Defaulting loan owners are living rent-free in properties, and you are subsidizing this through government bailouts.
Today's featured property is a small wonder over-improved by its owners who are hoping they added hundreds of thousands in value. What will the market say?
Irvine Home Address … 5 FERN Cyn Irvine, CA 92604
Resale Home Price …… $629,000
Living off the fat of the land
They hold their justice in the palm of their hand
Lay down your gun and surrender quiet
Or there's gonna be a Cajun riot
Pain is too good for you
Your last breath, is all you have left
Take it before you're doomed
Before you're doomed
Exodus — Cajun Hell
Many people currently living off the fat of the land are doomed. Like the condemned enjoying a final peaceful meal, they wait in comfort for a disheartening drop. In the meantime, we manifest a new housing entitlement in the United States; once you sign loan documents and move in, you are entitled to live in comfort indefinitely.
In a recent post I noted the following:
The amend-pretend-extend dance will continue until lenders tire of paying the piper. Shadow Inventory contains the new entitlement class; while unemployed renters sleep in shelters, unemployed homeowners squat in luxury, sustain false lives on lender largess, and exalt their status in preparation for the unceremonious fall from entitlement.
Today I want to introduce you to the one couple living off lender largess — and indirectly they're living off you and I as taxpayers subsidizing lenders — from the LA Times article Many borrowers in default live for free as lenders delay evictions:
Despite being months behind, many strapped residents are hanging on to their homes, essentially living rent-free. Pressure on banks to modify loans and a glut of inventory are driving the trend.
[Patricia and Eugene Harrison, who bought their Perris home seven years ago, have lived there since October 2008 without making any payments on their mortgage. (Irfan Khan / Los Angeles Times / February 19, 2010)]
Do you think any unemployed renters who are failing to pay rent are living that well? Full dinner plates, a solid roof, mementos and permanent storage, comfortable surroundings; we endow these entitlements on those who own.
Often these owners foolishly over borrowed — by the way, how did the couple in the picture get that far behind on a 2002 or 2003 mortgage? These people should be renting or residing in a homeless shelter. Others use their car.
If you can sign your name to a mortgage, you no longer have to fear homelessness, and your level of entitlement increases significantly. Are you comfortable with this entitlement you as taxpayer provide? Is home ownership and loan ownership the new foundation of the American entitlement system? Does this feel just to you?
[Pictured above: Unemployed renter and family who failed to sign loan documents and squat in a house]
When you reflect on it, the threat of homelessness is the pillar of our economic system. If you don't want to work and produce something of value to society, you endure society's minimum standard-of-living entitlement, which isn't a high quality of life (just ask the homeless). In the United States, we use the threat of homelessness to combat sloth; however, now that we have created a new entitled class of loan owners, we threaten the whole system. What is the incentive for couple in Perris to solve their problems and get current on their payments? That costs money. They don't want to repay money, they only want to spend money. Isn't their real incentive to ride out their entitled condition as long as possible?
Back to the article:
It's been 16 months since Eugene and Patricia Harrison last paid the mortgage on their Perris home. Eleven months since the notice got slapped on their front door, warning that it would be sold at auction.
A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.
Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They're not planning on going anywhere.
Are these owners unemployed? Did they put 20% down and now they are in default on a $102,400 mortgage? Or did they HELOC themselves to oblivion and leave the bills? If they did not spend their house, why don't they sell it and get their equity? Surely, their house is worth more than a conservative mortgage of $100K? How are they different from Bonnie and Clyde?
"We're kind of on pins and needles, but who'd want to leave when you put this kind of energy into a house?" said Eugene Harrison, 70, gesturing toward a bucolic mural of mountains, stream and flowers the couple painted on the living room wall.
Throughout the country, people continue to default on their home loans — but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.
Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes.
And with a glut of inventory in places like Southern California's Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.
Yes, housing blogs have been describing the catastrophic effects of inventory dumping for years, and we witness the carnage in markets like Las Vegas, Phoenix, and Riverside County.
Economists say the situation won't last forever, but in the meantime the "amnesty" may allow at least some homeowners to regain their financial footing and avoid eviction.
So while renters get evicted with nothing, squatting loan owners get to luxuriate to regain their footing.
In the Inland Empire, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts say it's difficult to say how many families are in that situation nationally because only banks know for sure how many customers have stopped paying entirely.
Did you catch that number? John Husing is describing shadow inventory, and Riverside County has a serious supply overhang. What are we going to do with 100,000 delinquent borrowers there?
"For some reason, banks are being more lenient with homeowners who are behind on their loans," Sharga said. "Whether it's a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure."
For some reason? LOL! Shadow inventory is a much larger problem than bulls are willing to face. Banks are slow to foreclose for both reasons given. While the banks prepare to blast freeloading homeowners out of their bunkers of entitlement, they must figure out what they are going to do with all those properties. Not to worry, they will come up with some solution that continues to funnel your hard-earned money to their pockets.
Irvine Home Address … 5 FERN Cyn Irvine, CA 92604
Resale Home Price … $629,000
Home Purchase Price … $276,000
Home Purchase Date …. 10/1/1999
Net Gain (Loss) ………. $315,260
Percent Change ………. 127.9%
Annual Appreciation … 7.8%
Cost of Ownership
$629,000 ………. Asking Price
$125,800 ………. 20% Down Conventional
5.06% …………… Mortgage Interest Rate
$503,200 ………. 30-Year Mortgage
$131,132 ………. Income Requirement
$2,720 ………. Monthly Mortgage Payment
$545 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$52 ………. Homeowners Insurance
$50 ………. Homeowners Association Fees
$3,367 ………. Monthly Cash Outlays
-$467 ………. Tax Savings (% of Interest and Property Tax)
-$598 ………. Equity Hidden in Payment
$249 ………. Lost Income to Down Payment (net of taxes)
$79 ………. Maintenance and Replacement Reserves
$2,630 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$6,290 ………. Furnishing and Move In @1%
$6,290 ………. Closing Costs @1%
$5,032 ………… Interest Points
$125,800 ………. Down Payment
$143,412 ………. Total Cash Costs
$40,300 ………… Emergency Cash Reserves
$183,712 ………. Total Savings Needed
2 baths Baths
1,350 sq ft Home Size
($466 / sq ft)
4,500 sq ft Lot Size
Year Built 1974
1 Days on Market
MLS Number S607254
Single Family, Residential Property Type
El Camino Real Community
MUST SEE THIS…GREAT CURB APPEAL-Beveled Glass bay window – NEW THOMASVILLE CUSTOM KITCHEN! Cherry wood cabinets, Granite Counters,Frigidare Professional Series Stainless appliances-Vaulted Ceilings-New windows and Doors-Ceramic tile floors-Custom Lighting–Cul de sac–Private side enterance – Concrete tile roof – New roll-up Garage Door – Lush mature landscaping – Tile hardscaping – Large back yard, great for children – Best Schools…5 Deerfield pools..Tennis in the park…Standard sale –
Creative writing: dashes, commas and ellipses with no periods.
Day after day, I see sellers who have spent their home price appreciation as it came in as if it were a source of managed income. I believe this practice is so widespread that many who live in California consider it an entitlement; buy a house and you automatically get to double your spending power. With entitlement comes a social acceptance of the means to obtaining that entitlement — taking on excessive debt. To the chagrin of lenders, borrowers have also figured out that if things don't work out it is easy to walk away from debt and start over, and any social stigma associated with foreclosure and bankruptcy has vanished.
- Today's featured property was purchased on 10/1/1999 for $276,000. The owners used a first mortgage and a $50,000 down payment — well, kind of…
- On 10/13/1999 a stand-alone second for $50,000 was recorded on the property. The real down payment was $0.
- On 5/9/2001 they refinanced with a $273,000 first mortgage reflecting a $3,000 decline in their mortgage balance.
- On 2/13/2004 they went over to the dark side and refinanced for $313,000.
- On 1/3/2005 they opened a stand-alone second for $90,000.
- Total mortgage debt is $403,000.
- Total mortgage equity withdrawal is $127,000.
I gave these owners a "D" because the $90,000 stand-alone second is more than just paying off a few credit cards; that is simply adding to a mortgage to get the money to spend which crosses the threshold of knowingly spending anticipated appreciation which is a "D" by definition. Since their withdrawal was relatively small by Irvine standards — $127,000 — and since they paid down the mortgage at times, one could argue for a "C."
Not a bad take for a $0 investment — plus, if they get their asking price, they stand to make another $200,000. They won't get it.
I have been inside both neighboring properties 1 Fern Canyon and 3 Fern Canyon, the latter in particular was much larger and very nice inside. It appears that the original listing was for $529,000 — a more realistic although still inflated asking price. Perhaps the owners feel they added $100,000 in value by installing an over-the-top Thomasville kitchen. ~giggles~