Residents of the North Korea Towers need to clear out their junk before it goes to Goodwill.

Irvine Home Address … 3141 MICHELSON Dr 406 Irvine, CA 92612
Resale Home Price …… $449,900

I’m dizzy walkin outta Larry’s army wear used
With some black leather shoes and desert BDU’s
Many boxes of ammo, i got the camo face paint
Barricaded the tower doors, safe this place ain’t
Up to the top, i can see the whole planet it would seem
The sun is beatin on my head as i’m livin my horror dream

The Tower — ICP

North Korea Towers News

Just in case any who walked away from their mortgages in the Marquee at Park Place North Korea Towers missed the notice, they need to go back and pick up their crap before it gets donated to Goodwill.

http://www.marqueeparkplace.org/

ABANDONED PROPERTY WILL BE DONATED TO GOOD WILL – JANUARY 31, 2010 – 1/4/2010
New!

Attention all Marquee Park Place Residents:
Over the past couple of years Marquee Park Place has acquired
vast amounts of abandoned personal property items belonging to
residents. Currently, these items are stored in an Association common
area room.

Please be advised, if you believe that any of these items may belong to
you please contact the Marquee Management Team. A detailed description
of your item(s) must be provided, prior to retrieval, for ownership
verification. Thereafter, effective January 31, 2010, all items will
be donated to Goodwill.

Thank you. The Marquee Management Team

IHB News

The Great Housing Bubble

The printable eBook with the full text of The Great Housing Bubble is available in the sidebar (Get the PDF eBook – FREE). You can now read the full text online in post form, in eBook form, and of course in paperback. This is the first the eBook has been available free.

Back to Class

I have been working on my writing of late. I began a quest to improve early last year, and I did become more comfortable in my own skin, but I did not stretch myself to explore the craft of writing itself sidetracked by setting up a brokerage business.

After reflection, I committed myself to write at a higher level. To that end, I refocused my writing on my strengths, analysis and insight, and I will continue to provide a mixture of my own analysis of properties and market trends together with a critical review of residential real estate news and opinions.

However, I want to improve the reader experience of my writing because reading good prose should be a pleasure. I want my writing to enjoyable for its subtle rhythms and its attention to a reader’s inner ear. I have much work to do. But one change I have made, a change that drives my wife crazy, is that I now read every word aloud (actually, I mutter mostly). It is amazing how many subtle errors you find when you read your own writing aloud.

I have enrolled in a basic writing class at Irvine Valley College to banish the grammar gremlins. The most frustrating limitation I face each time I sit down to write is my own insecurity about punctuating a complex sentence. Given some time and attention, I can craft complex sentences with subordinating clauses providing additional detail, and I have a few sentence structures I feel comfortable with using, but I do not have true freedom of expression to convey my basic thoughts in a way that is both compelling and engaging without running into the fear — did I punctuate that properly? Did I? Rather than take a risk, I simplify my thoughts working them into comfortable sentence structures never seeing if I can write more complex and artful sentences without losing readers in boring, dragged-out monologues to the Narcissistic joy of reading one’s own writing… you get the point.

I will be brief. I still value concise delivery of information, and good writing need not be burdened with words for words sake. If done properly, a more complex grammar delivers more information in fewer words due to better organization. I want all of you to enjoy your daily visits to the IHB, so I remain committed to providing analytical, creative, and entertaining writing focused on Irvine real estate at the highest level of quality I can.

For an example of what I hope to accomplish, go back and read Money Rentership: Housing and the New American Dream. It is my favorite from last week.

Housing Bubble News from Patrick.net

Prime Jumbo RMBS Delinquencies Swell to 9.2% (housingwire.com)
Obama Plans to Raise $120 Billion From Banking Fees (bloomberg.com)
Fed Seeks to Block Release of Bank Bailout Secrets (bloomberg.com)
California Creditors Dread IOUs With Aid Plea Failing (bloomberg.com)
New rules designed to speed up short sales (orlandosentinel.com)

Foreclosures

Foreclosures top record in 2009, no end in sight (marketwatch.com)
Record year for foreclosures as unemployment rises (miamiherald.com)
Hawaii had 9,000 foreclosures in ’09, up threefold (pacific.bizjournals.com)
The foreclosure process: alternatives and consequences (naplesnews.com)
The Tip of the Foreclosure Iceberg (housingstorm.com)
Foreclosure glut deflates all house sales (marketwatch.com)
More Houseowners Struggling As Option ARMs Reset Higher (cnbc.com)
Second Wave Of Mortgage Defaults Coming (youtube.com)

Predictions

3 Reasons House Prices Are Heading Lower (money.cnn.com)
4 Economic Scenarios You’d Better Hope Won’t Materialize (seekingalpha.com)
5 Reasons why you Shouldnt Buy a House in California in 2010 (doctorhousingbubble.com)

Renting

Home sweet rental (nypost.com)

Is it time for a rental renaissance? (guardian.co.uk)
Houseownership: Less Than Meets the Eye (businessweek.com)

Miscellaneous

A Call for More Regulation at Fiscal Crisis Inquiry (nytimes.com)
Scariest Chart Of The Day (business.theatlantic.com)
Treasury Investors Most Bearish in 2 Years (bloomberg.com)
U.S. Subpoenas 15 FHA Lenders With High Mortgage Defaults (businessweek.com)
U.S. economy still hemorrhaging jobs (marketwatch.com)
Add homebuilders to the government bailout tab (money.cnn.com)
Federal Reserve “earned” $45 billion in 2009 gaming interest rates (washingtonpost.com)
Why Option ARMs will hit Mid to Upper Priced Houses (financemymoney.com)
Massive Tsunami of Defaults Coming (youtube.com)
Yield curve can’t drive profits if banks won’t lend (blogs.reuters.com)
Is it just my return to earth, or is TARP just not working? (heraldtribune.com)
Learning From Europe (nytimes.com)
Maui house prices down to 2003 level (honoluluadvertiser.com)
Shadow inventory stalks Tampa Bay housing market (tampabay.com)
Actual unemployment rate higher than shown by official numbers (bloomberg.com)
FHA’s dilemma – subsidize crap loans or stay solvent? (sfgate.com)
Treasury Bonds, The Short Of The Century (seekingalpha.com)

Irvine Home Address … 3141 MICHELSON Dr 406 Irvine, CA 92612

Resale Home Price … $449,900

Income Requirement ……. $96,041
Downpayment Needed … $89,980
20% Down Conventional

Home Purchase Price … $777,500
Home Purchase Date …. 2/15/2006

Net Gain (Loss) ………. $(354,594)
Percent Change ………. -42.1%
Annual Appreciation … -13.4%

Mortgage Interest Rate ………. 5.27%
Monthly Mortgage Payment … $1,992
Monthly Cash Outlays ………… $2,950
Monthly Cost of Ownership … $2,440

Property Details for 3141 MICHELSON Dr 406 Irvine, CA 92612

Beds 2
Baths 2 baths
Size 1,583 sq ft
($284 / sq ft)
Lot Size n/a
Year Built 2006
Days on Market 57
Listing Updated 12/19/2009
MLS Number S596135
Property Type Condominium, Residential
Community Airport Area
Tract Marq

According to the listing agent, this listing may be a pre-foreclosure or short sale.

2 Bedroom,2 bath unit with den overlooking community pool. Spacious living room and separate dining room. Gourmet kitchen with granite countertops and stainless steel GE Monogram appliances. Master suite and secondary bedroom with custom drapes. Master bath and guest bath in marble and travertine. Enjoy Marquee social events, exercise room, pool, spa, billiards, media room, 24 hour concierge and elegant lobby for greeting guests. Close to shopping and airports. Come home to your own private paradise.

Lenders have subverted the American Dream and replaced it with a nightmare of debt servitude, and nobody noticed.

Irvine Home Address … 30 FAIRSIDE 24 Irvine, CA 92614
Resale Home Price …… $350,000

{book1}

I walk a lonely road

The only one that I have ever known
Don’t know where it goes
But it’s home to me and I walk alone

I walk this empty street
On the Boulevard of Broken Dreams
Where the city sleeps
and I’m the only one and I walk alone

Boulevard Of Broken Dreams — Green Day

“The system of banking we have both equally and ever reprobated.
I contemplate it as a blot left in all our Constitutions, which, if not
covered, will end in their destruction, which is already hit by the
gamblers in corruption, and is sweeping away in its progress the
fortunes and morals of our citizens. Funding I consider as limited,
rightfully, to a redemption of the debt within the lives of a majority
of the generation contracting it; every generation coming equally,
by the laws of the Creator of the world, to the free possession of the
earth he made for their subsistence, unincumbered by their
predecessors, who, like them, were but tenants for life.”

Thomas Jefferson

California borrowers have created a culture of maximizing and servicing debt that makes them tenants for life. Thomas Jefferson would not recognize the concept we routinely accept as “ownership,” but he would have recognized the corruption of our lending gamblers sweeping away the fortunes and morals of our citizens.

Count Thomas Jefferson’s vision among those littering the Boulevard of Broken Dreams.

A Conceptual History of Real Estate Ownership

In a pioneer society, people go out and stake a claim to real estate by using it and occupying it. If property is not capable of producing food (income) and providing shelter, it has no value, and people do not compete to own it. Canadian and Siberian tundra is a modern pioneer expanse of thinly populated land of little value. Owning is occupying and making use.

With socienty comes division of labor, and fewer people live a subsistence life. Ownership becomes more complex and people enter into agreements where they exchange stored wealth (money) for shelter. Ownership is a special right of ongoing use, whereas rental is a contractual right of finite use followed by a reversion to owner. In societies of inherited multi-generational wealth, real estate is the best vehicle for transferring wealth because it provides a perpetual cashflow. With exception of low-yield savings accounts, no other asset class provides this feature.

One of the key features of true ownership is a lack of encumbrances. The more restrictions a property has on it, the smaller the bundle of rights an owner controls. For instance, if you pioneer a property in Northern Canada, nobody is going to review and approve your cabin’s front elevation or limit your exterior color choices as they will here in Irvine. We give up many individual freedoms for the harmony of society, and the ever-dwindling bundle of property rights is among them. Historic properties are at the extreme as owners often feel as if the property actually owns them.

One of the most common encumbrances on property is the mortgage lien, and it is among the most restrictive. For instance, if you own a property not encumbered with a mortgage lien, you could demolish any structures on the property (within legal and practical constraints) and nobody will care; it is your property. Once a property is mortgaged, the “owner” no longer has the right of demolition because a lender has claim to the real estate and has interest in preserving its value. In fact, the lender will even require a borrower to carry insurance to prevent loss. If the lenders is not the owner, how can they require insurance, and why do they care?

Lenders want to protect the value of their collateral, the property they may force sale of at auction. At a public auction, the lender, standing in first lien position, bids the property up to their outstanding balance in an attempt to regain their loan balance from a cash buyer. If the house is worth less at auction than their loan balance, lenders often buy the property at auction and sell in the resale market were prices are usually 15% higher. In short, through a complicated chain of events, lenders know the collateral may become their house, so lenders make borrowers care for collateral as if the lender owned it even though the lender doesn’t…

legally…

Hey, if it walks like a duck and quacks like a duck….

Since lenders behave like owners of a borrower’s real estate, and since lenders have right to force sale if a borrower defaults, lenders are owners, and owners are money renters.

Money Rentership (Loanership)

Over the years, the slow erosion of property rights has made the distinctions between owning and renting less dramatic, particularly in renter-friendly cities in California. Owners have few rights renters don’t, and with exception of equity participation, owners obtain few benefits to outweight the burdens of ownership, and over the last few years, equity participation has not been a bonus.

The mortgage encumbrance gets to the core of the unnoticed change in people’s concept of property ownership; people who have little or no equity stake in a property have no ownership despite what legal documents may say. What they have is money rentership and the illusion of home ownership. Emotionally, they still feel like homeowners; they still behave and believe like homeowners, but they’re not home owners. They own a loan; they’re loan owners.

At some level, people know this, and we observe high default rates once borrowers fall underwater. Despite the Government’s best efforts, people are walking away because once they no longer own, they see money rentership for what it is, and unless the cost is less than a comparable rental — which it rarely is — then people walk.

Money rentership — the antithesis of owning — is the California conception of home ownership. Ownership implies freedom while loanership delivers slavery. Californians deliver themselves into money rentership each day, and many who do so over the next few years will see their ownership stake shrink as prices decline.

I will borrow money when I buy; a lot of it, but I recognise that building equity for the next decade is going to require paying down debt, and that will be my focus, and I want it to be yours. True ownership only comes through retiring debt. I suggest using accelerated amortization, and shortening your time to payoff. Realizing the real American Dream means abandoning debt addiction and California kool aid.

“Educate and inform the whole mass of the people… They are the only sure reliance for the preservation of our liberty.“

Thomas Jefferson

Irvine Home Address … 30 FAIRSIDE 24 Irvine, CA 92614

Resale Home Price … $350,000

Income Requirement ……. $74,715
Downpayment Needed … $12,250
3.5% Down FHA Financing

Home Purchase Price … $335,000
Home Purchase Date …. 3/5/2009

Net Gain (Loss) ………. $(6,000)
Percent Change ………. 4.5%
Annual Appreciation … 4.8%

Mortgage Interest Rate ………. 5.27%
Monthly Mortgage Payment … $1,869
Monthly Cash Outlays ………… $2,670
Monthly Cost of Ownership … $2,040

Property Details for 30 FAIRSIDE 24 Irvine, CA 92614

Beds 2
Baths 1 full 1 part baths
Size 1,125 sq ft
($311 / sq ft)
Lot Size n/a
Year Built 1983
Days on Market 4
Listing Updated 1/7/2010
MLS Number P716504
Property Type Condominium, Residential
Community Woodbridge
Tract St

This is move in ready! Sweet condo that feels Big. Almost new designer floors with newer ceramic floor tiles in Kitchen, Dining area and Entry. The kitchen & master bath have newer Granite counters. Front of unit faces green belt area between units. Back patio is enclosed and pet friendly. Patio opens to covered carport plus guest parking. Good sized bedrooms w/bath in master. Located in Woodbridge with all the amenities including over 40 parks, pool, shuffle board ,volley ball, fitness, tennis, horseshoes, 2 lakes and all kinds of social clubs. Close to Irvine’s great schools and Universities. Note the romantic fireplace that sets off the light and bright livingroom. Hurry, This may not last. Covered parking is #30 and owner gets 2 spaces adjacent to unit.

“Our greatest happiness does not depend on the
condition of life in which chance has placed us, but is always the
result of a good conscience, good health, occupation, and freedom in
all just pursuits.“

Thomas Jefferson

{book4}

The first time I saw the scene below from What’s Eating Gilbert Grape, my analytical mind, completely missing the emotional content of the moment, wondered if they could burn down their house and walk away. As long as their are no claims against the real estate, there is no legal reason you cannot burn down your house; although, contrary to the movie, you would need to get a burning permit even in rural America.

Lenders are more responsible than borrowers for the Great Housing Bubble, and they should bear the consequences for their actions.

Irvine Home Address … 22 SANTA RIDA Irvine, CA 92606
Resale Home Price …… $1,100,000

{book1}

I don’t want this responsibility
And don’t use me because I don’t agree

Why lie, do or die?
Why lie, do or?

Responsibility? What’s that?
Responsibility? not quite yet
Responsibility? What’s that?
I don’t want to think about it;
we’d be better off without it

You think I’m so simplistic
I’m onto you and your tricks

Responsibility — MxPx

Nobody wants to admit or take responsibility. Politicians are masters of deflecting responsibility, and now borrowers are deflecting responsibility in unprecedented numbers. Behaving like children who get to play but refuse to do their homework, borrowers are throwing payment tantrums. When children misbehave, how much responsibility for the child’s behavior belongs with the parent? How do you apportion blame between parent and child? You should apportion blame between lender and borrower the same way because the relationship between lender and borrower is very similar to the relationship between parent and child.

Ranging from Southern California’s Cultural Pathology to the numerous HELOC abuse stories, many of my posts are critical of the behavior of borrowers because their behavior has been atrocious, but like children who are spoiled by entitlement, borrowers are enabled by their lender parents. Today, I am going to explore the similarities between the parent-child relationship and the lender-borrower relationship and affix blame where blame is due.

Who is to Blame?

In 2007 I posted, Who is responsible for this mess? Much of that text is in the Great Housing Bubble:

“Who is responsible for the Great Housing Bubble? It is one thing to
identify who or what caused the bubble, but it is another to assign
responsibility and blame. Borrowers, lenders, investors, and the
FED are all responsible; it is only a matter of degree. Irresponsible
borrowers are like children, if you offer them something they want, no
matter the terms, they will take it. The federal government realized
this basic fact years ago when they passed predatory lending laws. This
does not make the borrower any less responsible, but by definition,
subprime borrowers are irresponsible. If they took responsibility for
their debts, they would not be subprime. [ii] So if a large amount of
money is lent to the most irresponsible among us, it is reasonable to
expect them to spend it irresponsibly and not worry about paying it
back. In this case, past performance is an indicator of future performance. It should come as no surprise that the subprime experiment ended badly.

Despite the low expectation of subprime performance, people need to
be held accountable for their actions….

The borrowers are certainly at fault; if for no other reason than
they signed the papers and took the money. The lenders are also at
fault because they should have known better than to give borrowers
loans they could not afford, provide loans with no income
documentation, and ignore proven guidelines for loan-to-value and
debt-to-income.”

Barry Ritholtz in Bailout Nation listed those he blames for the housing bubble, and lenders are higher up the list than borrowers. Mr. Ritholtz goes on,

“Regardless of how low rates got, the fact remains that many borrowers took out mortgages regardless of their own ability to repay the monthly principal and interest. This was simply reckless behavior, and should be recognized as such. Innumeracy is no excuse.

Ultimately, banks have a fiduciary responsibility to their shareholders and depositors to lend money only to qualified borrowers. Hence, they have a greater liability in the lending crisis. This is especially true of the “lend to securitize” originators who knew they would be causing future foreclosures.

However, the lenders’ irresponsible behavior does not exonerate those people who failed to do basic math. It is incumbent upon borrowers to know what they can afford each month–and to not get themselves into financial trouble. Perhaps it is time to teach basic financial theory in public schools.”

Although these issues are complex, Barry and I agree that both parties bear responsibility, but the scales of justice tilt toward blaming lenders more than borrowers. If you listen to community activists trying to prevent foreclosures, you would think lenders are 100% responsible and borrowers are blameless. People who are really upset by HELOC abuse want to make the borrower 100% responsible because the conduct is so reprehensible. The truth is somewhere in between.

A discipline in psychology called Transactional Analysis provides a useful tool for assigning blame.

Transactional Analysis

Transactional analysis involves looking at the roles people assume when they communicate. The balance of power in a conversation or relationship changes depending on the roles of the parties. The parent-child interactions are useful to understand because the relationship of lender to borrower closely matches the relationship between parent and child.

In the parent-child relationship, the parent has greater power and with it a greater responsibility. Children want things, and parents must decide yes or no. The parent must exercise judgment to make sure the object of the child’s desire is good for them or appropriate, and it is the parent who makes the decision and bears much of the responsibility for the outcome. How is lending any different?

Borrowers want money, and lenders must decide yes or no. The lender must exercise judgment to make sure the borrower will pay them back, and it is the lender who bears much of the responsibility for the outcome of the loan. The parent-child relationship is the lender borrower relationship.

Confucius Say…

If the borrower-lender relationship is like the parent-child relationship, there is much we can learn about how lenders and borrowers should relate to one another. From Wikipedia,

“Life is subdivided into Five Relationships:

• Father to Son – There should be kindness in the father, and filial piety in the son.
• Elder Brother to Younger Brother – There should be gentility (politeness) in the elder brother, and humility in the younger.
• Husband to Wife – There should be righteous behavior in the husband and obedience in the wife.
• Elder to Junior – There should be consideration among the elders and deference among the juniors.
• Ruler to Subject – There should be benevolence among the rulers and loyalty among the subjects.

All of these practices are the physical, or outward, expression of Confucian ideals. These are the observable behaviours of the members of society. Confucius; however, believed that in order for society to truly follow li, one must also adhere to and internalize these practices. The mentality involved in performing these rituals in society must not exist only there, it must be a part of the private life of the person. This is known as rén.

Rén is not a concept that is learned; it is innate, that is to say, everyone is born with the sense of rén. Confucius believed that the key to long-lasting integrity was to constantly think, since the world is continually changing at a rapid pace.”

In each of these imbalanced power relationships, there is a series of reciprocal duties. Confucius didn’t start with the idea that all are created equal, he explored the reality of our daily lives and came up with a series of rules and precepts for accepting and living within the power imbalances in our lives.

Candy Store Analogy

To illustrate the power imbalance, imagine yourself taking children to a candy store, and you are the only person there with money. What would happen? The children would quickly scoop up candy and present it to you for purchase; you would be responsible for saying yes and no by providing the money. This classic parent-child interaction when shared in a group is what lenders face all day — a steady stream of borrowers wanting money for whatever, and lenders having to determine who gets what. Most borrowers, like most children, will take whatever is give to them whether it is good for them or not.

Similar Relationship Imbalances

There are other relationships between parties that closely resemble the lender-borrower dynamic; (1) dealer-addict and (2) landlord-tenant.

How is the dealer-addict relationship similar? Addicts want drugs like borrowers want money. Dealers strike a bargain with addicts that look like normal transactions except that addicts will do nearly anything to get their drugs so the balance of power is certainly not 50/50. Dealers get to decide who gets what drugs based on whatever criteria they choose (usually money, but not always). I don’t know if there is a point to this other than you know the regard I hold lenders who created a society of HELOC addicts.

The landlord-tenant relationship is the closest to the lender borrower relationship. Landlords control whether or not a tenant gets to live in a house, and lenders control whether or not a borrower gets to live in a house. If a tenant quits paying rent, the landlord evicts the tenant. If the borrower quits paying the rent on money, the lender (money landlord) forecloses on the borrower. Both landlords and lenders evaluate customers based on their ability to pay, and both want the property occupants to care for the property.

In fact, the only real difference between the lender-borrower relationship and the landlord-tenant relationship is who has to deal with the ups and downs of real estate values and how certain expenses are allocated. Tenants miss the volatility in real estate prices whereas owners do not.

In Orange County since 2002, and particularly since 2006, when you consider the cost of housing and what was obtained for that cost, it has been better to be a tenant. Only in delusional mid- to high-end areas has the appreciation gained since 2002 compensated for the additional cost of ownership paid at 2002’s moderately inflated prices. Everywhere else, prices are at or below 2002 levels. Late buyers paid more rent for money from a lender than tenants paid rent for houses from a landlord. With equity positions unchanged, it is hard to argue owners had a better deal financially, emotionally perhaps, but not financially. Timing Does Matter.

Irvine Home Address … 22 SANTA RIDA Irvine, CA 92606

Resale Home Price … $1,100,000

Income Requirement ……. $234,818
Downpayment Needed … $220,000
20% Down Conventional

Home Purchase Price … $399,500
Home Purchase Date …. 6/16/1995

Net Gain (Loss) ………. $634,500
Percent Change ………. 175.3%
Annual Appreciation … 7.0%

Mortgage Interest Rate ………. 5.27%
Monthly Mortgage Payment … $4,870
Monthly Cash Outlays ………… $6,240
Monthly Cost of Ownership … $4,490

Property Details for 22 SANTA RIDA Irvine, CA 92606

Beds 5
Baths 2 full 1 part baths
Size 2,750 sq ft
($400 / sq ft)
Lot Size 7,236 sq ft
Year Built 1996
Days on Market 5
Listing Updated 1/5/2010
MLS Number S600409
Property Type Single Family, Residential
Community Westpark
Tract Vin

Quiet & private end of cul-de-sac interior location. Huge yard on the greenbelt with a new fence & built in BBQ. Georgous and highly upgraded with new wood floors, plantation shutters, beautiful granite counter tops, built in entertainment center & office, designer berber carpet & light fixtures, mirrored wardrobes with closet organizers, built in surround speakers, ceiling fans in every bedroom, recessed lighting, tinted windows custom paint, alarm system, custom drapes, vaulted ceilings & main floor bedroom with full bath. Shows like a model. Close to great schools, shopping entertainment and more. Won’t last!

Georgous. This guy earned the graphic, but failed to spell the word correctly.

Won’t last. $400/SF homes are not selling particularly fast….