Foreclosure Mess: The Tragedy of the Re-financing Trap
by Maureen Wittman
used with permission
My husband and I have been house hunting lately; we need to find a house because of a job move. One thing that has struck me is the number of foreclosures we've come across. Almost half of the houses we've looked at are foreclosures or a short sale (the bank forces a sale to prevent foreclosure). Houses in the area we are looking are going for 40 percent below their asking price.
We saw a house this weekend that was purchased in 2000 for $241,500. It was remortgaged in 2001 for $239,500, again in 2004 for $250,000, and AGAIN in 2006 for $292,000. The owners now owe more money than the house is worth and the bank is forcing a short sale. It's on the market for $269,000, but my guess is that they'll be lucky to get $220,000 for it.
This sends my head spinning. Walking through the house, which my husband and I both fell in love with, you can see how this family got into financial trouble. They have brand new STUFF everywhere - roller blading equipment, ski equipment, motor bikes, hunting equipment, gorgeous furniture, and antiques everywhere. The house was beautifully decorated . . . but they're losing it all. They're being forced out.
We could analyze this situation all day long - is it the banks getting greedy, giving loans out to anyone and everyone? Or is it buyers not reading the fine print, people getting Adjustable Rate Mortgages (ARMs) when rates are low? But what it comes down too, in my opinion, is people wrapping themselves in materialism. The constant question and search seems to be, "How can we get more STUFF?"
Please, please, my dear people, do not fall into this refinance trap. I know many of you are living frugally and are responsible with your finances, but please allow me to remind you not to be tempted to go out looking for FREE money. It's not free! It comes at a HUGE price.
First of all, every time you refinance, you have to pay closing costs. It made sense to refinance a few years ago when interest rates were plummeting. You'd refinance to bring down your monthly house payment. But, what has been happening in recent years is: people refinancing for more money than they paid for the house. They can then use the excess money to make excessive purchases.
In the example above, the owners have zero equity in their home. I feel terrible when I walk through these homes. I know, as a buyer, I should be thrilled at the deals being offered to me, but these deals come via other people's loss.
I've said this so many times before, but let me say it again. Let's fill ourselves with the spiritual. Look for God to fill your soul so you don't need to fill it with material things.
Blessings, MaureenEditor's Note:
It can be very difficult to separate want from need, especially in a culture that measures success and worth by what you have, but for the spiritual well-being of yourself and your family it's critical.
What are we teaching our children when we buy a big house and throw our energies into decorating it to match some magazine-house image? Beauty in the home is essential to teach our children about the beauty of Heaven, but not at the expense of comfort and security.
What are we teaching our children when we buy a big house and put them in day care to pay for it?
What kind of pitfalls and misplaced expectations are we creating for their futures, when housing will not be a sure investment?