“Despite these real world problems, it is important to have an adequate budget for the actual cash demands of the transaction and the move in plus the cash reserves to survive after the fact. During the housing bubble, people could rely on house price appreciation to furnish the house, fund all repairs, replenish an emergency reserve fund and provide additional spending money. Over the next decade or more, houses will provide none of these things; the money will need to come out of wage income. Few are prepared for this reality, but now you know what you are facing and how much this will all cost. “

A particularly common type of homeowner will still hope to be bailed out.  By their bank, the Federal govt, rising real estate prices, low interest rates, or an inheritance. 

It is remarkably difficult to store value, or reliably get a rate of appreciation higher than inflation.  One of the things worrying people who are actually paying from their own wages is where to put the money so it doesn’t lose value.

Is the VA still doing 99-100% LTV loans?  That would be another option for some, besides the FHA loans.

Is Irvine any different than Sonoma? From Calculated Risk:

Alt-A Foreclosures in Sonoma

The Press Democrat: Alt-A loans: Second wave of foreclosures ahead (ht Atrios) reports that there are 18,000 Alt-A mortgages in Sonoma County (about 18 percent of all mortgages). This is a larger percentage of mortgages in Somona County than for subprime - which accounted for about 10 percent of all mortgages in the county at the peak.

According to the story - using First American CoreLogic as a source - about two-thirds of these Alt-A loans will see a significant payment increase over the next few years, with recasts peaking in 2011.

Second, most of those Alt-A loans were in mid-to-high priced areas. So the foreclosure crisis will now be moving up the value chain. But unlike the low priced areas where there are more potential first time buyers and cash flow investors waiting for prices to fall, demand in mid-priced areas usually comes from move up and move across buyers. Since a majority of the sellers in low priced areas are lenders (DataQuick reported 57.1 percent of sales in Sonoma in March were foreclosure resales), there will be few buyers for these Alt-A foreclosures.

Parents just closed with 100% VA loan.

Awesome post with many great charts from Mish:

Mortgage Meltdown, More Pain To Come

I hate to say this but I’m beginning to see a lot of cry wolfs around here. April came and went and nada. May came and went and nada. We’re in June now. How many more months before we throw in the towel and say that the US Government has succeeded in stopping the housing price from receding further?

Can’t beat a currency printing machine, I tell ya. You need a dollar, I got a trill for ya soon. Sigh.

You obviously need to take another look at this chart: 

You see that trough in the middle of the two big reset periods?  #25 is February 2009.  Which means that #27 (the lowest point on the graph) is April 2009.  We are currently at the point with the fewest mortgage resets between January 2007 and about November 2011.  That’s why people are saying the worst is still to come.  Unless all those people with ARMs waiting to reset were able to refinance they are about to see their payments skyrocket and they’ll lose their homes too.

Sorry, I didn’t realize that would post inline.

The worst part is the ammunition being used by the gov’t in this battle, is diluting our currency, expanding our debt and creating a gov’t takeover (opportunity) of private industry.  We’re going down the wrong path.  It’s absolutely outrageous!

BTW, it’s pretty sad when the former commies start preaching to Americans about our new found “Marxists” ways.

Chris,

I think your observations explain much about the current behavior of the stock market. The excess liquidity being pumped into the system is making stock prices go up when there is no underlying reason for prices to rise.

If you look at housing prices in markets all around us, particularly to the east, price have not been supported and they have crashed to cashflow investor levels. The high end and the most desirable areas always crash last.

I will throw in the towel and say the government “saved” Irvine if prices hold up after the loan resets have run their course and the foreclosure problems are behind us. Until then, nothing has been accomplished other than delaying the inevitable.

Are you sure this home was a refinance, and not a sale to a new owner in 2007?  I thought I saw this home as being a private sale (ie. not through a realtor) in 2007?  Could that be possible?

tjwilliams hit the nail on the head.  Any more recent data, so may have changed from the ARM to fixed during the last 2 years (Jan 2007 chart shown). 

IR, Any charts on how Irvine homes were purchased?  Cash, Loan type, percentage, current delinquency rates in major area of town , etc.  I think the keys are %homes (not %loans) that are delinquent that will affect price.  The %loans delinquent will affect bank profits or taxpayer bailout expenses.

On Sunday, I went to the new Korean shopping center on Jamboree.  The restraunts were packed.  South Coast Mall in Costa Mesa was a ghosttown on my last visit during the weekday.

“When a realtor takes a short sale listing, they know they probably will not make a commission from it. You can tell because the listings have no money and less than 5 minutes time put into them, just like this one.”

Is this because short sales don’t usually go through?  Why do people do these listing then?  What are they trying to accomplish?

The listed owner has not changed. If there was a sale, it would be reflected in the property records regardless of whether or not a realtor was involved.

Most short sales do not go through. By the time a short sale amount gets approved by a lender—if they approve it at all—the buyer has long since moved on to a different property. Also, by the time an amount has been approved, the market has dropped and buyers are not willing to pay the short sale amount.

Sometimes lenders want to see a house listed for sale before they do a loan modification. Some owners list houses as short sales in hopes that their losses will be minimized if the lender comes back at them for a deficiency.

I don’t have any charts or aggregate data, but we see these listings every day, and we know the amount of leverage people are carrying. Also, none of these loans will be eligible for loan modifications, so unless people can really afford these debt levels from their wage income, there is going to me a large number of foreclosures.

IR, I believe a major difference between the two areas is that Sonoma consists more of vacation home or 2nd home purchases whereas Irvine is more of a primary home purchase area. 

That would lead me to believe that the Sonoma properties tend to get unloaded first as economic conditions deteriorate.

TJ, informative post but it assumes that all mortgage resets will result in distressed homeowners.

I know plenty of folks with ARMs that are in good financial shape and use these financing methods for various reasons.

Personally, I just sold a property that I had an ARM on and when it reset the interest rate actually went down.

Inflation-protected treasury securities - low return, but zero default risk and zero risk of inflation.  www.treasurydirect.gov

Go for the inflation-protected savings bonds, and the interest is state tax free AND can be deferred until the bonds mature.

I hate to say this but I’m beginning to see a lot of cry wolfs around here. April came and went and nada. May came and went and nada.

Seriously?

Look around the country.  Job losses have gotten worse, foreclosures are up, and the pain is beginning to spread to prime borrowers who are currently burning up their savings and waiting for conditions to improve.  How long can they hold out?  Another year?  I doubt it for most of them.

California has a pretty nasty unemployment problem and the government has bankrupted the state.

By printing a bunch of money, the only thing being saved are banks - not house prices.  The government will see to it that the banks get back every penny. However, that does not mean that they are going to turn around and go back to loaning it out via time bomb mortgages to unworthy borrowers with 0 chance of repayment.

I see.  Also, it seems that the owners did not pay their 2008 property taxes. What is the impact of not paying property taxes?  Is that related to the short sale?  Has the owner defaulted on their mortgage payment as well?

There has been no NOD filed, but if they are delinquent on their taxes, they may already be delinquent on their mortgage. We will not know until an NOD is filed.

If you do not pay property taxes, the taxing authority will issue a tax lien, and if you don’t pay they can foreclose on the property.

————————————————————————-
Off the Charts
Troubled Bank Loans Hit a Record High

Published: May 29, 2009

OVERALL loan quality at American banks is the worst in at least a quarter century, and the quality of loans is deteriorating at the fastest pace ever, according to statistics released this week by the Federal Deposit Insurance Corporation.

The report highlighted that even as the government and major banks have scrambled to deal with the impaired securities the banks own, the institutions have been plagued by an unprecedented volume of old-fashioned loans going bad.

The problems stretch across nearly every category of loan, and every size of bank, although the loan problems appear to be somewhat less severe at smaller banks.

One area that could get much worse is loans on commercial buildings, including stores and offices. Just 4.01 percent of such loans are troubled, less than half the peak of the early 1990s. A large number of those loans will need to be refinanced in the next few years, however, which could be impossible where real estate values have fallen sharply.

The F.D.I.C. reports that two-thirds of the banks that paid dividends in 2008 either reduced or eliminated their dividends in the first quarter of this year, a sign of the stress being felt even by banks that have raised new capital. Until the tide of bad loans begins to ebb, banks may be hesitant to take on much additional risk by making new loans to risky borrowers.
————————————————————————-

So perhaps they are just trying to get a modification on their loan? How easy is it to get a loan modification?
What is the process for getting a loan modification, and is it worth whatever the negatives are?

Perhaps we will see a lot more people trying to do this strategy if they are underwater? If that is why this home is listed, then I would be surprised why more people are not doing this.

Current inventory is being depressed by the loan mods as well.  Fitch just predicted that 75% of the mods under the NEW government plan will re-default.

“...Can’t beat a currency printing machine…”

I don’t think you need to worry about winning or losing.  Can you buy a house you want, at less than 2.5x your income, for a monthly outlay around or less than the equivalent rent?  If not, then you don’t need to worry about whether the feds are winning.  You’re living your life making the best financial decisions you can with the info you have available.

Most of the resets are going to result in a lot of screwed borrowers.  Most of them would never have taken out such a stupid loan in the first place if they could afford the 30 fixed.

The ARM’s have their place - but normally to a very select crowd; nothing like the number that were originated during the inflation of the bubble.

Just look at the relatively small ratio of subprime borrowers that caused the credit market to freeze up:
“In the third quarter of 2007, subprime ARMs making up only 6.8% of USA mortgages outstanding also accounted for 43% of the foreclosures which began during that quarter.[19] By October 2007, approximately 16% of subprime adjustable rate mortgages (ARM) were either 90-days delinquent or the lender had begun foreclosure proceedings”

It’s now being reported that prime defaults have doubled in the past year:

Foreclosure wave sweeps up good credit
ASSOCIATED PRESS
Posted: 05/28/2009 03:33:19 PM PDT

The impact has now filtered out, consuming homeowners who until recently had a good track record of paying their bills on time. Nearly 6 percent of these prime borrowers with fixed-rate mortgages were past due or in foreclosure, nearly doubling in the past year.

It’s not going to be pretty if this is just the beginning.

Well, to be fair, this is the same news media outlet that provides us the educational tour de forces of:

1.  Fishermen Catch Squeaking Alien and Eat It
2.  France Unveils Secret Alien Images
3.  Worst Prom Photos Ever

and, let’s not forget:

4.  Most Women do not Understand a Thing About Men

This, of course, is a serious news outfit.  On the other hand, they have nice pictures of Carmen Electra

Chuck Ponzi

The worst part is the ammunition being used by the gov’t in this battle, is diluting our currency

Diluting morals too.  It matters more than most people think.

I don’t agree - -I lived in Sonoma County for years, in Sebastopol and Occidental, and I didn’t see many vacation homes in the County- - not like Florida, Newport, etc.

There are a few different issues here all related to the same problem - people borrowing too much money or banks lending too much easy money depending on which side of the coin you prefer.

  Prime borrowers in economic distress who have run through their emergency funds are defaulting.  Its hard to tell how many borrowed imprudently and how many just were hit hard by the recession.  Default rates are going very high during this recession but default rates will rise during recessions.

  The Alt-A crowd is a little different.  Since you become Alt-A by wanting to borrow more money than you have capacity to justify; they either borrowed imprudently or (very rarely) can’t document a significant source of income.  The doom assumption is any reset upward in rates or recast of option-ARMs from negative to positive amortization will push these borrowers over the limit.

  The big question is - how many Alt-A loans have already defaulted.  I know a few amateur flippers who considered home remodeling to be their large undocumented source of income justifying Alt-A loans on speculative properties.  These loans don’t make it to the recast date - when the flip doesn’t sell, the loan defaulted quickly because the flippers lack the financial resources to hold the property for a year or more.  I’m curious how many of the grani-teel kitchens already appearing in REOs are the second wave pushed forward.  Irvine doesn’t have many sub-prime loans so it wasn’t hit like the IE which had a mass of borrowers who needed to refinance into a new teaser rate every 2 or 3 years.  I think we have been seeing the failed flips and massively over leveraged MEWers in IR profiles which are that second Alt-A bubble pushed forward.

  Prices will continue to be pushed down in higher end neighborhoods.  There are few move up buyers and the economy will keep pushing more borrowers into foreclosure.  The Prime market is much larger than Alt-A or Sub-prime so even small default increase really hurt home prices and lenders.  I’m not sure there still is a massive wave of Alt-A driven foreclosures coming; so much of the air may already be out of that balloon that it can’t give a huge bang.

I’m going for a mod right now. I’ll let you know how it goes.

“Lenders such as Wells Fargo are now requiring 20% down and asking for 40% of the Loan Value in savings”

source: WestsideREmeltdown blog

General question:

I went to an open house a couple of months ago for a house where they were asking $425,000.

Today I look on Zillow and Zillow lists that the house sold for $485,000.  Is it possible that this house really got bid up $60,000?  Also, it lists the transaction date as 5/12/09.  Generally it seems like Zillow takes much longer than 3 weeks to update a sale.  Is it possible that the realtard is playing some kind of game here?

http://www.zillow.com/homedetails/3249-Calle-Quebracho-Thousand-Oaks-CA-91360/16478486_zpid/

This is a very good point.  I don’t know what’s going to happen with Alt-A and Option ARM resets.  I was more responding to the argument that because housing prices appear to be doing better, that we must be coming out of it.  In fact, housing prices should be doing better because we are currently seeing far fewer ARM resets (though one might argue that with low interest rates we should be encouraging more refinancing).  I’m not trying to predict anything as much as to suggest that we not call an end to the housing crisis just yet.

I’m still trying to figure out who is able to afford these very basic, 3+2 1400 sqft houses built in 1980 that are getting sold for $500k+.

The property I just unloaded in Irvine got bid up by $25k.

I don’t know about the Valley but my realtor claimed homes she was trying to make deals on the lower-end there (maybe the one you mentioned qualifies) were being bid up significantly.  I think it’s just the low interest rates driving demand at this point.

Good Point Charlie.

We have a thread going in the forums on people we know who are at risk of foreclosure. Based on what many people have written, it is safe to say that the vast majority of over-leveraged homeowners are still in their properties in better areas.

Most sophisticated borrowers have multiple lines of credit any many more resources they can draw on to get through a downturn. Unfortunately, when it isn’t a downturn and it is a deflation of an asset bubble, it doesn’t matter how much credit you have available because you can’t wait out the downturn. Waiting out a downturn means things must rebound, and this time, they will not.

Since people cannot wait out the market, the additional borrowing just adds to their solvency problems. Eventually, they have to give up because they cannot Ponzi borrow forever. The problem of excessive debt cannot be solved by inflating asset values, it can only be solved by a reduction in debt. Debt reduction is only going to occur by short sale, foreclosure or bankruptcy.

The high end is going to get flattened because they cannot afford the debt, and nobody who can afford the debt is going to come forward to buy them out. It’s over. The Ponzi Scheme has crashed. It is only a matter of time before this is fully reflected in prices in all neighborhoods.

Don’t forget about the interest rates.  They are so low right now; it’s a total joke.

It’s a knife catcher’s market.

People who bought a long time ago with plenty of equity can slash their prices way below the underwater debtor next door and find a knife catcher. 

They can then take their six-figure bubble money and put it down on another house.

Ultimately, it comes down to the little guy at the bottom of the pyramid who thinks he is getting a steal of a deal and in-turn over-borrowing.  He just has to come up with 50-60k to put down (which is going to evaporate before the ink on the contract dries) to keep the wheels of the machine spinning.

I am guessing that Irvine does not have very many first time buyers.  I’d hedge my bet that the majority of buyers come in from outside using equity bubbled up and enabled by a knife catcher elsewhere.

Not sure what the official process is, but if I were to guess - I’d think that it is as simple as:

1.) Stop paying your mortgage
2.) Wait for the mortgage people to call you
3.) Tell them you aren’t paying unless they work something out.

It has worked for some people so far.  The banks are desperate to keep their slaves inline.

SF Chronicle article on excessive public employee pensions - how will California ever be a financially viable state with this going on?

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/06/01/BAN017TOP0.DTL

I thought the above house was nice, but definitely had some flaws.  I thought it was overpriced at $425,000.  I always think back to the beautiful house my parents bought in 1993 for $450,000 to think what a $400,000 house should look like.  I need to flush that out of my mind.

How flat?  Flat enough for the average, broke, financially irresponsible American to buy outright with cash?

This is what I’m having a hard time seeing. I think inflation will kick in long before the banks start freely lending again. What if inflation will force people to borrow again….( just to survive)?

I don’t see the typical “over-consuming American lemming” jumping into debt again in the near future.

Funny, my parents bought their Irvine home in ‘93…I think they paid $320k or something and when I bought my Irvine condo in ‘02 it cost nearly as much…I felt like I was getting ripped off.

I never believed it more than after rereading your post on the ARM resets and recasts info. This little fix was a phase of the knife catchers and owners trying to bail on their debt. This fall we should see much more carniage as those who could not sell or refi have to walk away. Those desperate to sell better do it now, housing is only going down with mortgage rates increasing. The fed can only hold them down for so long I fear.

“The excess liquidity being pumped into the system is making stock prices go up when there is no underlying reason for prices to rise.”

It’s happening to many commodities too.

All this speculative liquidity creates more tension in the markets, kinda like an earthquake fault, and when the reversal happens (and it will), it causes markets to correct with more momentum and fury.

The most egregious pension problems are in police and fire, and especially in the management ranks.

Do you know that when a policeman retires, he gets a pension on the amount of his uniform allowance, with the taxpayer picking up 37 cents on the dollar and the cop paying 3 cents?

Other government employees, like teachers, pay half the cost of their pension contribution, and aren’t eligible for Social Security payments on earnings they made in the private sector.

Prison expenditures are the only part of the California operational budget that has been growing faster than inflation and population growth. Prisons were 5% of the budget twenty years ago. They’ve doubled to 10% of the budget.

Is Irvine any different than Sonoma?

Yes, the Alt-A problem is worse in many parts of Irvine.

Don’t worry about anything! The stock market is up! Just turn over all of your money to the investment bankers, and all will be well.

The article mentions these retirees making 100k+ are executives and department heads.  What exactly do you think retired executives make in the private sector?  How much do you think Mssrs Prince and Pandit will make for the wonderful jobs they have done? Lets get the pitchforks cause someone who spent 30-40 years as a police officer, and wound up as head of the equivalent of a medium-sized corporation, does slightly better than the median Irvine resident.

Blueberry Pie and OCKurt:
Both of your parents bought on the price downslope in 1993. They were about as lucky as today’s knife catchers are unlucky. So don’t despair. 1993 prices and 1999 prices were close in absolute terms. Today’s prices will decline to 1998-99 or very close before this is over.

I never said that the housing prices appear to be doing better (that would imply that they’re starting to **increase**).

What I’m implying is that the bleeding has been **slowed** substantially even though it is still bleeding somewhat in a few parts of places where a lot of folks such as myself are not interested in *****buying*****.

Frankly, until I see more desirable places with more desirable housing (SFHs would come to mind….NOT condos) start to take a shitdive, I ain’t buying this “more mortgage holders are screwed” argument for now.

Not sure about CA, but in FL it takes a long time to get the tax lien process started.  Usually the delinquent taxes are taken out of the escrow from the short sale.  So basically, the bank agrees to pay the taxes.

They were going to have to pay them anyway.

They used to have zero default risk…  Who knows if they still do? 

Zero risk of inflation?  Assuming you trust the government not to cook the books on the CPI numbers….

Underwater generally equals no loan modification.  The Obamamod requires something around 110% LTV or less.  That’s why the mod plans are basically crap for the really troubled homeowners.

I don’t know, David!
But why are still WTF prices in Irvine?  Why are still people buying?
I guess there could be more knifecatchers out there than we thought?
Or maybe they just buy.  And if a few months down the road, if they can’t pay, the government will step in to rescue them… Or so the thinking goes?
The property taxes are way too enticing to our government to let the prices fall.
After all, with all the permanent job losses, the income tax revenue is now in the toilet.
The only thing left for these legal robbers to grab: property taxes!

“Lets get the pitchforks cause someone who spent 30-40 years as a police officer, and wound up as head of the equivalent of a medium-sized corporation, does slightly better than the median Irvine resident.”

Oh please!  Are you kidding?

For a person to receive $100K per year from the interest of their savings (comparable to a pension), they would have to save up about 10 MILLION dollars!  Few executives have this stockpile, regardless of the company size.

Get out the pitchforks indeed.

It’s not the rate resets that are causing the trouble, it’s the recasts as these alternate financing schemes recast to amortizing payment schedules.

IR, thank you for your response. I appreciate your insight into this liquidity and your “throw in the towel” argument which I think is legit. Until then, we have to hold our breaths and wait for things to materialize.

I’m neutral at this point wrt Irvine housing price in more desirable areas.

But one thing I have to admit: it really sux to be holding cash in a ZIRP environment. So much for being a conservative saver.

With Mark to Fantasy, there’s no need to rush foreclosures (just ask Fed to pump more cash into the coffer). Anecdotal evidences suggest that NODs are not spiking up (growth) like what we have witnessed back in 08 for both April and May.

Sure there are still foreclosures. The key is *spike*. If there is no growth in foreclosure numbers (and massive spike to boot), MSMs are happy.

Why do you think I said both months came and went without a peep?

BTW, that NYT reporter didn’t pay his mortgage for 8 months (and counting). Sure makes renters look hella stupid (especially renters in NOD/NOT homes).

“One area that could get much worse is loans on commercial buildings”.

And SRS should have been in the $200 range by now.

How many times that statement have been printed since 2008?

And General Growth Property declared bankruptcy a few months ago….and life goes on as usual.

Like I said, until I see greater anecdotal evidences (and look at SRS’ current price), I ain’t buying that crap.

“Still have a life” is a key point in this post, and I’m glad you mentioned it. A lot of people don’t realize you can get approved for a loan that’s too big for you. Thanks to the secondary mortgage market, that kind of thing happens all the time. Step 1: Determine your own budget. Step 2: Get a mortgage loan. Step 3: Do not exceed the budget you set for yourself in step 1.

Nice job keeping your audience informed. Keep up the good work! ~Brandon

So if these people in 75 Trailwood did not pay their property taxes, then perhaps they are not trying to change their loan terms.  They really can’t afford to live in this house.

IrvineRenter, it looks like they pulled the house from the market.  So they are not really trying to sell this house. It looks like you were right, they are playing some game with their bank since they can’t afford paying property taxes and likely can’t afford their mortgage.

Unless there is more they are trying to do?

You were! Sorry for your loss.

None that I know of in mid-management ($80K to $200K) and below.  Most are not even in a traditional defined benefit pension plan anymore.  Most are on a 401k with a 3% to 6% employer matching contribution.  The management is salaried and not paid overtime (about 10-20 hours per week of unpaid overtime).

The top 4 people in S&P500; companies take about ~10% of the company’s profit as pay and bonus.  They usually have separate pension plans that make the CA state retirement plan look cheap.

CA needs to declare BK to reset the pensions.  The auto, airline and other industries used that route to reset the pensions.  The line workers in the auto industry just got knifed.  The auto union officials got their BO payback, but the line employees got theirs in the other end.  The banks are also getting their payback from BO, but the taxpayers are also getting theirs in the other end.

VA 100% LTV..  FHA 3.5% DP..  H2H..  $8,000 tax rebate
Here In Jax Fla, there is a newer product, H2H Program. It’s for 1st time home buyers.  Down payment assistance based on household income. up to $14,999.  Amazing isn’t it?!!..
I sell condos for “Big Am. Builder” and most of our Condo sales now are H2H.
OH, and best of all, the $8,000 tax rebate can now be used for Down payment and/or closing costs.  NO SKIN IN THE GAME !!!
These WONDERFUL ideas should delay any correction for many more years…  :(

The whole point of pension is to generate income til the retirees dies, the heir(s) are on their own.  So why are you counting interest income only

So the need for nestegg is much smaller.  You can buy $100,000 life annuity from a private insurance company for less than $1.5 millions.  With some survivor benefit or COLA adjustment build-in, bump it to about $2 millions.

I know many mid-level management in private sector with that level of nest egg.

Thanks so much for sharing this article and video to us, I’m sure it’ll help more people like me face the reality of home buying and take it more seriously.