Who needs more regulations?  Don’t bail out the companies that made loans that are in default this time…  I bet they learn to “regulate” themselves.

The owner must have taken out some equity—it’s listed as a short sale, which wouldn’t be expected given the downpayment.

> $400 / month in HOA fee?? That’s just out of whack.

I proposed a “stupidity tax”, which is assessed on any no doc loan or LTV over 90%

One also needs to examine the tax code.

There is no reason to have a provision that allows the first $500k of capital gains on a house be free of tax.  This fueles the belief that appreciation=income.  I would allow people to index their cost basis to inflation so you don’t pay capital gain tax on inflation gain in value.  Further I would propose that any HELOC withdrawal that exceeds your inflation adjusted cost basis is taxable income.

Irvine Renter pointed out the very short institutional memory of banks.  Dangerous loans are profitable during the inflation of a bubble.  Homeowners in trouble can refi or sell to pay off the loan.  When the bubble stops inflating; the bankers found themselves playing a game of musical chairs with no chairs.  Risk management had gone out the door because the loans were profitable.  Banks will be very tempted to play again if a bubble starts to inflate.  We can’t allow bankers to believe they are nimble enough to profit in the rise and dodge the fall during the collapse of a bubble.  Requiring all loans to be treated in a similar manner for risk management purposes will help prevent the its different this time mentality.

Don’t look to summary judgment to dispose of loan squabbles between borrowers and lenders, ever.  SJ is rarely granted, and as soon as something like fraud is alleged, getting out by summary judgment is not going to work.  Do you think lawyers are so agreeable that they will simply say, “oh, I guess we can’t sue.”  They will find a way (I say this as a lawyer), and any notion of limiting litigation as suggested are pipe dreams.

In the cases I describe, there are no allegations of fraud; the borrower is merely alleging that the lender loaned money outside the parameters of the law as documented in the loan papers. As a practical matter, this would not come up very often because the threat of this lawsuit would stop any lenders from loaning outside of the allowable parameters.

Yes, I have always liked that idea. The whole reason for the large capital gains exclusion on housing is to reward long-term homeowners, but since it has no mechanism for sorting out flippers from 30-year owners—something indexing the basis to the CPI would accomplish—this tax incentive encourages people to flip properties and lie about it being their primary residence.

I will not be able to participate in the comments today. Pardee Homes is hosting a charity golf tournament for the Boy Scouts, and I am playing in it.

For any of you who play golf, you will recognize the venue for the event: Riviera Country Club. I am really looking forward to playing.

Years ago, I used to work in the golf industry. I was the designer and project manager of Mystic Dunes in Kissimmee, Florida. I haven’t played a US Open venue in many years, so today should be a blast.

have fun

I agree, the inherent pressure in such a situation should be enough to minimize the potential for litigation.  But just don’t underestimate a lawyer’s ability to be “crafty” or “creative” when necessary…and don’t hang any hopes on SJ or motions to dismiss, etc. b/c when there’s enough pressure exerted in the process and litigation seems to be the only option…

The special treatment of capital gains is nothing more than a slap in the face to hard working professionals. After investing in 4 or more years of education, not only do you not get your investment back tax free, you end up paying a higher marginal tax rate. If you feel that the tax code impacts investment decisions, what does it say that flipping a house is seen as a preferred method of investment rather than college?

If home owners get to roll over their investment, why not everybody? Pay a tax on income when you earn it, pay a tax on investments when you spend it.

Why do realtors seem to have an aversion to the space bar?  A comma is not the same as a space, they are not interchangeable.  Additionally, a comma demands a space of its own (preferably not at $275/sqft).

location,walking
shopping,dining
galore,including
counters,a
island,and

realtor,idiot

And don’t forget those dastardy mello roos fees.
I was reading the open forum and saw the Shady Canyon house with an update. I think the interiors of all those Shady Canyon houses look the same. I guess the area has a “theme’, but you’ve seen one, you’ve seen them all.

Why not? Banks have been doing this for centuries. Don’t expect legislation to do anything.

I still say that the 30 year mortgage in today’s society is a big outdated charade for the majority of buyers.  Yes, there are a few who will buy and hold for 30 years.  However, for the most part, the majority of buyers are just pretending to themselves that they may actually keep the property for 30 years; most (especially first time buyers) will be gone within 10 to 15 years.

30 year mortgages should only be made available to those with significant down payments in the range of 30% to 40%.  Anything under that should be a 15 year loan in order to force the first time buyers to build equity faster, encourage them to save up a large down payment, and keep prices on homes lower.

These loans need to be designed to be paid off by the borrower - and a 15 year loan will be more suitable.  30 year loans only serve to inflate the prices and allow banks to stretch out the interest gathered from their slaves.

Take a 25 year old single male looking at a 1000 SQFT condo priced at 150K.  On a 15 year mortgage, the payment would be in the neighborhood of 1000$ - 1300$ (depending on down payment) per month which can be serviced by a single income without too much trouble.

Prices stay down, debt is paid off more quickly, borrower builds more equity over shorter period of time and escapes a lifetime of slavery and bone crushing financial voodoo.

No brainer.

Throw in some statutory attorneys fees for borrowers who enforce the parameters and you will get some attorneys lining up to go to bat for the borrower.  Otherwise this won’t trigger until the amount to not be repaid is high enough that a borrower is actually willing to pay an attorney to prosecute their case.  A Pro-per could do it but for the most part they are horribly uninformed and inefficient and will likely screw up the whole intent of the regulation.

I am still today in awe that someone in their sane mind would have and still will consider paying north of $200,000 for ANY CONDO whatsoever.

I don’t care about the size, the decorations, the amenities….they are glorified apts folks!!!!

IR,
Having that wording in the standard lending contracts will not stop an innocent pension pool with lazy or stupid management from picking up the large toxic loan pools from greed loan originators.  The banks’ contractual liabilities will just be transferred to the pension plans.  The bank/lender will have already been paid the origination fees and will get even more fees to service distressed loans.  Paying the bonus only upon completion of loans that are fully paid and amortized over then entire life of the loans will stop the creative lending practices (i.e., innovative financing that stick the taxpayers with the bill).

Such payout schedule will also encourage shorter term loan, say a 15 year vs. a 30 year loan, because the bankers will want to get paid.

A feudal society is created when wealth is concentrated to the few.  A slave society is when you can’t leave.  Concentrating housing to the banks and corporations, refinancing to recourse loan, and Fed plans for unforgivable loans are all on the table.  Maybe we’re headed for the worst of all worlds.

Condo’s are the first to crash in price during a correction, slowest to sell, and often rip off their owners with unmanageable association dues and special assessments.  It just takes a few builders, developing a small piece of land with their midrises and highrises to crash condo prices around it.  They’re great only for the deep pockets of property managers who milk the association, and are often related to the builder themselves (yes, despite conflicts of interest).  Builders love to place their reps on a new association board in order to ensure they’re not sued the first few years for defects, until the statue of limitations is exhausted.  They even give their employees and sales agents a few homes from the development, at deeply discounted prices, to ensure their interests are represented by these agents who’ll invariably run for the board.

Comparison analysis of renting versus ownership is very applicable for condos which are replete with such headaches, not so much for a SFRs with low dues and with long-term ownership.

The problem is that there is going to be a large group of people who want to buy houses (like me) who are getting screwed in the meantime.  We’re looking at possibly a 5-10 year window in which responsible would-be borrowers are priced out of the market.  The free market is failing these people.

You are not the type of person they are trying to sell to.

People who pay those prices don’t look at the bottom line and only care about how far they can stretch a monthly nut.

The logic is this:
A monthly payment of X dollars and Y cents will completely bankrupt me - therefore, I can afford a maximum payment of X dollars and (Y - 1) cents by figuring out my absolute breaking point and just backing off a hair.

As you can see, the actual price is completely irrelevant.  Agents and brokers will quickly weed you out and sooner or later find a monthly payment shopper who can be milked like a cow (MOO!) and yield 30 years of fresh milk.

It’s all in the numbers and how the financial voodoo masters can goose the payment and achieve X dollars a (Y - 1) cents for their precious little bovine buyer.

Those jerks like you who don’t want to play ball are just S.O.L and shall eventually succumb to attrition as you are vastly outnumbered and in a severe numeric disadvantage in terms of the Intelligence-Quotient demographics.

Sounds like a good idea to me.  The problem is that this is one of those “horse out of the barn” issues, where it is difficult to go back now.

I took a quick look at the numbers.  A $350k house at 6.5% for 30 years would have a payment of about $2200/month, with total interest expense of almost $450k.

In order to get that same payment, a buyer could only afford a $250k house.  After 15 years, the loan would be paid off and total interest expense would only be $147k.

A $350k house on a 15-year loan would have a $3000/month payment and still only pay $198k in interest.

That’s really scary to think that after 30 years you would spend $450k on interest.  That’s $15k/year!

The problem is that THEY (the members of the club) do not want anybody to own anything.  What they want are a bunch of lemmings who are too busy struggling to pay their bills during the prime of their lives so that they don’t have enough time on their hands to make noise and obstruct the will of the pricks in the government who are constantly attempting to twist the rules in favor of themselves having more and you having less.  That is what this all boils down to when you think about it.

It makes absolutely no logical sense to keep people in debt servitude throughout their entire lives.  Who does it benefit?  Certainly not the people or their communities.  If most of us owned our homes and had no mortgage/rent payment - we would surely have plenty of money in our pockets to go out and patronize our local businesses on a much more frequent basis.  It would be enormously beneficial to the economy as a whole as our money would not be thrown into a giant black whole every month in the form of payment for the privilege of borrowing from the elite. 

But it is not that way. We all spend our lives working to pay a king’s ransom to some entity that exists hundreds/thousands of miles from our community and has no vested interest in our well-being.

The system is the way that it is because it benefits the club at the top of the social class ladder.  We have an Oligarchy set up in the shadows, calling all of the shots, while we all sit around eating our KFC and waving our flags in sham-elections every 4 years for two members of the ruling party while the true radicals and revolutionary thinkers are snuffed aside by a corporate controlled media that manipulates us instead to chose from two selected individuals who are competing against one another for personal glory and bragging rights for being inducted into the most prestigious club in the country.

This is our interpretation of Democracy and Freedom.

What free market? The government has intervened every way possible. It is the government who is screwing up the responsible people to save the irresponsible.

That’s really scary to think that after 30 years you would spend $450k on interest.  That’s $15k/year!

Exactly.  It’s a Humongous rip-off that they are very good at concealing by bamboozling us with interest rate charts, thingies called “points”, payment plans, delusions of grandeur, etc.

It’s definitely a horse out of the barn scenario and I highly doubt that we will ever go there as such a system will never be accepted by the owners of this country.  My point was really just to expose the system as a big con on the people of this country. 

Everyone seems to accept it because it is all they have ever known and probably don’t even look under the sheets to realize how badly they are being f***ed because there is not a whole lot that they as P.O’d individuals can do about it and nobody wants to come out and denounce a widely accepted institution and be labeled a crazy.

The government doesn’t care about saving the irresponsible than it cares about helping the responsible. 

They are just protecting their business partners which, unfortunately, helps the irresponsible more than the responsible.

Do you really think that this is some kind of grand plan to keep people “down”?

I doubt it.  I think each incremental change in the loan industry over the years has just been a way to make an extra buck.  If somebody has no money for a downpayment, a bank can’t write a loan.  So they change the guidelines and eliminate a 20% downpayment requirement.  Now they can sell a loan.  The goal was not to keep anybody down, but just to sell a loan.  The byproduct is that it keeps people living as a slave to debt.

If there was no government intervention at all, the banking industry still would have managed to create all the exotic mortgage products that they did over the past 10 years, wouldn’t they?

While I often agree with your points, I think the criticism of paying mortgage interest is somewhat misplaced.  Interest reflects the time value of money (preference to consume sooner), inflation component, and default risk.  No fluff.  In fact, home mortgage rates are subsidized by the government and remain extremely low relative to default risk through government/taxpayer credit guarantees from GNMA, Freddie, and Fannie.  There is no escaping the cost of capital as renters have to pay this cost indirectly through rent payments, at least in non-bubble markets.

No - I don’t believe that there exists some secret cabal that meets in the shadows, wearing robes, and issuing proclamations and orders.

The true ghouls are the banks and financial institutions; they are the ones who exist to keep people down and they work very hard to spread their influence into the government and keep their system in place.

The politician is in the game for personal glory; to feel important and wield power.  He needs money to fund his campaigns in order to get his power.  The politician partners up with these corporations to get what he wants and in return he helps them get what they want.  It’s a symbiotic relationship.

It’s also very convenient to the gvernment to have everyone too busy trying to pay the mortgage than read a Newspaper, protest government policies, throwing Tea Parties in Boston Harbor, etc.  You aren’t going to find this written on a secret memo anywhere, but you sure have to figure it makes their jobs easier when crowds are not forming outside chanting slogans.

It’s all very subtle.  Nobody in their right mind is going to come out and say it, but you can see it through the actions that they take if you just ask yourself who is benefiting the most from all these policies being issued?

We are made to believe that the government is all about “by the people” and “for the people”, but this is obviously not the case if you just look around and see where all the resources and money are going.

I’m not saying that interest should never be paid.  Just not in the form of a King’s ransom.  It should be much less of a percentage of our monthly burn rates.

Lending has its legitimate place and purpose, but what we have right now is a huge perversion of that.

The loans need to be designed to actually be paid off and that is not how it is.  The loans are designed to never be paid off - just transferred to someone else so that someone is always paying in one way shape or form.

The banks don’t have full carte blanch on lending because if they crash the economy then it causes trouble for their partners in government. 

Politicians will let the banks screw the people so long as it doesn’t cause too many problems for the government.  That’s the deal.

AZDavid is right on. Its what I preach all the time. We (millions of americans) work hard to keep a few select individuals (board of directors, major shareholders) wealthy and in control at the expense of your countrymen. Example: If you’re in sales your sole function is to squeeze every dime from the willing buyer and then pass the money on the owner of the company. The owner then throws you just enoough bones your way to survive and repeat the process. Example 2: If you are in industrial engineering you sole function is to reduce labor (thus jobs) and give the savings to the owner of the company. It gets very easy to stay wealthy and in control when you have tens-thousands of people working to screw the person next to them and give you the profits.

Its not a secret grand plan as its pretty obvious. However, like in Real Estate, kool-aid can be some strong stuff.

I agree with a personal philosophy of minimizing debt.  Politically, I favor liberty, namely, the idea that adults should be treated like adults, held responsible for their own actions but not responsible for the mistakes of others.

Irvine Renter’s lending restrictions do restrict individual choice, but I think are justified to avoid damage to third parties that results from asset bubbles; and taxpayer liability under federal guarantees for bank deposits and mortgage loans (GNMA/FNMA/Freddie/FHA/VHA).

There is no need for such regulations.  You are addressing the symptom and adding undue legislation that spanks of populism. 

Worse yet, it doesn’t fix the problem.

Simply enforce the ones on the books and throw the book at the rating agencies.  That was the failure this time:  The credit rating agencies were criminally guilty…. throw the bosses and the top brass from those agencies in jail for 30 years each (about 200 people) and the lesson will not be forgotten for a while.

Of course, that won’t happen since those 200 people are buddies with politicians in DC.

The one thing I would change is the (OTC) Over The Counter rules.  ALL transactions (derivatives includes) based on US based investment vehicles (this includes ALL mortgage and credit backed derivatives -CMOs) should be traded and tracked in a complelely transparent environment.  No more trading in London.

Lastly, I guess I’d also change the insurance business on Credit Default Swaps.  Only the primary owner would be able to buy insurance on any Credit/Mortgage backed asset.  No way would it be allowed for multiple parties to buy parallel insurance.

That (plus trading in London’s OTC) allowed market manipulation on a grand scale.

We don’t eat KFC in Irvine, we eat Charo Chicken.  The poor ones eat El Pollo Loco.

Other than that, I agree with you.

The only difference between the Commies and us is that we have Credit Cards and bigger color TVs.

I wonder if the Commies had “Reality TVski”  ;-D

Points are good things if you purchase them to lower the interest rate.  That is, if you think/know you will remain in the house for a long period of time, purchasing points to lower the interest rate can make a lot of sense.

Welcome to capitalism; enjoy your stay.

IMHO, condos have all the disadvantages of owning a house and all the disadvantages of renting an apartment.

Yes, unfortunately we have state/crony capitalism whereby privileged bankers line their pockets are taxpayer risk and expense.

Developers create supply… the banks facilitate the demand.  Who’s looking at developers for their role in this bubble?  No one.  Especially not in this blog. 

The more developers build (and yes, they need to make a living), the more they will lobby for exotic mortgages to make their homes affordable and put people in them.

Here’s an interesting article about how developers lobby for their ends:

http://www.commondreams.org/views03/1119-13.htm

Simple solution to the housing crisis and empty houses?  Give developers and their cronies new jobs.  I doubt IrvineRenter would have ever come up with this solution.

Surfing in Newport,

My family “invested” heavily in education during the previous, current, and next generation.  After measuring the amount of money spent versus the amount of money earned from having a higher (professional) degree, this approach has paid a higher real rate of return in monetary terms than all other stocks/real-estate/investments.  Other benefits include a better understanding of how stuff works, how to plan, and (most pertinently) a more sensitive ability to detect when someone is trying to sell you overpriced property.

By the way, I found this little gem before logging off last weekend:

http://www.google.com/hostednews/ap/article/ALeqM5hHoMzhnSgja1KQZorxv2CgyIuMXwD98U0KTO0

Read towards the bottom how one of the first customers paid for her ‘space flight’ ticket by mortgaging her San Diego home for the $200,000 ticket price.  Apparently, you _can_ be shot into space for that amount of HELOC abuse.  I can only imagine what she wrote on the loan paperwork as to the reason she needed the funds for.  Amazing!

Regards,
Hard Numbers

But the cost of building is tied into the cost of materials, labor, and land (plus fees).  Two out of the three are a lot less now (not fees) so why are new homes way less than used homes?  Because the developers got just a intoxicated as loanowners and bought up over priced land which now they can’t build or sell without going out of business.

The point is that they’re trying to avoid collapses every few years.  I think the solution is to prohibit them from booking gains on the loans made until the cash is received.

I got news for you, commies now have big screen TV’s too.  PRC is subsidizing consumer products in PRC to stimulate demand.  They have less social (govt) safety nets and subsidies than the USA.

AzDavidPhz:  They don’t wear robes, they wear suits and ties.  The world banks are control by a handful of men.

CS Lewis in the Great Divorce had people living in hell, busy with their lives and problems.  Free bus rides to heaven and stay in heaven if you want. People in hell had little interest to stay in heaven after a short visit and later they had little interest to even take the ride to heaven.  People will rebel against outright slavery, but people will eagerly sign up for indentured servitude.

One simple change would clean up a lot of bad lending practices:

The FDIC should only cover 90% of a depositors assets. This will provide pressure for money to go to the most sound and best run banks while still protecting depositors from catastrophic loses.

Covering 100% of deposits leave many only thinking of the bank with highest rates, while paying no attention as to why they are paying higher rates.

Before FDIC insurance, the best banks publicized their strength; now they trump the rates they pay and how many ATMs they have. While I know we need FDIC insurance, 90% coverage will reduce the moral hazard 100% coverage creates.

This part makes no sense whatsoever:

“2. The total debt-to-income ratio for the mortgage loan payment, taxes and insurance cannot exceed 28% of a borrower’s gross income.”

So what do you do with someone with a million bucks in a trust fund, contractually due to be given to them at a given date, say 5 years in the future? Or someone with enormous quantities of safe assets, like long term bonds or CDs, or even something more simple like a pension they are already qualified to get in a couple years but not today? How about someone with soon to be vested options in a publicly traded company that are WAY in the money. What about someone with a lot of money locked up in escrow for a given period of time (which by the way is EXTREMELY common among those who sell companies, especially in the tech/startup world)

It’s just sort of nonsensical. Why focus so much on income and utterly ignore assets? Presumably the answer is that they should just pay cash and not get a mortgage, but that’s asinine. Some assets aren’t liquid. Others may prefer to hold out liquid assets to keep options open. You could argue that my example of the person with the options could see the stock collapse.

But… um… any person with income could lose their job. So what,  to coin a phrase, past performance is not indicative of future returns.

An income requirement is sheer madness, impossible to justify. An ABILITY TO PAY requirement makes some sense, and you think you’re advocating that. But you’re not. I’ll take a 33 year old with a $5MM trust fund due at age 35 over a Pontiac salesman with documented six-figure income for 5 years. Would you? Right.

This section is also madness:

“A new business without a tax return or with only one year of taxable receipts probably is not stable enough to meet standards of income necessary to assume a long-term debt.”

Since when? Let me get this straight. Bill forms a business, a small company, an S corporation. It’s in business six months, he raises angel money or VC money and has $5MM in the bank. He draws a $250k a year salary. He hires an IT consultant for $150k a year, poaching him from a big company like say IBM. That consultant can get a mortgage, as he has 5 years of stable paycheck stubs. But Bill can’t.

Right. That’s logical.

Read your post a little more carefully and think slightly outside the earn-a-paycheck box that you’re stuck in.

Your basic premise is that “Income” = “Ability To Pay”

That premise is false. Therefore everything based on that premise (ie your entire theory) is also false.

QED

Thanks for trying. I admire the spirit, but the devil is in the details.

Nick,
It very simple.  Use the assets as collaterial.  If the personal doesn’t really own the company, the company should not be used as collaterial.  Banking is not without risk, it’s setting the rates according to the risk.

As for trust funds, some are better than others.  And some have large numbers but are worthless and in the end under funded.

And another thing about debt-to-income ratio. Assuming that 36% is doable for all debt, why should we treat people with low or no consumer debt the same as people with up to 8% of income tied up in paying for a new car, etc.? I ask as someone with no consumer debt or car debt, who has a mortgage debt-to-income ratio of 33%... Which isn’t relaxing, but not impossible, either.