In his article “Paying off debts when buying a home becomes fresh option” (Real Estate, Aug. 10), Lew Sichelman fails to give homeowners all the facts.
In a time of decreasing median household income, increasing living costs, low savings rates, greater consumer debt and large numbers of corporate layoffs, it is risky, at best, to borrow 125 percent of the value of one’s home. If there is a default on the loan, a foreclosure is almost always guaranteed because the homeowner will be unable to sell the home or refinance the loan since the amount owed far exceeds the home’s worth.
The facts are that from 1981 to 1992, the number of foreclosure cases filed annually in the U.S. more than tripled, from 90,000 to 313,000. Locally, the number of foreclosures filed in Cook County jumped 30 percent from 6,220 in 1995 to 8,100 in 1996. In the first quarter of 1997, 2,872 cases were filed for an annualized total of almost 11,500 for the year. This represents a staggering 42 percent increase and is more than double the number of foreclosures filed as recently as 1994!
Mr. Sichelman’s article perpetuates the myth that the way out for homeowners overburdened with credit card debt is to consolidate it into a mortgage using the equity in their home. The fact is that when homeowners default on a credit card payment, they may be sued and perhaps their wages will be garnisheed. But when the same homeowners default on their mortgages, they face losing their homes to foreclosure.
The fact is: If it sounds too good to be true, it probably is!
