15 years later I sold it.
I had to fix it up prior to the sale, and pay a Realtor to sell it.
I wish I had taken out a second mortage equal to the appraised price for my home, and just walked away with that money.
I would have made a WHOLE LOT more money, without any of the hassle.