Monthly Archives: September 2010

Squatting Among the Rich and Famous

The surprise news story of the housing bubble has been the resurgence of squatting. Banks allow it, so people begin to take advantage.

Irvine Home Address … 46 WHEELER Irvine, CA 92620

Resale Home Price …… $499,000

The way you hold your knife (do-do-do-do do-do).

The way we danced until three.

The way you've changed my life.

No, no – they can't take that away from me.

No, they can't take that away from me.

Frank Sinatra & Natalie Cole — They Can't Take That Away From Me

I recently wrote that squatting is becoming a way of life for many delinquent borrowers.

Of course, this doesn't meet the technical definition of squatting which is possession of real estate without the owner's permission. In this instance, the squatters are technically still the owners of property, so there is nothing illegal going on, but these owners are generally hopelessly underwater and failing to make their mortgage payments. They are in possession of real estate that can be called to auction at the discretion of their lender at any time. Ultimately, they will lose their homes.

Today, we are going to look at other forms of squatting from the traditional adverse possession to the return of former owners who couldn't leave their entitlements behind.

Squatters moving into upscale neighborhoods

With thousands of mansions vacant, some see easy pickings

By Bill Briggs

msnbc.com contributor

updated 9/23/2010

On the big screen, actor Randy Quaid may be best known for his mooching, move-in-and-never-leave character “Cousin Eddie” from National Lampoon's "Vacation” films. Last weekend, he allegedly followed his own Hollywood script.

Quaid and his wife, Evi, were arrested Saturday after they were found living in a guest house on a million-dollar, Montecito, Calif., property Quaid once owned. While Quaid claims his name remains on the deed, the actor and his wife were jailed until they were able to post $10,000 bail.

For those of you who don't read the gossip on TMZ, here is a recap of this bizarre story:

Randy Quaid and Wife Arrested for Burglary

The Quaids — Fifty Percent Punished

Randy & Evi Quaid — Pretty in Pink Handcuffs

Quaids Show Up to Court, Plead Not Guilty

Quaid is hardly alone in his distinctly post-bubble legal trouble. Such high-end "mansion squatting" has becoming an increasingly visible irritant in or near Seattle, St. Louis, Chicago and Los Angeles and probably elsewhere, industry experts say.

And the trend appears to be growing, as the housing bust means thousands of mansions around the country are languishing on the market, often under the control of banks that have foreclosed on them.

“It’s immoral but I do understand, logically, how people get this idea in their heads,” said Tara-Nicholle Nelson, a former Bay Area broker agent and now a consumer educator for the real estate website Trulia.com. “I also think this happens a lot more than we know.”

Yes, it is very easy to understand how this idea gets into everyone's mind: it's because they all see their neighbors doing it. Ask yourself, in your circle of friends and acquaintances, how many people do you know that are not paying a mortgage and living in a property that has no equity? How is that different from squatting? It is because their name is on title? What is title without equity? A lease… except that even a lease requires payment.

Luxury homes that are for sale or foreclosed are often unoccupied and under the care of asset managers who typically may be responsible for a lengthy list of idle properties. Many mansions are isolated, walled, cloaked by trees or otherwise hard for passersby to see.

“Squatters realize these places may not get showing for months at a time,” said Nelson. “That’s what makes these properties more of a target.”

Better the squatter you know than the one you don't? That seems to be the reasoning of banks these days.

Before the recession, squatters were known to slip into average- or bargain-priced homes for short, secret stays. In Oakland, Nelson recalls escorting clients to available, empty properties during which “you walk in and there’s like a shaving kit and mattress on the floor, and you go in the next room and find somebody there.

“Traditionally, this has been something you see more in low-end neighborhoods where there are more people around, where more people need a place, and perhaps where police have higher priorities than checking on a pushed-in door or broken window," said Nelson, who has written about the trend for WalletPop.com, a personal finance news site.

The sad truth is that squatters like that often live in squalor and are frequently the victims of crime.

But squatters have moved into nicer neighborhoods now. Realtor Adam Kruse discovered last February that his company-hired house cleaner was living it up – and sleeping over – at a $2 million, 10,000-square-foot home he had listed in St. Louis. The mansion, owned by an out-of-town seller, was nestled near a golf course and boasted large swaths of open space, a media room and “a gorgeous kitchen (with) really just bedrooms, bathrooms galore,” said Kruse, who works with the Hermann London Group.

I guess local realtors aren't the only ones stuck on the word "gorgeous."

You have to admire a squatter who has the nerve to squat in a multi-million dollar mansion.

After tidying up the place, the house cleaner “started having friends over, too, and drinking and partying and staying there … for days at a time,” Kruse said. The squatting went on for about three months until the cleaner – or one of her “guests” – accidently got locked out.

“We found a broken window by the front door and are to believe that at some point the squatters … needed to break in to get back in,” Kruse said. “We just saw party scenes – remnants that looked very similar to beer pong games.”

The cleaner was fired and no criminal charges were brought against her. The house is no longer on the market.

Upscale squatters have been nabbed in at least three other cities:

  • In Sugar Grove, Ill., a suburb west of Chicago, cops arrested 42-year-old Steven Hawthorne in April 2009 after he moved his furniture and big-screen TV into a vacant, $700,000 foreclosed home. He introduced himself to neighbors as the new owner and stayed for about eight months. Hawthorne, who also managed to have the power, gas and water turned on at the dwelling, was eventually charged by authorities with two felonies, including theft of government property (the utilities).

  • In Malibu, Calif., Wells Fargo executive Cheronda Guyton occasionally occupied a $14.9 million beach house to host swanky social gatherings, according to newspaper reports. One catch: the property’s former owners had lost the home to foreclosure after they were victimized by Bernie Madoff – and the estate was claimed by their bank – that’s right, Wells Fargo. When residents within the gated community glimpsed the parties, they got Guyton’s name from security guards and turned her in. Wells Fargo fired Guyton in September 2009.

  • In the Seattle suburbs, a small group – nicknamed the “Mansion Squatters” – has taken a more creative approach. In June, one of its members, Jill E. Lane, 30, moved into a foreclosed and vacant 8,000-square-foot-home in Kirkland, Wash. valued at $3.3 million. She posted a note on the front door that read: “Privately owned property. Not for sale."

The home takeover attempt also involved James McClung, a former real-estate agent and owner of a business called NW Note Elimination. He reportedly runs that business with Lane. Police soon arrested Lane on a criminal trespass charge.

Lane told the Seattle Times that her squatting was part of a protest movement: “Banks do whatever they want and nobody holds them accountable. It makes me ill to see what the banks are doing. They aren't using their bailout money to help anyone. So I'm standing up for the people who are being brutalized by banks every day."

Ordinarily, I would cheer her on for having such a great attitude. Unfortunately, everything she said is complete and utter bullshit.

In August, McLung apparently tried to stake claims to three more Seattle-area mansions, including a $2.2 million home in Bellevue. He posted similar notes on the doors of all three homes, according to the Seattle Times. Mark von der Burg, real estate agent for both the $3.3 million Kirkland property and for the Bellevue luxury home, did not return several phone messages seeking an interview.

I'll bet he didn't return the phone call. What would he say? He was either complicit in the scheme, or so totally disengaged from his job that he should hide his face in shame.

According to media reports, Lane’s short stay in Kirkland cost von der Burg’s client, a bank, $35,000 in legal fees and locksmith bills as well as increased security and cleaning.

Nelson said the targeted homes in the Seattle area were all owned by failed banks.

The squatters apparently believe "they’re going to come into this gap between ownerships and somehow trick someone into believing they now own this place for real — which is absurd," Nelson said. "Even if the (original) bank fails, somebody owns those assets.”

In St. Louis, Kruse can see why desperate people in some cities are making a bid for a taste of the good life – albeit a temporary one.

“People are seeing all the negative news (about the housing market) and just deciding to be more gutsy and stay in riskier places,” Kruse said. “With all the vacant homes, (they figure) their chances aren’t that bad.”

Isn't squatting just another manifestation of entitlement? The people living in houses they are not paying for are doing so because they believe life owes them something. It doesn't matter to these people that others who actually pay their bills live with less as long as they get what they deserve. The housing bubble has changed both the rich and famous and the ordinary and anonymous and made them into something less.

Squatting among the not so rich and famous

Thanks to the IHB, Irvine has become known as a HELOC abuser's and squatter's paradise. The residents here are generally not as well known, but their ongoing occupation of property they do not own and do not pay for is just as infamous. The owner of today's featured property got a great free ride.

  • This property was purchased on 8/21/1998 for $341,000. The owners used a $272,800 first mortgage, a $34,100 second mortgage, and a $34,100 down payment.

  • On 3/4/2003 they refinanced the first mortgage for $280,500.

  • On 11/10/2003 they opened a $200,000 HELOC.

  • On 9/15/2006 they went Ponzi and refinanced the first mortgage for $637,500.

  • Total mortgage equity withdrawal is $330,600

  • Total squatting time is about 16 months so far.

Foreclosure Record

Recording Date: 06/10/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 03/05/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 07/29/2009

Document Type: Notice of Default

When you see the asking price history, you sense a bit of panic at the bank. Perhaps they were not getting the short sale offers they wanted.

Date Event Price
Sep 20, 2010 Price Changed $499,000
Sep 13, 2010 Price Changed $654,900
Aug 31, 2010 Price Changed $670,000
Aug 27, 2010 Price Changed $679,900
Aug 22, 2010 Relisted —
Aug 03, 2010 Relisted —
Jul 27, 2010 Delisted —
Jul 02, 2010 Price Changed $690,000
Jul 02, 2010 Relisted —
Jun 08, 2010 Delisted —
May 14, 2010 Listed $680,000
Aug 21, 1998 Sold (Public Records) $341,000

The extremes realtors go to attract attention is getting ridiculous. This house will not transact at $499,000. The realtor is playing a game to try to get some bidders into the process with hopes of duping them into bidding higher.

Irvine Home Address … 46 WHEELER Irvine, CA 92620

Resale Home Price … $499,000

Home Purchase Price … $341,000

Home Purchase Date …. 8/21/1998

Net Gain (Loss) ………. $128,060

Percent Change ………. 37.6%

Annual Appreciation … 3.0%

Cost of Ownership

————————————————-

$499,000 ………. Asking Price

$17,465 ………. 3.5% Down FHA Financing

4.31% …………… Mortgage Interest Rate

$481,535 ………. 30-Year Mortgage

$95,362 ………. Income Requirement

$2,386 ………. Monthly Mortgage Payment

$432 ………. Property Tax

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

$42 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$2,860 ………. Monthly Cash Outlays

-$378 ………. Tax Savings (% of Interest and Property Tax)

-$656 ………. Equity Hidden in Payment

$27 ………. Lost Income to Down Payment (net of taxes)

$62 ………. Maintenance and Replacement Reserves

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

$1,915 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,990 ………. Furnishing and Move In @1%

$4,990 ………. Closing Costs @1%

$4,815 ………… Interest Points @1% of Loan

$17,465 ………. Down Payment

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

$32,260 ………. Total Cash Costs

$29,300 ………… Emergency Cash Reserves

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

$61,560 ………. Total Savings Needed

Property Details for 46 WHEELER Irvine, CA 92620

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 2,211 sq ft

($226 / sq ft)

Lot Size: 5,000 sq ft

Year Built: 1985

Days on Market: 136

Listing Updated: 40441

MLS Number: S617205

Property Type: Single Family, Residential

Community: Northwood

Tract: Gr

——————————————————————————

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

Beautiful Lite and Bright 3 Bedroom Home. Breakfast nook in kitchen, formal dining room, large master suite with walk in closet, inside laundry, new flooring. Close To Award Winning Irvine Schools. No Mello-roos, No Association Dues. Offers will be accepted at OPEN HOUSE ONLY Sat. Sept. 25 from 12-3 Home will be sold to the highest & best offer on Saturday.

Do any of you believe this home will be sold to the highest and best offer on Saturday? I hope none of you are that gullible.

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

Can Lenders Underwrite Zero Down Loans Effectively?

Lenders are bringing back 100% financing. Do you believe they can do it effectively? I have my doubts.

Irvine Home Address … 25 LAURELWOOD Irvine, CA 92620

Resale Home Price …… $899,000

Things just couldn't be the same

'Cause I'm as free as a bird now

And this bird you cannot change

Lynyrd Skynyrd — Freebird

Zero down mortgages were a big factor in the inflation of the housing bubble. The debate now is whether or not this form of financing is inherently bad or if that bird can change. This is one Phoenix that probably shouldn't rise from the ashes.

I wrote about the evils of 100% financing in The Great Housing Bubble:

100% Financing is a path to destruction

Once 100% financing became widely available, it was enthusiastically embraced by all parties: the lenders suddenly had a huge source of new customers to generate high fees, the realtors and builders now had plenty of new customers to buy more homes, and many potential buyers who did not have savings were able to enter the market. It seemed like a panacea; for two or three years, it was. There was a problem with 100% financing (which was masked by the rampant appreciation brought about by its introduction): high default rates. The more money people had to put in to the transaction, the less likely they were to default. It was that simple. The borrowers probably intended to repay the loan when they got it, however they did not feel much of a sense of responsibility to the loan when the going got tough. High loan-to-value loans had high default rates causing 100% financing to all but disappear, and it made other high LTV loans much more expensive, so much so as to render them practically useless. It was all part of the credit tightening cycle.

Besides stopping people from saving for downpayments, 100% financing harmed the market by depleting the buyer pool. In a normal real estate market, first-time buyers are saving their money waiting until they can make their first purchase. This usually results in a steady stream of first-time buyers that enter the market each year. When 100% financing eliminated the downpayment requirement, it also eliminated any need to wait. Those who ordinarily would have bought 2-5 years in the future were able to buy immediately. This emptied the queue. This type of financing appears periodically in the auto industry, especially in downturns when it is necessary to liquidate inventory. The term for this is “pulling demand forward,” because it reduces demand for new cars in the next few years. This might not have been a problem if 100% financing would have been made available to everyone forever; however, once downpayment requirements came back those who would have been saving were already homeowners, so there were few new buyers available, and any potential new buyers had to start over saving for the downpayment they thought would never be required. The situation was made worse because those late buyers who were “pulled forward” from the future buyer pool overpaid, and many lost their homes. This eliminated them from the buyer pool for several years due to poor credit and newly tightened credit underwriting standards. Thus, most who thought 100% financing was a dream come true found it to be a nightmare instead.

Mortgages as Options

An option contract provides the contract holder the option to force the contract writer to either buy or sell a particular asset at a given price. A typical option contract has an expiration date, and if the contract holder does not exercise his contract rights by a given date, he loses his contractual right to do so. An option giving the holder the right to buy is a “call” option, and the option giving the holder the right to sell is a “put” option. Writers of option contracts typically obtain a price premium for taking on the risk that prices may move against their position and the contract holder may exercise his right. The holder of an options contract willingly pays this premium to limit his losses to the premium paid if the investment does not go as planned. Most options expire worthless.

Mortgages took on the characteristics of options contracts in the Great Housing Bubble. Speculators utilized 100% financing and Option ARMs with low teaser rates to minimize the acquisition and holding costs of a particular property. The small amount they were paying was the “call premium” they were providing the lender. If prices went up, the speculator got to keep all the gains from appreciation, and if prices went down, the speculator could simply walk away from the mortgage and only lose the cost of the payments made, particularly when this debt was a non-recourse, purchase-money mortgage. Another method speculators and homeowners alike used was the “put” option refinance. [viii] Late in the bubble when prices were near their peak, many homeowners refinanced their properties and took out 100% of the equity in their homes. In the process, they were buying a “put” from the lender: if prices went down (which they did,) they already had the sales proceeds as if they had actually sold the property at the peak; if prices went up, they got to keep those profits as well. The only price for this “put” option was the small increase in monthly payments they had to make on the large sum they refinanced. In fact, on a relative cost basis, the premium charged to these speculators and homeowners was a small fraction of the premiums similar options cost on stocks. Of course, mortgages are not option contracts, and lenders did not view themselves as selling option premiums to profit from the premium payments; however, speculators certainly did view mortgages in this manner and treated them accordingly.

The "put" and "call" option features of mortgages during the bubble are the direct result of 100% financing. Speculators and homeowners have too little to lose to behave responsibly when 100% financing is available. Without increasing the cost to speculators through downpayments or a loan-to-value limit on refinances, speculators are going to utilize these mortgage products in ways they were not intended. There are many expensive lessons learned by lenders concerning 100% financing during the Great Housing Bubble.

With the problems of 100% financing, it is a legitimate worry that we may not want to let that genie out of the bottle.

New Program for Buyers, With No Money Down

By JOHN LELAND

Published: September 4, 2010

MILWAUKEE — When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down.

But on a recent evening, Matthew and Hannah Middlebrooke stood in their new $115,000 three-bedroom ranch house here, which Mr. Middlebrooke bought in June with just $1,000 down.

Because he also received a grant to cover closing costs and insurance, the check he wrote at the closing was for 67 cents.

“I thought I’d be stuck renting for years,” said Mr. Middlebrooke, 26, who earns $32,000 a year as a producer for a Christian television ministry.

The guy is only 26. Perhaps he could save money for a while like everyone else his age that wants to buy a house. Is a no money down house the new entitlement for twenty somethings?

As long as the borrowers are Christian ministers, I guess 100% financing is okay, right? Is this borrower more moral than the strategic defaulters who walked away from zero-down mortgages?

Although home foreclosures are again expected to top two million this year, Fannie Mae, the lending giant that required a government takeover, is creeping back into the market for mortgages with no down payment.

Mr. Middlebrooke’s mortgage came from a new program called Affordable Advantage, available to first-time home buyers in four states and created in conjunction with the states’ housing finance agencies. The program is expected to stay small, said Janis Smith, a spokeswoman for Fannie Mae.

Option ARMs were expected to stay small when they were rolled out too. A niche product with high appeal inevitably is made more widely available, and as these programs expand, buyers enter the market, prices go up, and the problems are masked by another housing bubble.

Some experts are concerned about the revival of such mortgages.

“Loans that have zero down payment perform worse than loans with down payments,” said Mathew Scire, a director of the Government Accountability Office’s financial markets and community investment team. “And loans with down payment assistance” — like Mr. Middlebrooke’s — “perform worse than those that do not.”

The evidence is clear: zero down loan programs have high default rates. Why should we pay the bad debts of the many who default to help the few that don't?

But the surprise is the support these loans have received, even from critics of exotic mortgages, who say low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting.

Moreover, they say, the housing market needs such nontraditional lending, as long as it is done prudently.

Again, the Option ARM is not a bad loan when given to the right people. The problem is that these loan programs are never contained to only the right people.

“This is subprime lending done right,” said John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for 600 community organizations, and a staunch critic of the lending industry. “If they had done subprime this way in the first place, we wouldn’t have these problems.”

At Harvard’s Joint Center for Housing Studies, Eric Belsky, the director, said the loans might be the type of step necessary to restart the housing market, because down payment requirements are keeping first-time home buyers out.

I mentioned that problem above. This is a problem the housing market is going to have to get past. You can't give out 100% loans without having problems. The default rates will be high, and the programs will lose money. Do we really want to replace all the bad loan programs that inflated the bubble with government-run programs of the same ilk?

“If you look at where the market may get strength from, it may very well be from first-time buyers,” he said. “And a very significant constraint to first-time buyers is the wealth constraint.”

First-time buyers are really the only game in town. There is no move-up market while prices decline or stagnate.

The loans are the idea of state housing finance agencies, or H.F.A.’s, quasi-government entities created to help moderate-income people buy their first homes.

Throughout the foreclosure crisis, the state agencies continued to make loans with low down payments, often to borrowers with tarnished credit, with much lower default rates than comparable mortgages from commercial lenders or the Federal Housing Administration. The reason: the agencies did not offer adjustable rates, and they continued to document buyers’ income and assets, which many commercial lenders did not do. In 2009, the agencies’ sources of revenue dried up, and they had to curtail most lending.

Then they created Affordable Advantage. The loans are 30-year fixed mortgages, with mandatory homeownership counseling, available to people with credit scores of 680 and above (720 in Massachusetts). The buyers have to put in $1,000 and must live in the homes.

They keep out conventional investors with these requirements, but the specuvestor homeowner is strongly encouraged to buy a property with the government covering their downside risk. No risk loans are a bad idea.

All of these requirements ease the risk, said William Fitzpatrick, vice president and senior credit officer of Moody’s Investors Service. “These aren’t the loans that led us into the mortgage crisis,” he said.

So far Idaho, Massachusetts, Minnesota and Wisconsin are offering the loans. The Wisconsin Housing and Economic Development Authority has issued 500 loans since March, making it the first state to act. After six months, there are no delinquencies so far, said Kate Venne, a spokeswoman for the agency.

The agencies buy the loans from lenders, then sell them as securities to Fannie Mae. Because the government now owns 80 percent of Fannie Mae, taxpayers are on the hook if the loans go bad.

The US taxpayer is covering the losses of a new breed of speculator-homeowners.

The state agencies oversee the servicing of the loans and work with buyers if they fall behind — a mitigating factor, said Mr. Fitzpatrick of Moody’s.

“They have a mission to put people in homes and keep them in homes,” not to foreclose unless other options are exhausted, he said. The loans have interest rates about one-half of a percentage point above comparable loans that require down payments.

Ms. Smith, the spokeswoman for Fannie Mae, distinguished the program from loans of the boom years that “layered risk on top of risk.”

With the new loans, she said, “income is fully documented, monthly payments are fixed, credit score requirements are generally higher, and borrowers must be thoroughly counseled on the home-buying process and managing their mortgage debt.”

That probably does help.

For Porfiria Gonzalez and her son, Eric, the loan allowed them to move out of a rental house in a neighborhood with a high crime rate to a quiet street where her neighbors are retirees and police officers.

So this mortgage saved her and her son from the evils of drug dealers, gangs, and random violence. Pity the poor renters who have to continue to live in those crappy neighborhoods with pimps and prostitutes.

Ms. Gonzalez, 30, processes claims in the foreclosure unit at Wells Fargo Home Mortgage; she has seen the many ways a mortgage holder can fail.

On a recent afternoon in her three-bedroom ranch house here, Ms. Gonzalez said she did not see herself as repeating the risks of the homeowners whose claims she processed.

“I learned to stay away from ARM loans,” or adjustable rate mortgages, she said. “That’s the No. 1 thing. And always have some emergency money.”

When she first started shopping, she looked at houses priced around $140,000. But the homeownership counselor said she should keep the purchase price closer to $100,000.

A 40% reduction in price must have reduced the quality of the property she obtained a great deal. There is a tradeoff when deciding to purchase less.

“They explained to me that I don’t need a $1,200-a-month payment,” she said.

The counselor worked with her real estate agent and attended her closing. On May 28, Ms. Gonzalez bought her home for $90,500, with monthly payments of $834. After moving expenses, she has kept her savings close to $5,000 to shield her from emergencies.

“If I had to make a down payment, it would have wiped out my savings,” she said. “I would have started with nothing.”

Good thing she had some money to go shopping for furniture, right? How much of that emergency fund do you think she spent? If she didn't, I give her credit for great self-discipline. Most people would blow it on crap for the new house.

Now, she said, she is in a home she can afford in a neighborhood where her son can play in the yard. A neighbor brought her a metal pink flamingo with a welcome sign to place by her side door.

“My favorite part is the big backyard,” said Eric, 10. “And that’s pretty much it.”

“You don’t like it that it’s a quiet, safe neighborhood?” his mother asked.

“Yeah, I do.”

“He didn’t go out much with kids in the old neighborhood,” she said.

“Because they were bad kids,” he said.

Ms. Gonzalez said that owning a house was much more work than renting, and that when the basement flooded during a heavy rain, her heart sank.

“But I look at it as an investment,” she said, adding that a similar house in the neighborhood was on the market for $120,000.

That's a great attitude for zero-down buyers to have. Not. What would she be saying if comps were selling for $85,000?

Prentiss Cox, a professor at the University of Minnesota Law School who has been deeply critical of the mortgage industry, said the program met an important need and highlighted the track record of state housing agencies, which never engaged in exotic loans.

“It’s not a story people want to hear, because it won’t bring back the big profits,” Mr. Cox said. “The H.F.A.’s have shown how the problems of the last 10 years were about having sound and prudent regulation of lending, not just whether the loans were prime or subprime.”

He added, “One of the great and unsung tragedies of the whole crisis was the end of the subprime market.”

What? One of the great virtues of the crash has been the elimination of the subprime market. Why is it a good idea to loan money to people who have proven they cannot save money or make a consistent payment? Subprime borrowers are not stuck in poverty. Subprime borrowers suffer from the consequences of their own life's choices. Unless they prove they can make different choices, they cannot sustain home ownership, and loaning them money is only going to result in losses to the lender.

What do you think? Can no money down mortgages be underwritten prudently?

It's all an illusion

Sometimes I feel a bit sorry for the poor Ponzis in Irvine. There are thousands of Ponzis in communities all over California, but only the ones in Irvine have me looking through their dirty laundry. The illusion in Irvine is that a mob of high-income buyers live the good life. The reality is that many of them are pretending Ponzis that only made it by spending their home appreciation as soon as it appeared. Today's featured property is a Ponzi short sale.

  • The owners paid $750,000 on 8/22/2003. They used a $600,000 first mortgage, a $74,900 second mortgage, and a $75,100 down payment.

  • On 8/5/2004 they refinanced with a $700,000 first mortgage.

  • On 4/26/2005 they obtained a stand-alone second for $44,250.

  • On 11/9/2005 they refinanced with a $738,000 Option ARM and obtained a $220,000 HELOC.

  • On 9/6/2007 they got another Option ARM for $837,615 and a $170,385 HELOC.

  • Total property debt is $1,008,000.

  • Total mortgage equity withdrawal is $333,100.

  • Total squatting time is 10 months so far.

Foreclosure Record

Recording Date: 06/15/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/10/2010

Document Type: Notice of Default

Look at what these people spent, and look at the property they are going to lose because of that behavior. It's sad really.

Irvine Home Address … 25 LAURELWOOD Irvine, CA 92620

Resale Home Price … $899,000

Home Purchase Price … $750,000

Home Purchase Date …. 8/22/2003

Net Gain (Loss) ………. $95,060

Percent Change ………. 12.7%

Annual Appreciation … 2.3%

Cost of Ownership

————————————————-

$899,000 ………. Asking Price

$179,800 ………. 20% Down Conventional

4.36% …………… Mortgage Interest Rate

$719,200 ………. 30-Year Mortgage

$172,824 ………. Income Requirement

$3,584 ………. Monthly Mortgage Payment

$779 ………. Property Tax

$167 ………. Special Taxes and Levies (Mello Roos)

$75 ………. Homeowners Insurance

$170 ………. Homeowners Association Fees

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

$4,775 ………. Monthly Cash Outlays

-$848 ………. Tax Savings (% of Interest and Property Tax)

-$971 ………. Equity Hidden in Payment

$286 ………. Lost Income to Down Payment (net of taxes)

$112 ………. Maintenance and Replacement Reserves

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

$3,354 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,990 ………. Furnishing and Move In @1%

$8,990 ………. Closing Costs @1%

$7,192 ………… Interest Points @1% of Loan

$179,800 ………. Down Payment

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

$204,972 ………. Total Cash Costs

$51,400 ………… Emergency Cash Reserves

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

$256,372 ………. Total Savings Needed

Property Details for 25 LAURELWOOD Irvine, CA 92620

——————————————————————————

Beds: 5

Baths: 3 full 1 part baths

Home size: 2,588 sq ft

($347 / sq ft)

Lot Size: 4,510 sq ft

Year Built: 1997

Days on Market: 82

Listing Updated: 40355

MLS Number: S622100

Property Type: Single Family, Residential

Community: Northwood

Tract: Oakh

——————————————————————————

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

This property is in backup or contingent offer status.

Guard Gated Northwood Pointe. Desirable Oakhurst plan with main floor bedroom and bathroom. Beautiful entry with custom double door and tasteful hardscape. Formal living and dining with vaulted ceilings. Light and bright kitchen with granite counters and breakfast nook opens to family room with fireplace and built in entertainment center. Nice size yard with built in bbq. Walk to Canyonview Elementary and Northwood High School.

Irvine Attorney Sues to Obtain Loan Modification

A local attorney is suing her lender for failing to give her a loan modification. Are loan modifications now an entitlement?

Irvine Home Address … 51 CEZANNE Irvine, CA 92603

Resale Home Price …… $1,849,000

Yeah owe me back like you owe your rent

Owe me back like its money I spent

Pay me back when you shake it again

Nas — You Owe Me

Are borrowers owed a loan modification? Is it a right or an entitlement? Once upon a time, loan modifications were a gift generously offered by a lender — a gift of a lower payment, a reduced interest rate or some other term modified in favor of borrowers as an enticement to keep paying their mortgage. Somewhere along the way, this unilateral change in terms in favor of buyers became something they are supposed to get, something they are entitled to. I am not sure why foolish borrowing should be rewarded this way, but fixing this problem after the fact is so important to the government that many programs exist to make these loan modifications happen, and now borrowers who have tried to use these programs are suing if the loan modification does occur to their satisfaction.

Irvine woman sues over loan mod ‘hoax’

September 17th, 2010 — Marilyn Kalfus

An Irvine homeowner is suing a large national mortgage servicing company, saying they perpetrated a “loan modification hoax” and committed fraud by promising but never granting her a permanent home loan modification.

So this woman is claiming the entire loan modification program was a hoax to induce her to apply for something she probably isn't qualified for. That seems like a stretch to me, but if she can squeeze a few bucks out of the bank, why not?

Jean C. Wilcox, who also is a real estate lawyer, is seeking class-action status on behalf of other homeowners whose mortgages have been serviced by EMC Corporation.

EMC is based in Texas with offices in Irvine. The company used to be owned by Bear Stearns and is now a subsidiary of JP Morgan Chase, which is not named as a party in the suit. The lawsuit was filed by attorneys Anthony Lanza and Brodie H. Smith of Lanza & Goolsby in Irvine and Thomas Mauriello of Mauriello Law Firm in San Clemente.

Wilcox claims in the suit:

“Through its orchestrated loan modification hoax, EMC has induced consumers, including plaintiff, to continue making excess or other unjustified payments in pursuit of illusory permanent loan modifications. EMC has thereby avoided the need to initiate, prosecute and conclude multiple foreclosures … and has avoided the need to liquidate excessive and under-valued real estate inventory … and has artificially bolstered its financial statements, including balance sheets and related SEC filings … by minimizing mandatory reporting of toxic loans, defaulted loans or distressed loans.”

We’re requesting a response from EMC.

Wilcox bought her home in 2004. Three years later, she says in the suit, she refinanced her WAMU purchase money loan with a subprime loan from Freemont Investment and loan, which has since been dissolved. A few months after the refi, she was notified that EMC was her new servicer, but she wasn’t told who holds the loan. She said to this day, she doesn’t know who it is.

I found her mortgage records in my database. She purchased her home for $992,000 using a $695,000 first mortgage and a $297,000 down payment. She opened a $40,000 HELOC shortly thereafter, and she refinanced with an $800,000 loan on 12/29/2006. Perhaps she needed that extra $100,000 to pay for upgrades? It is the $800,000 loan with $100,000 cash out that she is seeking to modify. I'm thinking that if she wouldn't have pulled out that $100,000, she might not need a loan modification. Do we want to reward her behavior?

Wilcox says in the suit that she underwent 4 temporary or trial modifications with EMC but never received the permanent modification that she was promised. The goal posts kept changing, she said, as she was shuttled from person to person at the company.

In the suit she relays the various steps she took to fulfill the requirements she was told she needed to meet to obtain temporary loan mods. She says at one point an EMC employee advised her to stop making payments on her debts because it would prevent her loan from being modified. As she missed her payments, she said, her FICO score plunged. She said she postponed selling her house, while its value decreased significantly, because she was relying on receiving the permanent loan mod.

“I poured every penny I had into this house,” Wilcox, a single mother of two, said in a brief interview. ”We just lavished everything we could on this house. This is our ultimate dream home.”

And all of us are supposed to pay for that stupidity by subsidizing her mortgage. Great!

The lawsuit, filed in Orange County Superior Court, alleges violations of the California Consumers Legal Remedies Act, unlawful, unfair and deceptive business practices, breach of contract, unjust enrichment and fraud.

A judge would have to approve the suit’s class-action status. The law firm of Lanza & Goolsby states on its Website, ”It is estimated that the class may include hundreds or thousands of California homeowners who were victims of EMC’s fraud — while struggling to keep their homes through this recession.”

Investigative Website Pro Publica has delved into the denial of loan modifications in an extensive series of reports. Reporter Paul Kiel wrote in February:

“The largest servicers have lagged in approving homeowners for modifications. Together, those servicers account for more than 60 percent of the 3.4 million mortgages eligible for the program, but very few homeowners have been approved for lasting modifications. About 425,000 Chase customers are eligible for loan mods, according to the Treasury Department. Only a little more than 7,000 have received permanent modifications.”

“There are a number of adverse consequences of a trial period’s dragging on, said the [National] consumer law center’s [Diane] Thompson. Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period. The servicer reports the shortfall to credit reporting agencies, so the homeowner’s credit score can drop. And most important, says Thompson, the homeowner isn’t saving money in case the modification fails and the home is foreclosed. ‘Keeping someone in a trial modification really does not do them a favor,’ she said.”

Earlier this year, borrowers in Washington state and Arizona filed lawsuits against Bank of America over loans that were not modified. Those homeowners also were seeking class-action status.

I don't know about you, but I don't feel good about this lawsuit. The behavior it rewards is troubling to me. All loan modifications are fraught with moral hazard, and if we allow lawsuits to compel them, we are inching ever closer to full principal forgiveness on the backs of the US taxpayer.

BTW, I want to commend Marilyn Kalfus on her great reporting. Lately I have noticed a series of excellent stories from her with hard-hitting truths about the activity in our housing market. Kudos, Marilyn, your good work is noticed and appreciated.

The illusion of wealth

People who live in Orange County are fantastic pretenders. The previous owner of today's featured property lived the good life courtesy of their house.

  • This property was purchased on 4/21/2004 for $1,460,500. The owners used a $1,00,000 first mortgage and a $465,500 down payment. So far so good.

  • On 6/30/2005 they refinanced with a $1,471,458 Option ARM and withdrew their entire down payment plus some extra spending money.

  • On 2/20/2007 they refinanced again with a $1,650,000 first mortgage and a $220,000 HELOC.

  • Total property debt was $1,870,000.

  • Total mortgage equity withdrawal was $870,000 including their sizable down payment.

  • Total squatting time was about 10 months.

Foreclosure Record

Recording Date: 04/13/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 11/20/2009

Document Type: Notice of Default

The property was purchased at auction for $1,485,500 on 7/16/2005. It looks as if the hard money lender put a $1,633,500 loan on the property staking claim to the first $148,000 plus interest. Whoever talked this hard money lender into the deal stands to make the rest — if there is any.

Irvine Home Address … 51 CEZANNE Irvine, CA 92603

Resale Home Price … $1,849,000

Home Purchase Price … $1,485,500

Home Purchase Date …. 8/16/2010

Net Gain (Loss) ………. $252,560

Percent Change ………. 17.0%

Annual Appreciation … 138.8%

Cost of Ownership

————————————————-

$1,849,000 ………. Asking Price

$369,800 ………. 20% Down Conventional

4.52% …………… Mortgage Interest Rate

$1,479,200 ………. 30-Year Mortgage

$362,209 ………. Income Requirement

$7,512 ………. Monthly Mortgage Payment

$1602 ………. Property Tax

$400 ………. Special Taxes and Levies (Mello Roos)

$154 ………. Homeowners Insurance

$410 ………. Homeowners Association Fees

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

$10,079 ………. Monthly Cash Outlays

-$1503 ………. Tax Savings (% of Interest and Property Tax)

-$1941 ………. Equity Hidden in Payment

$620 ………. Lost Income to Down Payment (net of taxes)

$231 ………. Maintenance and Replacement Reserves

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

$7,486 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$18,490 ………. Furnishing and Move In @1%

$18,490 ………. Closing Costs @1%

$14,792 ………… Interest Points @1% of Loan

$369,800 ………. Down Payment

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

$421,572 ………. Total Cash Costs

$114,700 ………… Emergency Cash Reserves

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

$536,272 ………. Total Savings Needed

Property Details for 51 CEZANNE Irvine, CA 92603

——————————————————————————

Beds: 4

Baths: 3 full 1 part baths

Home size: 3,600 sq ft

($514 / sq ft)

Lot Size: 9,327 sq ft

Year Built: 2004

Days on Market: 6

Listing Updated: 40435

MLS Number: S632282

Property Type: Single Family, Residential

Community: Turtle Ridge

Tract: Chau

——————————————————————————

TUSCAN BEAUTY!! Gate guarded in Turtle ridge..Very impressive and emotional neighborhood. Exceptional elevations and endless views. Extenxive stone exterior finishes. The emotion starts at the curb…Enter thru a private gate into the courtyard with cozy fireplace and dramatic water feature. Newly updated with new carpet, paint and lush landscaping. Extensive marble floors downstairs. Gourmet kitchen with granite counters and stainless appliances. Seperate wine room as well with a wrought iron door. Three bedrooms in the main house and a detached casitas with private bedroom/bath and an optional family room which also can be used for a gym or private office. Oversized master suite with walk in closets. dual sinks and large sitting area. Large view windows to give you a light and bright ambiance.Entetainers backyard is complete with extended family room area, built in bbq, fireplace and endless views of the mountains and city lights. MODEL PERFECT!!

Entetainers?

San Juan Capistrano 1bd/1ba 785 sqft condo – $109,900

Our latest Exclusive Access Property is a 1bd/1ba 785 square foot condo in San Juan Capistrano priced at $109,900. This home is not yet on MLS but will be in 7 days. Tenant has been living there for a couple years and wants to stay long term (rent is $1150).

If you want to learn more about this property, please contact Shevy: