I Wanna Be a Bagholder

I Wanna Be a Cowboy — Boys Don’t Cry

When the market was at its peak, there was a 40% or greater fall in front of it. The first wave of losses and defaults were late buyers using 100% financing. This made the banks the bagholders. This is why the banks have lost so much money so far and why our entire financial system is on the verge of collapse. The banks have generally eaten the first half of the drop, and they have not been anxious to be the bagholder for the other half. So the lenders have been lining up people with good credit and 20% downpayments to take one for the team.

Every knife catcher buying in 2008 will see their 20% downpayments evaporate before this decline is over. If they hang on long enough, they will get it back, but the banks are trying to provide enough of an equity cushion in the transaction to make sure they are not the bagholders for round 2 of the price declines. This is why equity requirements and qualification requirements went up so quickly. The lenders are betting that those with good credit and plenty of their own money in the deal will not walk away when prices drop. This is a good bet on their part. There will still be a healthy default rate from loans orginated in 2008, but it will not be near as bad as the defaults from 2004-2007.

Banks don’t loosen credit until well after the crisis is over. If you are waiting for the banks to bring back 100% financing when prices bottom, that is not going to happen. In fact, credit will be at its tightest at the bottom of the market. When almost nobody qualifies for a loan, and when almost nobody has the required downpayment, prices will be at their lowest because demand will be small (Remember, Desire is not Demand). If you are one of those who qualify and has cash, you will get a great deal.

In the meantime, the banks are lining up bagholders to absorb the remaining market losses. There is still plenty of kool aid in the market in Irvine, and there seems to be no shortage of those with good credit and enough cash willing to buy at our inflated prices. Of course, there is also no shortage of distressed properties either, and this supply will continue to grow. Bagholders provide a useful function. If these people did not step forward to overpay for housing, the banks would be absorbing even larger losses, and our economic system would be put in even more jeopardy.

So what do you think, do you wanna be a cowboy and ride the market missile all the way to the bottom?

Today’s featured property is a recently purchased REO that has been put on the market as a quick flip. It really looks to me like the buyer got cold feet and is trying to make a quick and graceful exit from the transaction. Smart move…

219 Terra Cotta Front 219 Terra Cotta Kitchen

Asking Price: $619,000IrvineRenter

Income Requirement: $154,750

Downpayment Needed: $123,800

Monthly Equity Burn: $5,158

Purchase Price: $585,000

Purchase Date: 6/30/2008

Address: 219 Terra Cotta, Irvine, CA 92603

Beds: 3
Baths: 3
Sq. Ft.: 1,510
$/Sq. Ft.: $410
Lot Size:
Property Type: Condominium
Style: Other
Year Built: 2003
Stories: 2 Levels
Floor: 1
View: City Lights, City, Fields, Hills, Park or Green Belt, Peek-A-Boo, Has View
Area: Quail Hill
County: Orange
MLS#: S551712
Source: SoCalMLS
Status: Active
On Redfin: 1 day

New Listing (24 hours)

View View View. Corner End Unit, 3bdrm 2.5bth. Ready To Move In
Condition. Upgrades Include Granite Counters, Stainless Steel
Appliances, 5 Burner Cook-top, Hardwood Flooring, Plantation Shutters.
Very Open Kitchen To Dinning Area. This Is Not A Short Sale. Fast
Escrow Possible.

View View View. Blah, Blah, Blah.

The property records on Redfin are incorrect. They did not pick up the sale on 5/18/2005 for $787,000. The previous owners who were foreclosed on bought the property with 100% financing using a $629,600 first mortgage and a $157,400 second. That is why the bank foreclosure was for $632,123 on 5/29/2008. If this property sells in the next month, it will be the third sale in 6 months. McDonalds doesn’t flip burgers that fast.

If these people bought this property as a quick flip, I think they would have priced it higher. If this sells for its asking price, and if a 6% commission is paid, these sellers will lose almost $5,000. Why would they do this? Even if one of them is a realtor and there is only a 3% commission, there isn’t much profit in the deal. I am thinking they must have changed their minds, and they want to get out before prices drop further. These owners have $234,000 in equity in the property, so the realtor is accurate in saying this isn’t a short sale. I guess they changed their minds about being a bagholder.

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.



Riding on the range,
I’ve got my hat – on,
I’ve got my boots – dusty.

I’ve got my saddle
On my horse.
He’s called….T-t-t-t-t-trigger
Of course.

I wanna be a cowboy
and you can be my cowgirl
I wanna be a cowboy
and you can be my cowgirl
I wanna be a cowboy

(woman’s voice)
Riding on the chuck wagon,
Following my man.
His name is Ted,
Can you believe that?
Camping on the prairie
Plays havoc with my hair.
Makes me feel quite dirty,
Though we all do sometimes

I Wanna Be a Cowboy — Boys Don’t Cry

52 thoughts on “I Wanna Be a Bagholder

  1. CapitalismWorks

    Unfortunately at >$400 a square for a condo this place is unlikely to move quickly. Perhaps they shoudl contact USCTMan29 for some insight in how to move this place…

  2. Texas Triffid Ranch

    And here’s another question for which I haven’t seen an answer, and I very seriously doubt that anyone’s keeping any serious metrics on it. I’m curious about the number of cases of cold feet with residential and commercial real estate: I hear plenty of anecdotes about buyers even putting money down on a house and then bailing out just before signing the paperwork, but is anyone keeping stats of these sorts of reversals?

  3. Alan

    A better song choice would be “Mystery to me”. With 100% financing, then why not speculate, though the direction that the economy is going is rather clear. But since stocks, bonds, commodities, are all tanking and you’re using someone else’s money it doesn’t hurt to try.

    However with a substantial sum of your own money, how can anyone give it so little thought or make such a borderline decision that within a couple of weeks or days they come to change their mind? Can this be some sort of ploy to feed money to the realtors involved? They’re the ones having a good time with this place. Otherwise, whatever is going on here is a mystery to me.

  4. Buck Thrust

    for months now, i have been addicted to this website more than any other. it is entertaining and informative in the extreme

    what is lost in the financial and historical analysis is the tremendous loss of, literally, human habitat in california and florida… places where in theory you could survive sleeping outdoors for the forseeable future

    i hope someone with a soft-science degree can come up with another website that asks: (i) if foreclosed, where did you go? (family, rental, the street, another state) or (ii) if in danger of foreclosure, where do you plan to go…

    spice it up with interviews and political snark at the state level(of course)–what does, i wonder, Dr. Schwarzenegger, the non-girly-man ‘governor’ of our silly state think of people sleeping in cars in Venice Beach? i think we should be told. at least we could make a party out of it

    1. Paul P.

      Buck Thrust… A really really good idea/observation on your part (“Where did they go?”). I also thought this.

      Point: When moving down from L.A. last May, the realtor(s) all told me “Grab the first decent rent you can find; The foreclosed-people are snapping up the rents”. NO, THEY ARE NOT. For every rent-change, I ask (“friendly chat”)the newcomers where they came from. So your question is all the more relevant. Here in Quail Hill (apartments) the largest units (w/2-car garages) rent instantly. Rent-mgrs lament the number of “vacant 1BR units”. But, here the number of these “largish units” is exactly *14* that’s it. Not nearly enough to absorb foreclosed-out families, and in any case I don’t think “foreclosed-out” reads very well on your credit-check.

  5. obh

    Need Proof of Income? Make Fake Pay Check Stubs Here! Create Free Sample Paycheck Stub Template
    (2008-10-22) www fakepaycheckstubs com

    1. Mike7

      Thats hot, the crazy thing is people actually think if they get the loan they won something. It’s like “we made it”. They don’t know what kind of financial jail they just fell into.

  6. Stryker1sf

    Love the picture of Slim Pickings starring in “Dr Greenspan or: How I Learned to Stop Worrying and Love the [Housing Market] Bomb

    1. Matt

      I’ve always had mixed feelings about this scene. Out of necessity, Kubrick had to have him face backwards on the missile, otherwise, his backdrop would have simply been the sky. It would have failed to convey movement.

      However, it also ends up making Slim appear like that much more of an idiot cowboy…he can’t even ride his “bronco” facing the right way! (Insert symbolism of doing things ass-backwards here)

      So, the symbolic nature (combined with the simple film necessity) makes sense, but the image is still off-putting. Maybe that was Kubrick’s intention?

      1. djd

        (Note: this post contains movie spoilers for Dr. Strangelove!)

        Why would Major Kong [Slim Pickins] be facing backwards when riding the bomb? (It’s not a missile.)

        Well, it was pretty clearly an accident that he was there at all: he had been repairing damaged electrical wiring above the bomb so that the bomb bay doors could be opened. When he got the doors to open, the plane had already reached the release point. The bomb was duly released before any of the other crewmen realized that he would go along with it. The bombardier [James Earl Jones] memorably asks “Hey, what about Major Kong?” a few seconds later.

        My interpretation of the following shot of Kong riding the bomb is that he decided to enjoy his last few seconds on earth as best he could.

        His failure to face forward should thus not be taken to imply incompetence on his part – recall that we see him performing well both as a pilot and as the commanding officer of the plane.

  7. Walter

    I was sitting on the bike at the gym and this guy sitting next to me starts making conversation. I ask him what he does, and it ends up he processes lease return and repoed cars.

    Funny thing he said was that RVs are still selling. I said that is odd and he thought so too. Then come to find out many of the people buying them are people that have been foreclosed on and they are using them to live in. Kinda funny how these situations play out in unexpected ways.

    1. Hormiguero

      that and gas under 3 bucks. the rv business was on death’s door just a few months ago, but probably rebounded a little since.

      sadly, i don’t think this will help property valuations in the sticks too much, despite the fact that expensive gas also harmed their valuation this year.

    2. Joe Joey Joe Joe

      At my 24 hr fitness there are no less than 4 RVs with folks living in the parking lot. I see them walking their dogs nightly and sometimes they come in and use the showers.

      1. Mike7

        Thats sad. I showered at LA Fitness for 2 weeks during my remodel, I’ll never forget it. It was the worst experience, I had fags trying to pick up on me on several occasions. Started showering with my board shorts real quick.

        1. Hans

          So Mike,
          is that 7 after your name a bag of air claim your making about your member?
          Did you suggestively touch yourself for those horrible fags to pick you up all 7 and Mike of you?

          The seller here is ignorant of market conditions and is going off of the quickly fading stima of cardboard opulence surrounding the dense condo / apt areas of quail hill. I used to live in Quail Hill, and it’s a nice place, but this price is far too high. It won’t sell,

      2. Paul P.

        Doing a little homework, I find a really-nice 3yo “pop-out” RV (definitely OK for 2-adults and 2 little-kids or 1-teenager) can be had for $60K Out-the-door.

        So, that’s approx $8K/yr or $12K/yr “all expenses included” or $1K/month pretty cheap! Esp if 24hr Fitness isn’t charging a parking fee…

        Yes “oversimplified” but the picture is getting clearer…

    3. Paul P.

      Had an interesting chat w/repo-man. The guy was a “pro” who worked for the sales-agency that specialized in selling cars to “people with zero-credit”. The cars all have GPS, and an “immobilizer”. So, if late-pay the car is disabled, and the GPS tells the repo-man where to go and get it.

  8. IACRenter

    I actually saw this property at an open house a couple weeks ago while exploring Quail Hill. The RedFin aerial view is incorrect. It is actually located on the most rear, interior location overlooking the park and has direct mountain and partial city views. The place is too small for my needs but is very quiet and secluded. The view from the 2nd floor Master balcony is nice.

      1. Jwinston2

        So you think this placed is worth around $343/Sq.Ft?

        I do not think I am going to be moving to Irvine if people really believe a condo is worth that much money.

        1. AZDavidPhx

          This is exactly why I would never consider moving to CA. The average salaries are not THAT MUCH higher and the cost of living is outrageously off the chart. Everyone spends a huge portion of their income on their rent/mortgages and gasoline. It’s ridiculous.

          1. Kirk

            It’s spelled “ridicules” and it is anything but. Don’t try to fight the market Dave, it is way too powerful.

        2. ockurt

          Do I think it’s worth it? No, but someone will pay $350 sq. ft. for this place. That’s the going rate for nicer parts of Irvine.

          You don’t have to move to Irvine. There’s lots of nice areas in OC that are much cheaper.

      2. mmg

        how about over priced by 300k, no one making over 150k would be interested in a CONDO sized home esp with family.

    1. alan

      ‘the place is too small for my needs”

      You mean your not the typical Irvine hobbit and need a larger hobbit hole.

      I hope 3bdrm under 1800 sq ft goes out with the rest of this bubble.

      1. shiny

        Hello Knife-catchers! Ipop told me this place is going into escrow anyday now, as if that is something to celebrate: yet another future underwater walkaway. Meanwhile, the financial markets continue to whipsaw out of control as massive deleveraging takes place across the globe. But this is Irvine, and damnit, we deserve unsustainable, unjustifiable, and simply repugnant-to-common-sense 600K townhomes.

        1. Major Schadenfreude

          “as if that is something to celebrate”

          I’m thinking it is something to celebrate when brave citizens step forward to offer their hard earned savings to the banks when purchasing a house right now. They are essentially helping to bail out the banks, so it is just that much more money which I, the taxpayer, will not have to subsidize in one covert form or another in the coming years.

  9. Jeff

    Two comments unrelated to today’s topic: First, it’s good to see Lemmy on IHB, especially on a Friday. Second, I saw a jackass this morning in a flashy Chrysler 3000 (leased no doubt) with vanity plates reading “REFI PRO.” Car had tricked out wheels of course. He was dropping his wife/girlfriend off at work in front of my building, so I guess he’s not that rich after all. Not surprisingly, he was dressed in a Chargers jersey (I’m in SD) rather than professional attire, complete with gold chain.

    1. Soapboxpolitico

      Yeah, we’re going to see those real sleeze-bag types coming out of the woodwork soon enough. In fact, just the other day going down the 241 from LF to Irvine a classic mid-life crisis went flying past, as if 75 mph weren’t fast enough for his blood.

      Classic cliche this dood. Mercedes SL500, top down, comb-over, 50+ with the french blue button-down with white collar. Oh yeah, you know the type! Best part about this freak? He had vinyl signage on the SL that said, and I quote “Make a Fortune in Foreclosures. Call xxx-xxx-xxxx to find out how”

      It was all I could do to stop myself from running the asshole off the road. Where the hell do these toadies crawl out from?

  10. Matt

    I do like the place. Not going to think about paying $400/sqft for a condo, though. Wouldn’t even consider $300/sqft.

  11. dilbert dogbert

    Re: Bagholders
    The guy who just offered full asking with no contingencies on our house is putting 25% down. Yikes! We wanted to rent back for a month or so but PIPT was $10000 per month. Just a little steep for us. The RV idea is attractive.
    I have been pushing the wife to rent for a couple of years but she has always owned a home so that is hard sell. What with the hit we have taken on our investments I don’t want to take another hit on a house.
    We can live at no extra expense at our cabin in the Sierras but winter snow lasts 6 months. Brrrrrrrrr! Or we can kick the renters out of my old house but that cuts into the cashflow. They also have been good renters so that is an unattractive idea.
    Decisions Decisions.

      1. dilbert dogbert

        To get money to buy the other cabin owners out.
        Wife’s property and her kids want to keep it rather than sell. The kids are young and haven’t developed the net wealth to be of much help, yet. It was and still is a tough decision on her part as our house, the one we sold, is a better investment than the cabin. Both are valued in the same ball park but if we don’t live in it, it is a cash flow drag. It is a great place to vacation with a lake to sail on or water ski or snow ski or bike/hike. The kids will get a great place when we pass from the scene.
        It is a great pain in the ass to uproot from a home, for her, of over 30 years. Imagine the amount of crap one collects over those years. How to decide what to keep and what to toss.
        Decisions Decisions

  12. Jim Jones

    Off Topic question:

    Chris Dodd is pushing the Government to act on the mortgage rewrite provisions of the Bailout program to allow people to remain in homes that they had no business buying in the first place.

    Of course I think it patently unfair to those of us who exercised caution during the bubble to take any actions that help to keep home prices at their still insane levels. I’m wondering how much of this will be possible given that most of these folks have two loans and there is also the issue of these loans being broken into multiple pieces after they are sold. Anyone have any educated predictions here?

    1. Soapboxpolitico

      Jim J. — I’ve heard Dodd yapping about this one for months. IMHO any such plan as this will fail. The fundamentals of the market will simply not allow any mechanism that artificially sets prices at inflated levels. In a very oversimplified and indirect way we are seeing this happen right now with the wholesale deleveraging of nearly all types of asset classes on the open market.

      One of two things happens. First, they try this plan and prices stabilize momentarily, by that I mean for a few months, while homedebtors catch their breath. Very quickly these people realize they’re forever trapped in their home/prison and they’ll never be right-side up. They then figure out how to get out from under the deal, again sticking the banks with the foreclosure. Second, no one will actually qualify for a loan workout under this program because prices will slide too quickly for anyone to get a realistic handle on valuations. So nothing happens but a lot of gnashing of teeth and wringing of hands.

      Finally. The ultimate fundamental is that of affordability. It’s been said that something is worth what someone is willing to pay. Very true. But I’ll add to that something is worth what someone CAN afford to pay. The hard fact is that here in So.Cal. (and other bubble areas) a very small percentage of wage earners can actually afford to buy $600k-700K homes. Just glance at IR’s “Income Requirement” in his postings to see what I mean. You need to make $150K/yr. to swing a $585K condo. Not one single person I know who makes that kind of money is champing at the bit to plunk down $100K of their cash to buy an average condo … TR or QH or not. I’M CERTAINLY NOT rushing out to buy this joint and I can afford to do so if I were inclined.

      Be patient. All good things to those who wait.

  13. True_Blue

    Dumb question–how can this place have 1 floor and have 2 levels/stories? Is this some condo-speak that I’m ignorant of?

    1. Mike7

      I don’t think it has something to do with the architecture. I think is just a small 2 level p o s for over 1/2 a mill.

  14. tonyE

    I still don’t think that the banks won’t lend at the bottom.

    In fact, I got a feeling that the magnitude of this drop will force the banks themselves to throw in the towel.

    At that point, I figure they’ll be happy to sell the place to someone that will take if off their hands. At whatever price.

    And, I figure they’ll be willing to do a 100% financing just to get the property off their hands so long as (a) the buyer has excellent credit and (b) it’s purchased as a rental income property with a well thought out business plan.

    I really think I might want to pick up some rental properties in two years or so….

    1. WaitingToBuyByAndBy

      First, IrvineRenter has written about the end of 100% financing. You should take a look at his analysis columns including: https://www.irvinehousingblog.com/blog/comments/the-fallacy-of-financial-innovation/

      Also, Congress removed the down payment assistance programs that made 100% financing available from sellers and builders. Yes, there is talk to find some way to restore it (in order to make the still too high prices affordable to buyers) but there are higher priorities in progress (i.e. the coming financial panic).

      I suggest you learn from my mistake. As a single-income family, we got priced out before the bubble really got going. All I did was complain to family and friends as I watched prices go higher and higher.

      What I should have been doing for the last five years was saving up for a down payment. I knew the bubble would eventually burst and prices would return to normal, it just didn’t occur to me that I could (as IR suggested in https://www.irvinehousingblog.com/blog/comments/timing-does-matter/) start living as though I did buy a home. That is, figure what my monthly house ownership cost would be and start socking away the difference between rent and homeownership.

  15. Wing

    Bush / AG Did It On Purpose.

    When George W. Bush was named president by the Supreme Court in December 2000, the stock market had begun to decline with the bursting of the dot.com bubble.

    In 2001 the frequency of White House visits by Alan Greenspan increased.

    Greenspan endorsed President Bush’s March 2001 tax cuts for the rich. More such cuts took place in May 2003.

    Signs of recession had begun to show in early 2001. The stock market crashed after 9/11. The U.S. invaded Afghanistan in October 2001 and Iraq in March 2003.

    The Federal Reserve began cutting interest rates, and by 2002 a home-buying frenzy was underway. Fannie Mae and Freddie Mac went along by guaranteeing the increasing number of mortgage loans.

    According to a mortgage broker this writer interviewed, word began to come down through the mortgage banks to begin falsifying mortgage applications to show more borrower income than borrowers actually possessed.

    Banks that wrote mortgages began to offload them when Wall Street packaged them into mortgage-backed securities that were sold around the world as bonds to investors.

    Risk-analysts at the leading credit-rating agencies, such as Standard and Poor’s, Moody’s, and Fitch, gave their highest ratings to mortgage-backed securities whose risks were later acknowledged to be grossly underestimated.

    Mortgage companies, with Alan Greenspan’s endorsement, began to offer more Adjustable Rate Mortgages (ARMs), loans that would reset at much higher rates in future years.

    Mortgage brokers fed the growing bubble by telling people they should buy now because housing prices would keep going up and they could resell at a profit before their ARMs escalated.

    Huge amounts of money began to flow into the economy from mortgages and home equity loans and from capital gains on resale of inflating property.

    Meanwhile, in the world of investment securities, the Securities and Exchange Commission greatly reduced the amount of their own capital investors were required to bring to the table, resulting in a huge increase in bank leveraging of speculative trading.

    George W. Bush was reelected in 2004 at the height of the housing and investment bubbles. By 2005 the housing bubble was accounting for half of all U.S. economic growth and yielding huge tax revenues to all levels of government.

    Despite the tax revenues from the bubbles the Bush administration was running huge budget deficits from expenditures on the wars in Afghanistan and Iraq.

    ABC News reports that during this time risk analysts at Washington Mutual, one of the nation’s largest banks, were told to ignore high risk loans because lending had to be maximized. Those who objected were disciplined or fired.

    State attorneys-general moved to investigate mortgage fraud but were blocked from doing so by orders of the Treasury Department’s Comptroller of the Currency. There was no federal agency that was charged with regulating mortgage fraud.

    The “toxic debt” from the collapse of the housing bubble brought about a full-scale crash of the U.S. financial system by September 2008. The stock market immediately fell, with 40 percent of its value — $8 trillion — now having been lost in a year. $3 trillion of the losses were in retirement savings.

    The crash of the U.S. economy began to reverberate around the world with bankers and the IMF warning of an onrushing global recession.

    Massive bailouts by the U.S. Treasury Department and the Federal Reserve failed to stem the tide of the crashing markets. By late October 2008 the recession has begun to hit in force.

    As the situation worsened, big banks like J.P. Morgan Chase received government capitalization even as they were buying up banks that were failing. J.P. Morgan Chase paid $1.9 billion for Washington Mutual with assets of over $300 billion.

    1. It All Happens on the Margin

      You lost me at “When George W. Bush was named president by the Supreme Court in December 2000”

      So they stopped the freaking re-recount by a margin of 7-2.


      The press already counted the ballots and determined Bush won.

      Give it up. We all know he’s a moron, you don’t have to make yourself look like one, too. Oh, and *news flash* – the uptake on visitors reading Tolstoy novels in a blog is something like: zilch. Bite size, not king size, big guy.

      Enjoy the Obama victory party.

  16. Bitter Renter

    Thanks for the trip down memory lane with the song this time, IR. Somehow as a teen I managed to miss the joke of the guy with the East Indian accent saying “White man speak with forked tongue” — that made me LOL. Also never caught the pleasingly cheesy video back in the day.

  17. exhibit rentals

    The financial markets continue to whipsaw out of control as massive deleveraging takes place across the globe. But this is Irvine, and damnit, we deserve unsustainable, unjustifiable, and simply repugnant-to-common-sense 600K townhomes.

Comments are closed.