Where Did That Money Go?

Where Did That Money Go?

One of the rapidly growing sources of anger about Obama's mortgage relief plan is that it will tax those of us who were responsible to bail out a lot of people who are in over their heads for no particular good reason. I've mentioned in the past the strawberry picker who makes $14,000 a year with a $720,000 mortgage.

True, there are people who did nothing wrong, except buy a house at the wrong time. People lose their jobs, get transferred--and discover that they can't sell their house, except at a loss. The house we sold in West Boise last year, while not at a loss, returned very little more than the down payment we made in 2001. If we had bought that house in 2006, it would have been very, very painful. I can sympathize a lot with people in that situation.

The problem is that there were a lot of people who were in over their heads for absolutely no good reason at all. People who bought real estate not to live in, but to flip in 3-6 months and make $100,000 profit. People who made false claims about income or assets to get mortgages, on the assumption that somehow, the rising market would let them get away with this. Michelle Malkin shows the documents associated with ACORN's poster child of the moment, Donna Hanks (who just coincidentally, works for ACORN). ACORN has decided that they can break into the house that Hanks lost to foreclosure, and refuse to vacate. So how did Hanks get in so much trouble that her house was foreclosed as part of her bankruptcy?

According to real property data search information, Hanks bought the two-story home in the summer of 2001 for $87,000. At some point in the next five years, she re-financed the original home loan for $270,000.
Question: Where did all that money go?

You know, if you buy a house, and refinance an existing loan to get a better interest rate, that makes lots of sense. I can somewhat understand the person who takes a home equity line of credit. (This is usually abbreviated HELOC, which is very close to "helot," the Greek word for slave--a curious coincidence.)

If you use that HELOC to make improvements to the house, such as a new roof, maybe putting in a pool, or adding another bedroom--okay. If you actually enhance the value of the house, that might make sense.

If you use the HELOC to refinance your car loan, that can make sense too, because usually the interest you pay on the HELOC is tax deductible on Schedule A as mortgage interest. You get a comparable interest rate as a car loan, and it reduces your taxes. I wouldn't encourage this, but it isn't necessarily a bad thing, unless you are doing something extravagant, like buying a new Lambhorghini Diablo.

Things that you should not use a HELOC for: vacations; cocaine; groceries.

Where did that $270,000 go? And why should taxpayers do anything to help this person?