Irvine Housing Blog

“...Anyone who is underwater and paying more than a comparable rental would likely benefit from strategic default. It largely depends on how far underwater and how much the rental savings would be…”

I think there’s a relativity component to this statement too.  How far underwater you are relative to your household income and/or assets matters; and how large would the rental savings be relative to your household income and/or assets.

If you’re underwater an amount larger than your annual household income, you should strategically default.

But what if you’re underwater an amount equivalent to half of your household income or less and you have that same amount in a savings account?

e.g. A couple earns $100K and has $25K in savings. The only debt they have is a mortgage at $200K. Their house is worth $150K today.  Should they default?

I am of the opinion (for whatever it’s worth) that they should NOT default, for the simple reason that they are probably very close to rental parity.  If they were to default they would not be able to buy something else.  Maybe they could refinance. They probably cold not rent something, either, for the same price as their mortgage payment.

I can think of people who were underwater during the last downturn and held on…real estate did come back.

IrvineRenter: “Banks would love to punish strategic defaulters, but in reality, this group is creditworthy and economically savvy.”

Honestly, I disagree. Strategic default does not make Ponzi borrower creditworthy or economically savvy.

IR:

Here’s an idea for a future post:

Vallejo has 1 paid City Hall employee left, and Mayor Reed in San Jose says he has contemplated the same result in San Jose.

Has TIC/Bren’s control of Irvine improved city mgmt and reduced the likelihood of city bankruptcy due to pension abuse?

>Mr. Wittenberg lives in his girlfriend’s house in Walnut Creek<

Wow, I’m under credit(house) arrest in one of the world’s best suburbs, living with my bed buddy. And I don’t even need a foot warmer.

It coul be right out of SNL, if anyone connected with SNL had a triple digit IQ.

The lenders have met their match, and they is us, their borrowers.

Mr. Wittenberg took the advice of the relocation company to buy a place during the high of the bubble.  Some relocation companies get a percentage of the total cost for relocation.  Do you think there is a conflict of interest? 

More buying = More fees

Most buyers are underwater right when they sign the papers.  It’s roughly 8% cost in selling the house/condo. 

I fully agree the the post that how much underwater is a major factor.  If free markets were at work, the lenders would be held responsible.  The liabilities are being passed to the shareholders or to the taxpayers because of the bailouts and refinancing using govt gauranties.  It’s more of reward the guilty and punish the innocent.

This bubble is likely to be repeated for history shows the profitability of bubble creation. 

Tulip bubbles have not ended.  No one seems to learn their lessons.

Humor for the day:

“Calling the consulting fees “Gingrich Group’s earnings, not my earnings,” the former Speaker of the House tried to distance himself from the firm at which he earned millions of dollars in the years since he has left office.

“I didn’t take it,” he told reporters of the fees Gingrich Group earned from Freddie Mac. The funds “weren’t paid to me as a candidate,’’ he explained.”

Apparently Newt Gingrich has received over $40 million in “advisory fees of a historical and policy nature, not lobbying”, yet denies receiving the money.

Same guy with a million-dollar line-of-credit at Tiffany’s.

Gingrich distances self from Freddie Mac

It’s back ...

“Congress passed a broad spending bill that included a provision to restore to $729,750 the maximum size of mortgage that can be backed by the FHA, giving some borrowers the option of putting less money down to obtain a mortgage in expensive cities.”

“FHA-backed loans currently account for a third of new mortgages for home purchases and can be made with down payments of as little as 3.5%, compared with the 20% industry standard.”

WSJ: Congress Increases the Ceiling on Size of Mortgages

I have a pretty good story.  Bought my house in 2006 with 0 down (80/20 100% loan with a balloon on 2nd).  Once I figured out they house would still be worth less than half the mortgage by the time the balloon was due I stopped paying.  Saved every penny and paid 56k cash with the help of a 401k loan for a modular home 15 minutes away from my house in foreclosure early 2010.  Fixed up the house and yard in the new place and moved in July of 2010.  Finally completed a DIL on my house in June of 2011.  This was and probably will always be the best financial decision I made in my entire life.  I made at least a million dollars the day I stopped paying my mortgage over the long term.  If I manage my money reasonably it will probably be a lot more than that.  Numbers

2006-2008
FICO 810
Total Debt 450k(car, student loans, mortgage)

Mid - 2009 180 days late
FICO ~590

2011 - After DIL completed
FICO 730

Total Debt ($9500 Student Loan @ 2.5% + 5k Loan to myself in 401k)

Assets (House + Car owned free and clear ~ 1/2 years salary in bank)

For anyone who is a afraid to do this, these are the kind of results that are not that hard to acheive as long as you are disciplined with your money during the foreclosure process.  With how cheap property is if you are paying 3-4k per month for your mortgage you can find deals for cash in a lot of areas.  I’m sure a lot of people think its unfair and they might be right, but had I decided to keep paying the mortgage I’d still be stuck with $0 in the bank and a 400k note with a balloon payment I’d never be able to make in the next few years.