I’ve talked about the debt problems before. But now the mainstream press is reporting on it. They’ve moved off the subprime collapse now (even though it’s still going on) and are focusing on the others who are going to lose their home to foreclosures simply because they have an ARM or other type of more “exotic” financing and now can no longer afford the payment.

What really strikes me is the sheer number of people who can no longer afford their home because they have taken out hundreds of thousands of dollars out in a cash out or a heloc and “refinanced.”

Take this couple who found themselves in trouble in Los Angeles. From the LA Times:

An example is the Breidensteins, who bought their house four years ago from Mona’s parents for $270,000, then refinanced twice, each time adding to their loan balance.

The couple, who have two children, used the funds from refinancing to add on to the home, buy out her mother’s interest in the property and pay off a child-support claim from a previous marriage.

The house was appraised at $450,000 in 2005 and this couple “borrowed” 95% of that amount. The home is now appraised at $380,000 and so when they went to refinance out of their ARM - surprise! They no longer have any equity and cannot refinance. What bank wants to give you a new loan for more than what your house is worth?

Instead of this couple being, frankly, well off and having over $100,000 in equity in their home- they are in pretty deep and probably living paycheck to paycheck (the article says they make $80,000 a year.)

But in the era of “free” loans, courtesy of our homes, they were not alone in taking advantage of the ease in credit.

Here is another, similar example- also from California. From the Contra Costa Times:

The Thompsons bought their home, in Fairfield, in 2002 for $271,000 and financed the purchase with a $272,250 loan, county files show. In 2004, they obtained a $54,000 equity line of credit. In July 2005, they obtained two new loans totaling $441,000.

In July 2005, the Thompsons paid $2,200 a month for their mortgage. Last year, the payments jumped to $3,400.

“We were doing well for ourselves,” Thompson said. “It’s very discouraging. Very frustrating.”

The article was all about how even people making $150,000 were having trouble finding loans or getting refinancing. The Thompsons make $141,000 a year but they also have a vacation home in Reno that the article said they rented out. The bank would not refinance their loan.

Where did the $172,000 that they “took” out of the home go? The article doesn’t say.

But like the other couple in Los Angeles, they now no longer have access to the Housing ATM. What will they do now? How will they be able to live within their means?

Many people have been treating the housing money as free money. It’s obviously not. And when the banks are calling up to collect, the homeowners act all surprised as if they’ve been sold a false bill of goods.

The Thompsons said above that they were “doing well for ourselves.” Doing well…by borrowing money?

Americans have been “borrowing” billions off their homes in the past few years. That amount has been slowing as home appreciation has slowed for obvious reasons. What will happen now when that money has to be paid back? For now, home appreciation isn’t going to save these homeowners. They’ll literally have to work the hours in order to pay off the debt.

This will be the larger story of this housing bust. Americans are in deeper debt than ever before. How painful will it be to try and get out?