Riverside County: 90% of mortgages underwater, 23% of mortgages 60-days late

The mortgage statistics out of Riverside County are pretty grim. Will the substitution effect pull prices down here in Irvine?

Irvine Home Address … 40 SALT BUSH Irvine, CA 92603

Resale Home Price …… $4,995,000


And I'm here to remind you

Of the mess you left when you went away

It's not fair to deny me

Of the cross I bear that you gave to me

You, you, you oughta know

And I'm not gonna fade as soon as you close your eyes

And you know it

And every time I scratch my nails down someone else's back

I hope you feel it…well can you feel it

Alanis Morissette — You Oughta Know


I am here to remind you of the mess you made when your standards went away.

It's not fair to deny it.

Of the cross they bear that you gave to them.

You oughta know.

I'm not gonna fade away if you close your eyes.

And you know it.

And every time someone defaults on your loan.

I hope you feel it… well can you feel it?

How do you feel about the banks?

I am seeing the argument put forward frequently that we need to coddle the banks because if they lose money, we all suffer. Many are suggesting that Individual borrowers should continue to make payments when they are hopelessly underwater and they can rent something much cheaper elsewhere in order to preserve neighborhood property values and prevent the banks from going under. That is rubbish. People don't owe their neighbors or the banks anything.

The lenders created this mess, and they need to experience the consequences of their foolish lending otherwise they will do nothing to learn from their mistakes and prevent doing it again. They loaned too many people too much money under unstable loan terms. They deserve the pain they get. They do not deserve our tax dollars or assistance.

The more I pay attention to this issue the more I become annoyed at the banks. They inflate bubbles with their loans. They create the Ponzis. They enable the squatters. They conspire to keep prices artificially high and keep prudent families out of reasonably priced homes. I have a problem with their behavior and how it impacts all of us.

Fitch finds Calif. at both extremes in mortgages

Copyright © 2010 The Associated Press. All rights reserved.

NEW YORK — California has the best-performing U.S. region in mortgage performance as well as some of the worst, according to a study by Fitch Ratings.

Results of the ratings agency's study of all securitized non-agency California mortgage loans were released Wednesday.

Among the findings, it said the Bay Area region of San Francisco, San Mateo and Redwood City has a 60-day mortgage delinquency rate of just 4 percent. That was No. 1 among the 382 metropolitan statistical areas tracked by Fitch.

Recent price trends have helped. While California home prices are under stress and further declines are likely, San Francisco home prices have increased by 12 percent over the past year.

I don't know the listed markets to comment, but I I do note that it pays to live in neighborhoods with others with 800 FICO scores. The lower the delinquency rate the better the values are holding up; although, the real correlation is to foreclosures: the higher the rate of foreclosure the lower the resulting property values.

Banks stopped foreclosing after they kicked out all the poor, subprime borrowers. The middle- and upper-middle- class borrowers who were given Alt-A loans and Option ARMs have simply been allowed to squat. Lenders have made a conscious decision to allow the Ponzis to squat in cities like Irvine because they know foreclosing on them will reduce prices.

This isn't a story of the rich getting richer… well, that did happen too, but the poor certainly did get poorer. The borrowers given subprime loans all went delinquent like their higher wage earning counterparts in Alt-A and prime borrowing pools, but the subprime crowd was actually foreclosed upon, and values in these areas cratered as expected. Of course, that means those markets have found a market clearing price, and the lives of the people can be rebuilt and go on.

The Alta-A and prime borrowers took out toxic loans like Option ARMs and interest-only financing with low down payments. Despite recent reports to the contrary, toxic loans and low down payment speculation did inflate the housing bubble. The only difference between these neighborhoods and the subprime neighborhoods is the foreclosures. The middle class and the working affluent are being given a pass.

At the other end of the spectrum is the Riverside-San Bernardino-Ontario (Riverside) region, at 367th among all U.S. metro areas with a 60-day delinquency rate of 23 percent.

Nearly one in four borrowers is not paying their mortgage. One in four. Unemployment is not that high. Despite reports that strategic default is a small percentage of delinquencies, how do lenders explain a 23% delinquency rate without strategic default? The people in the land of the dirt people are not stupid. They recognize when the economics favor walking away, and they do.

Ninety percent of Riverside mortgages are now "underwater," Fitch said, and

Only one borrower in nine has any equity in Riverside County. Wow! I guess it pays not to be a loan owner out there….

nearly 60 percent of borrowers owe more than 150 percent of the value of their homes.

It will take forever for house prices to recover enough for these people to survive without scuba gear. They won't even qualify for a principal reduction program because they are too far underwater. This is the primary reason so many strategic defaults are occuring.

Fitch said California mortgage trends are important for both new and existing securities in the rest of the nation, since the state has about 40 percent of overall mortgage origination volume.

What happens in California determines what happens to the banks. It is in the banks best interest to maintain the Ponzi scheme anywhere it hasn't already imploded. You know they must be desperate when their only option is widespread squatting, and they chose that option. Banks typically are not in the business of buying homes for people and letting them live there for nothing. Yet that is what they are doing. The banks bought all these homes at ridiculous prices, allowed Ponzis to move in, and now they are just letting them live there. Amazing.

Riverside County Substitution Effect

Yesterday, I was in south Corona on the terrace of the Retreat Golf Club overlooking the finishing holes and the surrounding real estate development. It is a sea of McMansions of a quality as high as anything in Irvine. Buyers can have a 4,152 SF home with a prime location looking down on a golf green perched on the edge of a lake for under $600,000. There is a price where people say to themselves, "I can get an 1,800 SF condo touching another 1,800 SF condo in Irvine, or I can go get a 4,000 SF McMansion in Corona for the same price." When the disparity gets very high, like it is now, people substitute for the larger home in the less desirable location.

If you want to speculate on where prices will go up in the future, you can bet on the improvements in our traffic corridors. When improvements go in, real estate values go up in the areas serviced by the improvements. A classic example from history is the construction of the Brooklyn Bridge and the impact it had on property values in Brooklyn. The slow ferries that made commuting slow and expensive gave way to speedy and inexpensive land travel.

There is a bottleneck where the 241 meets the 91 that backs up for hours. If you have ever waited in that line, you know the maddening experience of the people who bypass the entire wait and try to cut in at the last minute. The police patrol it heavily, but I am surprised there are not more road-rage shootings at this location. The daily wait at that location is the primary thing preventing more people from living in Riverside County and working in Orange County.

Much of the real estate value in Orange County remains due to this bottleneck because it strongly inhibits the substitution effect. If cars could quickly and efficiently move to and from Orange and Riverside Counties, much of the real estate value would leak out of Orange County to the nearest transportation system locations in Riverside County. Improvement in our transportation system would be great for commerce, but it would almost certainly raise real estate values in Riverside County at the expense of properties in Orange County.

Is the perception of premium self-reinforcing?

Is it possible that areas where prices have not fallen attracts other money that prevents prices from falling? Is there a premium for being premium? If someone had suggested this to me a year ago, I would have laughed, but there certainly are buyers in the market motivated by the apparent flight to quality. The real question is, "are there enough zealot buyers acting on faith instead of math to support the entire market?" We won't know the answer until the foreclosure and delinquencies problems are resolved. I don't think so.

I have one major problem with this idea. One sign of kool aid intoxication is that people bought property simply because prices were going up. People had no idea why prices were going up, but prices were, and this induced more buying which was actually the cause of prices going up. Isn't buying because prices are not going down the same thing? Isn't buying into a market crash in areas that have not crashed yet another manifestation of buying on faith? Isn't that the very essence of kool aid intoxication?

The fact that we may have witnessed a temporary bottom and a bear rally does not mean that the move we are seeing is based on any underlying fundamentals of the market.

(1) Rents are dropping,

(2) salaries are dropping,

(3) anyone in real estate is making less money,

(4) unemployment is still very high,

(5) our state is going bankrupt,

(6) interest rate subsidies are ending,

(7) government tax incentives are ending, and

Everything about this real estate market move is an illusion. However, many believe we will fake it 'til we make it. I can't argue with that. We might.

I still believe prices will go down as the cartel loses its grip on the market, but I am surprised at the effectiveness of their squatting program. By allowing Ponzis to squat, they are sustaining values and preventing widespread strategic default in many areas. Only time will tell if this fix was a good solution or an enduring one.

Losing $1,619,700 sucks

This is the biggest loss I have seen to date on an Irvine property, and the owner is the one losing the money, not the bank.

  • Today's featured property was purchased on 4/3/2007, the eve of the subprime implosion. The owners used a $3,750,000 first mortgage and a $2,565,000 down payment.
  • On 8/2/2007 they refinanced with a $3,400,000 first mortgage. They actually paid their mortgage down. They earn an A for mortgage management. I doubt that is much comfort to them.

No mortgage equity withdrawal, and no squatting. This deal has not worked out as well for them as it has for others….

Irvine Home Address … 40 SALT BUSH Irvine, CA 92603

Resale Home Price … $4,995,000

Home Purchase Price … $6,315,000

Home Purchase Date …. 4/3/2007

Net Gain (Loss) ………. $(1,619,700)

Percent Change ………. -20.9%

Annual Appreciation … -7.2%

Cost of Ownership


$4,995,000 ………. Asking Price

$999,000 ………. 20% Down Conventional

5.07% …………… Mortgage Interest Rate

$3,996,000 ………. 30-Year Mortgage

$1,042,522 ………. Income Requirement

$21,623 ………. Monthly Mortgage Payment

$4329 ………. Property Tax

$750 ………. Special Taxes and Levies (Mello Roos)

$416 ………. Homeowners Insurance

$475 ………. Homeowners Association Fees


$27,593 ………. Monthly Cash Outlays

-$2395 ………. Tax Savings (% of Interest and Property Tax)

-$4740 ………. Equity Hidden in Payment

$1981 ………. Lost Income to Down Payment (net of taxes)

$624 ………. Maintenance and Replacement Reserves


$23,064 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$49,950 ………. Furnishing and Move In @1%

$49,950 ………. Closing Costs @1%

$39,960 ………… Interest Points @1% of Loan

$999,000 ………. Down Payment


$1,138,860 ………. Total Cash Costs

$353,500 ………… Emergency Cash Reserves


$1,492,360 ………. Total Savings Needed

Property Details for 40 SALT BUSH Irvine, CA 92603


Beds: 5

Baths: 5 full 2 part baths

Home size: 7,150 sq ft

($699 / sq ft)

Lot Size: 20,150 sq ft

Year Built: 2006

Days on Market: 28

Listing Updated: 40280

MLS Number: U10001628

Property Type: Single Family, Residential

Tract: Shdc


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

This property is in backup or contingent offer status.

Live La Dolce Vita in Shady Canyon at this tremendous Tuscan-inspired estate on one of the enclave's most sought-after oversized lots. Gracing the top of a scenic promontory, the property soaks in panoramic vistas of the verdant hillsides – while also offering the ultimate in privacy at the end of a cul-de-sac with only one neighbor. Encompassing more than 7,100 square feet of relaxed elegance, the estate provides 5 bedrooms and 5 and 2-half baths, including a secluded guest casita. Designed for alfresco living in all seasons, the estate features expansive living 'suites,' where disappearing doors create a seamless transition from indoor to outdoor spaces. A stylish formal living room opens to a sheltered loggia and to the sparkling hillside pool/spa, cabana and sun-drenched dining terrace beyond. Even the lantern-lit entry portico, with its breathtaking reclaimed brick barrel-vaulted gallery, sets the stage for unparalleled entertaining.

These photographs are beautiful.


83 thoughts on “Riverside County: 90% of mortgages underwater, 23% of mortgages 60-days late

  1. awgee

    Shoot. You beat me to it. I was gonna post that stuff here in your “astute observations” section this morning.

    The River City is gonna experience a heck of a lot more pain and decreasing prices.

    1. Geotpf

      It all depends on the banks actually foreclosing on people who are behind and releasing them into the REO market. Right now, low-end Riverside inventory (houses <$175k) is less than a third of what it was a year ago. So, prices are actually about 10% higher than they were a year ago. http://www.redfin.com/city/15935/CA/Riverside

      During the week of May 11th, 2009, Riverside houses had an average sold price of $112/sq ft. Today, that number is $122/sq ft.

    2. HydroCabron

      More distress for Riverside should prop up Irvine prices even more. After all, who wants to live in a place where prices can drop when you could live in Irvine instead?

      1. Chuck Ponzi


        Better check your meds… or at least reading comprehension levels. What part of “substitution effect” does not compute?

        1. HydroCabron

          Poe’s Law strikes again.

          I’ll try to make my facetious sarcasm even more clear in future.

    3. No_Such_Reality

      So… I work out in the IE now. I go to lunch daily in the Corona, Riverside, Norco areas.

      I drive through the burbs.

      I see the freeway traffic.

      I see the kids at noon in packs at the grocery store.

      I see the people.

      I see the unemployment.

      I see the trouble.

      When my down payment for OC buys the McMansion maybe I’ll reconsider… until then, the only way I’d move was if I was taking the whole subdivision with me.

  2. awgee

    ” …nearly 60 percent of mortgage holders owing more than 150 percent of the value of their home. Fitch estimates the weighed average current loan-to-value ratio (LTV) in Riverside to be 164%.”

    The Federal Reserve is the ultimate regulator of the banks and the Federal Reserve is owned by the banks. The Fed creates as much money as it wants and is accountable to no one. So, what do you think you have to do in order to “fix” the banks?

    1. IrvineRenter

      If the banks and the Federal Reserve wanted to solve this problem themselves, the Federal Reserve could directly purchase all the residential paper held on the books of member banks similar to the initial TARP program where the banks tried to pass the losses on to the US government. Instead of transferring all these losses to the US taxpayer, the losses would be transferred to the Federal Reserve that is merely printing money to cover the losses.

      This would have the effect of punishing the prudent lenders who are indirectly bailing out the foolish ones, but that brand of moral hazard already exists so not much will change. With the Federal Reserve printing money to cover the losses, widespread deflation would cease, and the banks would be recapitalized.

  3. awgee

    “If cars could quickly and efficiently move to and from Orange and Riverside Counties, much of the real estate value would leak out of Orange County to the nearest transportation system locations in Riverside County. Improvement in our transportation system would be great for commerce, but it would almost certainly raise real estate values in Riverside County at the expense of properties in Orange County.”

    People have been saying this since I was a kid and probably before. More highways, bigger highways, etc. will not relieve traffic. It will only enable more subdivisions with the attendant increase in commuters. California has been building highways for a long time and traffic has only been getting more congested during that entire time.

    1. IrvineRenter

      California’s highway expansion has not kept pace with economic or population growth. We will probably never build our way out of congestion, but each transportation system improvement does increase commerce. By your reasoning, we should stop building all roads because it makes no difference. I think that is crazy.

      BTW, if want a debate on the merits of transportation systems, I know an issue where you and I strongly disagree….

      In my opinion, the people who oppose the extension of the toll road that would allow traffic to bypass San Clemente is the worst form of NIMBYism being perpetrated primarily by residents of Coto de Caza and Dove Canyon who feel the road impacts them negatively.

      The city of San Clemente is ruined by the 5 cutting through it, and since it is the only traffic corridor connecting Orange and San Diego counties, it gets way too much traffic. All the noise and air pollution as well as the traffic congestion is concentrated in San Clemente. The toll road bypass would alleviate much of this burden on San Clemente at the expense of a few rich NIMBYs in Coto de Caza and Dove Canyon.

      1. DarthFerret

        IR: “In my opinion, the people who oppose the extension of the toll road that would allow traffic to bypass San Clemente is the worst form of NIMBYism being perpetrated primarily by residents of Coto de Caza and Dove Canyon who feel the road impacts them negatively.”

        Don’t forget about the surfers at Trestles who don’t want all those low-lifers from Riverside invading their favorite surf spots.

        …err, I mean, all those conscientious surfing enthusiasts who love the birdies and duckies and don’t want a road invading their home. Yeah, that’s what I meant to say.


    2. Long Beach Renter

      There’s this thing called mass transit they use in some parts of the world…

        1. Geotpf

          Getting between the two is not hard (Metrolink). Getting around either is somewhat harder (buses).

          1. No_Such_Reality

            Check the schedules. Essentially, you have three trains and for any office schedule, probably only one train that gets close. The trains are:

            5:59AM, 6:30AM and 7:44AM. arrving at the Irvine Barranca station 50 minutes later. So get there at 7:20 AM or 8:30AM.

            It hits Tustin slightly earlier, 7 minutes.

            The trip back is just as convenient: 4:55PM, 5:30PM and 6:30PM

            Of course, you could grab the 5:10PM train and transfer in Orange at 5:28PM to the 91Line Train back to Corona/Riverside The 91 Train leaves at 5:48PM getting to Corona north (Main street) at 6:30, and hour and twenty minutes on trains and platforms…

            Unemployment isn’t the only reason the metrolink parking lot is half empty.

            And of course, you have to get to the train station.

  4. awgee

    I remember when the rationalization for tearing out the orange groves that my grandfather worked in and replacing them with the 91 was that it would relieve traffic on Artesia and Santiago Canyon Blvd.

  5. awgee

    “we should stop building all roads because it makes no difference. I think that is crazy.”
    You think it is crazy because you have not thought it through.

    Pointing fingers and emotional appeals and name calling do not change the facts.

    Building more and larger highways is a way to increase developer owned property values at taxpayer expense. Heck, read what you wrote and you will realize that is basically what you said.

    I have lived here my whole life, and so far more and larger highways have not relieved traffic. All they have done is enabled development and increased the value of developer owned land in outlying areas.

    Instead of reacting or getting emotional, ask yourself, why is more development desireable? What would the consequences of no more highway construction be? Don’t just react from your present knowledge base or feelings. Think about it for awhile.

    Do you know we do traffic studies where I work? Did the current toll roads relieve any traffic on the 5 or 55 or 91?

    It isn’t the residents of San Clemente paying for the lobbying on the extension. Follow the money.

    1. True That

      California is a case study in why Irvine Renter is wrong.

      Building roads leads to more fringe areas. The traffic problem never goes away. The gene pool gets diluted the further you move out, and the wealthy areas become more desirable.

      Where do I sign up for a $600,000 McMansion in Riverside with a construction working Rodney Dangerfield and his dim wit kids as my neighbor?

      1. Tore P.

        I would love to live next to a construction working Rodney Dangerfield instead of the fake reltards and mortgage brokers here in Newport.

    2. irvine_home_owner

      I agree with awgee. IrvineRenter, you said it yourself, if you make it easier to commute, more people will substitute Riverside for Irvine. But that will just mean more people will be commuting from there which will not ease the congestion.

      And even if it were to be a traffic-free commute, a drive is a drive, you still have to pay for the gas that is no longer $2 (or $1) a gallon, the wear and tear on your car and this doesn’t address the issue of neighborhood standards (schools, shopping, dining, safety etc etc).

      I think what you said about living in areas that have high FICO scores is significant. How high will those scores be in Riverside even if they improve transportation? And again, it’s self defeating, if transportation were to improve to a point where the substitution effect were to occur, prices would go up… and then it would make more sense to stay in Irvine even if the commute is better because people prefer also living in Irvine more. It’s not just about price and distance of the location… it’s also the location itself.

      1. tacoshark

        Wow. From your post and others’ up aways, I get the impression that some believe “Irvine” people are better than “Riverside” people. FICO scores and job description define how good of a neighbor you are? Really!?

        1. irvine_home_owner


          I never said anything about the people. But I do prefer Irvine over Riverside (who my neighbors are is relatively low on the totem pole). The word “better” is relative.

          FICO scores just speaks more to being able to pay for the mortgage, which means less distressed properties, which means “premium” prices. That word is relative too.

    3. IrvineRenter

      “Pointing fingers and emotional appeals and name calling do not change the facts.

      Building more and larger highways is a way to increase developer owned property values at taxpayer expense. Heck, read what you wrote and you will realize that is basically what you said.”

      The pot is calling the kettle black.

      The evil developers are making money at someone else’s expense? Give me a break.

      Developers respond to demand. People want houses and shopping centers, and they are willing to pay for it. Developers recognize demand and attempt to provide supply. This is basic economic workings of a real estate market. If “greedy” developers don’t make money, they won’t develop more land.

      “Instead of reacting or getting emotional, ask yourself, why is more development desireable?”

      Because people demand it. Are we supposed to stop economic growth? Where will your children work? Are we supposed to stop all population growth through stagnating the economy? Economic growth is required to sustain a quality of life as long as there is population growth.

      “What would the consequences of no more highway construction be?”

      Economic stagnation through gridlock. If congestion becomes bad enough (think LA), businesses don’t want to locate or expand, and workers don’t want to work or live in an area. I assume you are arguing that is a good thing.

      While we are on the subject of thinking through the problem, let’s do a little thought experiment.

      Why don’t we tear up the freeways in California? Why not go back to the limited transportation systems prior to WWII? After all, if we don’t need more development, we must not need the development we have. Or perhaps we simply encase our transportation system in amber at some arbitrary date, like perhaps the day you move into an area. Once you have a job and a house, no further economic expansion is required, right?

      1. Planet Reality

        Irvine Renter, let’s say your a pool player. You hang out at the pool hall and you work very hard to get better. The hole in your current game is that you only think about your first shot and maybe your second shot.

        You need to include your third, fourth, fiftth, sixth shot in your thought process to improve your logical reasoning.

        In your response to awgee you are going back in time considering your last few shots. Your response doesn’t make any sense and furthermore it’s irrelevant.

      2. awgee

        I did not call them “evil” developers. Putting words in my mouth does not detract from the truth and validity of what I am saying. They lobby for taxpayer funds to be spent to increase the value of their land.

        Are you sure people demand it? They do, once the highways are built, but do they demand the highways be built? Who funds the lobbying for the highway expansion?

        Economic growth? You are making assumptions that more equals growth. What is the cost? Are you factoring in environmental costs, traffic costs, lifestyle costs into the costs of growth? Why do you assume that the population needs to grow in order for the economy to expand?

        I think that once you live here long enough you will realize that more people does not equate to a better quality of life for those who already live here or those who want to move here.

        In truth, the consequences of no more highway construction would be that congestion would stay the same. The facts are that highway construction does not relieve congestion.

        1. choobacca


          The people do demand the highways to be built. Look up Measure M in Orange County and Measure A in Riverside County. They are both half-cent sales tax increases in their respectively counties. Voted for the people, dedicated only to regional transportation improvements.

          1. awgee

            The lobbying for both those measure was funded by developers, unions, and contractors.

            Follow the money.

          2. choobacca

            Both measure renewals were passed with greater than 69% of the vote. Are you saying that because the lobbying for the measure (which would only put the measure on the ballot) was funded by developers, unions, and contractors, that all of the people that actually voted for the measure don’t want more transportation facilities?

      3. Soapboxpolitico

        IR – I’ve been away for awhile, trying to find my ennui I suppose.

        You know by now you and I mostly agree but on this complicated issue of transportation, expansion, development and economy we must part. Let me explain.

        Numerous studies of traffic patterns and “trips” have been done regarding the question of building or expanding roadways. More recently, the Rand Corp. published a report specifically addressing LA Area congestion. In short, it is impossible and infeasible to “build our way out of congestion”. I cite: “the benefits would be limited by a phenomenon described as “triple convergence.” Congestion has been a problem for years, and many individuals deliberately alter their travel patterns to avoid severe traffic. When an investment in road capacity reduces peak-hour congestion, many will conclude that they no longer need to go out of their way to avoid congestion delays and will thus “converge” on the improvement from (a) other times, (b) other routes, or (c) other modes of travel. The net effect is that the initial traffic-reduction benefits will usually not last over time. This is why we often see, for instance, that the improved traffic flow resulting from a new freeway lane does not last for more than a couple of years.”

        This is not to say your original premise is incorrect … improving the 241-91 interchange would likely result in some economic “substitution” to Riverside but I submit it would be limited and short term.

        Additionally, I disagree with the idea that if there were no demand, developers would stop building houses. This is only partially true. Sure, if houses don’t sell, builders stop building but you must ask yourself why a developer and builder exist in the first place. Developing land and building more homes is an act of self-preservation. Stop building, stop making money and therefore cease to exist. Thus there is truth to the concept that developers and builders have a keen, vested interest in the publicly funded construction of roads and transportation. It provides access to previously inaccessible (cheap) land and, as you stated yourself, improves the value of that land to those who own it.

        I, for one, am tired of us paving over every last square inch and to stop building roads doesn’t mean you choke commerce or cease expansion. I argue that finite access forces innovation and the improved, efficient use of existing infrastructure. I’m sure you’d agree we could sorely use more efficient and convenient public transportation alongside the more efficient redevelopment of what already exists.

        Just my two cents.

    4. Tyler D.

      awgee, did your traffic studies tell you that all of these freeways were built 40+ years ago, while the population has tripled? this is the 3rd post by you in the past week in which you’ve said that people don’t get your point because you’re smarter than they are…oops, nope. So, if no more roads are built, then there will be no more development…brilliant. Let’s the tell everyone who has moved here since the 70s that they don’t exist.

      1. awgee

        Tyler, I have worked for Caltrans for close to 20 years. The population of the metro area grows because the infrastructure is built to grow it. If more highways are not built, people will not find it attractive to buy homes in outlying areas and developers will not build where it is not profitable. And yes, if no more highways are built, there will be much, much less development. Attacking me does not change what is.

        Tyler, do you think the population of the Metro area would have increased as it has if the highways had not been enlarged?

        BTW, you pay for the studies with your taxes and measure money. The only 2 improvements that relieve congestion over time are the regulating signals on the on ramps and the larger flow off ramps, both of which switch the traffic to the arterials.

        Another way to think of this, if there is a limited amount of water, will not the population also be limited?

  6. awgee

    BTW, there are less than 10,000 potential voters in Dove and Coto; not enough to make spit of difference. The main opposition to the extension is coming from the environmental and surf groups who happen to be well funded presently and reach a large number of voters. Pointing fingers and yelling NIMBYism, while fun, is irrelevant.

    1. bltserv

      The toll road will never be built over the existing State Park. Lets get some common sense going here. Life is more than just building over every living thing we have. There is a reason we have parks set aside. Kind of like Drill Baby Drill. Or Build Baby Build. Its sounds good if your a greedy developer or Realtor.

  7. Stock Investor

    IrvineRenter: “The lenders created this mess, and they need to experience the consequences of their foolish lending otherwise they will do nothing to learn from their mistakes and prevent doing it again.”

    It was Federal Government who created the mess. They are responsible for shutdown of private mortgage market. It created structural defect. There were no market regulators to prevent excessive risk-taking by banks.

    Frankly, how punishment of banks may stop Federal Government from repeating same mistakes again and again?

    1. IrvineRenter

      “There were no market regulators to prevent excessive risk-taking by banks.”

      This is true, but the government’s failure to regulate does not relieve the banks of their responsibility to make good loans.

      “Frankly, how punishment of banks may stop Federal Government from repeating same mistakes again and again?”

      It doesn’t need to. The punishment of the banks is its own remedy. If the banks experience enough pain, they will restrain themselves.

      1. QueenCityEddie

        “This is true, but the government’s failure to regulate does not relieve the banks of their responsibility to make good loans.”

        And the government’s failure to regulate plus the banks’ irresponsible loans does nothing to relieve borrowers of the obligation to repay their loan if they are able to. I can ignore the argument about owing it to your neighbors, but on what twisted rationale can you argue that you do not owe it to your creditor to pay them back? You owe it to them because you borrowed it from them and it is your ability to repay that matters, not your interest in repaying.

        1. IrvineRenter

          People owe the repayment of real estate debt. The borrower can make this payment either in the form of periodic payments, or repayment can occur through sale of collateral. If the sale of collateral is not sufficient to cover the loan balance, the borrower may or may not be responsible for the difference based on the borrower’s recourse or non-recourse status.

          The borrower’s ability to repay or inability to repay is irrelevant. The borrower has a choice to make, and each choice has repercussions for both borrower and lender. If the borrower chooses to default and finds that their lives are better as a result of default despite the financial impact this has on the bank, then the borrower is exercising the contractual right most in their favor. Good for them.

          Remember, the only reason these circumstances exist is because banks made stupid loans and greatly inflated prices. If they had not done that, they would not be facing the circumstances where strategic default serves borrowers. The banks created their own nightmare.

          1. QueenCityEddie

            If I felt that we could rely on lenders reaping their just rewards for imcompetent lending I would be less interested in this. But we are big boys and girls here and understand that the fallout from these dumb loans have been, continue to be and will continue to be transferred to the general public with a very high efficiency. Every borrower that walks away is reaching into your pocket and my pocket.

          2. matt138

            Can we all agree that a government backed secondary market is inherently doomed to perpetually fail?

          3. PostHocErgoPropterHoc

            This debt is being transferred to the public only because we allow it to be so. If more of us objected and took our beef to the streets, the govt would listen. Faced with massive civil unrest, the govt will have no choice but to represent the public. Start by write your current Senators and asking them why they only supported the watered down version of the Federal Reserve Audit. Then tell a friend to do the same.

          4. Soapboxpolitico

            Right on. Irresponsible lending led to an artificially inflated demand for an increasingly shrinking supply. Prices shot up and it became a self-reinforcing upward spiral. (The very definition of a bubble.)

            I am in the camp that believes the irresponsible behavior of Wall Street and their attendant financial institutions are largely responsible for this mess. Yes, stupid and reckless borrowing by consumers contributed but they were merely reacting as the banks had designed and hoped they would. If you don’t tell people to think of their homes as a cash machine then they don’t treat it as such.

      2. Stock Investor

        “… the government’s failure to regulate … If the banks experience enough pain, they will restrain themselves.”

        Government successfully converted mortgage markets into centrally-planned economy. No matter how much pain capitalist banks experience, but they can not function properly in socialist environment.

        If you want banks to change, they have no choice but to become a part of the system. Socialist government-controlled entities like Fannie Mae and Freddie Mac.

        IMHO, it may be better to stop bailouts and to restore market regulators. Market will heal itself, but it will be painful for everybody.

        1. matt138

          The root of problem is government backing. This distorts the greed vs fear ratio which is free market regulation. People and business hate to lose money. Fear curbs wrecklessness.

          Erase fear from the equation and all that is left is wrecklessness. Viola.

          Government is the problem and thus limited government is the only solution.

          1. lowrydr310

            Well said. Government backing significantly reduces or eliminates the fear. Everyone bet that the gov’t would step in to back Fannie and Freddie if sh*t hit the fan, and that’s exactly what happened. Too big to fail banks… GM… the list is endless.

            Too bad for the suckers who thought that Lehman was too big to fail.

  8. priced_out

    Wow. Either a foreclosure or a short sale. But this is not a short sale since the owners have more equity in the property than they owe. So it’s a foreclosure?

    This doesn’t seem like a good case for a strategic default. The owners loose more in a foreclosure than they do simply selling the property at a loss.

    I’m confused by this listing.

    1. IrvineRenter

      These owners put $3,000,000 down. The loss comes entirely out of their equity.

      1. priced_out

        That’s why I’m confused.

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

        Is it that this listing “may” be a pre-foreclosure or short sale in the same way that I “may” be a member of the Chicago Bulls?

  9. Geotpf

    To be technically accurate, the 90% underwater quote isn’t for Riverside County, it’s for the Riverside-San Bernardino-Ontario metro region (basically “the Inland Empire”). So it includes San Bernardino and Fontana and Ontario and Redlands (all in San Bernardino County) but excludes Palm Springs and Murrieta and Temecula (all in Riverside County).

    I also think that 90% figure is high. Pretty much anybody who purchased within the past year and a half, or more than eight to ten years ago or so (without a refi or HELOC) should not be underwater. That’s got to be more than 10% of total mortgages in the Inland Empire. 75% underwater I would believe, but 90%? Really?

    1. mike in irvine

      What is the percentage in Irvine, 2% maybe :).

      The number of underwater homes just indicates the stress..WTF listing prices will only go down if buyers are patient and the housing bubble in China starts deflating. According to Mish, the second one has started and that is a good sign for Irvine.

    2. Blame it on MEW

      Geotpf, your conclusion would make sense if some people, who bought in the I.E. 8 to 10 years ago, had not converted their equity into cash via mortgage equity withdrawl whether refi or HELOC. How many people or (% of homwowners) used their homes as ATM? That I don’t know but I’m guessing many did.

  10. TW

    “When the disparity gets very high, like it is now, people substitute for the larger home in the less desirable location.”

    The problem with the substition effect is people sometimes vastly overstate its effect.

    Lets say I love Lobster. I would eat it every day if I could afford it and as long as its under $10 a meal, I would eat it. Say too there are 3 fungibles in the world (1) lobster (2) chicken (3) rice, ranked (in terms of preference) in that order:

    *If lobster costs $10, chicken is $7 and rice $4
    I eat lobster. I can afford it, I dont care what the others cost.

    *If lobster costs $11, Chicken is $8 and rice $7
    I dont eat lobster because I cant afford it. Instead I eat my 2nd choice, chicken. I still dont care about rice.

    *If lobster stays at $11, and chicken $8, but rice CRASHES down to $1.
    I still eat chicken since I can afford it and I like it better than rice.

    *if lobster drops to $10, and chicen CRASHES to $2 and rice to $1.
    I still eat lobster since I can afford it.

    Substitute lobster for irvine, and chicken for (say coto) and rice for riverside, you will see so long as I can afford either Irvine or Coto, I will never choose riverside, no matter how low the price.

    Now, before anyone gets hysterical and says (“thats not true, some people like chicken” or “I would go for the best value”), thats fine. Just calm down dn recognize the larger dynamic at play here by the majority of participants who make up the market. Think it through and you will see why (as long as people can afford it) the least pricey option can have little to no effect on the pricier options.

    1. awgee

      Pointing out that you are wrong does not equate to hysteria. If rice goes to $1, many who prefer lobster or chicken will eat more rice and less lobster and chicken. Sorry, you are just wrong.

      1. Jax

        “If rice goes to $1, many who prefer lobster or chicken will eat more rice and less lobster and chicken. Sorry, you are just wrong.”

        Uhh, no. You can only eat a limited amount. I will skip my one meal of lobster for 10 meals of rice? And do it every day?

        By your reasoning, the guy could afford an irvine home would buy 10 homes in IE if it was cheap enough. For the investor, maybe, but the homeowner, no chance they do that.

        1. awgee

          OK, I will spell it out for those of you who do not understand substitution. There is more than one person choosing. It is NEVER this or that. It is thousands choosing and the amounts of this and that change based on price.


          1. Jax

            “It is NEVER this or that. It is thousands choosing and the amounts of this and that change based on price”

            Correct, and if lobster is $10 and rice is $5, it is because there are enough people in each group to maintain those prices.

            And if rice falls to $1 and lobster remains at $10 it is because there are STILL enough people to maintain those prices.

          2. Planet Reality

            You need to quit your realtor job and start presenting your substitution expertise at companies like Apple. You could really help them understand what they are doing wrong.

          3. Tyler D.

            holy crap, man…go to school. Reading an article now and then in the economist doesn’t cut it…

            telling everyone who doesn’t agree with you that it is because they are stupid is a great way to get them to agree with you. “Hi, stupids. what I’m about to say makes no sense, so I’m going to call you morons and hope that make you feel like I must be right. And if you still don’t agree with me than I will accuse you of name calling and using emotional appeal, which is what I do.”

    2. IrvineRenter

      “the larger dynamic at play here by the majority of participants who make up the market. Think it through and you will see why (as long as people can afford it) the least pricey option can have little to no effect on the pricier options.”

      The majority of participants are not the people who set market prices. Market prices are set at the fringes by people who are the most motivated.

      There are many people for whom Riverside County is not an option, and it is not considered a comparable that can be substituted. However, there are many who do consider it a substitute and do move out there. In fact, most of the economic development in Riverside County over the last 40 years has been a direct result of the substitution effect of people looking for less expensive housing and commercial property. As prices went up here, they went up there in proportion due to this effect.

      There is no reason to believe that once prices go down in Riverside County that the substitution effect will suddenly stop. The relationship of price between Riverside and Orange counties is unusually lopsided right now because of the price crash in Riverside County. Either this disparity is the new permanent reality (unlikely) or prices in Riverside County will go up (also unlikely) or prices in Orange County will be under pressure until the historic relationship is restored (very likely).

      1. Waterdog

        Drinking my coffee on the sidelines I recognize friends of mine who moved further inland for the very reasons IR has stated. I also know others (me) who are frustrated playing the renter waiting game but would NEVER move to Corona no matter how low the prices go. I say that not as a slight against the IE… in fact, it seems that our friends who did move out there are the least stressed of my peers. I say that because our jobs, most of our friends, family and interests are along the OC 405 corridor.
        This might be a discussion where everybody is mostly right. My parting opinion tho is that if the communities took a page from the Irvine playbook and planned traffic vs. development, things would be better. In other words, pre-plan housing expansion and limits based on freeway limits…. don’t just strip another hillside and build POS condos and force commuters to dodge 10 poorly timed traffic signals just to reach an overcrowded freeway that requires a toll to drive on.

    3. Planet Reality

      Congratulations, you understand how substitution of alternatives works.

      Try pricing Irvine homes (or homes in any premium area) from 1998 to 2010 in terms of high end goods and commodities.

      A rolex watch has doubled in price from the mid nineties to present day but the cheapest watch has gone down in price.

    4. Geotpf

      But it’s not a single step. That is, Riverside is a substitute for Corona which is a substitute for Anaheim which is a substitute for Tustin which is a substitute for Irvine. Nobody chooses between Irvine and Riverside, like nobody chooses between a Bentley and a Camry. But people choose between a Bentley and a Lexus, and people choose between a Lexus and a Camry. That is, Riverside prices on effect Irvine prices only because they effect Corona prices which effect Anaheim prices which effect Tustin prices which effect Irvine prices. The effect is quite diluted by the time it gets to Irvine, of course, and being at the top of the food chain as it will the effect is minimal.

      1. Planet Reality

        It should be obvious to anyone that substitution gets diluted between tiers. It should also be obvious that the substitution impact can complete evaporate at an upper level tier or even move in reverse.

    5. more on substitution

      what do I do if I could afford only $2 for a meal and rice is at $4 (similar to being able to rent a small place in Irvine). Then, the price of rice drops to $2, now I can afford to buy rice (similar to buying in the inland empire). If I buy in the inland empire, there is one less renter (less demand for rent) in Irvine. If there are thousands of people in my situation and many of then decide to buy in the inland empire, then rents in Irvine will drop significantly, and that will in turn, pull down housing prices in Irvine? I’d say that’s likely.

  11. freedomCM

    Economic growth does not require thousands of square miles metroplexes (Huston). You can also have growth with a more arbitrarily compact city (Portland, due to planning limits) or a city served by rail (east coast cities).

    A better solution for SoCal would be for employers to localize (like the spectrum) and have that hub served by commuter rail. Then your Riverside Retreat neighborhood denizens to drive to the commuter rail station, ride to the spectrum, and walk or shuttle bus to work.

    The problem in SoCal is the spread out business hubs. The solution is *not* more highway.

    1. Geotpf

      This already exists to a degree. For example, commuting from Riverside to downtown LA is not too bad, since you can take the Metrolink to Union Station and then the Red Line subway to your final destination. Takes some time, but you can do work, socialize with fellow passengers, read the paper, watch a DVD, or sleep for the hour long train trip. There is a Metrolink from Riverside to Orange County as well, of course, but most OC employers aren’t located near the train stations. It’s also interesting to note that the biggest failed housing development (half built and boarded up) in Riverside is across the street from the (secondary) La Sierra Metrolink station in Riverside.

      1. irvine_home_owner

        But there are other problems with any type of non-local commute:

        – If you have kids, who is going to take them to school? I don’t think they want to be there before 7am if you need to be at work an hour later.

        – What if your kid gets sick or has an accident?

        – Forget going home for lunch.

        – Need to make an appointment with the cable guy or a plumber? Hope you have a good PTO program at work.

        – Where do you have your doctors/dentists? When do you schedule those appointments?

        There are many more reasons why people prefer to work near where they live, even if it means having to pay more or get less.

        1. Geotpf

          Of course. But if one has a family and a five digit paycheck, one can’t buy a house in Irvine. But one can afford one in Riverside (and maybe Corona or Anaheim).

          Another scenerio is that people will be faced with a choose where either both husband and wife work and live near work, or only the husband works and the wife stays home to take care of all of that (or vice versa). I can see folks choosing the long commute to allow one parent to stay home full time.

          1. matt138

            Which goes back to the lobster analogy: if husband and wife are both working full time just so they can eat lobster instead of chicken every night, they might look at each other eventually and say, “Why are we doing this?”

    2. theyenguy

      Thanks for the article; you write: what happens in California determines what happens to the banks. It is in the banks best interest to maintain the Ponzi scheme anywhere it hasn’t already imploded. You know they must be desperate when their only option is widespread squatting, and they chose that option. Banks typically are not in the business of buying homes for people and letting them live there for nothing. Yet that is what they are doing.

      My reply is that a Black Swan Event will create a stock and bond market crash, and a liquidity evaporation, resulting in the spigot of mortgage finance being shut off, with the result an end to the currnet Ponzi scheme. Without the GSEs in the picture, banks will evict the people, and lease the properties in their portfolio. The details of the scenario follow.

      TylerDurden in ZeroHedge article Roubini: The US Economy Is Unsustainable writes that Nassim Taleb said that his primary concern about an upcoming “Black Swan” is a failed Treasury Auction. This is precisely what Zero Hedge has been concerned about for the past year, although we feel that this event will likely be at least marginally telegraphed, either in the form of Direct Bidders taking down close to 50% of each auction (with the Primary Dealers monetizing the balance), and an accelerated flattening of the yield curve. Last night, Roubini, who has apparently thrown away the mantle of moderation and is back to his gloomier ways, said that he worries “that with a trillion deficit this year and next year, 2012, and for as far as the eye can see, eventually, not this year, but the next year, the markets are going to wake up and say, this is unsustainable.” In other words whether via the Treasury market, or some other way, at some point the balance will shift from one where the market still believes that reserve currency is enough of a backstop to prevent the collapse of the US, to a regime where incremental bailouts will be seen as negative. That moment will be true black swan, and the beginning of the end of the great US experiment.

      I say that the black swan event will see a rapid exit from the stock and debt market places; there will be very few buyers in the market place and prices will will fall like a rock. There will be a liquidity evaporation, meaning that one will not be able to access one’s funds in money market accounts and brokerage accounts.

      The black swan moment will mean a soon-end to funding of Freddie Mac and Fannie Mae; and as a result home lending will come to an end. As people default on mortgages, the financial institutions will lease properties, and not sell them as interest rates will quickly rise and be much too high; the number of realtors will be greatly reduced; the number of property leasers and mangers will grow.

      1. Geotpf

        The US government isn’t going to collapse any time soon. (To be replaced with what, anyways?) Stop getting high off the tea bags.

      2. newbie2008

        Here’s one reason why the USA govt will remain”
        Nearly 40 million Americans received food stamps — the latest in an ever-higher string of record enrollment that dates from December 2008 and the U.S. recession, according to a government update.

        Enrollment has set a record each month since reaching 31.78 million in December 2008. USDA estimates enrollment will average 40.5 million people this fiscal year, which ends Sept 30, at a cost of up to $59 billion. For fiscal 2011, average enrollment is forecast for 43.3 million people.

        MISH http://globaleconomicanalysis.blogspot.com/2010/05/record-40-million-1-in-8-on-food-stamps.html

        BO have 40 million supporters or they will go hungry. Other supports include the banksters, the govt. unions, military and courts to back him up.

  12. lowrydr310

    A former coworker of mine lives in Tustin and works in El Segundo. He drove to the Norwalk metro station and took the green line directly to work.

    It was much faster than a straight shot up the 405, however it was still a relative nightmare as he still had to deal with traffic on the 5, and due to poor station location, had to get on the 605 (heavily congested interchange) since the green line stops about 1.5 miles west of the 5.

    Public transit just doesn’t cut it for most people in Southern California.

    At the time I was working there, I was fortunate to have a commuter bus stop directly in front of my apartment, and a stop across the street from my employer, with a 20 minute trip. Unfortunately even with $3 a gallon gasoline, it was cheaper for me to drive to work.

    1. Geotpf

      The Green Line is a boondogle. It starts way west of the logical start point (the Norwalk/Santa Fe Springs Metrolink station) due to local opposition in extending it, and it gets within a mile of LAX but then gets scared and heads south for several miles in the middle of not much (due to opposition at the time of construction of the LA city council member who’s district included the airport). It goes, basically, nowhere to nowhere.

      The other Metro rail lines make much more sense, and the LA mayor is really pushing for a large expansion of the system.

  13. Geotpf

    This ought to amuse everybody. Here’s the top story on the front page in today’s Riverside Press Enterprise:


    Experts: Worst is over in foreclosure crisis

    12:40 PM PDT on Thursday, May 13, 2010

    The Press-Enterprise


    A previous version of this story included incorrect information about the trend of mortgage delinquencies. In March, 19 percent of Inland mortgages were at least 90 days delinquent, up from 14 percent a year earlier.

    After five months of year-over-year declines in foreclosure activity, it looks as if the worst of the crisis in Riverside and San Bernardino counties is behind us, according to a company that has been keeping records.

    The picture seems to be brightening faster in Inland Southern California than nationally.

    In April, the nation saw the third straight month of year-over-year declines in notices of mortgage default, the initial step in the foreclosure process. It was the fifth consecutive month of such improvement in San Bernardino and Riverside counties.

    “Part of it is because the Inland Empire was one of the first places to crash and experience extremely high foreclosure rates. It led the way into the housing crisis and appears to be leading the way out,” said Daren Blomquist, an analyst with RealtyTrac, which on Wednesday released its April report.

    Riverside and San Bernardino counties combined last month reported 5,042 notices of mortgage default filed, 53 percent fewer than in April 2009. All types of foreclosure filings — including defaults, trustee sales and repossessions — were down 33 percent in Riverside County and 35 percent in San Bernardino County compared with a year earlier.

  14. quailoverthehill

    “Nearly one in four borrowers (in Riverside County) is not paying their mortgage. One in four. Unemployment is not that high. Despite reports that strategic default is a small percentage of delinquencies, how do lenders explain a 23% delinquency rate without strategic default? The people in the land of the dirt people are not stupid. They recognize when the economics favor walking away, and they do.”
    Actually, the April jobless rate in Riverside County was 15.1 percent, which means the total rate of un- and under-employment is about 22-23 percent. Right in line with the default rate.
    I wonder if OC’s jobelss and default rates similarly parallel?

    1. newbie2008

      Many in RC and elsewhere are in the two income trap. One fully income to pay for the mortgage. If one get’s layed off without reserves, it’s hurtville. The overall stat doesn’t mean much.

      Say Group A of 99% of the total population can be underwater by $1, but they will be unlikely to default. Group B of only 20% of the population but are 90% underwater, which will likely have 100% default. The underwater group needs to be subcatagorized and weighed for the likelyhood of default in each group.

      As for substitutes, house are not very liquid and substitues/replacements take time to impliment. Inertia is also a factor — who wants to be changing school, banks, address, neighbors ….
      Some people are tied down to a location by family, divorce, jobs …. which make relocating difficult if not impossible to fulfill the tie down reasons.

      One issue discussed with applying general principles of substitutions and statistics to the individual. The statistics are for the population and may repressent bias in sampling or presentation.

      Even if the govt doesn’t bailout the bank, the banksters are not likely to learn much. The bank owners of these public corporations are shareholders (pension plans) who who will be left holding the bag. In the public owned banks, the banksters are paid first and also control the financial statements. If the banks fail, the banksters are paid plus serverance or contract termination fees. Then, the banksters just open a new private bank for IPO at a later date. This can be seen with the sweetheart deals the govt is making with the banksters’ new private banks to handle the toxic assets of the failed banks.

  15. PostHocErgoPropterHoc

    Your point about the moral obligation to pay is interesting. I have some second hand knowledge of this. A good friend and his wife bought an attached home in Valencia. They both work in the Burbank/LA area in your typical moderate “industry” jobs. Combined income of about 115K a year. They bought in 2006 for $450K. The new homes in their development, which are identical to their current home, are selling for $250K. Sad indeed. With 2 new cars, some HELOC abuse and no equity, I asked him why he doesn’t just buy one of the new ones and default on his current one. He has enough cash from his HELOC and savings to do so, but he just told me he has a moral obligation to fulfill his contract. It’s sad really, as his family will probably end up living in their “starter home” for the duration of thier morgage. I remember him saying in 2006 that I should buy or else I’ll be “priced out of the market.” I feel sorry for him, but c’est la vie.

    1. loan mod

      can’t your friend get a loan mod? that significantly reduces his total payments to pay off, thus reducing his principal however indirectly.

  16. wheresthebeef

    “He just told me he has a moral obligation to fulfill his contract.” A contract with who? The economic terrorists on Wall St. and big banks. Are you kidding me, your friend doesn’t owe anybody anything. Now that the dust has settled and the layers have been peeled away…this was epic fraud from top to bottom at every level enabled by the government. Not one person/entitiy has been put on trial for the biggest fraud/ponzi scheme in the history of man. The holier than thou card has long been in the trash.

    1. Poon Tang Licker

      I hope the dog in the picture will not suffer. The true victims of this whole mortgage debacle are the innocent dogs and cats.

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