MortgagesUndressed

The trend is taking out equity through refinancing. Of course that is good for mortgage companies like ours, however, for a moment I will preach.

My wife says be careful here Larry, as we have done what I will now preach against. The situation you may be in may be devastating to you. You think, “if you can only pull out some equity you will be fine.”

You may be worse off is the case I ask you to consider. Especially if you refi into a loan with a prepayment penalty.

As I write this article my mind goes back to the two years I bought foreclosures. I was amazed at the situation people were in. I purchased one home on acerage for $200.00 as the owners were pulling out of the driveway never to return. We sold it 4 months later for a $30,000 profit. I can tell you of many other similar stories.

What amazed me was how unnecessary this was. The husband in the story above was a sophisticated real estate person. He had a large business at one time. Later I found him back selling real estate. He was no dummy.

However, he was crushed. The common denominator. The pressue of the bill collectors, the problems, the overwhelming situation caused him to walk away.

This didn’t happen in a day or a week. It happened with one bad decision after another. It happened because of pride. It happened because of lack of being real.

What I would rather see, than having more business of this kind, is to have people move down in value rather than lose their homes. Take the equity into something you can afford. Of course the reasons you snub this idea are legit:Kids changing schools, the hassle, and the dream of recovering.

You gamble your home coupled with the loss of your equity if not careful. I just remembered an attorney that did this, a client from long ago. Except he did it 3 times and out. He got himself into a business problem. He refused to give up. He refinaced 3 times. He ruined his credit. The fees to refiance plus the prepayment penalties ate his lunch and his equity.

Sometimes it works out fine. It just troubles me I see so much of it already. Larry Cragun, your friend.