Irvine Housing Blog

How do the AG’s justify this very real outcome of principle reduction?

Two neighbors buy homes in 2006 for $500,000:

The irresponsible one (with Escalade and Jet Skis in the driveway) gets balanced reduced to $400,000.

Several years later they both sell for $600,000.

The iresponsible cry-baby that weaseled his way into a principle reduction walks away with an extra $100,000 (tax free).

How is this right?

It’s not surprising considering that the U.S has been marching slowly towards a total welfare state for the past 50 years.

Ever since the end of the cold war the U.S has lost its competitive spirit, more and more, we do just enough to get by. We need another “enemy at the gates” so to speak, to keep our wits constantly sharpened.

Let’s hope for the First Alien Invasion to occur, or a Zombie Apocalypse. In those type of scenarios, only the sharpest witter survive. Those not even smart enough to calculate whether they can afford a monthly payment on a home, will perish.

“Let’s say a borrower in Las Vegas owes $400,000 on a house currently worth $200,000—a common occurrence there. Let’s say the owner is given a principal reduction down to $200,000, but if they sell the house for a price between $200,000 and $400,000 the overage goes to the lender to recover the loss from the principal reduction. What that arrangement would effectively do is release the borrower from the property. They could sell without future financial liability, and if prices go up all the way to their entry point, they may even have equity again.

Of course, this approach would strongly encourage people who obtained principal reductions to immediately sell their homes. It would be far wiser to sell the house, buy one across the street, and keep the appreciation on that one. Hmmm…. I guess it doesn’t work after all…”

I think this does work (for the banks) if the balance is set to 10% - 20% above current market. The loan owner can either stay in the house making a payment until the market recovers, sell the house and cough up the deficiency to get out(I am sure this will rarely happen), or the owner stops making the payments and we are right back where we started. At that point FC and get it over with.

I know some loan owners that are way underwater but say that will spend their last penny to “keep the house”. For these poor souls, principal reduction is better then losing everything and still getting FC’d in the end.

This seems like a nice starter home at rental parity for a young Irvine couple.

Irvine continues to be the exception.
Today’s flipper/seller purchased it for $431K and listed at $497K
Assuming the net on this one is around $50K
It’s a 3-Month CD returning almost 12% 
Investor appetite remains strong.

What will happen to the housing market if the stock market turns down?

So called Quantitative Easing (hell of a term) QE1 and QE2 will now come to a close (as of June). IMO it’s been the major thing inflating the stock market for the past year. Like crack to an addict, bad things will happen when it’s unavailable.

One of the goals of all the so-called QE was to re-ignite the housing market. Didn’t happen. All the new cash went for equities and commodities.

Regardless of market conditions, this is such a poorly designed home.  3 floors for a two bedroom home? 
And the balcony over the garage?  You can scream obscenities at your neighbors as they park their cars:
“I fart in your general direction. Your mother was a hamster and your father smelt of elderberries!!”

Real uncertainity in the economy and housing prices coming.  The end of QE2 could spike rates near term or could lead to a fading US economy and stable or even lower rates in the near term. 

What is not uncertain is that rates will rise dramatically over the next 10 years.  Borrowing 4 billion dollars a day that we don’t have is not a recipe for stable rates regardless of what happens to the US economy - boom or bust. 

It seems to me that if we bust then we embark on QE3/4/5 and that only will weaken the dollar and drive rates higher later than sooner.  If we boom because of all of the cheap money then rates will sky rocket to keep inflation in check. 

We can only hope we thread the needle.  Housing has at best a long grind sideways.  This is exactly what happend in Japan after their housing / RE bubble.  Only they didn’t go sideways.  They are 50% off 20 years later just like our NASDAQ.  If you buy today be prepared to stay and pay! 

You will likely buy today on a 30 year fixed and pay down 18% of your mortgage in the first 10 years (this is what happens ...you live there for 1/3 of the mortgage and only add 18% to your equity)and sell to someone who has to borrow money at 3-7 percent higher and find out that your 1M$ house in 2011 is worth 775K$ in 2020. 

It has happened before (Japan) and will happen here.  It is just about the math.  Just figure out what you can afford on a monthly basis and then plug in 5% rates - this gives you your purchase amount after downpayment.  Then do the same exercise with 9% rates… Pobre Si!  Subtract 40% from asset value…. :(

If you disagree you must see huge jumps in your income coming - not related to inflation. 

BD

Anything that requires borrowed money will suffer as rates rise. 

Inflation is coming with much higher rates….

http://www.cnbc.com/id/42377057

BD

I know, I know… Irvine is different because nobody borrows money to buy their 600K apartment.  We shall see… 

BTW, guys have any of you just done the math??  I would expect public school people from Irvine to do it correctly.  That said, maybe this is not about intellect and more about hope and emotion.  Maybe a self-fulfilling prophecy??? 

Let’s see how that works out…

Planet Reality - you must be able to do math.  So what is your magic 8 ball telling you about future housing prices????  How wrong am I…??

BD

“In early 2010, i predicted the moral trepidation about strategic default would largely be gone from the American psyche.”

We’re definitely there.

Suze Orman did a segment recently on TV on the pros and cons for an audience member considering it. That’s as mainstream as you can get.

Trivia: 90% of Suze’s money is in idiot-proof tax-free munis.

Hey, they are doing this reductions for first time homebuyers and many others that bought their homes from a company that inflated prices and mislead customers. I bought my house for 149,000 mid of 07, today I can’t sell it for 100,000. I’ve tried, a lot. I say if your upset about it stick it up your piehole. People makin up hypothetical shit. I bet the person who listed their nieghbors financials have no idea wtf they are talking about. Prob tea partiers.

Your assumption that ANY and ALL principal reductions are both unfair and unworkable is simply wrong. This time, lad, U B not good.

First, for businesses this type of adjustment is routinely made in chapter 11’s. BK judges and trustees - for both the BK estates and the debtors - and the attorneys for the creditors ALL know how to do this, and they do it every single day in every state in this country. To say that it CANNOT be done is untrue.

Second, to assume that it cannot be MADE fair is, we admit probably true today in this political environment. However, financially, economically, and legally it CAN be made fair.

Take your low-down “no down” buyers, please. There is a simple solution to that problem - limit the amount of the principal reduction by the amount that was NOT put down, dollar for dollar, say below 20% down.

If the goal is to help keep people in their homes, that too can be addressed by a recapture rule, say 10% of the principal reduction per year - reversed, of course. You have NOT forced them to stay in the home, they can leave whenever they want; but if they try to take the money and run, they get cut off at the pass.

Third, what you do NOT address is the simple economic fact that for the investor who put up the money for the RE loan, a workable reduction program can SAVE them a ton of money.

IF the average decline in assessed values in Phoenix is 62%, which it is by the way; WHY is it in the investors best interest to foreclosure and take back a home that is now worth 38 cents on his hard dollar investment? Please, explain to NY Life, Allstate and all those other insurance companies, why that is a good or even a fair deal for them.

IHB, permit me to suggest/argue something slightly different.

That both HARP and bank loan modifications were never intended to work. And, Jamie Dimon is not refusing to do them, bcuz he hates U.S. - he probably does, but that’s not the reason.

If a servicing bank forecloses, they do NOT have to immediately pay that money to the investors. They can and do re-invest it. And, all of the interest and the profits from those re-invested funds are ALL retained by the servicing banks.

Not only do they not have an incentive to modify, they have a very powerful, if immoral, reason not to do that.

And, in addition, they do not have to write down the RE loans on their own books. Were they to do that, they would impair their “capital” and need to charge you even more late fees, penalties, interest, etc. Or, they would have to sell shares to buy enough “capital” to stay under SEC and FDIC limits.

Bluntly, until they have “papered over”, as in “covered up” all the loan losses they do have, but have not written off or down, they cannot afford to DO principal reductions. Geithner knew that, even if Barack did not. And, HAMP was not designed to force them to - only to stall U.S. out long enough for the Big Bad Bailed-out Banks(ters) - the BBBB’s, pronounced like in “bee-bee” brains - to squeeze out of U.S. the funds they needed in order to survive.

We were intentionally skewered(sp)!