Sunday, August 15, 2010

Where's the equity in this?

And whatever became of the old adage, "safe as houses"?

It seems people have happily consumed themselves out of house and home.

Debts Rise, and Go Unpaid, as Bust Erodes Home Equity
The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.

Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.

“Americans seem to believe that anything they can get away with is O.K.”

But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government.

“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.”

Keith Leggett, a senior economist with the American Bankers Association said, “We would love to change history so more conservative underwriting practices were put in place.”

Actually, there were many, many people, some in high places, who were all warning all the way along that there's no free lunch. They were ignored, ridiculed. By lenders and borrowers alike. Purposefully, arrogantly and foolishly, while the pipers played the tune, "Happy days are here again".

Meanwhile, those who have paid for their lunch, will also be paying the pimps, pipers and pikers alike for a loooonnggg time.

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