Lenders Are More Culpable than Borrowers

Lenders are more responsible than borrowers for the Great Housing Bubble, and they should bear the consequences for their actions.

22 SANTA RIDA Irvine, CA 92606 kitchen

Irvine Home Address … 22 SANTA RIDA Irvine, CA 92606
Resale Home Price …… $1,100,000


I don’t want this responsibility
And don’t use me because I don’t agree

Why lie, do or die?
Why lie, do or?

Responsibility? What’s that?
Responsibility? not quite yet
Responsibility? What’s that?
I don’t want to think about it;
we’d be better off without it

You think I’m so simplistic
I’m onto you and your tricks

— MxPx

Nobody wants to admit or take responsibility. Politicians are masters of deflecting responsibility, and now borrowers are deflecting responsibility in unprecedented numbers. Behaving like children who get to play but refuse to do their homework, borrowers are throwing payment tantrums. When children misbehave, how much responsibility for the child’s behavior belongs with the parent? How do you apportion blame between parent and child? You should apportion blame between lender and borrower the same way because the relationship between lender and borrower is very similar to the relationship between parent and child.

Ranging from Southern California’s Cultural Pathology to the numerous HELOC abuse stories, many of my posts are critical of the behavior of borrowers because their behavior has been atrocious, but like children who are spoiled by entitlement, borrowers are enabled by their lender parents. Today, I am going to explore the similarities between the parent-child relationship and the lender-borrower relationship and affix blame where blame is due.

Who is to Blame?

In 2007 I posted, Who is responsible for this mess? Much of that text is in the Great Housing Bubble:

“Who is responsible for the Great Housing Bubble? It is one thing to
identify who or what caused the bubble, but it is another to assign
responsibility and blame. Borrowers, lenders, investors, and the
FED are all responsible; it is only a matter of degree. Irresponsible
borrowers are like children, if you offer them something they want, no
matter the terms, they will take it. The federal government realized
this basic fact years ago when they passed predatory lending laws. This
does not make the borrower any less responsible, but by definition,
subprime borrowers are irresponsible. If they took responsibility for
their debts, they would not be subprime. [ii] So if a large amount of
money is lent to the most irresponsible among us, it is reasonable to
expect them to spend it irresponsibly and not worry about paying it
back. In this case, past performance is an indicator of future performance. It should come as no surprise that the subprime experiment ended badly.

Despite the low expectation of subprime performance, people need to
be held accountable for their actions….

The borrowers are certainly at fault; if for no other reason than
they signed the papers and took the money. The lenders are also at
fault because they should have known better than to give borrowers
loans they could not afford, provide loans with no income
documentation, and ignore proven guidelines for loan-to-value and

Barry Ritholtz in Bailout Nation listed those he blames for the housing bubble, and lenders are higher up the list than borrowers. Mr. Ritholtz goes on,

“Regardless of how low rates got, the fact remains that many borrowers took out mortgages regardless of their own ability to repay the monthly principal and interest. This was simply reckless behavior, and should be recognized as such. Innumeracy is no excuse.

Ultimately, banks have a fiduciary responsibility to their shareholders and depositors to lend money only to qualified borrowers. Hence, they have a greater liability in the lending crisis. This is especially true of the “lend to securitize” originators who knew they would be causing future foreclosures.

However, the lenders’ irresponsible behavior does not exonerate those people who failed to do basic math. It is incumbent upon borrowers to know what they can afford each month–and to not get themselves into financial trouble. Perhaps it is time to teach basic financial theory in public schools.”

Although these issues are complex, Barry and I agree that both parties bear responsibility, but the scales of justice tilt toward blaming lenders more than borrowers. If you listen to community activists trying to prevent foreclosures, you would think lenders are 100% responsible and borrowers are blameless. People who are really upset by HELOC abuse want to make the borrower 100% responsible because the conduct is so reprehensible. The truth is somewhere in between.

A discipline in psychology called Transactional Analysis provides a useful tool for assigning blame.

Transactional Analysis

Transactional analysis involves looking at the roles people assume when they communicate. The balance of power in a conversation or relationship changes depending on the roles of the parties. The parent-child interactions are useful to understand because the relationship of lender to borrower closely matches the relationship between parent and child.

In the parent-child relationship, the parent has greater power and with it a greater responsibility. Children want things, and parents must decide yes or no. The parent must exercise judgment to make sure the object of the child’s desire is good for them or appropriate, and it is the parent who makes the decision and bears much of the responsibility for the outcome. How is lending any different?

Borrowers want money, and lenders must decide yes or no. The lender must exercise judgment to make sure the borrower will pay them back, and it is the lender who bears much of the responsibility for the outcome of the loan. The parent-child relationship is the lender borrower relationship.

Confucius Say…

If the borrower-lender relationship is like the parent-child relationship, there is much we can learn about how lenders and borrowers should relate to one another. From Wikipedia,

“Life is subdivided into Five Relationships:

  • Father to Son – There should be kindness in the father, and filial piety in the son.
  • Elder Brother to Younger Brother – There should be gentility (politeness) in the elder brother, and humility in the younger.
  • Husband to Wife – There should be righteous behavior in the husband and obedience in the wife.
  • Elder to Junior – There should be consideration among the elders and deference among the juniors.
  • Ruler to Subject – There should be benevolence among the rulers and loyalty among the subjects.

All of these practices are the physical, or outward, expression of Confucian ideals. These are the observable behaviours of the members of society. Confucius; however, believed that in order for society to truly follow li, one must also adhere to and internalize these practices. The mentality involved in performing these rituals in society must not exist only there, it must be a part of the private life of the person. This is known as rén.

Rén is not a concept that is learned; it is innate, that is to say, everyone is born with the sense of rén. Confucius believed that the key to long-lasting integrity was to constantly think, since the world is continually changing at a rapid pace.”

In each of these imbalanced power relationships, there is a series of reciprocal duties. Confucius didn’t start with the idea that all are created equal, he explored the reality of our daily lives and came up with a series of rules and precepts for accepting and living within the power imbalances in our lives.

Candy Store Analogy

To illustrate the power imbalance, imagine yourself taking children to a candy store, and you are the only person there with money. What would happen? The children would quickly scoop up candy and present it to you for purchase; you would be responsible for saying yes and no by providing the money. This classic parent-child interaction when shared in a group is what lenders face all day — a steady stream of borrowers wanting money for whatever, and lenders having to determine who gets what. Most borrowers, like most children, will take whatever is give to them whether it is good for them or not.

Similar Relationship Imbalances

There are other relationships between parties that closely resemble the lender-borrower dynamic; (1) dealer-addict and (2) landlord-tenant.

How is the dealer-addict relationship similar? Addicts want drugs like borrowers want money. Dealers strike a bargain with addicts that look like normal transactions except that addicts will do nearly anything to get their drugs so the balance of power is certainly not 50/50. Dealers get to decide who gets what drugs based on whatever criteria they choose (usually money, but not always). I don’t know if there is a point to this other than you know the regard I hold lenders who created a society of HELOC addicts.

The landlord-tenant relationship is the closest to the lender borrower relationship. Landlords control whether or not a tenant gets to live in a house, and lenders control whether or not a borrower gets to live in a house. If a tenant quits paying rent, the landlord evicts the tenant. If the borrower quits paying the rent on money, the lender (money landlord) forecloses on the borrower. Both landlords and lenders evaluate customers based on their ability to pay, and both want the property occupants to care for the property.

In fact, the only real difference between the lender-borrower relationship and the landlord-tenant relationship is who has to deal with the ups and downs of real estate values and how certain expenses are allocated. Tenants miss the volatility in real estate prices whereas owners do not.

In Orange County since 2002, and particularly since 2006, when you consider the cost of housing and what was obtained for that cost, it has been better to be a tenant. Only in delusional mid- to high-end areas has the appreciation gained since 2002 compensated for the additional cost of ownership paid at 2002’s moderately inflated prices. Everywhere else, prices are at or below 2002 levels. Late buyers paid more rent for money from a lender than tenants paid rent for houses from a landlord. With equity positions unchanged, it is hard to argue owners had a better deal financially, emotionally perhaps, but not financially. Timing Does Matter.

22 SANTA RIDA Irvine, CA 92606 kitchen

Irvine Home Address … 22 SANTA RIDA Irvine, CA 92606

Resale Home Price … $1,100,000

Income Requirement ……. $234,818
Downpayment Needed … $220,000
20% Down Conventional

Home Purchase Price … $399,500
Home Purchase Date …. 6/16/1995

Net Gain (Loss) ………. $634,500
Percent Change ………. 175.3%
Annual Appreciation … 7.0%

Mortgage Interest Rate ………. 5.27%
Monthly Mortgage Payment … $4,870
Monthly Cash Outlays ………… $6,240
Monthly Cost of Ownership … $4,490

Property Details for 22 SANTA RIDA Irvine, CA 92606

Beds 5
Baths 2 full 1 part baths
Size 2,750 sq ft
($400 / sq ft)
Lot Size 7,236 sq ft
Year Built 1996
Days on Market 5
Listing Updated 1/5/2010
MLS Number S600409
Property Type Single Family, Residential
Community Westpark
Tract Vin

Quiet & private end of cul-de-sac interior location. Huge yard on the greenbelt with a new fence & built in BBQ. Georgous and highly upgraded with new wood floors, plantation shutters, beautiful granite counter tops, built in entertainment center & office, designer berber carpet & light fixtures, mirrored wardrobes with closet organizers, built in surround speakers, ceiling fans in every bedroom, recessed lighting, tinted windows custom paint, alarm system, custom drapes, vaulted ceilings & main floor bedroom with full bath. Shows like a model. Close to great schools, shopping entertainment and more. Won’t last!

Georgous. This guy earned the graphic, but failed to spell the word correctly.

Won’t last. $400/SF homes are not selling particularly fast….

66 thoughts on “Lenders Are More Culpable than Borrowers

    1. IrvineRenter

      The NAR is so stupid it is embarrassing…

      NAR: Anti Bubble Q&A from 2005

      “Should we be concerned that home prices are rising faster than family income?

      No. There are three components to housing affordability: home prices, income, and financing costs – the latter are historically low. During the last four-and-a-half years of record home sales, there has been a shortage of homes available for sale. As a result, home prices during this period have risen faster than family income.

      What are the prospects of a housing bubble?

      There is virtually no risk of a national housing price bubble, based on the fundamental demand for housing and predictable economic factors.

      If conditions become unfavorable, home buying may be postponed, but a general price decline remains highly unlikely.What is likely to happen with home prices?

      The forecast is for mortgage interest rates to rise slowly over the next year, which will have a minor breaking effect on home sales. The good news is that will help inventory levels to recover and allow the market to come into a closer balance between buyers and sellers.In other words, a general slowing in the rate of price growth can be expected, but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms.”

      1. Sassy

        HUD to Investigate FHA Lenders
        Tuesday, January 12, 2010

        By Cheyenne Hopkins and Marc Hochstein

        The Department of Housing and Urban Development today will announce a probe of 15 Federal Housing Administration lenders whose loans have produced high default rates.

        Other details were not available at press time.

        The agency has stepped up enforcement actions against FHA lenders, including two that collapsed last year, Taylor, Bean & Whitaker Mortgage Corp. and Ideal Mortgage Bankers Ltd., better known as Lend America.

        Since the subprime market imploded in 2007, the FHA, once a mortgage industry backwater, has seen its volume explode. FHA loans are the only product lenders can offer most borrowers who have little money for a down payment. But HUD now says the FHA attracted companies with questionable practices during the growth spurt.

        Last month, in testimony before the House Financial Services Committee, HUD Secretary Shawn Donovan asked lawmakers to authorize the FHA “to hold lenders accountable nationally for their performance.”

        Right now, HUD can easily shut down an individual branch that produces loans with outsized defaults, but it must go through a bureaucratic process to revoke a lender’s national FHA license.

      2. norcal

        Short-sightedness in NAR is not a surprise, but perhaps it’s more than that – maybe it’s actual crookedness. Did you see Jim The Realtor’s latest, on the skullduggery of a San Diego agent? That agent is now the vice president of the local realtors’ association…..

  1. CCR

    well, this is another example where houses price in Irvine are not going down much. OK, this one wn’t make the M$, but it will sale ~ 350$ sqft, still non sense.

    how is the present situation compared to your 2006 analysis ?
    I wonder if on the average, it may be not too far, but for a certain market segment (‘older’ neighborood, family detached house between 2000 and 3000sqft), the prices have held, and remain higher than the curves where showing.

    1. IrvineRenter

      Yes, the foreclosure wave that wiped out the low end has been delayed in its move up the mortgage chain, so the mid- to high-end is still quite inflated.

    2. thrifty

      I’ve been following homes and condos in San Clemente since before the peak in 2006. Even the so-called bargains are generally selling at least twice their cost in 1999, usually more than twice that cost. Some ads claim “huge” price reductions up to 30%. However, considering that prices often more than tripled from 1999 levels, a 30% drop from the peak is still much too high compared to income growth over the same period. Unless the taxpayer, via continued govt meddling, subsidizes inflated prices, 2010 and 2011 will exhibit breathtaking drops, imo, in the over $500K prices.

      1. matt138

        Peak prices mean nothing.

        Realtors and buyers use peak prices as a benchmark of value that the property will *cross your fingers* soon bounce back to.

        Thrify is right. If you look at the big picture, 30% decline isn’t enough.

        1. winstongator

          Anybody want to buy Nasdaq options to buy at 5000? It’ll get back there right away. My mother-in-law referred to a house for sale a couple hundred thousand below peak bubble price as providing the buyer ‘instant equity’. I’ve learned to keep family relations civil so I vented to my wife, and used tech stocks. Shoot, I’ll even sell you options to buy the nasdaq at 3500 – 30% off peak!

  2. Stock Investor

    “the relationship of lender to borrower closely matches the relationship between parent and child”

    Strongly disagree.

    It is pure, simple and almost symmetrical business. Lender wants borrower’s money (interest), and borrower wants lender’s money (cash). The only difference is volume of deals. Typical mortgage lender gives a lot of loans, but typical mortgage borrower buys 1 house.

    It is used car salesperson to used car buyer relationship. Both are immoral and trying to cheat each other.

    If I pick stock XYZ and sell at loss, nobody is going to bail me out. Frankly, why real estate should be different?

    1. Geotpf

      The issue of the TARP pisses people off, because they see people who fucked up the economy getting rewarded. However, the other choice, doing nothing, would have caused the second Great Depression. It was the least worst choice, not the best choice.

      Basically, without the government bailouts, many, perhaps most, major banks would have failed. Without an ability to get credit from those banks, many, perhaps most, companies throughout the United States would have failed in turn.

        1. winstongator

          AIG, Fannie & Freddie are all now gov’t controlled, and the gov’t could lower pay and really overhaul AIG if they wanted to – 80% shareholders can install the board of their choice. What happened was that we revived dead banks and then those banks continued to pay big bonuses.

          It is not the bonuses per-se, but the bonuses at bailed-out institutions. Does anyone really care if some hedge fund manager makes $1B? If they fall, they fall. We need an orderly resolution process for the too-big-to-fail banks and also to remove a lot of the crutches they’re using, and gaming the insurance the feds are giving them and then taking too much risk.

          1. thrifty

            I agree that too big to fail is, as Paul Volcker points out, too big. These banks need to be broken up and the resultant entities left to succeed or fail without govt intervention.
            My answer was directed toward Geotpf’s comment that many (non-financial) businesses would have failed without govt bail-out. I see no widespread aid to the economy – the un- and under- employment rate is 17%. Small businesses, which hire the majority of workers, are hurting badly. Our tax dollars aren’t directed toward mainstreet – but toward Wall Street. The Wall Street-Main Street disconnect is very real.

      1. scott

        I think the biggest failing was the whole development of the ‘originate-sell’ model. Essentially the lender had no skin in the game so no incentive other than to make sure the asset was sold off. Or, in the parent-child relationship analogy of today’s post it was as if the lender was a foster parent who was only into having a foster child for a short period of time for the monthly check they would receive.

        While there are some other differences if you look at Canada and Australia which have been more resilient the fact is their banks have much more skin in the game so they had much greater controls. While those markets are still at somewhat frothy levels (so can’t say the game is over, especially in Oz) equally you can’t get a mortgage without verifiable down payments and verifiable income. Will they be immune to losses no but nothing catastrophic like here.

    2. IrvineRenter

      “It is pure, simple and almost symmetrical business. ”

      Previously, I would have agreed with you. I used to believe the blame is closer to a 50/50 responsibility. The underlying assumption is that the transaction is adult-to-adult. I don’t think it is. If viewed from the perspective that the relationship is adult-to-adult, then blame is split 50/50. If viewed from the perspective that the relationship is parent-to-child, the blame is tilted toward the lender.

      1. Stock Investor

        By the way, it is not free market. So there are 3 parties: buyers, sellers and government. Both buyers and sellers played strictly by the rules.

        IMHO, core rules are badly designed. Buyers and sellers are simply exploiting possibilities.

      2. norcal

        Historically it was unambiguously a parent-child relationship. People FEARED going to the bank to get approved for a loan – it was humiliating experience in which their creditworthiness was decided by the person who was going to lend them the money.

        And many of them never had the chance to default, since they never got the $$ to begin with.

        Easy money = higher risk.

    3. thrifty

      imo, the critical difference, as I think IrvineRenter noted above, is that the lender’s have a fiduciary responsibility to their stockholders and bond holders. Buyers have only their own interests to consider.

    4. Henry Bayer

      Stock Investor: So a used car salesman/buyer is an equal relationship because each is trying to get the best possible deal. So we see just as many instances of buyers cheating used car sellers as the other way around? I don’t think you thought this analogy through.

      1. Stock Investor

        Equal opportunity does not mean equal results. Some people are smarter and more experienced than others.

        1. Alan

          Equal opportunity? The used car saleman has many possibilities to cheat the buyer. The buyer’s only opportunity is to recognize a used car that is worth much more than the seller realizes. Even there, the seller has all the opportunity to create a fake or one with massive, hidden flaws, and let the sucker take the bait.

    5. newbie2008

      Stock Investor,
      I strong disagree with you. The mortgage broker is trying to maximize his short-term profit. The notes are repackaged at Frannie, Freddie, etc. His fees are in handling the paperwork and/or servicing the future payments. For long-term, there’s little financial incentives — just move on to another company. If he owns the company, just let the corp. fold. Very little chance of personal liability or claw back. Same thing goes with US corp big wigs. In fact many get paid years of salary and bonus’ to leave.

      The borrower is just trying to get into their dream house. They don’t even shop around, because the good faith estimates are just estimates that change daily. — Some dreams turn out to be nightmares.

      As for an economic collapse without a bank bailout? Nationalize the bank or have direct loans/investment in the companies. Bad management is being reward with the past and current system.

      All bonus needs to be tied into long-term results and retiring corp. officer needs to hold on shares and option at least 3 years after leaving the company to avoid killing the pipeline to get short-term profits and stock price surges.

      It was easier to sell toxic bonds as AAA grade than sell them as B grade.
      The business will not reform themselves, because it is not in their interest. No pun intended.

      ps Hedge funds did get bailout, e.g., Mexico c.a. mid-1990’s.

  3. lunatic fringe

    The groups that are ultimately to blame are the group that ultimately end up holding the bag. In this case it seems to me that there are two groups headed toward bagholder status: buyers of MBS and taxpayers. MBS buyers bought into Wall Street claims and will lose a ton of money because of that. Taxpayers are to blame because we allow the crap to continue going on in Washington DC and Wall Street. When people making the decisions know they won’t be held accountable by the people with the actual power, this is what happens.

    1. IrvineRenter

      As the high end foreclosures offer more alternatives, people will be able to get more for $1.1M. Westpark has a unique brand of denial. An acquaintance rents a huge Westpark home comparable to this for $3,000 a month. Even at 5% interest rates, Westpark still commands a huge ownership premium — for now.

      I really like the wood flooring in this property, and the high ceiling. Being next to the walking path leading to the pool is very nice. The rear yard is large, and it appears to offer decent privacy.

      This neighborhood was developed back when land planners used to maximize cul-de-sacs. I think it works well.

      I like the architecture in Westpark in general, when you look at individual properties. I don’t like the sameness effect in Westpark as a neighborhood.

      1. byronic

        Talk about Westpark’s unique brand of denial. 22 Marsala just came up. 1300 sq ft on a postage stamp. Listed at 649,900. $500 a square foot!!! How will this one play out?

    2. Lee in Irvine

      For 1.1 million I’d expect more kitchen that this has.

      Eventually for 1.1m, you’re gonna get a very nice view of the Pacific.

      1. mike in irvine

        In irvine you get a good school district and the view of next door neighbor’s kitchen for 1.1 mill..I have following the westpark market for 3-4 years. Most of the listings are cornered by mario gamboa. When i talk to him it seems that most houses dont even have to be staged or cleaned, they will sell with multiple offers… its almost the same if you talk to Todd M. who has the Oak Creek area

  4. IrvineRenter

    “I hope we shall crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country.”

    Thomas Jefferson

    1. IrvineRenter

      “That we are overdone with banking institutions which have banished the precious metals and substituted a more fluctuating and unsafe medium, that these have withdrawn capital from useful improvements and employments to nourish idleness, that the wars of the world have swollen our commerce beyond the wholesome limits of exchanging our own productions for our own wants, and that, for the emolument of a small proportion of our society who prefer these demoralizing pursuits to labors useful to the whole, the peace of the whole is endangered and all our present difficulties produced, are evils more easily to be deplored than remedied.”

      Thomas Jefferson

  5. movingaround

    The parent to child analogy bothers me a bit – children until a certain age can not be expected to understand the long term ramifications of taking too much candy when it was offered to them. I do think that borrowers have a responsibility to understand the long term ramifications of taking out a loan.

    But I definetely think the balance it tilted toward the lender in that they certainly should have known better – they are supposed to be the ‘experts’. There is no requirement out there saying that someone taking out a mortgage loan needs to know anything about finances – there is no expectation of knowledge on the borrowers part while there is clearly an expectation of knowledge on the lenders part.

    Reminds me more of the physician or psychologist/patient relationship more than parent/child.

    1. Frank

      I do like the parent/child analogy, but I see your concern, too.

      Everyone on one of these transactions is “of age” and a parent/child relationship dismisses the culpability of the borrower. I like your idea of “expert,” so maybe it’s an “expert/novice” relationship (except that the novice doesn’t want to become an expert, just buy one house).

      Some examples of expert/novice relationships are MD/patient and car salesman/car buyer. The big difference between these two relationships is the high regard doctors are (generally) afforded. Lenders (and Realtors™) have tried hard to be seen as an MD-level relationship, but haven’t gotten there (re: “used house dealers”). What is the legitimate responsibility of the lender? There is no Hippocratic Oath for bankers or Realtors™.

      1. IrvineRenter

        “There is no Hippocratic Oath for bankers or Realtors™”

        That might be an interesting post topic….

    2. matt138

      one time i ate so much candy and donuts i got a massive stomach ache and a sugar high/low from hell. I probably won’t do that again.

  6. steve

    Only problem with buying a house in Westpark is the house will smell like either fish oil or curry because they’re all chinese, korean or indians who live there. I went to an open house there and the tenants were indians. As soon as I stepped in I thought I was going to throw up.

  7. Soylent Green Is People

    Dealer / Addict is the perfect analogy. I recognize as part of the problem the role lenders played in destroying the home ownership model. I also strongly believe that the greed, not ignorance, of the borrower (aided by their Realtor)played a co-equal part in this disaster. You don’t have to try the drugs the dealers offer, but when your best friends say it’s great and your financial advisor (a ‘Tard for most buyers, not a real FA) says you have to do this “before you get priced out forever” the temptation to over indulge is irresistable.

    My .02c

    Soylent Green Is People.

    1. mike in irvine

      you are probably at the frontlines of the loan mods and might have the data…do you see more households underwater in westpart as compared to Irvine in general?

      1. Soylent Green Is People

        anyone who purchased anywhere in OC in 2004-2008 has lost equity. No area in OC is immune to value deflation, despite what Realtors may say. The better question is this: Did the homeowner also put minimum cash down, or re-leverage in the years they owned the home? Most home owners took advantage of the gush of free and non-verified HELOC/refi programs during those years so yes, most people are either treading water or sinking quickly.

        My .02c

        1. mike in irvine

          good point. Almost all of my friends over stretched to afford the most house they could buy. Few have the ability to ignore the emotional pull of the ‘joy’ of owning the biggest house they can afford. Sort of buying a car by looking at the monthly payment. Over the last year most have managed to refinance it at a low fixed rate, the monthly nut is probably a bit higher than before but they are in a good position as long as they have a steady revenue stream.

          The problem with expensive houses is that two missed payments and you are almost 10k in the hole.

    1. IrvineRenter

      Steve, I know you haven’t called anyone a name, but strongly negative characterizations of people is prohibited. Strictly speaking, you didn’t say it about any specific person, but the broad generalization, particularly when paired with the word “shit,” is a bit over the top. Let’s have a little decorum.

    2. norcal

      Steve, I’m married to an Indian and know what you mean, but calm down already. The smell wears off eventually, and you can always have the place cleaned.

      If you can’t stand the smells of international cooking by your neighbors, go live in a place populated only by bland food chefs. But you’ll be missing out on interesting neighbors and good schools.

      Maybe you deserve to live next door to a fast-food franchise and inhale their stomach-turning scents. A cardboard box next to the dumpster might be your ideal house.

    3. Alan

      Hmmm … I search for Indian restaurants when I go out to dinner. And Chinese is often the next if I can’t find one. I guess that is why it’s called a shit-eating grin? 🙂

  8. Responsible_Buyer

    The lenders almost played my brother’s house:

    His original 30 year fixed loan of 580K was 5.875%. In last month, he heard that refinance might be possible, so, he contacted his orginal lender (Wells Fargo) for refinance.

    The lender very nicely refinanced his loan to a new plan: 5.375% 30 year fixed for 410K as the first part, and 4.xx% for the remianing as the 2nd loan.

    My brother is a smart scientist, but a very naive person in finance management. I told him to make certain what kind of loan is the second part, and he finally understood it was HELOC.

    It is fine to my brother, because he has enough cash in bank to pay back the HELOC loan whenever it is needed. However, I was horrified because if it is to another household without much reserve to turn to, it could be a foreclosure several years down the road, when the HELOC rate is much higher.

  9. NickelDime

    Interesting development….

    Banks cancel more foreclosures then they sell for first time

    Discovery Bay, CA, January 12, 2010 – ForeclosureRadar (www.foreclosureradar.com), the only website that tracks every California foreclosure and provides daily auction updates, issued its monthly California Foreclosure Report for December 2009. Foreclosure activity dropped dramatically in December, especially when looked at on a daily average basis. For example while Notices of Default dropped 17.5 percent in aggregate, they actually dropped 32.5 percent on a daily average basis due to the fact that December had 22 days on which documents were recorded, versus 18 in November.


  10. Brock

    So I live in Laguna Niguel, and I’ve been renting for the last 4 1/2 years. When do we think it will bottom out here, and what will be the average price of a 4 bedroom home when it does?

    1. thrifty

      imho, bottom around end of 2011 when prime option-arms are finally reset or foreclosed. Meantime, I would buy if a unit’s prices reached the 1999 price or no more than 25% above the 1999 price if I really like it and intended to stay at least 3 years. In a falling market, a financial margin of safety is a necessity.

    2. IrvineSnob


      Think yourself. If $1M Westpark houses are sold within a week with multiple offers, why don’t you accept that we are at the bottom already… Deep, deep bottom…

      1. wheresthebeef

        Let’s look at this further…we are not in a normal market when houses that are fundamentally overpriced are receiving multiple offers within the first week. This goes for the Westpark 1M McMansions. What sort of appreciation would these places see in the next decade if sold at this price, I would guess almost zero.

        This is not a normal market and we are not at the bottom. When all the phony means of propping up housing prices is removed, prices will fall further. No one really knows when the bottom will be reached, but the high end in desirable areas have not seen it yet.

        1. irvine_home_owner

          How long will this “not a normal market” last?

          If the peak was 2005/2006, these houses are still at the same prices they were almost 4-5 years later.

          Places in the IE seem to have dropped back down to around 2003 or earlier pricing… what about Irvine?

          I agree that homes like this should probably be less than $800k or even $700k but I don’t see this happening anytime soon. Especially with The Irvine Company opening brand new 2-car garage 2000sft homes at $700k+ on Jan 30.

  11. QueenCityEddie

    When the transaction finally happens you get a deal that is conceptually simple: a first party will provide a second party money, now, in exchange for a promise to return that money, with interest, by a series of payments through a defined period of time. Yes, there was a lot of venality and stupidity on the part of lenders, but the biggest headaches right now are that the first party fulfilled their end deal and, collectively, the second parties are falling far short of fulfilling their part of the bargain. I have been part of 4 closings on single family residences in Ohio since June 2008. It was made extremely clear what signing the note meant for the borrower at each closing. Is California somehow different?

      1. QueenCityEddie

        I was trying to describe the intended transaction of lending money and getting paid back, not the resolution steps in event the loan fails. Again, it was made very, very clear exactly how much the borrower would pay, when they would pay it and for how long they would pay it. At that point in the closing it wasn’t even a question if the borrower overstated income to qualify, it was simply a question if they were prepared to take the money and service the loan as described in detail to them. Another item at each closing was a very explicit communication that the lenders were making no promises at all of a future refinance. If California is similar, then I suggest that as stupid as the lenders may have been, at the moment pen touched paper, borrowers were under no delusions at all as to what they were doing. I believe there was a deeper delusion at work (the famous Kool-Aid), but, at least in Ohio, a borrower cannot credibly claim that they didn’t know how much they would have to pay or complain that an affordable re-finance was promised them.

        1. newbie2008

          In CA the loan officers and RE were telling me that I could afford and get a loan in which 55% to 65% of my income would be to service the loan. Should be no problem because I would be able to sell the house for more if a problem developed. I can do math, it would be a problem to pay for most other expenses in life from day one of the loan. The sale pitches were so sucessful that many educated people that should of know better were down into the Ponzi scheme. They would get angry and upset if they heard otherwise.

          In some other states, the loan officers and REs would stress the obligation on the note and even on the offer to buy a house.

  12. golfersteve


    has anyone or is anyone on these boards actually bought or going to buy RE in the past/next few years ?

    By the tone of these comments and this forum in general, which I whole heartedly agree with, RE in the CA (and in general) is very FUBAR for a long, long, long time.

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