Housing Bubble Morphs Into Cash-Out Mania
This Washington Post story was already put in the comments section, so I'll just point out a few of the dangerous things people are doing with home equity loans.
"Tom Regnell has refinanced five times since he bought his house. When he refinanced this last time, he finally took out some cash; enough to buy a piece of property near the Homestead resort and start building a second home."
"Ileann Jimenez-Sepulveda and her husband bought four years ago. They used their growing equity to buy another house three blocks away and renovate it to sell it. Then they bought a house in South America, and soon they'll close on a large single-family home in the upscale Crestwood neighborhood. In the meantime, Jimenez-Sepulveda, who had worked in the high-tech industry, quit her job to join her husband in the real estate business; he's a loan broker, she became an agent. Now they encourage their clients to use the equity in their homes to buy investment properties."
"'It's very easy, it's very tangible for people to understand because they see their neighbors doing it; taking the money out, buying something else, or investing in starting a restaurant,' she said. 'It's exciting to see people recognizing it and running with it.' She argues that real estate assets are bound to increase in value over the years."
"Nick Koufos, an attorney for the SEC, is 36 and has three children. He recently did a cash-out refinance on his Silver Spring home to build a house in Pennsylvania, to which he plans to retire someday. 'I think it's better to get it done sooner rather than later,' he said. 'I don't see how I could lose money.'"
"'Certainly as things retreat, you'll have some households that find themselves with two sets of loans, one on their equity line and one on their primary residence, as well as their new property investment, and that could be a lot,' said David A. Lereah of the National Realtors Assoc.. 'Certainly we're in a new world today.'"