How many people here in America fell for the Home Equity scam? Your home is your own bank. You can barrow against it, to buy more things. Then when you cannot pay it off, you will lose your home to the bank. Come on, sad deal here.

Dear Steve:

I feel your pain, but I must respectfully disagree with your premise. A scam is when you’re giving them money, not when they’re giving you money. 

You applied for your loan. You asked the bank to lend against the equity in your home. You promised to pay them back. They disclosed the loan rate and terms to you and disclosed that they would be taking a security interest in your real property before you signed the loan papers. You agreed to all of that in writing by your signature. You didn’t complain when they handed you the check.

Then when things didn’t work out the way you planned, and circumstances or the economy or your employer pulled the rug out from underneath, you cried foul. But contrary to what you may think, it was not a premeditated fraud.

Believe me when I say that the bank does not want to own your home. They do not want you to default on your promise to pay. Owning homes is not what a bank does and they carry a portfolio of REO properties (Real Estate Owned) to their chagrin. They will do nothing but lose money on the properties in their REO portfolio because after two and a half years of price devaluation home values have fallen well below the balances owed on the mortgages. This is why people are walking away.

A short-sale is when the bank agrees to allow the homeowner to sell their home for less than what is owed on the loan, thereby settling for an amount that is “short” of the full amount needed to pay it off. They do this to prevent having to foreclose. A substantial number of homes on the market today are short-sales.

Banks are not making money on short-sales or foreclosures; they are losing money. That is one of the reasons why the federal government conceived and brought forth the Troubled Asset Relief Program (TARP): to shore up banks that have taken heavy losses in the real estate market, and to provide foreclosure prevention programs to homeowners.

Anyone facing foreclosure on their home should go to www.financialstability.gov. There they will find resources for foreclosure prevention. Click on Housing Programs and Hardest Hit Fund to see if your state has received federal funds for this purpose. Even if your state has not been identified as one of those Hardest Hit by the housing crisis and economic downturn, there will be resources to help.

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