"I am rather screwed"

So says a homeowner profiled in a Los Angeles Times story passed along to us by Justice Litle of Outstanding Investments.  The man took out a "pay option loan," in which the borrower doesn't even keep up with the interest payments — merely agreeing to make up the shortfall later.  Wait till you see how many people have signed up for these disasters-in-the-making, people like Will Hertzberg.

Hertzberg bought his house 11 years ago for $129,995, immediately after his second divorce. (He has no children.) Since then, Corona and the Inland Empire have boomed.

Comparable homes in his neighborhood fetch more than $400,000. With fresh paint and a few repairs, Hertzberg could probably sell his place for $275,000 more than he paid.

He would see little of that, however, because he's already seen so much. Over the years he has taken out $190,000 in cash through refinancings.

Now here's the takeaway statistic Justice points out:  1 in 125 Californians took out "pay option loans" in 2003.  This year…just three years later, the number is 1 in 3.  That's an increase of more than 40-fold!

Says Kevin Kerr from Resource Trader Alert:  "I lived in Riverside in the Inland Empire back in 1997-1998 and real estate was cheap and abundant.  Sounds like it will be again soon."

The Daily Reckoning