A vicious cycle of overspending

Down in the bowels of the lead story in today's Wall Street Journal is the tale of the Oropezas, formerly of Calle Canon Road in Corona, California, where it seems the housing bust is now about equal in magnitude to the housing boom a couple years ago.
What is fascinating about the details provided below is that there must be literally hundreds of thousands or millions of people all across the country who have similar stories to tell about how a "vicious cycle of refinancing" has now done them in.

The Oropezas arrived at Calle Canon Road in 2004. Corona appealed to them because of its quality of life and regional cachet. "It was labeled as the new Orange County," Mrs. Oropeza says. Public records show they paid $557,000 for a four-bedroom house and took out a $500,000 mortgage. Her husband is an area manager for an auto-parts retailer and she is a purchasing manager for a firm that sells dietary supplements.

As property values skyrocketed, they refinanced three times, most recently in late 2006, for $835,000, Mr. Oropeza says.

The couple say they used some of the money they pulled out of the house for home improvement, such as a backyard waterfall. But Mr. Oropeza says the bulk was used to pay off credit-card arrears. "We were in a vicious cycle of refinancing our home to get out of debt," he says. "We banked on selling the house, but that's where we failed."
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The couple stopped making their Corona mortgage payments in June, triggering a notice of default 90 days later and starting the countdown to foreclosure. The family is now living in Texas.
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"We're sad because there goes our credit, and because people think we are a bunch of flakes who walked away from the house and tried to make money," Mrs. Oropeza says. The property's for-sale listing has expired. "We have zero expectation that we can sell this house," she says. After the government-brokered mortgage plan was announced, Mr. Oropeza says he called the toll-free helpline and left a message, though he doubts he will qualify to get his Corona house back.

Mr. Oropeza actually thought he was getting out of debt by refinancing - that only works if you can unload the inflated asset, against which new money was borrowed, to an even bigger fool.

Alas, there was no bigger fool to be found.

What, in the minds of the Oropezas, was a vicious cycle of refinancing debt was in fact just a vicious cycle of overspending - this confusion is all too common these days.