Not Painfully Obvious

With all the news about falling house prices and specials on the housing bubble, it is obvious to most people that prices are falling, and they will continue to do so. Unfortunately, most people do not do anything about it until the price drop is painful–and it is too late.

Today’s featured property is a high-end short sale. It will be a foreclosure soon enough.

46 Crimson Rose kitchen

Asking Price: $1,215,000

Address: 46 Crimson Rose, Irvine, CA 92603

If You Want Blood — AC/DC

Blood on the rocks
Blood on the streets
Blood in the sky
Blood on the sheets

If you want blood
you got it

I think we all know this is going to end badly, and there is nothing anyone in government or elsewhere can do about it. It should be obvious to anyone who watches the news and is capable of objectively seeing what is happening. Unfortunately, most people lose their ability to be objective about the course of prices in financial markets once they take a position. Since almost 70% of households are “long” real estate, most people are incapable of seeing the market objectively. Even now, surveys on housing prices show a majority of homeowners believe prices will appreciate in 2009. Crazy.


When I wrote the post “speculation or investment?” I had this description of a speculator’s emotional cycle:

When prices begin to fall in a speculative market,
most speculators immediately lapse into denial. They were so
emotionally rewarded by purchasing and holding the asset, they see no
reason to believe the first signs of a declining market are anything
other than a temporary aberration. As prices continue to fall, the
emotions change: fear begins to creep in, and the battle between denial
and fear goes on well past the breakeven point where the speculator
could have closed the position without losing any money. As prices fall
further, the fear begins to take an emotional toll and the speculator
starts to feel pain. The further prices drop, the more pain is
inflicted on the speculator. What is the natural reaction to pain? Push
it away. As a speculative investment becomes painful, the natural
reaction is to want to get rid of it. This prompts the speculator to
sell the asset – only after they have lost money. A speculator’s
emotions always work against them. When the asset is rising in price
they want more of it, and when it is falling in price they want less.
This is a natural reaction, and it is the cause of all losses in
speculative markets. This is why most speculators fail.


I recently had a conversation with a friend who told me
about a family that lives in the Bay area that is important to him. The story of
what this family did during the great housing bubble is very common, and their reaction
to what is happening now is also very common.

It all started in the late 90s when they purchased their
first home for about $250,000. By 2005 the value of this property reached $650,000.
Along the way they lived somewhat beyond their means and spent about $150,000 of
their equity, but at the time they still had plenty of equity left over. In 2005 they
decided it was time to move up. They borrowed an additional $150,000 out of
their primary residence and used it as a downpayment on a $1.1 million property.
Rather than selling their first property they decided to keep it as an “investment.”

They put $50,000 down on their first property, and over the
course of the next eight years they managed to leverage themselves into $1.8
million worth of property, they were able to live beyond their means, and they
managed to increase their net worth. No problem, right?

Well, in order to achieve this great wealth and prosperity
they had to increase their debt from around $200,000 to nearly $1.6 million.
The rental income from their first property helps, but without exotic financing
they are unable to service the debt load. Through mortgage equity withdrawal
they were able to sustain their lifestyle through continued Ponzi Scheme
borrowing, but with the credit crunch their credit lines are frozen, and their
life lines are cut off. They do not make enough to support the debt, and my friend is concerned they will lose both properties. Unless Ponzi financing returns, they probably will.

Since the peak, property values in the area have declined
about 25%, which is less than the rest of the state of California, but it
leaves them with properties worth around $1,350,000. This puts them about
$250,000 underwater. They will probably be close to $600,000 underwater before
prices stabilize.

Right now they are in denial. They still plan to keep both
properties as they expect prices to be back up to the peak valuations in a
couple of years. They were so rewarded for buying and holding their first
property that they are not feeling enough pain in their current situation to do
anything about it. For them the price decline is not painfully obvious.

Today’s featured property is a fairly egregious HELOC abuser. Are you ready to pay off his debts as US taxpayers?

46 Crimson Rose kitchen

Asking Price: $1,215,000


Income Requirement: $303,750

Downpayment Needed: $243,000

Monthly Equity Burn: $10,125

Purchase Price: $1,384,000

Purchase Date: 9/28/2005

Address: 46 Crimson Rose, Irvine, CA 92603

Beds: 3
Baths: 4
Sq. Ft.: 2,863
$/Sq. Ft.: $424
Lot Size: 6,198

Sq. Ft.

Property Type: Single Family Residence
Style: Contemporary, Spanish
Year Built: 2005
Stories: 2
View: Hills
Area: Turtle Ridge
County: Orange
MLS#: P668964
Source: SoCalMLS
Status: Active
On Redfin: 67 days

Gourmet Kitchen Award

Take Back Up Offers.


Take Back Up Offers. LOL!

  • This property was purchased on 9/28/2005 for $1,384,000. The owner used a $1,000,000 first mortgage, a $245,159 HELOC and a $138,841 downpayment.
  • On 2/28/2007 he refinanced with a $1,425,000 first mortgage.
  • On 5/9/2007 he opened a HELOC for $284,990.
  • Total mortgage equity withdrawal is $464,831.
  • Total mortgage debt is $1,709,990.

The “approved” short sale amount of $1,215,000 would net Washington Mutual Chase (soon to be US taxpayer) $1,142,100 after a 6% commission. So if the lender gets this wishing price, the total loss will be $567,890.

So how do you feel about paying off this guy’s debt?


It’s criminal
there ought to be a law
there ought to be a whole lot more
you get a nothin’ for nothin’
tell me who can you trust
we got what ya want
and you got the lust

If you want blood (YOU GOT IT)
If you want blood (YOU GOT IT)
BLOOD on the streets
BLOOD on the rocks
you got it
yes you have

It’s animal
livin’ in a human zoo
the shit that they toss to you
feelin’ like a Christian
locked in a cage
thrown to the lions
on a seconds rage


O Positive

Blood on the rocks
Blood on the streets
Blood in the sky
Blood on the sheets

If you want blood
you got it

Want you to bleed for me

If you want blood, you got it

If You Want Blood — AC/DC

52 thoughts on “Not Painfully Obvious

    1. Lee in Irvine


      She’s orange, like the Tan Man. Thanks for starting my morning with a big LoL. Now back to my cup of joe.

      1. AZDavidPhx

        Yes, indeed. You have to look good if you want those dollar bills.

        The thing that gets me is how they blatantly talk money in the property description – very unprofessional and makes the listing agent look like a hustler. The emphasis should be on why someone would love to live in the house – not how the agents are going to divvy up the spoils amongst themselves.

        The “LOCATION LOCATION LOCATION” wheeler/dealer talk doesn’t help either. It sounds like a presentation that would be made by a high school student in his marketing class trying to elicit a chuckle from his classmates:

        Generally a good idea to leave the cliches at home as it causes the reader to say “PFFFFFF” and your attempt at manipulation meets an early end as you are written off as a clown.

        1. Major Schadenfreude

          “Generally a good idea to leave the cliches at home …”

          A true challenge to those whose reading diets don’t exceed the fast-food of tabloids.

          1. HydroCabron

            Hey, I read Shakespeare all the time, and it’s full of cliches like “sea change” and “nods and becks” — what a hack.

  1. granite

    While the inland areas are well into the red section, Irvine lingers in the yellow. There’s not enough pain.

    I believe the average ratio between the two areas is about 2 to 1. At the peak inland housing was greater than half of Irvine’s value. Now it is well less than half. Then it will come back to 2 to 1. A house (like I used to own) that ends up at $200,000 in the foothills of Rancho Cucamonga will go for $400,000 in Irvine.

  2. IrvineRenter

    I saw this on this morning:

    Record Jump in Non-Agency Jumbo Prime Foreclosure Starts: Report

    Non-Agency Jumbo Prime means Irvine…

    Lender Processing Services announced Wednesday its release of the February 2009 LPS Mortgage Monitor, which revealed a record increase in non-agency Jumbo Prime foreclosure starts as of month-end January 2009.

    Non-Agency Jumbo Prime foreclosure starts have increased the most of any product — nearly 125 percent since January 2008, according to the LPS report — as foreclosure starts across all major product types have continued to climb over the past several months, despite moratoria and mitigation actions.

    LPS found the pace of growth in foreclosure inventory was highest in Jumbo Prime and Option ARMs. “Even over a shortened period of time, acceleration of deterioration in Jumbo Prime exceeds all other product,” read the report. While jumbo prime and Option ARMs lead the way, foreclosure inventories, overall, also continued to trend upward. The January 2009 foreclosure rate rose 7.79 percent from December to January, reaching 2.06 percent — a whopping 72.8 percent year-over-year increase.

    The report showed that new Origination Jumbo Prime mortgages are underperforming Agency product despite higher FICOs and comparable interest rates. Additionally, the report said 25 percent of mortgage loans modified in the fourth quarter of 2008 were delinquent by the end of January 2009.

    As for loss mitigation activities, LPS found efforts were focused primarily on “seriously delinquent” loans, as only 15 percent of modifications in 2008 were on loans in foreclosure.

    As Calculated Risk would say, Hoocoodanode?

    1. mav

      Irvine Renter,
      Are you going to discuss commercial real estate at all? Commercial real estate is going to really slaughter the global banking system in this d-de-dep-recession.

      Corporate defaults are going to get ugly by the end of this year and into 2010. Companies will have a hard time servicing their bubble debt in the new economy.

    2. AZDavidPhx


      We all know that the problem is restricted to losers with sub-prime loans who ruined it for everyone by not being responsible enough to pay their bills.

      This article was clearly planted by some liberal in the media trying to make it look like wealthy people don’t pay their bills either.

      Nice try.


        I was just going to mention the second house on that link you posted

        My wife and I walked through the green home this weekend. Absolutely awesome inside. Even for how big it is, it feels ‘homey’. My wife commented ‘if this is your price range, this is a great buy’ and I agreed at the time.
        I went home and happened to be goofing around on redfin that night and saw the places in Seacliff. This one in particular is a heck of a comp. Not to mention the one in the article you linked.
        We quickly changed our tune of ‘this is a great buy’ cause there are clearly better houses in better locations for equal or less.


    I have a question for those that know more than me (aka: everyone):
    If I bought a house at $250k, and live in it for 15years, and lets say its now worth $400k AND I’ve paid down my mortgage – is there any way to actually lower my current debt by using my equity?

    The reason I ask this is because like your story, I’ve seen a ton of people borrow and borrow from their house. They could afford a 250k loan, but not a 500k loan, yet they borrowed anyways. I’m wondering if its possible to take that free money and use it against your existing debt (not your CC debt). I suppose pulling cash from your primary residence to buy a rental at investor level, and use the cash flow to pay down your mortgage is really one of the only ways (or some other kind of investing)?

    1. IrvineRenter

      The basic problem is that you have no access to your equity without selling the home or taking on more debt. If you take on more debt, you have to pay interest. You must get a long-term rate-of-return on your investment that exceeds the cost of the debt. That is very, very difficult to do. Many people try, and most fail.

      The main reason the FED is trying to engineer very low interest rates is give debtors a way to lower their debt service to a manageable level. They don’t mind creating a generation of debt slaves paying bubble debts at 4.5% interest as long as people do not default and take down the banks with them.

      1. AZDavidPhx

        The main reason the FED is trying to engineer very low interest rates is give debtors a way to lower their debt service to a manageable level.

        That’s right. Anything to keep the slaves obedient and sending monthly payments. That’s all that matters right now – keep the payments coming so their business partners can continue the sleight of hand trickey, pretending that they are solvent and not running a Ponzi game.

    2. maliburenter

      You can’t lower your debt immediately using the equity. However, if you got a lower interest loan for the same principal, you would pay down debt faster, leaving you with more equity at any point in time.

    3. flyovercountry

      You can’t lower your total debt by shifting it from one account to another… If someone takes a HELOC and pays off a different debt, the net sum is the same, it is just in different baskets.

      You could reduce your payment… If you were 15 years into a mortgage, and refinanced (without taking out any cash) with a 30 year mortgage, your payment would drop, but your total debt would stay the same. You’d just be spreading out the payments over a longer period.

  4. Idrnkurmlkshk

    You couldn’t be more correct. We have indebted servatude alive and well in the us of A. Modern day slavery. You gotta take your hat off to the Fed. They managed in enslaving people in the era of political correctness.

    1. Major Schadenfreude

      “They managed in enslaving people in the era of political correctness.”

      Yes they did! And in the spirit of polical correctness, they enslaved sheeple regardless of color!

      How democratic of them!

  5. Kelja

    What is painfully obvious about this example is that they will most likely get some help from the taxpayer.

  6. george8

    Since this guy had refinanced, he should be held reponsible for all the loans taken out.

    If we let hime walk, it will be our own fault.

    1. AZDavidPhx

      We don’t put people in debtor’s prison. We give them citizen of the year awards with a 7-year slap on the wrist that is predicated on nothing more than a wink and a nod.

      The reality is that the present state of our economy depends on a revolving door of people like this who are willing to borrow and spend with reckless abandon and shirk all personal responsibility. Think about all the jobs this loser stimulated with his recklessness – he is an economic stimulator as far as the government is concerned.

      We don’t need everyone doing it – but we need some. Hence the agreement that our government makes with debtors, allowing them to wipe the slate clean after a brief time-out to allow the masses to forget about the injustice and then allow him to re-join the rotation and re-stimulate the economy.

      1. longtime reader

        Don’t forget about the 22 year old investment banker, who throws institution money in the ponzi for his mega bonus, all the while know that it’s going to blow up, costing the government trillions. After his stint on wall street, he ends up at the federal reserve to help other up and coming talented individuals achieve their mega bonuses.

      2. Major Schadenfreude

        “The reality is that the present state of our economy depends on a revolving door of people like this who are willing to borrow and spend with reckless abandon.”

        Actually, the second part of this formula is the financally responsible tax payer base that is (ab)used to clean up the mess. Which group is larger, the irresponsible or responsible?

        I don’t presently know. However, I believe the responsible will become more vocal with time. Hunger pangs tend to make even nice people testy.

        We are not hungary enough yet. In a year or two, when the economy is still transitioning to the “new paradigm” of sane credit, we will have pain.

    2. Lee in Irvine

      We used to give these home debtors who slip out the backdoor, a tax form called a 1099-C, which created a tax liability on the difference between the loan balance and the selling price. These laws were changed in 2007 due to the impeding housing crisis. I don’t know exactly how the laws changed, but in some cases, the borrower is still financially responsible for the difference (I think).

  7. Chuck

    BREEZE” How does a countertop catch a breeze? An I strongly prefer “EUROPEAN GOURMET KITCHEN ISLAND”s to those boring old American Gourmet Kitchen Islands…..

    Fashioned Island?

  8. no_worries

    I found this post from Calculated Risk yesterday incredibly informative.

    The stress test has two scenarios, baseline and more adverse and they assume the following changes in national house prices:

    baseline: -14% (’09) -4% (’10)
    adverse: -22% (’09) -7% (’10)

    I doubt these numbers surprise anyone here. No, what I find informative is that this is the Feds public assumptions for next year. Why is this not making headline news? How are homes selling today when even the best assumptions by our Federal Govt is that your new purchase is going to lose 20% of its current value?

    The reason this frustrates me so is that I know people who CAN buy houses now who are very tempted to do so. Realtors are feeding them the same old lines and they’re just wowed by the new levels of “affordability” the drop to date has offered. Couple that with the state and federal incentives (artificially low interest rates, tax credits) and these new families are thinking all signs point to BUY. And then right out of the other side of their mouth, the feds are saying, plain as day, “prepare to lose 20%”.

    Another round of knifecatchers for me, the patient and well-earning renter to bailout?


      I’m halfway tempted to print out that sheet and hand it to everyone at open houses and kindly explain what it means.

      1. Major Schadenfreude

        “I’m halfway tempted to print out that sheet and hand it to everyone at open houses and kindly explain what it means.”


        The way I see it, if people are willing to lose their own money through a “pre mature” purchase – let ’em.

        Just less money the tax payer will have to pony up!

    2. Major Schadenfreude

      Re: Bank “stress test”.

      What a joke!

      Let’s see, we’ve pumped how much BILLIONS into these zombie’s? And NOW we are going to do a “stress test”?

      Like speeding a hearst to the emergency room and asking the doctor to open up the casket and take a pulse!

  9. Perspective

    Obama’s “punish the ‘rich'” plan looks like it limits itemized deductions for > $250k households? He wants to limit their itemized deductions to the 28% bracket (instead of the 35% or 39.6% increased brackets).

    This is just another reason why you can’t rely on the tax code to make your home purchase work. Assume there’s no tax advantage, because there really shouldn’t be, and maybe Congress is in the mood to correct this? … Yeah right…

  10. cosmo kramer

    “Others are finding that they could pay less on their mortgage than they would on rent. Carla Zeineh, 22, and her husband recently began shopping for a home in Irvine, Calif., and discovered that with a 5% mortgage rate, her monthly payment on a $350,000 two-bedroom home with 20% down could be less than the $1,800 month that they pay in rent on their two-bedroom condo.” (New York Times article on housing reaching rental parity in some areas lol)

    Let’s see: You forget to add in the outrageous HOA, property taxes, the 2% interest your $70,000 downpayment would earn in a CD, MelloRoos?, and the fact that your $350,000 “home” is probably a crappy apartment that is going down in value every day. Nice calculating. And they say the education system has failed America. %-P

    1. IrvineRenter

      In my support levels where I have Cashflow Investors and Rent Savers, I should add a new minor support level: Payment Matchers. These are the people too ignorant to understand the true cost of ownership and simply look at their monthly housing payment as compared to rent. These are the people who will catch knives at prices about 20%-30% too high.

      In the same way, we could add an even more foolish minor support level: Tax-Breakers. These are the people who look at their payment, calculate the maximum tax savings based on their highest marginal tax rate, and when this is close to rental levels, they buy. These people will pay 40%-50% too much for a home because they ignore all other costs of ownership and overestimate the benefits.

  11. cara

    Yes. Two ways, the simple way:
    It’s called down-sizing. Assuming you only have $200k left on the mortgage note, sell your place for the $400k, and buy a different smaller/ less desirable or geographically separate place with the proceeds. Thereby eliminating the debt entirely.
    And the more complex way:
    Also, if you’re over 65? you can get a reverse mortgage on a portion of that equity. Whereby they will essentially buy most of your house from you, canceling the old note and paying you an annuity. Look into these very very carefully though. A legitimate one won’t let you use all of the available equity, such that you still have skin in the game. It is also essentially buying that equity from you as it pays out the annuity. How the interest on this works, I’m not sure.

  12. CulverdaleKidsRock

    Is anyone in Turtle Ridge concerned about the methane and otherwise bad air that blows over the hill from the former dump?

    Just curious.

    1. newbie2008

      Where was the old dump? Methane is much more of a green house gas than carbon dioxide. Methane is also release from swamps (wet lands now), cow’s gas, etc. See how well AlGore’s plans have worked, it’s reversing the warming and now we have global cooling.

      1. CulverdaleKidsRock

        The dump is almost directly south, across the 73 highway toll road. I am amazed that few people know about this. All sorts of crap in that thing… old car oil, tv’s… couches… you name it. I’d never live anywhere near it. On the other hand, it ain’t like liv’n near 3 Mile Island either.

      2. tonyE

        The road to the entry of the old dump was where Bonita Canyon Rd. crosses the 73. The old dump is in between those fancy frency houses on the east side of San Joaquin Reservoir and SR73/Newport Blvd.

  13. rancidnsx

    Sorry for being out of the loop. But I recall that the foreclosed will be on the hook for taxes on their loan forgiveness. Are people avoiding this by claiming BK? Roughly how many of the foreclosed will be on the hook for this debt?

  14. newbie2008

    Asking prices on these model were $200 to $400K (foreclosed and trashed) more in the summer of 2008.
    House are not liquid and considered capital. It’s also hard to find another place with the kids, so people don’t like to sell especially in a down market.
    IHB People are starting to realize that slavery comes in many forms — too bad the masses have rushed to sign their lives away and now are selling their children and grandchildren.
    US citizen cost:
    Bush’s bailout: $2200
    2009 B.O. bailout: $2500
    est.2010 B.O. bailout: $3000
    est. 2011 B.O. bailout: $3200
    Likely cost will be high 4 or 5 trillion dollars bailout = $13,750 per US citizen.

  15. Short Sales

    Prices are dropping and they’ll continue to drop, we think. It’s amazing how far they’ve dropped, but are we at the bottom yet? Guess we’ll see.

Comments are closed.