How many $4,500,000 REOs can the market absorb? More are coming.
Today’s featured property was a spec built by Fullerton Community Bank for a high end defaulter.
Irvine Home Address … 63 CANYON Crk Irvine, CA 92603
Resale Home Price …… $4,500,000
{book1}
The world’s got a funny way of turning ’round on you
When a friend tries to stab you right in the face
Losing faith in everything I thought I hoped I knew
Don’t sweat it, {it was} set on false pretense
Betrayed but not gonna be willing to change
And it doesn’t seem likely to fade
Betrayed but not gonna be willing to change
Cu-cu-cu-cuz you know…
It’s sacrifice
False pretense you’ll hurt again
Stop pretending to deny
False pretense you’ll hurt again
False Pretense — The Red Jumpsuit
California is full of False Pretense. Ostentatious properties like today’s tend to be a showcase to an owner’s ego, a dream home of epic proportions. Usually, monuments such as this are built with a successful person’s accumulated wealth, so wasting money on personal taste is usually paid for by the owner; however, during the Great Housing Bubble, lenders were willing to enable monument building, and now we have thousands of McMansions and far too many real mansions like today’s.
Some stupid and greedy lender offered this homeowner a $4,300,000 construction loan. Ordinarily, it would be nearly impossible to get a loan like this, and the $4,300,000 would not be released until the borrower had spent their 20% (or more) equity first — often the price of the lot. Since this was a 2006 loan, it may have been a 100% financing deal, but whatever the downpayment (initial investment) requirement was, this owner has lost it all.
How many $4,300,000 loans are out there inflating values at the high end? Few new loans are being underwritten at such high amounts, so when this property sells, the financing picture will be much different for the future buyer than the previous one. Hopefully it will be more stable.
High end properties are often equity piggy-banks storing the
accumulated wealth of a lifetime of conservative financial management
and sustainable appreciation. If this loan and the many like it had not been written, high end property values would not have gone so high. With the addition of leverage, values appreciated too fast, and with access to HELOCs, the piggy bank was raided. The empty shell is discarded like an admission ticket that gave access to a great party long ago but no longer has value.
High end defaults are on the rise
Dr. Housing Bubble noted:
“12 percent of mortgages with a balance of $1 million or more are now 90
days late. Last year, this number was 4.7 percent. If we look at
mortgages with a balance of $250,000 or less we find that 6.3 percent
are in distress. Now this is a stunning piece of data. You would
logically think that those with higher mortgages would have lower
distress rates simply because they have higher incomes. But the math
at least with monthly cash flows is simple. Spend less than you earn.
If you bring in $25,000 a month and spend $30,000 you will have
problems. Now if you bought a $2 million home that is now worth $1.25
million, will you continue to pay? Many of the California option ARMs and Alt-A loans are connected to these high priced properties.”
Serious U.S. mortgage delinquencies up 20 percent, according to Reuters: “It found 3.6 percent of prime mortgages — those made to the most
credit-worthy borrowers — were seriously delinquent in the third
quarter. That was more than double the year-ago quarter and up nearly
20 percent from the 2009 second quarter.” We also know from the numerous discussions of Shadow Inventory that foreclosures are not keeping up with defaults:
Don’t be confused by all the different percentages as they were looking at different data sets. The key observation is that defaults and foreclosures are rising, particularly at the high end.
Luxury Market Left Out
The Federal Reserve set out in January to lower fixed
mortgage rates by purchasing $1.25 trillion of bonds backed by
home loans. The 30-year fixed rate for so-called conforming
loans that can be bought by Fannie Mae and Freddie Mac dropped
to an all-time low of 4.71 percent in the week ended Dec. 4,
according to McLean, Virginia-based Freddie Mac, the second-
largest U.S. mortgage financier. The rate rose to 4.81 percent
last week.
The Fed purchases haven’t affected the high end of the
market because they exclude so-called jumbo loans. Mortgages
above the $729,750 limit set by Congress for the nation’s
highest-priced markets cost almost 1 percentage point more than
conforming loans, according to Keith Gumbinger, vice president
at HSH Associates, a mortgage-data company in Pompton Plains,
New Jersey. That’s quadruple the historic spread.
“There is no refinance market for you if you are
underwater and outside the Fannie and Freddie framework,”
Gumbinger said. “High-end neighborhoods are all suffering from
the same problems of diminished income at a time when there is
little equity to work with.”
Saving the Coastal California market
In Predictions for 2010, I predicted that a political effort will be made to save the Coastal California housing market by subordinating GSE loans. It would work as follows:
“If the GSEs wanted to raise the funding cap from
$729,000 to $1,229,000. They could simply allow their mortgages to be
subordinated to a single fixed-rate mortgage up to $500,000, and the
GSEs would be insuring their $729,000 mortgage as a second. The
interest rate on the first would be even lower than the GSE
mortgage—what risk is there? The GSEs would be taking on substantially
more risk, but it would allow them to underwrite loans on more
expensive properties, save the Coastal California housing market (not),
and pass enormous losses on to the US taxpayer.
Don’t be surprised when someone suggests this as a Treasury
Department leak and we read it in the MSM. Obviously, I think this is a
spectacularly bad idea, but lenders won’t, particularly if they think
they can pass losses on to us.”
As Lee in Irvine noted in the astute observations last week,
“There’s no doubt the coastal politicians are gonna make a run at
this. No Doubt. However, it will only lead to more economic
imbalances in Southern California. We can’t have an economy where our
incomes are 20-50% more than the rest of the country, but our home
prices are 3-4 X’S the country. As many of know, it just doesn’t work.
Also, I could see a political fight from others in DC that do not
represent these districts. After all, a case could easily be made that
this is welfare for the wealthy. “The govt is subsidizing huge
mortgages for people in California.”
One more point … the govt still needs to decide what they’re gonna do with the GSEs. After all, they’re insolvent.
The more money they loan, the more money they lose, and this leads to
more bailouts from the taxpayers. I think they should turn the GSEs
into private co’s, and therefore they would be forced to become
profitable (CHARGE MORE). However, this isn’t gonna happen.”
I agree.
So why is this such a big deal?
More Declines Expected
From the article:
“The reason the low end stopped falling is because the
government stepped in with affordable loans,” said Scott Simon,
managing director at Pacific Investment Management Co., a
Newport Beach-based investment firm that runs the world’s
largest bond fund. “There is no political will to bail out a
million-dollar house.”
Luxury home prices probably will drop another 5 percent
before reaching a bottom in September 2010, according to Sam
Khater, senior economist at First American.
Those declines may lead to losses on jumbo mortgages that
dwarf the “haircut,” or discount to full value, that banks
take on short sales or foreclosures of moderately priced homes,
said Rodriguez, the agent with JM Group in Miami.
“When the bank takes a loss on a $3 million property it’s
a lot bigger than the loss on a home with a $150,000 mortgage,”
Rodriquez said.
This is going to end badly.
Irvine Home Address … 63 CANYON Crk Irvine, CA 92603
Resale Home Price … $4,500,000
Income Requirement ……. $967,086
Downpayment Needed … $900,000
20% Down Conventional
Home Purchase Price … $4,300,000
Home Purchase Date …. 5/10/2006
Net Gain (Loss) ………. $(70,000)
Percent Change ………. 4.7%
Annual Appreciation … 1.2%
Mortgage Interest Rate ………. 5.33%
Monthly Mortgage Payment … $20,058
Monthly Cash Outlays ………… $25,640
Monthly Cost of Ownership … $18,520
Property Details for 63 CANYON Crk Irvine, CA 92603
Beds 6
Baths 7 full 1 part baths
Size 9,600 sq ft
($469 / sq ft)
Lot Size 23,183 sq ft
Year Built 2009
Days on Market 7
Listing Updated 12/28/2009
MLS Number S599824
Property Type Single Family, Residential
Community Turtle Rock
Tract Shdc
According to the listing agent, this listing is a bank owned (foreclosed) property.
Bank Owned presented in distinctive Andalusian Style, this custom designed and built home artfully balances grand scale spaces with an extraordinary attention to detail. Numerous viewing decks and a courtyard entry pay tribute to Old World traditions, while graceful archways, hand turned balustrads underscore the architectural theme. With 2 of the 5 bedroom suites & an office on main level, this 9600sqft home offers optimal flexibility.Oasis like landscaping with various waterfalls enhance the villa appeal of this magnificent residence. Subterranean soaking pool, sauna, home theatre/game room/ bar and a temperature controled wine cellar with custom racking and table seatings of 8 or more. Optional Elavator.
Optional Elavator? How is an elevator (note the proper spelling) optional in a constructed house. Is using the elevator optional? Is there a giant elevator shaft sitting empty in the middle of this house waiting for a would-be buyer to make a decision on an elevator? Someone help me.
A $4,500,000 listing, and it has several typos…. controled? Elavator. balustrads.
FULLERTON COMMUNITY BANK FSB is not happy about this:
Foreclosure Record
Recording Date: 11/17/2009
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)
Foreclosure Record
Recording Date: 08/04/2009
Document Type: Notice of Default
Love the floors on that house.
Regarding the optional elevator, a lot of high end homes are built with elevator shafts. These are disguise as closets, one above another on different floors. If the owner wants to put in an elevator, then the house is already framed for one, hence it is optional.
Thank you. Mystery solved.
A quick search shows 17 properties in Shady Canyon for sale OVER $4.5 mil.
There us one (#64) presumably right across the street from this one, same size, for OVER 8 MILLION. And many others much smaller for well over 4.5 mil.
This looks like a DEAL for someone that can afford Shady Canyon!!
(problem is… If I could truly afford 4.5, I’d want to build to my OWN specs!)
It isn’t just Irvine’s high end that is facing foreclosure issues:
Foreclosure rates spike in upper-, middle-class neighborhoods
Foreclosures increased in several upper- to middle-class neighborhoods even as the numbers dropped overall in Allegheny, Butler and Westmoreland counties in 2009.
Affluent communities in Allegheny County saw a five-year high in the number of residential foreclosures this year, said Dan Murrer, vice president of RealSTATS, a real estate information company based on East Carson Street in Pittsburgh. The same trend holds true in Westmoreland and Butler counties.
“The region’s foreclosures are declining, but we may be seeing a shift in who are losing their homes,” Murrer said. “With a few exceptions, these are not lower-priced communities. Up until now, the foreclosures have really been focused on distressed communities with markets of $100,000 and under.”
Seven communities in Allegheny County saw the highest numbers of foreclosures in 2009, including Mt. Lebanon, Avalon, Bridgeville, Oakmont, Fox Chapel, Bell Acres and Pitcairn.
With the exception of Pitcairn and Avalon, the median cost of a home in the communities was $90,000 or above. Fox Chapel had the highest median price for a home in 2009, which was $500,000.
Westmoreland’s foreclosure rates tell a similar story, with six communities — Allegheny Township, Scottdale, South Greensburg, New Stanton, Delmont and Sutersville — hitting a five-year high in the number of foreclosures. Median prices for a home in these communities ranged from $78,500 in South Greensburg to $167,500 in New Stanton.
Foreclosures in three Butler County communities — Adams Township, Slippery Rock Borough and Donegal Township — also peaked in 2009. Two of the three communities, Adams Township and Slippery Rock, had median home prices above $124,000.
Murrer credits foreclosures in higher-income areas to executive layoffs and corporations being hit by the recession.
“Anymore, the fellow in O’Hara is just as likely to lose his home as a guy in McKeesport,” he said.
Since 2005, the Pine-Richland, Shaler and Hampton areas have seen 330 foreclosed homes.
That region’s highest numbers came in 2007, when 90 homes were foreclosed. Both Hampton and Shaler saw their highest amounts of foreclosures that year, with 30 and 48 homes in foreclosure, respectively.
Pine Township saw its highest number in 2006, with eight homes in foreclosure, while Richland had its highest number in 2005, with 12 foreclosed homes.
Countywide, Allegheny had its highest number of foreclosed homes in 2006, when 2,835 were foreclosed. That year, 55 communities, about 33 percent, of the county’s 161 communities had their highest foreclosure numbers.
Westmoreland County had its highest foreclosure number in 2008, when 636 foreclosed, while Butler County’s highest foreclosure number came in 2008, when 204 foreclosed.
Love that picture of the subterranean soaking pool! This house looks like a very high end hotel and that outdoor shot looks like a postcard, very nice indeed.
How much does something like this cost to build?
The construction loan was $4,300,000, although the lot may have been rolled into that cost. It was expensive.
It should cost less today than it did in 2006, right? Is there a comparable lot in another city that might be less expensive – distance to jobs/ocean? Asking because it seems schools are a main attraction of Irvine, but how many kids of parents with million dollar incomes go to public schools?
How does one pay attention to costs in these two situations: if you’re spending your wealth building (no or small mortgage) or if you’re spending the bank’s money?
More good news for the vastly overpriced OC.
———————————-
Housing Animal Spirits to Be Banished by Prime Foreclosures
Jan. 4 (Bloomberg) — Homeowners with the best credit are the next big risk for the U.S. housing market.
An increase in mortgage defaults among prime borrowers in 2009 is likely to accelerate this year, slowing the real estate recovery even as Americans become more optimistic about the economy, said Robert Shiller and Karl Case, the economists who created the S&P/Case-Shiller Home Price Index.
“There will be continuing foreclosures, and not just subprime, it will be prime mortgages,” Shiller, a professor at Yale University, said in an interview. “This is creating a huge shadow inventory of homes that are still owned, but they’re going to be on the market in the next year or so.”
More …
Oh-My-God!
Uh Oh …
65 Canyon Creek, Irvine? – more info »
Foreclosure: $3,608,000
0 bed 0 bath
“This property is a Pre-Foreclosure.
67 Canyon Creek, Irvine? – more info »
Foreclosure: $3,446,400
0 bed 0 bath
“This property is a Pre-Foreclosure.
86 Canyon Creek, Irvine? – more info »
Foreclosure: $3,644,589
0 bed 0 bath
“This property is a Pre-Foreclosure.
Let’s add this up
63 Canyon $4,300,000
65 Canyon $3,608,000
67 Canyon $3,446,400
86 Canyon $3,644,589
Total = $14,998,989 <-WTF! That's a shit-load of bad debt for the banks, and all on the same street. The question I keep asking myself, this is Irvine, not Laguna Beach. Who the heck are we kidding here? BTW, 65 Canyon sold in Oct I think. It looks like it was a serious comp killer. That may have been the first domino to fall, ultimately infecting the street. Oct 15, 2009 Sold (Public Records) $3,450,000 Oct 15, 2009 Sold (MLS) $3,450,000 Mar 10, 2009 Price Changed $4,488,000 Dec 05, 2008 Listed $4,995,000
Those numbers are staggering.
Take 86 Canyon Creek
The lot alone is only a mere $2.9M
That’s after a discount off the $6.2M price paid in ‘07
Unbelievable!
Pretty soon, Irvinites won’t know if the tremors they’re feeling are due to seismic activity, or falling high-end home prices.
(And just throw my “YIKES” in with yours, please. Those price drops are staggering.)
Coto Housing Blog has been discussing this property:
Just Caught My Eye
If you have never seen the blog, check out this posting:
Idiots Guide to Becoming a Land Baron
“A quick synopsis for those who are wondering what this post is about and how these folks managed to become land barons and why they are losing their properties to foreclosure: They bought a home. They borrowed on the equity in their home to make a down payment on another home. They borrowed on the equity on both homes to use as down payments on more homes. They may have paid for this exquisite formula for becoming land barons to a late night TV infomercial professing how to buy real estate with “No Money Down”. The rents they collect pay some of the mortgage payments, but not all. The rest of the rental expenses comes from equity withdrawal as do living expenses. This process continues as long as residential real estate appreciates and the land barons can continue to borrow money against the “equity” in their properties. As soon as they can not borrow money to pay their debts, their debts do not get paid. They are taking their example from the federal government, except that the land barons do not have the ability to print more money.”
The Coto Housing Blog is excellent.
🙂
::dies laughing::
Nice explanation of the system, and your concluding sentence illustrates how it’s not the fall that kills you, it’s the sudden stop at the end. 😀
I’m getting all misty.
Seriously, thanks for the kind words. There would never have been a Coto blog had not a few visionaries led the way.
This story is famous due to one of the Orange County housewive’s MO who read the same–and now she is in trouble.
Many got caught owning way too many homes thinking there was no end to the price increases.
It’s nice to see a non-Tuscan house for a change.
I agree. The fact that there’s not a ton of furniture cluttering up the view helps too.
“…save the Coastal California housing market (not), and pass enormous losses on to the US taxpayer.”
Lee’s quote: After all, a case could easily be made that this is welfare for the wealthy. “The govt is subsidizing huge mortgages for people in California.”
The most of the bailout money is already going to the weathly with a thin venner of helping the poor. The bad loans are being socialized by modification, inflated refinancing or new financing backed by the Feds. The toxic assets are moved from the banks to the Federal govt, i.e., taxpayers. The majority of the ‘poor’ who are “helped” by these programs default and lose the house (BUT the banks are now protected from the loss!). BHO is smart in giving the image of helping the downtrodden, but sending the money to Wall Street. BHO knows to avoid the image of Hoover while consolidating fed powers and bailing out WS.
Best Federal policy would be a reset with very basic housing for the displaced and open market with the banks taking the hit on the housing collapse. Now it’s prolonged consumer taking the hits and the banks privitizing the profits and socializing the loss. Very similar to the start of the great depression.
This was an Owner/Builder spec home that was terribly timed. That’s a pretty small bank to absorb that big of a loss. Perhaps a candidate for BFF if anymore of these turds are still in their bowl.
Are you the haiku composer at Calculated Risk?
Perhaps….
You have become famous. Kudos.
I enjoy the semi-serene quality your haikus offer the collapse of a bank. Very zen.
I’ve been curious; how much time do you have between when you hear about the bank failure and when CR wants to post the story? It doesn’t seem like much.
About 5min or less. Friday is pretty hectic. I don’t do any advance work because there might be a great line that is completely wrong for the kind of disaster that happened with First Bank of Screwup, N.A. for example.
We started this in a moment of levity surrounding what is, for all intents and purposes a catastrophy. I think of it as being one of the trumpet players standing on the deck as the HMS Titanic slips into the deep.
Cheers
SGIP
FINANCIAL DETAILS FOR FULLERTON COMMUNITY BANK, FSB
Capital plus reserves $71,502,000
Total troubled assets $21,678,000
presumably 30% bad loans isn’t good, eh?
I agree with SGIP that this is a BFF candidate
“Total = $14,998,989 <-WTF! That’s a shit-load of bad debt for the banks, and all on the same street." First off, WTF is right! Why are so many borrowers delinquent? Are these the walkaway buyers we're hearing about? If $4.3M mortgages are non-recourse, then they shouldn't be walking away but running. "The question I keep asking myself, this is Irvine, not Laguna Beach." No, but it's pretty close. That brings up an interesting question, how much would a place like this in Laguna Beach sell for, in today's expensive market? I haven't ever been to this part, but canyon homes have their appeal. A few years ago I visited a friend of a friend who lived just south of Laguna Beach, right on the water. The back porch was hanging over a cliff and the ocean was about hundred feet down. Don't kid yourself, high end homes are nice.
[i]Why are so many borrowers delinquent?[/i]
because they are all “shady”. Wanna-be-trumps speculated and lost and as a result carved up beautiful hillsides building 10 bedroom/20 bathroom look-alike monstrosities.
seriously, who needs houses that large and on tiny lots to boot?
Yes seriously, for 4.3Mil I can think of much more desirable places to live than Irvine. What a crock!
IR, Since his house has over a million mortgage, the interest deduction will likely be capped, so “Monthly Cost of Ownership” will go up. In the old days, this house would be a cash purchase with real owners. Sad part is property taxes revenues will be declining.
Run away? Drag it out for a non-recourse $25,000 x 12 month = $300,000 free rent. How long did the bank wait until filing the notice of default (on 8/04/2009? Will the “owner” be able to stay for over a year rent free? Will the banks be made whole on this loan or eat the loss? Looks like the bank is rushing this one.
Bank is lucky no BK that could tie up the property for a few years. This is the new ecomony where you can make something from nothing. I noticed that there are lots of greater than $1.5 million house in FC process. It seems like a shortage in the $800k to $1 million range.
I am interested in buying foreclosure housing/condos in Irvine as investment. I would be interested in buying from courthouse directly. Can someone recommend some realtors with experience on foreclosure?
Yes, Ideal Home Brokers now has a relationship with an experienced trustee sale buyer. Please contact us at sales@idealhomebrokers.com.
From one of the linked articles:
“There are 114,000 home loans of more than $1 million, according to First American. About a quarter of all mortgaged homes in the U.S. have loan balances bigger than their current value, known as being upside down or underwater, the data company said.”
Could this possibly be a nationwide number? It seems like that could just be Southern CA. http://www.bloomberg.com/apps/news?pid=20601087&sid=aQED_96QBBkk
There was an interesting article in Saturday’s LA Times about a very fancy home in Tarzana that was auctioned by Kennedy-Wilson. This home – I think it was 13,000 s.f. or so – was last listed for $9,500,000 or so – about a year ago. KW started the bidding at around $2MM and sold for just over $4MM.
I wonder if any of the houses in Irvine will be auctioned. Based on the KW experience the lenders will take a BIG hit on those!
Is housing heading for a double dip? This is national news but could probably also apply at the local OC level?
http://news.yahoo.com/s/ap/20100105/ap_on_bi_go_ec_fi/us_economy
On the subject property, TRidge is definitely a high end community regardless of its Irvine address. It’s practically an extension of the Newport Coast community. This is not to say that this house is worth the asking price. I recall that a million $ house WAS a million $ house in the mid-90’s. Now, maybe $2 millions? Not a penni more.
Andalusian?
What a crock.
This home is pseudo Moorish, Moroccan perhaps.
If only the Nouveau Rich would get their cultural mileposts straight.