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Way back in 2005 I wrote how Massachusetts families were using their homes as a ATM with cash out refinancing. At that time 14 percent of household income was coming from these cash out refinances.

Well, it looks like many of these folks are losing their homes now as they took too much out of the homes and are unable to weather any downturns in the market.

Of those being foreclosed upon 70 percent started in full prime mortgages. This is not a situation where the borrowers committed mortgage fraud, more so they wanted their flat screen televisions and Hummers without earning the money. Now that the real estate market has stopped appreciating or heading downward these families are in dire straights.

“Why would any Massachusetts home purchased before (real estate prices skyrocketed in) 2000 suffer a foreclosure in 2006 or 2007?” Boston Federal Reserve researchers wrote in a study released yesterday. “The most likely reason is that the homeowner extracted the equity from the home through one or more cash-out refinances as house prices rose.”
Researchers found that among homeowners who lost properties to foreclosure in 2007, only 30 percent had bought places using subprime mortgages – high-interest loans given to people with bad credit.
By contrast, 70 percent used prime loans: Lower-rate mortgages that people with good credit qualify for.
However, the Boston Fed found those who purchased homes in 1999 and fell into foreclosure during 2007 refinanced their homes about 4.1 times on average during the boom years. via BostonHerald.com.

Related posts:

1. CitiBank Foreclosure Suspension, Only Helps 4,000 But Gets National Press