Posted by Reif on March 02, 1999 at 02:53:00:
I’m a new guy here, so forgive me if my logic misses the obvious.
$100K house, 100% financing secured by the house and nominally $39K worth of stock. Jim Piper’s concern is (I think), what if the stock price crashes $6K to lower than the $33K required to secure the loan.
If you had no money for the margin call, a viable option would seem to be:
Refinance the loan by selling $20K worth of stock to beef up the equity in the house, taking the captial gains loss as a small consolation.
I guess my point here is there IS a way out without getting crushed.
If one claims that you’ve lost the 6K in the stock market, I would say true, but that was lost anyway. What you give up in my scenario is the amount of stock working for you to try and regain the $6K, and trading 20K semi-liquid assets for illiquid equity in real estate.
Did I miss something?