Today, I am going to show in great detail how gaming interests in Las Vegas can save their local housing market and why they should do it.
Irvine Home Address … 5 LA SERENA #21 Irvine, CA 92612
Resale Home Price …… $439,900
I'm standing in the middle of the desert
Waiting for my ship to come in
But now no joker, no jack, no king
Can take this loser hand
And make it win
I'm Leaving Las Vegas
Lights so bright
Palm sweat, blackjack
On a Saturday night
Leaving Las Vegas
Leaving for good, for good
I'm leaving for good
I'm leaving for good
Sheryl Crow — Leaving Las Vegas
I love Las Vegas. I have family there. It makes me sad to see what lenders did to the people there. I want to do something about it.
I want to save Las Vegas.
Attention Las Vegas Homeowners,
I will save your home. I have assembled a team of real estate super heroes. We are Superfund.
The market statistics are pretty grim. Your house is probably worth less than half of its peak value, and it will not be going up any time soon. What's worse, you can probably rent the house across the street for half of your mortgage payment. You are going to be underwater forever, and you are paying out hundreds or even thousands of dollars each month and getting little in return.
I suspect like most homeowners, you keep paying the mortgage, even when it is very painful, because you don't want to lose your home. My friends and I with Superfund are coming to town, and we want to save your home and clean up the mess that lenders made of your life.
Take a careful look at the chart above. Notice how stable house prices were in your market prior to the false financial innovations of the housing bubble. House prices did not go up for any fundamental reason, and the crash that has taken prices back down below the long-term support line is a direct result of lender's financial folly.
That $150,000 house you live in was never really worth $400,000. Lenders developed toxic loans like the Option ARM that gave borrowers like you the ability to borrow $400,000 with a payment that services a $150,000 loan. Borrowers took out these loans and temporarily inflated house prices. You and all your neighbors refinanced this equity from the inflated home values, and many of you spent it. Now, nearly everyone in town owes more money on their homes than they are worth, and very few of you can afford the payment on the huge debt.
Lenders created this mess, and now they want you to believe you have some moral obligation to pay back the loan they never should have given you — even if it harms your family in the process. This is wrong! You have a greater moral obligation to your family. The interest you pay each month over and above the cost of a comparable rental is money wasted — money that could have been spent to support your family. Lenders are asking you to pay for their mistakes, and if you say no, they have the audacity to try to make you feel guilty about it. Forget them. We have a better answer.
Cancel your mortgage contract
Did you know that you could cancel your mortgage contract? You can. It is a process called strategic default. You stop paying, and the lender gets to sell your house at auction for the repayment of the debt. There are consequences. Your credit will be harmed, and you may need to declare bankruptcy to fully extinguish the debt. Lenders will be hesitant to loan you money for a while, but if your work with Superfund, we may be able to keep you in your home.
Have any of you cancelled a cell phone contract? When you signed the contract for the service, your carrier sold you a phone for less than its actual cost, and they knew that you might cancel your contract before the two years was up. In the contract, the cell phone service provider spells out the costs and fees associated with paying off the phone and provisions for lost profits if you cancel early. In short, when you break your cell phone contract, you pay a fee, and then its over. You are not immoral if you cancel a cell phone contract, you are merely exercising a contractual right.
Similarly, when your lender gave you a loan, they knew you might not be able to pay them back. They made you sign a mortgage agreement that allows them to force the sale of your home at auction to get their money back. They estimated the costs of recovering the home and reselling it on the open market when they extended you the loan, and they only loaned you the amount they believed they could recover if you chose to cancel your contract. You are not immoral if you strategically default on a mortgage contract, you are merely exercising a contractual right.
Guilt and paying the mortgage
Have you ever wondered why people feel guilty about strategic default? Why do you feel guilty? Is it because you would be breaking your promise? What about the promises you made to your family? What necessities and small indulgences are you denying your family in order to pay that bloated mortgage? What is your duty to yourself and your family? Proverbs 22:7 "The rich rules over the poor, and the borrower is the slave of the lender." Have you sold your family into slavery?
Should you feel guilty about breaking a cell phone contract? If you examine the terms in the promissory note and mortgage arrangement, the lender is making a loan, and as a contingency in the event an borrower does not repay the loan, the lender has the right to force a public auction to resell the property to obtain their money. It's a contract, nothing more. The arrangement differs in no material way from breaking a cell phone contract.
Prior to the housing bubble, borrowers lost their homes if they didn't repay the debt. A borrower who was capable of making the payment but didn't was causing their family to lose their home. Losing the family home is arguably an immoral act, particularly if the borrower could keep the home and afford the payments. However, when the home is worth far less than the mortgage, and when comparable properties are for rent for far less than the mortgage payment, the painful alternative of losing the family home is better than a lifetime of crushing debt.
The morality of paying the mortgage to keep the family home is superceded by the greater moral imperative to provide a financial future for the family — a future free of debt.
The morality of the borrowers is not what should be questioned, it is the morality of the lenders. The Option ARM and other loan products put people into homes under terms they could not sustain. Lenders caused this pain. When lenders made these loans, they were being immoral. Strategic default balances the scales of justice and metes punishment to the lenders who deserve it.
Strategic default also serves an important purpose in the housing market. It is part of the checks and balances that ensure prices remain stable and affordable. if lenders did not fear strategic default, they would loan people very large sums of money, far in excess of their ability to repay. Whenever lenders loan more money than rent from the property could sustain, they greatly reduce affordability for potential homebuyers everywhere and inflate massive housing bubbles.
Without strategic default, lenders will inflate one massive housing bubble after another. They will continue to ruin lives everywhere. Strategic default is both moral and a market imperative.
Walk away from your mortgage now!
Discarding mortgage debt is actually quite easy: stop paying. Once you stop paying, your lender will contact you and try to get you to repay. If you play along, you can extend the process for a long time and stay in your home with no rent and no mortgage payment.
There are services devoted to helping people through the strategic default process. The service I recommend is YouWalkAway.com. They are not a scam like loan modification companies. At YouWalkAway.com when you sign up for their service, they will send you a package that takes you through the strategic default process with all the details of mortgage laws in your state. What you are really signing up for is the personal service of YouWalkAway.com's staff who will be there to explain your options, answer your questions, and find you the specialized help you need.
Wouldn't you like to have your own expert to guide you through the process? YouWalkAway.com is there to help.
Why not get a loan modification?
In the short term, if you go get a loan modification, you may be able to lower the payment enough to be competitive with a rental. However, loan modifications are a temporary fix, and the debt on the property is still double what it should be. The only way you are going to see a principal reduction is through a foreclosure. There is less opportunity for most owners in a loan modification to have equity because their loan balance is simply too high.
Why modify a $400,000 loan when you can wipe it out and buy the house back in a few years with a much smaller mortgage?
Superfund is the answer
If you strategically default it will adversely effect your FICO score which will make borrowing more expensive for a while, and after the foreclosure, you will need to wait two years before getting a new government insured loan to purchase a house. During that two years, you will need to start saving for a down payment as those are now required. These consequences will follow your decision to strategically default, and they cannot be avoided.
However, there is one particular consequence that Superfund may be able to remove: you may be able to stay in your house.
There are no guarantees. Superfund is not going to pay more than fair market value, and no more than what earns Superfund a solid return on investment. If you work with Superfund, we still may not be the high bidder. You may still have to move out. However with the lower cost structure and greater projected rent, Superfund will bid higher than the rational professionals, and most often that will be a successful acquisition. The real worry should not be other foreclosure auction bidders, the real concern is the behavior of your lender.
Lenders may opt for what is known as a vindictive foreclosure bid — lenders often bid above market value simply to punish borrowers. If your lender wants to, they can bid above market up to the face value of the loan in order to throw you out of your house. They don't benefit from this behavior financially as they will need to process your house and sell it in the resale market, but by punishing a random selection of underwater home owners, they hope to thwart Superfund and discourage strategic default.
Isn't taking chances what Las Vegas is about? Guaranteed, you can eliminate your mortgage debt through strategic default, and if you work with a Superfund, you have a good chance at staying in your home. How good are your odds? Next time your in a casino, place a chip on red or black at the roulette wheel. Imagine that if it comes up red, you must move out of your home, but if it comes up black, you get to stay. Superfund may not succeed, but if it does, you are back in the black. If it doesn't, you are still better off in a nearby rental than you are with a huge debt over your roof.
How does the deal work?
A representative of Superfund will collect information on the rental and resale market and prepare a report showing what you will need to pay in rent, and how much you will need to pay to repurchase your home from Superfund on a pre-determined schedule. Once you have agreed to these preliminary terms (they will be updated just prior to auction), the only remaining thing for you to do is stop paying your mortgage and wait for the foreclosure sale. Superfund recommends that you begin saving money for your down payment by putting aside the money you were spending on your mortgage.
You will be paying an above-market rent to stay in your home. Plus, you will agree to a 2% automatic yearly rental increase. The higher rent allows the Superfund to bid higher at auction. Your rent will still be much less expensive than the massive mortgage you are currently paying.
That house you have that is worth $150,000 and has a $400,000 mortgage. How would you like to buy it back in 5 years when your credit is better for $182,500?
Superfund will establish a baseline value from comparable resales on the date of the sale. The price increases 4% per year. There is one very important condition, the price actually paid for the property is the greater of the number in the chart above and appraised value at the time of sale. If there is another housing bubble, this right-to-repurchase can't be exercised like an option to a third party to profit from the difference. If you are unable to qualify for a loan and resale values are higher than the numbers above, the benefit of the irrational market exuberance falls to Superfund. If values never come back, you are certainly no worse off by renting.
The deal being offered to you by Superfund is much better than staying in your house and repaying the loan, and it is much better than a loan modification where you can temporarily afford the loan but can't later. Neither the bank nor the government is offering you the chance to drastically reduce your debt and stay in your home.
Think about it. You have little to lose except your debt.
Interested in Superfund?
Are you interested in Superfund? So am I. I wish I had the backing of a couple hundred million dollars to make Superfund happen. Unfortunately, I don't.
If you like the idea, forward this post to anyone you know in the finance or gaming industries or anyone in Las Vegas. If the right people see this idea, we can make it happen. We can save your home!
Contact me: IrvineRenter [at] IrvineHousingBlog.com
The Big Las Vegas House Party
Attention casino owners,
This impacts you.
Home prices in Las Vegas doubled between 2003 and 2005. The entire city of Las Vegas, at least every homeowner there, saw hundreds of thousands of dollars flow on to their household balance sheets. Las Vegas is already home to every vice known to man — many of which you casino owners provide — so there was no way the citizens were going to resist a pile of free money even if they saw a reason to resist, which they didn't. You don't need to imagine what a party that must have been. Your casino income during that time is a testament to the power of unlimited borrowing on a home equity line of credit.
I shudder to think the money your casinos must have taken in from the local population. How many houses were spent there? Most of them, I imagine.
Gaming interests can save Las Vegas home debtors
I recently wrote about how hedge funds could keep original buyers in foreclosures. Check it out. You casino owners have access to enough capital to form a hedge fund to buy up properties at foreclosure auction and rent them to the former owners. You need to form your own Superfunds. Saving the Las Vegas housing market requires the concerted efforts of several large operators with access to cheap debt now readily available from Wall Street. Right now, you can earn a 6% to 8% return on money invested in your local housing market through collection of rents. If you can borrow for less — which most of you can — you can save the housing market and make a fortune on the recovery.
The financial returns to the Superfunds will be great. The current cashflow will be tremendous from these properties, and you casino owners will be housing your workers (and thereby capturing more of their income), and you will be freeing up more of their income to spend in the local economy — in your casinos.
Casino Superfunds are not about real estate
The Casino Superfund would certainly get good publicity; after all, your actions would be keeping your staff in their homes. Las Vegas workers would be very grateful and perhaps even more loyal. If my employer saved my home, I would be grateful and loyal. Wouldn't you? The good publicity aside, there is a more practical reason to run a debt-cleansing Superfund: the lenders are killing your business.
Where do you think all the money in Las Vegas is going right now? It is going to the banks through payments on the toxic mortgages that infest your town. These lenders came to your town with their slick suits and sales spiel and sucked the life blood out of everyone living there.
Think about how much money you casinos spend trying to capture customer dollars once they walk in the door. Everything you do is about capturing the customer and getting them to stay in your establishment until their wallet is empty. The lender lampreys have moved in on you. They are sucking the money out of the local economy that previously was spent in your casino.
Take a typical example. Lets say the typical borrower has a $3,000 house payment, and they can rent the same house for $1,500 a month — a common situation in the Las Vegas housing market. Each month that borrower makes that oversized payment, the local economy (read your casino) failed to make any of that $3,000. Now lets say you form a Superfund, buy the borrower's house and rent it back to them for $1,500 a month. Not just will you get the $1,500 they spend on rent, they will spend the other $1,500 in your casino.
So, casino owners, what would you rather have that $3,000 a month go to the lenders, or would you rather have it flow back to you? Multiply that by the number of underwater borrowers in your town, and the answer becomes apparent.
Now is the time for Casino Superfunds
This is not a high-risk venture or some flashy mega-resort, but this will have a much greater impact on life in Las Vegas. Buying properties for cash and holding them for cashflow is relatively safe. In fact, it is funds like Superfund that will come in an buy the distressed assets and form a durable market bottom. Las Vegas's housing market is a mess. But contained within this catastrophe is the conditions for a brighter tomorrow.
Housing affordability for Las Vegas is the best it has been in 30 years, California-based real estate consultant John Burns said Wednesday.
And Las Vegas home prices have never been more affordable in relation to income, correcting back to 2000 levels, said Burns, who has been studying the market since 1981.
Housing cost-to-income is 19 percent in Las Vegas, based on a median home price of $133,800 in April, John Burns Real Estate Consulting reported.
"A lot of cabdrivers and hotel workers below the median income have a chance to become homeowners for the first time in a long time," Burns said from Irvine, Calif. "I think they realize that for $700 a month, they can own a home in Las Vegas."
Housing is truly affordable in Las Vegas, arguably too affordable. Prices have overshot fundamentals.
Housing affordability has returned across the nation with most states in the 20 percent to 30 percent range of housing cost-to-income, according to Burns' report. The cheapest area is Saginaw, Mich., at 12 percent, followed by Pine Bluff, Ark., and Danville, Ill., at 13 percent.
The most expensive is San Francisco at 66 percent. Other California areas above 50 percent include Orange County, San Luis Obispo and Santa Cruz.
The only reason we pay so much for housing here in California is kool aid intoxication. People in Danville, Illinios, go to work, earn money, and take on mortgages to buy houses. It only costs them 13% of their income on average whereas it costs us here in Orange County well over 50%. Why are we putting so much more into housing? Because everyone in Orange County thinks the house has an endless ATM machine built in.
… Few homes under $300,000 could be found in Summerlin two years ago, including condos and townhouses, he said. Now that product is available at prices starting around $185,000, or $100 to $120 a square foot.
The better product was witheld to keep up pricing on the garbage. If Las Vegas is finally going through the desirable properties, they are approaching the bottom.
Last week, I discussed The Cash Value of Real Estate. Since prices are so low, as John Burns noted, cash investors like Superfund are coming in to buy properties. These investors are not speculating on the comeback of prices, they are buying because the great positive cashflow these properties offer. Many of these buyers know that prices will still go lower when the rest of Las Vegas's housing stock goes through foreclosure, but there is no need to time the bottom tick. Acquiring cashflow properties makes sense as long as the returns warrant the investment.
Superfund is hope
Las Vegas will experience a nearly complete turnover of its housing stock over the next several years. Housing prices may rebound from the lows, but they will not reach the peak for decades. Without Superfund, there is no way for borrowers to eliminate their toxic debts and stay in their family homes.
With Superfund, there is new hope. Viva Las Vegas!
Bought at the peak
The owners of today's featured property managed to buy at the peak. However, they did refinance. The first mortgage holder was Wells Fargo, and the second mortgage holder was Chase bank. Since the same bank did not hold both mortgages, the first lien holder — in this case Wells Fargo — had no problem blowing out the second lien holder in a foreclosure. The properties going to foreclosure now are the ones where the bank does not hold both the first and the second mortgage. Anyone who refinanced into two mortgages with the same bank has much more negotiating leverage than borrowers who used different banks. Borrowers with the same lender are also much more likely to be allowed to squat.
Wells Fargo bought this property for $489,000 on 4/26/2010. Despite the dropped bid, they grossly overpaid at auction, and now they have another REO to deal with.
Recording Date: 01/07/2010
Document Type: Notice of Sale
Recording Date: 12/23/2009
Document Type: Notice of Sale
Recording Date: 09/08/2009
Document Type: Notice of Default
Irvine Home Address … 5 LA SERENA #21 Irvine, CA 92612
Resale Home Price … $439,900
Home Purchase Price … $669,000
Home Purchase Date …. 4/21/2006
Net Gain (Loss) ………. $(255,494)
Percent Change ………. -34.2%
Annual Appreciation … -9.7%
Cost of Ownership
$439,900 ………. Asking Price
$15,397 ………. 3.5% Down FHA Financing
5.01% …………… Mortgage Interest Rate
$424,504 ………. 30-Year Mortgage
$91,189 ………. Income Requirement
$2,281 ………. Monthly Mortgage Payment
$381 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$37 ………. Homeowners Insurance
$377 ………. Homeowners Association Fees
$3,076 ………. Monthly Cash Outlays
-$377 ………. Tax Savings (% of Interest and Property Tax)
-$509 ………. Equity Hidden in Payment
$30 ………. Lost Income to Down Payment (net of taxes)
$55 ………. Maintenance and Replacement Reserves
$2,275 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$4,399 ………. Furnishing and Move In @1%
$4,399 ………. Closing Costs @1%
$4,245 ………… Interest Points @1% of Loan
$15,397 ………. Down Payment
$28,440 ………. Total Cash Costs
$34,800 ………… Emergency Cash Reserves
$63,240 ………. Total Savings Needed
Baths: 2 baths
Home size: 1,507 sq ft
($292 / sq ft)
Lot Size: n/a
Year Built: 1976
Days on Market: 8
Listing Updated: 40309
MLS Number: S616141
Property Type: Condominium, Residential
According to the listing agent, this listing is a bank owned (foreclosed) property.
Beautiful lower end unit on Rancho San Joaquin Golf Course, steps to the golf clubhouse and Assoc pool! Great golf course/city lights view! Unit has granite counters, wood shutters, fireplace, 3 Patio's, mirrored wardrobes,inside laundry, limestone flooring, 3rd bedroom converted to a den with wet bar and fridge, very close to UCI and the 405 freeway.