“I know I would like to know where the money went.”

Maybe its a gold plated bidet. Think of the bragging rights that would bring. That’s more than the Beamer in the garage.

Where can I donate more tax money to bailout these poor helpless souls?

It would be funny to show up at this house on April 1 dressed as a police officer and tell them that they are under arrest for larceny.

Just kidding, folks, April Fool’s!

Not too far from the truth, though.

Let’s play “Connect The Dots”

1) Borrower borrows more money than borrower can repay

2) Borrower walks away owning 2-3x’s what house is worth

3) Dumb Bank experiences stresses and markdowns

4) Dumb Bank insolvency screws up entire world economy

5) Fed gov’t floods dumb banks with massive amounts of tax payer money to prevent financial Armageddon

6) Tax payers like Lee in Irvine (and our children) are stuck with a huge bill

you left out the part where the bank leveraged the asset that is now worth 50% less, 30 - 50 X’s….  I constantly pose the question here, but I honestly wonder if a 3000 sq. ft. Woodbridge home sells for $500-600K (or some vastly reduced price from peak) would it actually be affordable in the new economy that would result from asset/debt deflation…

Poll: Which bailout do you find the most offensive:

1) Bailing out idiot homeowners who overspent, suffered from Affluenza and are now in foreclosure
2) Bailing out the state of California for years of overspending and mismanagement
3) Footing the bill for octomom’s brood of rug rats

So many choices!

I find it interesting too that “expensive” or “cheap” are relative terms completely dependent upon financing. When those Woodbridge homes going for $1,000,000 in 2006 are selling for $550,000 in 2012, they will still be just as “expensive.” The only difference is people will realize how expensive they are (even at the lower price) because they will believe they will have to pay off the debt.

Yes, it’s hilarious that even though the $550K price makes more sense… it could destroy capitalism, how ironic.  It should always have been $500Ks, but since it got into the millions we have issues….. what’s to stop it from going into the $300Ks?  Some people could just pay cash at $500K but would they still want to live here?

I find it most offensive that with each bailout we dig a deeper hole, get a pennies on the dollar benefit, and ultimately make the situation worse….. yet we keep throwing money into the black hole….

And all of this money is going in to the system to prevent some investor somewhere from losing money. The only reason we have these BS bailouts of Citi and other banks is so that we do not have to cram down the bond holders. All those billions are designed to keep bondholders solvent. A nationalization that wipes out all equity holders and crams down bondholders is the appropriate policy right now, but we do not have the political will to do it. Therefore, we just feed the white elephant and pass the debt on to our grandchildren.

Under the new economic paradigm of risk, it’s clear banks are not gonna loan dumb money anytime soon.  That includes for the vastly overpriced OC.  A Bank will determine what Johnny pays Joey for that Woodbridge home.

This is the precise reason why I think many fundamental models for evaulating real estate (rents, incomes, debt ratios), are gonna be less applicable on the way down, just as they were on the way up.  We’re gonna crash through our previous fundamental support levels.

# 2 for me.

Exactly, I keep hearing about “exit strategy”.  But this is the exit strategy for the uber-wealthy.

BS bailouts of Citi and other banks is so that we do not have to cram down the bond holders

Bill Gross

For some bizarre reason, I’m reminded of the old joke about the New York policeman who was so wimpy that he flushed suspects’ heads in the bidet.

You don’t have to cram down most bondholders.  If they own uninsured MBS, it’s just a plain default.  If they own privately insured MBS, it’s a question of what happens to AMBAC, MBIA, etc. 

If it’s a bondholder of a bank that is in trouble (e.g., Citi), they could very easily get crammed down if it went into bankruptcy (the parent) and/or FDIC takeover (the bank subsidiaries). 

The bond guarantees, FDIC coverage, credit default swaps, and the bailout, all spread difficulty from the idiots who loaned money on overvalued real estate (often with insane lending standards or fraudulent applications). 

The bond guarantees spread damage from stupid lenders to municipal bonds and municipalities.  While city and county governments and school district might do a lot of things wrong, they are generally not contributing to bad mortgage underwriting.  Another form of damage is done by wildly fluctuating property tax values.

CDS spreads pain to others who got paid to do so.

FDIC coverage spreads paid to other banks.  Surviving banks who were comparatively responsible will be paying higher fees for a long time. 

The bailout spreads pain to vastly larger groups of people.  This isn’t just a US phenomenon.  It’s many countries. 

Of course, the bond losses turn up in all kinds of places, in the US and overseas.

I vote for:

    D)  All of the above!

You need to know the pre-chosen too big to fail bonds…. and Bill Gross is a good place to start.  Many bonds will be defaulting over the next 2-3 years.  Each bond holder you save artificially, will mean 2 other bonds defaulting.

Is $550k a lot of money to potential Irvine home buyers?

You asked the ultimate question and you don’t even know it.  If the S&P500; is at 450, unemployment at 20%, and incomes have declined drastically….. then yes…

On topic:

That HOA situation is pretty scary. You have an inspector check out the home for any “hidden costs”. Do I need to hire an accountant to find out if there are any hidden HOA costs?

I’m not as worried about now as I am a year from now, or whenever I’m actually going to buy, many many foreclosures from now. Fewer people putting into the pot, and those putting in most likely stretched to thin to absorb the increase.

Maybe the moral of the story is to not buy in HOA communities.

A very concise analysis of the Bailout plan and implications for long term loan availability, and hence pricing.

http://author.heritage.org/Research/Economy/wm2311.cfm

550k is a lot of money period     esp if deflation hits wages.

“You asked the ultimate question and you don’t even know it.  If the S&P500; is at 450, unemployment at 20%, and incomes have declined drastically….. then yes….”

Really?  Wow.

Unemployment is not going to hit 20%, even here in SoCal.  450 on the s&p would mean a roll back to 1994, I’m not betting on that either.

The relevant aspect of the question is whether a half million dollars is considered a lot of money when there are no liar loans, no no-money-down loans, and almost everyone faces the reality of actually paying for their abode.  There are two scenarios in which one either has a significant percentage of the money, or they have little or none of it and are faced with actually paying down that level of debt.  Do people here think $550 is a negligible amount of money for a home in Irvine?

The painful way is also the swiftest way.

TARP = 700 billion

TARP levered 10 to 1 = 7 trillion

7 trillion = capitalize new bank/s

wipe out equity and debt for old DUMB bank/s

transfer quality assets from old DUMB bank/s to new bank/s (shotgun wedding/s courtesy of Shelia Blair at the FDIC)

Bond King told to F.O.!  (read between the lines)

New Bank/s sells equity (go public), then repay debt to gov’t.

But we chose not to do this, because it was difficult & painful.  Now we’re following the same path as the Japanese, circling the zombie banks, trying to prevent further systematic risk.  All at the expense of the taxpayer.

What is the 20% to 30% of HOA reserves?  How to calculate the reserves needed to be a health HOA?  I know an HOA that just votes for each repair or major maintance project with the cost divided equally amount the members.  Their cash at hand takes care of insurance and routine repairs.
“For associations with high rates of defaults, past due assessments are wiped out on foreclosure, with the bank responsible for payments only after the foreclosure, so a poorly managed HOA stuck in a downward spiral can take even more hits.”  After foreclosure, does the bank pay for past due HOA dues or just future HOA dues?

but we do not have the political will to do it.

but we do not have the political balls to do it.

There. I fixed that for you. You had a typo.

$550,000 is between 5.5 and 6.0 times the median income, so yes, this is a lot of money for a home in Irvine. The households making $150,000 a year that can marginally afford a $550,000 property were buying $1,000,000 properties with exotic financing.

You left out a step:

1.5)  Dumb Bank knows borrower can’t repay, but doesn’t care because they intend to sell the worthless note to Greedy Investor as a mortgage-backed security.

I think that the HOA assessment horror stories out there could fill a whole day’s worth of discussion. Many of Irvine’s villages were poorly built 30 years ago and it’s quite possible that there are many time bombs ticking. Somebody out there with a head for numbers and an entrepreneurial spirit could have a side business where they act as a “HOA financial inspector”. I’d pay for the service when I buy a place. It seems that all of south OC has HOA’s so there’s definitely a market out there.

The are only liable for future HOA dues while they own the property. Of course, they are not even paying that, and they usually settle at the closing table when they sell the property. All debt on the property is wiped out in a foreclosure.

With a foreclosure, any past due assessments, fines, and legal fees are not assumed by the new owner. The HOA may go after previous owner in court, but it’s expensive and non-productive.

I know an HOA that just votes for each repair or major maintance project with the cost divided equally amount the members.  Their cash at hand takes care of insurance and routine repairs.

For the HOA that acts as you describe, they still have a requirement under state law to perform a reserve study and disclose the results. An association that funds reserves is far less likely to defer maintenance and ultimately have far lower costs than the example you describe.

Even the wall street experts who have been consistently wrong would put an S&P500; @ 450 / Unemployment @ 20% scenario around a 10% probability.  Everything is corelated, welcome to globalization.  Forward looking earnings of $45 and a 10 X price to earnings ratio gets you to S&P500; at 450.  Don’t under estimate debt deflation.

It’s not rocket science. State law requires disclosures. You just have to have some basic knowledge and know to get the documents before you buy, rather than having them be a part of a massive stack of incomprehensible docs that you sign at closing.

>>past due assessments are wiped out on foreclosure, with the bank responsible for payments only after the foreclosure<<

What would happen if a lien had been filed against the property by the HOA before the foreclosure? Should’nt HOA get the lien on the past dues satisfied at the auction?

I understand what you’re saying.  But even at actual earning two years ago, not heloc earnings, $550k is still a huge debt in my opinion when it must be serviced with a monthly salary.  The magnitude of the numbers here are incredible, and so many people seem to consider this normal.  I wonder how long it will take for the math to sink in.  That will be when the real depreciation begins in Irvine.

I believe under incomes in Souther California 2 years ago, a nice relative large house in a premium neighborhood would have easily supported a price over $550K with normal financing.  The real question is what does a re-pricing of million dollar homes to $550K do now for the economy?  Under debt deflation you can get into a scenario where no price is too low… as unemployment goes up, salaries decline, and all assets deflate.

I would like to address the HOA’s.  First I would NEVER,EVER buy a property with Mello-Roos or HOA dues.  This is the biggest scam for property owners.  I know several people that have bought and now regret it.  It is in a sense being a property owner, but never really.  You are always a renter of sorts.  Think about it.  You pay off your home, your in your 60’s or 70’s and you are on a fixed income, but you still have to pay the HOA’s dues (and they always keep going up) but your income doesn’t.  That to me sounds like a renter not a land ownder.  Also I would like to mention that there are only a few companies that “manage these HOA’s”  That to me is corrupt in itself.

yeah, but what are you looking for? History of reroofing? Repaving? New garage doors? Poolwork? What is the lifespan of each of those maintenance items? Are the dues sitting in a money market account or a stock based mutual fund? Have the dues been steady or declining at a predictable pace? Is there a history of some units’ pipes bursting? I’m talking about someone doing the legwork that I don’t have the time or the expertise to do. I’ve never lived anywhere with an HOA so maybe I’m going overboard, but I’d think that somebody could even rate different communities on a website (A, AA,AAA…. ) and they’d get enough hits to sell some adds.

IR Thanks so much for this “heads up” on this issue.
I am looking to buy in Turtle Ridge or Quail Hill after prices drop more. Do you have any idea how I could go about finding info on their respective HOA’s?

Thanks again

Assuming a 20% down, 6% rate, and a $500 car payment, and an $8,000 per month HH income, then: the monthly debt to gross income ratio will be about 50%. Affordable based on income, but have to cut on other things such as vacation, Lexus, BMW, or MB. Better have some reserves because unemplyment won’t even pay half of the monthly debts. A couple making $4,000/month each can get by for a little while even if one of them gets laid off.

Consider - I think it is a very large amount of money.  When we realize that many of the people earning $150K or more also have other significant expenses (student loans, kids, etc.), this kind of commitment should not be made lightly.  Right now people think it is not that much money because they have been conditioned to think so due to the astronomical prices in this area.  Once people realize that they actually have to pay this debt back, rather than flip it, it becomes a big number.  I, for one, will not even consider spending this much on a home.

There are actually many, many companies that manage HOA’s and a few HOA’s,like mine, that are self-managed, which mean that we hire and supervises our employees, rather than out-sourcing this responsibility.

The basic problem is not with the HOA’s, but rather with the entire concept that we could piratize local government and devolve many of its function back to amateurs.

Elected board members and management company employees do their best, but the underlying ideology is deeply flawed. Developers and local governments straight-jacketed by Prop 13 pushed these quasi-governmental orgs onto home buyers.

Now it’s caveat emptor!

Does a tax lien takes first line ahead of the foreclosing entity (i.e. 1st lien holder)??

California government has already required that HOA’s do this legwork, and boiled it down to a number from 1 to 100. No need for letter grades.

Before you consider buying, get a copy of the reserve study, and look at the number that shows percentage funded vs ideal reserves. 100 is an A. You’ll find many associations with score below 50. I consider 70 as an F.

Tax liens and the first mortgage are at the head of the line. In today’s market, everybody else is wiped out, including HELOCS and HOA’s.

China and Japan are so long on the dollar, they have no choice but to keep buying.  Ultimately this is leading to the US defaulting on its debt.  That may seem unbelievable but just take a quick look at the numbers.  As of today the debt stands at $10,844,290,269,883.89.  By the end of Obama’s first term it should stand right around 15 trillion (give or take a trillion).  The number of tax payers is 138,000,000.  That means by the end of Obama’s 1st term, each taxpayer will be on the hook for $108,695.65.  As of now we spend over 10% of our budget just to service this debt. 

So we are going to ask future generations to service the debt we racked up, and in return they get nothing (actually probably more broken government).  Not going to happen.  Eventually tax payers are going to say NO!  Take that worthless piece of paper back to China and Japan and stuff it. 

So, don’t let all this crazy deficit spending and bailouts worry you.  In the end our children will do exactly what we have done, default on our debt obligation.

What communities in Irvine do NOT have an HOA?  The only one I know of is the Ranch?  Are there any others?

Didn’t know that HOAs had a rating system…. I’ll remember that. Thanks for the info, where do I send a check?

They will be able to pay off that debt with the money they save from lower house payments.

/snark off

Seriously, the two are closely related.  We are trying to substitute US Treasury debt for bad residential and commercial mortgage debt. 

Of course, if the housing bubble had been prevented, or if it was much smaller, there wouldn’t be much bad debt threatening to make a mess.

I’m looking for S&P at 600 midyear.

CA unemployment, 14%.

Price drops averaging 2.5-3.5% per month in 2009.

As a non-condo owner, I have a stupid question.  Aren’t HOA fees like property taxes, don’t lenders usually roll them into the monthly payment?  Otherwise, an HOA could foreclose.  I recall a lot of controversy about this a few years ago.

Not a stupid question.

Lenders roll ridiculously-priced fees from HOA’s into the closing costs, but the monthly assessments are always billed separately, as far as I know.

The HOA fees should be calculated into the qualification for the loan.

Both Turtle Ridge and Quail Hill are new enough that the builders probably set up the dues structure to cover all the reserves pretty well. At this time, they aren’t even old enough to have much expenditure from the reserves budget.  You may request the HOA info ahead of making an offer, but it will definitely be provided to you during escrow.  Your purchase should be contingent on your reviewing these numbers, and you have the right to back out (free), if you don’t approve them.

The HOAs that are in the most trouble are the older ones for condos, where the HOA is responsible for all exterior maintenance.  These are the same HOAs that have had a lot of foreclosures, so they have had to write off a lot of uncollected dues.  Anyone buying into a condo that is over 20 years old needs to look especially carefully at the budgets and reserves balances!

Arnold just signed a 90 day foreclosure moratorium, so HOAs will be hit with additional 3 months of uncollected dues from that! 

All the HOAs are going to have to raise dues next year to play catch up from all they have lost!

What is the name of the document with the score from 1 to 100? What should we be looking for?

Waterdog,

The advice is gratis, as long as you do the minimum research before you buy into any condo.

Reserve study!

Discloses the percentage that the HOA is funded.

It’s one of the documents which must be mailed to each homeowner every year, and should be the first document you look at.

There are some houses built in early 1970’s in the El Camino Real area of Irvine which are not part of any HOA. They do not have Mello-Roos either. It seems that the streets of communities which are part of a low-dues HOA (about $50 to $70 dues per month) are just a little nicer (They just seem to have more trees), but that’s just my opinion.

The mortgage subsidies and interference in the housing market are probably unprecedented. Renters are obviously upset about it since they do not get a mortgage deduction, and now more subsidies to SOME relatively few (definitely not all) homeowners. Why is homeownership so holy?

Photo of whigger drinking out of commode threw me off for a second-thought I was on welcome to the City of Riverside website.

already 10.1 in Cali

I don’t want to buy a house with an HOA either, but it seems like every single house in Irvine has an HOA, even it’s really old, detached, or really expensive. The older houses have lower HOAs, but do places exist in Irvine that don’t have HOAs at all? I was telling my folks in the Bay Area and they were flabbergasted. I wonder if every property in Irvine is made to have some kind of HOA to support the Great Park and the other many public parks in Irvine.

“As a potential homeowner, you could be buying in to a significant liability without knowing about it. Buyer beware.”

I never saw the possible liability to be this big!

“Poorly managed associations may have thousands, or tens of thousands of dollars per unit worth of underlying deferred maintenance, and capital reserves funded at 10% to 20% of ideal balance”

If many have not read their mortgage contract before getting into a home.  I’m not sure if we’ll be aware of the potential liabilities of HOA’S!

Thanks for posting this open letter.

                      -Joe
                  http://RenoHomeBlog.com

“As a potential homeowner, you could be buying in to a significant liability without knowing about it. Buyer beware.”

I never saw the possible liability to be this big!

“Poorly managed associations may have thousands, or tens of thousands of dollars per unit worth of underlying deferred maintenance, and capital reserves funded at 10% to 20% of ideal balance”

If many have not read their mortgage contract before getting into a home.  I’m not sure if we’ll be aware of the potential liabilities of HOA’S!

Thanks for posting this open letter.

                      -Joe

Unfortunately, the busiest State agency is the Unemplyment Office (EDD??). A laid-off worker friend of mine applied 1 month ago still not processed…. I guess unemployment is many worker’s biggest fear right now…

“Chinese Investors Looking To Buy U.S. Homes”
http://www.npr.org/templates/story/story.php?storyId=101234145

And you IHB naysayers said this wouldn’t happen!

Most owners who buy into HOAs don’t really understand assessments until it is too late.

HOAs can foreclose for failure to pay assessments. they just have to wait until owner owes at least $1800.

see http://www.davis-stirling.com/MainIndex/CollectionMenu/tabid/245/Default.aspx

OC Prog-

Just asking.

I checked out your blog ... I’m a “bitter renter” and I totally agreed with the Rick Santelli rant, am I out of touch too?  I suspect 90% of the “bitter renters” that patron this venue also agreed with Santelli.

Just asking. 

Don’t forget…

7) Dumb fed gov’t causes horrific hyperinflation that demolishes everyone’s savings and turns us into the Zimbabwe of the northern hemisphere.

#2
We could all see this coming years ago.

Government has been “interfering” in the housing market ever since they organized colonial militias to “bail out” homeowners from Native American raids by burning down their villages in New England. And when the British Army came to fight off the last such threats in the 1760s and then asked the colonial homeowners to pay for the service, said colonial homeowners threw a hissy fit and had this whole “revolution” thing.

In short, public demand for government subsidy and bailout of homeowners is as old as European settlement on the continent.

We’re already at 10% unemployment in California. Granted, that means things have to get twice as bad to see 20%, but it’s not impossible.

We need to nuke China and invade Japan.  A good war always takes care of these things.

Isn’t that how FDR fixed the Depression?

CA unemployment typically runs between 5-6%, 1999 thru present.  About four times the normal number of people would have to be unemployed to reach 20%.  We are currently less than twice the normal average.

The CA Gov Reserve Study requirements.

http://www.dre.ca.gov/pdf_docs/re25.pdf

I’ve always suspected that those HOAs were run by the spawn of Benito Mussolini.

One to two years ago, the same type of stories were on European tours to the USA to buy, buy and buy.  Mostly on the East Coast.  No stories on how those purchasers feel now.
The Arabs and Japanese in 1980’s
The Europeans and Chinese in 2000’s.

Since HOA are private but collect monthly fees like taxes, are HOA tax deductible?  Say the HOA fees are used only for common area (park) and street lights on public roads. 

In the end, we are all renters with HOA and local property tax.

Actually any area with inflated prices is subject HOA pain. I am on a board for a 7 year old community, we have only had a few foreclosures (3 of 138 units) but in all cases the borrowers stopped paying well before the bank took the property back. There is essentially no recourse for the association. It costs money to put a lien on the home, but you are just about last in line to get paid, and since the bank is loosing money you are out of luck.

No, we have “problems.”  Issues are matters for discussion or debate.  If we already know it’s unacceptable, that’s a “problem.”  Reject the mealy-mouthed euphemism!

Hey!  You cribbed this a couple days ago from Planet Money, didn’t you?  Cite your sources ;->

“The basic problem is not with the HOA’s, but rather with the entire concept that we could piratize local government and devolve many of its function back to amateurs.”

‘Get government off our backs!’  Then Atlas Shrugged became Atlas Suffered a Series of Grand Mal Seizures.  Oops.  Who knew simplistic right-wing slogans could go prove false?

“Should’nt HOA get the lien on the past dues satisfied at the auction?”

Unlikely - foreclosure auction proceeds are applied to liens in order of seniority with any excess refunded to the borrower.

If the property sells for less than the outstanding mortgage debt on it (quite common these days), the HOA gets nothing and has no further claim on the <u>property</u>.  They could go after the <u>debtor</u> in court but they usually don’t; I’m not surprised considering the amount of time and legal fees they’d be risking.

“…the entire concept that we could piratize local government and devolve many of its function back to amateurs.”

Were you trying to imply something about the people who ended up performing those functions, or was that just a really awesome typo?

I read this week that banks are reluctant to lend when the HOA is involved in litigation. I know of one case where a person sued because of an injury suffered on the exercise equiptment. I hope the insurance for the pool is also paid up.

Had to comment about your featured property. They really went all out on that tri-level kitchen island. Love that pic of the guy next to the “washlet”. That was a good laugh.

4) Bailing out the idiot bank that gave the idiot homeowner all that good hanging-rope
5) Bailing out the financial wizard that bought that mortgage in repackaged form
6) Bailing out AIG or whoever insured the exotic mortgage-backed security and attached a credit default swap
7) Bailing out the rating agency that gave the whole thing a AAA rating
8) Bailing out Iceland or whoever bought the repackaged thing after it was leveraged a few more times…