Proposed Subsidies to Housing Market Prices Benefit Only Bankers

Many alternatives to large numbers of foreclosures are being proposed by pundits in Washington. Their only common denominator is benefit to the banks.

Irvine Home Address … 30 NIGHTHAWK Irvine, CA 92604

Resale Home Price …… $720,000


Once I lived the life of a millionaire,

spending my money, I didn't care

I carried my friends out for a good time,

buying bootleg liquor, champagne and wine

Then I began to fall so low,

I didn't have a friend, and no place to go

So if I ever get my hand on a dollar again,

I'm gonna hold on to it till them eagle's grin

Nobody knows you when you down and out

In my pocket not one penny,

and my friends I haven't any

But If I ever get on my feet again,

then I'll meet my long lost friend

It's mighty strange, without a doubt

Nobody knows you when you down and out

I mean when you down and out

Bessie Smith — Nobody Knows You When You're Down and Out

The indulgent lives of the Great Housing Bubble were last seen during the Roaring Twenties, another era notable for its sequence of financial bubbles. First came the Florida land boom (from Wikipedia):

The Florida land boom of the 1920s was Florida's first real estate bubble, which burst in 1925, leaving behind entire new cities and the remains of failed development projects such as Isola di Lolando in north Biscayne Bay. The preceding land boom shaped Florida's future for decades and created entire new cities out of the Everglades land that remain today. The story includes many parallels to the modern real estate boom, including the forces of outside speculators, easy credit access for buyers, and rapidly-appreciating property values.

That massive bubble was followed by a stock market bust (from Wikipedia):

The Roaring Twenties, the decade that led up to the Crash, was a time of wealth and excess. Despite caution of the dangers of speculation, many believed that the market could sustain high price levels. Shortly before the crash, economist Irving Fisher famously proclaimed, "Stock prices have reached what looks like a permanently high plateau." However, the optimism and financial gains of the great bull market were shattered on "Black Tuesday", October 29, 1929, when share prices on the New York Stock Exchange (NYSE) collapsed. Stock prices plummeted on that day, and continued to fall at an unprecedented rate for a full month.

The October 1929 crash came during a period of declining real estate values in the United States (which peaked in 1925) near the beginning of a chain of events that led to the Great Depression, a period of economic decline in the industrialized nations.

It is interesting that they reversed the order; the real estate bubble came first, and the stock market bubble came after. The Great Depression followed the Roaring 20s, just like night follows day or a hangover follows drinking, the Great Recession follows The Great Housing Bubble. Massive Ponzi schemes and credit binges always end badly.

Foreclosed Dreams

The Obama administration’s remedy for the housing crisis benefits bankers, not homeowners.

By David Moberg

Like millions of other Americans, Alicia and Jorge Hernandez are hanging on to their home by a thread. Six years ago they bought their brick bungalow in a working-class neighborhood on Chicago’s southwest side for $175,000, a bargain compared to homes nearby that sold for $250,000. Jorge, who earned $18 per hour as a roofer, had earnestly avoided debt, but a mortgage broker offered him a fixed interest rate of 5.25 percent on a conventional loan. With a growing family, now including three young children, it seemed like a good deal.

[Kareem Rashed stands outside of a foreclosed home on March 12, 2010 in Bridgeport, Conn. (Photo by Spencer Platt/Getty Images)]

Then the housing bubble burst in 2007. On each block throughout the neighborhood, several families—at first mainly those with sub-prime loans—lost their homes to foreclosure. Housing prices fell sharply. The Hernandez home is now worth $119,000, well below the $146,000 still owed on the mortgage. The construction industry imploded and Jorge, 41, could find only scattered jobs. He now collects about $220 per week in unemployment benefits.

“We are a little bit struggling to make our payments,” says Alicia, 39, her voice breaking as she juggles her two-year-old son. “We’ve cut out what luxuries we could, like cable. Now we have to decide to continue our lifestyle or cut everything and make the mortgage payments.”

The family ran through its savings, then borrowed from relatives as Jorge’s income continued to slide. But unlike many unemployed workers in past recessions, they had no equity in their home as collateral for temporary credit. Early this year, they fell behind on their mortgage by three months.

Alicia looked for an administrative assistant job similar to the one she had after college, but nothing turned up. Then she found a job for $8 per hour at a bulk-mailing subcontractor to the U.S. Census Bureau. But even with that paycheck and Jorge’s unemployment compensation, they owe more than half of their monthly income for the mortgage. “Like many Americans, we were hoping next year would be better,” Alicia says. “We just relied on hope. That was our mistake.”

No, this family did not make a mistake. In fact, they did everything right. This is the very first borrower-in-distress profile I have seen anywhere in the media where the family truly did nothing wrong. The reporter's search was worth while because it is very difficult to find a borrower-in-distress who didn't borrow too much using unstable terms, usually to capture appreciation or to get free money to spend. This borrower was a working-class guy providing for his family. If there is any family that I would like to see benefit from the various bailouts, it would be this family. It is the other ninety-nine out of one hundred that irritate me.

The Hernandez family is the new face of the deepening home mortgage foreclosure crisis—a crisis that is increasingly affecting suburban and upper middle-income homeowners as well.

Note the setup here: the reporter advocates a political position in this article, so it was important that people feel like they are saving this family rather than the HELOC abusing squatters I profile here every day.

In the earlier waves, most foreclosures involved speculators or holders of sub-prime loans that were designed to fail, according to the North Carolina-based Center for Responsible Lending, an advocacy and research organization. Its research shows the fault in the sub-prime collapse lay with the loans, not the people who borrowed the money. Many of them could have qualified for a conventional, fixed-rate mortgage and not defaulted.

Although the new wave of foreclosures this year will involve other exotic mortgages (especially interest-only and payment-option adjustable rate mortgages), most recent serious deliquencies and foreclosures involve conventional loans.

Around three-fifths of homeowners seeking loan modifications under President Barack Obama’s Home Affordable Modification Program (HAMP) cite loss of income as the cause of their hardship. At least one-fourth—and by some estimates one-third, heading toward one-half—of all mortgages are currently “under water,” meaning that they are worth more than the market value of the home. Under those conditions, homeowners have strong incentives to walk away, leaving investors holding their costly mortgage and devalued property.

Very good synopsis of the problem. This author did his homework.

The White House tinkers

Responding in late March to these new trends in the housing crisis, the Obama administration rolled out the latest version of HAMP, which offers new provisions to deal with underwater mortgages and unemployment, some of which might help homeowners like the Hernandez family.

But consumer advocates like the Center for Responsible Lending and the Washington-based National Community Reinvestment Coalition (NCRC) are not happy with the Treasury Department’s proposals. “We continue to tinker around the edges of foreclosure prevention,” says NCRC President John Taylor. “We rush to give banks tax breaks, but we dawdle to help homeowners.

The fundamental problem is that the Obama administration and Congress are reluctant to use the legal, political and judicial forces at their disposal to cut through the Gordian knot of special interests that block meaningful reforms. Instead, banks, investors, mortgage service companies, rating agencies and other financial interests that caused the problem are encouraged and bribed (“incentivized”) to modify troubled loans voluntarily.

The fundamental problem is that any reform is a bailout loaded with moral hazard. The lack of progress is a great thing, and the administration should be reluctant to institute some reform that will further hurt the prudent at the expense of the foolish.

Neil Barofsky, the special inspector general for TARP, warns that this scheme “risks helping the few, and for the rest, merely spread[s] out the foreclosure crisis over the course of several years, at significant taxpayer expense and even at the expense of those borrowers” who struggle to pay modified loans but eventually default.

I profiled this guy before. He clearly understands the problem.

Dean Baker, co-director of the Center for Economic and Policy Research, advocates giving defaulting homeowners the option of staying in their homes and renting at market rates for five or more years. Besides keeping people in their homes, the right to rent gives them bargaining leverage with banks to modify loans, since bankers have no interest in being landlords.

I really like Dean Baker's idea. If lenders knew their payments could get knocked down to rental levels, they would never loan beyond what the cashflow of the property would warrant. I proposed something similar in The Great Housing Bubble. Lenders created more debt than borrowers could service. This is more difficult to accomplish if lenders are limited by a rental equivalence income stream.

Consumer advocates, such as NCRC, National Peoples Action and the Center for Responsible Lending, fought hard for Congress to give bankruptcy courts the power to modify home mortgages—the only major property excluded from the courts’ oversight. But the proposal was defeated in the Senate, which prompted legislation sponsor Sen. Dick Durbin (D-Ill.) to say the banks “own the place.”

Yes, the banks own the Senate. I do happen to agree that bankruptcy judges should not be able to reduce mortgage principal. It would merely encourage borrowers to overextend themselves and petition for relief later. I do like that it would burn the banks though.

With the support of the NCRC, Rep. Brad Miller (D-N.C.) and 26 other congressional Democrats recently proposed that the Treasury use its existing powers to set up an equivalent to the Home Owners Loan Corporation (HOLC), the successful New Deal-era agency. The new HOLC would use the power of eminent domain to buy up large quantities of distressed loans at their current market value, then modify and refinance them.

I only like that idea if the borrowers are kicked to the curb. The programs sounds like a direct government subsidy to be doled out as political largess in poor Democratic districts.

Both homeowners at risk of foreclosure and the government need such powerful tools to get deals done quickly and to shift the costs of resolving the crisis to investors and institutions that were responsible. Such cost-shifting could weaken some banks, but oddly, it could also be the best option available—it’s certainly better than foreclosure—in most cases for banks and investors, as well as for homeowners.

Everyone seems to think foreclosure is a big problem. It's not. Foreclosure is not the problem; foreclosure is the cure.

Bleeding homeowners

… But many investors or banks hope they can bleed homeowners as long as possible, even though many banks now feel pressure from their growing inventory of distressed loans and the increasing risk of underwater borrowers walking away in strategic default. And they hold out hope for bigger government bailouts, like proposals to pay banks to reduce principal on distressed loans.

Efforts to modify distressed loans started in a modest, ineffective way under former President George W. Bush. The Obama administration has continued to rely on voluntary action by financial interests, and has committed larger amounts of money to support and stabilize home ownership through loan guarantees, purchase of mortgages and mortgage-backed securities, incentives to banks and new homeowners, and its modifying of mortgages through the Making Homes Affordable programs (including HAMP).

An ineffectual solution

… Though homeowner advocates lament the loss of $7 trillion in wealth with the housing crash, much of that was bubble money. Trying to prop up home prices below their historic trends helps no one ultimately, says Baker. …

The efforts to forestall foreclosure need to be stopped, and the foreclosures need to occur unimpeded. Lenders were unconscionably stupid during the housing bubble, and they need to bear the brunt of pain through losses and oppressive regulation or they will repeat their mistakes.

It was obvious to anyone who bothered to care that most borrowers in the bubble era could only afford their homes with Ponzi borrowing; however, lenders did not care. They believed they had no risk. The collateral would appreciate endlessly, the loans were sold to investors, and any other risk could be mitigated with a credit default swap form AIG. With no concern for risk, lenders underwrote really foolish loans.

I am opposed to any effort to save borrowers or lenders. It is sad that families like the one in this article were hurt, but it is not sad that HELOC abusing squatters like today's owners were hurt. We need neither irresponsible lending nor irresponsible borrowing, and bailouts encourage both.

Stop the bailouts!

Yet another HELOC abusing squatter

The owners of today's featured property heard the Siren's Song of unlimited spending money, and they went Ponzi.

  • This property was purchased on11/17/1995 for $353,000. The owners used a $335,350 first mortgage and a $17,650 down payment.
  • On 11/6/2008 they refinanced with a $316,000 first mortgage — which looks like they paid down debts, but…
  • On 12/9/1998 they obtained a $79,000 stand-alone second.
  • On 1/14/2002 they obtained a $120,000 HELOC.
  • On 1/13/2004 they obtained a $245,000 HELOC.
  • On 6/23/2005 they refinancedd their first mortgage for $723,350.
  • Total property debt is $723,350.
  • Total mortgage equity withdrawal is $380,000.
  • Total squatting time is at least 10 months.

Foreclosure Record

Recording Date: 02/11/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/04/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/27/2009

Document Type: Notice of Default

Have you noticed that someone who withdrew $380,000 and squatted for six months — a horrible example of theft — looks like a mild case? By Irvine standards, these people were not extreme. I couldn't even give them an F because they didn't keep gaming the system. I think they left a couple hundred thousand dollars in the bank vault that they could have appropriated by signing a few more documents.

Irvine Home Address … 30 NIGHTHAWK Irvine, CA 92604

Resale Home Price … $720,000

Home Purchase Price … $353,000

Home Purchase Date …. 11/17/1995

Net Gain (Loss) ………. $323,800

Percent Change ………. 104.0%

Annual Appreciation … 4.9%

Cost of Ownership


$720,000 ………. Asking Price

$144,000 ………. 20% Down Conventional

5.16% …………… Mortgage Interest Rate

$576,000 ………. 30-Year Mortgage

$151,810 ………. Income Requirement

$3,149 ………. Monthly Mortgage Payment

$624 ………. Property Tax

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

$60 ………. Homeowners Insurance

$80 ………. Homeowners Association Fees


$3,913 ………. Monthly Cash Outlays

-$775 ………. Tax Savings (% of Interest and Property Tax)

-$672 ………. Equity Hidden in Payment

$293 ………. Lost Income to Down Payment (net of taxes)

$90 ………. Maintenance and Replacement Reserves


$2,848 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$7,200 ………. Furnishing and Move In @1%

$7,200 ………. Closing Costs @1%

$5,760 ………… Interest Points @1% of Loan

$144,000 ………. Down Payment


$164,160 ………. Total Cash Costs

$43,600 ………… Emergency Cash Reserves


$207,760 ………. Total Savings Needed

Property Details for 30 NIGHTHAWK Irvine, CA 92604


Beds:: 4

Baths:: 2

Sq. Ft.:: 2076

Lot Size:: 6,077 Sq. Ft.

Property Type:: Residential, Single Family

Style:: One Level, Contemporary

Year Built:: 1976

Community:: Woodbridge

County:: Orange

MLS#:: S610039


Highly desired single level home on the park! House is nicely maintained and cared for. Private atrium off two bedrooms! Step down formal livingroom. Wood flooring in entry, kitchen and dining/family room. Master bedroom has walk-in closet. Oversized garage. Nicely landscaped yard mirrors the parks atmosphere from the backyard! Walk to schools and lake. Does need a roof and some corrective work in the master bathroom.

Does need a roof and some corrective work in the master bathroom. WTF? These people took out hundreds of thousands of dollars in HELOC money, and not just didn't they update the property, they refused to do even routine maintenance. What did they spend the money on?

If this gets sold to new owners who plan to run a brothel, they will not need to repaint.

Reader Email

What is that?

1888 NIXON Ave Placentia, CA 92870

I see a monkey's face tilted slightly with his hand reaching over the top and grabbing his forehead or scratching an eyebrow. I see two bulbous eyes with dark pupils, a thin burger-bun mouth and his right ear (on the left).

I also see a child reflected in profile below the window apparently being stalked by the ghost in the mirror.

What do you see?

48 thoughts on “Proposed Subsidies to Housing Market Prices Benefit Only Bankers

  1. cara

    Red and purple are the only two colors and both are in multiple rooms. Did they just take the advice of the salespeople on how much paint it takes and buy way too much and then decide not to waste it, or did they get those two colors cheap from the returns area?

    (I actually kinda like that purple when it’s not next to red).

  2. Planet Reality

    Current asking price is double the price of 15 years ago. Woopty-freakin-do. Also it’s at rental parity. That next leg down is going to be painful, but first Irvine will need to fall back to 2009 pricing.

    1. alan

      Sorry, I live on a different planet where you have to add the repair/replacement costs to the house costs before you see a final price.

      New roof $20,000 and up
      Bathroom repairs $2,000 and up
      Not to mention what else your going to find
      Add at least $40K up front to this house before you talk about rental parity.

    2. Eat that!

      What part of $720,000 dollars is this home worth? Is there a view of the ocean or at least a very nice lake?

      1. Planet Reality

        You got me there. It would be impossible to live Eat That’s pimping coastal life style in this house. Better add a digit to the price tag for that type of opulence.

      2. lowrydr310

        Welcome to the new Orange County market. Repeat after me, “THERE IS NO BUBBLE.” Keep saying it, until you believe it. I’m with PR, he has me convinced. Prices are up from their 2009 lows, and there’s no chance of them ever falling any further.

        Irvine is now a high end area and is immune from any price drops. This is the new price standard. You want an ocean view? Add another digit, and buy now or be priced out forever. If you can’t afford it, better luck next time.

    1. Planet Reality

      Maybe GS will be forced to give back some of their tax payer profits to contribute to the fund designed to pay for the next banking collapse. Yes it’s already a forgone conclusion by the fine folks on capital hill, another banking crisis is in the bag. We will prepare by taxing the banks to encourage them to take on more risk, brilliant. Gentlemen place your bets let moral hazard rain down from the heavens.

    2. Freetrader2

      What’s up with the lighting in that Senate hearing room? These people all look like zombies.

      1. HydroCabron

        That can only mean that the lighting is excellent, and allows the cameras to render flesh tones and skin lesions accurately.

    3. AZDavidPhx

      They are putting on a damn good dog and pony show over there in D.C today. Totally worth the price of admission to watch these scumbags squirm.

    4. newbie2008

      Clintonism, Bushism, Obamaism — when you’re purchased by GS, they are all the same, GSism. The congress will just show how tough they are and in 7 monthes the will just be some show legistation that will apprear to be regulating, but will only indemify GS and others. GS will just say “We did nothing wrong…We lost money.” Will be sounding like Whitewater. Laughing all the way to another feeding trough.

      One thing different, is we have “Cyrus” in office. The media will report how well the economy is recovering while the unoffical unemployed grows larger. The media will have another obamasm.

      Banks, M&A, some high tech. show some signs of recovery. Temporary uptick in car and washing machines sales.

    5. IrvineRenter

      I got this emailed to me from a reader:

      Easily Understandable Explanation of Derivative Markets:

      Heidi is the proprietor of a bar in Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

      Word gets around about Heidi’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Heidi’s bar. Soon she has the largest sales volume for any bar in Detroit.

      By providing her customers’ freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi’s gross sales volume increases massively. A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

      At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.

      One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi’s bar. He so informs Heidi.

      Heidi then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

      Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

      The suppliers of Heidi’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

      Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Heidi’s bar.

      Now, do you understand?

      1. newbie2008

        Great story,
        Needs one more section:
        the brokerage houses and their respective executives realize the fallacy, pumps up the demand for the DRINKBONDS, ALKIBONDS and PUKEBONDS, then shorts the DRINKBONDS, ALKIBONDS and PUKEBONDS.

    6. avobserver

      Don’t expect bullwhips and thumbscrews. Some mild, symbolic spanking is the more likely outcome.

  3. Sue in Irvine

    IR…I see a hand holding a human heart.
    As for the Irvine house….I see an ugly house which needs work.

  4. SoOCOwner

    It’s the Michelin Man. He is holding out his hand and warning potential buyers to ‘stop’ and do not buy the home. Not sure why, it seems reasonably priced. However, I would heed the omen.

  5. ME

    I understand we should want the banks to foreclose on more properties. But I don’t think their books can handle it. If they did they whole economy would crash becuase the All the big banks would go bankrupt. There is not enough moeny in the world to cover all the foreclosures that should be taking place.

    1. IrvineRenter

      That is exactly why the banks should be nationalized. The equity and bond holders would be wiped out, the banks would be recapitalized by the government, and with a clean slate, the banks could lend again. It wouldn’t crash the world economy; it would only wipe out the existing stock and bond holders from the banks. In fact, it would be a tremendous help to the world economy. The only reason this does not happen is because banking interests control our government.

      1. avobserver

        Our gov’t would not nationalize large zombie banks because we need their “expertise” to keep this game going. Don’t you realize that financial, with its infinite wisdom and creativity in generating wealth inducing schemes, is really the “backbone” of our economy. The whole idea is about elevating consumption by getting American middle class loaded on more debt. The system runs like a well-oiled machine – Wall Street came up with new debt instruments thru financial engineering, creditors gobbled on the new products, consumers jumped in with both feet and spent with abandon. Increased consumption stimulated corporate profits/personal income and jacked up asset prices (aided and abetted by Fed’s low interest policy), which in turn begot more debt. Not only financial industry became the de facto biggest winner itself, this “debt – consumption – more debt” model also lifted all industries and sectors related to consumer spending, which is basically the whole economy. No politician in his/her right mind dares to touch the foundation of this shaky structure. Tinkering the wrong thing is like pulling the wrong piece in a Jenga game at late stage.

        Sustaining the basis structure of our economic system means two things:

        1. Don’t mess with the creditors
        2. Don’t mess with the enablers (Wall Street)

        Both Bush and Obama administrations clearly “got” it. They may yank a leash here, slap a wrist there to appease populist rage from time to time, but in the end nothing drastic should befall the “untouchables”.

        As for bailing out the debtors – the path of least resistance seems to socialize the debt. All current policies to “help” distressed debtors are moving in that direction.

        1. HydroCabron

          Financial Innovation. Heh.

          The last financial innovation was the development of double-entry bookkeeping in the 13th century.

          1. avobserver

            yeah, from that little innovation, add a little human ingenuity and imagination we now have a $450 trillion derivatives market.

          2. scott

            Heh, Paul Volker said the only real innovation of the last 20 years was the ATM machine (and I might add the low cost index fund by Vanguard). Can any think of any other financial innovation that really was a change for the better?

      2. Geotpf

        It did not happen because nationalizing the banks would be “socialism”, and the Republican party doesn’t like “socialism”, and there was a Republican president in power when the crash happened.

  6. Sad Buyer

    I found out this morning my house is already paid off. Let me tell you what happened.

    For years I have been applying money to the “principle only” to reduce our mortgage and the interest we payments. About a year ago I had an extra $12,000 to apply to the principle so I mailed it off to the mortgage company on a Friday. Based on the my payment history records this company had always recorded the payment by the following Tuesday. However, this payment was not applied until two weeks after I sent it and the only reason they applied it then was because I called them and demanded to know why it hadn’t been apllied. They claimed they didn’t know why I was sending the extra money even though it was stated specifically in a letter from me. At this point the representative applied the payment and credited the account for the interest they had charged to my account.

    Last Friday I sent what I thought was my next to last payment. This morning I decided to check the “payoff balance” I went online and discovered in March the mortgage comapny had decided to treat my “additional principle payment” as a “prepayment” which means interest is being applied to my principle that I thought I had paid down. I informed them their action were illegal and they needed to correct their error. Immedialtely the representative corrected the mortgage company’s “error”. Just for the month of March and April this made a difference of $5,600. The representative connected me with a supervisor who apologized and said she would take care of the matter. She informed me the company would be returning the funds owed to us along with our final documents.

    The moral of the story. You have to watch these people like a hawk. Even when you are down to the last two payments on your loan. They will try to get one over on you if you’re not paying attention so BEWARE and pay attention to the DETAILS. It’s funny one of my friends calls me a control freak but my house is paid off and she is losing hers. I think I’ll take her comment as a compliment.

    1. newbie2008

      Congrads on really owning a house.
      Wise warning for others.

      On the featured property:
      1. Is the owner really trying to sell or just pretending?
      2. Since there’s only a first, is it financially better to sell (and pay expenses and back payments) or get TS-FC’ed (no expenses)?
      3. Owner gets a B for converting to only a first loan, but not an A for fully gaming the system. An A would require full gaming of the system, like the NB women with HEW in the multi-millions, squatting for years without payment and trying to lease the place on the taxpayer’s hard earned money. I shouldn’t pick on her, cause iher hardship was caused by a divorce and her ex’s fault. BahBahBah.

    2. IrvineRenter

      Sad Buyer,

      Congratulations on paying off your house. That is a fantastic accomplishment.

      I have a similar bank story. When I sold my house in Florida, about 3 weeks before closing, the bank gave me an incorrect payoff balance. They had improperly recorded a payment about 8 months earlier, and for the last 7 months of the loan, they recorded everything as late, so I had $175 worth of bogus late fees. In the three weeks before my closing, despite having various bank representatives on the phone who admitted their error, I could not get these fees reversed. At the closing, the fees were still there. I had to chose between closing the sale or postponing to fight for $175. I chose to close. The bank was rewarded for entrenched incompetence.

      Huntington Bank: you suck.

      1. Sad Buyer

        Don’t you just hate that, you have to pay for there incompetence. I actually learned of the “principle” vs. “prepayment” problem when paying off a student loan years ago. Actually now that I think about it that was during the S&L crisis. I guess the banks will never give up trying to get our money one way or another.

    3. HydroCabron

      “The moral of the story. You have to watch these people like a hawk. Even when you are down to the last two payments on your loan.”

      It’s even a problem if you don’t make additional payments. My parents paid off their house by making the minimum payments, yet the servicer tried to extract further payments from them.

      The problem, according to one employee my father contacted, is that payoffs are so rare that software errors go undetected for months if the software is tweaked.

      That’s California for you.

    4. John

      Does any one notice that most (if not all) of the bank’s mistakes are to their advantages, not the customers? what a coincidence!!!

      I’d love to hear from anyone whose credit card balance was accidently reduced by the bank.

      1. Honest

        Actually, the bank made an error and undercalculated the points amount for my mortgage on the closing instructions to escrow. Being an honest person though, I pointed it out before closing and paid up.

      2. Sad Buyer

        Because I save all of my receipts and check them against my statements I have noticed about once a year a purchase I make does not show up on my card. I don’t know if this is the merchants mistake or the credit cards mistake.

  7. Sac_Boomer

    I. R. The American Gothic send up is one of the best graphics ever. All it needs is a Harley in the background. However, not as funny as the actual pictures of the house. I have a quibble with the Realtor’s description. (Notice how you can’t write “Realtor” without the accent on the “OR?”) Did they not notice that the “wood flooring” in the kitchen looks a lot like cheap worn out tile? And I can’t help but think that the ultra-close proximity of of the refrigerator and the oven is wasteful of energy, and not user freindly. I know I am simple country folk, but it just seems too steep for what you get, and doesn’t pass my standard of “desireable”. I expect it will be in “Back-ups accepted” status by day’s end.


  8. Laura Louzader

    This house is the worst deal for the price asked that I’ve seen of any house you’ve featured on this site, and that saying some.

    It looks like a late-60s vintage tract house though I know it is newer than that. Horrible architecture and cramped, stuffy rooms not helped by the horrid decorating.

    $275K max for this dump even in Orange County.

    1. wheresthebeef

      Be careful now Laura. Planet Reality has already staked the claim that this POS is at rental parity. Anybody who pays almost three quarters of a million dollars for this house is absolutely insane. There is no curb appeal and the entire house needs updating. There are so many better alternatives for this price.

      In a normal market, this crap box might sell for 475K. And we just might get there sometime soon.

      1. Planet Reality

        At 275K or $475K I would buy as many as I can and rent them at a HUGE profit. The arbitrage would quickly disappear pushing the price to rental parity, simple economics.

        1. Planet Reality

          Market rent would be 2800 – 3000 for an SFR with a 6000 sq. ft. Lot. Maybe more if you invested money. Living in Irvine will never be cheap. I’m sure someone will post that they rent a house down the street for 2500. In any event this house will never sell for 275k, not even if you had a time
          machine to 1995.

          1. stoppingby

            We heard that this same plan rented for $3,100 not long ago, which would be around rental parity. And someone was willing to pay the $720K for this, because it already has an offer on it. That didn’t take long, even in the disgusting condition it is in.

  9. newbie2008

    Will the impending commerical RE tank the stock market and housing market?

    I don’t see how the media can get traction on bailing out the commerical RE market, but I didn’t see how they could get traction in bailing out the Mexican hedge funds in the 1990’s, but Bill did $$$$$$

  10. Ozymandias

    haven’t check in in awhile. i notice the supply of homes is on an upswing.

    could this be the start of the second wave

    everything starts in calif.

  11. rick

    The Ghost:

    Look carefully at where frosty’s scarf is. You will notice a small flying-saucer shape. That shape correlates to an object at the top of the stairs in picture #2.

    The window in the mirror’s reflection best correlates with the window in picture #2, also at the top of the stairs.

    Look at the window in the reflection. There is a shape in from of it that looks like an oval with a plus sign in it. Look at picture #2. There is a similarly shaped object in front of the upper window on the left.

    I think the hand is a handprint on the mirror. Everything below the “scarf” is dirty mirror goo.

    I love a ghost story…

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