The Second Noble Truth of the Buddha is that all suffering is caused by craving. People who took out HELOCs to fuel consumer spending gave in to craving, and they are about to endure a period of extreme suffering in their lives. People crave for just about everything they believe money can buy: cars, boats, vacations, status, lovers, self-esteem, and many other things or states of mind. HELOCs enabled people to obtain things that would have been denied to them under ordinary circumstances. When people obtain objects of their desire, it leads to a temporary state of satiation followed by an even more intense wanting. It is like drinking salt water: you think it helps, but drinking it makes you even more dehydrated and causes you to crave water even more. Those that drank the kool aid of the Great Housing Bubble took out HELOCS and tried to satisfy the craving beast inside. It didn't work. What is worse for them is that they are now accustomed to feeding this craving beast a steady diet of whatever it wants. Once this beast learns to feed regularly, it causes even more suffering when it is not fed. The HELOCs which bought the food to feed the craving beast are drying up. The housing ATM is broken.
It is my hope that profiling these stories of HELOC abuse does more than satisfy the beast of schadenfreude within all of us (that leads to suffering through separateness.) I hope these stories serve as a lasting lesson to people. It is common for people to react with envy to the rampant consumer spending these stories contain, but take a moment to consider the pain the hangover must be causing. These HELOC abusers are losing their houses, their lifestyles, their illusions of wealth, and their real money. Each of us must struggle between the unskillful desire to revel in their pain and skillful practice of feeling empathy for their plight. I know I do. It is important to move beyond schadenfreude lest we become trapped in the same feedback loop always needing another fix of someone else's pain to make us feel whole and happy.
In the meantime, enjoy today's post about another HELOC abuser who took out $600,000 over a 4 year period. Where do you think they will be finding that $150,000 a year supplemental income in this recession?
Tear the roof off? Remember when Jim Cramer said we should plow under the Inland Empire? That might be a bit extreme, but these lazy houses need to be punished somehow, don't they? Houses used to provide a steady supplemental income, and now they don't. Think about all the people out there who became accustomed to the free money their houses were generating. If I were one of them, I would be pretty angry.
Today's featured property is another in our endless series on HELOC abuse. For any of you that thought this was not common, I hope all these posts are opening your eyes to the reality of the situation. HELOC abuse is everywhere, and these people are watching their supplemental income disappear which in turn is taking down our local economy. Are these cases the exception rather than the rule? It really doesn't matter, does it? There are enough of these properties to materially impact the market. These are properties that would not ordinarily be for sale. They are added market inventory, and when they become REOs, they will be sold at whatever price the market will bear. Market prices are set at the fringes. It doesn't matter if 95% of homeowners where responsible (they weren't) because all of those who were not responsible are going into foreclosure and causing the precipitous price declines we are currently witnessing. The vast majority of HELOC abusers are going to lose their homes, and the resulting REOs are going to continue to pummel the market for some time to come.
So what happened to today's sellers? They took out $726,500 and exercised their "put" option leaving the lender holding the bag.
In retrospect, it is easy to see how many people who bought late in the bubble were chasing fool's gold. The rainbow lead to a pot of gold for many, but many others have been left chasing the rainbow and wondering where their pot of gold lies. The map was easy to follow: you took out a large loan, waited a few months, then sold the property to someone else -- the greater fool. The fool who was also chasing their fool's gold. Everyone is still weighing out their gold as the rest of us watch them sink. The gold is always just around the corner, but in reality a breakdown is just around the bend. We all know where the market is going -- down, down, down.
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I'm no clown I wont back down
I don't need you to tell me whats going down
Down down down down da down down down
Down down down down da down down down
I'm standing alone
I'm watching you all
I'm seeing you sinking
I'm standing alone
You're weighing the gold
I'm watching you sinking
Fools gold
These boots were made for walking
The marquis de sade don't wear no boots like these
Golds just around the corner
Breakdowns coming up round the bend
Sometimes you have to try to get along dear
I know the truth and I know what you're thinking
Down down down down da down down down Fools gold -- Stone Roses
Today's property demonstrates the distress of Woodbury. This property has been on the market for over a year, and the owners have managed to lower the asking price about 25%, and they still haven't sold it. We have profiled this street in Woodbury before: here, here, here and here. Today's seller is not the only failed flipper around.
'Pride of Ownership' shows from the moment you enter from your own private courtyard. Your first floor has a 'Great Room' feeling with a gourmet kitchen, casual eating area and spacious living room with fireplace. Master suite with walk-in closet, secondary bedroom plus laundry area complete the second floor. Two car tandem garage features extra storage and has direct access. Sliding 'hidden' front door screen, wood window shades, security system are just a few of the upgrades.
'Pride of Ownership' -- I am sure they are proud of the $100,000 they lost.
Do you get the impression they would have been happier if they had bought a boat?
This is probably the only kitchen in Woodbury without granite counter tops, but yet, this is a gourmet kitchen. I guess if the"gourmet" only needs about 4 square feet of white tile countertop space...
"Two car tandem garage" Always love those.
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Today's sellers put $975 down on the property, so I think we can call it 100% financing. This property has been on the market since October of 2006, and the initial asking price was $579,500. If these sellers obtain their asking price today of $449,900, their lender stands to lose $108,619, and our sellers stand to lose their $975.
I bet the lender is looking for the pot of gold too.
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Since this is April Fool's Day, I thought I might share with you the best April Fool's joke ever played on me.
When my son was a baby, my wife called to me from the other room and said she thought my son might be sick. I went into his room to see what I could do. When I got there, my wife and my mother-in-law (I think they thought this one up together) were standing over my son who was lying down on the changing table. My wife said, "Come look at this." I walked over to see my son's diaper filled with a thick, brown gelatinous mass. The first words out of my mouth were, "What did you feed him?" My wife looked at me, looked down at the gigantic glob of goo, stuck her finger in it, and put it in her mouth.
My mouth dropped open...
I couldn't believe what just happened...
OMG! Are you crazy?
Then my wife and my mother-in-law started to laugh. I stood there dumbfounded trying to figure out what was going on. Then the truth was told...
While I was not paying attention, they had made a warm batch of chocolate pudding, cleaned up my son really well, then filled a clean diaper with the chocolate pudding and positioned him over it as if he had been wearing the diaper and filled it himself. We all had a big laugh, including my son who had no idea what was going on. I remember that joke every year on April Fool's Day, and I probably will for the rest of my life.
One of the unique phenomenons of the Great Housing Bubble was the intense speculative activity, particularly the purchase of multiple properties. When speculators who purchased multiple properties implode financially, they allow multiple properties to fall into foreclosure. One of the reason we have had such a dramatic spike in foreclosures even before the bulk of the adjustable rate mortgages begin to reset is because of the collapse of speculators.
Today's properties are all owned by two men with the same last names. Some of the properties are owned jointly, and some are owned in the name of only one of the men. All of the properties are for sale for less than they paid and less than they owe on them. They can't feel good about it. When they built their financial empire, they probably thought they would be spending their fortune hanging out chillin'; Instead, they be illin'...
Beautiful home located on cul-de-sac. Concrete tile roof. Inside laundry, built-in microwave, dishwasher and ceiling fan in kitchen. Association pool, spa and clubhouse very close. Close to university!! Lender Approved Short Sale!! Lowest price in the area!
Note the restrained use of exclamation points, he only used two instead of three to end his sentences.
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This was our tycoons's first property. It was purchased in November of 2004 for $525,000. The buyers put 5% down ($26,250) and took out two loans totaling $498,500. In March of 2005, they refinanced into a 1% adjustable. At that point, they still had their downpayment in the property. In October of 2005 they refinanced again with a $500,000 first and an $85,000 HELOC. It appears as if this HELOC money was used as the downpayment to acquire property #3 today as it was purchased 10 days after the refinance, and the downpayment was $65,000. The cash-out refinancing means that between this property and property #3, our tycoons have a total of $6,250 in equity invested between them. Aren't Ponzi Schemes great?
If the sellers manage to get their current asking price, Countrywide stands to lose $110,300.
In April of 2005, just after their first refinance of property #1, our tycoons purchased property #2:
BEAUTIFUL HOME IN TURNKEY CONDITION!! 2 CAR ATTACHED GARAGE. BIG ENCLOSED PATIO, STEPS TO IRVINE BIKE TRAILS, END UNIT, MOTIVATED SELLER!!! CLOSE TO UNIVERSITY!
MOTIVATED SELLER!!! LOL! Why would this seller care? Their 5% down is long gone...
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This property was first mentioned in the post Deodar of Destruction that came out on June 12, 2007. At the time, they were asking $565,000 for this property. A 30% drop in asking price is some first-class market chasing. If they manage to find a buyer at this price and pay a 6% commission, the total loss will be $118,400. The sellers will lose $48,500 plus their carrying costs, and Countrywide will lose $69,900, assuming the sellers are current on their payments. All three of today's properties are soon to be owned by Countrywide. As if Countrywide didn't own enough homes in California already...
4 bedroom, 2 bath, plus bonus room den. Currently 5 renters, great rental income $2,700-$3,300. New kitchen is currently being installed. Great neighborhood and location. Lender approved Short Sale!!
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Five renters! I guess that is one of the reasons you want an HOA so you can police this kind of thing (I don't believe this neighborhood of El Camino Real has one). Do you think they get 5 cars in the driveway? I am guessing the circular grass dead spot in the back is remnant of a keg party, but I could be wrong. BTW, do you think these guys are current on all their payments to Countrywide, or are they skimming these people's rent?
As I mentioned above, the downpayment for this property appears to have been financed with equity extraction from property #1. Plus the first mortgage is a 1.5% negative amortization loan. If it was a 2/28, it exploded in November of last year. If they manage to get their selling price on this property and pay a 6% commission, the total loss on the property will be $143,340. Since I accounted for the loss of the $65,000 downpayment on property #1, Countrywide will only lose $78,340 on this one.
Countrywide must have really liked doing business with these gentlemen. On property #1, they lost $110,300, on property #2 they lost $69,900, and on property #3, they lost $78,340 for a total loss of $258,540. Our tycoons did lose some of their own money. They lost $6,250 between properties 1 and 3, and they lost $48,500 on property number 2. Their total loss was $54,750.
Another day, another quarter-million dollar loss in Irvine.
I hope you have enjoyed this week at the Irvine Housing Blog. I wanted to return to our roots and profile properties without all the intense analysis. More analysis posts are coming, for those of you that look forward to them, but it was nice to take a break and just enjoy the schadenfreude for a while. Come back next week as we continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
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(One) day when I was chillin' in Kentucky Fried Chicken
Just mindin' my business, eatin' food and finger lickin'
This dude walked in lookin' strange and kind of funny
Went up to the front with a menu and his money
He didn't walk straight, kind of side to side
He asked this old lady, "Yo, yo, um...is this Kentucky Fried?"
The lady said "Yeah", smiled and he smiled back
He gave a quarter and his order, small fries, Big Mac!
You be illin'
You be illin'
You be illin'
When you run with the big dogs, you have to lift your leg high. Today's property is a big house for throwing big parties attended by people with big names. This is a property for those who live a big life and spend money big time. When you live here, you don't have to keep up with the Jones's, you have to pass them -- they have to keep up with you. It is a big church where you pray to the big God of financial consumerism. If you aren't a big player, a person of distinction and importance, you can't live here. This is the big time...
LAST CHANCE FORECLOSURE OPPORTUNITY!!! Executive Estate with all the upgrades and amenities. Prestigious Gated community, end of cul-de-sac, no neighbors behind. Wonderful location within walking distance to award winning schools. Abundant amemities within community. Some of the best schools in California.
LAST CHANCE FORECLOSURE OPPORTUNITY!!! How can this be? Do you think some HELOC abuse is involved?
Abundant amemities? Say that 3 times real fast...
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So how did it come to this? Why is this a potential short-sale preforeclosure opportunity? It started out normally. In 1998, the property was purchased for $733,000 with 20% down. There was no activity until 2005 when the owner took out a HELOC for $147,191. A couple of months later, the house was refinanced with a 1% Option ARM for $1,190,000. This was followed by two more HELOCs for $250,000 each. There are two scenarios by which this could be a short-sale / preforeclosure: 1. The two HELOCs are maxed out, and the total property debt would be $1,690,000 which leaves this seller underwater, or 2. The Option ARM exploded, and the payments are far greater than the seller's income. The seller has a different mailing address than the property listed, so it is possible they moved to a different home and could not sell this one and just stopped making payments. No matter how they got there, this house has a stated asking price more than $900,000 greater than its purchase price, and it is a foreclosure opportunity. Only in Irvine...
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I have an interesting fact I would like to share with you today that may help put the economic stimulus the housing bubble provided in perspective. From 2001 to 2006, the median income of Irvine households averaged $78,934, and the increase in the median home price during the same period averaged $77,637. Every single homeowner in Irvine had another breadwinner in the household -- the house itself -- which was earning the median income. Also, since withdrawing one's equity was untaxed at the time, anyone withdrawing this equity -- which there were obviously many doing this -- was experiencing a doubling of their household spending power during this time. Is it any wonder people were living large and felt they were "big time?"
Im on my way, Im making it
Ive giot to make it show, yeah
So much larger than life
Im going to watch it growing
The place where I come from is a small town
They think so small
They use small words
-but not me
Im smarter than that
I worked it out
Ive been stretching my mouth
To let those big words come right out
Ive had enough, Im getting out
To the city, the big big city
Ill be a big noise with all the big boys
Theres so much stuff I will own
And I will pray to a big god
As I kneel in the big church
Big time
Im on my way-Im making it
Big time big time
Ive got to make it show yeah
Big time big time
So much larger than life
Big time
Im going to watch it growing
Big time
My parties all have big names
And I greet them with the widest smile
Tell them how my life is one big adventure^
And always theyre amazed
When I show them round my house, to my bed
I had it made like a mountain range
With a snow-white pillow for my big fat head
And my heaven will be a big heaven
And I will walk through the front door
It's a mistake. What else can you say about the Great Housing Bubble. It is a monumental mistake: testament to the greed and folly of man. A mistake of assuredness. An instance when man's arrogance is only surpassed by his ignorance. Unfortunately, mistakes have consequences, and we will all pay for the mistakes of the bubble through higher interest rates, higher tax rates (to pay for a bailout), higher inflation rates, higher unemployment rates, higher bankruptcy rates, higher divorce rates, and higher depression rates.
Another realtor who doesn't seem to give a crap...
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Another day, another 100% financing deal gone bad, another flipper with bad credit and another big loss for a lender. If this closes at its asking price, the lender stands to lose $172,000 after a 6% commission. Our flipper will lose his entire downpayment: nothing...
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Do you ever stop to pause and reflect on the madness of the bubble? If I would not have witnessed it firsthand, I would not have believed lenders and investors would have ever risked their money so foolishly. They gave speculators money to gamble in the housing market. They assumed all the risk for the chance to make a little interest and generate some fees.
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Jump down the shelters to get away
The boys are cockin' up their guns
Tell us general, is it party time?
If it is can we all come
Don't think that we don't know
Don't think that we're not trying
Don't think we move too slow
It's no use after crying
Saying
It's a mistake, it's a mistake
It's a mistake, it's a mistake
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The Second Noble Truth of the Buddha is that all suffering is caused by craving. People who took out HELOCs to fuel consumer spending gave in to craving, and they are about to endure a period of extreme suffering in their lives. People crave for just about everything they believe money can buy: cars, boats, vacations, status, lovers, self-esteem, and many other things or states of mind. HELOCs enabled people to obtain things that would have been denied to them under ordinary circumstances. When people obtain objects of their desire, it leads to a temporary state of satiation followed by an even more intense wanting. It is like drinking salt water: you think it helps, but drinking it makes you even more dehydrated and causes you to crave water even more. Those that drank the kool aid of the Great Housing Bubble took out HELOCS and tried to satisfy the craving beast inside. It didn't work. What is worse for them is that they are now accustomed to feeding this craving beast a steady diet of whatever it wants. Once this beast learns to feed regularly, it causes even more suffering when it is not fed. The HELOCs which bought the food to feed the craving beast are drying up. The housing ATM is broken.
Unsold in 90+ days
