Other governments around the world take steps to curb lending and warn citizens of the perils of excessive mortgage debt. Why don't we?
Someone should have warned the owner of today's featured property that smaller mortgages and lower prices were going to make resale challenging… and painful.
Irvine Home Address … 28 WILLOWHURST Irvine, CA 92602
Resale Home Price …… $825,000
My friends feel it's their appointed duty
They keep trying to tell me all you want to do is use me
But my answer yeah to all that use me stuff
Is I wanna spread the news that if it feels this good getting used
Oh you just keep on using me until you use me up
Bill Withers — Use Me
Lenders with encouragement from the US Government want to use you to pay for their mistakes; they want to use you, and they want you to feel good about it. Buy now, it doesn't matter if you go underwater; lenders don't care as long as you make your rent payments on the money.
Recently, I wrote about Canadian finance minister Jim Flaherty preventing further inflation of Canadian housing bubble.
Allow me to recap and interpret:
(1) He is forcing qualification at a higher payment rate. If he had stated 30-year fixed rather than a 5-year fixed, It would be better, but it is a step toward stable financing. I wish the statement clarified whether or not interest-only ARMs are permitted there. I believe the qualification standard he is imposing is based on a 30-year amortizing mortgage with only a 5 year fixed rate.
(2) Twenty percent down payments? I would like to see this on all property, but common sense says investment properties and second homes should require a significant down payment — people don't hesitate to walk away from investment properties.
(3) And limiting cash-out refinancing to 90% LTV is identical to the proposal I made. I like this requirement because it provides an equity cushion that stabilizes markets and prevents walkaways.
"We do want to discourage the tendency by some to use their home as an ATM machine, the tendency by some to buy three or four condominiums by way of speculation," Flaherty said. "This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up."
Our government actively encouraged us to borrow, spend and be happy while Canadians are being warned about excessive debt and spending their equity foolishly. The contrast is conspicuous.
It isn't just the Canadians who exercise better control over lending and warn their citizens of the perils of buying and borrowing today. The Swiss, long known for their banking prowess, do not cave in to banking interests.
The Swiss National Bank warned banks and borrowers on Thursday about taking on too much debt while interest rates were still very low, indicating it is concerned about a possible housing bubble.
…"The SNB is warning banks and borrowers to be extremely cautious," the central bank said in its quarterly policy statement. "The fact that interest rates are exceptionally low by historical standards must be taken into account."
…"What they wanted to avoid is house prices going up too much in response to a slightly brighter economic outlook. That would mean another bubble," said Henrik Gullberg of Deutsche Bank. "One way of doing that is to keep sending these verbal warning shots while policy is still very expansive."
The Swiss government is openly concerned about its citizens financial well being, and they post warnings about mortgage borrowing to help people. Why is it only bloggers like me who issue these warnings here in the US?
The US Government wants its citizens to borrow as much as possible to help out ailing banks even if that destroys the borrower. Shameful.
Some analysts have argued that the central bank may raise borrowing costs earlier than the market currently predicts, and despite the strong Swiss franc, due to the housing concerns.
The SNB said it was conducting an in-depth investigation into banks' mortgage-granting practices and that it would work with regulators to see if any corrective steps were needed.
SNB statistics show that prices for single family homes in Switzerland rose by some 4 percent last year.
SNB vice-chairman Thomas Jordan warned as early as autumn last year of a possible bubble in the private housing market.
Why is the US Government out to screw us?
Hasn't it become obvious that our government does not care about the people? As a citizen of this country, you should be outraged by the way your government puts your interests last. Our government openly advocates destructive policies that transfer wealth from you to the lenders. The US Government as ruled today is completely captured by money interests; they feed us a steady stream of bullshit bailouts and false hopes to convince us to take on more debt and keep the Ponzi Scheme alive.
It wasn't always that way.
Andrew Jackson and the Second Bank of the United States
AIG was not the first institution that was too big to fail. Andrew Jackson waged a personal war against the banking behemoth of his era, and as a former general, he knew how to win a battle. From Wikipedia:
The Second Bank of the United States was authorized for a twenty year period during James Madison's tenure in 1816. As President, Jackson worked to rescind the bank's federal charter. In Jackson's veto message (written by George Bancroft), the bank needed to be abolished because:
- It concentrated the nation's financial strength in a single institution.
- It exposed the government to control by foreign interests.
- It served mainly to make the rich richer.
- It exercised too much control over members of Congress.
- It favored northeastern states over southern and western states.
Following Jefferson, Jackson supported an "agricultural republic" and felt the Bank improved the fortunes of an "elite circle" of commercial and industrial entrepreneurs at the expense of farmers and laborers. After a titanic struggle, Jackson succeeded in destroying the Bank by vetoing its 1832 re-charter by Congress and by withdrawing U.S. funds in 1833.
“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.” — Andrew Jackson
Does Jackson's reasoning sound familiar to you? Isn't most of what he identified as problems exactly what we have with too-big-to-fail institutions? Who will be our modern Andrew Jackson who will crush our banking cartel? Our current crop of politicians are hopeless or worthless completely captured by banking interests and too fearful to do anything to help the people. We are lost, and we need a real leader like Andrew Jackson to help us find our way.
Irvine Home Address … 28 WILLOWHURST Irvine, CA 92602
Resale Home Price … $825,000
Home Purchase Price … $888,000
Home Purchase Date …. 7/20/2007
Net Gain (Loss) ………. $(112,500)
Percent Change ………. -7.1%
Annual Appreciation … -2.7%
Cost of Ownership
$825,000 ………. Asking Price
$165,000 ………. 20% Down Conventional
5.01% …………… Mortgage Interest Rate
$660,000 ………. 30-Year Mortgage
$171,019 ………. Income Requirement
$3,547 ………. Monthly Mortgage Payment
$715 ………. Property Tax
$150 ………. Special Taxes and Levies (Mello Roos)
$69 ………. Homeowners Insurance
$55 ………. Homeowners Association Fees
$4,536 ………. Monthly Cash Outlays
-$868 ………. Tax Savings (% of Interest and Property Tax)
-$792 ………. Equity Hidden in Payment
$322 ………. Lost Income to Down Payment (net of taxes)
$103 ………. Maintenance and Replacement Reserves
$3,302 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$8,250 ………. Furnishing and Move In @1%
$8,250 ………. Closing Costs @1%
$6,600 ………… Interest Points @1% of Loan
$165,000 ………. Down Payment
$188,100 ………. Total Cash Costs
$50,600 ………… Emergency Cash Reserves
$238,700 ………. Total Savings Needed
2 full 1 part baths Baths
2,558 sq ft Home size
($323 / sq ft)
3,429 sq ft Lot Size
Year Built 2000
2 Days on Market
MLS Number P724538
Single Family, Residential Property Type
West Irvine Community
Spectacular cul de sac 5 bedroom, 3 story dream home. Gleaming granite kitchen center island, distressed hardwood flooring, and tons of extra space. Wonderful family room with gorgeous fireplace. Breakfast area leads to large, fully-fenced rear yard and calming retreat. Open, bright floorplan with formal dining room, large secondary bedrooms and walk-in closets. Third-floor space and views are breathtaking. Don't forget the nationally recognized schools – Myford, Pioneer, and Beckman. Act now!
The slow grind of lower prices
When the current owners bought back in 2007, they probably never considered the possibility that prices might be lower when they sold. They put $200,000 of their own money into the deal, and they will be lucky to escape with any of it.
Everyone thinks they are either buying into an appreciating market, or that they are buying at the bottom. If a buyer steps up to pay this ridiculous price, they will be the ones selling for a $100K+ loss in 2013.
The scenario this owner faces is what I keep warning people about. Nobody wants to be in the same circumstances as this seller, but all who buy today risk it.
I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.
Have a great weekend,