"I'm still paying for that lunch I had at the student union thirty five years ago," said the man who had two mortgages on his house, the second taken to "pay off" his credit card debt.

There are a number of pieces being run in various media this weekend saying how "smart" it is to second mortgage your way to a better life style than you could otherwise afford. The "smart" people do not have dead equity in a house. Get the money out as prices rise. The "smart" people are all doing it. If you were only "smart" you would mortgage to the hilt.

What these people don't say is that the "smart" people are investment savvy, can leverage debt in ten directions, and have any exposure hedged. The "smart" people have millions; us dopes have hundreds of thousands in real estate values. How do you hedge a mortgage on a house? Well if you are only paying 2% and T-Bills are paying 4% what do you do? Well suppose RE collapses and all the seconds are suddenly unsecured by current real estate prices? I suggest to you that the smart (a) loan(s) was secured by stock, (b) these guys can short the shit out of stocks (if RE collapses stocks will too), (c) and they can short REITs (RE investment trusts).

For the rest of us, the argument is totally bogus. You cannot borrow your way to wealth because eventually you will have to pay the borrowed money back, meaning all that "old" credit card debt is gone so you can run up new debt, not realizing that the old cc debt is not really paid off, it has just been transferred to your second mortgage payments. The only way this kind of "borrowing" makes sense is if you intend to "walk away" from your $300K home that you have "borrowed" another $200K on when the market goes south. Well you better read your second mortgage. You will find out that second mortgages are almost always recourse loans---meaning the lender has recourse in collecting---he can take your car(s), boat, bank accounts, jewelery and whatever other assets you have laying around including your future paychecks.

How "smart" is it to borrow more money to pay back the money you already borrowed on credit cards? In other words you can't pay your current debts so you borrow more money figuring you will then live "within" your income---tear up your credit cards and use only debit cards. OK, if you have counselling and both your AND your wife agree to discipline yourselves; talk to each other before buying ANYTHING, pay for the ANYTHING with cash, then it might be OK.

If you can easily make the two payments and you actually eliminate the cc debt---and other debt---and really use no credit cards in the future, a second can make sense. It also may make sense if you are financially solvent and want a second to buy another home. It doesn't make sense if you intend to buy stocks with it unless you really know your shit.

If this is a RE bubble all those seconds become risky in the bond markets.