Here is the story of a friend who bought a New home in Tracy, CA in January, 2004.
The cost of the home at that time was 350K. I paid 20% down. My neighbors also bought the same model at the same time with a 3% down payment.
They refinanced into a 3/1 Arm cash out with a low teaser rate in November, 2005 for 500K because the value of the home had gone up. I did not do any such thing and just continued to pay my mortgage.
They quickly spent the money on buying a BMW, an exotic chandelier, granite countertops, stainless steel appliances and other high priced furniture in their home and went on a Vacation to Hawaii and then on a Cruise the Bahamas. In between they had time to party out in glitzy Vegas.
In 2008 their first re-set took their payment way above what they could afford and they are behind on their payments. The current value of the home is back to what it was valued in 2004 - 350K.
Now, per some of the advocates of foreclosure prevention, a principal write down (from 500K to 350K) is going to be handed out to my neighbor by the government using my tax dollars, so that he can continue to pay the same monthly payment as me after having run through 150K of Tax payer money! Thus forcing me to pay for my neighbor's luxuries?
Both of us have teenaged kids. I did not indulge in any of the splurges that my neighbor indulged in. I drive around in my old Ford Taurus, saved money equal to 8 months of living expenses just in case I lose my job and put away some more in a CD so that it could help pay for my kids college tuition fees!
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