Monthly Archives: August 2010

Principal Reductions by Mortgage Vultures Benefit Foolish Borrowers

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.

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.

  • 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

============================================

$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.

The Consumer Financial Protection Bureau Will Fail to Prevent Housing Bubbles

The latest regulatory body created by Congress and the Obama administration will fail to prevent future housing bubbles because they lack the understanding of what is required.

Irvine Home Address … 35 NIGHTHAWK Irvine, CA 92604

Resale Home Price …… $845,000

It's hard not to cry

It's hard to believe

So much heartache and pain

So much reason to grieve

With the wonders of science

All the knowledge we've stored

Magic cocktails for lives

People just can't afford

Say it's not true

You can say it's not right

It's hard to believe

The size of the crime

Queen — Say It's Not True

The scope and scale of the housing bubble is hard to comprehend. Lenders created four trillion dollars in excess debt, 12 million borrowers are delinquent on their mortgages, and 6 to 8 million loan owners are going to be forced to leave their family homes. And what was gained? There was no innovation or advancement, no long-lasting infrastructure that will enhance future economic growth, nothing we can point to as a silver lining — unless you consider a sea of McMansions in the hinterlands a great societal investment. And don't forget the rampant consumerism from HELOC spending.

Never in the course of human events has so much been given to so many for doing so little. In my opinion, the housing bubble was a colossal waste.

Buyer, Be Aware

By DAVID LEONHARDT

Published: August 13, 2010

During the great housing bubble and bust, journalists spent a fair amount of time searching for the perfect mortgage victim. This victim would be someone who played by the rules, took a conservative approach to his finances and simply wanted a decent place to live. He made his monthly payments on time, right up to the day that the bank informed him that his payments would balloon because of a fine-print technicality that no borrower could have understood. Just like that, the homeowner was facing foreclosure.

By and large, these searches failed.

That's because Responsible Homeowners are NOT Losing Their Homes. They were searching for a borrower that did not exist.

The stories of the housing bust tended to be more complicated. Many borrowers stretched to buy homes, figuring that they would be making more money soon enough or that housing prices would keep going up. In Southern California, one homeowner told me he was well aware that his monthly payments would eventually balloon. He thought everything would work out, though, because he assumed that ever-rising home values would allow him to refinance. Much of the country shared this belief.

This is also why education is not the answer. You can't educate the kool aid intoxicated. I know; I have tried for several years now, and by and large, I am preaching to the choir.

Banks, mortgage brokers and real-estate agents were only too happy to encourage these fantasies, of course. In many cases, their encouragement crossed the line into malfeasance. But the bubble grew as large as it did because this malfeasance fed on human frailty, naïveté and even irresponsibility.

I dig this guy calling out the corrupt players.

This summer, with the bubble long gone, Congress and the Obama administration enacted a sweeping new law meant to change the business of lending and borrowing money.

The bubble is not long gone.

The part of the law that will directly affect the most people will be the new Consumer Financial Protection Bureau, which has already been the subject of heated debate. And the central question facing the bureau will be how to distinguish between corporate malfeasance and consumer frailty.

It is not an easy task. For as long as there has been money, people have been doing stupid things with it. We borrow more than we can afford. We pay higher interest rates than we need to. We play the lottery. The new consumer bureau can prohibit some of the banks’ worst practices. But figuring out precisely where to draw the line will be much more nuanced than the past year’s black-and-white, left-and-right debate over whether an agency should exist at all.

Elizabeth Warren — the Harvard law professor who first proposed such an agency, in a 2007 article in the journal Democracy — has pointed out that the history of consumer financial protection is a history of “thou shalt not.” The government bans lenders from doing something, and the banks stop. Quickly, however, they come up with new ways to separate people from their money. Last year’s credit-card legislation, for example, cracked down on overdraft fees (the frequently steep charges for people who tried to withdraw more money on a debit card than they had in their account). Banks have responded by raising other fees.

The writer's view that the credit-card legislation was flawed because lenders raised their fees is short sighted. Lenders raised their fees because they could. They have a large number of borrowers treading water that could not avoid the fees if they tried. The fees that were banned should have been banned long ago. Just because legislation is difficult and the results are delayed doesn't mean the legislation is not the right solution to problems of bad lender behavior.

This is why the thou-shalt-not approach, Warren says, “means you’ll always be behind.” Or, as Richard Thaler, the University of Chicago behavioral economist, puts it, “Regulating what financial companies can and cannot charge for is a losing game, because they’ll always think of something else.”

Their agreement on this point is notable, because Warren has come to represent the muscularly progressive vision of the new bureau, while behavioral economists like Thaler (who is close to several Obama advisers) are seen as more technocratic. And there is no doubt that the bureau will need to make judgment calls that some regulators would make differently than others. But the basic vision for the bureau is not in dispute, at least not among the people who are likely to run it under Obama.

When the Republicans get back in, they will gut the bureau like they did with the EPA.

The overriding goal of the bureau will be to help people understand their financial choices. More often than not, it will allow banks to continue a given practice — but force them to explain, in clear terms, what it means for consumers. Earlier this summer, I refinanced my mortgage and was reminded yet again of how much modern finance depends on obfuscation. Nowhere in the pile of documents was there a simple explanation of the only information that mattered to me: how much the bank was charging in fees, how much the lawyer was charging, how much the government was charging and how much my monthly payment would fall. Instead, I was confronted with a blizzard of terms that I did not fully understand: origination, title services, release tracking and the like.

Done right, the new bureau can begin to change this. It can require banks to speak in the language of customers, not internal bureaucracy. Another part of last year’s credit-card legislation offered a preview. As of February, banks have had to give people the often-bracing calculation of how much it will cost them to pay off their balance if they make only the minimum monthly payment, as well as how many years it will take. To see if such steps are working — and to keep pace with Wall Street ingenuity — the new bureau will have a research budget allowing it to test whether consumers truly know what they’re signing up for.

I challenge anyone to find a way to explain the Option ARM in language plain enough for the financially illiterate to understand. In fact, I challenge anyone to explain it to experts in the industry in a way that they understand. There are some loan products that are simply too complex for mere mortals to comprehend. To me regulation would be much simpler if we banned all loan products where payments can increase. That is the only method of ensuring people understand the risks they are taking on because they won't be taking on much risk. Do you really think the average Joe understands interest-rate risk? Do you?

The ultimate goal is pushing banks to compete in ways that benefit consumers, rather than having them compete over which methods can most cleverly fool consumers. If people know the true costs of their mortgages, credit cards, debit cards and mutual funds, they are more likely to gravitate to those offering low costs and good benefits. This will have the added feature of reducing the enormous, historically abnormal profits that Wall Street has enjoyed in recent years. It is also the way a market is supposed to work.

Still, no matter how well we grasp the implications of fees and interest on our credit cards, we may still decide to use a card to buy a new television or kitchen we can’t really afford. The new consumer bureau will not try to stop us. And it almost certainly will not be enough to prevent another bubble, in some other realm, sometime in the future.

But that is probably not a realistic goal anyway. Prohibition, after all, has a decidedly mixed record. A better goal may simply be making sure we understand what we are doing and hoping that is enough to make us a little less frail.

Nonsense. We could regulate lending in a positive way. Education is not enough.

Educating Borrowers is doomed to fail

The first step in a borrower education program would require a consensus on what borrowers should be taught. Lenders will game the system to peddling unstable loan products as safe if borrowers can be taught how to use them. I saw a scholarly study from the bubble that said the Option ARM was a great loan program if borrowers could be educated. Obviously, that is crazy.

Lenders will also use the political system to create doubt as to what loan programs are safe and which are not. I recently wrote about Another Ignorant and Misguided Attack on the 30-Year Fixed-Rate Mortgage. This appears to be an attempt by some right-wing political operatives to create a smoke screen to obscure the real danger of adjustable rate mortgages.

Adjustable rate mortgages are a dangerous loan product, and any reasonable education effort should encourage people to use fixed-rate financing instead, particularly at the bottom of the interest rate cycle. No amount of education will stop the use of adjustable-rate mortgages, and those loans will almost certainly lead to more foreclosures when interest rates rise.

With poorly reasoned attacks on the 30-year fixed-rate mortgage floating around, it creates the impression there is some legitimate difference of opinion on the matter. There isn't. However, if lenders can create enough confusion and dissent, it will make the job of a government-sponsored education bureau impossible — which is what lenders want. The Consumer Financial Protection Bureau will fail because it will get bogged down in the political process.

Further, the goal of education is unattainable: borrowers will not make good choices. Borrowers will borrow all they can no matter how much they are educated on the risks. Most ignore the risks or don't believe it will happen to them. Half of my masters curriculum was real estate finance, so recognized the risk and chose not to participate. However, there were plenty of Ivy League educated MBAs that didn't recognize the risk and got wiped out by the housing bubble. Education is not enough. We must have laws that limit lending.

There is a better way….

How regulators could prevent the next housing bubble

The regulatory solution proposed herein is simple, yet far reaching. It comes in two parts, the first is to limit the amount lenders can loan to borrowers with a rather unique enforcement mechanism, and the second is to increase the penalties for borrowers who commit mortgage fraud. The following is not in legalese, but it contains the conceptual framework of potential legislation that could be enacted on the state and/or federal level. A detailed discussion of the text follows:

Loans for the purchase or refinance of residential real estate secured by a mortgage and recorded in the public record are limited by the following parameters based on the borrower’s documented income and general indebtedness and the appraised value of the property at the time of sale or refinance:

  1. All payments must be calculated based on a 30-year fixed-rate conventionally-amortizing mortgage regardless of the loan program used. Negative amortization is not permitted.

  2. The total debt-to-income ratio for the mortgage loan payment, taxes and insurance cannot exceed 28% of a borrower’s gross income.

  3. The total debt-to-income of all debt obligations cannot exceed 36% of a borrower’s gross income.

  4. The combined-loan-to-value of mortgage indebtedness cannot exceed 90% of the appraised value of the property or the purchase price, whichever value is smaller except in specially sanctioned government programs.

Any sums loaned in excess of these parameters do not need to be repaid by the borrower and no contractual provision is permitted that can be interpreted as limiting the borrower’s right to exercise this right, make the loan callable or otherwise abridge the mortgage agreement.

This last statement is the most critical. This is how the enforcement problem can be overcome. Regulators are pressured not to enforce laws when times are good, and decried for their lack of oversight when times are bad. If the oversight function becomes a potential civil matter policed by the borrowers themselves, the lenders know exactly what their risks and potential damages are. Any lender foolish enough to make a loan outside of the parameters would not need to fear the wrath of regulators, they would need to fear the civil lawsuits brought by borrowers eager to get out of their contractual obligations. If any borrower could obtain debt forgiveness by simply proving their lender exceeded these guidelines based on the loan documents, no lender would do this, and regulatory oversight would be practically unnecessary. One key to making this work is to prohibit lenders from introducing a “poison pill” to the loan documents that would make borrowers hesitant to bring suit, otherwise lenders would make their loan callable in the event of a legal challenge forcing the borrower to refinance or sell the property. Basically, if the borrower brought suit and won, they would see principal reduction equal to the deviation from the standards, if they brought suit and lost, they would have no penalty. Most of these cases would be decided by summary judgment based on a review of the loan documents thus minimizing court costs.

Another pillar to the system is the documentation of income as part of the loan document package–the “borrower’s documented income” from the proposed legislation. One of the most egregious practices of the Great Housing Bubble was the fabrication of income by borrowers that was facilitated and promoted by originating lenders. Stated-income loan programs were widespread, and they were the cause of much of the uncertainty in the secondary mortgage market during the initial stages of the credit crunch in the deflation of the bubble. Basically, investors had no idea if the borrowers to whom they had lent billions of dollars were capable of paying them back. Without proper documentation of income, investors lost all confidence in the secondary mortgage market. Stated-income loan programs were one of the first casualties of the credit crunch. These programs should be eliminated totally due to the inherent potential for fraud and the undermining of confidence in the secondary mortgage market stated-income loans create. If lenders can be sued based on the content of the loan documents, and if borrowers can be fined or go to jail for committing fraud or misrepresentation on loan documents, both parties have strong incentive to prepare these documents completely and correctly. Originating lenders will argue this adds to their costs and will result in higher application fees. The amount in question is very small, particularly relative to the dollar amount of the transaction. A small amount of additional expense here will provide huge benefits by assuring investors the borrowers to whom they are loaning money really have the income to pay them back. The benefit far outweighs the cost.

If such a law were passed, agency interpretation and court case precedents will end up defining adequacy in loan documentation. A single W2 does not establish a work history, but 2 years worth is probably excessive documentation. One of the most contentious areas will likely be documenting the income of the self-employed. In theory, the self employed must document their incomes to the US government either through Schedule C reports or corporate K-1s. The argument the self-employed have traditionally made is that these documents understate their income. Since many self employed take questionable tax deductions, there is probably some truth to the claim that tax records understate their income; however, why should the self-employed get to have both benefits? If the self-employed had to use their tax returns as loan documentation, they probably would not be quite so aggressive in taking deductions. A new business without a tax return or with only one year of taxable receipts probably is not stable enough to meet standards of income necessary to assume a long-term debt.

The poor quality of loan documentation during the bubble was a mistake of originating lenders; therefore, in this proposal much of the burden of paperwork and liability for mistakes falls on the lenders. During the deflation of the bubble, lenders paid an enormous price for some of their lax paperwork standards, but much of the problem was also due to borrowers misrepresenting themselves in the loan documents. There were instances where lenders encouraged this behavior, but in the majority of cases, the document fraud was perpetrated by the borrowers. The only recourse available to a lender is a civil suit as there are few criminal penalties associated with loan documentation and almost no enforcement. It can be very difficult and costly for lenders to pursue civil damages, and few lenders attempt it even when they have a strong case. To create a more balanced set of responsibilities, the borrowers must face criminal penalties for fraud and misrepresentation on loan documents. If borrowers know the lender can turn documents over to a prosecutor who will charge the borrower with a crime if they make false material statements, borrowers will be much less likely to commit these acts.

The parameters of the forming limitations on the debt-to-income ratio and combined-loan-to-value are essential to prevent bubbles in the housing market and to prevent the banking system from becoming imperiled in the future. People will commit large percentages of their income to house payments when prices are rising quickly; however, they do this out of fear of being “priced out” and greed to make a windfall from appreciation. These are the beliefs that inflate a bubble. Borrowers cannot sustain payments above the traditional parameters for debt service without either defaulting or causing a severe decline in discretionary spending. The former is bad for the banks, and the latter is bad for the entire economy. This must be prevented in the future. There are a number of reasons why high combined-loan-to-value lending is a bad idea: it promotes speculation by shifting the risk to the lender, it encourages predatory borrowing where borrowers “put” the property to a lender, it promotes a high default rate because borrowers are not personally invested in the property, it discourages saving as it becomes unnecessary, and it artificially inflates prices as it eliminates a barrier to market entry. This last reason is one of the arguments used to get rid of downpayment requirements. The consequences of this folly became readily apparent once prices started to fall.

The payment must be measured against “30-year fixed-rate conventionally-amortizing mortgage regardless of the loan program used.” One of the worst loan programs of the Great Housing Bubble was the 2/28 ARM sold to large numbers of subprime borrowers. These borrowers were often qualified only on their ability to make the initial payment, and these borrowers were generally not capable of making the fully amortized payment when the loan reset after 2 years. Regulations like this would prevent a recurrence of the foreclosure tsunami triggered by the use of this loan program. It is also important to ban negative amortization because it would allow the loan balance to grow beyond the parameters of qualification, and it invites property speculation. Perhaps borrowers would not be concerned because they would receive debt forgiveness of the expanding balance. Lenders should be wary of these loans after their dismal performance in the deflation of the bubble, but institutional memory is short, and these loan programs could make a comeback if they are not specifically outlawed. This provision is careful to allow interest-only loans. They are still a high-risk product, but an argument can be made that these loans have a place, and there is no need to completely ban them. They will not have a future as an affordability product capable of driving up prices if the borrower must still qualify for the fully amortized payment.

For the lending provisions to have real impact, they must apply to both purchases and to refinances, thus the clause, “Loans for the purchase or refinance of residential real estate.” If the rules only applied to purchases, there would be a tremendous volume in refinances to circumvent the regulations. The caps on debt-to-income ratios, mortgage terms and combined-loan-to-value only have meaning if they are universally applied. The combined-loan-to-value standard is based on the “appraised value of the property at the time of sale or refinance.” The new appraisal methods will have impact here. It is important that the records need only be accurate as of the time of the transaction. If a borrower experiences a decline in their income or if the property declines in value to where they no longer meet the loan standard, it does not mean they can go petition for debt relief.

The regulations would only need to apply to loans “secured by a mortgage and recorded in the public record.” People can still borrow money from any source they wished as long as the lender knows they will not have any claim on residential real estate. If a lender wanted to issue a loan secured by real estate outside of the outlined standards, the borrower would not have to pay back that money. If a borrower has non-recorded debts which create a total indebtedness requiring more than 36% of their gross income, they would not be eligible for a home equity loan even if they met the other qualifications. In such circumstances, it is better to limit borrowing than increase the probability of foreclosure.

Many states have non-recourse laws on their books. These laws serve to protect the borrower from predatory lending because the lender cannot go after other assets of the borrower in the event of default. In theory this should make lenders more conservative in their underwriting; however, the behavior of lenders in California, a non-recourse state, during the Great Housing Bubble was not conservative. These laws do serve to protect borrowers, and they should be enacted for purchase-money mortgages in all 50 states.

Since one of the goals of regulatory reform is to inhibit the behavior of irrational exuberance, the sales tactics of the National Association of Realtors should be examined and potentially come under the same restrictions as securities brokers through the Securities and Exchange Commission. After the stock market crash which helped precipitate the Great Depression, Congress created the Securities and Exchange Commission to regulate the sales activities of securities brokers. There are strict regulations in place governing the representations made concerning the future performance of investment opportunities. These protections were put in place to protect the general public from the false promises made by stockbrokers in the 1920s which many naïve investors believed. The same analogy holds true for Realtors. The National Association of Realtors has launched numerous advertising campaigns suggesting erroneously that residential real estate is a great investment and appreciation will make home buyers wealthy.

The result of these restrictions will be that all homeowners will have at least 10% equity in their properties unless they have borrowed from a government program like the FHA where the combined-loan-to-value can exceed the limits. This equity cushion would buffer lenders from predatory borrowing and a huge increase in foreclosures if prices were to decline. Home equity in the United States has been declining since the mid 1980s, and it actually declined while prices rose during the Great Housing Bubble due to the rampant equity extraction. The lack of an equity cushion exacerbated the foreclosure problem as many homeowners who owed more on their mortgage than the house was worth simply stopped making payments and allowed the house to fall into foreclosure.

The proposals I outlined in The Great Housing Bubble sound extreme by California lending standards, but Texas has had similar laws on the books for the last 150 years, and it was the restrictions on mortgage equity withdrawal that made their market avoid the housing bubble.

If the new Consumer Financial Protection Bureau wanted to curb housing bubbles and restore stability to our banking system, they should implement the proposals I have outlined above. Will they do it? Not if the banking lobby has anything to say about it.

When you read about today's HELOC abuser, ask yourself if you think educating borrowers would have stopped this behavior. I don't think it any amount of government education programs would have made the slightest difference.

Long Term HELOC Abuse

It's obvious from looking through the property records that many borrowers supplemented their lifestyles with regular trips to the home ATM machine. The regularity and the size of these withdrawals is astonishing. It also explains much about why houses are so popular in California. If owning real estate gives you the opportunity to obtain hundreds of thousands of dollars for doing absolutely nothing, ownership will be highly desired; in fact, it becomes the primary reason people buy homes. Californian's live in their own personal ATM machines.

  • The owners of today's featured property paid $441,000 on 4/25/1991. I don't have their original mortgage information, but it is likely that they put 20% down ($88,200) and borrowed $352,800.

  • On 5/27/1997 they obtained a stand-alone second for $50,000.

  • On 12/7/1998 they refinanced their first mortgage for $387,500.

  • On 3/26/1999 they got a $47,500 stand-alone second.

  • On 12/28/2000 they refinanced with a $441,000 first mortgage and crossed the threshold of borrowing more than they paid.

  • On 3/31/2004 they refinanced with a $536,250 first mortgage.

  • On 10/5/2004 they obtained a $628,000 first mortgage.

  • On 11/30/2005 they refinanced with a $686,250 Option ARM with a 1.5% teaser rate.

  • On 5/3/2007 they obtained a second mortgage for $15,764.

  • On 7/3/2007, after witnessing the above patter of serial refinancing, World Savings Bank brilliantly loaned them $788,000 in an Option ARM.

  • Total property debt is $788,000 plus negative amortization and missed payments.

  • Total mortgage equity withdrawal is $435,200 including their down payment.

  • Total squatting time was minimal as the bank moved quickly to evict these squatters.

Foreclosure Record

Recording Date: 05/11/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/09/2010

Document Type: Notice of Default

The listing agent is Mike Dunn, and I have seen a prospectus for a fund he is forming to purchase and improve trustee sale flips. My guess is that he is also the flipper on this deal.

If you would like to learn how you can get involved with trustee sales like this one, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 35 NIGHTHAWK Irvine, CA 92604

Resale Home Price … $845,000

Home Purchase Price … $711,100

Home Purchase Date …. 6/2/2010

Net Gain (Loss) ………. $83,200

Percent Change ………. 11.7%

Annual Appreciation … 71.0%

Cost of Ownership

————————————————-

$845,000 ………. Asking Price

$169,000 ………. 20% Down Conventional

4.51% …………… Mortgage Interest Rate

$676,000 ………. 30-Year Mortgage

$165,337 ………. Income Requirement

$3,429 ………. Monthly Mortgage Payment

$732 ………. Property Tax

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

$70 ………. Homeowners Insurance

$80 ………. Homeowners Association Fees

============================================

$4,312 ………. Monthly Cash Outlays

-$818 ………. Tax Savings (% of Interest and Property Tax)

-$889 ………. Equity Hidden in Payment

$283 ………. Lost Income to Down Payment (net of taxes)

$106 ………. Maintenance and Replacement Reserves

============================================

$2,993 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,450 ………. Furnishing and Move In @1%

$8,450 ………. Closing Costs @1%

$6,760 ………… Interest Points @1% of Loan

$169,000 ………. Down Payment

============================================

$192,660 ………. Total Cash Costs

$45,800 ………… Emergency Cash Reserves

============================================

$238,460 ………. Total Savings Needed

Property Details for 35 NIGHTHAWK Irvine, CA 92604

——————————————————————————

Beds: 4

Baths: 3 baths

Home size: 2,600 sq ft

($325 / sq ft)

Lot Size: 5,750 sq ft

Year Built: 1977

Days on Market: 21

Listing Updated: 40386

MLS Number: S626030

Property Type: Single Family, Residential

Community: Woodbridge

Tract: Pl

——————————————————————————

According to the listing agent, this listing is a bank owned (foreclosed) property.

JUST REDUCED $5,000!!!***FANTASTIC OPPORTUNITY TO CHOOSE YOUR OWN UPGRADES FOR ONE WEEK ONLY BEFORE BUILDER STARTS REMODEL ON 7/30***This is a fixer but a beautiful blank canvas with an excellent location in the back of the development – high cathedral ceilings,guest suite downstairs,pool and spa size yard,two fireplaces,excellent interior location less than 75 yards to park,basketball,volleyball and less than 150 yards to beach club and community pool. Last two sales have been over $975,000. Very low tax rate and HOA dues.

I like Mike's idea to advertise the flip for sale prior to renovation. If a buyer emerges, they can get the property renovated to their taste by the flipper and the costs get rolled into the loan. He does need to lay off the CAPS LOCK, exclamation points, and asterisks though. I wonder if he thinks he can do $20,000 in cosmetic renovations and ask $130,000 more for the property ($975,000). If he can get that, buyers are not very bright.

Government Robs Working Renters to Subsidize Unemployed Homedebtors

The government has rolled out another program to give money to the banks by sending it through unemployed homedebtors.

Irvine Home Address … 304 ORANGE BLOSSOM 159 Irvine, CA 92618

Resale Home Price …… $297,700

Well I guess it ain't easy doing nothing at all oh yeah

But hey man free rides just don't come along every day

She sits on her ass

He works his hands to the bone

To give her money every payday

But she wants more dinero just to stay at home

Well my friend

You gotta say:

"I won't pay, I won't pay ya, no way

Na-na Why don't you get a job"

Say "no way", say "no way ya, no way

Na-na Why don't you get a job"

Offspring — Why Don't You Get a Job

With election season gearing up, politicians are seeing what voter groups they can buy off. Apparently, the unemployed homedebtors are a significant voter block this time around.

U.S. Plans More Aid for Jobless Homeowners

By DAVID STREITFELD

Published: August 11, 2010

In an acknowledgment that the foreclosure crisis is far from over, the Obama administration on Wednesday pumped $3 billion into programs intended to stop the unemployed from losing their homes.

So what has he done to provide aid to unemployed renters?

Unemployed loan owners already get to squat in relative comfort, eat three meals a day, and surround themselves with creature comforts whereas renters double up with friends or sleep in their cars. Yet, despite this obvious unfairness and disparity of benefits, the government sees fit to provide even more aid to homedebtors while unemployed renters get to sleep in shelters.

And how about you working renters who are continuing to subsidize these people squatting in homes that should be yours. As a working renter waiting for house prices to drop, you are paying the bills of the squatters living in what should be your home. How do you feel about that?

The housing market, which usually helps lead the country out of a recession, is this time helping hold the recovery back. Interest rates are at record lows, but too few can afford to buy or refinance. Unemployed homeowners who live in communities where values have fallen sharply are often unable to sell. Their foreclosures weaken neighborhoods and create a vicious circle by further undermining the market.

Did you notice the subtle emotional lie perpetrated in the sentence above? Foreclosures do not weaken neighborhoods. As written, the sentence conjures up images of slums and shantytowns. The truth is that foreclosures lower prices in neighborhoods, but then employed renters move in and buy these houses and strengthen the neighborhood. Lower prices makes existing homedebtors unhappy because their dreams of home equity wealth are revealed as sad fantasies. Loan owners who surrender their dreams of HELOC riches do not weaken neighborhoods. If anything, making people focus on adding value and working for a living will strengthen neighborhoods.

To try to break this pattern, the Treasury Department said it was adding $2 billion to its Hardest Hit Fund, roughly doubling its size. The fund, first announced by President Obama in February and expanded in March, goes to housing finance agencies in various states to create local aid programs.

Most of the state programs from the first two rounds are barely under way, but Treasury officials said it was clear that more funds were needed.

What they are really saying is that we have not been able to funnel this money to banks fast enough to repair their broken balance sheets. Nobody in the Treasury Department cares about homedebtors staying in their houses, their only concern is for the solvency and profits of lenders.

“In this very deep recession, people have tended to be out of work a little longer,” Herbert M. Allison Jr., assistant secretary for financial stability, said. “That’s why we think this additional relief for people searching for a job is so important.”

So do people submit paperwork and reports detailing their job search efforts in order to get this money? They make stealing from working renters and giving the money to the banks of unemployed loan owners sound noble.

The second program, announced by the Department of Housing and Urban Development, will draw on $1 billion authorized by the new financial overhaul law.

The agency said it would work with local aid groups to offer bridge loans of up to $50,000 to eligible borrowers to help them pay their mortgage principal, interest, insurance and taxes for up to 24 months. The loans will be interest-free.

Free money that can only be given to the banks. Unbelievable….

Somebody explain to me why this program is needed. With the HAMP program, borrowers can lower their interest rate to 2% and defer missed payments and interest by adding to principal like an Option ARM. Is this program intended to squeeze a few more payments out of those who are so hopeless that they can't make their payments under HAMP? If so, this is nothing more than a bridge for lenders to get 24 months worth of payments from the government from borrowers who have no chance of sustaining ownership. In short, it is theft by the banks.

Until now, the Hardest Hit Fund had been projected to help about 140,000 borrowers. Treasury officials said that number would grow with the new infusion of money, but offered no estimate. HUD also did not say how many homeowners would be eligible for its program.

If the new money is spent in the same way as the previous money, both programs would eventually aid about 400,000 borrowers — a large number, but not when set against the 14.6 million unemployed or three million contemplating foreclosure.

So there are 14.6 million unemployed and 3 million facing foreclosure. The government is flying the bird at the 11.6 million unemployed renters and homeowners not facing foreclosure.

Over the last two years, the government has deployed many programs to help housing. It pushed interest rates down, offered tax credits and set up an ambitious mortgage modification program. Yet housing remains feeble and seems poised after a brief respite this year to become weaker again.

“I think all these government programs are helpful, but I wouldn’t look for them to cure the recession or even what ails housing,” said the economist Karl E. Case. “At best, they’re preventing things from getting much worse.”

At best they are delaying the inevitable and finding new and innovative way to give tax dollars to banks.

The Hardest Hit Fund will draw on the $45.6 billion set aside for housing in the Troubled Asset Relief Program, the rescue measure begun at the height of the financial crisis in the fall of 2008. Initially, the fund gave $1.5 billion to five hard-hit states: Arizona, California, Florida, Michigan and Nevada. The second round in March of $600 million went to North Carolina, Ohio, Oregon, Rhode Island and South Carolina.

The expanded list of states eligible for the latest funding includes Alabama, Illinois, Kentucky, Mississippi and New Jersey, as well as the District of Columbia. Each state’s share of the money is based on its population.

Many of the programs involve direct assistance. Ohio, for instance, said it would use its $172 million to aid 15,356 homeowners by helping bring delinquent mortgages current for owners experiencing hardship because of a loss of income. The assistance will last up to 12 months.

The other housing money in the Troubled Asset Relief Program is earmarked for the modification programs ($30.6 billion) and a Federal Housing Administration refinancing program ($11 billion). The administration can shift money between the programs only until Oct. 3, the two-year anniversary of the program.

HUD said it was in the process of determining which communities would receive its money and how exactly the process would work. “We’re still in the design phase,” said Bill Apgar, HUD senior adviser for mortgage finance.

I am appalled by the way our government steals from us to pay for the mistakes of lenders and loan owners. Renters don't speak with a coherent political voice, and responsible homeowners are torn between wanting to see their illusory house prices maintained and not wanting to subsidize the bad behavior of irresponsible borrowers. The result is political inaction to stop the government theft.

Government officials dress up their theft with emotional bullshit about helping homeowners when in reality they are merely helping banks get a few more payments from the hopelessly overextended who are about to become renters again. This does nothing for neighborhoods nor for the borrowers themselves. This policy merely gives money to banks to encourage more bad behavior in the future.

Single women loved condos

Single women got involved in real estate in unprecedented numbers during the housing bubble. And why not? It was easier than applying for another credit card, there was more free money available, and most believed they would never have to pay it back. It really was the best of all possible worlds. Too bad reality doesn't work that way.

The buyer of today's featured property paid $243,000 on 8/15/2003. She used a $194,400 first mortgage and a $48,600 down payment. Not wanting to miss the gravy train leaving the station, she borrowed $360,000 on 8/24/2007 and withdrew her down payment plus $117,000 in spending money. Then she gave it back to the bank.

Foreclosure Record

Recording Date: 01/29/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/29/2009

Document Type: Notice of Default

Foreclosure Record

Recording Date: 05/28/2009

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 03/31/2009

Document Type: Notice of Default

She got to squat for about 18 months before it was purchased at auction for $243,000 on 6/3/2010. The flipper put down some pergraniteel and is trying for a 20% margin. With the recent softness in the market, I doubt they get it.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 304 ORANGE BLOSSOM 159 Irvine, CA 92618

Resale Home Price … $297,700

Home Purchase Price … $234,000

Home Purchase Date …. 6/3/2010

Net Gain (Loss) ………. $45,838

Percent Change ………. 19.6%

Annual Appreciation … 100.3%

Cost of Ownership

————————————————-

$297,700 ………. Asking Price

$10,420 ………. 3.5% Down FHA Financing

4.51% …………… Mortgage Interest Rate

$287,281 ………. 30-Year Mortgage

$58,249 ………. Income Requirement

$1,457 ………. Monthly Mortgage Payment

$258 ………. Property Tax

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

$25 ………. Homeowners Insurance

$250 ………. Homeowners Association Fees

============================================

$1,990 ………. Monthly Cash Outlays

-$134 ………. Tax Savings (% of Interest and Property Tax)

-$378 ………. Equity Hidden in Payment

$17 ………. Lost Income to Down Payment (net of taxes)

$37 ………. Maintenance and Replacement Reserves

============================================

$1,533 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,977 ………. Furnishing and Move In @1%

$2,977 ………. Closing Costs @1%

$2,873 ………… Interest Points @1% of Loan

$10,420 ………. Down Payment

============================================

$19,246 ………. Total Cash Costs

$23,500 ………… Emergency Cash Reserves

============================================

$42,746 ………. Total Savings Needed

Property Details for 304 ORANGE BLOSSOM 159 Irvine, CA 92618

——————————————————————————

Beds: 2

Baths: 1 bath

Home size: 864 sq ft

($345 / sq ft)

Lot Size: n/a

Year Built: 1977

Days on Market: 35

Listing Updated: 40387

MLS Number: P742736

Property Type: Condominium, Townhouse, Residential

Community: Orangetree

Tract: Cm

——————————————————————————

***PRICE JUST REDUCED!!!*** A True Turnkey Property with An Incredibly Open And Spacious Floor Plan Boasting High Ceilings, New Paint, New Carpet, CROWN MOLDING thoughout, HIGH END STAINLESS STEEL Kitchen Appliances, and GRANITE Countertops in Kitchen!!! Inside LAUNDRY & Updated BATHROOMS with GRANITE COUNTERS!!! Situated In A Quiet Location Of A Very Desireable Complex Located In The Heart Of Irvine. Close to Restaurants, Theater, Schools And Shopping. Enjoy the Pool, Basketball Court, Tennis Courts and Children's Play Areas on the Condominium Grounds!!! Perfect for First Time Home Buyers & Investors!!!

thoughout? Desireable?

The description is painful. It starts with asterisks and three exclamation points, then it lapses into Title Case with occasional ALL CAPS randomly thrown in for good measure.

A special thanks to Calculated Risk:

Foolish Bankers Surprised: Borrowers Never Intended to Repay Their Loans

Borrowers no longer view debt as something to be paid off. We have entered the Ponzi era where borrowers inflate asset prices with perpetually serviced debt.

Irvine Home Address … 19 HAZELNUT Irvine, CA 92614

Resale Home Price …… $695,500

Some people ain't no damn good

You can't trust 'em you can't love 'em

No good deed goes unpunished

And I don't mind bein' their whippin' boy

I've had that pleasure for years and years

No no I never was a sinner–tell me what else can I do

Second best is what you get 'til you learn to bend the rules

And time respects no person–what you lift up must fall

They're waiting outside to claim my tumblin' walls

John Mellencamp — Crumblin' Down

Some people ain't no damn good. You're going to meet some of them in today's post. For those of us who didn't participate in the housing bubble, no good deed goes unpunished. I have been the whippin' boy for kool aid intoxicated fools who can't deal with the inconvenient truths I display on a daily basis. I've had that pleasure for years and years. Second best is all we seem to get by playing by the rules. Irresponsible homedebtors get loan modifications, no-interest loans, and principal forgiveness, and we have to pay for it! And the irresponsible get to walk away from their debts with no repercussions, and many don't think they did anything wrong. They're victims of circumstance so they say. Everyone else did it, so it must be okay.

I say screw them. Get the lazy squatters the hell out of our houses! What the lenders lifted up must fall. We are all waiting outside to claim their tumblin' walls.

Debts Rise, and Go Unpaid, as Bust Erodes Home Equity

By DAVID STREITFELD

Published: August 11, 2010

PHOENIX — During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

There is a pathology at work here that lenders don't recognize: borrowers never intended to pay that money back.

Once people accepted that house prices would always go up, they didn't need to worry about increasing their mortgage. As long as house prices go up, if the payments become too much to handle, they could just sell the house and let someone else pay off the debt — either that, or they could just borrow more money to make the payments. In either case, the borrowers were running a Ponzi Scheme. Every serial refinancer was a mini Bernie Madoff.

The road to hell is paved with good intentions, and strictly speaking, the borrowers intended to repay. When they sold the house, borrowers accepted the idea that the lender would take a portion of their appreciation to satisfy the debt. Borrowers were okay with sharing the profits, but if prices depreciated and if the borrower might have to come out-of-pocket to pay back the loan, well… that was never part of the deal. Besides, they couldn't pay back such a large sum even if they tried. Banks should have known this.

People who borrow money they have no intention to repay or no ability to repay are stealing. Unfortunately, the morality of this isn't quite so black and white. We have had many discussions about the morality of strategic accelerated default and the relative culpability of lenders and borrowers. Whatever the moral and ethical implications, lenders must deal with borrowers who will not pay back loans if prices go down. This is a new fact of life for lenders they must adjust to. Perhaps it will make them pause before inflating the next housing bubble, but as long as the US taxpayer is liable for their loses, lenders really don't care.

The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

This is not a paradox. This is the obvious and predictable result of the deflation of the housing bubble. When lenders provide borrowers with money they can't or won't pay back, the more lenders loan, the less likely they are to get paid back. The only apparent contradiction here is that lenders didn't realize that the people they were loaning money to would behave this way. And that merely emphasizes how incredibly stupid lenders are.

“When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats,” said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. “Their chances are pretty good of walking away and not having the bank collect.”

Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”

To some extent? LOL!

If banks give out free money, everyone will want it. This entire fiasco has made sure moral hazard is deeply embedded into the belief systems of every borrower in America. How many people buying real estate in California are doing so because they believe prices have bottomed and that lenders are going to be giving out free-money HELOCs soon? Realistically, it is more than half. Kool aid intoxication has not gone away, it has gotten worse.

Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.

“Anything over $15,000 to $20,000 is not collectible,” Mr. Terry said. “Americans seem to believe that anything they can get away with is O.K.”

It is zombie debt collectors like Mr. Terry that will make life hell for those attempting to walk away from HELOCs. Go get 'em Clark!

But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government.

Let's stop for a moment and shed a tear for the victims… You know, those HELOC abusers who pulled half a million bucks out of the wall and bought new cars and took fancy vacations while the prudent went to work and paid taxes to eventually bail them out.

Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.

They should declare bankruptcy. There is nothing wrong with that. The system was designed to provide a mechanism for those who need to wipe the slate clean and start over. Anyone who defaulted on their loans should declare bankruptcy and be done with it. Hoping the problem will go away on its own will hurt them more in the end.

“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”

Mr. Schlegel’s tale is similar to many others who got caught up in the boom: He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.”

I guess my real estate education must have been a bit better than his. When I studied real estate economics, the professors always emphasized the prudent use of debt to maintain positive cashflow. Borrowing past the breakeven point is guaranteed to destroy your investment. At some point during the bubble, borrowers unlearned this simple truth about debt, and they sought to maximize their borrowing to acquire as many homes as possible even if the cashflow was negative. At that point, the entire market became a Ponzi Scheme waiting to implode.

Apparently neither did one of his lenders, the Desert Schools Federal Credit Union, which gave him a home equity loan secured by, the contract states, the “security interest in your dwelling or other real property.”

Look at this guys attitude. He clearly feels no responsibility whatsoever for the losses, and he really believes he is going to escape with no further damage. If he had any brains at all, he would declare bankruptcy now and start over. If he doesn't, the lender — or the zombie debt collector who buys his loans — is going to come take whatever he has. All these people who are walking away from recourse debt will be contacted by debt collectors once they start acquiring assets again.

Desert Schools, the largest credit union in Arizona, increased its allowance for loan losses of all types by 926 percent in the last two years. It declined to comment.

The amount of bad home equity loan business during the boom is incalculable and in retrospect inexplicable, housing experts say. Most of the debt is still on the books of the lenders, which include Bank of America, Citigroup and JPMorgan Chase.

The second mortgage debt and HELOCs are the root of all our housing woes.

The main reason lenders will fail to execute more short sales is due to these seconds and HELOCs. The holders of those worthless loans have the power to hold everyone hostage and try to extort whatever they can out of both buyers and sellers. In the end, the buyer and seller are better off in a foreclosure that wipes out the seconds, HELOCs and back HOA dues.

With the huge amount of second mortgage and HELOC debt still on the books of major banks, they are still insolvent. Despite the Federal Reserve stealing from savers and giving the money to banks — which is the net effect of zero percent interest rates — it will take many more years before banks have made enough money to fully write down the losses on this part of their portfolios. It also suggests that the Federal Reserve may maintain zero percent interest rates for a very long time. Welcome to Japan.

“No one had ever seen a national real estate bubble,” said Keith Leggett, a senior economist with the American Bankers Association. “We would love to change history so more conservative underwriting practices were put in place.”

OMG! I don't believe he said that. The reason we had never seen a national real estate bubble is precisely because we have never had such stupid underwriting practices in place. What did these idiots expect? If you give unlimited money to anyone who asks, you are going to have problems. The ignorance is truly remarkable.

The delinquency rate on home equity loans was 4.12 percent in the first quarter, down slightly from the fourth quarter of 2009, when it was the highest in 26 years of such record keeping. Borrowers who default can expect damage to their creditworthiness and in some cases tax consequences.

Nevertheless, Mr. Leggett said, “more than a sliver” of the debt will never be repaid.

You think? Not that the banks have written down the bad debt. Thanks to amend-extend-pretend, only a sliver has been written off so far.

Eric Hairston plans to be among this group. During the boom, he bought as an investment a three-apartment property in Hoboken, N.J. At the peak, when the building was worth as much as $1.5 million, he took out a $190,000 home equity loan.

Mr. Hairston, who worked in the technology department of the investment bank Lehman Brothers, invested in a Northern California pizza catering company. When real estate cratered, Mr. Hairston went into default.

The building was sold this spring for $750,000. Only a small slice went to the home equity lender, which reserved the right to come after Mr. Hairston for the rest of what it was owed.

Mr. Hairston, who now works for the pizza company, has not heard again from his lender.

Since the lender made a bad loan, Mr. Hairston argues, a 10 percent settlement would be reasonable. “It’s not the homeowner’s fault that the value of the collateral drops,” he said.

Isn't it funny that homedebtors have no problem keeping all the profits when prices go up, but when prices go down, it isn't their fault and the bank should absorb that loss. If the guy wanted an equity partner to take that risk, he should have sought one out. What he did was take out a loan, and lenders do not assume downside risk — well, at least they aren't supposed to.

I sincerely hope lenders are learning the lessons of this bubble collapse. Lenders and borrowers do not view the world the same way. Borrowers expect all the downside benefits of equity participation and all the upside benefits of debt in fixed amounts. This is the new world order.

Marc McCain, a Phoenix lawyer, has been retained by about 300 new clients in the last year, many of whom were planning to walk away from properties they could afford but wanted to be rid of — strategic defaulters. On top of their unpaid mortgage obligations, they had home equity loans of $50,000 to $150,000.

Fewer than 5 percent of these clients said they would continue paying their home equity loan no matter what. Ten percent intend to negotiate a short sale on their house, where the holders of the primary mortgage and the home equity loan agree to accept less than what they are owed. In such deals primary mortgage holders get paid first.

The other 85 percent said they would default and worry about the debt only if and when they were forced to, Mr. McCain said.

“People want to have some green pastures in front of them,” said Mr. McCain, who recently negotiated a couple’s $75,000 home equity debt into a $3,500 settlement. “It’s come to the point where morality is no longer an issue.”

Earlier this year, I wrote that by the end of 2010 the idea of a moral obligation to repay mortgage debt will carry no weight. It is August, and we are already there.

Darin Bolton, a software engineer, defaulted on the loans for his house in a Chicago suburb last year because “we felt we were just tossing our money into a hole.” This spring, he moved into a rental a few blocks away.

The only positive lenders have obtained by allowing widespread squatting is that they have convinced a few people prices might come back soon. This false and misguided hope is stopping them from lapsing into the malaise demonstrated by Mr. Bolton in the comment above. As prices roll over again in the inevitable double dip, more and more borrowers are going to embrace Mr. Boltons attitude and realize that continuing to pay an oversized mortgage on an underwater property is tossing their money into a hole.

“I’m kind of banking on there being too many of us for the lenders to pursue,” he said. “There is strength in numbers.”

Borrowers who took out enormous loans during the housing bubble never intended to repay these loans from their wage income, they always intended to pass this debt to some else. Somewhere along the way this subtle paradigm shift took place. It seems very reasonable that one could merely service debt for a while and resell the property to someone else and pay off the debt then. Like any Ponzi Scheme, it works until there is no greater fool to come along and assume the debt. Then the entire system comes crashing down and a spiral of debt deflation we are witnessing today. The worst part is that this thinking is still alive and well today.

The reason this problem won't simply go away is because incomes do not support the debt created. Even at 4.5% interest rates, as a society we cannot support the debt lenders made. Deflation will continue until prices are back in line with incomes. In markets like Las Vegas, we are already well below the price point needed, but in Orange County, our prices have not fallen enough to be supported by the local population. More pain lies ahead.

They shook down the walls

Did any of you have a piggy bank growing up. I had one that didn't have a hole to empty it. In theory, you were supposed to fill it, then break it with a hammer. It was a secure as home equity used to be before HELOCs. Of course, being an enterprising child, I knew that if I shook the piggy bank, I could get coins to fall out of the little slot. It took more effort, but you could raid the piggy bank, and with a little patience, you could get every last coin out of it.

Homeowners during the housing bubble were no different. A home was like a piggy bank that was difficult to make a withdrawal from, but with HELOCs prying open every home safe, lenders were helping homeowners shake down their own houses. Some homeowners, like the ones I am featuring today, shook their house often and made sure every available penny was stripped from the walls.

  • My records don't show when this house was purchased, but there was a $230,500 loan on 8/25/1997. From that we can surmise they bought the house in 1997 and paid $288,125 using an 80% loan.

  • On 1/22/2001 they refinanced with a $254,800 and began down the road leading to rampant HELOC abuse.

  • On 7/17/2002 they obtained a stand-alone second for $45,000.

  • On 3/3/2003 they refinanced the first mortgage for $350,000.

  • On 5/6/2004 they obtained a $126,000 stand-alone second.

  • On 3/27/2006 they borrowed $602,509 in a new first mortgage.

  • On 8/4/2006 they got a $27,000 HELOC.

  • On 1/16/2007 they refinanced with a $692,254 first mortgage. Note the odd amount. They left nothing in the walls.

  • Total mortgage equity withdrawal is $461,754.

  • Total squatting time was only 10 months. Beneficial California Inc moved quickly on this one.

Foreclosure Record

Recording Date: 03/26/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 11/09/2009

Document Type: Notice of Default

When you see HELOC abuse this bad, it is almost incomprehensible how a middle-class family could have pissed away nearly half a million dollars. If we weren't so numb to the large numbers, we would be outraged by $46,175 worth of HELOC abuse. When the number ballons to $461,754, its like trying to imagine infinity; the mind just can't grasp it.

The flipper bought this property at auction for $571,800. They will make a nice margin assuming it sells for near its asking price.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 19 HAZELNUT Irvine, CA 92614

Resale Home Price … $695,500

Home Purchase Price … $571,800

Home Purchase Date …. 6/16/2010

Net Gain (Loss) ………. $81,970

Percent Change ………. 14.3%

Annual Appreciation … 123.5%

Cost of Ownership

————————————————-

$695,500 ………. Asking Price

$139,100 ………. 20% Down Conventional

4.51% …………… Mortgage Interest Rate

$556,400 ………. 30-Year Mortgage

$136,085 ………. Income Requirement

$2,823 ………. Monthly Mortgage Payment

$603 ………. Property Tax

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

$58 ………. Homeowners Insurance

$80 ………. Homeowners Association Fees

============================================

$3,563 ………. Monthly Cash Outlays

-$471 ………. Tax Savings (% of Interest and Property Tax)

-$731 ………. Equity Hidden in Payment

$233 ………. Lost Income to Down Payment (net of taxes)

$87 ………. Maintenance and Replacement Reserves

============================================

$2,680 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,955 ………. Furnishing and Move In @1%

$6,955 ………. Closing Costs @1%

$5,564 ………… Interest Points @1% of Loan

$139,100 ………. Down Payment

============================================

$158,574 ………. Total Cash Costs

$41,000 ………… Emergency Cash Reserves

============================================

$199,574 ………. Total Savings Needed

Property Details for 19 HAZELNUT Irvine, CA 92614

——————————————————————————

Beds: 3

Baths: 1 full 2 part baths

Home size: 1,786 sq ft

($389 / sq ft)

Lot Size: 3,400 sq ft

Year Built: 1985

Days on Market: 7

Listing Updated: 40400

MLS Number: S628132

Property Type: Single Family, Residential

Community: Woodbridge

Tract: Bg

——————————————————————————

This turnkey, single family detached home is located in Woodbridge's terrific Briarglen Tract, which is inside of the Loop, and offers three spacious bedrooms,a dining room, new lighting fixtures, new a/c and many other upgrades for you to enjoy. Take advantage of all that Woodbridge has to offer. HOA's only $80/mo. Enjoy access to two lagoons, 20 pools and rec center. This charmer is move-in ready with freshly painted interior, new granite countertops and gorgeous travertine floors in the kitchen, family room and dining rooms! Master bath has large bathtub, dual sinks, natural lighting. New landscaping and spacious backyard with fruit trees is perfect for entertaining! A must see! No need to preview!

A must see! No need to preview! Please explain to me how that works. Is this a must see, or is there no need to see it?

IHB News 8-14-2010

We are having another IHB party on Sunday, August 22, 2010, at JT Schmids at the District.

Irvine Home Address … 6 PALOS #66 Irvine, CA 92612

Resale Home Price …… $530,000

The other day I got invited to a party,

but I stayed home instead

Just me and my pal Johnny Walker,

and his brothers Black and Red

And we drank alone, yeah,

with nobody else

Yeah, you know when I drink alone,

I prefer to be by myself

George Thorogood And The Destroyers — I Drink Alone

IHB News

We are having another IHB party on Sunday August 22, 2010. The party on August 1 was attended mostly by investors, and we anticipate many will attend the event on Sunday, but I want to make clear that it is open to everyone. If perhaps you are looking to buy in Orange County, and you want to meet an IHB agent. or if you simply want to hang out, have a drink, and talk real estate, we encourage you to attend.

For those of you who previously expressed an interest in the fund (this is not a solicitation), the fund will be closing to new investors on Friday, September 17. I know that seems like a long way off, but it often takes time to free up investment capital, and I don't want you to miss this opportunity. Also, the fund is only open to 35 "Sophisticated" investors, and these slots go in the order I receive the paperwork. If you are planning to invest under the sophisticated investor category, the fund may not have openings through September 17.

I now have over $1,000,000 in firm commitments to the fund, so it will definitely be going forward.

Housing Bubble News from Patrick.net

Fri Aug 13 2010

Debts Rise, and Go Unpaid, as Bust Erodes House Equity (nytimes.com)

Burbank still in housing bubble after 40% decline (doctorhousingbubble.com)

Housing market racking up bad grades (chicagotribune.com)

Metro Detroit house sales fall in July (freep.com)

Housing supply on the rise in South Florida (miamiherald.com)

Florida's largest REMAX real estate company franchise ceasing operations (sun-sentinel.com)

Builders Shrink Houses to Fit Buyers' Newly Modest Tastes (rismedia.com)

With housing oversupplied, deflation is a threat (kansascity.com)

Foreclosures up 6% from last year (finance.yahoo.com)

What's the best way to default on your mortgage? (chicagonow.com)

Fed can't do much more to avoid a double dip (marketwatch.com)

Shiller sees double-dip if jobs aren't created (marketwatch.com)

US Plans More Aid for Jobless Homedebtors; NOTHING for Responsible Renters (nytimes.com)

HUD Offers Interest-Free Loans to Homedebtors; NOTHING for Responsible Renters (businessweek.com)

Housing Summit May Yield Fannie and Freddie Clues (abcnews.go.com)

Assumability: A hidden potential value to FHA loans (old but interesting) (washingtonpost.com)

U.S. Is Bankrupt and We Don't Even Know It (bloomberg.com)

Taleb Says Government Bonds to Collapse, Avoid Stocks (bloomberg.com)

Let's do a WikiLeaks on the SEC (blogs.forbes.com)

No place like demolished home (mv-voice.com)

Thu Aug 12 2010

Good news for buyers, bad new for sellers (startribune.com)

Housing Price Rise Actually A Head Fake (blogs.forbes.com)

Californians' income falls for first time since WWII (sacbee.com)

Low mortgage rates fail to move market (msnbc.msn.com)

Squatting Becoming Way of Life for Delinquent Borrowers (irvinehousingblog.com)

Short sale gridlock is 'dizzying' (mortgage.ocregister.com)

Interview with Patrick (patrick.net)

House Prices: Demographics Giveth and Taketh Away (dmarron.com)

Commercial Landlords Worry As Barnes & Noble Contemplates Alternatives (retailtrafficmag.com)

America Is 'Bankrupt Mickey Mouse Economy': CIO (cnbc.com)

Tracy, CA pair charged in $4.5 million.real estate scam (contracostatimes.com)

Scammy Wells Fargo loses debit card suit (sfgate.com)

Banking failures and swindling wealth from working and middle class Americans (mybudget360.com)

Obama administration to provide $3B in banker, oops, housing aid (finance.yahoo.com)

Inept Repairs Leave Economy Stalling (dukenews.duke.edu)

The Fed is not your friend (theautomaticearth.blogspot.com)

Fed Insiders Can Make Infinite Profits (Mish)

Reagan insider: GOP destroyed economy (Republicans, skip this one) (marketwatch.com)

Australia: Did you remember to sell the house today? (prosper.org.au)

Man Who Fought FBI Spying Freed From "National Security Letter" After 6 Years (wired.com)

Wed Aug 11 2010

Cheaper in San Mateo, CA but still not cheap enough (patrick.net)

Foreclosures increase in affluent Park Ridge and northwest suburbs (chicagonow.com)

"Buy and Bail" Houseowners Get Past Loan Restrictions (bloomberg.com)

Personal income drops 7.1 percent in Naples, Florida (miamiherald.com)

Jobless alarms fall on deaf ears of investors (marketwatch.com)

Fed to resume buying Treasury bonds with newly printed cash (latimes.com)

Top Fed Official Warns Fed Risks Repeating Past Mistakes (huffingtonpost.com)

Quantitative Easing Take II; Uncharted Territory (Mish)

The Federal Reserve's Magma Chart (economix.blogs.nytimes.com)

James Bullard and the Fed's incredible threat (csmonitor.com)

Greenspan: A Charlatan Unmasked (bullionbullscanada.com)

Fannie and Freddie's Foreclosure Barons (motherjones.com)

The peril of false bottoms (atimes.com)

Afraid of deflation? Heres what to do: avoid debt! (bankrate.com)

The Rise and Fall of the Dollar (zerohedge.com)

Realtors got talent (for corrupting our laws with lobbyists) (PDF – sabor.com)

Tue Aug 10 2010

Northeast of Silicon Valley, recession's effects are magnified (latimes.com)

Far From the Poor, Real Estate Woes Nip at Lake Forest (nytimes.com)

Belvedere house up eightfold, but not any nicer than it was (patrick.net)

Unsold Housing Inventory Grows (blogs.wsj.com)

Foreclosed On — By the US (online.wsj.com)

Study Reveals Foreclosures Result of Excessive Debt (irvinehousingblog.com)

Worrying Numbers Behind Underwater Houseowners (dailyfinance.com)

Freddie Mac: $4.7 billion Loss, REO Inventory increases 79% YoY (calculatedriskblog.com)

FHA Insured Mortgages, a Disaster in the Making? (realestatechannel.com)

Housing Insanity: MORE debt, LOWER downpayments (theatlantic.com)

Our Economic Shell Game (taxhome.blogspot.com)

Inflation the Path to Future Deflation (greatdepression2006.blogspot.com)

Billionaire developer Paul Milstein dies (therealdeal.com)

Per Capita Income Falls In Wealthy Bridgeport Metro Area (courant.com)

United States Per Capita Personal Income (bber.unm.edu)

America goes dark (nytimes.com)

The hottest housing market: Information (washingtonpost.com)

The Best Fiscal Stimulus: Trust (miller-mccune.com)

Founding 3-person startup with no revenue better than working for Goldman (adgrok.com)

Mon Aug 9 2010

S.F. house prices drop as distressed sales rise (Case Shiller wrong) (sfgate.com)

Maui house sales show continuing decline in median price (staradvertiser.com)

NYC delinquency rate continues upward as distressed properties list grows (therealdeal.com)

Seller Beware: New "Ideal Buyer" Scam (9news.com)

Real estate called 'poor investment' (lansner.ocregister.com)

Stranguflation: Deflation and Inflation Where it Hurts America Most (huffingtonpost.com)

Deflation it is (theautomaticearth.blogspot.com)

Underemployment 18.4% in all Age Groups (Mish)

Jobless and Staying That Way (nytimes.com)

Are Fed-Up American Workers Getting Their Gumption Back? (newsweek.com)

Calif. deal put Senate candidate Jeff Greene on front line of mortgage mess (miamiherald.com)

Contra Costa's $100,000-plus public pension club grew 25% last year (contracostatimes.com)

Battle Looms Over Huge Costs of Public Pensions (nytimes.com)

Raise My Taxes, Mr. President! (newsweek.com)

A Gift the Wealthy Don't Need (nytimes.com)

Greenspan Calls for Repeal of All the Bush Tax Cuts (nytimes.com)

Housing Policy's Third Rail: Fannie and Freddie (nytimes.com)

Fannie and Freddie Now Part of Federal Budget (PDF – cbo.gov)

But Will It Make You Happy? (nytimes.com)

Are we in control of our own decisions? (ted.com)

Unemployment?

This delinquent owner may be having unemployment issues. The property was purchased on 4/27/2005 for $615,000. The owner used a $492,000 first mortgage and a $123,000 down payment. People generally won't walk away when they are just on the cusp of going underwater and they have such a large down payment. The NOD was filed in April.

Foreclosure Record

Recording Date: 04/16/2010

Document Type: Notice of Default

Irvine Home Address … 6 PALOS #66 Irvine, CA 92612

Resale Home Price … $530,000

Home Purchase Price … $615,000

Home Purchase Date …. 4/15/2005

Net Gain (Loss) ………. $(116,800)

Percent Change ………. -19.0%

Annual Appreciation … -2.7%

Cost of Ownership

————————————————-

$530,000 ………. Asking Price

$106,000 ………. 20% Down Conventional

4.57% …………… Mortgage Interest Rate

$424,000 ………. 30-Year Mortgage

$104,433 ………. Income Requirement

$2,166 ………. Monthly Mortgage Payment

$459 ………. Property Tax

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

$44 ………. Homeowners Insurance

$385 ………. Homeowners Association Fees

============================================

$3,055 ………. Monthly Cash Outlays

-$363 ………. Tax Savings (% of Interest and Property Tax)

-$551 ………. Equity Hidden in Payment

$181 ………. Lost Income to Down Payment (net of taxes)

$66 ………. Maintenance and Replacement Reserves

============================================

$2,387 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,300 ………. Furnishing and Move In @1%

$5,300 ………. Closing Costs @1%

$4,240 ………… Interest Points @1% of Loan

$106,000 ………. Down Payment

============================================

$120,840 ………. Total Cash Costs

$36,500 ………… Emergency Cash Reserves

============================================

$157,340 ………. Total Savings Needed

Property Details for 6 PALOS #66 Irvine, CA 92612

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 1,800 sq ft

($294 / sq ft)

Lot Size: n/a

Year Built: 1975

Days on Market: 370

Listing Updated: 40340

MLS Number: W09083522

Property Type: Townhouse, Residential

Community: Rancho San Joaquin

Tract: Wl

——————————————————————————

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

Enjoy this stunning City light views from the tranquil private end unit . Close to award winning schools, shopping, churches and park. Very close to the golf course. 3 Bedrooms 2.5 Baths, Breakfast nook in kitchen, good size dressing area in master bth, Inside laundry room with direct garage access, Community pool and spa.