Monthly Archives: December 2010

Bear market rally of 2009-2010 fizzles

The bear rally has ended. The next leg down will likely lead us to the true bottom of real estate prices.

Irvine Home Address … 2100 TIMBERWOOD Irvine, CA 92620

Resale Home Price …… $359,900

The Spirit of the Woods is like an old good friend.

Makes me feel warm and good in-side.

I knew his name and it was good to see him again.

Cause in the wind he's still a-live.

Oh Fred Bear

Walk with me down the trails again.

Take me back, back where I be-long.

Fred Bear

Ted Nugent — Fred Bear

As I noted in a previous post, House prices resume their downward trend, the false bottom of 2009 is being tested by a languishing real estate market.

Housing Recovery Stalls

Fresh Fall in Home Prices Is Headwind for Economy; Other Signs Still Strong

By S. MITRA KALITA And SUDEEP REDDY — DECEMBER 29, 2010

A new bout of declining home prices is threatening to hamper the U.S. recovery, just as consumers and the overall economy have been showing signs of healing.

Home prices across 20 major metropolitan areas fell 1.3% in October from September, the third straight month-over-month drop, according to the S&P/Case-Shiller home-price index released Tuesday. Many economists expect the declines to continue into at least next spring, erasing most of the gains made since prices bottomed out in early 2009.

The housing market, which appeared poised for a recovery earlier in the year, now could be heading for a second downward drift.

“This looks like a double-dip [in housing] is pretty much on the way, if not already here,” said David Blitzer, chairman of the Standard & Poor's index committee. “Somebody who thought last year that it's going to be straight up from here was wrong.

That's right. The bears were right, and the bulls were wrong.

Enough gloating. Back to the serious business of documenting the ongoing collapse of real estate prices.

Other news in recent weeks, however, has offered hope the economy is on the cusp of strong, sustainable growth. Retail sales returned to levels seen just before the recession started in 2007. Manufacturing continues to expand. U.S. exports are back to where they were just before the financial crisis.

Optimism among heads of small businesses and large corporations is also near pre-recession levels. And tax legislation that includes a one-year payroll-tax cut for most workers has boosted prospects.

Yet the twin forces of jobs and housing remain trouble spots. The labor market has added a million jobs in the past year, but that pace is far too slow to offset an unemployment rate that climbed to 9.8% last month.

Job worries are hampering consumer confidence despite strength in holiday sales and a rising stock market. The Conference Board, a business research group, said Tuesday that its confidence index fell to 52.5 from 54.3 in November, as consumers' views about job availability worsened.

The index, after rising through May as the economy showed early signs of improvement, now has retreated to its level of a year ago. The percentage of people planning to buy a home is also back to where it was a year ago, erasing improvement seen in early 2010.

U.S. Consumer-Confidence Index Slips

In the Case-Shiller data, all 20 cities in the index posted month-over-month declines in October.

As for year-over-year data, only four areas—Los Angeles, San Diego, San Francisco and Washington, D.C.—showed prices higher than in October 2009. Six markets hit their lowest since prices started falling four years ago, dropping below their spring 2009 levels, when most regions saw prices bottom out. The six were Atlanta, Miami, Seattle, Tampa, Charlotte, N.C., and Portland, Ore.

Prices in several markets, including Las Vegas and Cleveland, are nearly down to 2000 levels.

The low end in Las Vegas is trading at the early 90s levels. The good stuff still hangs on at 2004 prices. The good stuff will continue to decline, but investors and new owner-occupants will keep low-end prices stable.

The housing index was driven down by factors including the expiration of a federal tax credit for buyers who signed contracts by April 30, which caused demand to fall off.

Prices also were weighed down by a huge inventory of foreclosed homes, which tend to sell at sharply discounted prices.

In recent months, according to the National Association of Realtors, foreclosure and other distressed sales have represented more than 30% of home sales—and more than half in some states, such as Nevada.

Wells Fargo & Co. projects prices will drop 8% more by mid-2011, given high supply. “Demand is still dead in the water,” said Wells economist Sam Bullard.

Prices also face other hurdles: slightly rising mortgage rates, and homeowners who owe more on their houses than they're worth, and thus may walk away as values dip further.

The owners under pressure include Tasha McLaughlin, a 33-year-old mother of two in Sacramento's South Natomas neighborhood. She and her husband, Steve, bought their two-bedroom house in 2004 for $256,000, intending to stay about five years. After 11 months of trying to sell it between 2006 and 2007, the family took it off the market.

“Everyone is saying we should foreclose or claim bankruptcy, but I have a moral issue with that,” said Mrs. McLaughlin. “The more we try to pay the mortgage and pinch pennies, the more we get punished.”

Now, with a similar home down the block listed for $80,000, the McLaughlins are accepting that they won't recoup their losses anytime soon. Their interest-only loan is set to increase their current $1,600 monthly payment to $2,200 in seven years. If they were to default on their mortgage and walk away, they calculate that in about the same time, seven years, their credit scores would be stable enough to allow them to buy again elsewhere.

“I am just going to swallow my pride and walk out. I have to,” said Mrs. McLaughlin. “The market for homes is not going up.

Housing analysts agree that markets such as Sacramento, Las Vegas and parts of Arizona and Florida are at risk of more declines. “These places relied so heavily on mortgages and real estate for their economy that we're going to see a two-tiered recovery,” said Chris Mayer, a professor of real estate at Columbia Business School. “Luxury spending is not going on across the country—it's happening among highly skilled consumers who live in the places that have seen some recovery.”

Homes remain a key part of Americans' wealth. Households held $6.4 trillion of home equity at the end of the third quarter, alongside $12.2 trillion in stocks and mutual-fund shares, according to Federal Reserve data.

For every dollar decline in housing wealth, consumers reduce spending by about a nickel in the subsequent 18 months, Moody's Economy.com chief economist Mark Zandi estimates. He cautioned that other factors, such as the stock market's strength and tax credits, could offset this effect.

“People feel poorer when their houses are going down in value,” said Jack Fitzgerald, chief executive of Fitzgerald Auto Malls, which has a dozen locations along the East Coast. He is seeing many customers who could buy new cars choosing used cars instead, “spending as little as they can.” While sales are improving, he expects them to grow only slowly, given all the consumer uncertainty.

Still, the overall economy's dependence on housing diminished greatly since the financial crisis, said Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm. “Consumers have shown us they can still spend even if home prices go down,” she said. But falling home values “put a lid on the recovery and the magnitude of it.”

I don't believe house prices will fall a large amount from here. They will go down, particularly at the high end, but with an improving economic picture, demand for housing will improve. Considering it has been hovering near historic lows for years, it is bound to pick up some in 2011. Much will depend on the course of interest rates and unemployment. If interest rates move higher and unemployment stays high, house prices may fall significantly, but if interest rates remain low, and if unemployment drops, we won't see a significant uptick in prices because hte overhead supply, but we could see a big increase in sales volumes. That would be great for clearing the market.

100% financing deal emerges from 2.5 years of shadow inventory

Today's featured property was purchased on 9/16/2005 for $509,000. The owners used a $356,300 first mortgage, a $152,700 stand-alone second, and a $0 down payment. The defaulted about three years ago.

Foreclosure Record

Recording Date: 05/12/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/09/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 11/02/2009

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 06/04/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 04/21/2008

Document Type: Notice of Default

Since this was a purchase money, non-recourse mortgage, the bank was in no hurry to foreclose and take the loss. There is no prospect of recovery on this loan. The finally got around to foreclosing on 7/19/2010 for $431,484, then they spent several months preparing it for sale — which looks like they did nothing.

Are the shadow inventory deniers still making fools of themselves, or has everyone accepted that shadow inventory is real and not that hard to find?

Irvine Home Address … 2100 TIMBERWOOD Irvine, CA 92620

Resale Home Price … $359,900

Home Purchase Price … $509,000

Home Purchase Date …. 9/16/2005

Net Gain (Loss) ………. $(170,694)

Percent Change ………. -33.5%

Annual Appreciation … -6.3%

Cost of Ownership

————————————————-

$359,900 ………. Asking Price

$12,597 ………. 3.5% Down FHA Financing

5.07% …………… Mortgage Interest Rate

$347,304 ………. 30-Year Mortgage

$75,116 ………. Income Requirement

$1,879 ………. Monthly Mortgage Payment

$312 ………. Property Tax

$100 ………. Special Taxes and Levies (Mello Roos)

$60 ………. Homeowners Insurance

$242 ………. Homeowners Association Fees

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

$2,593 ………. Monthly Cash Outlays

-$311 ………. Tax Savings (% of Interest and Property Tax)

-$412 ………. Equity Hidden in Payment

$25 ………. Lost Income to Down Payment (net of taxes)

$45 ………. Maintenance and Replacement Reserves

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

$1,940 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,599 ………. Furnishing and Move In @1%

$3,599 ………. Closing Costs @1%

$3,473 ………… Interest Points @1% of Loan

$12,597 ………. Down Payment

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

$23,268 ………. Total Cash Costs

$29,700 ………… Emergency Cash Reserves

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

$52,968 ………. Total Savings Needed

Property Details for 2100 TIMBERWOOD Irvine, CA 92620

——————————————————————————

Beds: 2

Baths: 1 bath

Home size: 1,270 sq ft

($283 / sq ft)

Lot Size: n/a

Year Built: 2005

Days on Market: 73

Listing Updated: 40526

MLS Number: P755549

Property Type: Condominium, Residential

Community: Northwood

Tract: Cust

———————————————————

According to the listing agent, this listing is a bank owned (foreclosed) property.

Like new! Immaculate one bedroom + loft (used at a bedroom) townhouse built in 2005 located in the desirable Collage complex. Unit features include brand new paint and carpet throughout, fireplace, one car garage, patio with pool views, walk-in closet and storage room. Complex is equipped with beautifully manicured landscaping, pool, spa and secure gate access. Property will be sold with washer, dryer, stove/range and dishwasher.

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend and a happy new year,

Irvine Renter

Strategic mortgage default will become common and accepted in 2011

Society is predictably changing its views and attitudes toward strategic default.

Irvine Home Address … 20 WOODS Trl Irvine, CA 92603

Resale Home Price …… $2,059,000

Yes

this is the year

To make your decision.

Yes

this is the year

To open up your mind.

If you've been holding back kind of slack

Now's the time to get the things you need.

There ain't no reason why you should be shy

The Three Degrees — Year of Decision

Anyone who is underwater on their mortgage and struggling with payments is considering strategic default. Many of these people will succumb to mortgage distress whether or not they chose the timing of their default. They are debt zombies. Many others who are underwater and struggling could survive the real estate recession and divert significant family money toward excessive loan payments, but they see the advantages of a lower housing cost, so many of them are choosing to strategically default because it is in their best interest financially to do so.

Many of those who chose not to strategically default make this choice because they believe making the payment is a moral obligation — an obligation above and beyond what is written in the contract. Banks are relying on those borrowers motivated by their perceived morality to keep making payments. Unfortunately, there is no longer a moral stigma associated with strategic default (accelerated default is a more accurate term).

Banks need a moral stigma to be associated with loan repayment. If the transaction were viewed by borrowers as a simple business transaction — which it is — then issues of morality are not effective at cajoling debtors into repayment, particularly when default is in the best interest of the debtor. Banks have long relied on borrower morality to get repaid.

Due to the events of the Great Housing Bubble, borrowers no longer feel a moral obligation to repay their mortgage debts. Borrowers view the system as corrupt. Many borrowers believe greedy lenders inflated prices with oversized loans to pad their own profit margins. Those borrowers are correct in their views and beliefs, and based on that view, many borrowers no longer feel compelled by morality to repay their mortgage debt.

More see walking on mortgage as a viable plan

'Strategic default' losing stigma as homes go deeper underwater

By Jane Hodges

msnbc.com contributor msnbc.com contributor

updated 12/20/2010 12:11:34 PM ET

More Americans than ever are showing a willingness to walk away from their underwater homes, according to a recent survey. Chris Kelly is a perfect example of someone who never thought she would send the bank “jingle mail” — mailing the keys back. But she did.

Until last year Kelly, a 46-year-old administrative assistant, was living in a 3,000-square-foot home she owned with her ex-husband in the Seattle suburbs.

The duo had put the three-bedroom, three-and-a-half bath home on the market before finalizing their divorce in the spring of 2009 but had no luck luring move-up buyers to the $600,000 home even after price markdowns.

Kelly wound up living there solo, struggling to make the mortgage payments. But as she kept writing checks, and worrying, she became aware that she’d have to make a hard choice: Leave the house while she still had decent savings, or pay until she’d emptied out all her accounts and then enter foreclosure.

In the latter scenario, she’d have to look for a lease with no money left for a deposit. Either way, she’d lose the home, whose value had dropped underwater — below what the couple owed on it.

I know people who have wiped out their personal and retirement savings because they were unable to get themselves to default while they still had the ability to pay. It's like the slot machine gambler that refuses to get up until every last dollar has been lost. The decision to default gets forced upon them when they can no longer raid savings or Ponzi borrow to make payments. Decision by indecision is very painful in cases where accelerated default would have proven beneficial.

“It was a pretty clear decision,” says Kelly, who now lives in Austin, Texas. “I knew I had to walk away. The longer I stayed there, the worse my credit would be and the harder time I’d have finding a rental.

So a year ago she walked way, joining the growing number of Americans willing to turn their backs on homes they can neither sell nor afford to keep. The real estate industry calls this “strategic default,” referring to people who choose to walk away even when they can technically afford to continue paying their mortgage.

Lenders would certainly prefer all borrowers to be dutiful on their way to the debtors gallows by draining every last drop of savings rather than considering options and making a “strategic” or considered decision.

Nearly half, 48 percent, of homeowners with a mortgage said they would consider walking away from their home if they owed more on it than it was worth, according to a Harris Interactive survey released this month. The survey was conducted in November for real estate listings site Trulia and foreclosure research firm RealtyTrac.

Just six months ago, a similar survey indicated that only 41 percent of consumers would consider walking if they were underwater on their mortgages.

Is a 7% movement in this statistic meaningful? I think it is. Who do you think this 7% who changed their minds are? Who else would be thinking about it? Those faced with the decision, of course. A certain amount of the stigma will fall away as people know “good people” including family, friends, and acquaintances that have elected to accelerate their defaults. The trend will be for this statistic to trend toward complete acceptance over the next several years.

“It’s a phenomenon we haven’t seen before in the housing market,” said Rick Sharga, senior vice president of RealtyTrac. “The mindset of why people purchase a home has changed over the past decade.”

In the early 2000s, as home prices rose sharply and steadily, many buyers saw their home as an investment. But in the wake of the housing bust, it's clear that a home has become far more of a “utility” — a form of shelter — than an investment.

Actually, only the public perception has changed. Houses have never been a good long-term speculative investment. The rate of appreciation only matches inflation, the carrying costs are high, the transaction costs are high, and the market is prone to bouts of illiquidity. Given these circumstances, only during brief periods of upward volatility (sucker rallies) is it possible to reap major appreciation benefits from owning residential real estate. It has always been about utility of ownership, but people are only now detoxifying from the kool aid enough to see it.

Over the next year, hundreds of thousands of homeowners will face the question of whether to walk away as their mortgage payments spike.

Sharga said that $300 billion worth of adjustable rate mortgages are expected to reset upward over the next 12 to 15 months, adding on average $1,000 to monthly mortgage payments on homes that already are worth 30 percent to 50 percent less than their original sale price.

Remember, it isn't the reset of the interest rate that is a problem because rates are still low, the real problem is the recasting of these loans from interest-only to fully amortizing. The recasts add significantly to the payment as Sharga suggested above.

Roughly 23.2 percent of all single-family homeowners who have a mortgage are underwater on their property, according to third-quarter data from Zillow. (Zillow estimates that 40 percent of single-family homes are owned, with the rest mortgaged.)

Major banks, including Bank of America and Wells Fargo, are preparing to work with these owners through modification programs that may include principal reduction or temporary interest-only loan payments until markets improve and refinancing is possible, Sharga says.

But clearly, many homeowners may have motivation to walk. They’ll see their mortgage payments spike at a time when their home value is underwater the deepest.

American homeowners lost $1.7 trillion in home value during 2010, a far higher loss of equity than the $1 trillion lost during 2009, according to Zillow data released earlier this month. Zillow also reported on a blog that less than one-fourth of the 129 metro areas it tracks showed home value gains in 2010.

In addition, the impacts to credit from a foreclosure are typically less damaging than those from a bankruptcy, which hits more lines of credit and loans than just the home loan. According to Barry Paperno, consumer operations manager at myFico.com, the consumer site for Minneapolis-based credit scoring company Fair Isaac Corp., a personal bankruptcy can shave 130 to 240 points off a person’s credit score, while a foreclosure typically reduces a score by 85 to 160 points. (FICO scores range from 350 to 850, with higher scores better.)

“It’s serious, and it certainly complicate future purchases,” Paperno says. “Compared to a bankruptcy, though, the score impact can be surprisingly different.”

The latest Harris survey also revealed some interesting gender differences in attitudes about strategic default: Men were nearly 50 percent more likely than women to consider walking away from an underwater loan, with 57 percent indicating willingness, vs. 40 percent of women.

That one surprises me. It may be interesting to see that broken down by who manages the money in the family. It's probably a higher percentage among those who face the realities of the bills than those that do not.

Pete Flint, CEO of Trulia, said that this may indicate men take a more investment-minded approach to homeownership and evaluate when to walk as a financial decision, while women may view their property as a home and have a harder time with the concept of leaving it even under fiscal duress.

Kelly embodies both approaches. She says she was torn about the decision, but couldn’t let sentiment overtake what, ultimately, was a move toward self-preservation.

“I never thought that this was something that would happen,” she says. “I loved that house.”

Is this about survival, or is this about entitlement? Ultimately, each borrower evaluates financial alternatives, determines the emotional toll to be paid, and finally makes a decision and acts on it. Some may consider that survival, but it is really the survival of entitlement. It is wise to squat in a nice home and avoid sending those resources to a lender, and it is wise to find a comparable rental for less than the former house payment. That's why borrowers quit paying and squat until finally moving into a rental. It's a trend we will see more of in 2011.

They didn't risk much of their money

Prior to the housing bubble, if you owned a $2,000,000 home, it meant you probably had more than a $1,000,000 in equity because very few borrowers tried to manage a note over $1,000,000. During the housing bubble, loans over $1,000,000 became common. Too common.

  • Todays featured property was purchased for $1,987,500 on 9/30/2006, right at the peak. The owners used a $1,490,300 first mortgage, a $298,050 second mortgage, and a $199,150 down payment.
  • Two months later on 12/6/2006 they opened a $250,000 HELOC and had immdieate access to their downpayment money plus another $50,850 in free money.
  • On 3/6/2007 they refinanced with a $1,770,000 Option ARM with a 2% teaer rate and obtained a $150,000 HELOC.
  • They quit paying a few months ago.

Foreclosure Record

Recording Date: 11/01/2010

Document Type: Notice of Default

Irvine Home Address … 20 WOODS Trl Irvine, CA 92603

Resale Home Price … $2,059,000

Home Purchase Price … $1,987,500

Home Purchase Date …. 9/30/2006

Net Gain (Loss) ………. $(52,040)

Percent Change ………. -2.6%

Annual Appreciation … 0.8%

Cost of Ownership

————————————————-

$2,059,000 ………. Asking Price

$411,800 ………. 20% Down Conventional

5.07% …………… Mortgage Interest Rate

$1,647,200 ………. 30-Year Mortgage

$429,740 ………. Income Requirement

$8,913 ………. Monthly Mortgage Payment

$1784 ………. Property Tax

$433 ………. Special Taxes and Levies (Mello Roos)

$343 ………. Homeowners Insurance

$420 ………. Homeowners Association Fees

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

$11,894 ………. Monthly Cash Outlays

-$1683 ………. Tax Savings (% of Interest and Property Tax)

-$1954 ………. Equity Hidden in Payment

$817 ………. Lost Income to Down Payment (net of taxes)

$257 ………. Maintenance and Replacement Reserves

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

$9,332 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$20,590 ………. Furnishing and Move In @1%

$20,590 ………. Closing Costs @1%

$16,472 ………… Interest Points @1% of Loan

$411,800 ………. Down Payment

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

$469,452 ………. Total Cash Costs

$143,000 ………… Emergency Cash Reserves

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

$612,452 ………. Total Savings Needed

Property Details for 20 WOODS Trl Irvine, CA 92603

——————————————————————————

Beds: 5

Baths: 4 full 1 part baths

Home size: 3,800 sq ft

($542 / sq ft)

Lot Size: 10,236 sq ft

Year Built: 2006

Days on Market: 348

Listing Updated: 40519

MLS Number: S600723

Property Type: Single Family, Residential

Community: Turtle Ridge

Tract: Arez

——————————————————————————

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

This Luxury Built Pardee Home is situated at the end of the cul-de-sac Nestled alongside Nature. Step thru the Gated entryway to two sitting areas, Built-in BBQ features Granite top seating gather around the firepit or just enjoy the nearly 10,000 sq. ft. lot and upgraded hardscaping. 5 bedrooms & Bonus Room allow room for any family needs. Designer Mahogany cabinetry, Viking Professional Stainless Steel appliances, Blt-in desk, Baltic Brown Granite Counters Center island w/bar seating. Living/Family Room Fireplaces. Spacious Family Room with cozy breakfast nook. Laura Ashley Plantation Shutters throughout. Recessed Lighting, Wired for surrond sound or security. 3 car garage features Remoteless entry & Epoxy flooring. Master suite features elegant Master Bath with jacuzzi tub and dual shower fixtures. Upstairs laundry room. Upgraded carpeting and neutral decor makes it easy for this to be your new home, VERY CLEAN and hardly lived it.

With people leaving Orange County, who will buy our overpriced homes?

In the past nine years, almost 108,000 more people moved out of Orange County than moved in. Where will the demand for housing come from?

Irvine Home Address … 35 COLUMBUS Irvine, CA 92620

Resale Home Price …… $649,000

All my bags are packed I'm ready to go

I'm standin' here outside your door

I hate to wake you up to say goodbye

But the dawn is breakin' it's early morn

The taxi's waitin' he's blowin' his horn

Already I'm so lonesome I could die

So kiss me and smile for me

Tell me that you'll wait for me

Hold me like you'll never let me go

Cause I'm leavin' on a jet plane

Don't know when I'll be back again

Oh babe, I hate to go

John Denver — Leaving on a Jet Plane

The California Ponzi scheme economy collapsed as the Great Housing Bubble deflated. I have documented over a thousand cases of HELOC abuse here in Irvine, California. Most economists underestimate the economic stimulus of millions of homeowners being given hundreds of thousands of dollars in free money by our banks. Now that this money is gone, Orange County home prices too high for incomes or rents, and Orange County home sales are falling with prices to follow.

These economic woes are prompting families to leave the state. With new household formation near historic lows as we get off the Ponzi juice, there is little tangible demand for housing, and prospects for this demand increasing appear weak.

People keep moving out of O.C.

December 27th, 2010, 3:20 am — posted by Jan Norman

In the past nine years, almost 108,000 more people have moved out of Orange County than moved in, according to newly released data from the state Department of Finance.

Source: California Dept. of Finance

If everyone wants to live here, why are so many people moving out?

The out-migration was higher in 2005 through 2007, which would coincide with the soaring price of Orange County housing. Between 2009 and 2010, 6,475 residents moved out, but the county’s population grew 28,190 because 12,223 people from foreign countries moved in, the Dept. of Finance said.

Since 2000, Orange County’s population has increased 335,882, the Dept. of Finance estimates. That growth comes from residents of other nations, legal and “unauthorized” as the department labels them.

Loren Kaye, president of the California Foundation for Commerce and Education, does the calculations for the whole state in this article for Fox & Hounds Daily. California gained 350,000 residents from 2009 to 2010, he reports but 72,484 more people moved out of state than moved in from other parts of the United States. The gain was from more births than deaths of current residents and foreign immigrants.

The Dept. of Finance based its estimates on driver license address changes, birth and death records, tax return data, Medicare and Medi-Cal enrollment, immigration reports, elementary school enrollments and number of people living in group quarters.

Bill Watkins, director of the Center for Economic Research and Forecasting at California Lutheran University, has a more complete analysis of current Californians moving elsewhere at newgeography.com. Among his negative points:

  • The projected $28 billion state budget deficit with shortfalls in excess of $20 billion a year anticipated by the California Legislative Analyst’s Office
  • Unemployment that is 30% higher than the national average (12.4% in November)
  • California’s credit rating is among the lowest in the U.S.
  • California’s loss of 1.3 million manufacturing jobs
  • California’s 41st ranking in creating scientific, technical, engineering and math jobs

In just a couple of decades, California has gone from being America’s economic start, a destination for ambitious people from around the world and abundant with opportunity, to home of some of America’s most depressed communities,” Watkins wrote.

And what's worse is the supposed prosperity of the last couple of decades was built on a foundation of Ponzi borrowing on inflated home prices.

“California isn’t broken,” replied State Treasurer Bill Lockyer and Stephen Levy, director of the Center for Continuing Study of the California Economy, in this Los Angeles Times opinion piece. Among their arguments:

  • California’s state government general fund expenditures are $2,246 per person less than 10 years ago.
  • The state’s number of businesses per capita “held steady” from 2000 to 2009.
  • The state’s share of domestic film industry jobs is 45% in 2010, compared to 44% in 2000.
  • Businesses moving to other states accounted for “just 1.7% of California’s job losses” from 1992 to 2006, according to the Public Policy Institute of California. (It did not include data for 2007 to 2010.)
  • California’s gross state product grew 27.2% from 1999 to 2009, higher than the U.S. as a whole.

“California no doubt faces serious challenges. But our obstacles are not insurmountable,” Lockyer and Levy wrote. “California has the most diversified economy in the country. It has the most diverse population and the youngest.”

With all these people moving out, who is going to be buying Orange County homes?

Irvine Ponzi of the day

I have my own indicator of when the housing market will recover: the day I can't find a property for sale with HELOC abuse. I have contended for years now that mortgage equity withdrawal and peak buying has created far more debt than borrowers can comfortably pay without continued Ponzi borrowing. Until the Ponzis are wiped out, they will implode a few at a time and continue to put distressed properties on the market.

Most distressed Ponzis are waiting for house prices to come roaring back so they can resume their unconstrained borrowing and profligate spending. That isn't going to happen. The weight of distressed inventory is going to keep the market from appreciating for quite some time.

  • Today's featured property was purchased for $494,000 on 12/8/2003. The owner used a $444.600 first mortgage and a $49,400 down payment.
  • On 12/23/2004 she refinanced with a $455,000 first mortgage and obtained a $73,312 HELOC.
  • On 12/28/2006 she obtained a $572,000 Option ARM with a 2.25% teaser rate.
  • On 6/26/2007 she obtained a $123,500 HELOC.
  • Total property debt is $695,500 plus negative amortization.
  • Total mortgage equity withdrawal is $250,900.
  • Total squatting time 11 months so far.

Foreclosure Record

Recording Date: 08/30/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 05/27/2010

Document Type: Notice of Default

Irvine Home Address … 35 COLUMBUS Irvine, CA 92620

Resale Home Price … $649,000

Home Purchase Price … $494,000

Home Purchase Date …. 12/8/2003

Net Gain (Loss) ………. $116,060

Percent Change ………. 23.5%

Annual Appreciation … 3.8%

Cost of Ownership

————————————————-

$649,000 ………. Asking Price

$129,800 ………. 20% Down Conventional

5.07% …………… Mortgage Interest Rate

$519,200 ………. 30-Year Mortgage

$135,455 ………. Income Requirement

$2,809 ………. Monthly Mortgage Payment

$562 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$108 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$3,480 ………. Monthly Cash Outlays

-$482 ………. Tax Savings (% of Interest and Property Tax)

-$616 ………. Equity Hidden in Payment

$257 ………. Lost Income to Down Payment (net of taxes)

$81 ………. Maintenance and Replacement Reserves

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

$2,720 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,490 ………. Furnishing and Move In @1%

$6,490 ………. Closing Costs @1%

$5,192 ………… Interest Points @1% of Loan

$129,800 ………. Down Payment

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$147,972 ………. Total Cash Costs

$41,700 ………… Emergency Cash Reserves

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$189,672 ………. Total Savings Needed

Property Details for 35 COLUMBUS Irvine, CA 92620

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Beds: 3

Baths: 1 full 1 part baths

Home size: 1,507 sq ft

($431 / sq ft)

Lot Size: 5,000 sq ft

Year Built: 1978

Days on Market: 249

Listing Updated: 40310

MLS Number: P731953

Property Type: Single Family, Residential

Community: Westpark

Tract: Othr

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

Short sale. Sale subject to bank approval.

American Ponzi: Redefining a cultural icon

A review of American Gothic themed cartoons by Irvine Renter.

Irvine Home Address … 27 OROVILLE Irvine, CA 92602

Resale Home Price …… $839,000

Bye, bye Miss American Pie

Drove my Chevy to the levee but the levee was dry

And them good old boys were drinking whiskey and rye

Singing this'll be the day that I die

This'll be the day that I die

Oh, and there we were all in one place

A generation lost in space

With no time left to start again

Don McLean — American Pie

My interest with American Gothic, a classic of American art, began when it was first proposed as the cover to The Great Housing Bubble. I liked the use of American Gothic because it has become a symbol of Mr. and Mrs. America. The work was painted in the Great Depression, which is part of the reference of the book title, but with some modernization we see how today's American family is deeply underwater on their mortgage — a mortgage that was their reservior of unlimited spending money. Parody's of American Gothic are fairly common, and I have assembled many pieces of parody art and added my own words to bring out the American Ponzi.

There are early housing bubble cartoons with Mr. and Mrs. America. And my own attempts to capture Mr. and Mrs. Ponzi.

Mr. and Mrs. America got caught up in an easy money lifestyle fueled by cheap debt.

Mr. and Mrs. America are facing low property values and mortgage payments much higher than staying in a rental.

Once they quit paying, they got to stay rent-free in their houses for a very long time.

Our society was changed forever.

What were we to do about the low house prices.

People want houses because they want to get rich owning them.

Nobody wanted to be left out.

Free money brings entitlement. People get because they deserve, not because they earn.

Many people found their poor decisions landed them in a difficult predicament.

And now I leave you with American Ponzi: Redefining a cultural icon.

If you bought a property in early 2008, do you have any reason to believe your house is worth more today?

Irvine Home Address … 27 OROVILLE Irvine, CA 92602

Resale Home Price … $839,000

Home Purchase Price … $807,000

Home Purchase Date …. 5/29/2008

Net Gain (Loss) ………. $(18,340)

Percent Change ………. -2.3%

Annual Appreciation … 1.5%

Cost of Ownership

————————————————-

$839,000 ………. Asking Price

$167,800 ………. 20% Down Conventional

5.07% …………… Mortgage Interest Rate

$671,200 ………. 30-Year Mortgage

$175,110 ………. Income Requirement

$3,632 ………. Monthly Mortgage Payment

$727 ………. Property Tax

$267 ………. Special Taxes and Levies (Mello Roos)

$140 ………. Homeowners Insurance

$145 ………. Homeowners Association Fees

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$4,911 ………. Monthly Cash Outlays

-$891 ………. Tax Savings (% of Interest and Property Tax)

-$796 ………. Equity Hidden in Payment

$333 ………. Lost Income to Down Payment (net of taxes)

$105 ………. Maintenance and Replacement Reserves

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

$3,661 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,390 ………. Furnishing and Move In @1%

$8,390 ………. Closing Costs @1%

$6,712 ………… Interest Points @1% of Loan

$167,800 ………. Down Payment

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

$191,292 ………. Total Cash Costs

$56,100 ………… Emergency Cash Reserves

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

$247,392 ………. Total Savings Needed

Property Details for 27 OROVILLE Irvine, CA 92602

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Beds: 3

Baths: 2 full 1 part baths

Home size: 2,333 sq ft

($360 / sq ft)

Lot Size: 5,131 sq ft

Year Built: 2002

Days on Market: 98

Listing Updated: 40476

MLS Number: S632323

Property Type: Single Family, Residential

Community: Northpark

Tract: Mnd2

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Exceptional 3 Bedrooms, 2.5 Baths home plus tech center. Located in the heart of resort-style community of Northpark on a cul-de-sac & interior tract location. Highlighted features: Oversized backyard with custom Outdoor fireplace, BBQ island, and Patio cover. Professionally Landscaped with citrus trees, roses, bougainvillea, cypress trees and Custom Hardscape. Elegant Maple Hardwood floors, Chef's Gourmet Kitchen features double ovens, built-in refrigerator, five burner cooktop, Granite kitchen counters and Large Center island. Maple raised panel Cabinets, Eat-in kitchen, Family room with hearth, Karastan designer carpet, Designer paint colors, Plantation shutters, Crown moulding, Arched doorways and Architectural windows throughout bringing in lots of natural light. 10' Ceilings make a dramatic Formal living and Dining room. Master Suite with walk-in closets, & French doors leading to balcony. Porte Cochere motor court driveway and two-car garage for extra parking. Excellent schools!

How attorneys enable squatters to game the system

Attorneys have mapped out the longest route from default to vacating the property. Many delinquent borrowers are following this path.

Irvine Home Address … 2 SUNPEAK Irvine, CA 92603

Resale Home Price …… $3,075,000

Tailored suits, chauffered cars

Fine hotels and big cigars

Up for grabs, up for a price

Where the red hot girls keep on dancing through the night

The claim is on you

The sights are on me

So what do you do

That's guaranteed

Hey little girl, you want it all

The furs, the diamonds, the painting on the wall

Come on, come on, love me for the money

Come on, come on, listen to the money talk

AC/DC — Money Talks

A popular method gaming the system for maximum benefit is (1) to quit paying the mortgage, (2) exhaust every procedural remedy made available, and (3) squat in a house for as long as possible. I can see the appeal of no house payment, and I don't know that I wouldn't be gaming the system if I were in those circumstances, but there is doomsday feeling of foreboding and certainty of unpleasant outcome that would make such living untenable for me. It's one thing to rent and feel less rooted as a function of your mobility, but it is horrifying to know your accommodations are temporary and you will be forced to leave at some random time with short notice.

People do decide to stay on enlist the help of specialists, often attorneys, to help them game the system to maximum advantage. From an actual letter written from an attorney to a trustee regarding a property in Las Vegas, Nevada:

Our law firm has been retained by Squatting Debtor to rescind the foreclosure of the property at I8 Your Neighborhood, Anywhere, US.

The names and addresses have been omitted, but the remainder is verbatim text.

As you know, one of the purposes of the required statement in the notice of default is to afford the debtor an opportunity to cure the default and obtain reinstatement of the obligation within three months after the notice of default was recorded as provided in §107.087 of the Nevada Revised Statutes. The subsections of this statute require the listing of a physical address of the property NRS § 107.087 (1)(b)(1). If there is no physical address and the Notices are not property posted and mailed to that address, then the foreclosure is void for lack of due process. Here the homeowner had no notice that his own home was being foreclosed and there is no physical address listed on the recorded Notice of Default, filed April 29, 2009.

April 29th, 2009? This letter is concerning a foreclosure sale in December 2010. If the owner was three months delinquent on his mortgage in April 2009, he hadn't made a payment that year. He hadn't made a mortgage paying since late 2008, perhaps earlier if the bank danced for a while before issuing the notice of default.

Are we to believe that a guy who has not made a mortgage payment in two years is surprised by a foreclosure? This squatter was somehow unaware of his predicament? Has this attorney managed to find an error in the process so egregious that this squatting-former-owner should continue to stay in the property with no payments indefinitely?

In the state of Nevada, the beneficiary or the trustee must comply with certain statutory requirements prior to exercising the power of sale under the deed of trust. According to NRS 107.080 (2)(c)., the power of sale must not be exercised until the beneficiary, the successor in interest of the beneficiary or the trustee first executes and causes to be recorded in the office of the recorder of the county wherein the trust property, or some part thereof, is situated a notice of the breach and of the election to sell or cause to be sold the property to satisfy the obligation.

Due to the error in the Notice of Default, we expect NDSC to rescind the foreclosure sale of this property.

A missing address on a sheet of paper at the recorders office? Really? This guy gets a free house for that? If someone does get a house that way, the cost of serving documents and processing paperwork for routine real estate transactions will go up as every step is double and triple checked for accuracy and completeness.

We understand a third party bought at the auction.

Yes, which means the sale has happened, and there isn't a prayer of getting the house back for the occupants. Foreclosure is the end of the line. It's the river card in a long game of payment poker. Any motions or maneuvers need to be completed before the sale. Bankruptcy attorneys are noted for attending foreclosure auctions with last-minute documents to stop that day's sale. Once the sale happens, it's over. The house is sold, and any old claims to title are wiped clean.

However, if NDSC is not successful in obtaining a rescission of the sale with the cooperation of the 3rd party, then a quiet title action will be in order and we will sue for wrongful foreclosure and wrongful eviction—if it comes to that.

We will be seeking compensatory damages and attorney fees in the action. It is in your best interests to settle this matter by paying the 3rd Party purchaser at the auction the amount of his bid (as provided in your agreement) and rescind the sale.

Time is of the Essence as my client is currently being threatened with forced eviction. If we must bring a claim, it will be brought within the short statutorily allowed period and your expenses will increase exponentially as our reasonable attorney fees are $350 hourly plus $100 hourly for rushed work If our clients are actually evicted,

Threatening with loss of money. If they tie up this property with some spurious quiet title action, it is the attorneys and debtors who should be prepared to pay the expenses of the victorious defendant. Fighting foreclosure is a good way to give the last few dollars you have to an attorney and gain nothing. This will do nothing to slow the wheels of justice through the eviction process.

this would be very bad news in the presses: Homeowner Evicted While Making Trial Payments under HAMP and Trustee Thumbs Nose at Nevada's Foreclosure Statute's Requirements.

Those would be great headlines on the IHB! Does someone, somewhere fear headlines like those so much that they would give this family a free house?

Again, it is in your best interests to rectify this immediately!

Remember, this letter went to the trustee for the sale, not the new owner. So put yourself in the Trustee's shoes and ask yourself what you would do next.

First, you ask yourself if Mr. Badass attorney would go through with his threat to bring quiet title action on the property. The client is a squatter, so they don't have the resources to pay the attorney's bills. Therefore, if Mr. Badass wants to get paid, he must win the case and get awarded his fees by the judge. This will cost Mr. Badass about $25,000 in attorney time to take on a hopeless case with limited prospects for fee recovery.

If I'm the trustee, I don't think a quiet title suit is forthcoming.

Perhaps there is an emotional release in letters like this one. The hopeless debtor facing eviction from what used to be their house needs to feel like someone is protecting them and looking out for them. This emotionally charged letter has the bravado of a knight riding to the rescue of this family in distress. Its all theater, of course, because the guy has no chance to prevail. The debtor bought a badass attorney to cover his back as the he slinks away in shame and squirms into a rental.

The debtor is paying his last dollars to an attorney for emotional support. Is that less expensive than a therapist?

Has it really gone up in value more than 50% over the last 3.5 years?

Today's featured property was purchased for $1,800,000 on 6/15/2007. The owner used a $1,000,000 first mortgage and a $800,000 down payment. No HELOC abuse today, just delusion on a grand scale.

Irvine Home Address … 2 SUNPEAK Irvine, CA 92603

Resale Home Price … $3,075,000

Home Purchase Price … $1,800,000

Home Purchase Date …. 6/15/2007

Net Gain (Loss) ………. $1,090,500

Percent Change ………. 60.6%

Annual Appreciation … 15.0%

Cost of Ownership

————————————————-

$3,075,000 ………. Asking Price

$615,000 ………. 20% Down Conventional

5.07% …………… Mortgage Interest Rate

$2,460,000 ………. 30-Year Mortgage

$641,793 ………. Income Requirement

$13,311 ………. Monthly Mortgage Payment

$2665 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$513 ………. Homeowners Insurance

$237 ………. Homeowners Association Fees

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

$16,726 ………. Monthly Cash Outlays

-$1929 ………. Tax Savings (% of Interest and Property Tax)

-$2918 ………. Equity Hidden in Payment

$1220 ………. Lost Income to Down Payment (net of taxes)

$384 ………. Maintenance and Replacement Reserves

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

$13,483 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$30,750 ………. Furnishing and Move In @1%

$30,750 ………. Closing Costs @1%

$24,600 ………… Interest Points @1% of Loan

$615,000 ………. Down Payment

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

$701,100 ………. Total Cash Costs

$206,600 ………… Emergency Cash Reserves

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

$907,700 ………. Total Savings Needed

Property Details for 2 SUNPEAK Irvine, CA 92603

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Beds: 5

Baths: 3 full 1 part baths

Home size: 6,029 sq ft

($510 / sq ft)

Lot Size: 11,267 sq ft

Year Built: 2010

Days on Market: 82

Listing Updated: 40513

MLS Number: S634114

Property Type: Single Family, Residential

Community: Turtle Rock

Tract: Ch

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