"Americans Continue To Treat Their Home Like "Cash Cow" 

"How Do Many Americans Decide To Get in Debt and Not To Leave Any Legacy To Their Heirs".

Freddie Mac has reported that 82% of the homeowners who refinanced their homes in the first quarter got a mortgage at least 5% larger than the original loan.   The percentage was unchanged from that of the previous quarter and a little lower than the 86% level recorded a year earlier, the government-sponsored enterprise said in its quarterly refinance review. 

Homeowners extracted $460.1 billion in home equity last year, down only slightly from $461.4 billion in 2005.   The biggest chunk came from cash-out refinancing.  According to Freddie Mac data, the number of cash-out refinances was down in 2006, but the amount of cash received at closing totaled $313.9 billion, compared with $270.3 billion in 2005. Home sellers spent $70.2 billion of the cash they pocketed at the closing, compared with $78.7 billion in 2005.  Meanwhile, new second-mortgage debt totaled $76.0 billion last year, down from $112.4 billion the previous year.  Americans continue to use their homes like “piggy banks” to support their spending.  This misconception will cost them dearly when they retire.  It is imperative that homeowners understand that treating their home like cash cow”.

Easy access to cash is a danger for Americans, and lenders know that very well.  Lenders and credit card companies always find new products to allow people to get access to EASY CASH and get deeper in debt.  I truly think that option ARMs and Reverse Mortgages are a real disaster for homeowners.  When selecting the minimum payment option on the option ARM, the unpaid interest is added to the loan balance. 

Here is an example of option ARM payment options:

Fully Indexed Rate: 7.779% ( = index + margin )

So in the example above, a homeowner who has incurred a lot of debts, wants to start his own business, or is out of work can see his mortgage payment goes from $,796.04 to $833.13.  If lenders hadn’t come up with such products, homeowners would have had to find other ways to finance their lifestyle.  Either they would have to find a higher paying job, work extra hours or find a second job.  It would be much more difficult to buy a luxury car, expensive travels, big screen TVs, and expensive clothes or simply to get in debt.  Lenders are very smart. They will always find ways to give easy access to cash to people who do not understand how important it is to pay off his mortgage and to save money as opposed to spending money.

Reverse mortgage is also another way to give easy access to cash to people who never had any discipline with money.  To be eligible for a reverse mortgage, you and any co-owner must be at least 62.  WHAT IS A SENIOR-CITIZEN REVERSE MORTGAGE?  Instead of paying money to a home mortgage lender who loaned you money secured by your residence, a reverse mortgage is the exact opposite.

A reverse mortgage lender pays money to you, the homeowner.  But no repayment is required until you move out for longer than 12 months, sell your house or condo, or die.

Then the reverse mortgage “matures” and the lender becomes entitled to receive the principal repayment plus accrued interest.  The remaining home equity goes to you or your heirs.  This problem offers an easy access to cash to homeowners who have not prepared their retirement during the 40 years they worked.  People with no financial discipline pay a very heavy price and will never leave any legacy to their heirs and children. 

It is time for many Americans to think differently when it comes to money.  Many ethnic minorities like Indians, Armenians and others work very hard and have financial discipline.  Armenians tend to use cash as opposed to credit cards.  They save money, and pay for their kid’s education.  Instead of starting their life with debts their kids have zero debt.  Early on they understand how to use cash, and not to get into debt.  They duplicate the process over generation and thus can accumulate wealth.

Instead of using option ARM loan programs to finance their lifestyle, parents should save money every month and establish an emergency cash fund.  Instead of using credit cards to buy expensive items, they should take another job or leave the one they presently have that may not pay well enough.  We all deserve better!  Don’t stick to a job that does not pay you well enough.  Find another one or get a second job.  It is not hell.  In fact you will appreciate working hard and saving money and see your money grow if you invest.

What happens when easy money disappears? 

People have to find other ways to finance their lifestyle.  If banks, lenders, private lenders did not give easy money access to cash, people would not be in debt and would find other ways to live.  Credit cards, reverse mortgage, option ARMs and any type of loans is the laziest man’s way to live.  But it is also the most dangerous way of life and people will pay dearly when they retire.  Years from now social security will be the past.  Americans can no longer rely on social security to retire on.

Unless Americans change the way they treat their homes, and swindle their home equity, they will have to work past 70 to get more cash, they will end their live in poverty, they will leave nothing to their heirs and banks and lenders will increase their wealth.

The choice is yours!

It's All About You!