Amend-Extend-Pretend: 780 Day Short Sales, 60% of Delinquent Loans Remaining

The United States is following the Japanese model of slow deflation using the amend-extend-pretend dance. Will it take the US 15 years to deflate its bubble?

39 Secret Garden Kitchen

Irvine Home Address … 26 SHADOWPLAY Irvine, CA 92620

Resale Home Price …… $740,000

Are you still too blind to see

We're living in a fantasy

It's you and i who'll pay the cost

Where will we turn when all hope is lost

Lionsheart — Living in a Fantasy

Amend Extend Pretend

Banks are living in a fantasy, and you and I will end up paying the cost. They are refusing to write down the values on their bad loans. They amend the terms, extend the period of repayment, and pretend that delinquent borrowers will diligently make payments under the new terms. Lenders genuinely believe they will get their money back plus interest.

It isn't going to happen.

The reason banks amend, extend, and pretend is simple: lenders cannot afford to write down the loans to actual recovery values because they would be broke, either insolvent or bankrupt. Without factoring in the lowering of prices caused by the liquidation, if every bad property loan was written down to is realistic level of recovery in today's market, the losses would exceed the total capital in the banking system — even now after three full years of mark-to-fantasy accounting at our major banks. Banks refuse to recognize HELOC and second mortgage losses; thus, our housing market sits in limbo while lenders and loan owners pray for prices to go back up.

The amend-extend-pretend policy has one intended consequence, and one unintended one: the intended consequence is that supply is restricted to the point that demand exceeds supply and prices are forced higher. Banks want higher prices to increase their loss recovery on each property and maintain the value of their portfolios. The unintended consequence is the moral hazard of indefinite squatting by delinquent mortgage holders.

As banks continue to pursue the amend-extend-pretend policy, delinquent borrowers are being given a free ride. Word travels quickly, and as some quit paying their mortgages and nothing happens, others who are struggling also quit making payments. What many term as strategic default (I call it accelerated default) is becoming more common. Why wouldn't it? Why does anyone keep paying their mortgage when not paying has no consequence? Squatting is becoming a way of life for many delinquent borrowers.

The other unintended consequence is a huge buildup of loans where the borrower is not making payments, but the banks have done nothing about it: shadow inventory. Most delinquent mortgages are simply being ignored by the banks. Right now, if you are a loan owner, and if you quit paying your mortgage, there is a 60% chance your lender will do nothing, and your lender will likely choose to do nothing for a very long time.

60% of Delinquent Mortgages Not in Loss Mitigation

by JACOB GAFFNEY — Tuesday, August 24th, 2010

According to a study from the State Foreclosure Prevention Working Group (SFPWG), 60% of borrowers with mortgages delinquent by 60 days or more are not being forwarded to the servicer's loss mitigation department.

That is shadow inventory: pure and simple. Those delinquent borrowers have not been served any notices, so they don't show up in the foreclosure statistics, and they have not signed up for a loan modification, so they don't show up in the government data. Sixty percent of delinquent borrowers are being allowed to squat in peace.

The SFPWG is a consortium of the Attorneys General of 12 states, three state bank regulators and the Conference of State Bank Supervisors. For the past two years, it collected delinquency and loss-mitigation data from the largest servicers of subprime mortgages in the country, totaling 4.6m loans as of March 2010.

While some serious delinquent loans remain ignored, foreclosures are outpacing modifications. Since October 2007, the servicers completed 2.3m foreclosures.

As HousingWire reported, HAMP cancelations number 616,839. Richard Neiman, superintendent of banks for New York State said such modifications are more likely to fail without principal reduction.

“We expect banks to take the performance of these modifications into account when deciding the best options for both consumers and investors," Neiman said.

Despite what Mr. Neiman may expect, banks are not going to write down principal outside of a foreclosure. That leads down a slippery slope where every borrower quits paying in order to get a principal reduction.

"Without improvements to foreclosure prevention efforts, the group anticipates that hundreds of thousands of these seriously delinquent homeowners could end in foreclosure," according to the SFPWG statement.

With cure rates under 10%, nearly all of those who are more than 60 days late will end as foreclosures.

The group said improvements in more recent loan modifications are yielding some positive results, such as lower rates of redefaults. According to the data SFPWG collected from nine mortgage servicers, loans modified in 2009 are 40% to 50% less likely to be seriously delinquent six months after modification than loans modified during the same period in 2008.

"As servicers have increased their use of payment reduction in making loan modifications, many more homeowners have succeeded in keeping their home," said Mark Pearce, North Carolina chief deputy commissioner of banks.

In other words, as we have converted more loans into government-backed Option ARMs, people have been able to make the teaser payments. That should extend this crisis for a couple more years until the terms of the government's Option ARMs explode. This solution is simple a way to extend the pain over a longer period of time to prevent the insolvency of our banking system from becoming undeniable. Anyone who believes loan modifications are intended to keep owners in their homes is fooling themselves. This program is designed to keep banks solvent and keep loan owners in perpetual debt servitude.

780 days on the market

Evidence of the amend-extend-pretend is captured in the macro-economic data, but it isn't difficult to find specific properties that show just how ridiculous the lenders have become. Today's featured property is a short sale that has been on the market for 780 days!

The owners of today's featured property paid $814,000 on 11/29/2004. They used a $651,200 first mortgage and a $162,800 down payment. The obtained a $125,000 HELOC on 4/14/2006 and a $250,000 HELOC on 10/17/2006. It isn't clear wether or not they took this money. If they did, they got their down payment back and then some. If they didn't, they are out $162,800. It is likely they did take this money or it would not have been a short sale at $699,000 in July of 2008.

I first profiled this property not long after it was first listed.

Property History for 26 SHADOWPLAY

Date

Event

Price

Jul 20, 2010

Relisted

Jul 01, 2010

Delisted

Jun 02, 2010

Price Changed

$740,000

May 10, 2010

Price Changed

$760,000

May 10, 2010

Relisted

Feb 11, 2010

Price Changed

$620,000

Oct 28, 2009

Delisted

Oct 02, 2009

Relisted

Oct 01, 2009

Delisted

Sep 17, 2009

Relisted

Mar 20, 2009

Delisted

Jul 16, 2008

Price Changed

$699,000

Jul 11, 2008

Listed

$599,000

Nov 29, 2004

Sold

$814,000

When the property was first listed, they put a very low asking price to attract attention, then they raised it up to the level of bids they had at the time. Then they embarked on the amend-extend-pretend dance:

Foreclosure Record

Recording Date: 06/01/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 03/30/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 08/11/2008

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 05/05/2008

Document Type: Notice of Default

The current owners squatters have not made a consistent payment since 2007.

Why would banks permit this other than to avoid taking a write down? Now, with 4.5% interest rates, they may obtain a significant recovery; although, with two and half years of missed payments, they are probably no better off.

The amend-extend-pretend dance must end. Of course, it won't end until the insolvent banks can afford the write downs. Until then, we are following the Japanese model of slow deflation until the market reaches fundamental values. It took the Japanese over 15 years. How long will it take the US?

39 Secret Garden Kitchen

Irvine Home Address … 26 SHADOWPLAY Irvine, CA 92620

Resale Home Price … $740,000

Home Purchase Price … $814,000

Home Purchase Date …. 11/29/2004

Net Gain (Loss) ………. $(118,400)

Percent Change ………. -14.5%

Annual Appreciation … -1.7%

Cost of Ownership

————————————————-

$740,000 ………. Asking Price

$148,000 ………. 20% Down Conventional

4.50% …………… Mortgage Interest Rate

$592,000 ………. 30-Year Mortgage

$144,622 ………. Income Requirement

$3,000 ………. Monthly Mortgage Payment

$641 ………. Property Tax

$250 ………. Special Taxes and Levies (Mello Roos)

$62 ………. Homeowners Insurance

$120 ………. Homeowners Association Fees

============================================

$4,073 ………. Monthly Cash Outlays

-$715 ………. Tax Savings (% of Interest and Property Tax)

-$780 ………. Equity Hidden in Payment

$247 ………. Lost Income to Down Payment (net of taxes)

$93 ………. Maintenance and Replacement Reserves

============================================

$2,917 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$7,400 ………. Furnishing and Move In @1%

$7,400 ………. Closing Costs @1%

$5,920 ………… Interest Points @1% of Loan

$148,000 ………. Down Payment

============================================

$168,720 ………. Total Cash Costs

$44,700 ………… Emergency Cash Reserves

============================================

$213,420 ………. Total Savings Needed

Property Details for 26 SHADOWPLAY Irvine, CA 92620

——————————————————————————

Beds:: 4

Baths:: 4

Sq. Ft.:: 2492

$0,297

Lot Size:: -

Property Type:: Residential, Condominium

Style:: Contemporary

Year Built:: 2004

County:: Orange

MLS#:: 08-295511

Source:: TheMLS

Status:: ActiveThis listing is for sale and the sellers are accepting offers.

——————————————————————————

On Redfin:

Final approved!!!Elegant & luxurious 4 bedroom attached town home, very bright interior, spacious living space(2,492 sq. ft)built in2004,$120,000 upgraded option when purchased, This is a short sale property! Price & Commission are subject to lender approval. Commission will be 50:50.For showing, see private remark.

Final approved!!! Is that exclamation because the short sale if "finally approved" or because it has received its final approval?

70 thoughts on “Amend-Extend-Pretend: 780 Day Short Sales, 60% of Delinquent Loans Remaining

  1. IR_Fan

    IR,
    you said…
    “if every bad property loan was written down to is realistic level of recovery in today’s market, the losses would exceed the total capital in the banking system — even now after three full years of mark-to-fantasy accounting at our major banks”

    can you please substantiate this? How much total capital is in the banking system and how much would the loses be once properties are written down?

    Also, how much of these loans are already guaranteed by Fannie and Freddie and therefore, it wouldn’t be the banks taking the loses, it would be the US tax payer anyhow.

    I would be interested to see the actual numbers.

    1. IrvineRenter

      I don’t have a nice summary link that shows the breakdown you are looking for. The post I linked to above further links to an article that details how much second mortgage and HELOC debt the major banks hold on their books. These alone exceed the share values of the banks. The second mortgages and HELOCs are still on the bank’s books. The GSEs do not insure these mortgages.

      I remember reading Nouriel Roubini saying the total capital in the banking system was about $1.5 trillion. Total banking losses from all sources will likely exceed that amount, and the current value of the collateral backing the banks loans would result in an accounting value leaving no investor capital. In short, the banks are all underwater.

      1. IR_Fan

        http://www.roubini.com/us-monitor/257505/fact__fiction_and_farce_and_lies__what_happened_to_the_bank_

        According to this, in and adverse case, WF would need to raise an additional 23BN in capital to survive the losses in Helocs/pick a payment in roubini’s 2009 “worst case.” This was from 2009 when things were pretty ugly.

        On a market cap of 128BN, while is is bad, it certainly doesn’t seem that this would wipe out the entire “capital” of the banking system. (by which I assume you mean the equity, not total assets.)

  2. IR_Fan

    You also talked about rental parity as a uniform number. If I happened to be the highest marginal tax bracket,say 45% for state + federal, (which more residents are in Irvine relative to other places such as inland empire), then the rental parity has already been breached and then some when you take out the “equity component” of the costs.

    I am not talking about the special WTF prices you profile, but in general, alot of homes have reached parity or better already IMO.

    1. IrvineRenter

      I display the numbers every day. For several years, nothing was below rental parity locally, but recently, the low and mid-low product has started to trade at rental parity. The mid-high and high end stuff is still priced well above the breakeven. That is one of the reasons it doesn’t sell.

      1. IR_Fan

        I guess my point was that the numbers you display daily are based on some assumed marginal tax rate. When I consider my marginal tax rate of 45%, I’m below rental parity.

        What do you consider high end?

        There are several 4/2 SFR in Turtle Rock (I was looking in this area and I watch it a lot.) that are in the low 900s to mid 800 range right now.

        At 850k purchase price, with 20% down, the after tax interest, property taxes would be about 22k based on my assumption of 45% marginal tax rate. Add in HOA, insurance and my total comes out to about 2k a month. Of course there is maint. and other “hidden” costs of ownership and the yes the downpayment has opportunity cost, but at my marginal tax rate, this is below rental parity since the prevailing rental for a 4/2 SFR in TR would be 3000 to 3500 a month.

        1. george8

          In your case, perhaps you should buy to start enjoying your own TR house and saving a few hundreds a month.

          I used your number and 4.5%/30 years mostgage and got $2,636 as your net cost. How did you get so low at $2,000?

          1. IR_Fan

            on loan of 680k, the first year’s interest is approximately 30,600(if you simplified as annualized payments using ipmt function). the property taxes are about 8670. together, that means 39,270. net of tax deductions (45%), that is 21,598. Add back 1284 for HOA and 800 for insurance and total comes out to under 24,000.

            It obviously isn’t exact as tax code isn’t exactly that straight forward and could trigger AMT and so forth but that is how I came up with basic numbers.

          2. george8

            Looks like our difference is in the details of other costs, such as taxes, HOA, insurance and maintenance etc.

          3. IrvineRenter

            Remember that you will not get the full benefit of a 45% marginal tax rate reduction. You are giving up the standard deduction in order to itemize and get the tax break. The actual net benefit will be about 10% less than you estimate.

          4. Perspective

            Yes, the AMT is the IRS’ “reach-back” to grab more tax when you’re a high-earner deducting a lot. The AMT hit us for nearly $2K in 2008, but less than $1K in 2009.

          5. Irvinite_Survivors

            If you make enough money your state taxes far exceed the standard deduction.

            My heart goes out to IR _Fan and similar Irvinites surviving this trecherous recession in high tax brackets.

            I hope IR_Fan doesn’t suffer too much in translation between Turtle Ridge renting and Turtle Ridge ownership. May the translation of renting to owning a large Turtle Ridge home for less be pain free.

          6. Perspective

            Thank you for your concern Irvinite_Survivor. Rest assured, Obama is doing all he can to transfer income from high-earning Irvine residents to others.

          7. Eat that!

            I’d happy to give the rich all their money if they in turn would invest in companies that paid a decent wage to all us low life free loaders who teach their kids, do their hair, wash their cars and otherwise wait on them, hand and foot.

          8. Steve

            Yeah, I miss George too. He borrowed money from China to give me a tax break, why should I have to pay it back?

          9. IR_Fan

            lol…yes I hope i can survive. I am buying the cheapest house I can possibly buy in the what I consider the best neighborhood and it has nothing to do with any calculations of return or anything else…simply that we are having our first kid and we need to stop moving every 12 months to a new apartment.

            I certain don’t think I am unique or even remotely rich. My only point was that I think plenty of Irvine buyers will be in this same situation and therefore the rental parity question would be very different..it isn’t a single number. Even assuming IR’s 10% less number, at 35% marginal rate, the rental parity has been breached.

          10. mikeyD

            Herein lies the problem…”YOU” don’t give the rich their money….they earn it themselves without your help.

          11. Swiller

            Really? So if one man was on an island, I’m sure he would get “rich” by…..oh that’s right, you can only get rich off OTHERS.

            Gads I hate the liars about wealth.

        2. tonye

          Huh?

          How much do you think I could rent a 2700 sq foot, 5B/3ba in the Broadmoor? The house is effectively ten years old with a real “gourmet” kitchen.. ;-)

          No seriously, I cook, so I put in a Viking stove with an oversize range hood.

          Heck, I was thinking of blowing the comps, dumping the old chateau for 910K and taking my money to Nevada.

      2. lowrydr310

        I would argue that rents on the low and mid-low products are too high, skewing the rental parity calculations.

        Also, I’d bet that you could easily rent a newer TIC apartment for the same price or even less than the monthly cost of ownership for some of the low end dumps that have been appearing.

    2. DarthFerret

      If I happened to be the highest marginal tax bracket,say 45% for state + federal

      How do you figure a 45% tax rate? Are YOU claiming to be taxed at this rate? Do you have a pre-tax household income after deductions and credits greater than $373,650/yr? That’s the threshold for the federal 35% tax rate, and I assume that you’re rounding California’s rate up to 10%. Even if you do have this income level, not every dollar you make is taxed at 45%. Only the taxable income over $373K is taxed at that rate. Every dollar prior to that is taxed at the corresponding lower rates.

      http://www.bargaineering.com/articles/federal-income-irs-tax-brackets.html

      If you DO have this income level, then a 4/2 SFR in TR is living cheaply.

      For the record, I do not believe that you are taxed at this rate. I suspect that only a very small percentage of Irvine residents are taxed at this rate. I’m sure that there is an income chart or map somewhere to verify this.

      -Darth

      1. Perspective

        “…If you DO have this income level, then a 4/2 SFR in TR is living cheaply…”

        You’re discounting the impact of taxes. Even if you don’t reach a joint taxable income of $373,650, but you’re above Obama’s “rich” level of $250K, a third of your income is going to Fed/CA income taxes and another 7% goes to other payroll taxes (subject to the SSI cap currently $106K). Let’s say roughly 35% is gone immediately; and you can reasonably expect that to increase soon.

        So, if you (& your spouse) want to:

        cap-out your 401k contributions,
        save 10-20% gross outside of retirement,
        and still have money to buy and do a lot of fun things…

        Then you’re looking at spending less than 2.5x your income on a house (especially considering the mello roos & HOAs in Irvine).

        So the Irvine couple “rich” by Obama standards ($250K income) should be looking at homes in the low-$600s. That doesn’t even get you into a 4/2 TR SFR.

      2. tonye

        Actually… In California we got to deal with 9% income tax, 9% sales tax, RE tax, Federal tax _and_ the AMT.

        Right there, not even counting social security, you have a huge tax burden.

        We manage our income reasonably well, have Prop 13 advantages, a reasonable mortgage and put money into our IRAs, yet, our effective combined tax burden in Federal, State and Sales tax was around 32%.

        The interest paid in our mortgage and RE tax comes out after our four personal deductions and that’s at the 33% combine tax rate federal+state).

        Obamalosinomics suck.

      3. IR_Fan

        Darth,

        So if you are a marginal rate of 33% and 9% for CA, do the calculations materially change? How many people do you think are in 209k to 300k category before MID? You think that category is that hard to get to with two professional incomes?

        When you go from 225,250 income to 324,250, your income is taxed at 42.725% combined federal and state (using simulation on paycheckcity).

        as for your record about “ME”, I believe in living below my means…whether my income is 10k or 500k. If that is living “cheaply,” so be it. Does this somehow bother you and negate my point that rental parity isn’t a single uniform number.

    3. DarthFerret

      Also, state taxes are not a factor in calculating the impact of mortgage deductions and property taxes. In fact, state taxes and all of the deductions and credits serve to push more of your income further below that 35% federal tax threshold, not the other way around.

      -Darth

  3. Jb

    Something I’m not clear on is the fact that helocs have not been wriiten down even though they are obviously worthless, is that true?

    1. IrvineRenter

      Yes, the banks are still holding these loans on their books even though they are worthless. Their fantasy is to breathe life into these worthless loans by driving real estate values back up.

  4. Soylent Green Is People

    $900k leverage at 5% is $45kpy of interest charges. X 2 years is quite a nice bit of payment relief.

    My theory on extend / pretend: Banks are allowed to consider negatively amortized interest as “income” – income they will never see… as we all know… This stream of revenue allows them to conflate their book value until finally compelled to seize the property from the squatters. Why rush to meet the demands of the mortgage contract when they can sit on the books as a positive impact on their balance sheets?

    My .02c

    Soylent Green Is People.

  5. BD

    Quick question for the group: When we talk about rental parity I believe people like to include the mortgage iterest deduction in the calculation of the total cost of ownership.

    That said, I was under the impression that most people that are buying $750K properties and above are likely hitting the ATM tax and having all of their deductions thrown out. Is this the case? If this is true then the rental parity is even further out of whack on most if not all higher end properties.

    …just a question.

    BD

    1. IrvineRenter

      Given the difficulty of modeling the tax code, I make no attempt to account for the AMT. However, I believe you are correct that the AMT will likely further reduce the savings on taxes and will therefore reduce rental parity on high end properties.

      1. BD

        Thanks IR… This is what I thought. People really need to understand their individual circumstances. Unfortunately, I believe that a lot of people assume they are taking the deduction but, their accountant and AMT throw it out… :(

        BD

        1. awgee

          The AMT does not decrease the MID, but the MID does increase the total itemized deductions which are adjusted by AMT.

          IR pointed out a very important fact which most people do not account for, and very few real estate agents ever refer to when expounding upon the wonders of MID.

          If you do not itemize due to lacd of MID and property tax deductions, you still deduct the standard deduction. Or if you own your home outright with no mortgage, you still deduct the standard deduction.

        2. awgee

          And one more thing. If you own your home outright, you can usually make three property tax payments one year and one payment the next year and you can double your charitable contributions in the same year you pay your property taxes and make no charitable contributions in the year you only make one payment. You itemize in the year you have the deductions and take the standard deduction the next year.

          1. Muzie

            I redid my taxes using several potential scenarios for potential home buys.

            AMT will negate the property tax deduction. The interest tax deduction is left alone. So for most the AMT actually doesn’t hinder the tax benefits of home ownership all that much.

          2. darms

            We’re doing that this year, paid 2009 taxes in January & will pay 2010’s in December. Plus my wife now owns her mother’s house so we’re paying those property taxes on the same schedule as well. I never look forward to 04/15 but this year’s taxes will be interesting to say the least.

    2. Perspective

      If you’re trying to get nearly accurate estimates of the tax-adjusted cost of owning, just use your last return (2009) in TurboTax. Create a new 1040/540 with the estimated mortgage interest and property tax. This will provide you the tax discount for owning (including AMT adjustments).

      As IR suggests, this will not be a discount equal to your marginal rate.

      1. IR_Fan

        Actually, the AMT question depends on how much income you have in the highest marginal tax rate. If you make enough at the highest marginal rate, there is no AMT because the taxes you pay using standard method are higher.

        It really depends a numerous different factors. You can definitely model the answer using what Perspective suggested to give you a better answer.

  6. Jennifier

    This is in NWII, and back to 2004-2005, had in the prior list for almost all of NWII models, never brought, but along with info getting from a few friends, quite familiar the entire selling schemes that used by TIC and builders, and always felt that the entire selling process, at the end of day, just make Mr. Bren richer with tax payer’s money and Bankers clean up their $$$$ hands with TARP. Well maybe the builders get a very small slide form the mercy of Mr. Bren.

    Was very upset that LA Jury made the wrong decision again – and this one is the biggest ever.

    When housing crash, we are punished and Banker walks away, Mr. Bret get richer and because this is the lesson the “we” need to learn and is “our” own responsibilities.

    And what LA jury determined is in order to give our youngest a lesson to become a hard worker, so if their rich Dad makes a mistake then his children should be punished.

    So as to say, if a poor Dad makes a mistake then his children should be punished.

    So sad for LA jury.

    1. keithy

      Jennifier,

      Do you believe one of the mjor reason Mr. Bren won is because he never said: “I Lov$$$$$ you” to Jennifier Gold.

      Question to LA jury, what if Bren ever love her for just one second, for example, at the second when she give a new life ? (or should we multiple the amount of seconds by 2).

      LA jury, even Mr Bren never said so, but just in case, for just 0.00000001 second, for God’s sake, the “lov ” word come out in his mind for just 0.00001 second, but he just never said it, then that is not “lov ” right ?

      O-My-God! LA jury and Mr Bren, you guys win.

  7. winstongator

    Is that street really ‘Shadowplay’? I thought that was a pun on shadow inventory. How much shadow inventory is on shadowplay?

    I brought up lost payments back when you were calculating total bank loss on a loan, and it is on the foreclosure records I’ve seen. From a bank’s point of view, if they’ve got deposits backing the loan, earning 0.25%, then the bank’s cost to hold a non-performing loan is an opportunity-cost, not a direct one (capital tied up, not making them money).

    Say you’ve got four $625k loans. Do you dump them all right away at say $500k. If I sold right away and started getting 4% on that $500k, that’s 20k/yr on that loan. If you thought waiting a year, prices would go back to $550k, you’d hold the loan. That is looking more at cash-flow than earnings.

    I think your idea is that by letting one prop out at $500k, the next one will be $480k, and then on. If that is the case, then it might be better to hold. This whole thing smells to me like a bank’s reo department is acting like a prop(ietary) trading desk!

  8. Nivek

    If home prices are going to keep falling, won’t rents begin to fall too? I’d hate to buy a house thinking it will be cheaper than renting and then in the next few years have the local rents fall below my mortgage payments. Any prediction on how far rents will be falling and how soon?

    1. Nike

      I’ve been curious about the effect on rental prices as well. While it’s true there are a flood of renters in the market, so many people are unemployed or not making that much money, therefore can’t afford high rents. Which one wins?

      1. HydroCabron

        I’ve been curious about the effect on rental prices as well.

        Remember – as I must tell myself each time I consider this issue – that the number of people per square foot of housing is still historically low. There are plenty of empty bedrooms, and plenty of 3,000-sq.-ft. houses with one or two people living in them. As people move back with relatives and individuals rent one bedroom or studio apartments, the number of renters per available unit will continue to drop.

        There is a lot of elasticity to the downside: plenty of room for people to shave a few hundred square feet off their living space and still live a pleasant existence.

        Rents have already dropped significantly along with falling prices and rising foreclosures. The high unemployment rate and the excess square footage will maintain downward pressure on rents as well as prices.

  9. jon

    I have been in dafault for 21 months on a 800K first and 150k heloc. i’m still living in my used-to-be million dollar home rent free. So glad to have made the decision. Now I have plenty of money saved up to rent a similar home when time is up.

    1. irvineshadow

      lol, the rest of us will reimburse the banks for the losses you create, don’t worry about it, consider it a favor :)

      1. Swiller

        There we go again, blame the victim, and not go after your repugnantcan or defacrat that YOU voted for, who gave OUR money to the banksters.

        Yes, no worries Jon. You will lose your house and your down payment, and when you get kicked out, you will have to help pay for the “losses” that our shitty government is paying to the banksters in the form of taxes. You get butt f’d twice, and then simple minds will blame you and scapegoat you.

        Forgive them Lord, for they know not what they do.

    2. DarthFerret

      Planet Realty has returned! I was wondering when he’d discard his discredited profile and come back as someone else.

      -Darth

    3. IrvineRenter

      jon,

      The decision you made is the correct financial decision for you. The individual incentives in the system are what contribute to enormous losses we will all endure collectively.

      1. jimmyj

        The debt collectors have up to 17 years to collect, and the IRS has up to 7 years to collect.

        I suspect people walking away, are not going to get off that easily with just a tarnished credit record.

  10. Kelja

    Corruption. This should make your head swim. In case you missed it, how the gov. is breaking the law —

    hyperlink color

    Where is the: “I’m MAD AS HELL and I’M NOT GOING TO TAKE IT ANYMORE!”

    1. irvineshadow

      sorry guy, americans are either too sedated or just don’t care. you couldn’t get them mad with a high voltage cow prod.

    1. winstongator

      The opposite is more likely to happen:
      Fannie Mae Loan Buyback Requests Up More Than 60% Year Over Year.

      We conduct reviews of delinquent loans and, when we discover loans that do not meet our underwriting and eligibility requirements, we make demands for lenders to repurchase these loans or compensate us for losses sustained on the loans, as well as requests for repurchase or compensation for loans for which the mortgage insurer rescinds coverage.

      This is really after-the-fact underwriting, which is really bad policy, although better than no underwriting.

  11. breakingBad

    David Goldman seems to have a valid point on the unintended consequences of a perpetual low interest environment Uncle Benny’s Fed has engineered.

    http://blog.atimes.net/?p=1550

    If people (from baby boomers on down) wake up one morning and realize that the expected returns on their savings for retirement is facing the new norm of 3% as opposed to 8%, what are they going to do? I am guessing at minimum they will have to add substantially more contribution to their retirement accounts every month to make up the deficit – But how will this affect people’s buying habits?

    The low yield/low rates were intended to (1) entice people to get deeper in debt and (2) force the hand of the savers. But if the condition lingers on long enough it will start doing some real carnage to large pension funds as well as millions of 401K accounts and out there. Your average Joe 6-pack will begin to wonder how he is ever going to be able to cross the goal line on getting enough money saved up for a decent retirement.

    Severe underfunding of pension fund is the old news. The question is how long it will take for millions of Americans to realize that they need to save much more toward retirement in a permanent low yield environment.

    And just imagine what that will do to general consumption, price, rents, GDP growth and housing market.

  12. DarthFerret

    IR,

    The pics in your article appear to be from a different property (39 Secret Garden) than the one linked (26 Shadowplay). The pics appear to be an SFR, while the linked property is a condo.

    Also… $740K for a condo?!?! Wow! Presumably, a condo with Mello Roos tax still leeching away for another 4 more years at least! WTF?! I don’t care if it is <$300/sf, that’s still cuh-razy! The rooms in the pics look awfully small for that much square footage. I wonder if the [r]ealtor lied…err, I mean, made a “mistake” on the square footage.

    -Darth

  13. Bitter Renter

    Man, I am so tired of reading “amend-extend-pretend dance”. IR, can you come up with some other way to word that? It makes me wince further with each successive overuse.

    Also, I posted this on yesterday’s story in regards to the IHB Calculator, but reposting on today’s in the hopes that IR or Zovall will see it:

    “It’s (basically) working for me on Firefox on OS X, and I don’t recall doing anything special to make this happen.

    However, while I agree that most mortgage calculators are crap because they don’t allow you to input certain important variables or force certain assumptions, the IHB calculator is crap in terms of usability.

    Zovall / IR, this has been mentioned before, but you guys really need to add some text to the calculator page explaining how to use it effectively.

    For instance, I was not expecting to get a formula when I clicked on the Gross Annual Income Input field — I would have thought only the Calculations version (and this dichotomy, too, is no doubt confusing for many when there’s no explanatory text) would have formulae in it.

    I changed the formula to a static value with my income, which I assume is the correct way to do it. I then came upon “Monthly Rent @ 31%”. Again, confusing. Why is it forcing rent to be 31%? Shouldn’t this just say “Monthly Rent”? Or maybe “Monthly Rent (default value is 31% of gross)”? I tried changing the Rent input field to my actual rent, and then for some reason the Calculations version of my Income went down by thousands of dollars.

    Being a computer professional, I could probably figure out how to use this calculator properly after a long time spent examining the formulae and figuring out which cells they’re referring to and why (assuming the calculator isn’t flat-out broken in its current state), but I don’t have the time, and most of your readers wouldn’t have the capability.

    How about adding some instructions to it…?”

    1. Bitter Renter

      Thanks for addressing my comments about the calculator on yesterday’s post, and sorry for what turned out to be a needless repost of those.

      To offset my negative feedback on “amend-extend-pretend dance” (gah!), I’ve been meaning to say that your recent refusal to capitalize the “r” in “NAr” makes me smile every time I see it.

  14. theyenguy

    You write … it won’t end until the insolvent banks can afford the write downs. Until then, we are following the Japanese model of slow deflation until the market reaches fundamental values ….

    Soon there will be no more amending … pretending … and extending because …

    The purchase of the yen based carry trades on September 1, 2010, that is today, rallied stocks, ACWI; and turned the tide on bonds, BND, sending them lower, establishing August 31, 2010 as a high in bonds at 82.66 – establishing August 31, 2010 as peak credit.

    The interest rate on the 30 Year US Government bond, $TYX, rose strongly today, September 1, 2010.

    And the interest rate on the US 10 Year Note, $TNX, also rose strongly today September 1, 2010.

    September 1, 2010 marks the transition from “the age of neoliberal Milton Friedman based credit liquidity” to “the age of the end of credit”; this also means ”the end of entitlements” and “the beginning of world-wide austerity”.

    Part of the end of entitlement will be that of “living payment free” in a bank’s shadow inventory of real estate property, as banks, being desperate for income will transition from being holders of real estate to lessors of property.

    Yes with the coming stock market driven write down of bank equity, and bond market driven write down of US Treasuries kept at the Federal Reserve in Excess Liquidity, the banks will no longer amend pretend and extend lending as describe by IrvineRenter and others. The bank’s FASB 157 entitlement to value real estate at mark-to-fantasy, rather than mark-to-market will have no meaning in a debt depreciated future.

    The 30-10 yield curve,$TYX:$TNX, began to flatten on August 11, 2010, reversing a trend that goes back to early 2000. This signals risk aversion to sovereign debt. The flattening of the yield curve came as a result of the Federal Reserve Chairmans announcement of August 10, 2010 of the purchase of mortgage-backed securities. Then on August 27, 2010, the Federal Reserve Chairman stated the possibility of an even larger purchase of debt. This caused the bond rally in US Treasuries, TLT, that began April 6, 2010, to fail today September 1, 2010 sending bond prices lower and interest rates higher. The safe haven rally in debt that began with the onset of the European Sovereign Debt Crisis is over. Investors see Mr Bernanke’s plans as monetization of debt; and have gone short US Treasuries, especially the longer out ones such as ZROZ.

    Systemic risk is quite high. Liquidity evaporation could happen quite easily, either coming through a failed Treasury auction or a situation where there may not be enough buyers of investment securities to meet sellers demand.

    I believe that soon, out of a liquidity evaporation and a liquidity crisis, stemming from a fast fall in bond and/or stock values, that here in the US a Financial Regulator will be announced who will oversee lending and credit, as well as money market and brokerage accounts. He will be what I call a credit boss or credit seignior who funds economic operations with an emphasis on seeing that the strategic needs of the country are met and that monies for food stamps keeps flowing. I believe the government will become the first, last and only provider of liquidity and money.

    I believe that here in the US, the Financial Regulator will exercise Discretionary Governance, and announce a Home Leasing Program administered by the banks, KBE, on their delinquent and REO properties as well as those of Freddie Mac, Fannie Mae and the US Federal Reserve.

    Mortgage lending and securitization of loans will cease, and leasing of homes will be a public private partnership cooperative endeavor. Companies that have created and serviced mortgage-backed securities, such as Anworth Mortgage Asset Corporation, ANH, and Annaly Capital Management, NLY, will quickly disappear from the economic landscape, as mortgage bond funds such as Goldman Sachs Mortgage Bonds, GSUAX, tumble in value.

    If one is into charts and graphs, one will find them on the link provided.

    1. Walter

      I have made a lot in NLY over the years. Been thinking of cashing in the profits, you are furthering that thought.

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