I dont care what you say We never played by the same rules anyway.
There are some listings where you can tell the owner just doesn’t care anymore. Put yourself in his shoes: the house you own is worth far less than you paid and far less than you owe. There is no way you can sell it for enough to get any of your money back, and your credit is shot. Why would you care?
There was a time when people purchased houses because they wanted to provide a home for their family. They took on debt they could reasonably afford, and they made payments until they sold. If they made a little money in the transaction, that was a bonus. Once prices started going up, and people saw that could make a great deal of money by owning, the profit motive started to creep into their thought process. Once prices really went up a lot, and did so very quickly, profit became the primary motivation for buying real estate. The fact that they could live in the place while they were making a fortune was a bonus. That is still the psychology dominating our real estate market, and it is the primary motivation behind the continued activity of knife catchers buying at what are still grossly inflated prices locally.
In time this psychology will change. Lenders are no longer going to enable speculation with 100% financing and liar loans, and worse yet, they are actually going to require people to pay off mortgages. Serial refinancing is over. Oh the horror of it. Can you imagine what will happen to prices when people start believing they will actually have to pay off the debt from their wage income? The Ponzi scheme of ever-increasing debt where each buyer was more leveraged than the last has come crashing down. It is only the few knife catchers who believe they will get to pass this debt on to someone else who are willing to buy in this market. We should probably thank them. Someone has to absorb the losses between today and the eventual bottom.
Welcome Home!!!! Charming 3 bedroom home with a nice open
floorplan………separate formal dining room perfect for the
holidays……nice kitchen with a breakfast bar……romantic fireplace
just in time for winter and fall……large master with a private
balcony…….walk in closet…….and a private yard. Walking distance
to the association’s amenities, shopping and freeways. Great property
in University Park!!!
I like to use an ellipsis, particularly when there is more to a particular thought. What is the point of the series of periods above?
And of course, there are the obligatory multiple exclamation points.
The property was purchased as a flip right at the peak. The owner paid $675,000 on 7/31/2006. He used a $540,000 first mortgage a $100,000 HELOC and a $35,000 downpayment. On 11/15/2006 he refinanced with an Option ARM for $576,000 and took out a HELOC for $72,000. If this property sells for its current asking price, the total loss will be $167,494 after a 6% commission. There are much better deals in University Park, so it isn’t likely this will sell for its asking price.
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.
🙂
{book}
Well you can tell evryone Im a down disgrace Drag my name all over the place. I dont care anymore. You can tell evrybody bout the state Im in You wont catch me crying cos I just cant win. I dont care anymore I dont care anymore
I dont care what you say I dont play the same games you play.
cos Ive been talking to the people that you call your friends And it seems to me theres a means to and end. They dont care anymore. And as for me I can sit here and bide my time I got nothing to lose if I speak my mind. I dont care anymore I dont care no more
I dont care what you say We never played by the same rules anyway. I Don’t Care Anymore — Phil Collins
Wonder why things are going so well You want to know why?
cause Im a liar, yeah, Im a liar
Remember all the fun speculators had with stated-income loans? Loan documentation is
usually a routine part of obtaining financing. Lenders ordinarily
require a borrower to provide documentation proving income, assets and
debt. However, during the final stages of the Great Housing Bubble,
loan documentation was seen as an unnecessary barrier to completing
more transactions, and loan programs which circumvented normal
documentation procedures flourished. In short, liar loans were everywhere.
So are these people getting their comeuppance? No. In fact, they are getting a second chance, and this time they get to lie about income in the other direction. Let me explain.
So you stagger back home and wait for nothing But the solitary refinement of your room spits you back onto the streets
Everyone is doing loan modifications now: Citibank, the GSEs, everyone. They must. You saw in yesterday’s post how destructive the upcoming wave of ARM resets is going to be, and the lenders know this. They will do every loan workout they can to avoid more foreclosures. Part of the loan workout requires the borrower to demonstrate they are unable to make payments, and their income is going to be used to figure out how much principal reduction and other loan terms the bank will adjust to accommodate them. I think you can see where this is going… All the people who exaggerated their incomes to obtain more house than they can afford, are now trying to look as poor as Church mice to get the biggest mortgage principal reduction they can: the reverse liar loan. They lied to get in, now they get to lie in order to keep it. We have a great system in place, don’t you think?
The problem is even bigger than that. The whole loan modification process has built-in moral hazard that is going to burn lenders on a grand scale. I received an email from a realtor friend (yes, some realtors actually like me) that had this story to tell:
A
friend of mine from college purchased a new home in Victorville for
around $450,000. At the same time many others in his neighborhood
purchased as well. My friend and his neighbor were both paying their
mortgage. However, his neighbor called his mortgage company requesting
a loan modification. The mortgage company explained that he is not in
default and therefore they will not complete a loan modification. My
friend’s neighbor decided to quit paying his mortgage while he
continued to make payments on his four-wheeler, quad, and other toys
and make trips to the desert weekly. He called the mortgage company
back a couple of months later and received a principle reduction of
circa $100,000. My friend, a very smart person, math thesis of the year
award winner in college, with a masters degree in math, vice principle
at a high school making excellent money, expresses to his neighbor that
he is upset that his home is worth $100,000 less than he paid for it,
however his neighbor then explains that he received a $100,000
principle write down by not paying his mortgage and negotiating a loan
modification. Stopping by his house a few weeks ago on the way back
from Las Vegas my friend explained this to me and said he thinks that
he is going to get a modification as well.
These loan modifications are going to cause a chain reaction through entire neighborhoods and communities. Are you going to be the only one in your neighborhood who didn’t quit making payments in order to get a loan modification? It is really that simple: stop making payments, and you will get a loan modification. Keep making payments, and you will not.
What is the morality of this? Is this wrong? The holder of your mortgage is offering to give you a great deal of free money if you stop making payments. You are not forcing them; they are freely offering the loan modifications to anyone who qualifies. By not making a few payments, you qualify. If Uncle Sam said to you that you must pay your full tax bill by April 15th, but if you are 90 days late, we will knock 1/3 off. What would you do? Is it immoral to take the discount?
The government’s and the lender’s response to this financial crisis is evolving from an irritating curiosity to a complete WTF-are-you-doing series of terrible missteps. How much more wrong could they be? How much more damage are they going to do by trying to solve the problem? How much is this going to end up costing the rest of us? Is this where our $700,000,000,000 is going? Let them eat cake.
Today’s featured property is a typical Irvine rollback. The owner bought at the peak with an Option ARM, and now he is giving up and letting the property go. Perhaps he should just do a loan modification and get $200,000 knocked off his mortgage…
Located in the desirable University Park community of Irvine,this
beautiful 4 bedroom, 3 bath family home combines a comfortable classic
exterior with an updated contemporary interior. The totally remodeled
kitchen (completed in 2007) includes custom maple cabinets w/ multiple
pull-outs, granite counter tops and back splash on a center bar with an
over-hang for casual dining, stainless steel counter tops w/ built-in
commercial style sink, DCS stainless steel 48′ natural gas range,
double oven and an 1800-cfm stainless steel hood. The family room is
wired for surround sound, has a beverage service area, recessed
lighting and lots of storage space. The formal living room has vaulted
ceilings, built -in book shelf, pre-wired speaker nooks and a marble
fireplace. Add to that a new Trane central air-conditioning system with
dual drives for energy efficiency and a new Trane furnace with a fully
programable thermostat with touchscreen controls.
I really don’t know what these owners are thinking. This property was originally listed in July for $799,000, and then it was pulled from the market. It was relisted at a higher price in September (must have been that huge rally we had), and now they have lowered the price back to the original asking price. It is still too high. If it was a reasonable price, they would have had offers months ago. I guess losing a lot of money has affected their judgment.
This property was purchased at 9/8/2005 for $950,000. The owner used an Option ARM for $712,500, a HELOC for $100,000, and a downpayment of $137,500. They then spent a lot of money renovating the property and got another HELOC for $143,000 (They probably paid off the other one). The total debt on the property is $855,500 assuming the final HELOC is fully tapped. There is a good chance it isn’t. This seller may be in a holding pattern at $800,000 because that is what they need to pay off the loans. They know their downpayment is gone. All that work, and they get to lose all their money. Bummer.
{book}
You think youre going to live your life alone In darkness and seclusion… yeah, I know Youve been out there and tried to mix with those animals And it just left you full of humiliated confusion So you stagger back home and wait for nothing But the solitary refinement of your room spits you back onto the streets And now youre desperate and in need of human contact And then you meet me and yur whole world changes Because everything I say is everything youve ever wanted to hear So you drop all you defenses, Im perfect in every way cause I make you feel so strong and so powerfull inside You feel so lucky But your ego obscures reality that you never bothered to Wonder why things are going so well You want to know why?
cause Im a liar, yeah, Im a liar Ill tear (rip) your mind up, Ill burn your soul Ill turn you into me, Ill turn you into me cause Im a liar, a liar, a liar, a liar…
I would like to welcome readers of the OC Register to the Irvine Housing Blog. We provide analysis of market trends and profiles of properties in Irvine, California. Today we have an analysis post, like many that can be found in our analysis section, and we also have a property profile showing the distress in one of Irvine’s newer neighborhoods. Thank you for stopping by.
but you tell me over and over and over again my friend, ah, you don’t believe we’re on the eve of destruction.
There has been plenty of conjecture about the impact of adjustable-rate mortgages (ARMs) on the future of our housing market. Some people believe that if interest rates remain low that the upcoming ARM resets will not cause many foreclosures. This is wrong. Today’s post examines what will happen when these resets occur, and it will demonstrate why this problem is so big.
By now, most of you have seen the ARM reset schedule shown above. But what does it really mean, and why is this a problem? ARMs became very popular in the bubble rally because they allowed people to finance huge sums of money with smaller payments. In time, it became the only viable alternative for financing. There are two types of ARMs: interest-only and negative amortization (Option ARMs). A typical ARM has a fixed interest rate for a brief period, then the interest rate adjusts and the payment is recast. Option ARMs tend to me more complicated. They have more frequent adjustments — which are almost always to higher rates and higher payments — and they have the option to pay less than the interest-only amount which results in negative amortization (a fancy way of saying your mortgage balance goes up). There are two terms that are important to understand with respect to ARMs: reset and recast. A reset is a change in interest rate being charged on the loan. These loans are all scheduled to reset at different times, and depending upon changes in the underlying index rate, the interest rate may go up or down. When the interest rate changes, or when the amortization method changes, the payment is recast which means it changes. Any change in payment is technically a recast, but the dreaded recast, the recast that causes all the problems, occurs when the amortization changes and the loan must be repaid.
It is not the interest rate reset that is the main problem, it is the recast to a fully amortized repayment schedule that causes dramatic payment shock.
Don’t you understand, what I’m trying to say? Can’t you see the fear that I’m feeling today?
At some point, a loan must be paid off. All loans eventually revert to fully-amortized loans requiring the borrower to pay back both the interest and the principal. During the bubble, people believed they could refinance continually from one ARM to another in a process known as serial refinancing. Most borrowers have come to believe mortgage debt is something you perpetually service and never retire. The collapse of mortgage lending that caused the bankruptcy of the subprime industry and the government to take over the GSEs has put an end to serial refinancing. Now people are going to have to pay off their debts. Most can’t afford to.
Let’s look at a typical example. During the bubble, there was a significant increase in allowed debt-to-income ratios. People who were eager to get rich on real estate stretched themselves to buy houses. This was not a passive result of high prices, this was the driving force of the price rally. As a result, many people are putting 40% or more of their gross income toward housing. Assume a borrower who was making $120,000 a year decided to take out a 5-year fixed, interest-only adjustable rate mortgage with a 40% DTI. They would be putting $4000 a month toward their housing payment, and with a 5% interest rate, they could finance $960,000. Does borrowing 8 times income seem impossible? It was not uncommon.
Let’s assume this borrower has been making this $4,000 a month payment, since 2005, and their 5-year fixed period is coming to and end in 2010. What is going to happen? Let’s look at the scenario people envision where this will not be a problem. Let’s say interest rates are still extremely low in 2010 (something that is not very likely) and that the interest rate reset does not change the borrower’s interest rate. At the end of the 5-year period, the mortgage recasts to a fully amortized payment schedule over the remaining 25 years of the loan. The payment which was $4,000 a month goes up to $5,612.06. The borrower was already putting a crushing 40% of their income toward their housing payment. How are they going to afford a 40% higher payment? Is it likely that their income rose 40% in 5 years? Can they afford a 56% DTI? You see, the problem with the interest rate reset is not the change in the interest rate, it is the recast to a fully-amortized schedule. Keep in mind; this is the best-case scenario where mortgage interest rates are still at historic lows seen during the bubble. If mortgage interest rates go up, which seems likely if risk is properly priced into them, then the payment shock at reset/recast is even worse.
So why can’t the borrower just refinance into either another ARM or a 30-year loan? Remember the credit crunch? Loan terms have gotten much tighter. Lenders are requiring 20% equity, and the allowable DTIs are falling. Did the property go up 20% in value? No, values have declined. Did the borrower save up enough money to pay down the mortgage? No, they were putting all their money toward their interest-only payment? Did the borrower’s income rise 40% or more over the last 5 years? Possible, but given the current state of our economy, it is not very likely. In short, the borrower is screwed. They will not be able to refinance, and they will not be able to support the new mortgage payment. They will end up in foreclosure.
If the button is pushed, there’s no running away, There’ll be noone to save with the world in a grave,
This is an enormous problem. Eighty percent of loan originations in 2005 and 2006 in Orange County were interest-only or negative amortization. This isn’t just a few loans that will result in a few foreclosures. This is the bulk of our financing. You can see what these resets do to home prices by looking at the areas dominated by subprime. Santa Ana, Riverside County, Stockton, and many other markets that were dominated by subprime have been blasted back to 2001 pricing more than 50% off the peak. This did not occur because these neighborhoods were less desirable, it occurred because their loans reset in 2007 and 2008. The loans in Irvine and the more desirable areas in Orange County are set to reset from 2009-2011. The problems for the high end are in front of us, not behind us.
People who were buying or doing cash-out refinancing during the bubble were betting on 4 things: 1. Interest rates would stay low. 2. Loose loan terms would be available. 3. House prices would keep rising. 4. Incomes would keep rising. If any one of these four things did not happen, they were going to lose their house. It would only take one of these four conditions to change for disaster to occur. In the real world, all four of these things did not happen, and now we are facing a foreclosure crisis rivaling the Great Depression. Most people were not aware of the risks they were taking on, and many who were aware of them really believed everything would work out in their favor. They were tragically mistaken.
Absolutely beautiful single family home in the master planned community
of Columbus Grove. Family room with fireplace and media niche. Hardwood
floors. Gourmet kitchen with GE Monogram appliances and granite
countertops. Preparation island. Breakfast nook. Master bedroom with
fireplace and jetted whirlpool tub. Oversized walk-in closet with
organizers. Laundry room with storage space and sink. 2-bay expanded
garage. Porte cochere. This home has everything!
This property was purchased on 9/19/2006 for $1,141,500. The borrower used a $910,428 first mortgage, a $227,608 second mortgage, and a $3,464 downpayment. (It still amazes me that lenders were allowing people to occupy $1,000,000+ houses with less money in the transaction than a modest security deposit). If this property sells for its asking price, and if a 6% commission is paid, the total loss absorbed by IndyMAC — I mean taxpayers — will be $389,500 minus the whopping $3,464 downpayment. The taxpayers are absorbing 99% of the loss on this property, and the owner who bought this property on speculation of making a fortune is absorbing the other 1%.
The asking price of this property is 30% off its peak purchase price.
{book}
The eastern world it tis explodin’, violence flarin’, bullets loadin’, you’re old enough to kill but not for votin’, you don’t believe in war, what’s that gun you’re totin’, and even the Jordan river has bodies floatin’, but you tell me over and over and over again my friend, ah, you don’t believe we’re on the eve of destruction.
Don’t you understand, what I’m trying to say? Can’t you see the fear that I’m feeling today? If the button is pushed, there’s no running away, There’ll be noone to save with the world in a grave, take a look around you, boy, it’s bound to scare you, boy, but you tell me over and over and over again my friend, ah, you don’t believe we’re on the eve of destruction.
All bailout measures have embedded within them serious issues of moral
hazard. Both lenders and borrowers were extremely foolish during the
real estate bubble. To bail them out at the expense of the wise and
prudent will discourage fiscally responsible behavior and encourage
wild risk taking and speculation. For instance, lets say both you and
your neighbor bought a house in 1998 before the bubble inflated. You
both paid $200,000. You sacrificed and paid down your mortgage in the
intervening 10 years, and now you owe $150,000 on your house. Your
neighbor was lured by the free money accumulating as appreciation and
took out an additional $400,000 in home equity lines of credit and
refinancings and lived the good life. This neighbor was driving around
in new cars, taking vacations, buying expensive toys and pretending to
be rich. Now you owe $150,000 on your house, and your neighbor owes
$600,000. Your neighbor cannot make the payments and is asking for a
government bailout, principal reduction and a whatever other handouts
he can get. So now, you the taxpayer, is going to be asked to pay off
your neighbors bills. You, who was responsible while you neighbor was
not, are being punished for your responsibility while your neighbor has
no consequences. What will stop your neighbor from doing this again?
What will stop you from doing this next time? I profile individual
properties every day, and I can tell you
from the property records I view daily that this conduct was not the
exception, it was the rule. There is no bailout program currently
proposed or enacted that does not have this moral hazard issue.
Clowns to the left of me, Jokers to the right, here I am, Stuck in the middle with you.
There are provisions that could be added to a more wide-reaching
bailout proposal that might address some of these problems. In the
recent FHA bailout program, the owner must give up a percentage of
equity to participate. This is a great idea, and I have witnessed
homeowners who were in trouble pass on this option because they were
too greedy to give up future appreciation. Equity sharing needs to be
part of any bailout program. The programs enacted now are offering
workouts, but they are only dangling a carrot in front of borrowers,
there is no real stick to compel them. Ordinarily losing one’s home
would be enough of an incentive to do a workout, but when homeowners
are hugely underwater; their best financial move is to let the property
go in foreclosure. This incentive needs to be changed. Congress made a
serious mistake when they decided to forgive the tax indebtedness on
people who do not pay back mortgage debt. This simply made it easier
for people to walk away. It needs to be harder, much harder. If you
really want to compel people to participate in loan workout programs,
there needs to be serious financial repercussions for not doing so.
Taxing debt forgiveness is one potential incentive, but the bigger one
is to make this debt permanent — don’t let people discharge this debt
in a foreclosure or a bankruptcy. If walking away from their mortgage
debt benefits them in no way, people will not walk away.
I would propose the following: When Obama takes office we might see
a 90-day moratorium on foreclosures (by itself, this is a horrible
idea). Put all borrowers on notice, you have 90 days to begin a workout
plan with your lender. If you fail to do so, and if you then go into
foreclosure, you will pay taxes on the loss, and if you have capacity
to pay back the debt, you will be required to work out a repayment
plan. Bankruptcy judges already have the power to force people into
chapter 13 rather than chapter 7 bankruptcy, so this would be easy to
enforce. There is precedence for this kind of bankruptcy protection for
certain loans: government insured student loans are not dischargable in
bankruptcy. Since the government insures these loans, they ensure the
insurance program does not lose money by preventing forgiveness of this
debt. Now that the government is “conservator” of the GSEs, they are
providing a similar government-backed insurance to mortgage debt. They
should have a similar no-bankruptcy policy on this debt as well. The
effect of this policy would be to strongly compel those who need a loan
workout to get one. For those who fail to qualify for a loan workout,
they are exempted from these consequences.
This proposal would effectively force everyone into a loan
modification program who needed one to make their payments. It would
greatly reduce the number of foreclosures that are still in the
pipeline, and it would give the banks as much cashflow as they will see
as the fallout from this mess continues. However, this will not stop
home prices from falling. If stabilizing home prices is truly a
priority, there is no program that can accomplish this. Houses are too
expensive. Prices must fall down to levels of affordability before
prices will stabilize. There are only two ways to make houses more
affordable: either prices must fall or incomes must rise. The housing
bubble was about experimenting with financing terms to increase
affordability. That experiment failed miserably. Making incomes rise is
not something that can be accomplished through bailouts or any
government policy directed at housing. Since financing innovations
failed, and since raising incomes is not a viable alternative, prices
will continue to fall.
Trying to make some sense of it all, But I can see that it makes no sense at all, Is it cool to go to sleep on the floor,
Today’s featured property hass owners who would not mind the “carrot and stick” approach to solving the housing crisis: they were fiscally responsible. I see so few of these, that I would like to celebrate them when I do come across them.
BEAUTIFUL FLOOR PLAN. LOCATED IN A QUIET CDS. MOVE-IN CONDITION. LARGE
LIVING ROOM AND DINING ROOM. MASTER BEDROOM IS HUGE. MATURED FRUIT
TREES. CLOSE BY IRVINE AWARD WINNING SCHOOLS. ONE OF THE BEST PLACE TO
RAISE KIDS. TOO MUCH TO MENTION. PLEASE COME AND SEE IT FOR YOURSELF.
PRICED TO SELL. HURRY THIS PROPERTY WILL NOT LAST!!! NO MELLO ROOSE!!!
NO ASSOCIATION!!!
Another crappy description in ALL CAPS and littered with exclamation points.
What is that over the kitchen? Is that the bat cave?
When these people bought the property for $235,000 on 6/25/1994, they used a $164,500 first mortgage and a $70,500 downpayment. The only other mortgage note in the records is a HELOC from 2000, that probably was not used (there is no pattern of borrowing here). I salute these people. They did not get caught up in the foolishness of the housing bubble. If they get anything close to their asking price, they stand to make a lot of money. Good for them.
{book}
Well I don’t know why I came here tonight, I got the feeling that something ain’t right, I’m so scared in case I fall off my chair, And I’m wondering how I’ll get down the stairs, Clowns to the left of me, Jokers to the right, here I am, Stuck in the middle with you.
Yes I’m stuck in the middle with you, And I’m wondering what it is I should do, It’s so hard to keep this smile from my face, Losing control, yeah, I’m all over the place, Clowns to the left of me, Jokers to the right, Here I am, stuck in the middle with you.
Well you started out with nothing, And you’re proud that you’re a self made man, And your friends, they all come crawlin, Slap you on the back and say, Please…. Please…..
Trying to make some sense of it all, But I can see that it makes no sense at all, Is it cool to go to sleep on the floor, ‘Cause I don’t think that I can take anymore Clowns to the left of me, Jokers to the right, Here I am, stuck in the middle with you.
The word “blossom” conjures up images and feelings of hope, renewal and possibilities for the future. But what happens when these dreams turn into a nightmare? What do you feel when your blossom becomes a turd? Our most famous “turd blossom” is Karl Rove, although I won’t pursue that thread much further…
Hope and optimism are wonderful qualities, and Americans are noted worldwide for our abundance of both. It is part of the American spirit. The Great Housing Bubble rally was a period of boundless hope, or more accurately stated, a period of irrational exuberance. Rational or not, periods of great prosperity fill everyone with hope for a better tomorrow. During the bubble, we pinned out hopes on the unstable ground of Ponzi Scheme financing. While everyone thought they were spending free money, they were really borrowing prosperity from the future. Now that the bills are coming due, the illusion of wealth and prosperity are gone; people feel hopeless and despondent.
Today’s featured property is a reflection of the American dream, circa 2005. The borrower overpaid for property using an Option ARM to acquire a property he really couldn’t afford. When properties are going up in value quickly, there is a strong incentive to overpay. Ten percent if a $1,000,000 is $100,000, whereas 10% of $500,000 is only $50,000. The more you paid, the more you made. It isn’t surprising that many people got in way over their heads, particularly when toxic financing and the elimination of standards made it easy to do.
Given the strong incentive to overpay, the foolish assurance that prices could not go down, and the willingness of lenders to give out practically unlimited funds, it should not be surprising to see properties like today’s coming on the market. Too many people have borrowed too much money. There are going to be many, many more just like it over the next several years. Even if people’s payments didn’t increase, their burdensome debt-to-income ratios would push them to sell. With the ARM resets coming and people’s payments set in increase significantly, it seems likely we will have a very serious foreclosure problem right here in Irvine.
Beautiful Bella Rose Home in the Gated Community of Northwood. Two
Level Detached Home Built in 2004 By Pulte Homes. Four Spacious
Bedrooms (One Bedroom Located Downstairs). Bright & Open Family
Kitchen With Preparation Island. Lovely Cabinets & Tiled Granite
Countertops. Cozy Fireplace & Media Niche in Family Room. Upgraded
Flooring Includes Wood & Plush Carpeting. Plantation Shutters &
Two Tone Paint Throughout. Attached Two Car Garage. Patio Area. Great
Tract Location. Northwood High School.
Why Is This Written In Title Case? I really don’t get realtor punctuation. Why ALL CAPs? Why Title Case? Do they think it makes their description stand out? I suppose it does. It makes it stand out, and it makes them look stupid.
This property was purchased on 5/26/2005 for $810,500. The owner used an Option ARM for $648,006, and a $162,494 downpayment. Not to worry though, he opened a HELOC on 1/3/2006 for $200,000, and on 12/29/2006 he increased it to $222,700. Rather than losing his $162,494 downpayment, it seems likely that he tapped these HELOCs and made $60,206. It is possible that he didn’t, I don’t know for sure. Either way, if he gets his asking price, and if he pays a 6% commission, the transaction will bring in $648,506. Since his original first mortgage amount was $648,006, it isn’t too difficult to figure out how he arrived at this asking price. I imagine he will be pretty firm on the price — at least until the property goes to auction in foreclosure.
This property is being offered for 15% off its 2005 purchase price.
{book}
Let’s assume this house does sell for its asking price and the first mortgage is paid off. In that case, either this guy lost his entire $162,494 downpayment, or the bank lost $222,700. Let’s further assume the more likely scenario: the bank lost $222,700. Without going through a judicial foreclosure, it will be difficult for the bank to collect this money even though it is a recourse loan. How is this not theft? Do you see the moral hazard here? If we inflate another housing bubble, won’t you be maxing out your HELOC every few months until the bubble bursts? Why take any market risk when you can be paid the maximum appraised value by a bank?
I hate to say it, but some of the most memorable lessons of the bubble are the ones that are most financially advantageous and most morally repugnant.
Unsold in 90+ days
Well I don’t know why I came here tonight,