When an owner pays off a 30-year mortgage and then borrows himself into oblivion, who is the predator? Is it the borrower or the lender?
Asking Price: $375,000
Address: 11 Sunflower #23, Irvine, CA 92604
The traditional definition of predatory lending has the lender making a loan to a borrower the lender knows will default in order to acquire the property in foreclosure and profit from the sale. In fact, the main reason a foreclosure auction is public is to limit a lender’s ability to acquire properties for below market rates to remove the incentive for predatory lending. Despite this systems in place, much of the lending during the Great Housing Bubble was predatory because the lender was still going to profit from making the loan through origination fees at the expense of the borrower who was sure to end up in foreclosure.
When lenders have incentive to produce large quantities of loans without regard to quality, lending standards are eliminated in order to increase volume. Ultimately, this system collapses once people start defaulting and lenders do not get their money back. This is exactly what caused the credit crunch, and it is why our market continues to spiral downward.
Predatory lending is strongly condemned because the lenders are supposed to be the adults in the transaction. Borrowers are not the sophisticated parties involved. There are many ways lenders can rip off the unknowing, so regulations are in place to ensure we don’t end up with a system of “borrower beware.”
But what about predatory borrowing? We have read case after case of borrowers who HELOCed and refinanced themselves up to maximum value at the peak of the bubble and walked away from the debts. This behavior is clearly predatory as none of these borrowers had any intention of paying this money back unless their house sold for more than the loan amount. This behavior is not as strongly condemned because the lenders should have known better than to give away all that free money.
Today’s property is rather different. It was purchased in 1975, and it is still owned by the original purchaser. There are no refinances in the property records, so the original loan–which would have been around $40,000–would have been paid off in 2005. To live 30 years in a property means this owner must be near retirement age. On 11/29/2004 the owner takes out a mortgage for $290,000, and on 2/5/2007 he takes out a refinance for $385,000.
What do you make of this borrowing? If this owner wanted his money, couldn’t he just sell the property and claim his retirement savings? Why borrow this much money after paying off a 30-year mortgage? Why would a lender give him a loan like this?
Asking Price: $375,000
Income Requirement: $93,750
Downpayment Needed: $75,000
Monthly Equity Burn: $3,125
Purchase Price: around $50,000
Purchase Date: 10/10/1975
Address: 11 Sunflower #23, Irvine, CA 92604
| Beds: | 3 |
| Baths: | 3 |
| Sq. Ft.: | 1,520 |
| $/Sq. Ft.: | $247 |
| Lot Size: | – |
| Property Type: | Condominium |
| Style: | Traditional |
| Stories: | 2 |
| Floor: | 1 |
| View: | Greenbelt |
| Year Built: | 1974 |
| Community: | El Camino Real |
| County: | Orange |
| MLS#: | S572260 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
bedrooms/2.5 baths, upgraded kitchen with stainless steel appliances,
wood laminate flooring, Hunter Douglas window treatments. This
executive style townhome is an end location with an oversized backyard
patio and overlooks a greenbelt. No Mello Roos, low HOA dues. Close
proximity and walking distance to schools and shopping.
Wow! a well-written description. Nice.
This property has $385,000 on it. After 34 years of ownership, it is going to be a short sale. Amazing.
If this property sells for its current asking price, and if a 6% commission is paid, the lender will lose $32,500.
I hope this guy made good use of the money because his retirement is now gone…
I apologize for the late post. Missed the AM/PM setting again.
I would like to welcome our visitors from Patrick.net. The weekend HELOC Abuse post is getting some attention.
The Heloc abuse is mind altering because it makes the subprime abuse a joke. People took out insane amounts of money and could just walk away.
This homeowner knew he could take his money out of this house and either rent it out while still owning it getting the homes full dollar amount which is more than a reverse mortgage would give him minus the fees. And more money then selling it and paying a agent.
This was a smart move on his part. He got it’s full value at the height.
Many did this and bought other properties with their cash thus becoming landlords.
Don’t blame yourself…I don’t remember you taking a weekday off ever!
Wow, this is sad. 30 years of ownership with nothing to show for it. Hopefully, the owner wasn’t taken advantage of by someone who preys on senior citizens.
“Hopefully, the owner wasn’t taken advantage of by someone who preys on senior citizens.”
Do you mean someone like the owners kids? That was my first thought?
My first thought as well. Seems to me they did not want to wait for their inheritance.
Or perhaps a catastrophic illness. I guess I just don’t want to believe that people who were rseponsible for 30 years just lost their minds.
Both, and the prey is the taxpayer.
“If it bleeds, we can kill it.”
This post intrigues me…there’s gotta a back story to this. Medical issues? Purchased a 2nd home somewhere and bailed on this one?
This is both sad and puzzling at the same time.
This certainly doesn’t meet the profile of a chronic home-debtor. The typical home-debtor was full of kool aid by the time they came to the sugar bucket the second time, and would have completely taxed the loan to value in Feb of 2007. This borrower didn’t … he borrowed $385,000 … he very likely could have borrowed more.
I highly suspect this was a life altering event that created this mess.
Now it’s been delisted, hrmm.
Are you sure this wasn’t a reverse mortgage?
If it was a reverse mortgage, I don’t think it would have to be labeled as a short sale. First of all, it would be empty at the time of sale (because the owner would have died or gone to a retirement home), which this property clearly isn’t. Second, I believe the lender assumes risk in a reverse mortgage-if there is less equity left in the property at the time of sale than the sale proceeds, the bank eats it, period-I don’t think it would be labeled a short sale even if there was a loss, and most likely such a sale would be a probate sale anyways.
I have a guess as to what happened here, but it’s just a guess. DarthFerret pointed out below that there are baby items (a crib, a safety gate over the fireplace) in the photos. I’m guessing the 2004 mortgage was, in fact, a reverse mortgage-but the 2007 refi was to undo that, because the owner’s child and grandchild needed a place to stay (and moved in at that time), and they wanted to keep the property after the current owner dies. But they couldn’t keep up with the payments, yatta yatta.
IR, does this theory make sense? Or am I missing something?
That sounds plausible.
IR, thanks for the Amazing Predator Rap video, which was hilarious and awesome.
Maybe he has another house somewhere else and he used the money to buy more properties or to help his children buy houses. Or maybe he had medical bills. Or maybe he needed a new ferrari for a midlife crisis. or maybe he decided to take out equity to invest in the stock market. or maybe he had to pay for a relatives legal fees.
speculating about other people’s lives is endless
Let’s just ask…
http://www.crackthecode.us/images/WhereDidAllTheHELOCCashGo2.jpg
Hey David..who is that laid out on the ground?
The husband’s blow-up doll.
Sanctioned idiocy.
“We don’t refuse anybody!”
I remember that commercial from way back. Fast forward a few years and now we have:
http://www.funnyordie.com/videos/c130f64d6f/the-new-f-ing-citibank
(Listen with headphones if you are at work)
Long-time lurker, first-time poster…
Although it has been taken off of Redfin, the listing is still up on Trulia: http://www.trulia.com/property/1078993459-11-Sunflower-23-Irvine-CA-92604. The pics have a bunch of baby items in the unit (playpen in bedroom, gate over fireplace, etc.). So, either the owner is having kids again after living here for 34 years, or he no longer lives in the unit. I’m assuming the latter. He could be renting it out, or he could have let a family member (his adult son/daughter?) live there. That’s probably part of the backstory on this HELOC abuse, but no telling where it goes from there. There are also some semi-newer upgrades: tile in kitchen, laminate flooring. I know a few people that used HELOC’s to play Pimp-My-House. The options are endless when a house becomes a genie’s lamp.
P.S. OK, so maybe I’m not a “long-time” lurker, as I’ve only been reading IHB for about 9 months. But it sounded catchy as a title line. 😉
Maybe he won the lottery and is a millionaire. Why should we even wonder? I feel like this is invading his privacy.
Sue, because if the bank takes a hit and loses money on his abuse, and we as taxpayers bail out banks, then we pay for this guy’s “lottery” or whatever. If he steps up and covers the loss and pays back the bank for the loan, as he should, then fine.
I agree. You lose you anonymity when you decide to ask the taxpayer to cover your losses. When a home goes to foreclosure or short-sale, it’s a hit to the taxpayer … loan modifications too.
What is magic about the 30 year period of mortgages? Why does it make sense to give a 30 yr mortgage to someone who’s 55 the same way you would to someone 35. The 35 year old can reasonably expect to have a steady, and likely increasing, income over the next 30 years, and the 55 year old much less so.
What is the average age of a mortgage today? It would have to be pretty low with the wave of refinances. Why is a 30 year payoff period chosen when so few mortgages ever reach full payment through the 30 years? This was the joke with the hold-to-maturity myth – the underlying mortgages weren’t going to make it to maturity.
If you’re retired 30 years would keep your monthly payments lower. Plus if your mortgage is paid off you miss the tax advantages.
I mentioned this before….Schedule A cheats you out of your standard deduction which amounts to more than $10k for married couple.
How exactly is getting $0.25 back for every $1.00 thrown away considered an “advantage”?
It depends on the valuation of the property and the retirees income. A 30 year fixed mortgage locks a portion of the costs of home ownership (there still are maintenance and taxes which will increase) which can make sense for someone with a steady stream of income. At 55, they may be looking at reducing the inflation sensitivity of their housing costs for the next 15 years before moving to an apartment or assisted living. If the property is near rental parity, this may make a lot of sense for the borrower and lender rather than selling and renting.
The typical 30 year mortgage has a life of about 7 years before repayment (refi or sale of property). Ironically, the lender may expect the mortgage to the 55 year old to have a longer effective term than the mortgage to the 35 year old.
Why is a 30 year payoff period chosen when so few mortgages ever reach full payment through the 30 years?
All these home-buyers step right up to take out these 30 year payback loans and practically none of them intend to pay the thing off. It’s a huge circle jerk scheme of perpetually revolving credit. Just look at terms like “Starter house”, “Property ladder”, etc that imply that the way things work is to jump around every 5 to 10 years while making payments on loans that span 30 years.
Who are the winners in this? Banks – the entities who just happen to own the United States government. They gorge themselves on the money printed by the government while the rest of us borrow it and pay a King’s ransom in interest.
When you boil it all down, it amounts to a combination of fleecing the public and controlling the crowd. You turn housing into a big game for all the participants; make them believe that they are investing, get them up and running around, frothing at the mouth for housing and Kentucky Fried Chicken, slaving away to pay for their house so that they do not have time to march and protest government policies and disrupt the status quo of their elite masters.
The answer to your question is that there is nothing magical about 30 years. It’s nothing more than a calculation made by the banks allowing them to maximize interest payment revenue as much as possible for the average chump to feel like it is “affordable” on a monthly basis scale so that they can gorge themselves as he slaves to make interest payments during the finest years of his life.
Have you noticed how the builders are magically able to keep matching the falling housing prices? Goes to show you that house values have nothing to do with building costs. We have been completely ripped off.
“The answer to your question is that there is nothing magical about 30 years.”
Actually, I think there is government data that proves that the loan least likely to fail is a 30-year fixed rate, with 20% down and a debt-to-income ratio not to exceed 26%.
The results are based on 50 years of data points which our recent leaders, under the direction of their banking overlords, decided to ignore.
The consequence is that not only is the world economy screwed, but housing has and will be a losing proposition for an ENTIRE generation.
Vote out the incumbants.
Speaking of housing costs. Just got back from a trip to Austin. Big billboard about 15-20 miles nw of Austin saying… “build your dream home for $65 a square foot.” aaah, to have that luxury here in Socal!
Heck, if you want to live in the desert areas of Riverside County, you can buy an existing house (3 years old or so) for less than that, land included.
What is the magic about **mortgage** anyway? Just pay for the house full and we won’t have this mess, right?
Oh I forgot….this is AMERICA….land of the borrowings 🙂
Forbes In Depth: Worst Big Cities For Jobs, Irvine rank #4 and financial services in Irvine, dropped by 22%.
4: Santa Ana-Anaheim-Irvine, Calif.
The fallout from real estate speculation and a longstanding tech boom in this region, which is south of Los Angeles and includes some of the toniest coastal real estate in the nation, has slowed employment to a crawl. Here, between 2005 and 2008, jobs in construction declined 17.8%, and jobs in information declined 10%. Employment in financial services, a field that especially boomed in Irvine, dropped by 22% over the same years. Much of this was tied to mortgage related companies. Overall, the area saw a 4% decline in jobs between 2007 and 2008. Dropping home prices and rising sales suggest a slow recovery could be on the way though.
Dropping home prices and rising sales suggest a slow recovery could be on the way though.
I see…
So when a great many of these participants in the “rising sales” go under water and walk away from their debt to let the tax payers mop up – what point of the recovery is it that are we in?
Does anyone bother to ask what happens when these buyers turn in to knife-catching bag-holders?
Does anyone think beyond today?
I agree BuyIn, that information is consistent with my overall impression and information. The biggest weakness of the Irvine/OC area is that its economy has been RE driven for quite a few years now, and prices have gotten out of hand versus the income available in the local economy. Other pricy areas (the Bay Area, NYC, even LA) seem to have have a solid base of highly-paid professional jobs to mute the combination of the recession and the credit crunch. Irvine is more exposed than most areas of the country. I suppose that I should add — just be glad we aren’t San Diego. Irvine has already been hammered pretty hard…but the question is, how low can it go?
Hey guys. Many things could have happened here. I am thinking a feckless child is probably to blame. My mother done the same thing in the 80s when my throughly spoiled brother got into trouble and went to jail. The attorney fees were expensive, so she refinanced her house, which was purchased in 1973 for 35K ( in Brooklyn, New York) and paid off completely by the time my brother was in trouble. It was a wise decision; at the time she could sold the house for about 80K, bought into a coop and paid off the attorney. But she wanted to stay in her house. Thank god, she was able to pay that second mortgage off, and my brother finally got a clue and cleaned up his act. Ironically, she got a meaty promotion at the hospital where she worked ( she became head of nursing department)and she could have paid that attorney out of pocket, had she waited a few more months!
I share this somewhat embarrasing story to show you guys that sometimes things happen, and a fast talking sale pitch on the TV, on the radio, on posters, and people really think that yes, that’s the answer. I think that was the case here, not ridiculous luxury goods.
“The attorney fees were expensive”
Public defender is free (thanks to taxpayers).
Hey, where’s the outcry on this one (free public defender)??? 🙂
Public defenders suck. Seriously, if you ever get arrested, sell your house, sell your car, sell your blood to pay for a real attorney.
Speaking from experience? 😉
Having worked as a prosecutor, let me make two points (not relevant to IHB, but to these comments): (1) To get a Public Defender you have to do an income verification, and not all will qualify. And they can come after you for the money if you do take the PD and it turns out you have some money. (2) Many PDs I have worked against are very, very good, and many private attorneys I have worked against are very, very bad. There is no simple rule of thumb. A final point, in most case, the defense attorney barely matters–the prosecutors make the same deal, and in the vast majority of cases the defendant takes the deal, because it’s actually the best option.
Sorry for the OT, just a flare-up of my SOTIIW syndrome.
I am so glad that you are able to bring a good point form different perspectives.
A few days ago, a lot of people praise IAC ‘smart’ business practice that put ‘poorer’ buyer in later order and just let richer get in first, so that they can move/manipulate the house prices higher. Cinderella must be very sad her Fairy Godmother has to come later because richer girls are ahead of her, so she can’t go the party.
My impression from this bog is that most comments are blaming the people to refinance their own house any spend their own money. I do not think anything more wrong compares to IAC business practice. If IAC is so smart for doing this (and eventually tax payer has to pay it), why you can’t agree this people maybe more smarter than us?
Bottom line, we should try to pay more sympathy for those people losing their house, not blame than again. For those people try to buy house and live in Irvine, if you can’t make good money from your profession or already rich, you maybe just a real-life slaver of IAC.
The prices in new homes with future increases planned had everything to do with buy now before the prices go up. Which fueled the frenzie and the lines trying to get into the new homes.
Because “prices only go up in housing” is how they manipulated the public was fueled with cheap money/sleazly loans and the public believed the manta that RE always goes up.
They can say construction costs were increasing along with demand so the ability to raise pricing was there.
The public believed buy now or be outpriced in the future.
Should we have sympathy for those who bought way over their incomes? Or for those who heloc’d their way into more debt but can walk away now?
I say a loan is a loan people—you knew when signed on the dotted line what your costs would be.
For those that took out a second and paid back their loan Great going!!!
The rest of you that are leaving me with higher taxes and less interest on my hard earned money –well no words can express my anger.
As I have friends who have lost their businesses from this downturn, many who have lost their jobs.
The consquences from the domino effect run into everyone’s lives.
So while you are out with your cash or lived off your heloc you can be so proud of yourself just look what you did to the rest of the economy.
“My impression from this bog is that most comments are blaming the people to refinance their own house any spend their own money.”
It wasn’t their own money. It was the bank’s money, and now it’s our (the taxpayers) money. IAC hasn’t taken a dime from me, since I live 2000 miles from Irvine.
Did they realize that a lot of these retirement people are going to sell their homes sometime soon like this one?
Reverse mortgages really are the way to go, especially if one doesn’t have children or the children are well enough off financially and won’t need the inheritance income that selling the house at a probate sale will bring. They get a steady, predictable stream of income, and they get to stay in their house. This is one way where using your house as an “investment” can pay off, IMHO, without being an irresponsible jackass.
The problem is if you do reverse mortgage now, I don’t think the banks will appraise it as high as you want. Thus, you’re not gonna get the monthly payments that you so desired.
The kool-aid days of ’06 would be the best time to get a reverse mortgage (unless banks are now renegotiating those).
The above statements are purely speculation on my part.
This is true, you will get less now than if you started the reverse mortgage in 2005-2006. But you probably still could take out a reverse mortgage of a quarter million or more on this property if you owned it free and clear. Add that to social security, plus at least some pension or 401k monies, and one could live off all of the above for quite awhile.
More endless hypothetical speculation not having to do with this particular homeowner…
Maybe he was a public sector employee who bought his home in his 40s. Thirty years later the house was falling apart and in desperate need of repairs. Since the government has been claiming no inflation for a decade he has not received any increase in his retirement while prices for everything have risen exponentially. He thought that by leaving money in CDs he would be set. Then one day he needed a new car since you can’t get anywhere in Irvine on a bus. Just when he thought he didn’t know what to do he was approached by a neighbor’s high school drop out subprime broker son who promised tons of money upfront with low payments. He was already showing early signs of dementia and not able to fully comprehend what he was signing.
IR,
You have posted in the past about the downfall of Northwood II. Could you research 31 Teak Bridge? It was listed on Redfin over the weekend for $600k as a short sale but is no longer listed. In an email I received from a realtor today, they had it listed with it’s status as a pending sale. The last sale on this property was $1.2 mil (2900 sq. ft). Is this the first sign of capitulation in Northwood II?
I saw that one and actually posted a thread in the forums about it. It was not only a short sale, but also listed as a fixer. They bought the house brand new in 2006, and it’s already a fixer! That takes skill. There were also no photos in the listing. Hard to tell what is really going on, but that was not a normal listing, to say the least.
Off topic: who said they love to live in Texas in this blog (cheap housing, great atmosphere, etc, etc, etc)?
http://www.cnn.com/2009/CRIME/05/05/texas.police.seizures/index.html
Please stand up and show yourself.
That pretty much matters only if you are black.
I wish I was kidding.
Well that settles it. Nobody move to Texas – there is a fringe little Redneck town with some crooked cops. Best to avoid the entire state or stay in places like California where the police have a much better reputation.
Hahaha….good one there AZ.
Ouch for CA….took it on the chin (I got bruised as well).
“Maybe he was a public sector employee”
He obviously wasn’t one of the 4,820 CalPERS retirees who helped elevate our great state to its present lofty status and consequently are rewarded with a more than $100k annual pension! A pension fund backstopped by taxpayers, I might add.
Out of curiosity, how much principle would be required to collect $100k per year of interest assuming current interest rates?
Article below:
http://www.flashreport.org/featured-columns-library0b.php?faID=2009042908422871
That’s some good gravy! OINK OINK!
I just checked the current rate on my savings account:
As of right this moment it stands at:
Interest Rate 0.995%
LOL Not even 1%.
Down from 4%-5% when I originally opened it.
All I have to do now is work hard and save up 10,050,251.26 and I’ll be raking in 100K per year on interest just like these guys on pension.
I need to get in on some of this government cheese.
$10,050251.26 for working one’s entire life in the City of Vernon?
Sounds about right…
\sarcasm
That’s not how it’s calculated. Pensions payouts both principle returns. It’s not like after a steady stream of $100k annual payout, there would be $10 million dollars left. Ideally, the last dollar would be paid out as the retiree dies. Of course you can not accurate the longevity of any single retirees. But when you talk about 2-3 millions CalPERS members, the statistical average is pretty spot on so far. Sure someone would live to 100 but someone will die the day after they retire. With such large membership, it eventually average out to the life expectancy of general population.
Most of the rules of thumb, I would say $1.8 to $2.5 mil. is the more likely ballpark.(A lot depends on gender, age of retirement, etc.)
Irvine Housing Blog offers both anecdotes and data.
Each home profiled is a data point, not a moral lesson, and it’s entirely possible that any single one of the homes shown here is an example of tragedy rather than greed.
If I were perfect, it would be easier for me to judge others. As it is, a data point like this is an example of a system gone awry.
its just sad there are more greed than tragedy.
what it cannot give the reward of 30 years that,s strange but it profile not a lesson and might be it would be the tragedy or other reason rather then the curse