I enjoy looking at Shady Canyon properties on the weekend. They are very beautiful homes. It's even more entertaining when you see a $650,000 loss….
Irvine Home Address … 59 GRANDVIEW Irvine, CA 92603
Resale Home Price …… $2,999,000
{book1}
You always wanted a lover
I only wanted a job
I've always worked for my living
How am I gonna get through?
How am I gonna get through?
I come here looking for money
(Got to have it)
And end up leaving with love, oh, oh
Now you left me with nothing
(Can't take that)
How am I gonna get through?
How am I gonna get through?
Pet Shop Boys — What Have I Done To Deserve This?
The Writer's Corner
The posts this week left me feeling a bit uneasy. I am afraid I have unleashed a financial weapon of mass destruction. I was both amused and disturbed when I reasoned through the problem and figured out what I had done.
I am of the opinion that once the substance of the post, How Hedge Funds Could Crush the Banking Cartel and Keep Original Buyers in Foreclosures, gets around the net, strategic default is going to come to the forefront of the national problems of lending and the housing market. I am not alone.
I have been contacted by a few readers and confidants more knowledgeable in banking and finance than me, and they have expressed their concerns over this idea. Not because it won't work, but because it will.
I didn't set out with the goal to discover a way to short real estate and crush the banks. I was merely exploring options for finding good renters on Inland Empire properties. Ideally, the portfolio manager wants a renter who feels like they own the place so they will take care of it and never leave. The former owner is a natural rental candidate. Even after considering the former owner, I didn't fully realize what would happen until I asked myself, "what would make an owner pay more in rent and stay on longer?" The obvious answer was to give them the option to repurchase their home later once their credit improved. When the purchase option came to me, I saw the short trade and the huge incentive to walk away it creates. It frightened me.
The only thing really keeping underwater home owners from defaulting in large numbers is the belief that they will need to leave the property. Once borrowers believe they can stay in their homes and have their housing costs reduced to rental rates, it's over. They will all walk.
If a big money player began doing this on a big scale, and there is no reason it couldn't be scaled up nationally, it will crush the banks, the housing market, and in the short term, the national economy. Personally, I think it would be a great thing for the long-term prosperity of the country because the excessive debt serves no one, but short term, much pain will be involved.
I'm not quite sure what to do with this idea. Perhaps I should do nothing. Perhaps I think it is more dangerous than it really is. I don't know. I feel a bit like Robert Oppenheimer or Alfred Nobel, both of whom did create weapons of mass destruction and lived to regret it.
The thing is, if I were operating a fund in Riverside County buying properties, I would be doing this. My fiduciary responsibility to the fund would demand it. It would be irresponsible to turn away a good renter who would treat the property well and pay more for it. It is quite an interesting set of circumstances.
What concerns me the most is the pressure this will put on banks for principal reductions. Principal reduction without foreclosure is the worst of both worlds — it rewards HELOC abusing squatters without doing much to lower prices. It would be less expensive for the banks than having the Cartel Crusher convince everyone to default because they can control the damage and prices will remain higher with fewer sales, the current status quo.
Turning Cartel Crusher into Family Home Savior
It was fun writing about the Cartel Crusher from the point of view of anger toward the banks, but the Cartel Crusher will be worshiped as a godsend by loan owners in default. Cartel Crusher will keep more owners in their homes than any government program or bank loan modification program. It is true redemption for hopeless borrowers. I may write a post for next week renaming the Cartel Crusher and portraying it as something soft and fuzzy and a little messianic. Whatever its called, loan owners are going to love it.
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I'm not really that angry
I want to share a little secret. I laugh at my own material. My wife thinks I am goofy as I sit at my computer and break down laughing. My favorite sequence from last week sounds very angry — with a little help from Arnold Schwarzenegger — but every time I read it, I burst out laughing:
What is best in life?
To crush the banks, see them driven into oblivion, and to hear the lamentation of their bondholders.
And although Monday seems like ages ago, I also enjoyed this cartoon:
It is difficult to get dialogue that matches the people in the pictures. I'm never quite sure if others see the same personalities I do, or if I capture the essence I seek. My best effort of the week was inspired by Soylent Green Is People. It took me several iterations to get the dialogue right and to sequence it to be easy to follow.
Housing Bubble News from Patrick.net
Housing Recovery Hoorah! Or Is It a Decline? (housingwatch.com)
Housing Rebound at Least 3 Years Away (businessweek.com)
Not all is well on the housing front (mybudget360.com)
Laguna foreclosures jump 66.7% over year (lagunahomes.freedomblogging.
Four of nation's top 10 foreclosure cities in CA Central Valley (centralvalleybusinesstimes.
Tustin base project called worthless bc of falling land prices (lansner.freedomblogging.com)
Redmond, WA Condo Association Votes to Mass Default (Mish)
South Florida foreclosures way up in first quarter (miamiherald.com)
W Hotel's developer says it is bankrupt (boston.com)
Realtor: What is so wrong with renting? (realtytimes.com)
For Many Horse Breeders, a Losing Bet in Kentucky (nytimes.com)
Hedge Funds Could Crush Bank Cartel, Keep Buyers in Foreclosures (irvinehousingblog.com)
Provision would break up nine biggest banks (marketwatch.com)
Goldman looking to settle SEC fraud case (nypost.com)
Gosh, didn't we learn all of this in 1933? (bayarearealestatetrends.com)
Housing Bubble Didn't Faze Irrational Housing Thoughts (theatlantic.com)
Australian bubble still in full force despite rate increase (money.ninemsn.com.au)
Pandora's box of lending toxics (theautomaticearth.blogspot.
Care to donate money to the US government? (pay.gov)
"Existing house on lot is older and has no inherent value." (patrick.net)
South Florida house prices drop (miamiherald.com)
FL Housing prices: no bottom in sight (wap.myfoxtampabay.com)
Is Strategic Default a "Menace"? (city-journal.org)
New Tahoe Ritz-Carlton hotel in default (rgj.com)
Santa Monica rent vs buy (doctorhousingbubble.com)
NJ/NY Area house prices fall 4.1 percent (northjersey.com)
U.S. Households Lost $100,000 From Crisis (bloomberg.com)
Bernanke Says Budget Gap Might Raise Interest Rates (bloomberg.com)
Lost in the market mayhem, the Fed was meeting (latimesblogs.latimes.com)
The Fed: Bubble makers (network.nationalpost.com)
The 13 Bankers Who Control Washington (dailybail.com)
Goldman Sachs' Fabulous Fab's Testimony Body Language (geldpress.com)
Senator tells Goldman executives they had conflict' with client's interests (kansascity.com)
Chicago renters could get security deposits back in foreclosures (chicagobreakingnews.com)
How Senate candidates would fix Wall Street, or not (lasvegassun.com)
Counties can tax American Indian land, but cannot seize it for nonpayment (wktv.com)
Bush Family Buys Hideaway In Marijuana-growing Area Of Paraguay (trufax.org)
Paraguayan President Sends 1,000 Troops To Area Where Bush Bought Land (latindispatch.com)
Mass. foreclosure activity is up sharply (boston.com)
FL houseowners associations recoup losses via fees on new buyers (orlandosentinel.com)
Palm Beach, FL prop values fall 12 percent (palmbeachpost.com)
Dodging Social Pressures, Renters Enjoy Flexibility (npr.org)
House Tax Credit a Costly Failure (calculatedriskblog.com)
Federal government is lending $9 of every $10 of new mortgages (newobservations.net)
Houses lost, but some 2nd-mortgage debts remain (sfgate.com)
Buyers have no moral duty to lenders (azcentral.com)
Goldman execs deny inflating housing bubble (tvnz.co.nz)
Goldman Sachs Lawyer Advises Long Pauses, Rambling Answers (abajournal.com)
Sen. Levin Gets Testy With Goldman Executive — "That Was One Shitty Deal" (dailybail.com)
U.S. senators accuse Goldman of betting against clients (torontosun.com)
Goldman grilled over mortgage business (financialpost.com)
Blankfein, Pecora and the blinding limelight (theautomaticearth.blogspot.
U.S. Stocks Set to Fall on Deepening Unemployment (bloomberg.com)
China: Red hot real estate (economist.com)
Real Estate Sales Girl In China Says "You should buy two" (timiacono.com)
Australia's Housing Shambles (scoop.co.nz)
Taibbi: Lunatics Who Made a Religion Out of Greed and Wrecked Economy (alternet.org)
The Economic Elite Vs. The People of the United States of America (ampedstatus.com)
Is It Really a Good Time to Buy a House? (washingtonindependent.com)
Look out below: U.S. pain not done yet (calgaryherald.com)
Texas has rational law limiting equity withdrawl to 80% of value (slate.com)
Fannie Encourages Strategic Default by Reducing Punishment Time for New Loan (irvinehousingblog.com)
CDO's For Dummies (zerohedge.com)
Fitch Downgrades Resource Real Estate Funding CDO 2007-1 (benzinga.com)
Berating the Raters (dealbook.blogs.nytimes.com)
Goldman's "Fabulous" Fab's conflicted love letters (finance.yahoo.com)
Canada's Bubbilicious Mortgage Deals Continue (seekingalpha.com)
China's real estate fever is rising (latimes.com)
China Stocks In Biggest Drop Of The Year As Asia Slumps (marketwatch.com)
How much do average Americans make after the Great Recession? (mybudget360.com)
Recessions, Housing Bubbles & the Real Unemployment Rate (trendlines.ca)
How to screw buyers with deceptive pricing (inman.com)
Government and media are largely controlled by corporate dollars (patrick.net)
Banks Control Washington DC (old but good) (theatlantic.com)
Tsunami of Red Ink – Global Look at National Debt and Who Owns US Debt (Mish)
The national debt and Washington's deficit of will (washingtonpost.com)
College Graduates' Debt Load May Outstrip Ability to Repay (bloomberg.com)
Unofficial Titusville, FL Tourism video (youtube.com)
It would take 103 Months (8.5 Years) to Clear Housing Inventory (blogs.wsj.com)
Where is the real, organic demand for housing? (novakeo.com)
Chicago back to organic house price slide (csmonitor.com)
Why I'm Waiting Until After 2012 To Buy A House (millionairemommynextdoor.com)
Facing foreclosure at $5 million and up (mortgage.freedomblogging.com)
FHFA House Price Index Declines in February (calculatedriskblog.com)
Credit Rating Firms Failed to See Rising Risk in Mortgage Products (ecreditdaily.com)
Former Employees Criticize Culture of Rating Firms (nytimes.com)
The Consensus on Big Banks Starts To Move (baselinescenario.com)
Jimmy Stewart is dead: Break up the banks (theautomaticearth.blogspot.
Obama's push for financial reform (latimes.com)
America must face up to the dangers of derivatives (georgesoros.com)
Reforming Housing Finance (nytimes.com)
E-mails show Goldman boasting as meltdown unfolds (news.yahoo.com)
Funny how the SEC porn story released just after Goldman investigation (latimes.com)
Chinas House Prices to Fall 20% This Year (businessweek.com)
Learning How to Fight the Debt Collector (nytimes.com)
Why is housing so expensive in Silicon Valley? (old but interesting) (PDF – scu.edu)
Does any real wealth exist?
It wasn't many years ago that when you saw a $3,000,000 home, you knew the owner probably owned it outright or with a minimal mortgage. Mortgages over $1,000,000 were not common because (1) borrowers didn't want them because they can't deduct all the interest, and (2) banks didn't want to underwrite them because so few borrowers qualify. Well, we all know what happened to lending standards, so now we have many, many high-end properties with enormous loans. A classic example of bubble inflation.
The high end is not stable. There is too much debt and too many pretenders that invaded these wealthy neighborhoods and drove up prices. Now they are squatting because the banks can't afford the write downs. From what I observe, the upper middle class is obtaining the greatest benefit from the amend-pretend-extend dance.
The loan owners occupying today's featured property borrowed $3,199,000 of their $3,474,500 purchase price. That is only $275,500 down. They could have made that selling a condo in 2006. So it isn't like they ported a great deal of equity into the property. No, they pretended and borrowed it.
To make matters worse, Washington Mutual loaned them $3,350,000 in a refi on 10/31/2007. WTF were they thinking? In the end, these borrowers had only $125,500 of their own money in a $3,474,500 property.
When people are successful and "arrive" they are supposed to do it with cash. Californian's arrive early with borrowed prosperity and fake it until they either make it or experience the The Unceremonious Fall from Entitlement.
The success of pretenders is amazing. Other people really believe California is a land of endless wealth. It is all an illusion. Did you know that almost 80% of the BMWs and Mercedes on the road are leased? That is pretending.
Irvine Home Address … 59 GRANDVIEW Irvine, CA 92603 
Resale Home Price … $2,999,000
Home Purchase Price … $3,474,500
Home Purchase Date …. 8/31/2006
Net Gain (Loss) ………. $(655,440)
Percent Change ………. -13.7%
Annual Appreciation … -3.9%
Cost of Ownership
————————————————-
$2,999,000 ………. Asking Price
$599,800 ………. 20% Down Conventional
5.16% …………… Mortgage Interest Rate
$2,399,200 ………. 30-Year Mortgage
$632,333 ………. Income Requirement
$13,115 ………. Monthly Mortgage Payment
$2599 ………. Property Tax
$600 ………. Special Taxes and Levies (Mello Roos)
$250 ………. Homeowners Insurance
$410 ………. Homeowners Association Fees
============================================
$16,974 ………. Monthly Cash Outlays
-$1932 ………. Tax Savings (% of Interest and Property Tax)
-$2798 ………. Equity Hidden in Payment
$1220 ………. Lost Income to Down Payment (net of taxes)
$375 ………. Maintenance and Replacement Reserves
============================================
$13,838 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$29,990 ………. Furnishing and Move In @1%
$29,990 ………. Closing Costs @1%
$23,992 ………… Interest Points @1% of Loan
$599,800 ………. Down Payment
============================================
$683,772 ………. Total Cash Costs
$212,100 ………… Emergency Cash Reserves
============================================
$895,872 ………. Total Savings Needed
Property Details for 59 GRANDVIEW Irvine, CA 92603
——————————————————————————
Beds: 6
Baths: 6 full 1 part baths
Home size: 5,562 sq ft
($539 / sq ft)
Lot Size: 12,471 sq ft
Year Built: 2006
Days on Market: 114
MLS Number: S600991
Property Type: Single Family, Residential
Community: Turtle Ridge
Tract: Lacm
——————————————————————————
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Views! Views!! Views!!! One of the Most Spectacular View Homes in the Summit at Turtle Ridge! Charming Indoor and Outdoor Spaces Created around a Central Courtyard. Open Air Dining Loggia with Fireplace Provides a Glimpse of this Home's Brilliant use of Outdoor Space. Gourmet Kitchen and Pantry with Top-of-the-Line Appliances. Luxurious Main Floor Master Bedroom and Bath with Spectacular Views. Great Room with Fireplace, Opens to a Beautifully Landscaped Backyard with Gorgeous Views. Extra Large Bonus Room leads to the Central Court Yard. The Casita, a Completely Separate Living Suite with a Fireplace, is Generously Sized, creating a Private Oasis. Super Size Laundry Room, Four Car Garage, Travertine Floors, Upgraded Carpet, Granite Counters, and Many More Upgrades, add to the Luxury and Comfort of this Home. Upstairs includes Bonus Room, Two Bedrooms, each with Views and Full Baths, and a Separate Living Room with Kitchenette and Private Access to the Outside.
Why are so many of those words capitalized?
Irvine does have some beautiful properties.
