Fifty Ways to Leave Your Lover — Paul Simon

There are many ways people lose their houses. Borrowing two and one-half times what you paid for it is one method unique to the Great Housing Bubble. Perhaps I am just naive, or perhaps it is because I had never lived in a bubble market prior to moving to California, buy I had never heard of mortgage equity withdrawal for anything other than necessary home repairs and improvements. The whole idea that one could or would add to a mortgage to pay off other debts, buy consumer goods, take vacations or supplement one’s lifestyle is an alien concept. In fact, I did not realize how common this behavior was until I started studying what went on during the bubble. I am still astonished every time I see a property like today’s.

Asking Price: $535,000

Income Requirement: $133,750

Downpayment Needed: $107,000

Monthly Equity Burn: $4,458

Purchase Price: $195,000

Purchase Date: 8/15/1988

Address: 7 Skipper, Irvine, CA 92604

Beds:	4
Baths:	3
Sq. Ft.:	2,000
$/Sq. Ft.:	$268
Lot Size:	2,720 Sq. Ft.
Property Type:	Single Family Residence
Style:	Contemporary
Year Built:	1976
Stories:	2 Levels
Area:	El Camino Real
County:	Orange
MLS#:	S531617
Source:	SoCalMLS
Status:	Active
On Redfin:	92 days
Unsold in 90+ days

When I first saw this property, I was prepared to write a post on how owners with a great deal of equity are in a position to drive prices lower because there is nothing stopping them from lowering prices to find the market. Since this owner has lowered his asking price $90,000 since May, he has been behaving like an owner with a lot of room to maneuver. Little did I know…

This property was purchased during the frenzy of the late 1980s. The owners paid $13,000 more than a flipper paid 8 months earlier. The property records do not show the amount of the original loan; however, it does show a refinance in 1998 for $180,800 which was probably when the values came back enough for the owners to refinance their original loan. In 2002, they refinanced with a $195,000 first mortgage and got their first taste of kool aid. It must have been good. A couple of weeks later they opened a $50,000 HELOC. They were relatively conservative borrowers until May of 2005 when they took out a $381,700 first and a $185,000 HELOC pulling out some serious cash. In December of 2005 they took out an Option ARM with a $552,000 balance. It had a 2.75% teaser rate. They also took out a $68,000 HELOC. The total debt on this property is $590,000 — which explains their initial asking price. The total mortgage equity withdrawal exceeds $395,000.

Another day, another Option ARM/HELOC implosion.

I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

🙂

.

The problem is all inside your head, she said to me
The answer is easy if you take it logically
Id like to help you in your struggle to be free
There must be fifty ways to leave your lover

She said why dont we both just sleep on it tonight
And I believe in the morning youll begin to see the light
And then she kissed me and I realized she probably was right
There must be fifty ways to leave your lover
Fifty ways to leave your lover

Fifty Ways to Leave Your Lover — Paul Simon

Hold On — Wilson Phillips

Last Friday, I wrote a post titled Downpayments Are Back. After taking the weekend to contemplate what this really means for homeowners who are thinking about walking away from their obligations, I have changed my mind on what I believe they should do. If they can manage their payments, they should consider trying to hold on, even if the house value has dropped well below their purchase price. There are still a great many overextended homeowners and speculators who cannot possibly manage their payments, and trying to hold on until the market comes back is a foolish waste of time and resources. The market is not going to come back before they go under. However, for those who can make the payments, there emotional benefit of home ownership may be worth the financial hardship it entails. When downpayment requirements were eliminated during the bubble rally. Many people who are not in the habit of saving were suddenly able to purchase a home — albeit at a greatly inflated price. For people who do not have the habit of saving money, they will never come up with even a 3% downpayment to obtain an FHA loan much less a 20% downpayment like everyone else will need. The house they are in right now may be the only house they ever own in their lifetime. If they bail out, the new (and permanent) downpayment requirements will probably ensure they never own again. Under these circumstances, even if they are upside-down on their mortgage, and even if it might make more sense financially to go back to renting, there is a strong emotional desire to own a home, and this may be their only chance to satisfy this emotion. Many of our decisions in life are not based purely on a basis of economics. Having children is not a great economic decision, but the love of family makes the economic sacrifices worthwhile. If satisfying the emotional desire to own a house is worth the sacrifice in terms of elevated household expenses, perhaps it is the proper decision for those owners on the margin to stay put. It is not the right financial decision, but perhaps it is the right life choice.

I have another piece of advice for the homeowners who are facing an exploding Option ARM that will not save them from foreclosure, but it may provide a way for them to reenter the housing market at some future date. Freddie Mac recently changed their servicer guidelines and eliminated compensation to servicers who foreclose quickly. The effect of this change in incentives will be a longer foreclosure process once people stop making payments. This is where the advice comes in. When owners with an Option ARM face their loan recast, there is little hope of affording the payment, so they should not try. What they should do is immediately start saving the amount of the payment they used to make on their mortgage. If the foreclosure process drags out a year or more, they could easily save the 3% necessary for a downpayment on an FHA loan. They may have to wait a while for their FICO scores to improve to qualify for the FHA loan, but when they do, they will already have saved their downpayment. Will many people do this? Probably not. Many people will simply spend the money they should be saving and be no better off for not having a housing payment for an extended period of time, but for those that do, they have the opportunity to save and prepare for home ownership again.

So what do you think? Should they stay, or should they walk?

Today’s featured property is a short sale. It is owned by a speculator who already got what he could out of the property, and now he is walking away.

Asking Price: $250,000

Income Requirement: $62,500

Downpayment Needed: $50,000

Monthly Equity Burn: $2,083

Purchase Price: $330,000

Purchase Date: 5/27/2005

Address: 139 Briarwood, Irvine, CA 92604

Beds:	2
Baths:	1
Sq. Ft.:	921
$/Sq. Ft.:	$271
Lot Size:	–
Property Type:	Condominium
Style:	Other
Year Built:	1985
Stories:	1 Level
Area:	West Irvine
County:	Orange
MLS#:	R807405
Source:	SoCalMLS
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

The pictures in this listing are ridiculous. They show one ugly photo of the outside of this apartment condo, and 13 of nearby facilities. Most of the pictures are from Woodbridge, and this unit is not even in Woodbridge. I guess that is why you have to take a long walk around the lake.

For those of you tracking percentage declines, this one is a healthy 25% off. The owner used 100% financing when it was purchased, and then opened an HELOC that allowed him to extract another $34,000. It was if he sold at peak pricing. The total debt on the property is $354,000. If this property sells for its asking price, and if a 6% commission is paid, the total loss will be $119,000. Washington Mutual gave him the HELOC, and they will absorb the loss.

.

I know this pain
Why do lock yourself up in these chains?
No one can change your life except for you
Dont ever let anyone step all over you
Just open your heart and your mind
Is it really fair to feel this way inside?

You could sustain
Or are you comfortable with the pain?
Youve got no one to blame for your unhappiness
You got yourself into your own mess
Lettin your worries pass you by
Dont you think its worth your time
To change your mind?

Hold On — Wilson Phillip