Irvine Housing Blog

The idea of overpaying for potential appreciation is one of the key ideas of the bubble.  My wife and I save between 15-20% of our income per year, mostly into tax-deferred accounts.  If our home was a better investment than what we can get in those tax-deferred accounts, why wouldn’t we take that extra 15% and put it towards our house payment?  I think that is what a lot of people were doing during the bubble. 

We would be in a tough spot if that is what we did.  If either of us got laid off, we could borrow against our accounts, or take a hardship withdrawal.  We would first stop saving, and have that cash-flow available.

The Banks as a group will not go bankrupt.  If we rescued Citi again, we will not let them go down w/o some serious malfeasance.  They have also built a good cushion of profits from the past couple years.  The best you can hope for is the too-big-to-fails shrinking and other Glass-Steagall-esque limits placed on their activities.

It might not be a bad idea to get a little counsel on the subject of “Tortious Interference.” Inducing someone to break a contract, even if the lender has recourse, is an offense. I don’t think you’re over the line here, but I’m not an attorney. It wouldn’t be a foolish move to go talk to one. I think the rules on this sort of thing require a specific contract rather than a general expression of the advantage of strategic default, but talking to someone who does this sort of thing for a living seems wise to me.

I have a local observation which may relate to the lowering of the limit on GSE backed loans. We live in a “nice” area of Sacramento County, demographically the highest educated, but not the wealthiest by a long shot. Houses come on the market at numerous price points, but they eventually clear at about $440,000; that or go quietly away. Last year that price was about $550,000. Having lived in the neighborhood for over twenty years, these prices are still too high, based on salaries. It is obvious to me we are in for a further leg down, and the GSE support drop is merely a way point. Sacramento’s market is highly dependent on public sector jobs, so we will have about a five year head wind, after the rest of the state settles. Kid’s, hang on to your assets.

SB

I’ve been reading (and sometimes commenting) on this blog since it started in 2006 and I was moving out of OC.  It has been so interesting watching you think things through, IR, and witnessing the path your thinking has taken you.  I don’t believe you could have written this article in 2006 (nor do I believe you would have thought it was possible).  This crash has been so surprising to even those of us who anticipated it (I sold in Turtle Rock at the peak).  I’ve very much enjoyed your commentary on the surprising actions of the banks and the public bailouts that are still occurring after all these years.  I don’t know what is going to happen going forward, but I do know it is going to be interesting and I hope that you continue to comment on it.

can someone explain this statement?

“inflation has eroded the value of money over the last eight years, so on an inflation adjusted basis, they are certainly behind those who rented instead.”

how does this imply anything about housing costs relative to rent?

60 billion settlement rumored:
http://www.calculatedriskblog.com/2011/07/report-60-billion-mortgage-servicer.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+CalculatedRisk+(Calculated+Risk)

Just hope that it’s not like the past class action settlement that counted discount coupons as part of the package.  Lawyer got rich, distubitors got paid twice, consumer got the short end of the stick (since consumers were not directly harmed by the price fixing, they had no legal standing).  IMHO, the consumers were the ones most harmed.  The distributer just passed the increased cost to the consumers as a cost plus pricing.  Many times settlements are used to protect the guilty.

“...Borrowers have moral responsibility to default on loans where the payment on an amortizing mortgage exceeds the cost of a comparable rental…”

Fair enough, but a scale might add value. How far beyond rental parity should you be before it’s your moral imperative to stop paying?

e.g. If your PITI+HOAs less tax-adjustment is 10% above comparable rent, is that sufficient? 20%? Where’s the line?

And what if that amount you’re paying above comparable rent represents a very small portion of your monthly net income?

e.g. If the difference between comparable rent and your PITI+HOAs less tax-adjustment is $250, and your monthly net is $7k, is $250 sufficient to stop paying?

Tough decisions…

With the economy as good as it got you have to expect bad things to be happening all over especially with loans.

Here it is folks!!! More stupid from gobbermint.

“Obama Administration To Extend Mortgage-Free Living For America’s Unemployed To One Year
“

http://www.zerohedge.com/article/obama-administration-extend-mortgage-free-living-americas-unemployed-one-year

Whhhhaaaa!!!!!! I want my gobbermint cheeze, but stupid me, I RENT!!!! Will the Awebamma give renters free rent for a year too????

Long time lurker, first time poster.  Absolutely love this site, and it’s insight.  But did anyone see this article.  Another kick to the crotch of responsible renters.  I don’t see anyone landlords pushing off rent payments if their tenants lose their job. 

http://www.latimes.com/business/realestate/la-fi-foreclosure-aid-20110708,0,1640816.story

Amazing how time can change one’s tune isn’t it? I made all these points 2 years ago when I entered the market of strategic default. I’m still in my home, but I’m one of the very FEW who not only qualified for HAMP, but am actively modified and paying a monthly nut. Granted, there was ZERO principal reduction (my $100,000 buffer was the large chunk of that) so I *will* default again in the future.

Yes, people called me evil and selfish, and can’t see the forest for the trees. Anyone in similiar circumstances with an OUNCE of financial sense for their security, will default before 2012 to avoid taxes. Have I ever seen an article that addreses this? Watch the default rate skyrocket as people realize they will be taxed on the losses. I lost $100,00 of my own money, do I get a tax dedection? Yea, that’s right the answer is no. F the banksters, and the politicians, from this day forward, I do what I can that’s in MY families best interest, good luck to those trying to peddle guilt. You can consider me one of the new age anarchists, I follow the laws I deem right, not what the gov passes or enforces.

A wise man would live the same without laws.

I received a HAMP mortgage modification from Wells Fargo in December 2010 after a 3-month trial period.  There was no principal reduction.  They simply refinanced me from my 5.625% mortgage to 4.375% (the prevailing 30-year mortgage rate at the time), kept the original loan maturity and started monthly impounds.  While I am underwater about $70k, I am not going to strategically default, because I believe that getting back in a few years down the road (I would do a short sale, not a strategic default if there’s a difference) will be much more costly given where I beleive mortgage rates will be at that time.  In addition, I likely won’t have the 20% down payment that will be required and the $300 I would save monthly from renting could easily be eaten up by a rent increase (inflation).  I’ll stick with my fixed mortgage payment.  Good luck to all.

I have held a theory that the class of people who lived high on debt would be the last to fall. These are a group smart enough to manipulate bankers into continual refinancing. For example, I have a friend who has 2 Mercedes, a racing Porsche and a Lamborghini. He lives in a very exclusive neighborhood and also has a beautiful summer home. Everything is financed. He lives paycheck to paycheck and the checks have been shrinking. There is no longer any place to get more refinancing. It’s just a matter of time. I live in a very modest home with 3 vehicles. The newest is a 2000. I also have substantial savings. My net worth far exceeds his. What a ridiculous world.