Is it smart to use your home like a credit card by constantly refinancing?
The other day a caller said “I used a document preparer or bankruptcy petition preparer. Certainly they have obligations to keep my social security number confidential?” Unfortunately I had to say “Oh how wrong you are.”
In a New York Times Op-Ed article by Bethany McLean she poses the question “should the homeowner use their home like a credit card by constantly refinancing?” Ms. McLean reports that “(r)efinancing is a relatively modern phenomenon. According to Joshua Rosner, a managing director at the research consultancy Graham Fisher & Company, by 1977, only 8 percent of homeowners had ever refinanced. By 1999, 47 percent had refinanced at least once. By the peak of the bubble, homeowners were extensively using refinancings to extract cash. Mr. Rosner also points out that while homeownership peaked in 2004, home prices peaked in 2006, because refinancing drove up prices.”
By 1999, a staggering 82 percent of subprime mortgages were refinancings, and in nearly 60 percent of those cases, the borrower pulled out cash, adding to his debt burden.
Think about the information you are giving this stranger: all your financial information, your children’s names, bank accounts and your social security number. You do this without the slightest guarantee that the information will be kept safe.
Her article points out that “(a)ccording to a joint HUD-Treasury report published in 2000, by 1999, a staggering 82 percent of subprime mortgages were refinancings, and in nearly 60 percent of those cases, the borrower pulled out cash, adding to his debt burden.” Most of these funds were used to pay off higher-interest consumer debt, purchasing a car, paying for educational or medical expenses and a host of other personal reasons, including going on vacation.
Where did we lose the focus that our house should be the foundation of our financial security. It provides us a place to raise our children, celebrate with friends and family and sustain a reasonable lifestyle without the concern of losing this security. Somehow in the late 1990’s many people started using their homes like credit cards. Perhaps it is time to rethink what financial security means to each of us.
Side bar note from Diane – Last week (11/2014) I read a report that foreclosures in Arizona just increased by 20%. I don’t have any statistics, but more than 25 years of experience tells me that 90% of those foreclosures were refinancing debts. Today (8/2016) foreclosures have been stable, but it appears the loans that come due in 2017 will cause a jump. In addition, Fannie Mae sold a huge group of “non-performing” loans to financial investors which will certainly result in a new wave of foreclosures.
We have several videos on this site. This is one “Should I keep my house or go into foreclosure?”
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*
When a debtor is in Chapter 13 bankruptcy, it is not unusual that their monthly payments are made through a plan rather than directly to the mortgage lender. At the end of the year, the mortgage lender is likely to send Form 1098 (mortgage interest paid through the year) to the trustee, not the homeowner.
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