Jingle bell, jingle bell, jingle bell rock
Jingle bells swing and jingle bells ring
Snowing and blowing up bushels of fun
Now the jingle hop has begun

Jingle bell, jingle bell, jingle bell rock
Jingle bells chime in jingle bell time
Dancing and prancing in Jingle Bell Square
In the frosty air.

What a bright time, it’s the right time
To rock the night away
Jingle bell time is a swell time
To go gliding in a one-horse sleigh
Giddy-up jingle horse, pick up your feet
Jingle around the clock
Mix and a-mingle in the jingling feet
That’s the jingle bell,
That’s the jingle bell,
That’s the jingle bell rock.

Jingle Bell Rock — Bobby Helms



When I first started blogging about the housing debacle, some of the more bullish commenters would bristle when I suggested that a great many people refinanced all their equity out of their homes and would end up in foreclosure when prices went south. I have already profiled some pretty egregious HELOC and refi abuse on this blog, but today’s listing sets a new standard.

24 Westlake Front 34 Westlake Kitchen

Asking Price: $1,618,800IrvineRenter

Income Requirement: $404,700

Downpayment Needed: $323,760

Purchase Price: $870,500

Purchase Date: 12/11/2002

Address: 34 Westlake, Irvine, CA 92602

First Mortgage $696,000
Second Mortgage $699,900
HELOC $436,700
Total Debt $1,832,600
Total Cash out $962,100

Beds: 5
Baths: 4
Sq. Ft.: 4,000
$/Sq. Ft.: $405
Lot Size: –
Type: Single Family Residence
Style: Other
Year Built: 2002
Stories: Two Levels
View(s): Park or Green Belt
Area: Northpark
County: Orange
MLS#: S514550
Status: Active
On Redfin: 10 days

From Redfin, “Executive luxury home backed to tree-lined greenbelt, elegant wrought iron staircase-distressed hardwood flr entry, main flr bedroom/bath, huge kitchen w/ center island, granite, maple cabinets, butler’s pantry, wine compartment, built-in media center, surround system, decorator paint, shutters, crown moulding, French doors, large upgraded master suite w/ extensive wardrobe organizers, backyard w/ built-in BBQ, fireplace, ref/sink, garage w/ epoxy finish, cabinetry, resort ass. amenities”

Resort ass? Is this the person you fool around with when you are on vacation?



This house was purchased 5 years ago, and these people have already taken out at least $525,400. If they have also maxed their HELOC, then they have taken out an unbelievable $962,100! That comes to $192,420 per year of additional spending money. If their house were a W2 employee, it would have been making over $300,000 a year to generate that kind of take-home income.

So how bad is the bank going to lose on this one? Assuming they maxed their HELOC, they get their asking price, and they pay a 6% commission, the lender will lose $310,928. For the lender’s sake, I hope the owners have not tapped their HELOC.

Do you imagine these sellers think they are rich? After all, they probably make around $200K, and they have been spending as if they make $500K. Only rich people do that, right? As the housing bubble continues to deflate, we will all see who was pretending. As Warren Buffet said, “Only when the tide goes out do you discover who’s been swimming naked.

I wonder how well they will adjust to the 50% drop in spending money and being cut off from credit after the short sale?

178 thoughts on “HELOC Abuse

  1. Laura Louzader

    This fills me with hot, flaming,acid rage.

    Here I sit, on a modest income, dutifully paying down CC debt, struggling to save for a downpayment against ratcheting inflation in everything I buy while my management job in the finance sector (that I wish I’d never heard of) is closer every day to being wiped out, and there are fewer jobs to replace it, thanks in no small part to the rampant fraud and insanity of the past 6 years.

    As I said in comments on your previous post, this is bank fraud, pure and simple, and ought to be treated as such.

    There is no way these people acted out of stupidity and naivite. Nobody is this damn stupid.

    I believe the overborrowing was done cynically and that there was never any intention to repay, from the start.

    These people figured that if the house increased in value, then great, they could pay it off.

    But if the house did not increase, well, they got $900K cash out of it. Do you think they will pay that back? If you do, I have a great deal on a bridge in St. Louis you can build $1.5MM townhouses on, to sell you.

    What will happen is that these scum will get to short the house, and they now won’t even have to pay taxes on the deficiency that results. They will have gotten $900K cash for doing nothing but running up debt that I feel sure they never had the first intention of repaying.

    How many lies did they tell on their loan apps to get a 2nd AND a HELOC that together equal 2x the original mortgage?

    It would be very curative to start prosecuting borrowers who lied flagrantly about their incomes and assets in order to obtain this type of financing.

  2. IrvineRenter

    “Nobody is this damn stupid.”

    Strange as it sounds, I would not be surprised if these people really believed their house would go up in value forever, and if they got behind in their payments, they would just refi into a lower teaser rate or sell the house. The kool aid was free flowing during the bubble, and nowhere was it more potent than Irvine.

  3. IrvineRenter

    I never stopped to consider that. The money comes to them tax free, they get to write off the interest on the debt, and when they stiff the bank later, they will probably not have to pay taxes on the debt forgiveness as Congress is working to change the law.

    It was not just free money, it was government-subsidized free money.

  4. Gray

    “There is no way these people acted out of stupidity and naivite. Nobody is this damn stupid.”

    Except the lenders, of course, who approved this ridiculous HELOC at a time when it should have been clear to reasonable persons that the raise of appraisals couldn’t go on for much longer. Well, I’d like to know how many staffers at mortgage companies actually were deliberate accomplices of those fraudsters. Or are there really so many cases of criminal stupidity in that business?

  5. Atrios

    I’m kinda-sorta in favor of giving a tax break on certain kinds of mortgage debt relief, but not for HELOC relief.

  6. awgee

    The mortgage interest deduction is limited to $1,000,000 in purchase debt and $100,000 in HELOC debt for a total of $1,100,000 maximum. And in real life, their mortgage interest deduction was limited by AMT and high income threshold to be much less than $1,100,000.

  7. Gray

    “How many lies did they tell on their loan apps to get a 2nd AND a HELOC that together equal 2x the original mortgage?”

    This is an interesting point, because this shows that people in financial business don’t care anymore if the security will cover the credit in a worst case scenario. Everything was only about if the borrower’s paerpwork make it look as though he could afford thze monthly payments. Obvioulsy, even when hundreds of thousands od dollars were at stake, nobody bothered to do any background check (which would have exposed the fraud in most of the cases, imho).

    Hmm, I have severe problems understanding the lender’s mindset behind this. Of course, they were not gambling with their own money, but with that of investors who were kept in the dark, but didn’t they at least fear they would ruin their own business? Or did they really believe prices would go up indefintely? It would have been a first in human history! What goes up, must come down…

    Btw, IHBloggers, I nominate this song (What goes up…) by Alan Parson’s Project for a story here:

  8. Gray

    Damn, I screwed the blockwuote up, sry!

    “What goes up, must come down
    What must rise, must fall
    And what goes on in your life
    Is writing on the wall
    If all things must fall
    Why build a miracle at all
    If all things must pass
    Even a miracle won’t last
    What goes up, must come down
    What must stand alone?
    And what goes on, in your mind
    Is turning into stone
    If all things must fall
    Why build a miracle at all
    If all things must pass
    Even a pyramid won’t last

    How can you be so sure?
    How do you know what the earth will endure?
    How can you be so sure?
    That the wonders you’ve made in you life
    Will be seen
    By the millions who’ll follow to visit the site
    Of your dream?

    What goes up, must come down
    What goes round, must come round
    What’s been lost, must be found”

  9. Gray

    Going on the record, so that nobody can claim the idea of a HELOC relief bailout was your love child, Duncan?

    Btw, good job, the mortgage bubble coverage at Eschaton! I guess this made many of your readers check blogs like IHB to get a picture of the atrocities…

  10. Agent #777

    I am sorry to say it, but I think I can get a pretty comparable house in a very popular Orlando suburb for less than 500k.

    And not that I would, because for 500k, I would get something that looks better than that on the outside!

  11. ice weasel

    There’s absolutely no trouble at all to understanding the lender’s mindset here. And I think it very likely is what happened all over the place.

    Someone comes to a company for a loan. The person working the loan has two choices, approve the loan and take the commission (or continue collecting a salary in the odd case) or let them walk and watch a competitor do the same. Since these loans were seldom held locally, it wasn’t as though some stinking piece of garbage would laying about reminding everyone how dumb the loan was.

    It’s easy. And everybody wins.

    Don’t get me wrong, I think criminal. But I have no trouble understanding it.

  12. ice weasel

    Look, I’m as sympathetic as the next person to people who made mistakes. That said, the nature of this crisis and the vast majority of people affected and involved in it were not making anything which could be characterized as innocent mistakes. I do think that people are, for the most part, greedy and fairly dim but not that stupid by half.

    So whenever I hear “bailout” or “relief” in any form, I think of all the realtor/investors/flippers out there who might benefit. All the scumbags who lied about “primary residence” and who played the musical chairs game a little too long.

    And make no mistake, a good number of people who created, fueled and ran this bubble inflating scam got out already. Sadly, they were quick witted enough to take their money out and leave before the music stopped so even punishing the more avaricious idiots won’t share the pain with many people who deserve some.

    Meanwhile, those of who did the right thing continue to pay our mortgages (or rent as the case may be).

  13. ice weasel

    Of course assuming you wanted to live in Orlando which, strangely enough, millions of people don’t (and I’m one of them having happily escaped from rural Tampa almost five years ago).

    These out of area comparisons are mostly irrelevant.

    So, apology accepted.

  14. Gray

    “And everybody wins.”

    Not in the long run, as has become obvious. I know, hindsight is 20/20, but why weren’t there any mortgage companies whose management would rather let the competition make the bad deal than putting their own investors into such a high risk gamble? Or were there?

  15. Gray

    A bit snarky, but to the point, weasel! Yup, 500k$ would still buy you a palace in other parts of the world, say, Turkey, but that’s quite irrelevant…

  16. IrvineRenter

    The only way I could favor waiving the taxes on mortgage debt relief is if the amount was capped at a small number, say $50,000. This would give relief to the subprime crowd who bought in less affluent areas without giving a $300,000 write off to some speculator in Irvine.

  17. mav

    Mortgage debt forgiveness is the last nail in the coffin for this bubble.

    Now that the government is picking up the tab on mortgage losses. home debtors have nothing left to worry about.

    If this has any effect on SoCal it will be to increase foreclosures; it removes any threat that existed in walking away.

  18. zaleriana

    Are you sure that there is really a first and a second still on the house? That really looks to me like a “first” for which the release wasn’t properly recorded.

    I recognize that there have been some extremely stupid loans made over the past couple years, but 120% financing is pushing the edge of believeability–especially given that even Zillow’s optimistic valuations never approached $1.8mm (looks like it topped out at about $1.45mm). Re-run the numbers with the “first” taken out and the owner’s still have(1) taken a bunch of money out of the house and (2) a delusional asking price. But then it’s not a short sale.

  19. Diana K

    ” After all, they probably make around $200K, and they have been spending as if they make $500K. Only rich people do that, right?”

    But isn’t that what keeping-up-with-the-jonoes’ all about? the mmore you spend, the richer you have to be.

    no one really stops to wonder how they actually paid for everything.

  20. Diana K

    “What will happen is that these scum will get to short the house, and they now won’t even have to pay taxes on the deficiency that results.”

    yes, they will have consequences bc that heloc will follow them for the next 10 years. that deficiency judgement will either keep them from getting another home or make them pay it before they’ll be approved.

  21. ipoplaya

    Considering the last sale closed in this area was $1.0M for a pretty nice 2850sf 4/3.5, there is absolutely no way this house could go for anywhere near list. They might be able to get someone to go $1.3-1.4M though…

  22. IrvineRenter

    I have no way of knowing if there was an error at the recording office. There are other HELOCs shown on the property, but I assumed the final HELOC took those out.

    To get a valuation of $1,8M they only needed an appraiser to say it was $450/SF. This would have been high, but not implausible at the peak.

  23. awgee

    I don’t know if it is any consolation, but even though one must pay capital gains tax on the proceeds from the sale of real estate which is not relieved under the $250,000, ($500,000), exemption due to sale of personal residence, one may not deduct losses due to the sale of a personal residence.

  24. George8

    The high life the owners enjoyed was supposed to last forever. What a life they have had. Are there many others like them in Irvine?

    What price this beautiful house will sell now and how much will it get near the coming bottom?

  25. William E. Jones

    When you go to Hawaii and you eat a lot, you come back with resort ass. This home allows you to stay in OC and acquire resort ass. here.

  26. ochomehunter

    I can almost guarantee you that majority of these 100% financing and subsequent 100% cash out is a coordinated fraud. It involves appraisers, the borrower, and the bank, all three in bed to share the net profits. Why would appraiser appraise the value and why would the bank loan 100%? Appraisers were raising prices and doing drive by appraisals. When bank loans all 100% cash out and in this case full $1M on a home that was purchased for $800K, I doubt the borrower has job that would be able to make payments on $1.8M debt. Why was this overlooked by banks, the ability to pay?

    This is fraud and there are tones and tones of these out there. Imagine the borrower made $1M and doesn’t have to pay taxes. This gives me heartburn.

  27. Mike S

    They deserve every second of pain they inflicted upon themselves in the short term and in the years ahead. Hopefully their humble pie will come with the realization they screwed responsible folks as well by their misdeeds.

    Perhaps they’ll even pray at a Church this Christmas instead of an ATM.

  28. Diane

    I seriously doubt that the tax forgiveness bills that are in the works will go so far as to protect these people.

    For example, the tax forgiveness bill that was passed by both houses yesterday only applies to home”owners” who refi their debt and stay in the home.

    These people deserve no protection. They need to feel the pain of their greed and irresponsibilty with a deficiency judgment that follows them around wherever they go; destroyed credit that affects their future employment, ability to rent, get credit etc; and taxes owed on the cancelled debt.

    My preference would be that they go to a debtors prison, but if I can’t have that, I am satisfied with the above punishment.

  29. Mr Vincent

    Thats a pretty nice house, but in todays market, who knows where the bottom is.

    Some of you think this place is worth over a million. Well, maybe it is. The problem is that even if a potential buyer thinks its worth over a million, it does not mean that they can afford it or qualify for it.

    Prop taxes are around 19k for a 1.5 million dollar home. Thats why 1.5 million would get you a REAL MANSION less than 10 years ago. It made sense. Only rich people could affort that kind of property. The costs of holding a 1.5 mill house are large.

    The upper middle income people that this property is aimed cannot afford this price anymore, and rich people certainly will not buy it. Rich people will expect alot more for that price.

    Past comps don’t mean much right now. Everyday, as the clock ticks, places like this are worth less and less.

  30. buster

    Not necessarily true. First, you can only deduct interest on the first $1.1 million of debt. So that’s the first and part of the second.

    Also, interest on debt not used for improvement of the house or the purchase of the house (ie, interest on the second if it wasn’t used for home improvement) is not deductible for AMT purposes. And pretty much anybody making $200k is in AMT. Oh, they don’t get to write off their real estate taxes for AMT either.

  31. mark

    If your desire is for home prices to reflect reality and return to affordability, then you should want the mortgage interest deduction reduced or even eliminated. It only serves to inflate prices.

  32. mark

    “…pretty much anybody making $200k is in AMT…”

    If that income is spread between two earners, and the couple has no children, $200K does not get ’em into the AMT (absent other sizeable deductions).

  33. buster

    I congratulate these people for (1) gaming the system just right and (2) helping our balance of payments deficit. They got a million bucks from (most likely) Asian investors who will end up writing it off. That’s a lot of plastic trinkets they made for free!

  34. Alan

    Cases like this may be extreme, but are just the tip of the iceberg. In this case someone is holding 1M in bad debt. The biggest loosers here are projected to be WashMu and Etrade Financial with major loan holdings in CA and undisclosed total losses. According to blogs such as calcualtedrisk, one or both those companys may fail.

    The sh$$t will hit the fan.

  35. mark

    But losses from investment property may be deductible, which may explain why some people want to rent their homes at a loss for a couple years, and then sell.

  36. mark

    That’s the question I want asked by journalists covering these families. “Even if you thought your house would appreciate 10% annually forevever, and you could always refi taking cash out, the mortgage debt keeps growing. How did you plan to ever pay off, or even just pay down, your debt?” i.e. Even if everything works out perfectly for you, at some point, you’ll still have to move when the payment become unaffordable.

  37. No_Such_Reality

    No, the biggest losers will turn out to be CalPers, NYPers, the County of Orange, CA, and some little town above the artic circle in Norway.

    They all hold the junk debt.

  38. =-wes

    I think a lot of these MB managers would have been fired for not showing as much profit as their peers were, during the midst of this whole dibacle.

    To be honest, I think that some of the blame has to go to the investors of MBS’s and CDO’s; for a time they were raking in appriciation profits in the high 2 figures, and even into the 3 figures.

  39. Gray

    “Some of you think this place is worth over a million. Well, maybe it is.”

    Why should anybody think that? The lot size is not disclosed, so this most probably is a quite small lot (not much space surrounding the house on the pics). Hell, you can even see the neighboring houses on both sides in the pictures!

    As for the view, “Park or Green belt”, how is this possible? Houses on both sides, a street in front, obviously not an elevated location… On the pictures, all you can see from the garden level are about 4 trees. Are those the “green belt”? And the park view? Maybe with a telescope from the first floor?

    No pool, no Sauna, no gym, no tennis court…

    Ok, it’s 4000sqft, or so they tell us, but why should this supposed to be a millionaire estate??? Because it’s in world famous Northpark, Irvine?

    Never heard of that before starting to read this blog! Really, I actually held the foolish belief that million dollar estates in CA are located in Beverly Hills, San Diego, places with a fantastic ocean view at the coast or simply ridiculously huge affairs like Hearst Castle. Who would have thought that Irvine attracts so many millionaires? Must be the air, or maybe some mysterious earth rays…

  40. FairEconomist

    MBS’s and CDO’s have the same effect on ethics that they have on losses – it’s spread around so widely you can’t really pin the blame on anybody. Inventors, investors, brokers, borrowers, regulators – everybody can say their actions would be OK if everybody else was doing their job. In a way that was the worst part of this bubble – it was virtually impossible to be truly ethical unless you stayed out entirely. The toxic loans are moral poison too.

  41. Gray

    I suspect the main problem is the quarterly reports. Becoming careful about mortgages and HELOCS would have resulted in a stagnating or even negative growth (but, of course, in a much sounder risk management!). Shareholders probably wouldn’t have appreciated their company falling behind the reckless competitors, they wanted to have their cake and eat it at the same time. I guess many managers knew fully well what would be happening at the end of the road, but didn’t believe that sanity would be applauded. Wishful groupthinking was too strong. So they rode the tiger as long as they could and concentrated on making enough dough for retirement. After them, the deluge.

  42. ipoplaya

    At this time, even in this market, the house is worth well over $1M. People are in escrow or have closed escrow very recently on much less home for figures in the $900K-$1M range. This particular neighborhood is indeed one of Irvine’s nicest and people have in the past and will continue to pay a premium to live there…

    My guess is the lot is around 6,000-6,500sf. Not very big considering the size of the house and there are sizes right up next to it with maybe 12-15 between properties. There is a small greenbelt with walkway behind the place but it’s probably only 20-30 feet deep.

    The bottomline is that people will pay what they are willing to pay for a property. You might want a bunch of land, an ocean view, and tennis court for over $1M, but others that can better afford it, would likely be willing to plunk down $1.2-1.4M for this particular McMansion. Some company executive that works in the area with a $300-400K income and some cash to burn on a down will end up buying this puppy.

  43. Gray

    “At this time, even in this market, the house is worth well over $1M.”
    Uh, this implies that there are buyers willing to pay that price right now. I can only judge from all those news I read about the RE market, but imho this isn’t a given right now, but kind of a gamble. And you also imply you think the property still has some positive equity gains since 2002 when it was sold (New! Now it’s five years old) for 870k. Would you pls explain how you come to this conclusion? From all I learned here, we are already witnessing 2003 rollbacks…

  44. zaleriana

    The original first mortgage–taken at the time of the purchase–was $696k. They got a HELOC 9 months later when they re-fi’d the first mortgage. 9 months after that, they refi’d the first again, changing banks. 6 months after that, they refi’d the HELOC to their new bank. Then they extended the HELOC twice more–a year later and 11 months after that.

    It is hardly infrequent that a release is misindexed or even not recorded for whatever reason–especially if the re-fi is with the same lender (here, the first re-fi). My look at the records shows that the first mortgage lender was always BofA or Citi–while not necessarily indicating that they were paying more attention (or doing any real underwriting), the incentives have been a little different for them than for WaMu or Countrywide.

    If you ignore the smaller first lien, you get total liens of $1,136,600–which is 80% of $1,420,750, which just happens to be really close to Zillow’s top estimate. Then everything about this returns to regular OC insanity (i.e., w/r/t the asking price) rather than looking like a conspiracy to cheat the lender(s) through transparent fraud. Occam’s Razor and all. Not everyone is a cheat.

  45. Gray

    I would like to know if a deficiency judgement would still haunt them at a cosy retirement place in, say, Mexico?
    900k$ should be enough to live comfortably in many sunny parts of the world…

  46. buster

    It should kick them in just with the state income tax deduction and real estate tax deduction, even without other exclusion or preference items.

  47. tenmagnet

    This is a very nice house. It seems large,spacious and nicely upgraded. If it gets back to the ’02 pricing of 870K, then I think it would make sense to step in and buy. At this point, it may be a question of when and not if.

  48. zaleriana

    I think Mark’s point was that, absent owning a house (i.e., an “other sizeable deduction”), that $200k alone doesn’t get one into AMT. Maybe I’m wrong.

  49. Alan

    According to the economists, in 2002 the market was already overheated by 20%, 80% of the 2002 price puts this home at 700K.

  50. Gray

    “Resort ass? Is this the person you fool around with when you are on vacation?”

    Maybe it’s the same service personal who is on standby on the “Fist Level” in the previous example…

  51. No_Such_Reality

    IPO has a point. I suspect a $1.0 – $1.1M price tag would get this place to move and close escrow by Valentine’s Day.

    By Irvine standards, it has a fairly spacious back yard and patio.

    It is also is the 2nd cheapest large home in Northpark. Actually fourth, however 2 of the cheaper ones are wedging 5 bedrooms and 3 or 4 baths in 3100sf or less. That’s at the insane $1.6M price figure. The cheapest backs to Portola Pkwy and wedges 6 bedrooms, 4.5 baths into 3600 sf.

    It’s a nice looking home. The location is good. Of the large homes in Northpark, it is probably the more desirable ones.

    Think what that means for the market. Desireable will likely go for less than $400/sf.

  52. Gray

    That’s what I thought, Alan, thx for providing the numbers. Of course, there still might be some buyers who would consider this estate an incredible bargain if it would be offered for 950k$ or so right now. But more than a million? I seriously doubt that. Almost everybody has heard the news that house prices are dropping in Ca now. Mortgage isn’t so easy to get anymore, and the people who would invest their own money certainly have become more careful by now.

    However, judging from all those other examples here, it isn’t likely that the “owners” will drop their price below a million in the near future. Seem to be awfully hard to get out of the state of denial. And, btw, who would have a say in any short sale? Only the lender of the first mortgage, or also the second mortgage lender and the company responsible for the HELOC???

  53. momopi

    Nice house, but a bit expensive… I don’t think it’s worth $1.6 mil. $900k maybe, but $1.6 mil is really pushing it.

  54. Gray

    “By Irvine standards, it has a fairly spacious back yard and patio.”

    That’s what you call “fairly spacious back yard and patio”? Lordy, Irvine must really be an incredibly crowded place!

  55. Mr Vincent

    “That’s what you call “fairly spacious back yard and patio”? Lordy, Irvine must really be an incredibly crowded place!”

    Irvine is a master-planned community. In this type of arrangement, you give up personal space and in return you get a vast community space.

    It’s quite an interesting place to me. I go there every year to get my taxes done and I know people who live there and/or went to UCI.

    There are some distinct personality traits that I noticed about many Irvine people. I think the master-planned community concept may have something to do with that. It would make for an interesting research project.

    Whenever I go there it does not seem crowded. Probably because I only go on the weekends.

  56. Alan

    The last bubble 88-96 took 3-4 years to deflate. I remember in the panic in 92 when the 1st house in PV dropped below 1M and no one wanted to believe it. Go ahead and pay 1.1M by Valentine’s Day if you want. You are only buying a “house” a deflating assest that is expected to bottom out at 700K or less between 2009-11 and not recover until 2016-20. And even that recovery will only be back to the 1M, not the 1.6M current asking price.

    People should only buy houses to live in, not as investments.

  57. lendingmaestro

    Execs makin 300k a year do not buy tract homes in Irvine. They live in newport, cdm or laguna.

    This property is not worth more than the prior sales price

  58. Gray

    “Irvine is a master-planned community. In this type of arrangement, you give up personal space and in return you get a vast community space.”

    And I understand the people profiting most of this plan are the owners of the Irvine Company?

  59. zaleriana

    Fine. But are they offering 125% THIRD mortgages? This one proeprty only looks bad b/c of a mistake.

  60. lawyerliz

    Part of it is that lenders and bankers NEVER have enough reasonably well paid employees. And since they refuse to pay, the employee turnover is incredible. They actually think cutting employees will cause bigger profits long term.

    Right now they are busily losing more money than they need to by not beefing up their REO departments with knowledgable employees who have the authority to cut a deal.

    I’ve been saying it for decades now. Upper management of virtually all financial institutions are incredibly venal and stupid, stupid, stupid. Lower levels suffer for their management’s stupidity by losing jobs etc.

  61. Irvine

    “Irvine must really be an incredibly crowded place!”

    Nope. Irvine is an incredibly spacious city whose land is mostly owned by one greedy corporation that is headed by a greedy billionaire. Compared to the surrounding cities, Irvine has tons of open space, but the “leaders” chose to build these ugly tightly packed homogeneous “homes” to maximize profit. There are no back yards because there are lots of empty parks that no one seems to ever use.

    Actually, for a city of 200,000 Irvine seems pretty empty.

  62. Mark in Pa

    I believe many, many people went to the bank for a HELOC or refi and were stunned when they learned their home was now “worth” hundreds of thousands more than what they owed. They felt like they just hit the lottery and ancient insticts of reaping and hoarding during times of abundance kicked in. They reacted emotionally to the sudden windfall.

    The majority of these people had and continue to have no idea of the underlying fundementals and truely believed they would never end up with negative equity. It’s easy to now to say that they should have known but besides the tiny majority who were sounding alarms in the past few years and those who heard them, most people were totally oblivious. Personally I wasn’t paying too much attention until I began researching locations for a move west to a warmer climate ealy this year. Thankfully I have equity, a 30 year fixed and live where prices remain stable.

    I continue to research and remain stunned at the still astronomical prices in LA, half a mil for an 800 sq ft shack with bars on the windows in Compton, 400k for a 3/2 in the Central Valley and IE. There was some huge dysfunction going on all over the west and southeast and anyone who seriously believes we are anywhere near a “bottom” is either a fool or profoundly retarded. This blog is my favorite as the education I get is priceless, well worth at least a couple hundred grand anyway. Keep up the good work IR.

  63. Mad Max

    IrvineRenter et al,

    Please correct me if I’m wrong:

    The first mortgage (assuming that no refi was involved) is a non-recourse debt, while the second mortgage and HELOC aren’t.

    Assuming that the bank won’t be able to cover the entire loan amount during foreclosure sale, wouldn’t H.R. 3648 forgive the balance left from the first mortgage only. The faux rich defrauders will still be obligated to pay anything other than non-recourse debt.

  64. Straight Digs

    zaleriana, adding to your analysis, the last sale I found was a model match in March 2007 that sold for $1.58M. Even assuming a 10% drop from then would put this at the price you mentioned.

  65. ipoplaya

    19 Sunnyvale just closed within the last couple of weeks:


    It was for $1.015M with a $10K buyer credit.

    It appears 8 Pacific Grove, same 2800sf plan as 19 Sunnyvale, is also pending sale now. I’m sure it’s in for a price over $1M as their list was $1.075M.

    I can’t afford them, most here can’t either, but they are selling. Must be nice to be rich and/or stupid…

  66. TimTooth

    Um, if you like bugs, or don’t mind having to screen your entire back yard to avoid them, Florida rocks. And those occasional hurricanes are refreshing, too. [I know, I know, earthquakes, fires, etc out here… 🙂 ]

  67. George8

    There has been a lot of mysterious cash inflow into Irvine real estate from mainland China. Before you know it, a high ranking Chinese official would have bought this place at $1.5 million with a bag of cash. And the home will be tiltled to a wife or a monor.

  68. No_Such_Reality

    Actually, they’re not selling. They are, one here, one there. But as the lastest DQ numbers show, Irvine sales have fallen off the cliff, down 75% in volume from peak.

    92602 had 14 sales in November. Less than 1 per business day. December seems to be slowing from there.

  69. lendingmaestro

    How do you know it is a mistake? What if they took both 2nd mortgages out at the same time? How do you know what the appraisal was for? What if for some reason the 2 mortgage wasn’t showing on credit and/or title when the 3rd mortgage was originated?

    I see properties with 3 mortgage liens more than what you would think.

  70. ipoplaya

    You guys can chit chat and blow smoke about how little this place is worth but transactions don’t lie…

    Much smaller and less desirable properties have closed for OVER $1M recently and are in escrow now for OVER $1M. If there are people paying $1M for 2800sf 4/3, there are surely people that would pay $1.2M+ for this home. We are talking about 1200sf more space, an extra bed and bath, better location, etc. for $200K more than the very recent comps.

    While I do think someone will come along and cough up $1.2-$1.3M for this place, I think they’d of course be much smarter to wait it out and let the house fall into the $1.0-1.1M range. That is the lowest I think it’ll go though. At market bottom IMO, this house will be worth around $1M.

  71. Mr Vincent

    “..there are lots of empty parks that no one seems to ever use.”

    That’s a very good point. The last house I owned had a nice big pool and we used it all the time. I have not used my assoc pool where I now live in two years.

    I say there needs to be a balance. Reduce the public spaces and increase the lot sizes.

  72. mav

    “Resort ass”

    I think that’s what everyone will be hooting and holler-ing….

    as this couple walks down the debtors prison corridor to their cell

  73. Purplehaze

    Relax mate. We are all greedy. Yes some of us do go overboard like the flippers, speculators, mortgage companies, politicians etc. But in the end there is hope for everyone. Some just learn it the hard way. So our blessing is that we can watch and learn JUST what not to be like.

  74. ipoplaya

    Ok NSR, MLS is run by a bunch of frauds, liars and cheats. They post closed sales that really didn’t close… Not very smart of them. Why post fake closed sales that show prices falling?

    Houses are not selling IN GENERAL, but they are still moving, albeit much slower, in Northpark and Northwood Pointe. Blue Spruce and Silver Fox in NW Pointe entered escrow within the last month. 44 Dinuba in NP closed escrow on 11/27 for $955K. That house was 2400sf. 19 Sunnyvale sold, $1M for 2800sf, Pacific Grove in escrow now at over $1M. 65 Ashcrest in NW Pointe closed on 11/26 for $968K, etc. etc. etc.

    Spew stats all you want, but I can attest to the fact that 2500sf+ homes in NP and NW Pointe are selling, and not staying on the market long enough to have big discounting. I’m looking at buying in those areas and these houses are not languishing that long…. Prices are coming down, but those “premium” areas are off nearly as much as other older parts of Irvine.

  75. lendingmaestro

    “purchase money loans” are non-recourse. It doesn’t matter if you put down 35% on got one loan or did and 80/20 and got two loans.

    Once you refinance, the mortgage it is no longer a purchase money loan REGARDLESS IF YOU TOOK CASH OUT. For instance, let’s say you did an 80/20 purchase in 2004 for 500k and then refinanced this year into one neg am mortgage. Your new mortgage is no longer a purchase money loan, even if it is with the same bank.

  76. Mr Vincent

    I totally agree with you!

    The sellers of these types of homes are looking for someone in the very shrinking pool of remaining suckers.

    There are only so many suckers left who will pay 1 million+ for this.

  77. Genius

    Remember that every part of the world other than socal is terrible, so ridiculous prices will always be justified here. Socal is just the bestest.

  78. No_Such_Reality

    That’s what one here, one there means. Currently in the that area of Irvine, there are 10 homes over 2500SF for sale.

    half have been for sale for more than 60 days.
    Two are for sale for half of a year.
    Two are 5 days away from being for sale 90s.

    That’s very few homes for sale period in that size range. Northwood looks the same.

    It isn’t fast and furious. They do move. This area’s sales suck. This size and style (SFR, detached, > 2500) may be the current sweet spot. From your listings, it looks to be dominating the few sales that are actually occuring.

  79. Jim Jones

    There may some folks out there who are willing to pay over 1 mill for this house today. But as more and more potential buyers come to the belief that the bottom is a long way off I would expect the pool of people who are ready to purchase at this price to get smaller and smaller and smaller.

    I would think the “hard” bottom of this bubble is when the rent verses purchase lines merge. Until we we hit that point It would seem to me that the primary driver here is the subjective evaluations of potenial buyers.

    Take me for example. My subjective evaluation is that 1.6 mill for a large house with no yard in Irvine and my neighbors 2 feet away is completely insane. I would think that sentiments like mine will help drive prices downward closer to the “rent” verses “own” equalibrium

  80. Diane

    Mad Max,

    HR 3648 applies to “acquisition debt” – money financed to purchase the home. Refi and HELOC’s are not covered by HR 3648 (if it passes – the bill has been sitting in the Senate for 3 months now and is not tabled for discussion yet)

    Also, HR 3648 only applies to owner occupied homes.

    So, in this case, these sellers will owe taxes whether HR 3648 passes or not.

    All is well that ends well.

  81. Irvine

    This is actually a really nice house with a nice yard and from the map it looks like it’s a corner lot. I don’t think this house falls below 1.5 million unless there’s some major earthquake or other catastrophic event. There are no shortage of million dollar houses in California, and Irvine is no exception.

  82. zaleriana

    How do you KNOW that there wasn’t a mistake. I don’t know anything definitely, but I made a couple of reasonable assumptions and the rest of the facts fit.

    I do KNOW that all of the liens recorded on this house were filed by BofA or Citi. I do know that the first mortgage was re-fi’d twice (once w/ Citi, the original lender, and once with BofA) and that the HELOC was re-fi’d once (from Citi to BofA) and increased in amount twice. It’s easy to miss a release, especially in the last 5 years of crazy busy lenders. It’s not a big deal, as the lien isn’t valid if the underlying debt has been repaid and lenders deal with the issue with regularity–it’s just a title company headache.

    I do know that everyone here (including me!) is making assumptions about what the owners of this house did and did not do. I happen to think that the most likely explanation for what appears in the proepty records is a missing/misrecorded release; lots of others (including you, maestro) seem to assume a multi-level fraud perpetrated by the owners, the appraiser, and the loan officer(s). You may well be right, but all else being equal, the simpler explanation is usually correct (i.e., Occam’s Razor). My explanation is certainly simpler.

    Assuming, arguendo, that the owners had purchased this house in 2005 and re-fi’d the sucker 3 times and the HELOC 4 times in 30 months with different lenders and involved some of the usual suspects for very poor underwriting (I’m looking at you, Countrywide), then I’d be more likely to buy the fraud argument.

    But those aren’t the facts. The facts are: (1) They paid $235/ sq ft in 2002 for a very nicely finished, large house in a desireable neighborhood. Maybe they paid a little too much, but so did most people, even then. (2) Their original loan amount was $696k, which is 80% of their purchase price. (3) There was no 2d lien at purchase. (4) Market consensus was that (Irvine, SFR) property was appreciating rapidly in 2003/2004/2005. (5) Their first HELOC (and first re-fi) was 9 months later for about $150k (I’m not going back to look at the exact amount)–indicating a valuation of about $1,062,000 (assuming 80% LTV) for appreciation of 22%–really high, but not too far out of line with the time. (6) When they finally bumped the HELOC to $436k, it was October 2006–4 years after purchase. As I noted before, at 80% LTV, it gives a value of $1.42mm. That’s almost exactly 13% annual appreciation–again, in hindsight, that’s fantasy appreciation, but at the time, lots of people believed it. (7) While hardly immune, BofA and Citi were not the lenders of choice for the fraudsters.

    Add another year of 13% appreciation and you get their current asking price. Even tho 13% annual appreciation is now a fantasy, it isn’t out of line with trend for OC from 02-06. People’s expectations for what their house is “worth” take time to change (as is a main point here).

    One thing that is disappointing to me about blogs like this and the “journalism” surounding the credit crunch is the way in which good or bad intent gets assigned based on too few facts. As noted in the comments to the prior post, the folks who moved to Texas most likely did so with the intent to defraud creditors (which, btw, would invalidate their discharge, if it could be proven–depends how much the creditors fight and who the bk judge is), but the author of the article painted them as victims. Here, y’all are pillorying the owners of this house based on what looks to me to be a mistake–it borders on defamation (altho it would be hard to prove malice or damages) and I definitely think that it’s unfair–more than anything else I have read on this blog, it comes across as the general ill-will toward those who had the means to spend $900k on a house in 2002 (i.e., the working wealthy).

  83. Alan

    I saw Warren Buffet talk about this, he said to only invest in companies that could be run by an idiot because someday an idiot would end up running it.

  84. Mad Max

    All is well that ends well.

    May their “toys” be repossessed by Santa this Christmas towards their obligations.

    Thanks Diane and LendingMaestro.

  85. awgee

    Actually it gets much more complicated, but it would be difficult to cover all ramifications without copying 1200 pages of tax code.

  86. Gray

    “Irwin Home Equity is still offering 125% 2nd mortgages.”
    I couldn’t believe it, but it seems to be true:
    And even 125% HELOCs there!

    OK, I guess when they are absolutely sure the borrower is able and willing to pay, this may make sense. However, imho the “unsecured” risk will at least result in a higher mortgage rate…

  87. zaleriana

    Aw heck, there are plenty of banks that will make 6-figure unsecured loans to folks with high cashflow. Altho that puts one on the “owe a hundred pounds” side of Keynes’ quote.

    And, of course, anyone with a 6-figure income and good credit history can get $150k unsecured if you have enough credit cards. It’s all about the rate.

    And IHE claims to limit the 125% to 50% DTI.

  88. Alan


    “At market bottom IMO, this house will be worth around $1M.”

    Your still suffering from koolaide intoxication syndrome and need some detox. 1M is still 20% above the 2002 sale price.

    I perscibe you sit thru this video of Paul Krugman talking about the housing/credit crisis at Google last week, copied from Calculatedrisk. I’t really scary, it’s not so good to live in interesting times.


  89. Iblis

    The tax waiver is an ugly, necessary recognition of reality. The forgiven debt in a short sale is not sitting in a bank account somewhere. You can tax it all you like. All you do is add a tax debt to the former owners problems.

    There is a great deal of sentiment on this blog to punish people who took advantage of the bubble, whether intentionally or not. But it won’t happen. These people vote, and there’s more of them than us.

    As a purely therapeutic exercise, I’d suggest letting go of the desire for justice, punishment and pain. Leave that Judgment Day.

  90. ipoplaya

    Enjoy fantasy land Alan. $1M market bottom in 2009 would be around a 2.5% year over year appreciation since 2001 prices. A sub-$1M price tag two years from now would mean this house price significantly lagged inflation for the better a decade… Not going to happen my friend.

  91. zaleriana

    Sort of related question–isn’t the floor for housing tied somewhat to replacement cost (as well as rental value)? What’s replacement cost for a house like this? And what’s the cost for going from raw land to buildable lot?

    Is $150/sq foot fair for nice, but not super-nice, construction (as this appears)? If so, the improvements for this house are about $600k at cost.

    Obviously, Irvine Co’s cost of raw land is effectively zero–let’s say $1/sq ft to assign it a number. What does it cost to get all of the approvals, level the site, utilities, etc? What would the costs be for a similar lot outside Irvine (where the developer doesn’t control the process)? I’ve read in some places that CA buildable lots include about $100k in costs, over and above the raw land cost. Maybe that’s less in Irvine b/c of IC’s involvement?

    So, a duplicate house built on what is currently raw land in Irvine would cost IC about $700k (more for an outside developer who has to pay IC for the land). Is that a fair assessment? Add in developer profit and you’re looking at about $800k, no? So the owners paid a small-ish %age premium because of the rising market, and the developer made a large-ish %age profit permium for the same reason.

    Doesn’t this lead to the owner’s looking for a 100% location premium?

  92. Alan

    The video runs 60+ minutes, your rapid response indicates that you made no attempt to view it. Your loss, it’s actually very good, Google’s not dumb company, you have to be really smart to be invited to talk there, it’s really worth your time.

    Again, the last real sale was 870K in 02, this place never sold at 1M+, loans were made on it for 1M+. According to Krugman, you should expect the market to return to 98-2000 levels of support, 2002 was already overheated.

    This is based on hard data, not smoke and mirrors.

  93. tonye

    North Parke and North Parke Pointe “premium”?

    Jeez…. from my view point in Turtle Rocke I hardly would figure that the flatlands would be “premiume”.

    I didn’t see any Grey Poupon on those kitchen counters.

  94. No_Such_Reality

    “Is $150/sq foot fair for nice, but not super-nice, construction ”

    In the inland empire, they’re building nice but not super nice for $75-$95/sf land included.

  95. ipoplaya

    zaleriana, with blogs like this, you get all the sky is falling – everyone is a crook types. Some people just can’t comprehend that their are real families, making good money, that can afford to buy homes in areas such as Irvine. Many of those posts are from those out of the area that don’t necessarily understand the local economics/market or those that are so far down the median income chart that their posts are influenced by the knowledge they could never hope to afford something like this unless the global economy came to a screeching halt.

    Maybe the owners of this place bought a Sports Clips franchise with the cash out? Maybe their kid had a disease and needed hundreds of thousands in medical care over the past few years? Maybe they bought Rovers and Benz’s and took some killer vacations? Who knows and who cares… Simply, it’s a house that is way over-valued in term of list price. It’s a nice house in a nice area and we will all get to watch it chase the market down until they get desperate or realistic or both. The places that have been selling in NP have been those that are more realistic in terms of pricing… This will sit like those NSR is referring to, or they’ll drop this sucker down to a $1.39M list today and move it for $1.25-1.3M.

  96. ipoplaya

    Premium as compared to the rest of the flatlands tonye, namely West Irvine, Westpark, old Northwood, El Camino, etc.

    TR and QH have even higher premiums although we’ll see if QH can keep theirs up…

  97. Andrew

    I know the owners personally and am sure they are not in any financial problem or will let their credit be affected in anyway. They have already purchased a multi-million dollar house in Orange County, and planning to keep this house as an investment. As far as I know they own several multi-million dollar homes in California, Arizona, and East Coast which they purchased several years ago.

    If all the homes in Northpark went on Foreclosure, this house would be the last or would never.

  98. zaleriana

    Or perhaps list it at the $1.42 that their *outstanding* loans are based on. They’re definitely being greedy and disconnected from reality, expecting about the same %age gain in 2007 that they had (based on a dubious-quality appraisal) through their first 4 years of ownership–the asking price is a 13.21% annualized gain for a five year hold; through 4 years, based on the loans and an 80% ltv, it was just over 13%.

  99. ipoplaya

    “Execs makin 300k a year do not buy tract homes in Irvine. They live in newport, cdm or laguna”

    Maybe they instead come from old money Maestro, although I’d think those types would be more apt to be in NB or CDM.

    How does a exec making three bills, with a Fashion Island shopping wife at home with the kids, afford a place in Newport or Corona exactly? A gross of $300K to support a $2-3M purchase? Doesn’t really seem doable to me…

  100. zaleriana

    Heck, how does an exec making 300 afford a $2-3mm SFR with a waterview withOUT a wife and kids? Or “afford” (meaning, have the vacays, cars etc. that an “executive” “deserves”) $1.1mm in debt service (i.e., this house) with a Fashion-Island-shopping-wife and kids? Is our young executive driving a ’94 Accord?

  101. IrvineRenter

    Zaleriana’s estimate is very close to reality. If houses drop below replacement cost, builders will stop building until there is a shortage and prices move back above the replacement cost level. Of course, that is still around $150/SF. I do not think the more desirable neighborhoods will drop that far, but sub $200 is quite possible.

    “A sub-$1M price tag two years from now would mean this house price significantly lagged inflation for the better a decade…”

    The calculation depends a great deal upon the starting point. If you start at the most recent bottom in 1997, inflation adjusted prices would bring us to 2001 levels. The last bottom as below a 150 GRM so it can be argued that there was overshoot of fundamental support from the last bubble. I still believe we will not see a durable bottom form, even in nicer neighborhoods, until we reach a GRM of around 160. Where does that put this place? $850K to $900K?

  102. ipoplaya

    It probably rents in the $5500 or so range. Smaller places (2800-3200sf) in NP have leased relatively recently in the $4800ish range. GRM of 180 or so would put this place at $1M.

  103. rkp

    Its not about SoCal being better or worse. Its the fact the RE is a local thing. I can buy a huge house in rural India for $500K and have a staff of maids, cooks, butlers etc. But what kind of job can I find in rural India?? Orlando might have a cheaper RE basis than SoCal but who cares?

  104. rkp

    tonye- I never really saw TR before so I got in my car this past Sunday and drove all around TR. There were some beautiful houses but more so than not, I saw streets and streets full of ugly 70s tract houses. Sure some of them were being remodeled but it will be years before every owner remodels or tears down.

    What makes TR so special? I love the hills and I loved driving around but NP looks much nicer when walking around in it.

  105. ipoplaya


    “You are only buying a “house” a deflating assest that is expected to bottom out at 700K or less between 2009-11 and not recover until 2016-20. And even that recovery will only be back to the 1M, not the 1.6M current asking price.”

    I’d be willing to put my entire saved down payment fund, which is hovering around $175Kish now, into an escrow on a bet with you that this 4000sf property in NP will be worth more than $700K at market bottom. You’re right, I don’t get to buy a house, I’m right, I get a much bigger place courtesy of you and Jack Klugman. Loved that guy’s work in Quincy M.E. by the way…

    This place sold for just about twice the median in 2002. Median in 2000 was $320K or so. Say this place goes for $650K in 2000, also twice the median. Inflate that by 4% per year from 2000 to 2010 and voila, what do you have? $950K. No matter how you slice and dice it, my $1M sure seems a lot closer than your “$700K or less”. You can watch all the Quincy or Odd Couple you want, but just don’t believe everything you hear…

  106. Alan

    Probably rents in $5500/month range.

    YEH, and pigs fly

    Asking rent and what you can find a sucker to pay you are 2 different things.

    Again, the pool of available renters thins out considerably after rents pass 2K month.

    This isn’t a house with a view in Malibu

    Your proablility of finding a renter willing to pay $5500/month for this house is slim to none so the price-rent comparison isn’t valid since there is no maket.

  107. tealeaf

    i referenced this in Lansner’s, but why is Tustin Ranch 92782’s volume so high? It’s not condo’s (the median is $704k on 58 sales in the past 4 weeks). It has been the only shining zip code in all of OC in terms of volume for the past couple of months (one period a couple weeks ago it had over 70 sales in a 4 week period).

    It CAN’T be VoC – it’s dead over there. And the volume in that one zip alone is more than half of ALL of Irvine. Any ideas?

  108. ipoplaya

    Hum, let’s see, 26 Maywood is around the corner, leased this year at $4700 on a 4/3 3000sf. 12 Fair Oaks, leased this year at $5500 for a 4/3 3400sf. Yeah, really hard to find people willing to pay $5K to live in NP… Uh huh… Right…

    Maybe you should have some idea of what you are talking about Alan before you spout off. Unlike you, I am simply making deductions based on the MLS information I have here in front me, what I learn from my friends and co-workers that live in NP, and what I gain from my regular open house forays into NP.

    I sure as hell wouldn’t rent a McMansion like this for that kind of coin, but there are people doing it right now. I wouldn’t plop down $1M+ to buy one of these puppies either, but there are people doing that today as well.

  109. Joe

    I am wondering, in OC – What does everyone think the market bottom is when looking at SF. pricing.

    I have seen homes come down from $400 / SF. to $330/SF. Do people really believe homes will drop to $200/SF?

    Homes have not been below 200/SF. for nice tract homes throughout OC in 12 years.

    In 1995, you could have bought a 2000 sf. house for $400k. Will that ever be possible. I can’t see it.

    My wife and I have been sitting on the sidelines for 2 years waiting for this to happen (like everybody here – I kept asking where is the money coming from for these ridiculous prices)

    I understand view lots, gated communities can add $25 / SF. to the asking price.

    I feel $250 – $300 / SF. for a nice newer home would be a market bottom. I can’t see $200 / SF. for homes. Are we dreaming too much.

    2500 sf. home @ $250 /SF = 625k
    2500 sf. home @ $300/SF = 750k.

    Even homes in today’s market are still at 800 – 900k.

    Is 625k even possible. Also how long– 3 to 5 years of rent versus buying home a little higher will even things out too.


  110. ipoplaya

    Dead at VoC is relative tea. The Madison at VoC has a phase of 9-10 homes that closed escrow in early November. They lost 3-4 of these buyers, but that means they still put through 6-7 sales in the $900K-$1.1M range. I think they closed some of the homes they are building to order in the fourth phase there as well within the last month, another 3-5 homes I think, probably in the $900K-$1M range.

    So figure just one homebuilder in VoC, while having a high cancellation rate, has sold 10 or so homes since 10/31. That’ll prop the averages some, especially if other builders brought phases to conclusion during this time as well.

  111. rkp

    There are so many multi-families in Irvine. My friend who is 29 and married lives with his parents and the total income in that household easily exceeds $300K. Had they just come to this area, they would be perfect candidates for a 1M+ 4000 sq ft house. I am not expecting a foreign influx or these multi-family housing arrangements to save Irvine prices but these people will buy such a house.

    People keep refusing to believe that sales are still happening. Instead of refusing, lets understand what type of people are still buying and try to gauge whether that is a large population or not.

    ipoplaya commented above that 2500+ sq ft houses in NP are selling right now. Lets understand who these people are before commenting how foolish they are or even worse, not believing that some sales are still happening.

  112. No_Such_Reality

    This would be an atypical rental. Not because of the price, but because rentals at this level are relatively uncommon. To an individual directly even more rare. If it did get rented, I’d give it an 80%+ chance it’s a corporate rental for an exec.

    As for the bottom, I wouldn’t take IPO’s bet. I also probably wouldn’t take at bet on bottom for this being below $1M.

    I think it has a fair chance of going below. But if I want to play blackjack, I’ll go to Vegas. Outside of Vegas, I do better odds.

    At $200/sf, this place is still $800K. Not bad, but a lot families in Irvine make $200K+ a year. By a lot, I mean in porportion to a property mix that is built in Irvine.

    This home works for $200K+ working family and is a mere 4X income between $800K+$1M. And therein is the crux, this home is likely in the top 10% of Northpark and competes against the top 10% in the rest of Irvine.

    I think PSF numbers will go below $200 for the majority of properties. For this property, and other like it, I doubt it. Too many people want away from a townhome or detach condo with the postage stamp patio for a yard.

  113. NanoWest

    In late 2000 I purchased 3,000 s ft home in a gated(human) comunity on a greenbelt in Northwood for $600,000 (200 per sq. ft) The Realtor was very familiar with the area and said that this was too much to spend. She said we should pay no more than $580,000 for the home. We purchase any way ……….

    I think that these home will sell for between $225 and $250 per square foot at the bottom.

    As the full extent of the credit problems become evident, lending will be far tighter than it was in 2000 which will severely limit who can purchase homes. I believe that banks are just now starting to put in stricter policies and that the policies will get stricter.

  114. rkp

    If you follow the threads, you can see that builders in VOC are going lower than $300 sq ft right now with fully upgraded houses. However, one has to take in the cost of landscaping as well.

    Personally, I think $250 is realistic and I will jump in at that price.

  115. Priced_Out_IT_Guy

    If these owners that you know so well are in fact wealthy enough to own several multi-million dollar homes, why would they be so desperate for cash as to pull out 900k from their housing ATM?

    This house is an investment you say? I hope they’re willing to hold onto it for about 10-15 years until the next bubble.


  116. Mike

    My brother lives close to this house. He bought his in the fall of 1999 for 700K. Asking Price: $1,618,800…. HA! Crazy!

  117. Lost Cause

    Just a reminder, there were plenty of houses in Orange County for $150 sq/ft in 1999, about 7.5 years ago. I bought one, and there were dozens at the time.

  118. ipoplaya

    I think those numbers are too low… One has to consider inflation. Take your $600K 2000 purchase and inflate it by 4% per year to 2009 and you are at $850K or $284 per sf. I think $250-300 per sf for the nicer areas at bottom in nominal dollars is more likely.

    If I can pick up a place in NP or newer NW @ $250 per sf I’ll do some backflips and gladly empty my downpayment fund… That would be a 30% or so drop from market today.

  119. skek

    This post (from Lasner’s blog) is a little stale, but it indicates the point that IR and others repeatedly make. OC is not affordable, and prices will decline until numbers like this return to a reasonable level. The question is — at what price are 42% (i.e., natl ave) of OC homes affordable to a median household? I’m thinking we have a ways to go…

    An index from Wells Fargo and the National Association of Home Builders puts O.C. home affordability at 4.8% — that’s 4.8% of O.C. single-family homes sold in the third quarter being traditionally affordable to a typical local household. (FYI: This is a different number that the Realtors used to offer up!)

    • Good news: That’s almost double the 2.5% reading found in the first quarter of 2006, this cycle’s low.
    • Bad news: We’re still the second lowest among major national markets, trailing only L.A. (National rate? 42%.)

    The Wells/NAHB “Housing Opportunity Index” is the share of homes sold where the buyer with a median local income, using a 10% downpayment, could buy a home using a “conventional assumption” of 28% percent of gross income on housing costs (loan, tax and insurance) with a loan at a weighted average of fixed and adjustable mortgage rates available during a quarter. (Note: Mortgage rate was 6.73% in the third quarter vs. 6.44% in the second quarter.)

    The recent affordability “surge” — if you can call it that — was largely derived from a 6.6% drop on home prices, by Wells/NAHB math. Local incomes grew only modestly (at a 0.5% annual rate.)

  120. ipoplaya

    Wow, a 1999 buy in Northpark. Must have been like the first NP sale sold… The earliest I have even seen in there on SFRs was 2000. Most of the larger SFRs in NP closed from the builder in 2001/2002 I think. Betcha he was going gaga for the first few years watching his value skyrocket!

  121. ipoplaya

    Maestro must have been thinking of the 2003/2004 days when money was practically free. $300K per year went a lot further then…

  122. ipoplaya

    Caddy, you are crazy. The great Alan and his pal Jack Klugman think this pad will be going for $175 per sf (or less) in a couple of years… Just hold out until then and you won’t have to steal as much to partake in the good life!

  123. Realistic

    It’s nice to conjecture about the scenarios of someone in the position that Irvinerentor has conjored up of this home seller, but how about a perfectly plausible alternative scenario.

    The seller has refinanced a number of times to take some equity out to improve their home, get a better loan rate or make other investments. They have made a wise move to shore up a HELOC while they are still available, but have no intention of using it unless there is some sort of emergency in their lives. They are selling now because they want to be closer to family now that they have kids. They hope to walk away with slightly better than break even and feel that the money that they have taken out during their refinances has made more money in the stock market than they would have made in the house.

    Unfortuantely, these sellers didn’t predict that their reputations would be ruined throughout their community due to the hateful venom of a few bitter bloggers who like to make conjectures with less than the full story available to them. If you have the facts it’s on thing, when you make guesses about what’s really happening it’s just wasted conversation.

  124. mark

    Affordability is an interesting topic, but it’s not an indication that prices will drop dramatically. It’s a symptom of the supply/demand quotient. Right now supply exceeds demand, so affordability will improve. But you can’t reverse-engineer this conclusion. e.g. Affordability in Irvine is when the median hits 4x $85K, and therefore the median price will drop to$340K. I don’t think that works.

  125. Ivan

    The forgiven debt may or may not be sitting in a bank account somewhere. You do not know, which is why tax forgiveness needs to be constrained.

    I’d be in favor of forgiveness under two circumstances:

    – Tax forgiveness with a cap on $50k of forgiven debt (maximum tax break around $15-20k depending on bracket) on a single owner-occupied property. If you’re underwater for more than $50k, your house was probably $500k+ and it’s downright unconscionable to ask much poorer taxpayers to finance a greater handout.
    – Full tax forgiveness in the event of a personal bankruptcy and evidence of inability to pay as determined by a bankruptcy judge. If you’re so screwed you have to declare bankruptcy, I’d be ok with letting the judge looking at your specific case make the call.

  126. Larry

    Would someone please explain to a novice how a HELOC works? Can it be spent on anything i.e. vacations, new cars? And when the house sells for less than the outstanding debt, is it probable that the bank will pursue the debtors for the deficiency? I am especially curious to learn about this because an aquaintance of mine (a laid off loan oficer) just listed his mcmansion for sale and has already moved and bought a new home in Texas (I know, sounds familiar). I know he has at least one HELOC. I’m guessing that he has stopped making mortgage payments on the house here. Is it possible to take a HELOC, buy a new home, and not pay the HELOC back? Tell me this is not so.

  127. dataguy

    Wealth disparity and supply are not included in any affordability calculation.

    That’s a flaw; we will see how big of a flaw it is in retrospect.

    My personal belief is the bottom is going to be higher than 4 X median income due to an increase in wealth disparity in the US and the housing supply in the OC.

    Affordability is probably the most important factor in this bubble; It is what will drive prices down; however, I do believe there are other factors not included in much of the analysis on this site.

  128. Trooper

    So why then, did you just participate in this “wasted conversation”?

    I’m actually very curious to see what FB’s have done with their equity. Perhaps IR is wrong, perhaps Zaleriana is right. Either way, it makes for interesting and thought provoking discussion. The financials are a matter of public record….

  129. IrvineRenter

    “My personal belief is the bottom is going to be higher than 4 X median income due to an increase in wealth disparity in the US and the housing supply in the OC.”

    Wealth disparity will not positively impact the median. It may support the high end at higher prices, but if the haves have more and the have-nots have less, the median would actually decline because the wealth will be concentrated at the top. This would make more transactions at the bottom and fewer at the top. The “meat in the middle” would thereby be lower because the buyer power of the middle class would be diminished.

    The 4 times median income is reflective of the fact that homeowners generally make more than the median income. If every house on the market sold for 3 times median income of homebuyers, the reported market median would be closer to 4 times the area median income because the lowest wage earners do not buy. The lack of low-end affordable housing is a chronic problem in California which also tends to make the price/income ratio somewhat higher than the rest of the nation.

    Prior to the first bubble in the late 70s, 3 times median income was the norm in California. After the 70s bubble and the 80s bubble, the market bottomed at 4 times income each time. At that price level the market reaches a level of affordability prospective homebuyers find attractive enough to buy again. We have evidence from the lows in 1997 that GRMs were under 150 when the price/income ratio was at 4.

    Personally, I do not care where the exact bottom will be found. When I can afford to buy something comparable to what I can now rent for the same monthly cost, I will look to buy. There will be no particular urgency about the decision until the REOs stop flooding the market, and that will take years. I want to buy a little before the bottom when prices are depressed and inventory is still high. I will have the most negotiating power, and the widest selection. If I buy and the house does not appreciate for years, I will not care because I will be saving money compared to renting.

  130. NanoWest

    For those of you that make statements like…….”4 % appreciation doesn’t even keep up with inflation”…………and….”Thats less than the cost for building new homes”…….

    You will learn that there are no sure things with regard to the value of real estate or any other asset. Assets are only worth what people can and will pay for them. If the banks don’t open up the spigot on lending, we could go back to 1988 prices for homes and apartments.

    I was in Tokyo last week and stayed in a hotel that would have cost $500.00 in 1988 and it cost me $150.00. If the United States economy enters a 10 year deflationary spiral as Japan did, all bets are off.

    If our central bank lowers interest rates to 0% and that does not stimulate the economy because banks are unwilling to loan money….watch out. Remember, this run up in housing prices was not because the fed lowered rates, but because wall street cooked up a diabolical financial stew and started selling mortgages to anyone that would listen to them.

  131. IrvineRenter

    A HELOC is a loan similar to your credit card except that it is secured by your house. You can do anything you want with the money, and if you do not pay it back, they can take your house or go after any asset you have. Many people who took out HELOCs or cash-back refis spent the money and have no assets, so there is nothing for the lender to go after once the house is gone.

  132. dataguy

    Thanks for the response.

    Aren’t 45% (approximately) of properties in Irvine rental properties?

    So back in 1997 the spread for homeowners went from 3 X to 4 X ?

    Do you think this disparity increases over time?
    The data would seem to suggest that.
    I think the 1970s to 1990s data is an effect of wealth disparity.

    Past affordability trends may not predict future results.

    I’m with you 100% affordability is the driver. However, I could easily see 5 or 5.5 X being the bottom this time around.

  133. Laura Louzader

    Looks like your friend has the same angle as the Inland Empire couple discussed in the last post.

    His Texas home will be protected from bankruptcy, along with one vehicle, by the Texas homesteading law.

    So, if he bankrupts out of the California HELOC, he will get to keep the Texas home, which is probably much nicer for way less money. And if the deficiency judgement is tax-free, what a deal for him!!

    Now, there’s a catch- you have to move to Texas (or Florida or some other bankruptcy scam haven) and Texas is not coastal CA, to say the least.

    To me, it would be a bad trade, but if you are a scammer and your whole objective in life is to get an almost-free house on other people’s dime, then it is an obvious thing to do.

    This is not the way I would want to live, but maybe that’s why I’m not as rich as some people.

  134. dataguy


    You found the one scenario where “Rent Saving” does not save you; even the Rent Saver in a deflationary cycle catches a knife.

  135. hmm

    I keep reading that the price of this house should go back to 2002 price. But lets be reasonable. What is the price for a gallon of gasoline back in 2002? What is the value of a first class postage stamp back in 2002?

    So if this house price should fall back to 2002. Should then the prices of gasoline and postage stamps also?

    Does anyone ever consider the devaluation of the dollar in the past 5 years? What some of you consider a million dollars today might just be 800k of 5 years ago.

  136. Major Schadenfreude

    I’m guessing that loan officer will soon be visited by a lone officer with a new lock for the door!

  137. zoiks

    “In 1995, you could have bought a 2000 sf. house for $400k. Will that ever be possible. I can’t see it.”

    IMHO, you lack imagination. We all tend to be victims of herdthink. Very few people predicted the magnitude of the dot-com busts and telecom busts. I woked for a high-flying telecom company and talked to many people. Not a one (even people outside the industry and company) predicted our stock would fall 95% in a year’s time. Look at JDSU. How many people would have said a 99% drop in stock price was even remotely plausible?

    How many people would have believed that a rag-tag team of disgruntled Muslims would take out both WTC towers using boxcutters? Even if the Lord Almighty told them, the vast majority would have brushed it off.

    How many people were predicting a multi-year run of 30% annual appreciation in OC real estate in 1999/2000? I think most people would have responded “I don’t see it.”.

    I’m not picking on you. In fact, I’m not saying that $200/sqft in Irvine will definitely happen, though I tend to think it will. I’m just saying it’s very possible, and I doubt anyone visiting this blog could come up with a reasonable proof as to why it can’t happen.

  138. rkp

    How will you know what the rent is for the bigger properties. It is easier to understand the rent for condos and townhouses which are frequently rented out but how does one gauge what the equivalent rent is for this kind of 4000 sq ft property? The type of people who would rent such a house are very limited. It could rent as low as $3000 if the landlord just wants a tenant as soon as possible and as high as $5000 if the landlord works with corporate mover types who will place an exec and their family in the house.

    Obviously, those very different rental rates will produce extremely large swings in your calculations.

  139. ipoplaya

    Mine has 🙂

    Although it was under market in 2002 to begin with so don’t know how much an achievement that really is…

  140. Agent #777

    Obviously not brilliant responders like yourself!! (well, at least Genius truly is)

    We are leaving here next summer too, but there are plenty of jobs, trust me. And guess what? Less than 20% of the people have Neg-am or pay option mortgages, compared to what – 50% in Cal?

    Yes, SoCal is the best…have fun with the bankruptcy of the state, which will lead to some wonderful “ideas” from your leaders, all your wonderful undocumented immigrants with TB looking for more handouts, etc.

    SoCal truly attracts only the brightest and hippest people! Please never leave!

  141. Agent #777

    Ok, forgot to add rkp… if you were as smart as me, you would be telecommuting, and could live anywhere there is a high-speed web connection.

    But then again, you don’t even realize people DO that, do you?

  142. The Owner

    Several of my friends contacted me last night to inform me that some little site is spreading false information about myself and family. To me this is purely defamation of character, and whoever is responsible for creating such false information and this site will be held liable.

    Since I am the owner of this house and have all the correct information, why don’t I share it with all the concerned bloggers. We purchased this house in December 2002 for 870K without any landscape and improvements. We then spent a couple of hundred thousand on home improvements which brought our cost to about 1MM. Our original first mortgage was $696,000 with nearly 30% down. When the interest rates went down, we refinanced the first for $699,000 and last year our banker advised us to get a HELOC in the amount of $436,000 which has hardly been used.

    It seems like Irvine Renter and the people responsible for this site have bad data or just are just not familiar with the industry to analyze the data they find. I have read other blogs on this site and it seems that everyone here is waiting for prices to drop by half so they can justify purchasing a home. To me, a home is not necessarily an investment, but a place for my family to live and create memories. In my opinion, the stock market at this moment is a perfect place to invest your money.

  143. The Owner

    Several friends contacted me last night to inform me that some little site is spreading false information about myself and family. To me this is purely defamation of character, and whoever is responsible for creating such false information and this site will be held liable.

    Since I am the owner of this house and have all the correct information, why don’t I share it with all the concerned bloggers. We purchased this house in December 2002 for 870K without any landscape and improvements. We then spent a couple of hundred thousand on home improvements which brought our cost to about 1MM. Our original first mortgage was $696,000 with nearly 30% down. When the interest rates went down, we refinanced the first for $699,000 and last year our banker advised us to get a HELOC in the amount of $436,000 which has hardly been used.

    It seems like Irvine Renter and the people responsible for this site have bad data or just are just not familiar with the industry to analyze the data they find. I have read other blogs on this site and it seems that everyone here is waiting for prices to drop by half so they can justify purchasing a home. To me, a home is not necessarily an investment, but a place for my family to live and create memories. In my opinion, the stock market at this moment is a perfect place to invest your money.

  144. ipoplaya

    Hey Owner, if that is who you really are, you might want to think about having Gary drop your price. Nice place, but will not command $1.6M in this market. How exactly do you rationalize a price that is higher than peak in terms of dollar value and also percentage appreciation. If you are just tossing some crap pricing out there to fish for a sucker, that makes much more sense…

    In terms of defamation, you unfortunately have very little leg to stand on. Let me educate you a bit:

    #1 – A careful read of IR’s post suggests that his conjecture would likely not even meet the legal definition of defamatory. Also, defamation/libel would require statements made of purported fact, not opinion. Something like “if they had maxed out their HELOC” is very different legally from “I know they maxed out their HELOC and bought drugs”…

    #2 – Statements need to be knowingly false or least grossly negligent to make a case for defamation or libel. An incorrect interpretation of potentially confusing or incorrect public records would never legally be construed as knowingly false or grossly neglient.

    #3 – As IR never named you, and in the course of your day-to-day life or career, you likely would not make a habit of telling everyone your address, the issue of “damages” would be very hard to prove or even postulate. Having some neighbors look twice at you when you are pulling into the garage because they read the blog would be tough to use as your “damages” in a legal sense. Since you were never named, I doubt any sensible juror would agree that your reputation was materially harmed or that as a result of this you experienced extreme mental anguish.

    The bottomline is that you won’t hold this blog or IR liable because 1) IR has the 1st amendment to fall back on and 2) you have a very shaky, i.e. very poor legal basis with regards to the comments made and the definition of defamation/libel.

  145. zaleriana

    Hey Owner–I’d make sure to check into the apparent unreleased first mortgage–it does look like a release is missing or was misrecorded.

    Sorry about the bile-spewing; some people just like to believe the worst of others.

  146. rkp

    Agent – stop with the condencending tone. We probably have a lot in common seeing that you are a telecommuter just like me. I have been a work from home employee for over 4 years now and I clearly know how easy it is to call anywhere in the world home. Heck, you might be a telecommuter as well but have you really taken advantage of it? I enjoyed working in Europe for 3 months, Asia for 4 months, and most recently, 1 month in India. So please stop with the rude remarks.

    My point with RE being local is that though my job allows me to work from anywhere in the world, I need to live in SoCal because my parents are here, my wife’s parents are here, my brother and his wife, my wife’s brother, my best friends, etc. Hence, I need to make do with SoCal RE though it might not be the best value.

    There are many people who’s immiedate family is the most important thing and they can pick up and move in a heartbeat but its not the same for me. I grew up here and my extended family and friends are extremely important to me. Just last night, I was hanging out with one of closest friends that I met when I was 10 years old. We see each other regularly. How can I replace that kind of friendship?

  147. rkp

    Agent – stop with the condescending tone. We probably have a lot in common seeing that you are a telecommuter just like me. I have been a 100% work from home employee for over 4 years now and I was telecommuting half the time before that. I clearly know how easy it is to call anywhere in the world home and be able to work from anywhere. Heck, you might be a telecommuter as well but have you really taken advantage of it? I enjoyed working in Europe for 3 months, Asia for 4 months, and most recently, 1 month in India. Sure my sleep sucked at times but I was able to enjoy other parts of the world and truly get to live there vs. just visit. So please stop with the rude remarks.

    My point with RE being local is that though my job allows me to work from anywhere in the world, I need to live in SoCal because my parents are here, my wife’s parents are here, my brother and his wife, my wife’s brother, my best friends, etc. Hence, I need to make do with SoCal RE though it might not be the best value.

    There are many people who’s immediate family is the most important thing and they can pick up and move in a heartbeat but its not the same for me. I grew up here and my extended family and friends are extremely important to me. Just last night, I was hanging out with one of closest friends that I met when I was 10 years old. We see each other regularly. How can I replace that kind of friendship?

  148. rkp

    Heh, I got out of college in 2001 so my salary has tripled since then but I don’t think we are the average ipoplaya 🙂

  149. rkp

    Owner – thank you for sharing the true picture. There are some doom and gloomer types on this blog but if you read through the posts, you will find a lot of intelligent discussion.

    I agree with you that housing shouldnt be investments but then again, aren’t you expecting a very high rate of return? You spend close to $900K and perhaps spent close to $200K in upgrades. Why not price it at $1.1M if it isn’t an investment? There is nothing wrong with wanting to make money if prices do go up but your asking price is well above the asking price of similar properties.

  150. NanoWest

    This is truthi/ROC/hater/pebbles making this statement and not the real owner. You can tell by the style of writing.

    A few question —– supposed owner:

    a) First off if you purchased for $870.00; with a 30% down your mortgage would be $ 522,000 and not $696,000.

    b) Where did you get the “several hundred thousand for upgrades?

    And if you are the owner, why are you selling it now ?

  151. blacksheep

    According to The Owner, the memories only cost him 250 psf. I think he is in great shape, and should keep the house until prices go up. There is no way he will ever lose any money on this house… I would buy this house today at 350 psf if he/she would sell it.

  152. ken

    I agree with the owner. He’s trying to sell his house in a difficult market, pay off the 1st and the HELOC and move on without having to bring a check to closing. Breakeven is the goal I’m sure. It was smart to take out HELOCS or Refi based on higher and higher valuations and you didn’t need to lie at all on the Loan App. The appraisers get their money and deal flow thru the mortgage brokers. The Mortgage Brokers were all too willing to just look at GROSS income and your Credit Rating and you were good to go. Tell me and the Owner aren’t the only ones who knew this game was going on and got sucked into the ability to live large and keep current on the ever increasing debt because of the wealth effect of the bubble? And tell me you don’t know that when me and the owner know the game is over that you gotta at least try to recoup enough from a sale to pay off the debt. And tell me you don’t know that me and the owner might have to consider walking away if you just can’t take paying for the deflating asset for perhaps years before you’ll have a chance to get out cleanly. Who wants to lose money? No One. Who wants to do the right thing and sell their house and pay off their obligations and live a less stressed life? Everyone that I know of who is trying to sell their house. How many of us will not have enough money or time to do this right thing because the market is so locked up? I hope it ain’t me or this owner. Please, buy a house today and get this economy going again.

  153. mav

    are politicians going to go out and tell us to buy houses? like after September 11, when they told us to buy stuff, just go out and buy it, use your credit card, just buy stuff…. consumer confidence !

    Do something for your country, but a house !

  154. Agent #777

    Well, this post totally changes the argument from your first one!
    I have been to CA a few times, and yes, it was nice. The weather was fantastic. But I still don’t get the living in the city on 85K/year, and still not being able to afford my own car. Never got it, never will.
    As far as friends and family, fine, stay there. That has nothing to do with one place being a superior place to live over another, it just makes it better for you.
    And as I alluded to, I am not defending Florida – we are leaving in a few months. And when we do, my mother and my in-laws will be following soon after.

  155. Boston2TheBay

    Managers have fixed budgets for salary increases for a group fo people. Any F500 company or high tech firm likely has a rank and rate/up or out system. Bell curve distribution is usually how the increases are doled out. Some get 20+%, some get none.

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