125% Refinance Loans
by Tom on July 3, 2009
in Market Musings
Some more good reading about the pro’s and con’s of the new 125% refinance loans……
naked capitalism: Is the new affordable FHFA loan program predatory lending?
Yves said her piece about the new affordable FHFA program to allow home ‘owners’ in negative equity to stay in their homes……..I have another angle too. You’ll notice I mentioned Maria is no financial wizard. She probably does not appreciate the intricacies of mortgage finance. Here are two points to consider.
1. In the state of California, you can just walk away because first mortgages on primary residences are non-recourse. That means that the mortgage is only secured against the house you have bought.
2. However, in the state of California, refinance mortgages are recourse loans. What does that mean? It means you are on the hook for that loan. You cannot just walk away. The bank can come after you and take your car and the stocks in your E-Trade account. They can garnish your wages. They can even take your clothes and the shirt off your back, literally. The only thing they can’t touch is your 401-K. But it’s down 40% anyway.Why would you trade a non-recourse loan from which you can walk away for a recourse loan that guarantees you’ll end up as bad as some poor slob at Tappahannock? It doesn’t seem like an incredibly appealing choice, does it?
