21.5% of OC loan owners are effectively underwater

More than 20% of OC loan owners owe more on their mortgage than they could obtain from a sale. With declining prices, this percentage is expected to grow. Foreclosure is the only savior.

Irvine Home Address … 31 CASTILLO Irvine, CA 92620

Resale Home Price …… $460,000

Well, if you told me you were drowning

I would not lend a hand

I've seen your face before my friend

But I don't know if you know who I am

Well, I was there and I saw what you did

I saw it with my own two eyes

So you can wipe off the grin,

I know where you've been

It's all been a pack of lies

Phil Collins — In The Air Tonight

Many loan owners in OC have no equity. No equity means no real ownership. They own a loan. They are still on title, and most still feel like homeowners, but they have no more financial interest in the property than a renter does, and if they stop paying the rent on the money they borrowed, they will (eventually) get evicted just like a renter.

Some who are underwater are victims of poor timing. Many of these people qualify for loan modifications, and they have been helped. Many more are victims of their own poor choices. They HELOCed themselves into an underwater situation, and the government is not throwing them a debt preserver.

1-in-6 O.C. borrowers still ‘under water’

September 15th, 2011, 12:04 am — posted by Jeff Collins

Real estate data giant CoreLogic reported that 17.3% of Orange County homeowners with a mortgage still owed more than their property was worth at the end of the second quarter.

In all, 96,747 Orange County homes were “under water” last spring.

Most of these numbers are poor estimates. Zillow for instance only calculates underwater based on the original first mortgage and does not include seconds, refinances or HELOCs. Obviously, that understates the problem. CoreLogic may have better methodology, but the 17.3% seems suspiciously low to me.

While the number of underwater homeowners has dropped steadily over the past 18 months, it’s likely that some of that drop is due to lenders foreclosing on a portion of those properties, taking them out of the mix.

Since properties have declined more than 10% in value over the last year, many more have submerged beneath the waves. Amortization may have helped a few, but foreclosure is how most of the underwater have been relieved of their burdens.

The figures show also that five years after home prices hit their peak and began to fall, large numbers of borrowers still are under water.

The CoreLogic figures show also:

  • The number of underwater homeowners fell 5.2% over the past year, a decline of 0.8 of a percentage point. There were 102,000 “negative equity” homes in O.C. at the end of Q2 2010.

0.8%? Less than a 1% drop is not exactly making major progress. At that rate, loan owners will be underwater for about 120 years.

  • 4.2% of O.C. homeowners with a mortgage are above water but have debt representing 95% or more of their home’s value.
  • More than 23,300 homeowners are just barely above water because they owe 95% or more of their home’s value.

When the dubious 17.3% number who are underwater is added to the 4.2% who couldn't pay a realtor commission to get out, and 21.5% of loan owners are effectively underwater and unable to sell. With 21.5% unable to sell without bank permission, and with no buyers in the last 10 years having any move-up equity, it shouldn't be a big surprise that the move-up market is dead and sales volumes are more than 25% below historic norms.

Orange County has about 120,000 underwater borrowers by CoreLogic's measure, but what about the rest of the country?

Mortgage Delinquencies Drop

By Kevin Chiu — Published September 23, 2011

The number of homeowners behind on their mortgages has dropped as a result of a higher number of mortgage modifications, according to one of the nation’s largest providers of mortgage data. The drop in mortgage delinquencies is a positive sign for the housing market, despite an uphill battle banks and mortgage companies are waging with the foreclosure crisis.

Mortgage delinquencies fell 2.5% in August from July, according to Lender Processing Services, which gathers its data from nearly 40 million mortgages it tracks for the U.S. lending industry. Total delinquencies, which include loans that are 30 days or more past due, dropped to 8.13% last month.

Still, however, the number of single family homes 90 days or more delinquent are near record highs with 1,866,000 late but not in the foreclosure pipeline. Another 4.25-million homes are 30 days or more past due on their mortgages, but not in foreclosure. About 6.4-million homes are 30 days or more delinquent or in the foreclosure process.

6.4 million homes are 30 days or more delinquent or in the foreclosure process. That is an astonishingly high number. And it's expected to get worse as there are 10 million more mortgage delinquencies to come.

The drop in delinquencies, however, is not a clear indication that foreclosures are easing nor are they expected to slow by real estate analysts over the next few years. Aggressive action by government leaders combined with bankers are the only avenues that could aid the housing market as high unemployment and other financial worries trouble the nation’s economy forcing more mortgage holders from their homes, and at risk of foreclosure.

Forcing more mortgage holders from their homes? He means to say that more loan owners will be relieved of their debt burdens on properties they have no ownership in. The language we use to convey information has hidden assumptions and meanings. The people who go through foreclosure are being forcibly removed from properties they no longer own. Many of them had no equity in the property, or they would have sold it prior to the foreclosure. Nobody sheds a tear when a renter gets evicted, but government is supposed to do everything in its power to stop a loan owner from facing the same fate. I think that's bullshit.

Losing HELOC income: when the house in unemployed

During the rally of the housing bubble, houses were like a third wage earner in the family. In fact, for nearly five years in Irvine, the median home price went up by an amount equal to the median income. With access to this windfall through HELOCs, every home owner had another source of income, and best of all, this income was not taxed.

The former owners of todays featured property bought back in 1993. By April of 2006, they ran up a $487,000 mortgage. This was easily double what they paid. But the house was not done working for them. They stopped paying in early 2008, and they were allowed to squat for 3 full years.

Foreclosure Record

Recording Date: 03/25/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 12/24/2009

Document Type: Notice of Default

Foreclosure Record

Recording Date: 03/04/2009

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 12/01/2008

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 08/22/2008

Document Type: Notice of Default

Irvine real estate is wonderful, isn't it?


This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707



Irvine House Address … 31 CASTILLO Irvine, CA 92620

Resale House Price …… $460,000

Beds: 3

Baths: 2

Sq. Ft.: 1337


Property Type: Residential, Single Family

Style: One Level, Contemporary

Year Built: 1977

Community: Northwood

County: Orange

MLS#: S674172

Source: SoCalMLS

Status: Active

On Redfin: 3 days


This REO property is located in the highly desired area of Irvine, Northwood. Close to the 'Blue Ribbon' high school, Northwood High, shopping and hiking trails. No Mello Roos and low HOA which includes a tennis court. Walking distance to shopping and parks. This single story home has an open floor plan with vaulted ceilings in the living/ dining area. A side entry for privacy. A real brick wood burning fireplace for your family to gather around on those cold winter nights. With a little work this could be the home of your dreams.


Proprietary IHB commentary and analysis

Resale Home Price …… $460,000

House Purchase Price … $200,000

House Purchase Date …. 8/5/1993

Net Gain (Loss) ………. $232,400

Percent Change ………. 116.2%

Annual Appreciation … 4.5%

Cost of Home Ownership


$460,000 ………. Asking Price

$16,100 ………. 3.5% Down FHA Financing

4.10% …………… Mortgage Interest Rate

$443,900 ………. 30-Year Mortgage

$124,254 ………. Income Requirement

$2,145 ………. Monthly Mortgage Payment

$399 ………. Property Tax (@1.04%)

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

$96 ………. Homeowners Insurance (@ 0.25%)

$510 ………. Private Mortgage Insurance

$60 ………. Homeowners Association Fees


$3,210 ………. Monthly Cash Outlays

-$335 ………. Tax Savings (% of Interest and Property Tax)

-$628 ………. Equity Hidden in Payment (Amortization)

$23 ………. Lost Income to Down Payment (net of taxes)

$78 ………. Maintenance and Replacement Reserves


$2,347 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$4,600 ………. Furnishing and Move In @1%

$4,600 ………. Closing Costs @1%

$4,439 ………… Interest Points @1% of Loan

$16,100 ………. Down Payment


$29,739 ………. Total Cash Costs

$35,900 ………… Emergency Cash Reserves


$65,639 ………. Total Savings Needed


21 thoughts on “21.5% of OC loan owners are effectively underwater

  1. Casual Observer

    The question is “Who are they counting”? Folks that bought in 2006-2009 would probably be in that group. Are they just counting those delinquent in payments, those in the foreclosure process, those that are still current?

  2. just some guy

    “This single story home has an open floor plan….”

    the only way a 3 bd/ 2 ba less than 1400 sq ft home can be considered “open” is if the home has no interior walls.

  3. IndieDev

    3 years? The banks are really bent on bleeding out slowly, while U.S taxpayers continue to donate blood through Obama-nomics to keep them alive.

    The pretender party continues to roll.

    1. BD

      Nice quip. And, I agree… our president is dangerously incompetent. WE must find a way to reverse this … it is a cancer. Prudent people cannot be asked to pay for the mistakes of others. Why would Germans work to 65 or 70 to pay for Greeks that retire at 50? How long will US renters be asked to subsidize loan owners??

      We are very much like the EU but, instead of having Greece, and Portugal and Ireland and Italy we have NY, CA, IL, and NJ. Do you really think people that live in the MidWest are going to feel good about sending their tax dollars to bailout the profligate welfare states??

      And, BTW, do you notice a theme here??? Countries with socialist policies and states that have solcialist policies… Hmmmmmm


      1. BD

        The bailout of our PIIGS will be next. Responsible people asked to help NY, NJ, CA and IL. It will come.. and then the crisis will be how mutch bad paper do our banks own on the state and municipal level? Will we let Chicago or LA or one of these states go down if BofA owns a ton of their bonds???

        We must change the entitlement mentality.


        1. Swiller

          You fail to understand that the states you mention, get the LEAST amount of Federal dollars?

          States Receiving Least in Federal Spending Per Dollar of Federal Taxes Paid:

          1. New Jersey ($0.62)
          2. Connecticut ($0.64)
          3. New Hampshire ($0.68)
          4. Nevada ($0.73)
          5. Illinois ($0.77)
          6. Minnesota ($0.77)
          7. Colorado ($0.79)
          8. Massachusetts ($0.79)
          9. California ($0.81)
          10. New York ($0.81)

          In fact, the states that vote BLUE, pay more than they receive. Imagine that, democrats states paying more into the system than republican states.

          Who is on welfare?

  4. FreedomCM

    We aren’t there yet.

    $350/sf, no updating in 35 years, backs to a busy 6 lane road.

    and did I mention Fugly?

    1. george3

      Agreed. The listing is marked pending.
      Obama-nomics is amking buyers to buy with all cash or historically low rates at inflated prices.

  5. newbie2008

    Almost all FHA borrowers will be under water due to the 3.5% down and 8% cost to sell. The questions are:
    1. How much underwater and
    2. How many in each percent underwater?

  6. IndyLew

    The author states above: During the rally of the housing bubble, houses were like a third wage earner in the family.

    If that isn’t world class economic analysis prose, then there isn’t any. Were Helocs that common, AND used as a source of tax free overboard spending in Orange County? I don’t hang around anyone who discusses such topics or seemed to spend overboard without matching non-home-originated cash flow, so it is a bit alien (my friend who is a bankruptcy lawyer, says you cannot believe some people’s spend-spend-spend habits). Years ago, a California native told me that people were so leveraged in California, and so broke, “they had to charge breakfast” even while driving a leased Mercedes. (Note: how are your car dealers doing there in fantasy land, lots of repo’s now that the homes are not a source of cash?)

    1. SanJoseRenter

      “Irvine: We Have 62 Different Words for Beige,” one commenter suggested.

      “Where Bland is in Demand,” another offered.

      “Sixteen Zip Codes, Six Floor Plans,” a third said.

      “Sorry, I Thought This Was My House,” yet another reader replied.

      Of course, Irvinites will tell everybody who will listen that that’s a good thing and why $600,000 for a tract home is a deal. 🙂

  7. QueenCityEddie

    I dispute IR’s contention that foreclosure is the only savior. People with incomes adequate to pay their loans and still paying them this late into 2011 are probably going to continue to pay them. Further, if this administration would forcefully convince all parties that mortgage loans are private contracts and it is up to the parties to those contracts to handle them as they see fit, we might begin to see modifications that fit the market realities. Right now lenders clearly are still hoping that there will be a jolt of money coming from Washington to get their bad loans better on somebody else’s dime. If correct, they’d be fools not to wait to cut their own deals to stem defaults. But with no prospects of that, the tension between pretending on the balance sheet and having crap cash flow might start being resolved in favor of cash flow concerns.

  8. Russ Wetherill

    Not true. A buddy of mine bought a condo for $450k at the peak (Oct 2006) with an ARM. It is now worth $275k. He has plenty of income to keep paying, but why? It is set to recast this year (5/1 ARM), increasing his payments by ~$500/mo.

    He tried to modify his mortgage to a lower fixed rate with the lender for 2 years. No luck. He’ll be defaulting in November.

    He used to feel a moral obligation to pay until I explained to him that the mortgage was a simple contract. If you pay, you get the house. If you don’t pay, then the bank gets it.

    So, I asked him: “do you want this condo?” “No,” he answered. “Then why keep paying?”

    Since he purchased with 100% financing, he is happy to walk away.

    For the $3500/mo he will be paying for PITI and HOA after the recast he can buy a nice home in a good area. The hit to his credit score will be minimal and recover to 800 within 2 years since all his other credit cards and investment mortgages are current.

    Buying at the peak was foolish. But, carrying a huge debt for the next 25 to 30 years based on a foolish error is idiotic. Just let it go!

    1. thrifty

      “The hit to his credit score will be minimal and recover to 800 within 2 years…” Interesting. Do you know something creditors and FICO do not?

  9. GotEconomicImplosion

    I knew it all along; Americans are NOT ONLY War Criminals, Financial Fraudsters, Torturers, Oversexed Perverts and Murderers. You’re ALSO DEADBEATS.


  10. DontPayStickitToTheBanks

    Hey, just walk away……save 1000’s per month. Save your loot an in a few years–by the time they get around to you, you’ll have saved a bunch of loot and can get back in on the hamster wheel!
    Meanwhile , pickup a nice Audi or BMW on the cheap and start enjoying your life again.
    I feel pity for all the poor fools who continute to pay on their overpriced real estate. If they only grasped the simple idea of opportunity cost–they’d see that the 100’s, even 1000’s they’re pissing away each month are going to cost them and their families HUGE in the coming years. It might be the difference between retiring at 61 or 71!!
    Wake up. Tune in, turn on, drop out (of your mortgage!)

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