The Debt Star Has Cleared the Planet

I would like to thank Soylent Green Is People for writing today's post. If you are unfamiliar with his style, or if you are a big Star Wars fan, you are in for a treat.

As a lender he sees what is coming. Today we get his analysis of how our enormous delinquency problem is going to be resolved.

53 Carver   Irvine, CA 92620  inside

Irvine Home Address … 53 CARVER Irvine, CA 92620

Resale Home Price …… $699,000

The Debt Star has cleared the planet…..

For now fellow IHB readers we’re going to a galaxy far, far away. Circling planet Overborrow_ 92620 are the giant Star Destroyers, each packed with dastardly bankers and fearsome asset managers.

The Armada, comprised mainly of BofA, Wells Fargo, Citi, and Chase, has tried their best to level the planet and reclaim it’s wealth. For now, Rebel forces have held off the Imperials believing the longer they stand and fight, the sooner will come some measure of rebel victory.

Thwarting the will of the Emperor so far has been pretty easy. As anyone knows, Imperial Storm Troopers have to be the worst fighting force in the galaxy. They can’t shoot worth a damn. They fold like a cheap suit when Teddy Bears throw rocks at them. Add to it, they’re easily fooled by Jedi mind tricks.

BofA Stormtrooper: Let me see your modification request.

Obi-Wan, Jedi Loan Mod Attorney: (with a small wave of his hand) You don’t need to see his modification request.

BofA Stormtrooper: Uhh… We don’t need to see their modification request.

Obi-Wan: This isn’t our borrowers fault…

BofA Stormtrooper: This isn’t their fault.

Obi-Wan: They can continue living in the property without making a payment.

BofA Stormtrooper: You can live in the property.

Obi-Wan: Extend and pretend…

BofA Stormtrooper: Yes, we’ll extend and pretend.

Eventually the Empire wised up. Relief has gotten tougher and tougher to get. The Emperor resisted helping reduce loan balances or modify loans. “It’s bad for our investors… and trade federations”.. As the situation got worse, help from the Jedi order arrived. Mace Windu has tried his best to save the Overborrowers, You know, Mace Windu, badass Jedi with a purple lightsaber…

He’s took on the banks with every ounce of Jedi power known – HOPE, HAMP, HARP, Life Day Moratoriums, and other pseudo-relief schemes. Eventually he was forced to take on the Emperor’s banks single handedly. We all know how that worked out… The banks got their bailout.

With no new hope to come, Life is going to become pretty grim for planet Overborrow_92620.

Loan modification, the extend and pretend process we’ve seen adopted with HAMP, remains an undeniable failure. Post mod average 59% debt to income ratios and a 60% post modification re-default pattern is a pretty low success rate even by government standards.

59.8% Debt-to-Income = Success!

We know how we got to this point. Most of the nations distressed homes are located in the “Failure 5” – Arizona, California, Florida, Michigan, and Nevada, with California dwarfing all other states. Seven years of zero underwriting standards, excessive – in my opinion manufactured – appreciation, and unchecked greed allowed unsustainable levels of debt to be accumulated.

As vast numbers these engorged home debtors morphed into a weaponized entitlement class, curative foreclosures have been delayed, postponed, and in many cases ignored completely as a way to resolve this problem. Banks have done what the Government has asked them to do – reach out, negotiate, problem solve, suggest… don’t you love these gentle sounding action items… The banks are done ewok’ing around and have reached for the big guns to clear the decks – accelerated short sale process and a relentless increase in foreclosures. This is housings Death Star.

What will this future look like? First, let’s examine 92620 zip code as a microcosm of our county wide problem. There are currently between 150 to 160 open listings with only 20 being considered distressed in this zip code. A pretty healthy market by most standards. That’s the 30,000 foot overview most Realtors want you to focus on.

NOD’s in the area have spiked, but is likely due to borrowers attempting to lower their debt load through various mod programs. Loan servicers require evidence of financial hardship in order to qualify for modification. What better way to demonstrate that condition by skipping a payment or two?

Foreclosure Radar’s take on the 92620 market is a bit different. Their data tells us there are an additional 100 properties either at the auction stage or in “pre-foreclosure”. Of those 100 homes only 3 overlap in MLS data.

160 listings +/-. 100 non listed foreclosure ready properties

Pre-foreclosure inventory is approaching parity with MLS inventory (not to mention the shadow inventory with record delinquencies), yet why aren’t these homes on the market? Delaying tactics have kept many homedebtors in their property, but time has run out for overborrowers in this zip code..

(Geeze George Lucas is a crappy writer, using “suddenly” twice in the same line of dialogue…)

The HAMP mod process will be winding down over the next few months. Assume that of the 170,000 active trial modifications in California, at least 30% may be approved for a permanent modification of their loan terms. – the best case scenario today. The remaining denied or failed trial mods – about 119,000 – will be moved into the HAFA program. HAFA, short for Home Affordable Foreclosure Alternatives program, is the Treasury departments best effort to streamline the short sale process. From the NAR’s webpage:

HAFA Provisions

• Complements HAMP by providing a viable alternative for borrowers (the current homeowners) who are HAMP eligible but nevertheless unable to keep their home.

• Uses borrower financial and hardship information already collected in connection with consideration of a loan modification.

• Allows borrowers to receive pre-approved short sales terms before listing the property (including the minimum acceptable net proceeds).

• Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).

• Uses standard processes, documents, and timeframes/deadlines.

• Provides the following financial incentives:

• $3,000 for borrower relocation assistance;

• $1,500 for servicers to cover administrative and processing costs;

• Up to $2,000 for investors who allow a total of up to $6,000 in short sale proceeds to be distributed to subordinate lien holders, on a one-for-three matching basis.

• Requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy, consistent with investor guidelines. The policy may include factors such as the severity of the potential loss, local markets, timing of pending foreclosure actions, and borrower motivation and cooperation.

HAMP…HAFA… it’s a TARP… Err… TRAP!

HAFA “complements” HAMP. HAFA is for borrowers who were “HAMP eligible, but nevertheless unable to keep their home…” I like how gentle and nurturing this program sounds, don’t you? HAMP was merely a staging area for HAFA. Considering the redefault rate baked into the modded loans averaging 59% debt to income levels, the Feds had to draw up some kind of exit strategy.

Overborrowers also get pre-dictated…er pre-arranged short sale terms before listing the home. Nothing mentioned about the 800 pound Hutt in the room – how many HAMP participants are upside down on their home. Failed HAMP mods will soon become failed HAFA candidates. What then?

LA / Orange MSA is roughly 35,000 of the 119k HAFA transactions to come. Even if we split those new short sales on a 70/30 basis with Los Angeles County, that’s 10,000-ish new short sales expected in OC. Can the Orange County market absorb 833 new short sales per month in a years time?

Add to this groundswell of new inventory the expected increase in Bank of America foreclosures. What about Wells, Citi, Chase? Freddie Mac announced plans to dump REOs. Lenders will be forced to dump their inventory as prices soften. While we’re at it, lets consider the increasing number of strategic defaulters adding to present inventory. “Shame, plus fear of this battle station, will be used to hold home debtors in the system from mailing keys back to the bank…” HA!

Now, strategic default is celebrated. “It’s just business” to run away from your contractual debts in today’s ethically clouded environment. This growing source of new inventory will smother property values even further. It is the Ouroboros effect, exacerbated by well intentioned useful idiots who comprise our current regime. Orange Counties artificially supported median price levels run a credible risk of collapse. A new race to the bottom will start as failed mods come out of the shadows, strategic defaulters bail out while they can, and all the rest of the poorly stashed inventory banks have been withholding in hopes for better days bubbles onto the MLS.

The question is asked all the time: “Where do you think prices are going? What about shadow inventory?” I simply envision the banks, headed by the reckless Emperor himself cackling: Now witness the firepower of this fully armed and operational battle station! Fire at will Commander! Once that HAFA beam is unleashed, the resulting carnage will be epic. That’s my .02c. SGIP

Is Soylent Green Is People right? I think he is, and so does Diana Olick from Realty Check. As far as I am concerned, I think Pat Benetar said it well:

Hit Me With Your Best Shot!

Why Don't You Hit Me With Your Best Shot!

Hit Me With Your Best Shot!

Fire Away!


  • This property was purchased for $800,000 on 9/14/2004 (which is amazing to me). The owners used a $640,000 first mortgage and a $160,000 down payment.
  • On 11/18/2005 they refinanced with a $714,750 first mortgage and a $142,950 stand-alone second.
  • The total property debt is $857,700 plus accumulated missed payments.
  • Total mortgage equity withdrawal is $57,700 plus three years of free rent worth approximately $90,000.

Three full years of squatting with no end in sight

There is a reason we have a foreclosure process: when people stop paying, we need to get them out of the property and recycle it to someone who will pay for it. Today's featured property was first profiled last August. Now, after over three years, she is still there.

Foreclosure Record

Recording Date: 10/15/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 07/09/2009

Document Type: Notice of Default

Document #: 2009000364972

Foreclosure Record

Recording Date: 11/12/2008

Document Type: Notice of Rescission

Document #: 2008000530065

Foreclosure Record

Recording Date: 01/04/2008

Document Type: Notice of Sale

Document #: 2008000006033

Foreclosure Record

Recording Date: 10/01/2007

Document Type: Notice of Rescission

Document #: 2007000592079

Foreclosure Record

Recording Date: 09/27/2007

Document Type: Notice of Default

Document #: 2007000586776

Foreclosure Record

Recording Date: 05/23/2007

Document Type: Notice of Default

Document #: 2007000334839

Here’s an owner with a loan that has been modded, re-defaulted, and off to auction shortly. Can she chase the market down low enough to escape the Death Star’s HAFA ray?

53 Carver   Irvine, CA 92620  inside

Irvine Home Address … 53 CARVER Irvine, CA 92620

Resale Home Price … $699,000

Home Purchase Price … $644,739

Home Purchase Date …. 1/19/2010

Net Gain (Loss) ………. $12,321

Percent Change ………. 8.4%

Annual Appreciation … 32.8%

Cost of Ownership


$699,000 ………. Asking Price

$139,800 ………. 20% Down Conventional

5.11% …………… Mortgage Interest Rate

$559,200 ………. 30-Year Mortgage

$146,553 ………. Income Requirement

$3,040 ………. Monthly Mortgage Payment

$606 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$58 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees


$3,704 ………. Monthly Cash Outlays

-$747 ………. Tax Savings (% of Interest and Property Tax)

-$658 ………. Equity Hidden in Payment

$280 ………. Lost Income to Down Payment (net of taxes)

$87 ………. Maintenance and Replacement Reserves


$2,666 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$6,990 ………. Furnishing and Move In @1%

$6,990 ………. Closing Costs @1%

$5,592 ………… Interest Points @1% of Loan

$139,800 ………. Down Payment


$159,372 ………. Total Cash Costs

$40,800 ………… Emergency Cash Reserves


$200,172 ………. Total Savings Needed

Property Details for 53 CARVER Irvine, CA 92620


Beds: 7

Baths: 3 full 1 part baths

Home size: 2,770 sq ft

($252 / sq ft)

Lot Size: 4,750 sq ft

Year Built: 1979

Days on Market: 243

MLS Number: S584525

Property Type: Single Family, Residential

Community: Northwood

Tract: Sr


According to the listing agent, this listing may be a pre-foreclosure or short sale.

Perfect Home For Large Family Within The Best Area Of Irvine. Modified Plan With Up To 7 Bedrooms. Built In Outdoor Spa. Close To Shopping And Schools. . . 2 Bedrooms downstairs and 5 Bedrooms Upstairs. Agents Read Remarks First. Beat The Bank To This Large Home.

I didn't foresee this

Back in 2004-2006 as I observed the housing bubble go from OMG to WTF, I foresaw the credit crunch, the end of serial refinancing, and the array of conditions leading to epic delinquency rates. From there, I reasoned we would have an orderly foreclosure process that would bring must-sell inventory to the market and lower prices. It never occurred to me that lenders would simply not foreclose on people and allow borrowers to squat. It didn't seem possible.

I am not terribly surprised by what lenders have done, but I don't see how it solved their problem. Perhaps they hope to buy time to get more bailouts. I don't know. Eventually, borrowers will need to be brought current or removed from their properties. Right now, lenders are standing around wondering what to do hoping the problem will go away. I suppose if you paint yourself into a corner, you can always wait for the paint to dry before walking away.

Can you tell Star Wars from Star Trek?

56 thoughts on “The Debt Star Has Cleared the Planet

  1. Planet Reality

    The cost of ownership is $2600 per month for a 2700 square foot home with a yard in Irvine?

    Ring the bell !!!
    If you still have a job and your income has increased you are now a winner.

    If not, thanks for playing the game. Better luck next time.

    1. wheresthebeef

      No thanks. I’ll keep my 140K downpayment. Five years from now, the cost of ownership of this place will be the same or less. With all the risk out there, there isn’t too much incentive to buy today.

      Great job SGIP!!! Maybe we can have AZDave be the guest writer one day.

      1. Planet Reality

        You will be wrong about the cost of ownership. It will be more five years from now. However the price may be the same or less.

        1. wheresthebeef

          You are assuming big interest rate increases. If we have massive inflation, I should be seeing 15% pay increasing per year…right?

          Like I said, buying right now doesn’t make much sense. It does for you, so you should go out and buy several properties and rent them out!

          1. Planet Reality

            This place already rents for more. There doesn’t have to been any massive inflation. Five years from now, 6% mortgage rates at the same price would be enough.

          2. alles_klar

            How do you know this place rents for more? I’m not doubting that it does, just wondering what resource you use to determine that.

      2. Chris

        That 140k will probably not be worth 140k in today’s dollar in the (near?) future.

        Sadly, I’m in the same boat.

        1. buster

          Invested wisely, it will be worth far more. But as interest rates rise, the “value” of the property will be far less. So your $140,000 will likely be more like a 32% down payment. Yeah!

          1. lowrydr310

            “Invested Wisely”

            Care to provide any insight? In this environment, what is considered wise investment?

          2. wheresthebeef

            That’s the way I see it. Home prices 5 years from now will be lucky to be where they are today. Here is a hypothical situation: I have the 140K downpayment today. I keep renting and save 200K in the next 5 years. If this house still is 700K in 5 yrs, I can put down almost 50%. Meanwhile, I have not exposed myself to any additional risks from buying today. Seems like a much better solution, it just requires patience.

          3. tacoshark

            However, factor in that you are throwing $2000-$3000 away a month on renting the place you’re at. Over 5 years, take the average $2500 rent for SFH and that comes to $150,000 gone. Renting isn’t free.

          4. Marc

            He is probably renting for less than that. Also, the place above requires monthly cash outlays of $3,700, way more than you will ever pay in rent. And renting gives me the flexibility to relocate on short notice and not being stuck with an overpriced property in Irvine.

          5. wheresthebeef

            If the whole purpose is to save money for a few years, you can rent cheap. I pay $1500/month for a nice apartment 1 block from the beach. If you have kids and need a bigger place, that might change things. For a person in my situation, it makes sense to rent and wait out the storm.

    2. Eat that!

      Right because everyone has an extra $140K lying around and making $140K/yr. Yep, that’s everybody. What is amazing is that it will sell and eventually it will go into default and it will end up sitting with another squatter. Free homes for everybody! That’s my plan and I’m sticking with it.

    3. Rental parity

      I would not have thought so but the subject property is at ~ rental parity when considering the potential income-tax savings and equity hidden in payment. A friend of mine rents in Northwood a 2,500 sq.ft. house for $2,900/month.

      Still, the $3,800 monthly outlay is substantial and would require two good incomes.

    4. lowrydr310

      That sure sounds good, but I believe right now it doesn’t scale very well. Suppose I want a 1500 square foot home, the monthly cost of ownership surely isn’t anywhere near $1500.

      1. Planet Reality

        A 1500 square foot home in Irvine rents for between 2200 and 2500 depending on how nice it is..

  2. Geotpf

    The house has seven bedrooms? I guess if you have six kids this is the place for you. Or maybe a frat house or a boarding house. Rent out each bedroom for $500-800 a month and I guess you could make a profit.

    I’m not sure why you are amazed that they paid $800k in 2004. Redfin’s “Nearby Similar Sales” indicates it’s worth almost that much ($778,453) today.

    1. tonyE

      Yep, this place should rent rather well as a boarding house. You could put in your manager/cleaner/maintenance person for free in the two downstairs bedrooms and then have five renters upstairs.

      I figure at 700 bucks a month you got 3500 bucks with no hassle. That should net around 500 bucks a month after insurance and taxes.

      6000 per year from $140K comes out to over 4% which is more than you get in a CD. No hassle, built in manager.

      If you wanted to be really cheap, then you could cut the bennies for your manager to only one bedroom and then you got six bedrooms for rent.
      That’s about 4200/mo gross, 1200/mo net, or $14K a year. A return of almost 10%.

      I suppose that all those bedrooms are legal?

      1. Geotpf

        The bedrooms may not be legal. The “Public Facts” portion of the Redfin entry says it’s a 4 bed/2.5 bath with 2,078 sq ft, while the listing calls it a 7 bed/3.75 bath with 2,770 sq ft. But it’s also possible the tax records missed a permitted addition.

        In any case, SFRs with huge numbers of legal bedrooms do exist (sometimes they are even built that way to begin with). Cities and other local governments rarely restrict the number of bedrooms or total square footage of a house, provided there are adequate setbacks from the house to the property lines. Now, local governments frequently prevent additional full units on a lot zoned for SFR (you can’t build a second house in most cases), but building a 12 bedroom 7 bath house-no problemo.

        1. tonyE

          My understanding is that there are limits in Irvine on the number of residents per household. I think the number is predicated on garage size and parking.

          For example, building a fifth bedroom home is more difficult now that when we did it in Y2K. I think my neighbor mentioned that he needs a three car garage to build a 5th bedroom.

          I suppose those of us who built before the zoning changes would be grandfathered by the old rules.


  3. cran

    We keep hearing about the coming foreclosure wave for months now (probably years), but yet the foreclosures are not here. What makes you think that this time it is different?

    I am waiting to buy in Irvine/Tustin Ranch for a few years now, but the prices are still at unbelievable high levels. In 2007 I thought I am going to buy in 2008/2009, then in 2008 I thought I am going to buy at the end of 2009, and here I am in April 2010 and I haven’t bought yet because prices are still too high.

    I guess my question is what is different this time than last time(s) when everybody was convinced that the foreclosure wave is forming, it is going to be huge and is hitting soon? Is it because the Fed has stopped buying MBS? Is it because that BofA guy said that BofA will increase foreclosures? Is it because HAMP/HAFA etc have failed? Is it because the tax credit is ending? Is it because of a combination of all these factors?

    Is this another tactic by banks to increase foreclosures for 1-2 months to make the government launch another stupid program to save the nation?

    1. Planet Reality

      You need to understand that fractional reserve banking is a made up game of bullshit numbers. You can keep faking it and will never lose provided you have grown large enough to destroy the economy.

      1. Eat that!

        Or until it becomes more profitable to foreclose on your broke a$$ and kick you out. That’s the draw back of an up market. So you might not want to wish for increased appreciation just yet.

    2. Walter

      I know exactly how you feel and wonder the exact same things.

      But every time I think of buying, I get cold feet when I come to the conclusion the downside risks are greater then the upside risks.

      I am going to do some serous soul searching on buying towards the end of the year after all these changes are working in to the market, or the the gov has bailed us out AGAIN!

    3. Chris

      Cran, people like you and a lot more folks in Irvine who are not housedebtors are probably the reason that Irvine has not seen a huge housing price reduction (i.e. waiting to buy).

      Tell me, by replacing the words “Irvine/Tustin Ranch” with the word “Detroit” in your comment above, would the rest of the words still stick? I bet you that you could probably be pass off as a landowner in Detroit by now if you were to sink your money in that city.

      Sadly, you probably won’t see much more drop in Irvine even if all the stimuli have been exhausted. The best that you can probably hope for is a repeat of early ’09 price.

      That’s just my 2c.

      1. cran

        “Sadly, you probably won’t see much more drop in Irvine even if all the stimuli have been exhausted. The best that you can probably hope for is a repeat of early ‘09 price.”

        Chris, that may be true, who knows. No one has a crystal ball to see the future. Maybe there are enough people that will overpay and sustain the market as it is. Maybe the large number of notices of default that we see now are because homeowners try to get a mod and they default intentionally, but they will cure whether or not they get the mod.

        However, I am curious to see where the market will move when all government programs will end or will fail.

        I still have hope that prices will come down to earth because I believe the market is not healthy as long as the government is involved in it.

        1. lowrydr310

          As much as it hurts to say this, I’m starting agree with one of Planet Reality’s observations: we’ve recently taken part in a *massive* transfer of wealth.

          The pretenders are getting kicked out (foreclosed), and those with money are moving in. The definition of “normal” has changed. It all comes down to how many non-pretenders are in Irvine.

          I don’t have a crystal ball and I’m not financially comfortable paying today’s prices in Irvine (rent or buy), so Irvine is simply out of the question for me.

          1. Planet Reality

            IMHO Irvine isn’t that nice. There are far nicer places to live in South OC that cost 20% less for more land.

          2. Geotpf

            Depends on the definition of “nice”. Irvine does possess the combination of very low crime and very highly ranked schools. It is those two things that drive up prices in the city.

          3. cran

            Planet Realty,

            I agree that there are nicer places in South OC that are also cheaper than Irvine. One place that I like in particular is Dana Point.

            However, South OC does not come without the disadvantage that you have to drive to a nearby employment center. If you factor in the time to drive from Dana Point to Irvine, the cost of gas and possibly toll road and the need to replace/repair your car more often, you may end up paying more for the same house in Dana Point.

            Now I may be different than others, but I really hate driving more than 15-20 minutes to work.

        2. Chris

          “I still have hope that prices will come down to earth…”

          What’s your price definition for *earth*?

          Irvine’s *earth* price is probably more than other locations in OC except for Newport area.

  4. newbie2008

    Beds: 7
    Baths: 3 full 1 part baths
    Home size: 2,770 sq ft
    ($252 / sq ft)

    Why go to Europe for a vacation when you can live in Irvine. These European style bedrooms will take you to Europe with the tiny hotel room feeling.

    Buy before your priced out of the market.
    If the interest rates goes up, the sale price should go down and monthly mortgage payment will go up a little and RE taxes down. I would rather leave with my debt settled than doing a walkaway with either loss downpayment or leaving fellow taxpayers holding the bag.

    Note: I wrote taxpayer and not the bank, because the banks are just transferring the bad loans to the Fed, who transferrs the bad loans to the taxpayers.

    Scotty, Beam me up.

    1. Geotpf

      2,770 sq ft is sufficient for 7 bedrooms and 3.75 baths, IMHO. The bedrooms could be 15′ x 15′ each, the baths 10′ x 10′ each, and that would leave about 800 sq ft for the kitchen and living room. From the listing, it also looks like some of the bedrooms could be more like a den or a dining room that could be counted as a bedroom only if you stretch things.

  5. John

    This is what I don’t understand:

    When people stop paying their mortgages, who absorbs the month-to-month loss on the nonperforming loans?

    If it’s the MBS investors, then won’t they demand the bank or loan servicers to foreclose?

    If the loan is on the banks’ balance sheets, then why don’t we hear them loose more? (maybe they’re making up the loss with profit from other business?)

    Another question:

    This house went into auction. If nobody bid, then it belongs to the bank, right? So how come it still belongs to these people (the owner)?

    1. IrvineRenter


      When the debtor stops paying, often the servicer is required to make the payment for the debtor and add it to the loan balance (it is a loan from servicer to investor). The investor still receives his money, but the value of the investment is deteriorating because the investors are basically paying themselves. If it is a GSE or FHA loan, those entities will pay the investor and eat the loss.

      Ordinarily, banks would be required to recognize the loss when the loan goes bad, but with suspension of market-to-market accounting rules, lenders do not need to take their write downs and impact their balance sheet.

      Right now, banks are borrowing money from the FED at 0% and loaning it to home buyers at 5%, so the spreads are rebuilding their capital base. Now that they have enough reserves, they can take the write downs.

      This house hasn’t gone to auction yet. It is scheduled for auction, but the lender keeps postponing as part of the amend-pretend-extend dance. That is one of the big things that is going to change now that the government is streamlining the short-sale process.

      1. Chris

        “If it is a GSE or FHA loan, those entities will pay the investor and eat the loss.”

        This is true. I have Ginnie Mae bond fund and the govt is currently eating the loss on the interest payments.

        Sadly, taxpayers (including myself) will inherit this loss. Oh well, at least I’m paying myself 🙂

  6. Walter

    Side question for IR.

    We own a strip mall and now own a small plot of land next to it. We want to expand the parking lot. Do you know any good contractors that do paving/parking lot work?

    The lot is near USC.

    Thanks in advance if you can help with this.

      1. Walter

        Many thanks for the info. I will contact them for a proposal.

        Keep up the top quality blogging.

  7. AZDavidPhx

    Greenspan Passes The Buck on Financial Crisis.

    Blames “the Congress” for encouraging so much homeownership.

    Claims that the Fed “warned” of subprime mortgages but apparently did nothing because “the Congress” would have “clamped down” on them.

    Since when does the Federal Reserve answer to the Congress now? I thought the whole reason for not auditing them was to preserve their Holier Than Thou Independence so they can make those politically unpopular decisions.

    How can this little lemming take ZERO blame for himself? Yes, the economy was destroyed by a flood of easy money rushed into the system that we created from thin air but it’s not our fault for not keeping the politicians sober. It’s not our fault for pouring all that alcohol and getting everybody drunk as a skunk. The drunks should have exercised sober thought! Don’t blame the bartender!

    1. Chris

      “How can this little lemming…”

      AZ, he’s not a lemming but a vanguard of the bubble.

      Bernokio, however, takes the crown by 1% (ZIRP).

  8. fisher

    What are the things Irvine city council members really concerns: Great park, Great park and Great park. In last two elections the spot light is Great park. Do not surprise if next election’s topic still Great park. Maybe city council members should ask Irvine company for next election theme so they know what to do for the election.

    IMHO, the major problem now for Irvine is too many zone conversions with too many new 4th floors apartments allow to be built after the master plan is set (a beautiful back door strategy). This cause traffic congestion and over-clouded school.

    The excuse of conversion being allowed is the demand. But I am afraid its just too much $$$$$ for Irvine company to take, I image from zone conversion, Irvine company may make more than $1 billion in last of few years and I am not sure what benefits council members can get from this.

    IMHO, from now on, any zone conversion needs to be approved by majority of Irvine home owners. Otherwise, at least 50% of the amount money that IAC make from zone conversion should inject into Irvine school district and Irvine city.

    1. IrvineRenter

      Personally, I don’t mind the conversions from commercial to residential because those actually decrease traffic. A commercial or office complex generates more traffic than high-density apartments.

      The Irvine Company was looking for a place to invest its cash (they have huge positive cashflow and little or no debt). Apartments are an investment they can do today with immediate return. They would be waiting another 5-7 years for more commercial.

      I am not sure how this impacts the schools. I am not sure which school children living near the Spectrum would go to. They paid huge impact fees when they build the development, so whatever impact there was, the Irvine Company paid for it.

  9. tonyE

    With the exception of Northwood, The whole area East of the Santa Ana Fwy is a mess.

    They started to build homes alongside the “proposed” tollway back in ’90 but the homeowners were not told that the nearest on ramp would require a toll… I remember seeing the model homes and the implication was that the toll would be to go “over the hill” not down to the Santa Ana Fwy (for which there is no connector road either…).

    To make matters worse they went nuts since Y2K building homes up there. Which even with Beckman HS is straining the school systems, huh? The traffic sucks, the density is terrible, some of them are not even in Irvine, but they call themselves “West Irvine”… even though they are NE of Irvine… WTH.

    IMHO, we should change their phone area code to the 909 (except for Northwood… is it still 714 out there???).

    It’s gonna be carnage, prices will indeed come down to earth, but you know what? By the time we see carnage in West Irvine it will be Armageddon in the rest of the area.

    1. Pure speculation

      Regardless of whether West Irvine is an appropriate designation, West Irvine is actually holding up pretty good and there’s nothing messy about it. The same goes for Tustin Ranch, Tustin.
      If carnage is going to happen, then it will be all or most of Irvine. Now, I imagine Woodbury is more vulnerable due to its newness and the higher M.R. fees. Yes, the area code is 714 in W Irvine but it’s 949 in Northwood but who cares?

      1. tonyE

        All the NEW areas are most susceptible to big drops in price because everyone will be upside down.

        The newer the subdivision the worse off.

        The OLD areas have still significant equity and a lot more room to go down without panicking. Not everyone dipped into HELOC hell.

        Thus, the carnage will be felt more significantly in the newer areas, including Turtle Ridge and Quail Hill.

        Additionally, the closer to the ocean the more mild the carnage will be… except of course for TRidge and Quail Hill which were priced accordingly at nose bleed prices from day one.

  10. Will anyone listen?

    Jeannine Aversa, AP Economics Writer, On Wednesday April 7, 2010, 3:07 pm
    WASHINGTON (AP) — A Federal Reserve official says the Fed should start boosting interest rates “soon,” warning that delay could eventually unleash inflation. He does not specify when it should act.

    Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, in a speech in New Mexico raises concerns about leaving rates at record lows for too long. He suggests the Fed soon start moving its key rate — now near zero — toward 1 percent.

    When rate increases are delayed, “the outcome too often is greater inflation, significant credit and market imbalances, and an eventual financial crisis,” he says.

    Hoenig, a member of the Fed’s interest-rate setting committee, opposed the committee’s pledge at its past two meetings to hold rates at record lows for an “extended period.”

    1. Chris

      Hoenig will be the fire that will lid the massive gas buildup in this current bubble.

      Just watch what will happen if ZIRP is abandoned. Not even mark-to-fantasy will assuage the potential blowup.

  11. Sac_Boomer

    The utter unfairness and morale hazard is painful to watch. If I were to stop making mortgage payments, my servicer would ask me politely to continue, and if I failed to comply, they would be forced to ask me politely again. If one of my kids skipped their rent, the sherrif would be assisting them to the street.Great post SGIP!

  12. Joe Manausa

    Very well written, thank you. My favorite line (which I might have to borrow) “as I observed the housing bubble go from OMG to WTF”

    I think the shadow inventory nationwide is much larger than anybody has considered and we might get your ‘How Star Wars IV Should Have Ended’ ending.

  13. newbie2008

    ” Greenspan: ‘I was right 70% of the time’ – ”

    Like saying “I was right 1 out of 9 times having my neighbor’s kids playing Russian Roulette.”

    Did he have a significant amount of his money at risk?

    SGIP, very funny but educational. Loan modification to back-end the payments. $1430 premod to $838 postmod for x years. Are they modifying the loans into 2 loans one for a trustee sale on the primary loan and a second loan to go after the other assess later? If so, the unsuspecting home owners are walking into a TRAP. Like Esau selling his long-term birthright for a quick meal. But at least the “owner” can pay some rent and squat longer. The banks can unload the non-preforming loan the Fed. Welcome to the dark side.

  14. theyenguy

    Thanks for your articles; they are consistently insightful; I do have two comments.

    You relate: “There is a reason we have a foreclosure process: when people stop paying, we need to get them out of the property and recycle it to someone who will pay for it”. My reply: the foreclosure process will not make properties available at an affordable price; so the homes will go vacant; statistics show that nationwide vacancy is at 13%; it will be going up.

    And you relate: ” I reasoned we would have an orderly foreclosure process that would bring must-sell inventory to the market and lower prices. It never occurred to me that lenders would simply not foreclose on people and allow borrowers to squat. It didn’t seem possible. I am not terribly surprised by what lenders have done, but I don’t see how it solved their problem.”

    My reply is that not foreclosing solved a very big problem that being a loss on the income statement reducing their balance sheet capital. Under the interpretation of FASB, the banks have been able to carry the loans at mark to fantasy, not mark to market. In the last year the Ben Bernanke Portfolio, that is Financial Revenue Shares, RWW, ETF increased 96%; today it turned down 0.4% as the stock market has now turned from Bull to Bear now that the Fed’s Quantative Easing has ended and a new financial quarter begun and Moody’s Downgraded $1.9 Trillion Of Subprime RMBS.

    So yes, now, the Banks, as you have reported will start foreclosing and short selling; but the economic downdraft that is coming is going to be another Great Depression; and Los Angeles is going to be an epicenter of economic desolation as its debt was downgraded just today; the net result is going to be very little house buying and a lot of empty houses.

  15. flyovercountry

    I know that a lot of OC residents don’t care to hear about prices in other areas of the country, and compare any place between the coasts to Detroit…

    But prices are at levels where buying can make sense in other parts of the country.

    I’ve been following this blog for a couple years now to give me some insight about what the economy was likely going to do. If I just looked real estate in OC, there is NO WAY I could be willing to buy a house right now.

    Fortunately I am not in CA. I just bought a 2800 sq foot house on 1/3 of an acre, 3 bedroom 2 full, 2 1/2 baths, 5 car garage, covered porch, full basement. granite, stainless steel, and ceramic kitchen, built in 1995. Cost was less than $118 per square foot. That is less than the construction price alone.

    This is not in Detroit, but in Columbus OH. Which is a bit grey in the winters for my preference, but it is certainly not Fargo cold. We have a diversified job base, a major university, good airport, reasonable crime rate and schools, and a large number of bike paths, parks, and resevoirs.

    A spike in interest rates would hit the value of my new house, but it can’t realistically reduce it too much when it already costs less than replacement value even ignoring the cost of the land.

    I can’t see increased foreclosures in the big 5 really hurting my values in the long run, so bring it on. The sooner we work our way through that mess the better. The only reason I like extend and pretend is that it helps squeeze a little more money out of the people who overextended themselves, which reduces the cost to banks and taxpayers.

Comments are closed.