The almost unbelievable irresponsibility with debt displayed by
homeowners like today's is so amazing, so far beyond any form of
excusable behavior, that you have to wonder if it is right to forgive
it. If someone borrows hundreds of thousands of dollars against their
home and ends up with a short sale requiring the forgiveness of this
debt, how do you feel about it? Remember America's Debtor Prisons or
Are Short Sales Moral? These questions do not go away. Does a really
extreme case change your opinion about the subject? Let's see...

Asking Price: $1,195,000
Income Requirement: $298,750
Downpayment Needed: $239,000
Purchase Price: $397,000
Purchase Date: 7/20/2001
Address: 9 Soaring Hawk, Irvine, CA 92614

Beds: 4,  Baths: 2.5,  Sq. Ft.: 2,960
Type: Single Family Residence
MLS#:  S517428

So lets walk through the mortgage history of this property and see
just how bad HELOC abuse can get...
7-20-2001 The house was purchased for $397,000 with a first mortgage
of $317,600 and a downpayment of $79,400.
11-07-2001 HELOC for $48,000 taking out over half of downpayment.
8-26-2002 Refinance for $360,000.
11-26-2002 HELOC for $29,000
11-26-2002 HELOC for $71,000
6-18-2003 HELOC for $56,000
6-18-2003 HELOC for $100,000
6-1-2004 Refinance for 517,500 -probably paid off HELOCs at this
point.
10-22-1004 HELOC for 89,900.
4-21-2005 Refinance first mortgage of $624,000
4-21-2005 Refinance second mortgage of $156,000. Total debt of
$780,000 at this point.
9-12-2006 Refinance first mortgage of $948,750.
9-12-2006 Refinance second mortgage of $189,750. Total debt of
$1,138,500. No HELOCs

So there you have it. This homeowner went to the housing ATM 8 times
over a 5 year period and pulled out $820,900. Now they have a property
priced at a WTF asking price hoping they can find some knife catcher
to come pay off their bills. Even if you wanted to buy this house,
would you do it knowing that you were about to pay for $820,900 worth
of consumer spending (They may have spent $200,000 on the renovation,
but please spare me the BS about investment or illness or any of that
crap. Look at the pattern of withdrawals. They spent it, and you know
it.) I suppose the lender can always hope these people stashed some of
this money away somewhere to cover the shortfall at the closing table.
Doesn't seem very likely, does it?

Fed is trying to bail out and help home owners and financial
institutions, for what???

Don't worry.  Inflation will take care of it (if they can keep up with
their payments).  In 5 years $1M for that house will be a really good
deal.

There's plenty of blame to go around.  What about the loan officers
who approved this madness?  Oh yeah, they were only compensated for
the origination fees, not for the repayment of the loans.    Risk
analysis and underwriting standards also fell through the floor across
the board.

I'm not defending the guys who went to the HELOC ATM, but remember who
gave them the PIN and constant advertisements to go back when thinking
about this issue.

With a large incrrase in inventory on the way through forclosures,
etc, this run up seems inappropriate?!

I think so.  Everyone got such a huge sellable pop with the upgrade
yesterday.  I think it's time for reality to set back in and realize
that the stocks are probably going to at least pullback a decent
amount.

Position: Short HOV and LEN

This is nothing new, right in 98-99 the Gov't was coming down hard on
predatory lending and highrisk lending. This was also a big reason UBS
was boughtout due to smaller subprime lending. By 99-00 the number for
companies fined was 50, 01-03 400, and 04-06 it was over 200. There is
alot more behind the scenes and this is not the end. Level 3
accounting that started with LTCM, Enron was just the beginning.