Arizona officials are trying to help house debtors with bailouts. They recognize the moral hazards, and they struggle selecting whom to save and whom to let lose their houses.
Today's featured property is a Trustee flip in Woodbury scheduled for sale on 30 March 2010.
Irvine Home Address … 215 Groveland, Irvine, CA 92620
Resale Home Price …… $549,000
T-sale Home Price …… $571,912
Sweet dreams are made of this
Who am I to disagree?
I travel the world
And the seven seas–
Everybody's looking for something.
Some of them want to use you
Some of them want to get used by you
Some of them want to abuse you
Some of them want to be abused.Eurythmics — Sweet Dreams
Sweet dreams come from HELOC abuse. Every house debtor and kool aid intoxicated knife catcher is riding the dream of endless appreciation and unlimited spending power. Sweet dreams indeed.
What happened to the American Dream? Has a "better, richer, and happier life" come to mean money for nothing? Consumption without production? Gain without contribution?
[Gary Setbacken, right, talks to his neighbors in the Tatum Ranch community of Cave Creek, Ariz. Mr. Setbacken and his wife, who arrived in 1993, paid down their mortgage even as home prices skyrocketed.]
CAVE CREEK, Ariz. — … Arizona is one of five states that, with money from Washington, hopes to help at least some of these people hold on to their homes. Under a new, federally financed pilot program for the hardest-hit housing markets, state officials will decide who will get a homeowner bailout, and who will not.
The idea is as controversial in Washington as it is here. Do the neighbors next door who lived beyond their means — the ones who, say, bought that house they could not afford, or who binged on home equity loans to buy new cars and flat-panel TVs — really deserve to be bailed out with taxpayer dollars? Do they deserve to have some of their debts forgiven? And is that fair to the cautious ones who paid their mortgages?
I am amazed those questions are not rhetorical. Someone, somewhere believes HELOC abusers should be given a pass — forgiveness without consequence. At least a few officials — the few whose primary job is not to enrich lenders — are concerned about moral hazard and do not want to help those that do not deserve it.
For the people of Cave Creek, the answers will fall to state officials like Michael Trailor, the director of the Arizona housing department.
A former real estate developer, Mr. Trailor knows firsthand about the perils of the property market.
“I feel for all of them,” Mr. Trailor said of the struggling homeowners. “But we do not have the funds to help all of them. If we can help 6,000 people, which ones should we help?”
The government never fails to reinforce my cynicism; they develop a program to keep house debtors paying for a house with no equity praying for a bailout that isn't coming. More people will win the lottery than will be helped by this program or any other.
If lenders keep people in place long enough, debtors will be invested in their own poor decision, and they will endure. It will take forever for house debtors to pay off these monster loans. As each debtor gives up and sells, it adds supply and prevents appreciation from saving other debtors.
The federal government will pay for pilot programs in Arizona, California, Florida, Michigan and Nevada with $1.5 billion from the federal banking rescue. That figure is a small fraction of the funds that would be needed to help all of the people at risk. Arizona, for instance, received $125 million. If it allocates $30,000 of aid for each residence, 4,166 homeowners would benefit. But the Phoenix area is bracing for as many as 50,000 foreclosures this year alone.
Mr. Trailor said he was reluctant to help homeowners with “self-inflicted wounds,” like those who overspent or cashed out the equity in their homes during the bubble years. He wants the banks to match the public money being used for debt forgiveness, and he is focusing on people whose incomes have fallen but who still hold jobs.
He is considering an approach known as “earned forgiveness,” where the state and the banks promise to forgive mortgage debt later on, but only if the homeowners stay in their homes and keep making their payments.
OMG! How much more obvious can they be. Prove you're worthy of debt slavery by making onerous payments with no hope of equity, and the government will modify your loan in a way that keeps you in your house and maintains your fantasies of appreciation. What a deal!
Delusion is the new American Dream.
Three out of four abuse their HELOCS
Do you remember to old Trident gum ads, "Four out of five dentists surveyed…?" Well, Three out of four neighbors surveyed for this article were HELOC abusers. This is one typical street in a typical suburban town. From the many cases I have documented here, do you think Irvine is any different?
The new reality is evident on East Montgomery Road, where the bust is playing out in a variety of ways.
There are the Setbackens, at 4355, who arrived in 1993 and paid down their mortgage even as home prices skyrocketed. [lower right couple.]
I think you all know how I feel about what these people did; they observed the insanity around them and failed to participate. They passed up hundreds of thousands of dollars in consumer spending, and now they are going to keep their house while others search for rentals. They are true heroes and great role models.
Rationalizing their own bailout
Across the street are the Chatburns, Tim and Leslie. They also arrived in the 1990s, before prices exploded, but struggled recently to keep up with the bills after an injury kept Mr. Chatburn out of work.
Mr. Chatburn, an air-conditioning repairman, used to say that bailing out his neighbors would be unfair, but he changed his mind after watching news programs about the rescues of big financial companies like the American International Group.
“I started thinking about all this money we paid as taxpayers to the banks,” he said, “and I thought, ‘Why don’t we take care of our own a little bit?’ ”
Why don't we take care of our own? Because they are HELOC abusers! Let me buy a house and spend foolishly so I can reach into his pocket and see how he feels.
And notice the bullshit about how an injury added $100,000 to his mortgage. Perhaps, if he was injured and unable to earn as much money, they should scale back on lifestyle expenses and even downsize. No, that would require sacrifice. It is much more expedient for house debtors to live as entitled and pass the bills on to us.
Ms. Carter, at 4344, arrived in 2005, as the bubble was inflating. She took out tens of thousands of dollars in home equity for repairs and other items, and by this year, she was underwater on her mortgage by $86,000. A single mother, she moved out this month, days before her home was sold in a short sale, which meant her mortgage lender allowed her to sell for less than the value of her mortgage and the lender took the loss.
What "other items" did she purchase? What was she entitled to that she could not afford?
And then there is the young couple with a toddler, at 4343. They moved out on the same day as Ms. Carter, before a scheduled foreclosure of their home that was $115,000 underwater. The couple, who asked not to be named, also bought near the peak and took out a home equity loan to pay off their student loans and other debts. Then, a year ago, they stopped paying their mortgage, after both of them lost their jobs for a time. They now have office jobs again.
This couple really benefited from the bubble. Their student loans could not be bankrupted out of, but since they paid it off with a HELOC — a debt obligation removed in bankruptcy — they could wipe the slate clean. Of course, like everyone else who did what they did, they are hoping they never hear from either their former lender or the tax man and they will not need to declare bankruptcy. What becomes of their $115,000 debt?
Who should we help?
The Arizona official faces an easy decision about who to help. Have you noticed that the people you would feel good about helping are those that do not need it? And those people who you do not feel good about helping — HELOC abusers — are the ones who are going to get help? The frugal couple who paid down their mortgage; I would help them out if they became unemployed. The HELOC abusers; screw them, they can move into their cars like unemployed renters.
Mr. Setbacken, a salesman, said he had warned his neighbors not to get in over their heads but they did not listen. He and his wife might have stepped up to a bigger house if they, like so many of their neighbors, had gambled recklessly on the housing market, he said.
“Everybody that I know that got themselves in trouble was because of one word: greed,” said Mr. Setbacken, 63, a former Marine who remains in tip-top physical condition. “I have no sympathy for any of them, on the financial end. When I hear about dropping the amount you actually owe, I could stick my finger down my throat.”
I could care less about the default, it is paying the bill that makes me want to puke.
… Ms. Carter said she felt guilty about leaving. With her short sale, the price of the home went down to the benefit of the new homeowner. But it dragged down prices in the neighborhood, she said.
Ms. Carter, a mother of two and a real estate agent who poses as an angel with wings on her Web site, has been through hard times before. Years ago, she considered filing for bankruptcy but then changed her mind. She said she was accountable for her actions and was making what amounted to a business decision to leave her home.
“I had to take emotion out of it,” said Ms. Carter, 36. “If I had a business, and every single month I was losing money, would I keep on paying? No, I wouldn’t.”
Strategic default is now the norm. Everyone has finally realized it makes no sense to keep paying when they are at scuba depth.
Sitting at her dining room table, before a large tank of fish, she recalled how she had made this a perfect home. It is one of the few on East Montgomery Road with grass in the yard, an expensive proposition in the desert. A Mercedes sits in the driveway.
She said she did not feel she deserved to have her debts forgiven, but added that if her mortgage had been lowered, she would have tried harder to stay. The worst part, she said, is that her decision will hurt Mr. Setbacken, who has watched out for her over the years. “For Gary, he’s going to have to deal with the ramifications of what I’m doing because I’m bringing his property value down,” she said. “I pray at church. I feel horrible for what I’m doing to my neighbors.”
That guilt will disappear a nanosecond after she leaves the area. She will not keep in contact with any of those people, and she will not give them a second thought. She wouldn't worry so much about what the neighbors thought about her if she realized how little they did.
Later, after Mr. Setbacken talked to Ms. Carter — she “cried and cried and cried,” he said — he had a change of heart. In an e-mail message, he said that perhaps wealthy Americans could donate money to aid homeowners. If he had more money himself, he might help some neighbors pay their mortgage bills.
He feared that he looked heartless and sent an apologetic email to the reporter. He has nothing to be ashamed of. He is the only character in this story worthy of respect and admiration.
“I have focused on the financial issues during these times and overlooked what was more important, the emotional stress that my neighbors are feeling,” Mr. Setbacken wrote. He walked down East Montgomery Road and gave a bottle of wine to the young couple facing foreclosure. It was, he said, “to help them pack.”
That is compassion. He helped them get on their way to their new sustainable life with fewer entitlements. It is far more compassionate to help them pack than try to keep them in a home they cannot afford, particularly when someone who can afford the home is waiting for it to be vacated.
I salute you.
You represent the best of American character.
Irvine Home Address … 215 Groveland, Irvine, CA 92620
Resale Home Price … $549,000
T-sale Home Price …… $571,912
Home Purchase Price … $293,000
Home Purchase Date …. 4/24/1998
Net Gain (Loss) ………. $244,597
Percent Change ………. 95.2%
Annual Appreciation … 5.7%
Cost of Ownership
$571,912 ………. Asking Price
$114,382 ………. 20% Down Conventional
5.05% …………… Mortgage Interest Rate
$457,530 ………. 30-Year Mortgage
$119,095 ………. Income Requirement
$2,470 ………. Monthly Mortgage Payment
$496 ………. Property Tax
$305 ………. Special Taxes and Levies (Mello Roos)
$48 ………. Homeowners Insurance
$39 ………. Homeowners Association Fees
$3,358 ………. Monthly Cash Outlays
-$424 ………. Tax Savings (% of Interest and Property Tax)
-$545 ………. Equity Hidden in Payment
$226 ………. Lost Income to Down Payment (net of taxes)
$95 ………. Maintenance and Replacement Reserves
$2,710 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$5,719 ………. Furnishing and Move In @1%
$5,719 ………. Closing Costs @1%
$4,575 ………… Interest Points
$114,382 ………. Down Payment
$130,396 ………. Total Cash Costs
$41,500 ………… Emergency Cash Reserves
$171,896 ………. Total Savings Needed
Baths: 2 full 1 part baths
Home size: 1,971 sq ft
($279 / sq ft)
Lot Size: 2,100 sq ft
Year Built: 2005
Days on Market: 163
MLS Number: P709421
Property Type: Condominium, Residential
According to the listing agent, this listing may be a pre-foreclosure or short sale.
This property is in backup or contingent offer status.
Lovely home in the award winning Woodbury Community, a perfect place to live, dine and shop. Conveniently located next to the Woodbury Towncenter, I5 Frwy. and the O.C. Great Park. This luxurious home features a formal dining room, a great room perfect for entertaining, harwood floors throughout 1st level, Santa Cecilia granite counter tops, plantation shutters, recessed lighting w/ dimmers, a walk-in closet and balconies. —- Enjoy the Woodbury outdoors! Jeffrey Open Space Trails, lagoon & competition pools, tennis, basketball and volley ball courts, play parks, bbq and much more. Agents, please see remarks.
It is looking increasingly unlikely this will be an approved short and will instead become a trustee sale.
Short Sale Asking Prices
Have you noticed that short sale asking prices are low just to attract 20 offers? Today's featured property is no different. The resale comps suggest a value of about $590,000.
|115 Spanish Lace — A 3 bed 1,960 SF CONDO — 2006||12/09/2009||$ 550,000|
|84 Townsend 1 — A 3 bed 2,100 SF CONDO — 2005||12/22/2009||$ 594,000|
|81 Mission — A 3 bed 1,960 SF CONDO — 2005||8/28/2009||$ 560,000|
|53 Chantilly — A 3 bed 1,960 SF CONDO — 2006||12/31/2009||$ 625,000|
Is the bank going to sell this property as a short for less than comparable sales at $549,000?
Lenders use the short sale offer time to establish fair market value for resales which is useful information for their loss mitigation teams. Many times they are a servicer who isn't authorized to sell as a short which is why you often see properties go to foreclosure when there are short sale bids at higher prices. Knowing fair market value also gives the lender guidance on how much they can drop a bid at auction.
Irvine has been seeing action among cash buyers, and the gap between trustee sales comps and resale comps is small on the more desirable properties. The trustee sale comps suggest this property will go for about $490,000 at auction; although, we would not bid that high. Even at a $571,912 trustee flip price, the maximum bid is probably too low to get the property.
|84 TOWNSEND — A 3 bed Condominium — 2005||9/23/2009||$ 502,200|
|92 TOWNSEND — A 3 bed Condominium — 2005||12/3/2009||$ 451,000|
|68 TOWNSEND — A 3 bed Condominium — 2005||2/3/2010||$ 501,000|
|89 WINDING WAY — A 3 bed Condominium — 2005||2/10/2010||$ 515,597|
|77 CANAL — A 3 bed Condominium — 2005||2/17/2010||$ 430,000|
84 Townsend was a quick flip for about a $90,000 gain. Rental parity is a surprising $585,000, courtesy of Ben Bernanke and 5% interest rates.
|62 Shadowplay — 3 bed SF CONDO — 2,146||33||$ 2,900|
|28 Pink Sage — 3 bed A SF CONDO — 1,745||66||$ 2,800|
If you believe rents and interest rates are stable, or if you see this property as a long-term personal residence, there are reasons to consider this property.