Vulture mortgage buyers are working with borrowers who are foolishly overextended on their mortgages, and they are unconcerned about the moral hazard it creates.
Irvine Home Address … 12 TIGER Irvine, CA 92604
Resale Home Price …… $470,000
How did they find me here
What do they want from me
All of these vultures hiding
Right outside my door
I hear them whisperin
They're tryin to ride it out
Cause they've never gone this long
Without a kill before
John Mayer — Vultures
I like vultures. I think distressed assets are the best investment as you get properties at a low value based on temporary conditions. Of course, it isn't quite as fun being the carcass that vultures pick over, but the vulture is rarely the cause of death. Similarly, the distressed property buyer isn't usually the cause of an owner's distress, the property vulture is merely the agent of change removing whatever form of distress hinders the property.
A new form of distressed asset investor is emerging in the aftermath of the housing bubble. A group of investors is buying distressed mortgages and either working out the loan with the current owners or pushing them out with a short sale or foreclosure. These asset managers are acting as the banks did during the 90s downturn when foreclosure on distressed residential properties didn't make the bank insolvent. Today, with our banking industry masking their sorry state with the amend-extend-pretend dance, they are not quickly and efficiently disposing their distressed assets.
These vulture mortgage investors are forgiving principal as part of their loan workouts, and in the process, they are rewarding the foolish buyers who grossly overpaid for all the wrong reasons. This will create moral hazard because borrowers will have incentive to repeat that mistake in the future — which many certainly will do if given the chance. The nightmare of the housing bubble will never end.
'Vultures' Save Troubled Homeowners
By JAMES R. HAGERTY — * AUGUST 18, 2010
Anna and Charlie Reynolds of St. George, Utah, were worried about losing their home to foreclosure last year. Then they got a lucky break—from an unlikely savior.
Selene Residential Mortgage Opportunity Fund, an investment fund managed by veteran mortgage-bond trader Lewis Ranieri, acquired the loan at a deep discount and renegotiated the terms with the Reynolds. The balance due was cut to $243,182 from $421,731, and the interest rate was lowered. That reduced the monthly payment to $1,573 from $3,464, allowing the family to stay in their home despite a drop in Mr. Reynolds' income as a real-estate agent. "It was a miracle," says Ms. Reynolds.
It was a miracle Selene chose to reduce that much principal rather than throw the borrowers out. I suspect they must have been deeply underwater, and there are some recapture terms in the new note.
But Mr. Ranieri isn't your typical miracle worker. As a fund manager who was once vice chairman of the bond-trading firm Salomon Brothers, he's a member of the Wall Street crowd that is often pilloried for helping inflate the housing bubble, though he sat out the excesses of recent years. The 1989 book "Liar's Poker" made him famous for billion-dollar trades in mortgage bonds and junk-food "feeding frenzies" with his trading-desk buddies.
As the nation struggles with the worst foreclosure crisis since the 1930s, Mr. Ranieri's investment fund and others like it are emerging as the best hope for the roughly seven million U.S. households behind on their mortgage payments. Nimble, flush and willing to strike deals with borrowers, these funds have an edge over banks and other lenders that can be mired in bureaucracy and hampered by government rules about which loans can be renegotiated and how.
The real advantage Selene has is a low basis. It is much easier to renegotiate a $500,000 loan when you only paid $200,000 for it. Plus, since Selene did not originate the loan, they don't worry so much about moral hazard or their other customers looking for the same.
Borrowers less lucky than the Reynolds family must work with middlemen—loan-servicing firms that don't actually own loans, but represent banks and investors, and collect mortgage payments on their behalf. These firms follow often-ambiguous rules set by the owners of the loans. In cases where a loan has been bundled into a security, it might have thousands of owners scattered around the world, making it impossible to know all their preferences.
These rules are not ambiguous; they simply don't allow for principal reduction. Further, it is very easy to discern the preferences of owners of ABS and CDOs: the want all their money back, so they aren't keen on principal reduction either. Mr. Hagerty is making it sound like the problems are from confusion or disagreement. The reality is that holders of toxic paper don't want to write down the losses.
By contrast, Mr. Ranieri's Selene is the sole owner of its loans and has a servicing affiliate that can negotiate directly with borrowers. "Every case is individual," Mr. Ranieri says. "There's no template."
I imagine he tries to negotiate with each desperate loan owner for whatever he can get on a case-by-case basis. I would.
But the main reason Mr. Ranieri can strike deals with borrowers is that his firm buys loans, mostly from banks, at steep discounts to the balance due. If his fund pays $50,000 for a loan with a $100,000 balance due, for example, it can make a profit even if the borrower ends up paying back only $70,000.
Since mid-2007, nearly 3.4 million households have received loan modifications, according to industry data from the Hope Now alliance of loan servicers. But the group doesn't disclose how many of those borrowers have fallen behind on payments again. Many of the loan modifications granted in the early months of the default crisis didn't reduce payments for the borrowers and merely helped them catch up on arrears; some of those modifications resulted in higher payments.
Cutting the loan balance is one of the most effective ways to motivate borrowers to resume payments because it gives them more hope of eventually owning the home, say nonprofit groups that work with distressed borrowers. But analysts say banks have been reluctant to reduce principal, partly because that would require them to recognize losses they still hope to avoid. Their modifications almost always involve reducing the interest rate or giving the borrower more time to pay.
It isn't only about recognizing losses, it is also about moral hazard an being re-traded by every borrower you have.
I remember sitting in a conference listing to a few bank asset managers talk. They all agreed on once principle: they would rather sell a loan for a 35% loss than negotiate a workout for a 25% loss. Banks don't take cramdowns very well.
Around 90% of Selene's loan modifications involve reducing the principal, compared to less than 2% of the modifications done by federally regulated banks in the first quarter.
Since Selene bought the mortgages for a greatly reduced price, they have room to reduce principal. The banks that sell Selene the loans have already written down the principal on their books, but rather than encourage moral hazard with their own borrowers, they would rather sell the loan to Selene who can do the principal reduction.
"There are obvious inconsistencies in treatment [of borrowers] depending on who owns and services the loan." says Edward Delgado, a former Wells Fargo & Co. executive who is now chief executive of Five Star Institute, a provider of training programs for mortgage professionals. To some extent, he says, "it's the luck of the draw."
Everything about the housing bubble has been the luck of the draw. Most people do not buy and sell real estate based on market conditions. If life's circumstances say "buy," then people buy; if life's circumstances say "sell," then people sell. The caprice of Fate makes some winners and some losers. For those who bought in 1997 and sold in 2006, they made a fortune. For those who bought in 2006, well… they did not.
But only the lucky few have so far benefited from Selene or other distressed-debt investors. Selene, which owns about $1 billion worth of home mortgages, will say only that it has modified "thousands" of loans, a drop in the bucket among the millions of overdue mortgages. Many loans are locked up in securities and thus unavailable for sale. In other cases, owners of loans aren't willing to take the losses that would be needed to mark down the mortgages enough to lure buyers like Selene.
Over the past two years, less than $25 billion of delinquent mortgages have been sold to investors who specialize in this area, estimates Dwight Bostic, a managing director of Mission Capital Advisors, which advises investors on mortgage transactions. That is only about 0.25% of U.S. home loans outstanding. But Mission Capital executives say the number of loans sold is likely to grow in this year's fourth quarter as banks try to clean up their books before year end. Some banks have more bad loans to sell because they have had to buy back from Fannie Mae and Freddie Mac mortgages that didn't meet quality standards.
Vulture loan buyers will never be big players in the housing market. Banks are going to amend-pretend-extend to the end.
Selene buys loans to make a profit on them, not as a public service, but company officials say it is often more profitable to keep the borrower in the home than to foreclose. If a delinquent loan can be turned into a "performing" loan, with the borrower making regular payments, the value of that loan rises, and Selene can turn around and either refinance it or sell it at a profit. Mr. Ranieri declines to discuss the fund's performance. But one of the shareholders, the Public Employees Retirement Association of New Mexico, reported that its holdings in the fund had a market value of $19.8 million as of June 30, up from $18 million in late 2008. That excludes distributions of profits to shareholders in the funds.
Once Selene acquires a loan, the firm immediately tries to contact the borrower, sometimes sending a FedEx package with a gift card that can be activated only if the borrower calls a Selene debt-workout specialist.
Paul Cheatham, a Houston oil-field engineer with two children, says he was worried about payments rising on his adjustable-rate mortgage and so was eager to talk when he got a registered letter from Selene saying it had acquired his loan and might be able to help. He says Selene was able to arrange lower payments and a fixed interest rate for him within about a month. "They helped me out," says Mr. Cheatham, who had fallen behind on payments because of a drop in income. Selene reduced his balance by $16,000, to $80,000, and his monthly payments to $541 from $831.
Selene says it's able to keep about half the borrowers it deals with in their homes through a refinancing or modified loan terms. Sometimes the company gets creative, paying off other debts, such as car loans, to lower a borrower's overall debt load enough to qualify for a refinancing. In roughly 20% of cases, the home is sold without a foreclosure in a so-called short sale for less than the balance due.
As for the remaining 30% or so of cases—their luck runs out when Selene proceeds with foreclosure. The company says some borrowers can't afford their homes, even at the reduced terms the fund would be willing to offer.
These guys know what they are doing. In fact, they are doing what banks did during the early 90s: (1) try a workout, (2) try a short sale, (3) boot them out. Selene has no reason to fool around with delinquent borrowers. The loans are on their books for less than the current value of the collateral, so they will move quickly to either get the loan to perform or to get their capital released from the property.
One reason Selene has the leeway to help borrowers is that it generally bypasses the federal government's $50 billion Home Affordable Modification Program, or HAMP. The program offers financial incentives to lenders and servicers to modify loans. When President Barack Obama announced HAMP 18 months ago, the program raised hopes among millions of borrowers. As of June 30, however, only about 389,000 households were benefiting from long-term reductions in payments under that program, and 364,000 were in "trial" periods, trying to qualify by showing they could make reduced payments.
These programs will only be considered successful to the degree they diverted money to the banks and extended the timeline of the crash.
… Among those whose future is uncertain are Alberta and Arthur Bailey, who live in a bungalow in LaPlace, La. Mr. Bailey, 69 years old, worked for decades in an auto-body shop but retired after a stroke in 2002 and now needs a cane to get around.
The Baileys bought their bungalow in 2003 and hoped to spend the rest of their lives in it. In 2004, Mr. Bailey got a call from a loan officer from Countrywide Home Loans, now part of Bank of America Corp. The loan officer told the Baileys they had $33,000 of equity in their home and could refinance the loan in a way that would release some of that money. They used the money to repair the roof and install new doors, Mr. Bailey says.
The Baileys ended up with more debt than they could handle on their income of $1,600 a month in Social Security payments, plus food stamps. Help, however, has yet to arrive.
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These are the sympathetic borrowers for this story? They guy buys a house after he retires when he has no income to pay for it, then he begins Ponzi borrowing to pay for his retirement. WTF? I find it incomprehensible that people would really believe life works that way. Shouldn't this guy have spent his working life paying for a home he could enjoy free-and-clear in his retirement? How many seniors have come to believe they can Ponzi borrow throughout their retirement? How many financial cancers are we growing out there?
The mortgage ended up as one of hundreds of mortgages owned by investors in a series of securities. Alexa Milton, a manager at Affordable Housing Centers of America, a nonprofit group counseling the Baileys, determined that they qualified for HAMP. But, she says, the servicer of the loan, Litton Loan Servicing LP, told her that the rules governing the securities don't allow for a HAMP loan modification.
A spokeswoman for Bank of America, which now owns Countrywide, the original issuer of those securities, disagrees, saying that the rules would allow a HAMP modification. A Litton spokeswoman declines to comment. A person familiar with the situation says Litton believes that the rules are ambiguous and so a modification would subject the servicing firm to the risk of lawsuits by the owners of the securities.
Litton has held off on foreclosure while studying other means of reducing the Baileys' payments, currently about $750 a month. "If I can get it down to $500 a month," says Mr. Bailey, "I can make it."
Write to James R. Hagerty at bob.hagerty@wsj.com
If they guy can only afford $500 per month, then perhaps he should move into a house affordable with $500 per month. Why should he be allowed to live in a house that costs $750 a month? Isn't he displacing someone who can afford this property? How many people are squatting or otherwise gaming the system to live in properties they can't afford? The sense of entitlement is overbearing… and sickening.
Vulture mortgage buyers could use the Cartel Crusher or Superfund
I wrote two posts exploring related ideas of how people could get rid of their existing debts and stay in their homes: How Hedge Funds Could Crush the Banking Cartel and Keep Original Buyers in Foreclosures, and How Gaming Interests Could Save the Las Vegas Housing Market, and Why They Should. In my opinion, the ideas contained in those posts are financial weapons of mass destruction. They would be effective tools for a fund like Selene.
The afternoon of the Cartel Crusher post, I had a meeting with a transaction attorney, and our discussion gravitated toward the Cartel Crusher idea. He was of the opinion that if you had the financial backing to release such a monster that the banks would respond by offering you buy their mortgages. Lenders would quickly realize that the Cartel Crusher would prompt so much accelerated default that their mortgages would lose significant value through delinquency. Rather than face Cartel Crusher induced delinquency, lenders would be better off selling the Cartel Crusher the loans and allow it to do a workout with the individual owners just as Selene is doing.
If Selene Residential Mortgage Opportunity Fund really wanted to force lenders into selling them large chunks of their portfolio at greatly reduced rates, they should form a Cartel Crusher Fund and force the lenders to go along. It would be a ruthless business move, and one that would likely be quite successful. Once this post comes out, I plan to write to Selene and see what they think: customerservice@selenefinance.com.
Cartel Crusher lacked the warm fuzzy feeling of an altruistic endeavor, so I came up with Superfund.
Wells Fargo blows out JP Morgan Chase
When the second mortgage holder is different than the first mortgage holder, lenders are far more inclined to foreclose. Why should they wait to recover what they can on the first mortgage when they aren't the ones taking a loss on the second? On this property, Wells Fargo held the first mortgage, and when JP Morgan Chase held up the short sale to negotiate a better deal from the borrower and the prospective buyer, Wells Fargo sent them a middle finger salute and blew them out in a foreclosure. Just to make sure, Wells bid to the full value of the first mortgage so that Chase wouldn't get a chance to recover anything. It's a jungle out there.
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Today's featured property was purchased for $445,000 on 7/14/2003. The owner used a $322,700 first mortgage and a $122,300 down payment.
- On 3/11/2005 she obtained a $180,000 HELOC and went Ponzi. Her spending over the 18 months that followed was truly extraordinary.
- On 5/31/2005 she expanded the HELOC to $244,000.
- On 12/8/2005 she enlarged it again to $324,682.
- On 3/7/2006 she refinanced with a $525,000 first mortgage from Wells Fargo.
- On 9/13/2006 she obtained a $141,000 stand-alone second from Chase.
- Total property debt was $666,000.
- Total mortgage equity withdrawal was $343,300 including her down payment.
- Total squatting time was about 18 months.
Foreclosure Record
Recording Date: 09/17/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 06/15/2009
Document Type: Notice of Default
Wells Fargo bought the property on 7/19/2010 for $515,000. Considering they could have called on the auction in October of 2009, the last 10 months and the failed short sale attempt were a complete waste of time.
Irvine Home Address … 12 TIGER Irvine, CA 92604 
Resale Home Price … $470,000
Home Purchase Price … $445,000
Home Purchase Date …. 7/14/2003
Net Gain (Loss) ………. $(3,200)
Percent Change ………. -0.7%
Annual Appreciation … 0.7%
Cost of Ownership
————————————————-
$470,000 ………. Asking Price
$16,450 ………. 3.5% Down FHA Financing
4.51% …………… Mortgage Interest Rate
$453,550 ………. 30-Year Mortgage
$91,963 ………. Income Requirement
$2,301 ………. Monthly Mortgage Payment
$407 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$39 ………. Homeowners Insurance
$215 ………. Homeowners Association Fees
============================================.jpg)
$2,962 ………. Monthly Cash Outlays
-$370 ………. Tax Savings (% of Interest and Property Tax)
-$596 ………. Equity Hidden in Payment
$28 ………. Lost Income to Down Payment (net of taxes)
$59 ………. Maintenance and Replacement Reserves
============================================
$2,083 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,700 ………. Furnishing and Move In @1%
$4,700 ………. Closing Costs @1%
$4,536 ………… Interest Points @1% of Loan
$16,450 ………. Down Payment
============================================
$30,386 ………. Total Cash Costs
$31,900 ………… Emergency Cash Reserves
============================================
$62,286 ………. Total Savings Needed
Property Details for 12 TIGER Irvine, CA 92604
——————————————————————————
Beds: 4
Baths: 2 full 1 part baths
Home size: 2,004 sq ft
($235 / sq ft)
Lot Size: 2,920 sq ft
Year Built: 1977
Days on Market: 28
Listing Updated: 40379
MLS Number: S625479
Property Type: Single Family, Residential
Community: El Camino Real
Tract: Ig
——————————————————————————
According to the listing agent, this listing may be a pre-foreclosure or short sale.
***** TWO STORY HOME IN PRIME LOCATION ,CUL-DE-SAC. NEAR PARKS, SCHOOL,SHOPPING,POOLS AND CLUB HOUSE.SHORT SALE.
This reminds me of the QWERTY keyboard, or the American diet. When the vast majority of people do a stupid thing, it is still a stupid thing, but everyone else must pay the consequences. I ordered a salad a few months back, and it was covered with french fries. You must threaten the cook with a blunt instrument to get a salad made entirely of greens and tomatoes in most restaurants, because only 5% of the patrons would eat such a horrifyingly healthy thing.
The adage should be updated: “If you owe the bank $250,000, you’re in trouble; if your entire generation each owes the bank $250,000, the bank is in trouble.”
It’s like ‘Idiocracy’. Since everyone has behaved as idiots, there is no financial penalty for such behavior. Sly bigotry of diminished expectations, or defining normalcy down – call it what you will, it might be more a matter of having a single giant demographic pig in the python than any actual degeneracy of the boomers. Every generation indulges in its stupidities, but only when that generation dwarfs other age cohorts can it inflict the consequneces on everyone else, and draw others into the same stupidities out of fear of missing out on the payoff. I am beginning to hate myself for not being several hundred thousand in the hole on an underwater property right now. What was I thinking?
I couldn’t agree with u more. People were so greedy and stupid, and the responsible people pay the price. How anti-American is that? Although that is quickly becoming the new American way. Disgusting.
Let’s review all the critical assumptions where Irvine Renter was wrong, shall we?
Principal Reductions are happening and will grow
Interest Rates declined and continue to break record lows
The government will start allowing debtors with no equity to refinance at those low rates
Better luck next time
Next on the agenda start buying up Riverside, too bad none of this will help Riverside
Planet Reality, I am getting sick and tired of your smug attitude…why don’t you start the Planet Reality housing blog and you can crow about all your great predictions. No one could have predicted the absolute stupidity that the government engaged in to “save” housing. Like you’ve said many times before, all this madness can go on forever. You will be proven flat out wrong there my friend. The US economy and its financial system are on borrowed time. If you think the rest of the world will put up with our crap for eternity you have another thing coming!
Have you ever been to a party and listened to a guest talk shit about the host?
Own it.
I have seen students argue with teachers, and sometimes win said arguments.
The issue with the predictions is important. Might we see banks starting to do principal reductions? Might principal residence cram-down in bankruptcy be revisited legislation-wise?
Argument and debate is fine. That has always been encouraged on this blog. Anything that advances the conversation and forces people to think is welcomed.
I did not read any debating points in Planet Reality’s astute observation. I did not read any enticement to open discussion of issues. I did read words being put into my mouth that I never stated, and a general level of open rudeness that should be embarrassing, but apparently, he thinks it is perfectly acceptable conduct. Then of course we get the general hate-filled comments of a late buyer who is deeply underwater who can’t get over it.
It’s the price I pay for running an open discussion.
I doubt we see banks do much principal reduction. There is no way to effectively do this without causing a stampede among other borrowers looking for the same. The rumors of principal reduction float whenever the banks want borrowers to contact them about loan modifications. It is a bait-and-switch tactic.
The bankruptcy principal reduction was defeated by Congress completely controlled by Democrats with a filibuster-proof majority in the Senate. If it doesn’t pass under those circumstances, I don’t see how it happens when the Republicans have any power to influence legislation.
The tone is not productive, but if you dip into some other blogs, or even just cnn.com or a newspaper’s website’s comments section, you’ll find much worse.
The idea of interest rates necessarily rising soon is something that seemed to be in his comment, that I would like to debate. What I see potentially driving rates up are (1) inflation or (2) rising risk free rate, caused by an improving economy, making riskier assets more favorable. Both of those factors would lead to rising prices (not at bubble-esque speed).
You’re probably right about BK mortgage cram-down, but stranger things have happened…
Interest rates are low and falling because the economy is double-dipping. There are very few competing investments attracting money. As safe-haven investors flock to the government-backed mortgages originated by the GSEs and FHA, and as there is very little buyer demand for this money, interest rates keep falling. When one or both of those conditions change, interest rates will start to go back up. If the Fed starts raising the base rate, that will put more pressure on rates.
The banks would love for interest rates to remain low because it allows them to resell their REO at better prices and lose less on them.
Since we are setting new records for low interest rates, it is hard to argue that we are not at or near the bottom of the interest rate cycle. Do you think we will have 4.5% interest rates a year from now? Three years from now? Five years from now?
At some point, deflation in interest rates sets in. If you truly believe interest rates will continue to fall, why would you buy now? Why wouldn’t you wait until interest rates hit 3% to buy? Why not wait until interest rates hit 0%? Without the fear of rising interest rates, the deflationary spiral is just as pernicious as if prices were in free fall.
Sorry, but I will respectfully disagree. Interest rates are not low because the economy is double-dipping. There is no double dip. There is a continuation of de-leveraging which was slightly hidden by the incurrence of more debt, (borrowing more money to pay off a credit card).
Interest rates are low because JP Morgan Chase and other banks are selling trillions of dollars of interest rate swaps, to a total of approximately $460 trillion notional presently. Did you get that? $460 trillion.
Interest rate swaps are to the debt/bond market what CDOs were to the mortgage market.
The fed will not raise its base rate until there is either inflation or strong economic growth, both of which exert upwards pressure on prices. There is actually a lot of demand for GSE paper & gov’t paper in general. Demand for that will reduce when people have a better option – when the economy is showing strong growth. If rates fell to 3%, and you had bought today, your potential buyers would have lower true costs, which would also support prices.
Unfortunately those are the fundamentals, and prices can move with no regard to them. Irvine is a much different market than where I am in NC, and even much different than my parents’ market in SoFla.
3% rates are possible, as they are what you’d get in Japan. But, Bernanke was pretty forward in his declarations that the Japanese didn’t do enough to stem their deflation.
It is of no use to the reader of this blog to read attempts to refute IR’s carefully researched and substantiated line of thoughts with some vague und unsubstantiated claims. But hey, what level of depth do you expect from an agent, every time he gets up in the morning he has to look in the mirror and say: In order to make money today I have to find an idiot who buys in this market even if I know that prices will be coming down. So I will just put my dumb optimism to work. No wonder most of these guys are schizophrenic!
I agree. There’s only room for one pump & dump (er, sorry, “trustee sales”) RE agent on this blog.
Yes, Planet Reality, you need to leave here. This blog is only for the true believers in the Church of Ideal Home Brokers.
Stay Planet Realty! You don’t need proof, statistics, extrapolation, etc to predict the stupidity of our govt and voting public.
Some of the time you are right.
I kinda like Planet Realty. He’s entertaining. And occasionally, right.
IrvineRenter: “Let’s review all the critical assumptions where Irvine Renter was wrong, shall we?”
IMHO, IrvineRenter is not perfect. While I disagree with many of his predictions and premonitions, his vision is well above average, and he is systematic in all that he does. That is why I like his blog.
Nobody can predict mortgage rates or government actions accurately. It was always guessing game. There is no question about it.
From this blog I made $1 million.
Sold two invest houses after reading this blog a couple of years ago (to finally confirm I was right). Just brought back one in an all cash short sell offer with 40% discount.
IR is the last person to blame.
Frankly if two years ago in 2008 you still needed IHB to confirm to you that something was wrong with housing you weren’t exactly ahead of the curve my friend.
And if you chose to buy back now, seem like you only like to follow IR’s advice when it suits you…
Last I checked this is still called the IRVINE housing blog. And Irvine, as it turned out, was actually less affected than the nation, on average. In fact back in ’06 I remember IR clamoring for a California housing crash with Irvine at the epicenter – NOT a virtually worldwide housing crash as it happened. Anyone else find that strangely inconvenient?
IrvineRenter is not a perfect prophet, and apart from the actual timing of the initial crash event it’s hard to tell how accurate the rest of it is. Perfect timing, horrible location. He makes good logical connections between a set of facts but it rarely turns out as expected. I had great respect for IR’s ideas years ago, but lately I find the assumptions he makes are pretty much unverifiable.
I do miss the olden IHB that actually had functioning forums for exchange of ideas, and at a time it wasn’t merely a platform for an “ideal” brokerage house. The trajectory IHB has taken in the last 4 years is actually as dumbfounding to me as the trajectory of the housing bubble in that time.
Good observation, instead of Irvine being the epicenter of epic price drops which Irvine Renter projected it out performed nearly every market including markets Irvine Renter said were at stable pricing. This story is long from over as interest rates decline, cram downs begin, and government subsidized refinancing at 0-3% rates with negativity equity commences.
“… cram downs begin…”
You repeatedly cite cramdowns as a cause of price stability or a return to rising home prices. Cramdowns, by reducing the debt load on real assets, deflate prices.
There are no “cramdowns” in the story above. The banks that sold their toxic paper to the vultures have to recognize their loss without any cramdown. The vultures who are extending a principal reduction are neither realizing nor recognizing a loss and are in fact making a practical and probably possibly profitable decision. The vultures could are less about moral hazard. If the owners do not pay on their loan mods, the vultures will foreclose and probably make money either way.
Gosh, I wish there was an edit function.
Scratch the probably just before possibly, and the vultures could CARE less, not are less.
Let’s see.
Three years ago, nobody was expecting the jew boys in the government would bail out their cronies in Wall Street using the taxpayers’ money. With the US being the most corrupted country always, that bank robbery makes the US unprecedentedly the most corrupted country in the history of mankind.
Without the biggest treasury theft, I think IR’s prediction is right on. However, IR has already acknowledged these unexpected, stupid, blasphemous, unconstitutional, socialist, despotic, barbaric, unfair government interventions. IR even addressed why Irvine fared better than other places. So, apparently you have not read this blog in the past three years to make these inaccurate remarks like that.
Who are you? Another distressed home owner or someone sent by the idiots at the NAR?
I appreciate the support, but be careful with the negative characterizations. “cronies” is okay, but “jew boys” is not.
http://www.crackthecode.us/images/PlanetRealityBlahBlahBlah.jpg
Banks have to be very worried about people who can pay defaulting if that is their only motivation to avoid principal reduction. Because bank asset managers think something is a bad idea does not make it a bad idea. Remember what these guys were doing during the bubble.
I understand the moral hazard which is why I think principal reductions should be through bankruptcies or third party loan sales like these. Keeping someone in their home through a reduction seems much better to me than letting them squat.
What if Ranieri buys a face value $500k note, lowers principal, gets it current, and then sells it back to the original holder. Ranieri’s co. does sell mortgages it gets current, so that’s not an impossibility. Is that really a better scheme than the bank renegotiating themselves?
I think Ranieri’s outcome in your scenario is worse than a bank just doing the deal themselves, but that just shows the stupidity of the banks. They are unwilling / unable to do the dirty work themselves, so they take the 35% loss to avoid a 25% principle reduction that IR mentioned. But the problem is that the loan-owner still gets the 25% reduction so they don’t really avoid any moral hazard.
All that happens is that the bank gives up the 10% to Ranieri.
Those male Superfriends are disturbingly anatomically correct if you know what I mean and I think you do
Principal reductions by vulture finds? No way. How about more free public bailout money to pay the bondholders back in full via government refi proposed.
http://www.huffingtonpost.com/2010/08/17/bill-gross-mortgage-refi-_n_685228.html
Reasonable People Did Disagree: Optimism and Pessimism
About the U.S. Housing Market Before the Crash
An poorly reasoned article I will likely lampoon next week:
Foreclosure crisis not driven by luxury home purchases
To the list of urban myths, add this one: California’s foreclosure crisis was driven by people who overreached and purchased luxurious new homes they couldn’t afford.
That idea is wrong on several counts, based on an exhaustive analysis of the 877,173 homes that were foreclosed upon in California between September 2006 and November 2009.
The analysis by the nonprofit Center for Responsible Lending, released Tuesday, shows that the median size of the homes was 1,494 square feet, the average value at the time of loan origination was $396,351 and that more than three-quarters had values below the median home price in their market area.
In addition, slightly more than half (50.3 percent) of the foreclosures were the result of people defaulting on loans that refinanced the homes they were already living in.
“Among much of the public, there is a lot of resentment about people who bit off more than they could chew,” said Peter Smith, a research analysis with the center’s California office. “But this was not an issue of people buying McMansions or too opulent a home.”
Instead, the most common factor in leading to foreclosure was whether the borrower had a loan with an above-average interest rate, either a subprime or an Alt-A loan. Such loans made up more than 40 percent of the state’s mortgages during the peak years of the housing bubble.
The study cites a finding by the Federal Reserve Board of San Francisco that “borrowers who received a subprime loan in California had a greater chance of entering default after controlling for differences in credit score, equity position and a change in housing prices.”
Largely because they were more likely to receive high-rate loans, the study found that Latino and African-American homeowners were much more likely to incur foreclosures than non-Hispanic whites.
Latinos experienced foreclosure rates 2.3 times that of non-Hispanic whites, the study found, and almost half (48 percent) of all Californians who have lost their homes to foreclosure have been Latinos.
“African-American and Latino families disproportionately received the most expensive and dangerous types of loans during the heyday of the subprime market,” the report says. “For example, in 2006, among consumers who received conventional mortgages for single-family homes, roughly half African-American (53.7 percent) and Hispanic borrowers (46.5 percent) received a higher-rate mortgage compared to about one-fifth (17.7 percent) of non-Hispanic white borrowers.”
The racial and ethnic disparities in both foreclosures and higher-rate mortgages hold true across all sizes of mortgages, from those less than $250,000 to those greater than $750,000.
The report says that suggests disparities existed regardless of income of the homebuyer.
“The way the disparities line up between Latino and white borrowers are pretty out of whack with the number of loan originations, but pretty in line with subprime originations,” Smith said.
Across California, the effect of the foreclosure crisis has been varied, the report finds. By far, the highest rates of foreclosure have been in the Central Valley and the Inland Empire. In Modesto, Merced, Stockton and the Riverside-San Bernardino areas, more than 15 percent of houses have experienced foreclosure. Ventura County ranks about in the middle — 15th among the state’s 35 metropolitan areas at 5.8 percent.
The report does provide some positive indications that the wave of foreclosures may have peaked, although it warns there is a danger of a new spike as automatic rate increases are triggered on more recent loans. Still, of the foreclosures studied, 41.5 percent involved loans issued in 2006 while just 2.2 percent involved 2008 loans.
Additionally, it notes that the new financial reform act signed this summer by President Barack Obama should help “rein in irresponsible lending practices” in the future.
Irvinerenter: Question for you. during bubble, we saw 100% equity withdrawls allowed by banks that clearly appear to be fradulent and I suspect that bank loan officers/appraisers/home owners collectively did the fraud.
These loan vultures that you say are buying written off loans from banks pennies on a dollar and allowing them to have room to discount to home owner is also suspicious. what is Bank decision makers are again getting in bed with these vultures on under the table kickbacks and selling these loans at lower costs? If banks already took the charge off, its much easier for bank to simply discount it directly to the home owner and in the process also make itself look good.
I think fraud is in full swing here.
I hate to admit it but I wish one of these vultures would buy my loan. Better than a loan mod.
Sorry, but I don’t have time to read all the comments and can’t really tell whether Cartel Crushers is a serious proposal or a joke. Has anyone pointed out that Cartel Crushers would be intefering in the contracts between the banks and the home owners?
The Cartel Crusher and Superfund are as serious as I can find funding to make happen.
As for interfering with contracts between the banks and the home owners, there are numerous companies like You Walk Away that have been sued by banking interests for supposedly interfering with these contracts, and the bankers lost.
The Cartel Crusher is a synthesis of a company that guides people through the strategic default process and a vulture investor that profits from it. It is old-fashioned American capitalism at its best.
If I should be so fortunate as to find backing for the Cartel Crusher or Superfund, I would undoubtedly be sued by banking interests who are scared to death of what these funds would do. I have talked with a couple of attorneys that would be delighted to take on that case. Besides the fact the funds would win, it would generate tremendous publicity and positive press for the funds. Remember, these funds are keeping people in their homes, something the government and banks have failed to do.
“Remember, these funds are keeping people in their homes, something the government and banks have failed to do.”
This would also expose the banks fradulent activities where after writedowns they are selling loans for much less rather than modifying the loan outright. I am suspicious over fraud here again over kickbacks to those who control sale of assets. No different than asset managers getting kickbacks on REO’s listings from listing agents.
To all who thinks obama (lower case intended) is not a closet Muslim: Wake up America and open your eyes widely! This jerk’s f_cking middle name is “hussein” (lower case intended).
I was wrong voting for this jerk, and I regretted it everyday. I thought this jerk would be more of a moderate, sensible Democrat, but he turns out to be a f_cking socialist. And now, he’s coming out as a Muslim!
To all good and decent people of America, let’s kick this jerk obama out of office ASAP!
No negative characterizations and name-calling please. You may disagree with the President’s policies without the remaining hyperbole.
A Socialist??? Bwahahaha…. He is so in bed with BP as well as (insert names of) other big corporations that are screwing the people for the benefit of a few. Only in the US can you call such a capitalist (in all senses of the word) a socialist. Obama probably deserves to be kicked out, but not for being a socialist.
As for you: sit back an chill. You can still sell yourself the idea that the US is the leader of the democratic world. After all it does have one more political party than Cuba 😆
I was expecting to see a trustee sale flipper pick this one up and turn it around for $650K
Instead, it went back to the bank at $515K and gets listed @ $470K
That’s a first
I have noticed a major decline in the number of properties moving through the auctions in August. I think the banks have seen that the growing inventory is weakening prices, and they have collectively decided to turn of the spigot. This fall and winter is shaping up to be a squatter’s reprieve as banks refuse to throw anyone out on the street. If the banks are not successful in preventing inventory from hitting the market, we will also see a significant leg down in prices.
Check out 29 Butterfly.
It’s in the same area/vicinity as the one profiled today.
Listed for $385K on 8/11, went pending sale
Ended up going back to the bank for $720K
Marc: “In order to make money today I have to find an idiot who buys in this market even if I know that prices will be coming down.”
Sorry, but I have to disagree. Today’s buyer are not necessary idiots. It depends on personal situation. For example, 50-year investment horizon makes 5-year price momentum unimportant.
Love the photography on this place. Did the “r”ealtor even bother getting out of the car? Looks like a lazy driveby to me.
What a lazy Realtor? Nahhhhh!
Interesting kitchen and bedroom called a “timeless beauty” by realtor
http://lansner.ocregister.com/2010/08/19/20-million-oceanview-home-hits-market/77609/#comments
IR:
You kind of missed the point with the story above on the retired couple refinancing their house.
The loan officer offered the refi to earn a fee – the whole chain of thieves in the housing fiasco from mortgage broker, title insurer, bank, to politician wanted the mortgage fee gravy train to continue, and didn’t want to hear otherwise.
In fact, any appraiser who got in the way was bulldozed.
This is one of the best posts ever on this blog.