The Housing Chronicles Blog: HELOC abuse in Hancock Park

Saturday, April 25, 2009

HELOC abuse in Hancock Park

For the past couple of months, the Irvine Housing Blog has been noting posts of interest from The Housing Chronicles for a regular weekend thread. This weekend, however, blogger Larry Roberts is dissecting the HELOC abuse for a luxury home in one of L.A.'s most desirable neighborhoods (at least where I'd live if I had the money), Hancock Park. It's a very interesting read:

On Thursday in the astute observations, someone known as “E” asked about the largest HELOC abuse case we had profiled so far. We have profiled a couple for around $1,000,000 (The Ultimate Post, Responsible Homeowners are NOT Losing Their Homes), but Irvine is not old enough or valuable enough to have truly spectacular HELOC abuse cases. In a series of emails and a long phone call, “E” told me about a property in Hollywood that makes the pretenders in Irvine look like the wannabes they really are.

The way “E” described this neighborhood, it is the home of many of the truly rich, the famous, and the “Joneses” that want to be. Many in Irvine are trying to keep up with the Joneses; the Joneses live in Hollywood, and they are trying to keep up with the rich and famous who live here. Today’s featured property belongs to the Joneses (not their real name).

The interesting part of the keeping-up-with-the-Joneses phenomenon is that the people at the top of the heap often do not care about impressing anyone or making the Joneses jealous. Many at the top are just living their lives and trying to keep a low profile. When you really are rich, you don’t care if anyone knows about it.

So how do the Joneses really live? Well, if you are near the top rung of the ladder, you own a house in the best neighborhood, you milk that house for every penny it appreciates, throw opulent parties, and try to make everyone on the next rung down the ladder jealous. It goes something like this:

  • This property was purchased in the early 70s for around $150,000. My data does not go back that far, but the total assessed value is $346,592 which would account for the original valuation and the proposition 13 adjustments since it was passed.
  • I do not know what the original mortgage was, but for the sake of calculating MEW, lets assume it was $120,000 which is 80% of $150,000.
  • My records pick up in 1998. On 10/23/1998, there was a new first mortgage for $250,000. This point also marks when the property went from being owned by a couple to being owned by just a woman.
  • On 2/9/1999 the owner refinanced a $400,000 first mortgage.
  • On 7/2/1999 she opened a HELOC for $150,000.
  • On 3/31/2000 she opened a HELOC for $759,000.
  • On 2/16/2001 she opened a HELOC for $609,300.
  • On 3/1/2004 she opened a HELOC for $1,200,000.
  • On 10/2/2006 she refinanced with a $2,700,000 Option ARM with a 1.5% teaser rate.
  • On 10/2/2006 she opened a HELOC for $200,000.
  • On 3/12/2007 she opened a HELOC for $787,500.
  • Total property debt is $3,487,500. (which explains the current asking price).
  • Total mortgage equity withdrawal is $3,367,500.

I am speechless…

Click here for entire post.


Christopher Hain said...

Do you know that the money was used to pay for lavish parties?

Perhaps, it was her source of income for the past 10 years.

How is it effectively different than a reverse mortgage?

patrick jeary said...

Yes. Absolutely.