Irvine Housing Blog

How to Lose $500,000 in a Year

Ship of Fools -- Robert Plant

Today we are breaking with our tradition of profiling a $250,000 loss, and we are going big time -- $500,000 lost on one property. This flip is sunk. These flippers are so far underwater, they are not on a ship of fools; they are on a submarine.

Silent Spring

Silent Scream -- Slayer

It doesn't look like we are going to have a bear rally this spring. The rate of price decline is accelerating, credit is still tightening, foreclosures are still increasing, job losses are mounting, mortgage interest rates are rising, inflation is rising, the economy is sputtering, and sales are still anemic. Did I forget anything?

Rachel Carson wrote Silent Spring in 1962 about the death of eagles caused by DDT. Who will write about our silent spring? Oh yeah, I did.

Short

Short People -- Randy Newman

Short sellers got no reason to hope. They got little houses, little pets, they go round borrowing great big debts. They got little kitchens, little stoves, granite counters; they are selling in droves. Don't want no short sales, don't want no short sales round here.

Today's featured property is a typical 100% financing deal gone bad. There are two types of distressed properties that have caused the 20%+ declines we have seen in the last year: 100% financing deals and HELOC abusers. We have profiled many of each type. They have set the stage for the next wave of foreclosures when all the ARMs begin to explode. We haven't begun to see the fallout from that problem yet.

Craving

Silently Craving -- Michael Kiske

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?

Give Up

Tear the Roof Off The Sucker (Give Up The Funk) -- Parliament

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.