Crisis or Cure?

Some people should never have been given the loans they had; they can’t afford the properties they occupy. Today’s featured property is beyond the means of its owners, so it is going into foreclosure. Is this foreclosure a crisis? or is is the cure to their debt problems?

25 Arcade kitchen

Asking Price: $1,399,000

Address: 25 Arcade, Irvine, CA 92603


I contributed another post at Irvine Homes: Turtle Rock.

Escape — Metallica

I’ll fight until the end,
To escape from the true false world,
Undamaged destiny,
Can’t get caught in the endless circle,
Ring of stupidity

The stupidity of lenders is amazing. It is obvious that some people can only afford their home with Ponzi Scheme borrowing, but during the bubble the lenders did not care. The few that noticed or cared believed they had no risk so it didn’t matter. The collateral would go up in value forever, so they had no foreclosure risk, they could sell the loan to investors and remove the risk from their books, or they could protect themselves with a credit default swap from AIG. In short, they could write whatever loan they wanted to any borrower with a pulse, and they could not lose money–or so they thought.

Today’s featured property was partially financed with a $998,400 Option ARM with a 1% teaser rate. These are the loans that inflated values at the high end, and they are the same loans that will cause its destruction. None of these loans are stable, and the borrowers using these loans are defaulting in large numbers and building the next foreclosure wave. None of these loanowners are going to keep their homes because they cannot afford the payments on a conventional mortgage.

At the conclusion of Mr. Mortgage’s most recent post, he stated, “Bottom Line — after seeing these latest figures I am
more convinced than ever that the next step is wide-spread principal
balance reductions that will reduce the massive negative equity burden
in America and be a first-step to solving the mortgage and housing
crisis once and for all.” Widespread principal balance reductions are occurring in a process known as foreclosure. Once a property goes through foreclosure and is resold, the new buyer has a much lower principal balance than the old one. That is what needs to happen.

Does Mr. Mortgage believe this is going to happen through voluntary “gifts” of principal reductions to existing borrowers from the lenders? That is what his statement implies. I rather doubt it. There is no way to make this “gift” equitable, and the moral hazard would be extreme, and the lenders will resist this to the bitter end. Look at their opposition to allowing bankruptcy judges to reduce principal balances; they would rather take the home back in foreclosure than allow principal reductions even in the case of borrower insolvency and bankruptcy. Further, they have managed to kill that measure in the Senate–a Senate completely controlled by an antagonistic Democratic majority. Don’t expect to see either a voluntary or a politically mandated effort at principal reduction any time soon.

The only rational method of principal reduction is through foreclosure. As a society, we need to stop viewing this as a “foreclosure crisis.” There is no foreclosure crisis; there is a debt disease, and foreclosure is the cure.

25 Arcade kitchen

Asking Price: $1,399,000

Income Requirement: $349,750

Downpayment Needed: $279,800

Monthly Equity Burn: $11,658

Purchase Price: $1,248,000

Purchase Date: 1/26/2005

Address: 25 Arcade, Irvine, CA 92603

Beds: 3
Baths: 3
Sq. Ft.: 2,460
$/Sq. Ft.: $569
Lot Size: 5,018

Sq. Ft.

Property Type: Single Family Residence
Style: Other
Stories: Split-Level
View: Canyon, Hills
Year Built: 2004
Community: Turtle Ridge
County: Orange
MLS#: S560450
Source: SoCalMLS
Status: Active
On Redfin: 115 days

Beautiful crafted home, charm with rich flavor of Tuscan architectual
style. Located at the end of a cul-de-sac in the summit of Turtle
Ridge. Highly upgraded luxurious property, with 3 bedrooms + office.
Crown molding, upgraded floors, and Granite kitchen counter tops.
Property has an inspiring hills and canyon view.


Notice the I-don’t-give-a-crap description on a $1.4 million property

So how did this become a short sale? The property was purchased on 1/26/2005 for $1,248,000. The owners used a $998,400 Option ARM with a 1% teaser rate first mortgage, a $62,400 second mortgage, and a $187,200 downpayment. On 2/10/2006 they opened a HELOC for $310,000, and apparently used it. The total property debt is $1,370,800 plus negative amortization.

If this property sells for its current asking price, and if a 6% commission is paid, the lender will not lose much, perhaps $100,000. It is interesting the “rich” people who live here wouldn’t pay off the short sale amount. Perhaps they are not so rich after all.


Feel no pain, but my life ain’t easy,
I know I’m my best friend,
No one cares, but I’m so much stronger,
I’ll fight until the end,
To escape from the true false world,
Undamaged destiny,
Can’t get caught in the endless circle,
Ring of stupidity

Escape — Metallica

79 thoughts on “Crisis or Cure?

  1. Dan in FL

    There is another reason that you will never see principal reductions, one that people seem to forget quite often.

    Most banks don’t own these loans!

    Because 50% (or more) of these negative am and alt-A loans were securitized, the banks no longer own them…”investors” are the real owners of the loans now, through Mortgage Backed Securities. And these “investors” (hedge funds and foreign wealth funds) REFUSE to do any loan modifications. As a foreclosure defense attorney, I’ve seen hundreds of cases with these MBS cases, and in every case, the investors are the ones who control the modifications. The bank’s hands are tied.

    And the investors refuse to modify any loans (even refusing to forebearance of unpaid principal) for the same reasons you listed IR. The investors have the same insurance that the banks have, so they know they’ll be made whole at another person’s expense. Everyone in the banking system, including the shadow banking system, is still playing a huge, expensive game of pass the buck. I’m interested to see who finally pays for this “principal reset”. Apparently the only ones not taking a hit are the investors who own the MBS.

    IR – Love this blog. Read it, and the comments, every day.

    1. winstongator

      Wilbur Ross, owns … American Home Mortgage Servicing, Inc., … the nation’s largest third-party servicer.

      “In particular, he believes that what’s needed is aggressive principal modifications for borrowers most in need. He has said that his American Home servicing shop has seen six-month recidivism rates below 20 percent — compared to the 50 or 60 percent standard in the industry — because the servicer has been aggressively looking to cut principal balances.”

      The option is principal reduction through foreclosure, or principal reduction keeping the current occupant in the home. If you’re only going to be able to sell a FC for 300k, but you could refi the current owner at 300k, why would you go through the legal costs & realtor commission just to get the same amount?

      There is a point below what a home would sell for after foreclosure, where it would make sense for the lender to reduce principal for the current owner and still not lose as much.

      In South FL, there are lots of homes like this one that are now listed for < 1/2 new 2006/7 sale price, and significantly < 2004/5 new prices. Are crown moulding, granite counters upgrades on a $1M+ home? What are standard floors at that point vs. upgraded?

      1. Dan in FL

        In my experience, AHMSI is one of the worst servicers out there to deal with. On top of that, they are actively buying the servicing rights for loans that are already in default and heading to foreclosure.

        Perhaps AHMSI is cutting principal on loans they actually OWN, but they have NO AUTHORITY to cut principal on the loans they SERVICE.

        And since AHMSI is primarily a servicing company, Ross’s comments are mostly sound and fury.

      2. Modguy

        I work for AHMSI, and while we our very aggressive with loan mods, we are not doing principle reduction. If a loan is escalated and dealing with legal issues there is a department that can offer principle “deferment*”, but that’s not quite the same. If Mr. Ross is offering principle reductions, he hasn’t told his employees yet.

        * deferment would mean basing the payment on a lower balance, but the rest of the principle is still there when you go to sell, refi, or retire the loan. “Reduction” would mean you owe less, which seems so unfair… The responsible buyer might still owe, say, $500,000 with no loan mod, but the iresponsible neighbor would owe $300,000. What happens when they sell in the future… That creates a real moral hazard!!

        1. Modguy

          Dan (in FL),

          I cannot defend all of my coworkers because I don’t know them all (there are probably a 100 of us in different offices each with over 200 files at any one time), but I can tell you that a lot of us are extremely good at what we do. When someone says they had a bad experience, it leads me to believe one of two things:

          1. They got assigned to someone who is not as good at handling this process as the rest of us, in which case I would urge folks (if they have a legitimate hardship) to re-apply. AHMSI, is extremely dedicated to this process and they monitor and report on everything (i.e., can’t let your voicemail fill up, you can’t let your files age, etc.).

          2. They don’t have a legitimate hardship or no matter what we do, we can’t help them. These people like to scream and kick, but when you have a 1% (teaser) rate on a Million dollar loan and can’t afford it, what do you want us to do… pay you to live there? Or, if your only income is a letter from your brother… uh, we don’t do “stated” income mods 😉

          If you have a legitimate hardship and are in danger of imminent default, we WILL offer you a modified loan… it amazes us everyday how many people angrily turn-down what we offer because we’re not “helping” enough. Oh, the things we’ve seen lately fill our lunch hours with entertaining stories! 🙂

          1. Dan in FL

            One of the effects of this crisis on our society is that everyone seems to be at odds with each other. The homeowners, the servicers, the investors, the insurers and the government are all trying to lose as little money as possible. This economic warfare will continue until we start to truly work together. Until then, it seems like a real war, and people like Modguy and I are just the pawns sent to do other people’s bidding.

            While the servicers can be hard to deal with, I will agree that the employees at the servicers are hardly to blame. They are given a matrix of what the investors will or will not accept. They have no authority to deviate from it, and they are the ones that have to deliver that news to the homeowners applying for a “modification”. Then, the employee gets hit with a heavy dose of Shoot the Messenger.

            Unfortunately for places like FL, CA, NV and MI, the current “modifications” are worthless, as is Obama’s Making Homes Affordable. A reduction in principal is the only way to keep people in their homes in those states. Remember, a reduction in principal is not the same as paying off the whole mortgage.

            Modguy, I hope you don’t get discouraged. I talk to good and bad servicing employees every day. When I get a good one, I let them know I appreciate their professionalism. With the bad ones, I just try to not let them ruin my day. Maybe one day we can swap stories…I’ve got quite a few about the bank’s foreclosure attorneys you wouldn’t believe were true.

          2. IrvineRenter

            “it amazes us everyday how many people angrily turn-down what we offer because we’re not “helping” enough.”

            I hope everyone catches that statement. It made my blood boil. It makes me want to go “help” these borrowers out of the house they are squatting in and on to the street.

          3. Dan in FL

            IR – I have a response, but would prefer to do it via email. Can you email me?

          4. AZDavidPhx

            I am more than willing to go and help lift their flat-screen televisions out onto the sidewalk.

            There is another idea for you, IrvineRenter.

            You can start up an IrvineMovers business; Helping your clients vacate their foreclosed houses while helping bring back jobs to Irvine.

            All you need are a few trucks and some illegal aliens and you are all set.

          5. Chris

            I’m with you on that, IR. You borrow $800k, you have to pay back that $800k plus whatever interest that’s attached to that $800k. Pure and simple.

            If these borrowers don’t get it, then they shouldn’t even be borrowing in the first place.

          6. Chris

            “All you need are a few trucks and some illegal aliens and you are all set.”

            Now, now, now, AZ….you must be politically correct in this state of the Dems (after all, this is IHB :-)).

            They’re not illegal aliens. They’re simply undocumented or document-impaired workers.


      3. Chris

        “There is a point below what a home would sell for after foreclosure, where it would make sense for the lender to reduce principal for the current owner and still not lose as much.”

        No, no, no….the market wouldn’t bear that. Think about it, if you reduce principal and the housing market rebounds (if it does rebound), what will happen to the principal? Will it stay the same? Will the bank put in clauses such that the home occupants won’t see a cent of the newly appreciated price even though they would probably have to pay property tax on that newly appreciated price? And would the home occupants say “F*** it, I’m outta here…this is ridiculous as I’m paying the tax on the appreciated price that I will never get.”?

        The best thing to do is to let the market dictate the price movement and the contracts be binding (non-recourse loans). Let the lenders foreclose and the market to decide in auctions and sales what the price of that house should be. Continue with the process until the market stabilizes.

        Unfortunately, Obama and his goons can’t see and doesn’t give a flying f*** about my comments 🙁

        1. winstongator

          The ‘market’ created the crazy prices that are the root of the problem.

          Are Chrysler’s debtors getting 100% face value of their debts? How did Freescale get to swap debt for a quarter on the dollar? Debtholders modify terms because it can be in the best interest of both the debtor and lender.

          To E – on those properties, no one is willing to pay $350k because they’ve been listed at $300k for months with no movement.

      4. E

        “The option is principal reduction through foreclosure, or principal reduction keeping the current occupant in the home. If you’re only going to be able to sell a FC for 300k, but you could refi the current owner at 300k, why would you go through the legal costs & realtor commission just to get the same amount?”

        Because the loanowner paid over 700k and is now asking for 3x the price.

        Why should we not cram down the principal to 300k for the neg-am wielding homeowner?

        Because I’ll pay 350k.

        Kick those “owners” to the curb post haste.

    2. george8

      Conventional wisdom says no to the principal reduction from the bank..

      But, judging from what has been done, I think anything is possible still if things get a lot tougher.

      After all, the government bail out plans have been chipping away this “conventional wisdom” a bite at a time.

      Everything is and will be for the better good of the country and mankind.

    3. IrvineRenter

      Dan in FL,

      It is always good to hear from people in the trenches working this issue every day.

      I have to imagine the ultimate counterparty to all this is going to be the US Taxpayer. Everyone, including our Treasury Secretary, seem to be looking for a way to stick the taxpayer with the bill.

    4. thrifty

      Dan in Fl.
      I’ve discussed making offers on short sales in Fl with more than one realtor, then followed the properties on the mls online. Virtually none have closed or become REO. I believe Fl requires all foreclosures to be decided by a judge which apparently prolongs the process. More importantly, there seems to be no one representing a bank(s) who can approve an offer within a 2-3 day timeframe (usual for private sales). The offers simply sit there. While ultimately there may be 10-15% completed, the existing system seems to me to be overwhelmed and destined to fail.
      How long do you think it will take to resolve this mess in Fl given the existing load of short sales, REO – and the alt-A yet to recast through 2010?
      Thanks for joining the blog. Your perspective is very informative.

      1. Dan in FL

        I can only speak for my county (which I won’t reveal at this point).

        The foreclosure process does take much longer because Florida is a judicial foreclosure state. That is either a good thing or a bad thing, depending on your perspective. The attorneys at the Foreclosure Mills (I won’t call them “firms” because they hardly represent the best aspects of the law) generally handle many hundreds of cases at once, sometimes a thousand or more at a time. They are glorified paper pushers, without the authority to negotiate anything more than a release from deficiency.

        The system is so backed up that, sometimes, I think our state’s judicial system might fail altogether. It takes months to get a hearing in front of a judge. In my county, we’re on pace for 10,000 foreclosure filings this year.

        This is damaging to everyone, regardless of your ideology. The courts don’t have the funding or manpower to handle it all. Moreover, the banks attorney’s file the worst lawsuits I’ve ever seen.

        I don’t have any concrete numbers on sales, but here’s some quick napkin math. Year to date, there have been just over 7k in deeds filed in my county. These could be traditional sales, gifts, divorces, whatever. There have been around 3.5k foreclosures filed in the county year to date. That means for every 2 homes that changed hands this year, 1 foreclosure has been filed.

        I don’t think we can estimate a timeframe for recovery becuase, at least here, we’re still on the way down. Maybe by year’s end we can start to talk about when we can see the bottom. For now, we’re still trying to drink from the firehose.

        1. Dan in FL

          MLS shows 2,800 homes sold in this county so far this year. Much worse than I thought…that’s less than 1 home sold for every 1 home foreclosure filed.

          Any seller who thinks they don’t have to price to the REO better look at that number again.

          By the way, I am not in the Miami/Ft. Lauderdale area. I can only imagine how bad that is.

  2. awgee

    At some point the PMI firms will run out of capital, if they have not already.

    I agree with IR and disagree with Mr. Mortgage. I hate to disagree with Mr. Mortgage. It feels like sacrilage, but if the lender reduces principal, the lender takes the loss. If the lender takes the mortgage into foreclosure, PMI will make up for much of the loss. It is in the best interest of the stockholders for the lenders or MBS holders to foreclose, and that is why they bought insurance.

    1. IrvineRenter

      I don’t like disagreeing with Mr. Mortgage either. In this case, I think he is wrong in concept to see foreclosures as a problem. Debt is the problem, and foreclosure is the only equitable solution. Foreclosure is only a problem to those who want something for nothing and bet wrong on appreciation.

      In retrospect, one of the interesting lessons I am taking from this whole phenomenon is how people’s perception of risk changes their behavior. Everyone involved in the bubble believed they had no risk, so they engaged in obviously foolish behavior because they believed there were no consequences. The removal of consequences for foolish behavior guarantees more of that foolish behavior.

      There is a moral imperative to foreclosure. Every buyer who foolishly overextended themselves or HELOCed themselves into oblivion must face the consequences of their actions or they will certainly repeat this behavior again. It is the definition of moral hazard.

      Californian’s have so many pathological beliefs about real estate that it takes a catastrophe like this one to crush these beliefs out of existence. Otherwise this mental pollution will grow into an even larger and more painful bubble in the future. The degree to which the consequences of bubble behavior are softened is the degree to which the pathology will survive.

      1. Fish Head

        IR –

        I agree with your points and have seen some interesting changes in the last year:

        Offer # 1 (mid-last year) – Wife and I almost made an offer on a great house that was just too expensive. The family was selling because dad had lost a job in the mortgage industry, they expected few job prospects in OC and they still had several hundred in equity. They were great people and the look of dispair on their faces when we told them that we couldn’t make an offer in their range was truly sad. In the end they sold a month later and walked with a couple of hundred grand. But it was still a sad situation because they had good morals and loved the house.

        Offer # 2 (late last year) – Wife and I looked at a nice SFR that was starting in foreclosure. The family was supposed to be gone but ended up being in the house. They were nice and they seemed to deal with the situation well but it was still a bit odd. I was uncomfortable walking around their “home.” I sensed a bit of shame but they gave an air of “oh well, what can you do?”

        Offer # 3 (last week) – Wife and I looked at a home well into foreclosure. The mom, a friend and the kid were there. They were very open and friendly and didn’t have a hint of shame. They went on and on about the house as if it were someone else’s. They also continued playing on the computer as if a couple of friends were over. Given that they weren’t making any mortgage payments, I almost got the sense that they felt like they were lucky to be in the situation. They didn’t seem to have a care in the world.

        I understand that I’m probably cherry-picking and that there are plenty of people out there still suffering but the difference was obvious. I don’t think that there is nearly the stigma with foreclosure as there was a year or two ago.


      2. The Dark Avenger

        This seems apropos:

        The Californians are an idle, thriftless people, and can make nothing for themselves.

        Richard Dana Henry

        Two Years Before the Mast

      3. dog

        Anyone see the Wall Street Journal article this morning about NACA, the group fighting to keep people in lender’s homes no matter what the cost (to the banks and society, of course — not to the homedebtor)? Contrast IR’s ‘debt is the disease, foreclosure the cure’ to the NACA official running around with a bullhorn at a convetion center full of underwater homedebtors saying ‘It isn’t your fault!’ — but then suggesting that if they own both a car and a boat they MIGHT have to get rid of the boat in order to keep the house. I howled with laughter at that!

      4. Foreclosure is not the problem- CMBS and leveraged banks are the problem. Imagine a world in which there was no CMBS- all the foreclosed homes would simply be bought by investors. A floor on prices would form and whalah- crisis averted.

        The problem is that our financial system became entagled as a middleman separating those the two parties who engaged in risky behavior- the borrowers and the lenders.

        The only solution to this mess is time- time to let loss be absorbed through a tangled web of legal connections.

        Put some water on to boil.

        Incidentally, I just launched a blog on San Diego Property Management.

        Your comments would be appreciated!

      5. TequilaMockingbird

        I-R, I have to respectfully disagree with you on one point; It’s my observation that the pathological beliefs about real estate are not being crushed.

        I talk to people every day and the overwhelming sentiment is that home values in most neighborhoods have not declined significantly. If you ask most people, they’ll tell you that some pockets have been hit hard and that’s what the media dwells on. But in *their* neighborhood prices are holding steady and will rebound and rise again within a year or two. Recent stories about “the bottom is in sight” and “experts predict home values rising” feed into this.

        Even a search through Redfin bears out this philosophy. A random search through my neighborhood in San Diego routinely shows listings 10-20 percent higher than the purchase prices from 2004-2006. I realize this won’t be the actual selling price but it certainly reflects seller beliefs on what home values are.

        Contrary to giving up hope, I believe that most homeowners truly believe that relief is around the corner.

        1. IrvineRenter

          Yes, only time and continually falling prices will grind the hope out of some people. It took 2 or 3 years for people to finally accept the NASDAQ wasn’t coming back, and the stock market moves relatively quickly. I know there is very little hope in Riverside County even now (which is probably a sign they really are near the bottom). It will take a couple more years before people give up home in San Diego and OC.

        2. MalibuRenter

          Oddly, this sentiment is less prominent in Dallas ( a nonbubble area). There is less resistance to discounting.

      6. Chris

        IR, FORECLOSURE IS THE ONLY FREAKING SOLUTION!!! (Sorry man…tea this time)


    2. dafox

      if the government were to start helping banks do principal forgiveness, heads would roll. congress reps know this, so any principal forgiveness will be done by the banks and not helped out by the government.

    3. thrifty

      Where is all this PMI going to come from? It’s my understanding that the “insurance” banks were selling each other and investors via credit default swaps in the hundreds of billions (or more?) of dollars on CMOs are themselves highly suspect – and one of the causes of the freezing of the financial system last fall.

  3. Lee in Irvine

    As a society, we need to stop viewing this as a “foreclosure crisis.” There is no foreclosure crisis; there is a debt disease, and foreclosure is the cure.

    Very smart statement. +1

    1. Walter

      I agree. But I don’t think the media will pick it up.

      The word foreclosure is more media friendly because it is something a big evil bank is doing to you. Now the media has a victim in the poor home owner.

      The word debt, not so media friendly because that is something you did to yourself and implies you should accept responsibly.

      Besides, everyone in the media is so busy saying “green shoots”, they don’t have time for a new expression.

      1. HydroCabron

        “Green shoots” should be “bamboo shoots.”

        Sadly, I can’t claim this translation as my own. Saw it in the comments over at Calculated Risk.

    2. WaitingToBuyByAndBy

      “There is no foreclosure crisis; there is a debt disease, and foreclosure is the cure.”

      Yep. Nice one, IR.

  4. bill shoe

    There is a good quality discussion going on here about debt, government policy, etc. Can I take it down a notch and mock the front stairs?

    The stairs are freakin huge! If you look closely there appears to be some kind of dwelling attached to the back of the stairs. The stairs look like they came from from the grand staircase in the Titanic! Seriously, I appreciate all the work that IR is doing here at the Irvine Stairway Blog.

    1. Sue in Irvine

      Those stairs are for the beautiful princess to run down to meet prince charming in his bejeweled carriage so they can hightail it out of Irvine.

    2. HydroCabron

      The sheer awesomeness of those stairs suggests that someone — a realtor, perhaps? — has become so enamored of short focal-length lenses that they never go longer than 24mm. This exaggerates the relative size of objects near the camera.

      I browse craigslist rental ads daily, and bear witness to gruesome, non-rectilinear representations of interiors wherein moulding takes on hyperbolic trajectories toward corners which resemble geometric singularities where space as we know it ceases to exist. Putatively parallel lines sag under the weight of a supermassive ceiling that does not diminish the vastness of tha galactic expanse that is the living room. Toward the far distant wall, one imagines the planet Saturn, as part of its orbital course, scooting comfortably between the coffee table and the much-more-distant couch.

      I doubt that I have seen a fish-eye photo of an interior, but I know I have seen focal lengths as short as 17mm.

  5. AZDavidPhx

    Courts initiate programs to assist homelosers(sic) in resolving cases

    May 19, 2009

    Palm Beach Chief Circuit Judge Kathleen Kroll will launch a pilot program next month allowing homelosers(sic) to confer with law clerks and court interns to get help understanding the paperwork and [to] see if they’re eligible to rework their loan.

    Broward Chief Circuit Judge Victor Tobin plans to require lenders to make a good-faith effort to meet with all homelosers(sic) interested in settling their foreclosure cases.

    Both are trying to solve complaints by mortgage holders who say they can’t find anyone in a position of authority at their lender to work with them.

    The Miami-Dade Circuit Court created a mandatory mediation program last month for cases involving owner-occupied homes. The program mandates lenders pay an additional $750 fee for the mediation services of the Collin s Center for Public Policy, a nonprofit Tallahassee think tank specializing in dispute resolution.

    Others counties around the state are pursuing different options for bringing their foreclosures
    caseloads under control.

    When served with a foreclosure case, a homeloser(sic) would be alerted that they can submit a written request for a meeting with a lender’s representative.

    The lender would be required to provide contact information for a representative with authority to settle the case. Lenders also must certify they made a good-faith effort to meet with homelosers(sic) before seeking summary judgment. A separate form has a place for a lender’s attorney to certify when a meeting took place and whether the issue was resolved.

    These forms would narrow down who wants to rework their loan and who doesn’t,” Tobin said. He said a large percentage of people already have abandoned their property before a foreclosure filing.

    Tobin’s plan echoes procedures Kroll instituted in November. She issued an administrative order requiring a notice in English, Spanish and Creole be sent to homelosers(sic) listing who they can turn to for help and what options are available.

    homelosers(sic) also are given a foreclosure questionnaire and information on how to either request a loan modification or a short sale.

    The forms request information on employment, assets and liabilities. The court requires homelosers(sic) to file a compliance notice with the court stating they had sent the foreclosure questionnaire to their lender, which tells judges that homelosers(sic) made an attempt to make things right.

    Under the new order, a packet going to homelosers(sic) will include a brightly colored piece of paper setting conferences on Tuesdays and Thursdays. The staff will show homelosers(sic) what needs to be filled out and inform them of legal aid or other legal organizations that could provide legal advice.

    “We’re hoping what this would do is help those homelosers(sic) who want to work with lenders,” Kroll said.

    When told about the new programs, foreclosure defense attorney Damian Turco commended the two courts for their work.

    “The most important piece is that it provides guidance to homelosers(sic) as to how to pursue the resolution of the issue,” said the Palm Beach Gardens attorney.

    1. AZDavidPhx

      I have free legal advice for homelosers across the country (No brightly color piece of paper necessary):

      1.) Do not buy things you cannot afford
      2.) Mail your lender’s-house keys to the lender.
      3.) Get TF out of your lender’s-house.

      Problem solved.

      1. Lee in Irvine


        And to think, many home-debtors are frantically calling loan-mod sweatshops right now, looking (and in some cases paying) for someone to tell them everything is gonna be okay.

        Yet your advice is free, efficient, and the quickest path back to becoming a legitimate homeowner.

    2. IrvineRenter

      homelosers(sic) LOL!

      “He said a large percentage of people already have abandoned their property before a foreclosure filing.”

      Say it isn’t so…

      1. AZDavidPhx

        I have just about had it with these nanny governments and their stupid little pointless and unenforceable programs that treat grown adults like brain-dead children.

        It reminds me of 19th (and prior) century slave-holders keeping their slaves like children in order to maintain their ignorance and dependence on the master for survival.

        Now we have Judges doing their part to keep the masses ignorant and enslaved to their debt and dependent on the system.

        Slavery is alive and well today – it just looks a little different in 21st century America.

        1. Serenity now

          A lot of people who were given free money to buy a home are pretty much “brain dead children.” Here’s the good part…. their vote in an election counts just the same as yours.

        1. Gemina13

          Actually, that should be “Don’t Finance Stuff You Can’t Afford.” If they still have to make payments on it, they didn’t buy it.

        2. Chris

          I said this once before in the blog and I’ll say it again:

          If everyone buys his/her house outright (no mortgage…no debt…no borrowing), we wouldn’t have this problem.

          Ummm….I forgot….this is AMERICA!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! Land of the borrowings.

  6. newbie2008

    If Dan in FL is correct and the loans were repacked by Fannie or Fredie, the taypayer will be left holding the bag. But much of the banking crisis is on credit default swaps (gambling on the primary loans while not holding the primary loan — sort of like options or insurance on the loan). If the primary loans are wiped out, the CDS are also in big trouble. There’s likely many layers CDS’s on CDS’s on CDS’s on the original loans.

    1. Dan in FL

      Of the THOUSANDS of foreclosures I’ve seen, I’ve seen Fannie and Freddie listed maybe five or six times. I’d say at least 50% of these loans that are foreclosing are owned by investors. So yes, the CDS hits are going to be huge.

  7. NewportCoastRenter

    Bloomberg: “Rich Default on Luxury Homes Like Subprime Victims”

    May 6 (Bloomberg) — Chuck Dayton put down a quarter of the $950,000 purchase price when he bought his house in Newport Beach, California, in 2004. He was making $500,000 a year with his drywall company and he expected home values to keep rising.

    Then the mortgage market collapsed, new construction stopped and builders no longer needed his services. Dayton, 43, went into default four months ago because he couldn’t afford payments on the three-bedroom home, located within a block of the Pacific Ocean. He hopes his lender will agree to sell the seven-year-old house for less than he owes to avoid a foreclosure.

    “It’s just wait and see right now,” Dayton said.

    Borrowers such as Dayton, whose 2004 compensation was almost 10 times the median U.S. household income, are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.

    The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

    Short Sale?

    Dayton said he financed the purchase of his home, 40 miles south of Los Angeles in Orange County, with a payment-option adjustable-rate mortgage now serviced by JPMorgan’s Washington Mutual. The option allowed him to pay less each month than the interest on the loan, with any unpaid amount added to his debt.

    Dayton refinanced in February 2007 with a $1 million loan from Washington Mutual, and used some of the proceeds for business expenses, said Robin Milonakis, his agent at Altera Real Estate in Dana Point, California. He also took out two private mortgages and now has a balance of $106,000 on those loans, she said.

    Dayton went into default on Jan. 29 and owes $46,584 in delinquent payments and penalties, according to First American CoreLogic, a Santa Ana, California-based mortgage data firm. Dayton said he’s found a buyer willing to pay $950,000.

    The foreclosure process typically takes about a year. That means jumbo-loan defaults, which are climbing at the fastest pace in at least 15 years, will increase over the next year, according to LPS Applied Analytics in Jacksonville, Florida.

    Price Slump

    California is hardest hit by luxury-home foreclosures. More than 1,500 borrowers with properties in the state that once sold for more than $1 million defaulted on their mortgages in February, said Mark Hanson, managing director of the Field Check Group, a real estate company in Palo Alto, California.

    About 3 percent, or 254,745, of the state’s 8.5 million houses are assessed for more than $1 million by county assessors, according to San Diego-based MDA DataQuick, a real estate monitoring company.

    While sales for all homes in the state increased 2.5 percent last year from 2007, sales of homes valued at more than $1 million declined 43 percent to the lowest since 2003, MDA DataQuick reported. Part of the reason is falling prices as California’s median home price dropped 41 percent in February to $247,590, according to the state’s Association of Realtors.

    Another explanation may be stricter lending guidelines, Hanson said.

    “You have to have income of $250,000, a 20 percent down payment and near perfect credit to buy a $1 million home now, so the number of buyers isn’t what it was,” Hanson said. “There just aren’t enough buyers to sop up supply. We’re seeing the collapse of the high-end market.” 🙂

    1. SacBoomer

      Hanson said. “There just aren’t enough buyers to sop up supply. We’re seeing the collapse of the high-end market.”

      Even though Sacramento has been publicly flogged and/or hammered, sellers in the high end didn’t get the memo. Though anecdotal, the number of listings seems to be on a sharp rise, aged listings are getting pulled, and WTF asking prices abound. There just isn’t a lot of “sopping up” going on here except at the 100 GRM range. Oh, BTW affordability has returned here if the seller isn’t smoking crack, and the buyer is OK with a 20% loss next year.

  8. newbie2008

    A basic question, in May 18 post, Exhibit 41, are the top of the bar graph the grand total of all loans resetting during that interval or the total for each type of loan?

    If the former the investors, banks and taxpayers are in trouble.

    If it’s the latter, the grand total will be all the sum of all bars added up (not shown) and the country may be insolvent.

      1. newbie2008

        What is an agency loan? For the single period, the total resets range from 25 to 30. It doesn’t look as if a single type of loan is dominate (subprime is now a small player).

        You had a comment asking who needs “private bathroom” in a house. Well I glad my rental has private bathrooms, because I don’t like stranger walking into use my bathrooms.

  9. cara

    the first 20% of losses would be the standard PMI insurance paid for by other borrowers who also don’t have 20% to put down. (Replaced in the bubble with the second lien)

  10. camsavem

    Reading through the posts I have come to the conclusion that most people don’t care how something gets fixed as long as they benefit. Most Americans are pissed about executive compensation and bail outs for fortune 500 companies but on the flip side they say “if it makes the recession less painfull then I am for it”.

    It is a sad day when justice is not served because the public has been led to believe that they will somehow benefit by the government not only turning a “blind eye” to the biggest financial ponzi scheme, but propping it up.

    Interviews of victims of Bernie Madhoff showed that people did not ask questions of how the money was made because they did not care. I believe most of them thought it was some exclusive “insider fund” and so being they could benefit from someone else breaking the law, but as long as they didn’t know exactly…..then that was fine. Don’t ask, don’t tell.

    These were not poor people that he scamed, these were people that already had lots of money. They have a sense of entitlement because after all they are the ones that put all the “little people” to work. Certainly someone of their means would not be taken by someone of greater means? Usually the truly wealthy only scam the poor, very rarely do they go after each other.

    I guess what I am saying is Americans have tasted the fruits of welfare and liked it. Perhaps it was not in the form of AFDC or food stamps, but free money none the less.

    Now car companies are offering to make your car payments for up to 9 months if you lose your job. WTF? Because I am responsible I have to pay more for my car? Since when do you pay more for having good credit and paying on time?


    The average home American does not care if anyone gets bailed out as long as it protects their equity.

    They don’t even care if it prevents those that are responsible from being able to buy a house.

    They don’t even care if it prevents their children from ever being able to afford a house.

    They just want the ATM turned back on and it doesnt matter how it gets done.

    1. newbie2008

      camsavem: You hit the nail on the head. The majority just want their ears tickled with promises that “I’ll fix it for you” — Most of the time, it’s a bunch of BS that allows the new management to step on people (usually the productive ones and promote their pals). In this case the taxpayer and the auto. union will get step on (double crossed with a simple slight of hands) and the pals at GS, Citi, AIG exec. will be cashing in on their bonus and options at the new price (at new the lowest price of the year). Someone get the good end and others get it in the other end.

    2. grabasnorkel

      camsavem said
      “Reading through the posts etc… ”

      You are precisely correct. But note when the hoi polloi think they are “in” on the scam, they are all fore it, but as often as not they are getting conned.

      But you are right, this is part of the ongoing moral corruption of America’s soul, it really is and that’s not an understatement.

      Also note that most of the $60+ billion that Madoff allegedly “lost” wasn’t lost at all, it was given to the earlier entrants to the Ponzi scheme. TV wants me to feel all sad for tehse families that had been investors for upwards of 20 years, and made withdrawals to boot. They’re not victims, they’re successful, they got out more than they put in, in fact, so succsessful it’s hard to distinguish them from the scammers.

  11. Jeremy

    I hate to be a distraction from the fantastic conversations above this post, but… aren’t we missing our beloved WTF icon here? $1.4MM for a 2500 square foot home on a 5000 square foot lot?!

    1. IrvineRenter

      “aren’t we missing our beloved WTF icon here?”

      In Turtle Ridge, the WTF is just assumed…

  12. Dan in FL

    The wife just pointed something out. What’s a “beautiful crafted home”? Is this house different than the “some assembly required” homes they sell at Lowe’s?

  13. Chris

    Let’s say I lend you $100 with a collateral. You can’t pay off that $100 with interest so you default. Instead of taking that collateral, I now say that you owe me $50?

    Now tell me, if that person is successful in paying off that $50, do you honestly think I’ll lend him another $100 tomorrow?

    Sigh, unfortunately, China and Japan Inc are stupid enough to lend another $100 tomorrow.

  14. grabasnorkel

    IR you and others have mentioned the choice the banks face -> either mod the loan to X amount or foreclose and get the same X amount.

    Seems like equivalent options, but they are not. The threat of foreclosure has to be backed up with real foreclosures, if that threat is watered down, it becomes less of a stick they can use with other loans. Wesee some of that in the marketplace right now because many people are expecting a loan mod and have therefore stopped paying on their mortgage.

    It’s like a loan shark. When loans aren’t repaid, they have to break bones, even if the borrower is broke. Even once in a while the borrower is found dead – this has the purpose of keeping the threat real.

    If you f#%k a mafioso over hard, and skip town, he’s still going to come after you to kill you even if he can’t get his money back. Why is that.?

    Or a credit card company. They don’t HAVE to ding your credit if you default on a card, but they will. If they don’t then they won’t be taken seriously and that leads to more defaults.

    Two years ago a guy at work told me the banks would be reluctant to foreclose because they wouldn’t net anymore than they would by working with the borrower.. He was wrong then, and is wrong now. Think about it for a moment.

    1. IrvineRenter

      That is a good analogy. It also underscores one of the problems of the numerous foreclosure moratoria and loan mod programs.

  15. Joel Carson

    Getting back to your original question . . . I think it may just be a cure. Americans are adjusting to the new rules of the housing market. I just hope we can look into the future this time and really, really see where we’ll land 10 years from now — base our decisions accordingly.

  16. San Diego Homes Blog

    There’s a plastic surgeon here in San Diego who paid around $700,000 for his house when it was new in 1998. About 6 years later he took out a HELOC for another $300,000 and rolled the equity into his new $3.5Million house in Santa Luz. This would have been all well and good had he sold the original home prior to purchasing the new one. But instead he was greedy, and received bad advice from a bad Realtor, and set the asking price at $1.4M. Over the next 15 months he lowered the price several times, stopping briefly at about $1M… near his “break even” point.
    If he had originally listed the home for $1M he would have sold it no problem. But by this time the market had softened and the time-on-market was so long that people figured there was something wrong with the property. So what did he do? He applied for a short sale. And guess what… the bank accepted a short sale offer at $800,000 which was well below the then-current market value.
    So HOW can a plastic surgeon with a $3.5Million principal residence sell a 2nd home in a short sale after transferring all of the equity (and then some) into the new home? It’s not HELOC abuse. It’s called SHORT SALE FRAUD. Clearly he must have been hiding assets, and probably the overworked bank asset managers didn’t have time to do the proper research.
    There’s too much discussion about HELOC abuse. HELOC’s were legal mortgages that the banks were happy to give, and people were happy to take the money out of their equity. The problem is that these loans have been too easily forgiven by bank asset managers who are overwhelmed by short sale applications. Everyone and their brother wants to do a short sale at the first sign of market declines. But that doesn’t make it right. And if a seller has a job and substantial assets, there is no hardship. Yet these sorts of short sales are being approved every day.
    Short sales are a legitimate way to ease the pain of people who have real hardship. But the short-sale frauds are clogging up the system and taking advantage of taxpayers. I expect that we’ll be seeing some high-profile cases of short-sale fraud and probably some criminal convictions in the near future.

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