Kool Aid Intoxicated Lender Apologizes for Bubble Lies

Some of the biggest participants in the housing bubble are now apologizing for the wanton destruction their actions inflicted on ordinary families.

Irvine Home Address … 4 TONADA Dr Irvine, CA 92620

Resale Home Price …… $519,900

Two vibrant hearts could change.

Nothing tears the being more than deception,

unmasked fear.

"I'll be here waiting" tested and secure.

Nothing hurts my world,

just affects the ones around me.

When sin's deep in my blood,

you'll be the one to fall.

Avenged Sevenfold — Unholy Confessions

Confession is good for a troubled conscience. Many people made huge fortunes duping ordinary families into transactions that ultimately cost them their good credit and their family homes. Last week I noted that Countrywide’s Mozilo Should Go to Jail. Now, a former Freddie Mac employee has come forward to confess that ruining lives was his job, and he was better at it than he would have liked to be.

Housing Guy Apologizes For Housing Bubble

by Chana Joffe-Walt and Adam Davidson — October 22, 2010

Fannie Mae and Freddie Mac have worked for decades to help more Americans become homeowners. Now one former Freddie Mac employee has asked us for the opportunity to apologize for doing such a good job of fulfilling that mission.

Jacob Kosoff used to work as an economist for Freddie Mac's "Mission Department." His job was to look at the loan data each month and promote homeownership. He says his team was full of true believers who called themselves "housers."

This guy was a missionary for the cult of kool aid.

"I thought subprime was the best thing in the world," he says.

It was not until the spring of 2008, just months before Freddie would be bailed out by the federal government, that Kosoff began to question his fundamental belief that owning a home was better than renting.

He mentioned his concerns in the office.

"It was a bit like announcing there was no God — like the idea that housing was like God," he says. "Buying is always better. Listen to your mom, listen to your minister, listen to the government, listen to politicians. Everyone says it's better."

This shows how deeply embedded kool aid has become in our society.

There's one thing in particular that Kosoff would like to apologize for.

While at Freddie Mac, Kosoff managed an online calculator designed to help people determine whether to rent or buy a house. In fact, it's still online — you can see it here.

You plug in the cost of rent, cost of renters insurance, and the price of an equivalent home. Then it asks you to punch in an estimated appreciation rate for the home — how much you think the home's price will change over time. But if you plug in a negative number — if you estimate that the home will lose value — the calculator gives you an error message:

Rent Buy Calculator

Freddie Mac

"I'm sorry that I didn't send an e-mail or work a little harder to get that fixed so the calculator can allow for the possibility of reality," Kosoff says — the reality that housing prices sometimes decline.

Kosoff wonders if some people used the calculator to come to a very bad decision: to buy an overpriced house with a subprime mortgage when they should have rented instead.

Or course people bought based on the results of this calculator. That was the whole point. All the online rent versus buy calculators — with the exception of ours — are designed to ignore costs and exaggerate benefits in order to induce people to buy. These calculators are generally sponsored by some person or entity whose livelihood depends on coercing people to buy.

Freddie Mac says it plans to fix the calculator to allow for the possibility that housing prices do not always go up — a reality we are all living through right now.

Many people have asked me why I don't put in the ability to project forward for inflation of costs and appreciation. There are several related reasons, but the primary among them is that any projection of the future will invariably exaggerate the benefit of ownership. Nearly all prospective buyers and existing homeowners think house prices go up faster than they do. House prices usually track wage growth (about 3%), but most people believe house prices go up two or three times that fast. Many accept that California house prices go up 6% to 10% a year as a truism. It's not.

Steady side income

Orange County is a hotbed for entrepreneurs. Many people either make their living or supplement their living from entrepreneurial activities. Nearly every homeowner in California — or at least all the ones who have been selling their homes over the last 4 years — have been living like entrepreneurs with a steady side income. When people make $80,000 a year and their house provides $40,000 a year, they get to live the OC lifestyle. People from the outside don't get out house prices until they see how paying those prices enables Californian's to live.

  • Today's featured property was purchased on 5/29/1998 for $199,500 according to my records. I think this number is in error because there is a $202,950 first mortgage on the property. In all likelihood, that was an FHA loan, and the real purchase price was $210,000.
  • On 4/21/1999 they obtained a stand-alone second for $11,631.
  • On 9/17/2001 they refinanced the first mortgage for $229,800.
  • On 12/3/2001 they got a $45,000 HELOC.
  • On 7/9/2003 they refinanced the first mortgage for $271,000
  • On 12/9/2003 they refinanced with a $305,000 first mortgage.
  • On 6/18/2004 they opened a HELOC for $122,000.
  • On 7/20/2006 they opened a HELOC for $100,000.
  • On 9/28/2006 they opened a HELOC for $52,882.
  • On 9/28/2006 they opened a HELOC for $47,118. Notice the simultaneous HELOCs. That is mortgage fraud.
  • On 2/20/2008 they refinanced the first mortgage for $400,000.
  • On 7/3/2008 they refinanced again for $399,400.
  • On 12/5/2008 they refinanced with a $398,500 first mortgage. I have to wonder if someone in the family is a mortgage broker.
  • On 4/23/2009 they refinanced with a $410,000 first mortgage.
  • That is 13 refinances or HELOCs in a 10 year period.
  • Total mortgage equity withdrawal is $207,050.

What amazes me about this behavior is that banks continued to support it as late as April of 2009. Isn't it obvious that this borrower has gone Ponzi? I suppose lenders love customers like this as they generate huge fees, but this behavior is exactly what caused banks to loan out too much money to the wrong people during the housing bubble. Apparently, lenders haven't learned anything from that experience.

Irvine Home Address … 4 TONADA Dr Irvine, CA 92620

Resale Home Price … $519,900

Home Purchase Price … $192,000

Home Purchase Date …. 6/17/1988

Net Gain (Loss) ………. $296,706

Percent Change ………. 154.5%

Annual Appreciation … 4.4%

Cost of Ownership


$519,900 ………. Asking Price

$103,980 ………. 20% Down Conventional

4.23% …………… Mortgage Interest Rate

$415,920 ………. 30-Year Mortgage

$98,415 ………. Income Requirement

$2,041 ………. Monthly Mortgage Payment

$451 ………. Property Tax

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

$43 ………. Homeowners Insurance

$285 ………. Homeowners Association Fees


$2,820 ………. Monthly Cash Outlays

-$335 ………. Tax Savings (% of Interest and Property Tax)

-$575 ………. Equity Hidden in Payment

$158 ………. Lost Income to Down Payment (net of taxes)

$65 ………. Maintenance and Replacement Reserves


$2,132 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$5,199 ………. Furnishing and Move In @1%

$5,199 ………. Closing Costs @1%

$4,159 ………… Interest Points @1% of Loan

$103,980 ………. Down Payment


$118,537 ………. Total Cash Costs

$32,600 ………… Emergency Cash Reserves


$151,137 ………. Total Savings Needed

Property Details for 4 TONADA Dr Irvine, CA 92620


Beds: 3

Baths: 2 full 1 part baths

Home size: 1,800 sq ft

($289 / sq ft)

Lot Size: 1,891 sq ft

Year Built: 1977

Days on Market: 93

Listing Updated: 40459

MLS Number: S626236

Property Type: Single Family, Residential

Community: Northwood

Tract: Sd


** REDUCED $20,000 ** you are looking to live in Northwood, this is a must see! Large living room with fireplace, Huge dining area, Family room, Wood flooring, New carpeting, Open kitchen, Large secondary bedrooms, Fireplace in master bedroom, Newer double paned windows & Oversized two car garage.

45 thoughts on “Kool Aid Intoxicated Lender Apologizes for Bubble Lies

  1. winstongator

    For the record and when people go back to these posts, you might want to change conscious to conscience.

    In some ways and in some places owning is better than renting, especially with rates the way they are. The cost of the option of moving when a lease is up is non-zero, as well as other costs relative to owning. There are areas where today the cost to own is much lower than the cost to rent, and this is across property quality/size points. There is also the benefit of being able to customize a home you own – the people who bought our house finished the basement and have put > 10k into building a large backyard patio area.

    That said, for many people renting is better than owning. Also for ALL people renting is better than owning when the cost to own is significantly higher than the cost to rent (some premium is justified).

    There is also the issue of how long someone will live in an area. There are high mobility areas – lots of people move in and out CA & FL are two. There are also areas of lower mobility. If anything there should be less encouraging to buy in higher mobility areas than in lower mobility areas, but the opposite happened.

    1. Geotpf

      As far as I can tell, rents in what I call “non-prime” areas (for example, the Inland Empire) tend to (now) be higher than typical monthly expenses of owning (payments, insurance, taxes, HOA fees, repairs, minus tax benefits). If you live in such an area, have decent credit, enough money for at least a minimum FHA down payment, and plan on sticking around for a least a few years, renting just seems silly. This isn’t true in “prime” areas (Irvine, or even most of LA and Orange County), of course.

      1. winstongator

        My area is central NC, so I’m not sure how the IE relates to us. However, with an area like the IE where you had significant overbuilding there can be renewed downward pressure on prices. This is less of a problem the longer your owning/residing horizon. But if someone is looking at a short-term residence, even at higher monthly costs, renting probably wins out.

      2. gepetoh

        I think a significant part of the country has reached rental parity, and some areas even a reverse parity. I just can’t seem to resist that 1300sf sfr with $20 HOA in Vegas that’s selling for $100K. Even at no down that comes out to $850/mo total outlay, whereas rental on it would be $1000+.

        That said, mobility is obviously a large factor, and frankly I don’t understand the contradiction in public psychology that it is still preferable to own when the trend for years has been towards greater mobility.

        1. Chuck Ponzi

          My brother rents a house in Hesperia for $1350 per month. It was purchased for $140K. An identical house down the street can be bought for $115K right now. Monthly payments with 20% down would be ridiculous compared to the rent.

          In those cases, if you plan on sticking around, it’s cheaper to buy.

          Orange County… not so much.


          1. Planet Reality

            Thats funny because the condo profiled is easily at or below rental parity in Irvine at $2130 a month.

          2. Chuck Ponzi

            With 20% down.

            That’s 104K plus closing costs.

            “at rental parity” to me is not good enough to invest money into. I need superior returns or I’d rather not commit my money.

            But, you’re welcome to make an offer and get it done.


          3. DarthFerret

            PR: “Thats funny because the condo profiled is easily at or below rental parity in Irvine at $2130 a month.

            Yep, it is. *IF* you’re willing to toss well over $100K of your own money at a 1970’s condo that backs onto Irvine Blvd, that is. How many people with that kind of money in the bank are willing to move into a condo? Even in Irvine, that’s a stretch.

            If you move over to FHA financing, this property doesn’t hit rental parity until it drops to $480K.

            We’re gradually reaching rental parity on the condo’s and less-desirable SFR’s *IF* you have 20% down. The rest of the market isn’t far behind, but 20% down isn’t the norm. FHA is the norm.


          4. tenmagnet

            You get rental parity on a dump like this throw-back from 1977.
            Pay the premium for newer product and better location.

          5. Planet Reality

            FHA is not the norm in Irvine. I haven’t seen an update on current DP statistics in Irvine, but last data set I saw had median Irvine DP at 28%. Maybe someone has an update, the norm in Irvine is definitely not FHA 3.5%. The norm is greater than 20%.

            Interest on the down payment is reflected in the rental parity calculation.

          6. Geotpf

            Somebody who is trying to make a profit needs to be able to buy a place at a much lower price point than somebody just doing a rent vs. buy equation, obviously. Vacancy, tenants not paying, tenants trashing the place, advertising costs, etc., add to the costs of being a landlord beyond that of an owner occupier.

          7. lowrydr310

            I’m sorry, but I don’t have much confidence in the “Monthly Cost of Ownership.” The ‘hidden equity in payment’ disappears when you factor in transaction costs when you sell and factor in the likely possibility that you won’t be able to sell for more than what you paid.

          8. alan

            My understanding is that sales volumes are low and a good number of the sales in Irvine are all cash. So wouldn’t the all cash sales inflate the DP number for Irvine. Could you break out the all cash sales from the sales requiring financing to see what the real DP % is?

    2. IrvineRenter

      “For the record and when people go back to these posts, you might want to change conscious to conscience.”

      Done. Thank you.

  2. Planet Reality

    The average inflation of home prices in Southern California over the past 50 years has been around 4.5 – 5.5%, not 3%.

    This condo has an appreciation of 4.4% per year, yawn.

    1. gepetoh

      Up until 4-5 years ago that was at 9%+. Even before the kool-aid drinking it was around 7% in SoCal. I think IR’s point was that this can’t continue, and from now on we should expect more like 3%.

      1. Planet Reality

        The 4.5% – 5.5% growth is in fact a reflection of job growth and income growth in Southern California over the past 50 years which has in fact been greater than almost every other region in the US.

        This is not speculation it’s reality. The condo profiled is not over priced at or below rental parity, but it still could drop in price. Over the long haul I expect trends to continue as they have for the past half century. Hitch your wagon to a prime area with jobs.

        I would not be speculating on Job growth in a region with little future promise, poor climate, poor education, and poor natural resources.

        1. Chuck Ponzi

          What pipe are you smoking?

          show me a house that appreciates at 4.5-5.5% per year, every year over 50 years that doesn’t involve inflation at 4.5-5.5%.

          I still haven’t found one that’s not a wishing price.


          1. Kyle

            Planet Reality, per usual, resides on planet imaginary. He will always believe that there is something “special” about Irvine. I have lived in NYC, Santa Monica, and Minneapolis, and spent significant time in Chicago and Miami. These places are indeed special. Irvine, au contraire, is not. It is a bland, oversized suburb of nothing. Keep drinking the kool-aid, though, because you’re the last of the entertaining deluded posters to this blog (after they used to flock here in hordes from 2006-2008).

            Bottoms up!

          2. Chuck Ponzi

            I might as well buy powdered milk or guns. At least they appreciate respective to inflation, right? That seems to be a better investment than real estate.


          3. Planet Reality

            Irvine is a bland suburb.

            It’s a bland suburb with a great climate, great schools, and wealth of good jobs. It’s a bland suburb that people choose to raise their kids when considering other regional suburbs.

            It’s not NYC or SF. Both regions have more high paying jobs despite the fact that NYC has a lower median income and SF median income is close to the same. Of course SF and NYC both have much higher rents and much higher house prices compared to Irvine.

            Irvine is special in it’s blandness in a sea of other regional suburbs. There are but a handful or regions in the US that have more high paying jobs than the Irvine / LA area.

          4. Renter1

            Could not agree more, well said. I just don’t get what is so special about Irvine that I would pay $520k for such a piece of crap. Please spare me the school and the safest place in the US PR that the Irvine Company is pushing to justify their ridiculous prices. There are hundreds of other regions in the US with the same benefits but half the price point! The only reason keeping me here is my career but I will leave as soon as I can get the next promotion somewhere else…I also don’t see where all the highly paid jobs are. Real estate and subprime financing imploded, leavening thousands of highly paid people unemployed. Law firms, accounting firms, banks everyone was and is laying off people. There are not enough $200k jobs (and that’s how much a household has to make in order to afford a $600k house without taking on too much risk) around here to support these price levels.

          5. matt138

            Home prices outpace inflation when interest rates fall from the high teens to the low 4%s over 30 years.

            Inflation sends wages upward over time and last i checked, wages do not keep pace with the price of goods/cost of living. Real growth? mmmm.

          6. lowryrydr310

            I also don’t see where all the highly paid jobs are. Real estate and subprime financing imploded, leavening thousands of highly paid people unemployed.

            Prior to the real estate bubble, it was .COM everywhere in Irvine. I remember in 1999 seeing all sorts of new signs popping up on buildings with company names all ending in .com.

          7. Tyler D.

            I disagree that “Irvine is bland” argument is “tired” based on home sales, as there is a significant percentage of the population that is bland as well. If you’re talking culturally, aesthetically bland then it is a good observation. Plant R’s points on why Irvine is great are valid, though very “bland” points. I still disagree with the jobs thing. A lot of the jobs in the area have sort of an ambiguous importance…nothing critical, and times change quickly.

  3. FoolishRenter

    Rent vs. owning, or renting vs. borrowing.
    With 3.5% or less down and walkaway loans, it makes financial sense to “borrow” instead of renting. If you can take the hit to your credit score, be a member of the squatter’s club…. I don’t know how long the govt/banks will allow continued squatting for those with govt backed loans and near break even equility.

    I agree with PR this time on job growth: “would not be speculating on Job growth in a region with little future promise, poor climate, poor education, and poor natural resources”

    Quick money is made or lost in those area — boom and long bust. Look at all the ghost towns.

    As for learning from the subprime and bad loans. The banksters did learn their lessons. It’s not my money at risk when the govt will bail me out. I collect from the top, the middle and the end. I don’t risk personal funds. It’s like going to Vegas and collecting all your winning and having the house cover all your losses.

    1. Perspective

      We never considered the benefit of squatting when evaluating whether to purchase/finance a house.

      We would only squat if we ran into serious financial difficulty; but the opportunity to live in your home for ~18 months for free is a huge benefit!

      1. FoolishRenter

        The 18 months of squatting can be viewed as additional unemployment insurance for helping the politicans and banksters. If you rent and don’t pay, you will be out in less than 2 months — your not helping the economy, i.e. banksters. Some of the high negative equility squatters that HELOC/Refin are going on 4 years with money to burn. Your money, so what the …..

        Remember, buy before you’re priced out of the market. I’m waiting to be priced in the market.

        Financially, it make sense to borrow at 96.5% to 100% finance with the walkaway option, but it just doesn’t sit well with me.

        That’s why the world considers me Foolish.

  4. lowrydr310

    I might as well buy powdered milk or guns. At least they appreciate respective to inflation, right? That seems to be a better investment than real estate.


    Designer Handbags…

    I used to scoff at the idea of buying my wife a $3000 purse until I saw this chart:

    Chanel prices vs. US stock market

    1. gepetoh

      So, is there a way to collect ‘Mint’ handbags so that there is no depreciation? Kind of like mint coins? I think watches are in the same category, I bought one 8 years ago and now it goes for twice the price…

    1. Geotpf

      I think some people don’t really need to sell. They list at a high price and will sell it if somebody is willing to buy it at their dream price, but if not, no big whoop. How else can you explain all the listings that have been on the market for hundreds of days, even years?

      1. JDSoCal

        Actually, it looks to me like someone who desperately underwater from buying near peak:

        10/26/2010 Listed for sale $1,100,000
        08/22/2008 Listed for sale $1,439,000
        12/01/2006 Sold $1,435,000

    2. alan

      It’s in the Harbor, but for over 1 mil I would want to be on the water with my own dock. The house is still listed at 2007 market vaule; in 2000 it was $750K and I think that’s what my strike point would be. It will take another three to four years to get there. Of course, after Jerry Brown gets electod, I expect the housing crash to really accelerate as he sucks up all the moonbeams holding prices up.

      1. JDSoCal

        I agree with all of that, unfortunately, except for Brown. He doesn’t strike me as the ‘let the prices fall” guy.

        I’m looking at 92649 but the volumes are so low, it could be a long wait to find my ideal place.

  5. KnotMyFault

    When will a group of people who are in foreclosure man up and say they were wrong as well, and that it wasn’t just the lender’s fault?

    1. AZDavidPhx

      Simi family again locked out of their foreclosed home
      By Stephanie Hoops
      Posted October 26, 2010 at 4:18 p.m

      Sheriff’s deputies evicted Jim and Danielle Earl’s family from their Simi Valley house Tuesday morning and turned it over to the new owner, Thousand Oaks-based Conejo Capital Partners.

      The 11-member family claims they were wrongfully evicted after a foreclosure, and a few weeks ago they forced their way back into the house. Relying on advice from their lawyer, Michael T. Pines, the Earls have vowed to re-take the house again.

      The family wasn’t at home when Ventura County Sheriff’s Department deputies arrived Tuesday and changed the locks. They had spent the night at a rental house. But Tuesday afternoon, Danielle Earl and two of her adult children— Michael, 23 and Shaundel, 18 — went to their house on Mustang Drive and spotted some of their things in the driveway. A sheriff’s eviction notice and a giant “no trespassing” sign hung on the gate.

      They left to call their attorney, and when they returned, Danielle Earl said her things were no longer in the driveway. In their place was a big, white storage bin and she assumed their belongings were in it.

      “Apparently we’re being re-evicted from our home,” she said, referring to the fact that they were evicted in July as well. “In my opinion, they’re stealing my stuff out of my house.”

      Pines called the removal of the family’s belongings “completely illegal” and said he would send armed guards to assist a locksmith in helping them change the locks again. But no one came to the home and by 5 p.m. Danielle Earl said she was leaving.

      Simi Valley Police Lt. Joe May said that since the property had been foreclosed and turned over to the legal owners, the Earls will be considered trespassers, and if they try to re-enter the home they will be arrested.

      The house is in the 5800 block of Mustang Drive. The Earls bought it in 2001 for $539,000 and refinanced in subsequent years, pulling the equity out and resulting in debt of more than $1 million, according to county records.

      1. AZDavidPhx


        It’s probably time for these folks to stop listening to Mr. Pines!

        LOOK! They managed to find a rental! GASP!!! These idiots do know how it works after all!

      2. .

        could i shoot these people if they trespass on my property trying to break in?

        just a grazing shot to the behind.

  6. 90 DOM for a reason

    520k is highly unlikely for this one. The neighbors under contract in the area are both listed in the low 300’s with another one that can’t sale in the high 300’s. The last sale in the area was 406k. Granted this one is a little bigger but they probably won’t make much more (if any) than their last refinance amount.

  7. Jess

    Attorney Michael T. Pines is DESPERATE to get his failing law practice (1 year old) on the map and get more business. Michael T. Pines is calling the MEDIA to come to the properties he’s breaking into to PROMOTE himself and make a spectacle of his unsuspecting clients.

    Michael T. Pines is bankrupt, he can’t save HIS OWN 6 (possibly 7, per the North County Times) foreclosed properties, and it’s important to note: he’s not breaking into his OWN foreclosed properties. Attorney Michael T. Pines LOST HIS OWN HOME and LAWSUIT against EMC Mortgage (see decision below); and is about to lose his 6 other properties which he’s trying to protect in BK. Michael T. Pines not a foreclosure RELIEF expert, he’s a FORECLOSURE expert.

    I just read this online via this link:

    “Recently, a judge called him out for filing frivolous lawsuits and slapped him with a $16,000 judgment that he owes one of his clients for wasting their time and money.”

    Michael T. Pines filed Chapter 11 Bankruptcy on January 11, 2010, he miserably represented himself and it was converted to a Chapter 7 Bankruptcy. Just GOOGLE “MICHAEL T. PINES” to see his background. To date, Pines has NEVER won a case against a mortgage company. Pines sued EMC mortgage regarding his own foreclosure and LOST. The judgments can be found online under UTAH COURTS or these links:


    and here:


    MICHAEL T. PINES has TWO Restraining Orders against him in San Diego County. You can find his Restraining orders on the San Diego County Sheriff’s website. Just type in “PINES” under *Restrained Last Name*. This is the Sheriff’s website:


    Pines’ foreclosed properties are as follows:

    1. 5 South 500 West Unit #1216, Salt Lake City UT 84101
    2. Case # 09-81657 – 1273 22nd Street, Ogden, UT
    3. Case # 09-81658-1246 South Meadow Run, Saratoga Springs, UT
    4.Parcel #010610036- 2336 Madison Ave. – Utah
    5.732 N. Coast Highway 101, Encinitas, CA 92024 – Law office building!
    6. Case # 1171481-21 Murphy Drive, Bella Vista, Arkansas

    Advice to the Zepeda, Bolanos, Earl & Rocha families:

    1- STOP drinking the Michael T. Pines Kool-Aid and SUE MICHAEL T. PINES for his insane legal advice.

    2- File a California Bar Complaint against Pines. His bar # is 77771. You can get the form here: http://www.calbar.ca.gov/Attorneys/LawyerRegulation.aspx

    3- File a FEE DISPUTE with the State Bar of California:

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