“There’s always free cheese in the mouse traps, but the mice there ain’t happy.” — Author Unknown

I’ve written a few posts on the housing ATM. You can read them here, here and here if you’re interested. However, the above lacks the dose of reality that MP Dunleavey achieved with her column in The New York Times entitled: It’s Too Easy To Turn Home Into an ATM.

She writes, “The other day I received yet another teaser letter with a simulated credit card glued to it. On closer inspection, this was not the typical pitch for an ordinary Visa or MasterCard; it was for a J.P. Morgan Chase EquityCard. It functions just like a credit card, except that it would allow me to spend the equity in my home.”

“Pay off bills,” the letter exhorted me. “Make home improvements. Get CASH ” up to $65,621.”

“I felt my stomach churn at the notion of using plastic ” backed by my home ” as an instrument of payment. I already have a home-equity line of credit with my mortgage lender. Most such lines of credit are variable-rate, interest-only loans ” just about the slipperiest slope a borrower can be on, as I know from the rapidly rising interest rate on my own line of credit.”

“An awful lot of Americans have gotten into the habit of seeing their homes as virtual cash machines. Whereas using a credit card is truly spending borrowed money, cashing out equity can seem more like using funds you (or your house) have earned.”

Richard Benson of MoneyWeek writes, “When housing prices are flat or falling, there is no Angel, Tooth Fairy, Easter Bunny or Santa Claus you can call, to refill the ATM machine when it runs out of cash.”

“For the past decade, homeowners in the United States have been living in ‘Housing Heaven’. In this heavenly place, profits are always made; prices only go up, and interest rates only go down.”

But the world has changed in just one short year. Bill Fleckenstein called it a spade last October on MSN Money. He writes, “That house prices have gone up a lot is not in itself the problem. If they’d risen in an environment where folks were behaving prudently with their financing arrangements (i.e., putting 5%, 10%, 15% or 20% down and taking out 10-, 15- or 30-year mortgages), we might be set up for a dip in prices, as has occurred from time to time.”

“But that’s not what we’ll witness, thanks to the complete abdication of responsibility on the part of financial institutions, where seemingly no loan was turned down. Thus, those of us who talk about a housing bubble are really referring to a credit bubble.”

Is anyone home? If so, stop spending your equity.