A California State Keep Your Home plan tries to funnel $2,000,000,000 to the banks; however, lenders are turning down the money due to the moral hazard of principal reduction.

Irvine Home Address … 7 IRON BARK Way Irvine, CA 92612

Resale Home Price …… $580,000

Well now, the eagle on the dollar says "In God we trust"

You say you won't obey me, you wanna see that dollar first

How long, dear, do I have to wait ?

Can I get you now, dear, mm, must I hesitate ?

Janis Joplin — Hesitation Blues

The government is itching to give banks money, but the banks have to give up a dollar first. This is more than hesitation. Banks won't take the money because they know that giving up that first dollar will encourage moral hazard guaranteed to bring down the banks in the end.

California foreclosure aid fund swells, but banks hesitate

The state's Keep Your Home plan has grown to $2 billion from $700 million. However, mortgage servicers haven't officially agreed to participate in the principal reduction part of the program.

By Alejandro Lazo and E. Scott Reckard, Los Angeles Times — November 10, 2010

Federal funding for a California plan that helps borrowers facing foreclosure has snowballed to $2 billion, enough to potentially help more than 100,000 homeowners.

Is anyone surprised that the cost of this government boondoggle has grown significantly from when it was first introduced? Has anyone seen a program like this get smaller?

But the program lacks formal agreements with the nation's largest banks and investors, and their cooperation is needed to make the proposed effort broadly successful.

Out of the three major mortgage servicers — Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. — only Bank of America has told the state that it will participate in a central part of its Keep Your Home program that would reduce the principal balance of certain troubled mortgages, and even BofA has yet to sign an agreement. Fannie Mae and Freddie Mac have declined to participate in the principal reduction part of the plan.

Wait a minute. How can the GSEs fail to participate in any government program? They are in conservatorship owned and run by the Treasury department. If the GSEs are not participating, then the government doesn't truly believe this is a good idea. This is a deep acknowledgement that the entire program is symbolic politics intended to help no one.

The Keep Your Home program, which uses federal funds reserved for the 2008 rescue of the financial system, is intended for low- and moderate-income people who own only one property. To qualify in Los Angeles County, a family of four couldn't earn more than $75,600. The maximum benefit for any household participating in the program is $50,000.

The income limitation excludes nearly every loan owner in Irvine.

The biggest part of the plan gives $875 million in temporary financial help to homeowners who have seen their paychecks cut or have lost their jobs. The program would provide as much as $3,000 a month for six months to cover home payments, including principal, interest, insurance and homeowner association dues.

Another piece would provide as much as $15,000 to help homeowners get current on their mortgages, and another would provide assistance to move for those people who can't afford to remain in their homes. Most of the big banks and Fannie and Freddie have signaled that they're willing to participate with these parts of the plan.

Look at those massive bank bailouts. Who benefits from a homeowner making payments and getting current on their mortgage? The loan owner? No way. The bank ends up with all the money, and the loan owner ends up with an ongoing mortgage obligation they cannot meet. It delays a few foreclosures for a while, and gives lenders a lot of money. I wonder who designed that program?

But the most controversial part of the program, and the one most difficult for banks and investors to sign on to, dedicates $790 million to principal reduction. This would write down the value of an estimated 25,135 "underwater" mortgages, which are loans in which homeowners owe more on their properties than what they are worth.

All that money, and it is only going to help about 25,000 loan owners? The crash has impacted many more households than what this program will fix.

By making principal reduction part of the program, no bank is going to participate — which is a good thing because this program is a waste of money. Rather than participate in this program, banks would rather lose more money and avoid the moral hazard of principal forgiveness.

The California plan — as well as programs created by Nevada and Arizona — would pay lenders $1 for every dollar of mortgage debt forgiven. Experts say reducing principal on such underwater loans would go far to reducing foreclosures in the three states because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.

Loan owners are more than tempted, they are walking away in huge numbers.

But the financial industry has been reluctant to participate in government-administered programs that would require them to reduce the amount that borrowers owe them.

The reason banks are reluctant to participate is because they are not in a business of giving away money. Once people believe the banks are giving away money, banks become charities and quickly go out of business. Our entire banking system rests of the belief that borrowed money must be repaid. If borrowers believe they can easily get out of repaying financial obligations with no repercussions, the banking system crumbles.

"If you can't do the principal write-down, you are limited in what you can do," said Dan Immergluck, an associate professor at the Georgia Institute of Technology, who studied the different state plans developed with the federal bailout money.

"It is one thing for them to agree not to write down principal when they are being asked to foot the whole bill," he said, "but when the states are agreeing to match this 50-50, it seems rather ridiculous of the servicers and the investors not to agree to this."

It only seems ridiculous to an associate professor who does not understand the moral hazard associated with principal reduction. The banks shouldn't agree to any principal reductions under any circumstances outside of a bankruptcy.

Diane Richardson, director of legislation for the state's housing finance agency, which created the California plan, said she expects other lenders to follow Bank of America's lead once the program is underway.

"Once the program gets going, and other lenders see how successful it is, I think others will come aboard," she said.

Does she really believe lenders will rush to write off billions of dollars in loans and encourage moral hazard?

The Keep Your Home program was slated to begin Nov. 1, but the launch was pushed back until early next year because the effort grew in complexity and size from when it was announced in February.

A government program grew in size and complexity? I am shocked.

Originally, five states in which home values had dropped more than 20% since 2006 were selected to receive $1.5 billion from the Treasury Department's Troubled Asset Relief Program. The program grew to cover states with high unemployment, which included California, and more federal money was added. California was initially slated to receive $700 million when the Treasury approved the state's plan in July. Then even more money was added, resulting in a $7.6-billion program involving 18 states and the District of Columbia.

California, which accounts for 21% of the nation's foreclosure activity, is the largest recipient of the bailout money.

How long do you think California can convince the rest of the nation to support its housing Ponzi scheme? Any money poured into California mortgages by the US taxpayer is money wasted. The rest of America should not responsible for paying the debts of squatters and squanderers in California, nor should they have their tax money diverted here to bail out the lenders that created this mess.

Homeowners in the Golden State also remain deeply underwater, according to recent data. In California, 27.9% of homeowners who owned single-family residences were underwater at the end of the third quarter, according to data released Wednesday by real estate information site Zillow.com. In Los Angeles County, 17.4% of borrowers owed more on their mortgages than what their homes were worth.

Even as the state struggles to get big lenders to sign on, the program has provoked complaints that it's a giveaway to the banks. Critics say property values have fallen so steeply that much troubled mortgage debt is not worth 50 cents on the dollar.

In Las Vegas, it is common to see properties where the debt is double the current mortgage value. When the banks forecloses, it is assured of losing at least half its loan value. If they participate in this program, they can write down the mortgage and get 50% of that loss paid for by the government. This program is obviously a giveaway to the banks. Critics are pointing out the obvious. The government wants to subsidize and encourage moral hazard.

Foreclosures on these homes are so costly that the banks will come out ahead financially by writing down loan balances to keep borrowers in the homes, they contend.

"I don't think we should have to be paying the lenders," said Prentiss Cox, a professor at the University of Minnesota Law School Clinic. "We have already paid them in the form of the bailout, and it seems to me what we need is enforced loan modification, because that is in everyone's interest."

What is an enforced loan modification? All our loan modification programs are stealth bank bailouts which also encourage moral hazard.

Critics also are unhappy that homeowners who refinanced their homes to take cash out of their properties will not be allowed to participate in the program. That will exclude many African American and Latino borrowers in low-income communities who were hustled into loans they did not understand or could not afford, said Yvonne Mariajimenez, deputy director of Neighborhood Legal Services of Los Angeles County.

These borrowers were "enticed by predatory lenders to refinance and pull out equity to pay medical debt, fix their houses and the like," Mariajimenez said.

I find this kind of bullshit particularly offensive.

First, perhaps one in a thousand pulled out equity to pay a medical debt. That is always the first excuse offered, and in most cases, it is not true.

Second, although a small percentage of borrowers put a small percentage of their mortgage equity withdrawal toward "fixing" their houses with pergraniteel, the vast majority spent the vast majority of their HELOC money on cars, vacations, massages and other non-essential consumer goods.

Third, no matter what use people had for this money, why am I supposed to pay for it? Why is the US taxpayer supposed to pay for some HELOC abusers trip to Tahiti and new Porsche?

If people were enticed by evil lenders, let them experience the consequences of their poor decision making, and perhaps they will not repeat their mistake. Give them free money, and they will almost certainly spend their equity again in the next cycle and look for a bailout when the Ponzi Scheme collapses again.

"A disproportionate number were people of color that live in minority communities."

Playing the race card too? Shame on her. Lenders were not discriminating in their targeting of fools.

Getting banks to write down principal has proved difficult through government programs, though some lenders have done it through their own proprietary initiatives. The federal government's loan modification program, which is also funded by money from TARP, has always allowed loan servicers to forgive principal on troubled mortgages, but has never required them to do so.

Proponents of forgiving principal say this is a serious flaw. They contend that debt forgiveness is the only workable way to address the problem created by underwater loans. alejandro.lazo@latimes.com, scott.reckard@latimes.com

Proponents of forgiving principal are idiots. Foreclosure Is a Superior Form of Principal Reduction.

Too good to be true

I'm sure many in Irvine and the rest of America don't pay much attention to financial matters unless something changes. People will pay the same mortgage for years even if great refinancing opportunities exist. But if a sales pitch that is too-good-to-be-true is backed up with real money, the result can be a catastrophic housing bubble.

The sales pitch is easy: "fill out some loan paperwork (with the broker's help), and I will give you a lower payment and $200,000 to spend any way you want." That is a very tempting offer.

Imagine ordinary worker bees paying their bills and watching late-night TV when that sales pitch comes from a subprime lender. Call a number to get free money. The response rates must have been very high.

It only takes one mistake if it's for hundreds of thousands of dollars. And once they go Ponzi, it is only a matter of time before creditor cutoff signals an end of ignorant bliss.

• Today's featured property was purchased on 6/19/2002 for $385,000. The owners used a $308,000 first mortgage, a $38,500 second mortgage, and a $38,500 down payment.
• On 7/16/2003 they refinanced with a $424,000 first mortgage and a $106,000 second mortgage. On that day about a year after buying, they cashed out their $38,500 down payment plus another $68,000 in booty. Not bad for one year of ownership. The extra $68,000 per year income would be a nice ownership stipend.
• On 1/19/2005 they refinanced with a $520,000 first mortgage and a $130,000 stand alone second. That is going Ponzi.

With their final refinance, they put $650,000 in debt on the property. The managed to loot $226,500.

In some ways you have to admire the swashbucklers. The swooped in, took the money, raped and pillaged the economy, and took off without a trace. For most, it must have been a very good time. A worthy adventure. Not a virtuous way to live, but it serves some people.

In the end, all those who went Ponzi is a lost home, a low credit score, and an unceremonious fall from entitlement.

Irvine Home Address … 7 IRON BARK Way Irvine, CA 92612

Resale Home Price … $580,000

Home Purchase Price … $385,000

Home Purchase Date …. 6/19/2002

Net Gain (Loss) ………. $160,200

Percent Change ………. 41.6%

Annual Appreciation … 4.9%

Cost of Ownership

————————————————-

$580,000 ………. Asking Price

$116,000 ………. 20% Down Conventional

4.38% …………… Mortgage Interest Rate

$464,000 ………. 30-Year Mortgage

$111,763 ………. Income Requirement

$2,318 ………. Monthly Mortgage Payment

$503 ………. Property Tax

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

$97 ………. Homeowners Insurance

$179 ………. Homeowners Association Fees

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

$3,096 ………. Monthly Cash Outlays

-$384 ………. Tax Savings (% of Interest and Property Tax)

-$624 ………. Equity Hidden in Payment

$186 ………. Lost Income to Down Payment (net of taxes)

$73 ………. Maintenance and Replacement Reserves

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

$2,346 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,800 ………. Furnishing and Move In @1%

$5,800 ………. Closing Costs @1%

$4,640 ………… Interest Points @1% of Loan

$116,000 ………. Down Payment

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

$132,240 ………. Total Cash Costs

$35,900 ………… Emergency Cash Reserves

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

$168,140 ………. Total Savings Needed

Property Details for 7 IRON BARK Way Irvine, CA 92612

——————————————————————————

Beds: 4

Baths: 2 full 1 part baths

Home size: 1,900 sq ft

($305 / sq ft)

Lot Size: 3,328 sq ft

Year Built: 1966

Days on Market: 286

Listing Updated: 40469

MLS Number: P719994

Property Type: Single Family, Residential

Community: University Park

Tract: Othr

——————————————————————————

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

Back on the Market!!!! Bank already approved for $580,000, they wont take any less. This 2 story home is located in a nice quiet area of Irvine. Features wood and ceramic floors, granite counter tops, the backyard opens up to the park which is near the pool, 2 fireplaces and much more. The home is in excellent condition and a Must See. Thank you and Good Luck.

HOA delinquencies have caused many associations to under-fund their reserves. Are assessments coming to make up for the losses? What other choice does an HOA have?

Irvine Home Address … 14941 GREENBRAE St Irvine, CA 92604

Resale Home Price …… $659,900

The road is long

With many a winding turn

That leads us to who knows where

Who knows where

But I'm strong

Strong enough to carry him

He ain't heavy, he's my brother

So on we go

His welfare is of my concern

No burden is he to bear

We'll get there

Hollies — He Ain't Heavy, He's My Brother

Are you ready to carry your neighbor.

Some time ago, I wrote about the problems California HOAs are having with delinquent properties the banks do not foreclose on.

The amend-extend-pretend policies of lenders is fraught with unintended consequences. The obvious costs to lenders is lost revenue from squatters who get to stay in their homes without making any payments, but lenders are not the only parties involved who aren't getting paid.

Local taxing authorities and Home Owners Associations (HOAs) also are not being paid. The taxes will get paid eventually because property tax obligations survive the foreclosure. Whatever bills the old owners left behind are the responsibility of the new owner. Bills due to HOAs are only paid after mortgage holders are paid in full. Since most delinquent homeowners are underwater, there is no equity left over to pay the HOA bills, and any delinquent amounts are not paid by the new owner. The costs of extinguished HOA dues are passed on to existing homeowners who are still paying their bills.

Home owners associations have only one recourse to compel an owner to pay their dues: foreclosure. In a normal real estate market — one where home owners have equity — the threat of foreclosure is an effective threat; however, when owners do not have equity and they are not paying their mortgage, HOAs have no leverage. HOAs are generally unwilling to foreclose because their ownership position after the foreclosure is subordinate to the surviving mortgages — an HOA foreclosure does not wipe out the superior liens. In other words, HOAs can take possession of an underwater property — which provides them no benefit — and in the process wipe out any claims to back HOA dues. Taking ownership of a property they cannot sell to a dues-paying owner does not help them.

Shared homeownership could mean paying your neighbors' bills

People in condo, co-op and town house communities may have to pick up the slack for missed dues when other owners walk away from their homes or lose them to foreclosure.

By Kathy M. Kristof — November 7, 2010

For those who have a lot of cash or can get credit, this could be an ideal time to buy a house — the foreclosure crisis has pushed prices down and interest rates are way low.

But beware if you are looking to buy a condominium, co-op, town house or other property that's part of a homeownership group. Another side effect of the foreclosure crisis is that you could end up responsible for some of your neighbors' bills.

That's because people in shared ownership communities chip in to pay the cost of maintaining the buildings and amenities such as swimming pools. Also, the funds, usually paid in monthly installments, are often used to pay for landscaping, as well as to insure the structures.

But when individual owners in a group walk away from their homes or lose them to foreclosures, the bills end up getting split by the remaining homeowners.

Sometimes those costs don't get passed on immediately. Instead associations have been known to let bills pile up, creating potentially devastating surprises for owners.

Can you imagine how bad the assessments are going to be in the North Korea towers? The dues there are $998 per month, and probably less than a third of the "owners" are paying them. Assessments of tens of thousands of dollars are inevitable.

"There's really a crisis within a crisis in the shared ownership community," said Gary Poliakoff, coauthor of "New Neighborhoods: The Consumer's Guide to Condominium, Co-op and HOA Living."

The Community Assns. Institute trade group recently reported that more than half of the nation's 310,000 community associations are struggling with "serious" or "severe" financial woes.

Some 59% of association managers reported that more than 3% of homes in their community groups were vacant, the study said, because the owners either had walked away from their mortgages or were unable to rent the homes. Some 65% of associations reported that more than 5% of their homeowners were delinquent on their monthly assessments.

"When some owners, including banks that have foreclosed on homes and now own them, don't pay their share, other homeowners often must make up the difference through higher regular assessments or special assessments," said Thomas M. Skiba, chief executive of the trade group.

If an association determines that it needs to levy a special assessment on homeowners, there's no legal limit on how high that assessment can be. Unlike rent, homeowner dues aren't subject to price controls.

And homeowners can't just decide not to pay. Associations can get legal judgments to allow them to take a portion of homeowners' wages or put liens on their properties.

"You are an owner, not a tenant," Poliakoff said. "You are responsible for paying a share of the expenses, no matter how high they might be."

To help avoid problems, check out the association thoroughly before you buy.

• Dig deep into financial records. Normally you are given a disclosure that reveals the level of dues. But you need more, Poliakoff said. You should get the association's financial statement and find out what expenses the complex is paying, and what percentage of its overall obligations is handled by the dues.

Associations should have a balanced budget that covers both current and anticipated costs, he explained. But an increasing number of associations are either dipping into reserves or putting off prudent saving for anticipated big expenses, such as roof repair, because of the financial crisis.

The Community Assns. Institute survey, for example, said 38% of associations have delayed capital improvement projects, 31% are contributing less to reserves, 23% have borrowed from reserves and 6% have borrowed from banks and other lenders. Any of these factors can be a warning flag of trouble ahead.

• Make sure the association has adequate insurance coverage. Owners normally insure their possessions and the interior of their units, but associations generally hold the policy on structures.

One complex recently burned down and the owners found out too late that the association had cut costs by letting the fire insurance policy lapse, Poliakoff said.

• Check into an association's reserves. Some states require that the associations maintain reserves for any expense that's likely to exceed threshold amounts, such as $10,000. In those states the association must have a reserve study showing what the anticipated costs are, when they're expected to be needed and how much money is set aside to handle them.

If the roof would cost $50,000 to repair and needs fixing each 10 years, for example, you'd expect that nearly half of that anticipated cost would be saved by year five. Even if a reserve study is not legally required, your association should have one.

• Look over the grounds. Some 35% of associations have reduced landscaping services and 12% are asking homeowners to do some work themselves, the Community Assns. Institute study said. If the grounds are not well-maintained, the value of a home is likely to diminish over time.

All good advice.

It's different in Nevada

One of the first things I learned when I started analyzing properties in Nevada is that their HOA liens suvive a foreclosure. Unlike California where this debt is wiped out and the debt is spread to all the owners, in Nevada, HOA liens survive, and like back taxes, they must be paid by the new owner of the property. Being familiar with the HOA problems brewing in Calfornia, I think the Nevada law is a good one.

However, Nevada does create its own problems. There is currently no limit on the collection fees the attorneys for Nevada HOAs can charge. I saw a recent property with a $380 outstanding HOA bill. After all the collection fees were added up, the final bill was over $3,800. That is highway robbery.

The good news is that HOAs in Nevada are solvent and well funded. The bad news is that attorneys are using extortion tactics to make a fortune off collecting for HOAs. In the end, this hurts the banks because they must lower their expectations at public auction because buyers there know they must reserve enough to pay off the HOAs. The more money that goes to paying off the HOAs, the less money is left to recover on the loan.

Ms. Imploding Ponzi

Women were big participants in the housing bubble. Mary Tyler Moore would be proud of the independence demonstrated by the various spendthrifts during the bubble. Of course, swapping dependence upon men for dependence upon lenders isn't real liberation, it's merely becoming a slave to a different master. I wonder how many Ms. Ponzis are seeking out men to bail them out?

• The previous owner paid $293,000 on 4/29/1999. She used a $263,700 first mortgage and a $29,300 down payment.
• On 3/22/2001 she refinanced with a $300,700 first mortgage.
• On 11/14/2002 she obtained a $86,800 HELOC. That taste of kool aid sent her shoppping.
• On 7/2/2004 she enlarged her HELOC to $186,800. What do you think she spent that $100,000 on?
• On 3/16/2005 she obtained a $475,000 Option ARM with a 1% teaser rate and got a $77,000 HELOC.
• On 7/31/2006 she refinanced with a $650,000 first mortgage.
• On 8/30/2006 she obtained a stand-alone second for $125,000.
• On 1/11/2007 she got a third mortgage for $65,000.
• Total property debt was $840,000.
• Total mortgage equity withdrawal was $576,300. That's a lot of trips to Nordstroms.
• She quit paying in mid 2007, and she was foreclosed on in March of 2008.

Foreclosure Record

Recording Date: 03/07/2008

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 12/05/2007

Document Type: Notice of Default

Juggling with knives

The bank foreclosed and wiped out the second and third mortgages. They paid $675,750. The resold the property to the current sellers on 9/10/2008 for $610,000. Apparently the current owners — cash buyers from out of state — are worried about the strength of the market and have decided to sell.

It looks like the current owners improved in the property. Do you think they will get out without losing any money?

Irvine Home Address … 14941 GREENBRAE St Irvine, CA 92604

Resale Home Price … $659,900

Home Purchase Price … $610,000

Home Purchase Date …. 9/10/2008

Net Gain (Loss) ………. $10,306

Percent Change ………. 1.7%

Annual Appreciation … 3.5%

Cost of Ownership

————————————————-

$659,900 ………. Asking Price

$131,980 ………. 20% Down Conventional

4.38% …………… Mortgage Interest Rate

$527,920 ………. 30-Year Mortgage

$127,160 ………. Income Requirement

$2,637 ………. Monthly Mortgage Payment

$572 ………. Property Tax

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

$110 ………. Homeowners Insurance

$50 ………. Homeowners Association Fees

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

$3,369 ………. Monthly Cash Outlays

-$437 ………. Tax Savings (% of Interest and Property Tax)

-$710 ………. Equity Hidden in Payment

$211 ………. Lost Income to Down Payment (net of taxes)

$82 ………. Maintenance and Replacement Reserves

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

$2,515 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,599 ………. Furnishing and Move In @1%

$6,599 ………. Closing Costs @1%

$5,279 ………… Interest Points @1% of Loan

$131,980 ………. Down Payment

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

$150,457 ………. Total Cash Costs

$38,500 ………… Emergency Cash Reserves

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

$188,957 ………. Total Savings Needed

Property Details for 14941 GREENBRAE St Irvine, CA 92604

——————————————————————————

Beds: 4

Baths: 2 full 1 part baths

Home size: 2,300 sq ft

($287 / sq ft)

Lot Size: 5,289 sq ft

Year Built: 1974

Days on Market: 16

Listing Updated: 40481

MLS Number: S637295

Property Type: Single Family, Residential

Community: Orangetree

Tract: Othr

——————————————————————————

Great Cul-de-sac inside tract location. Remodeled Kitchen with added Eating area. Upgrades in Kitchen include Granite Counters, upgraded cabinets, stainless steel appliances, wood flooring, Plantation Shutters and French Windows. Inside laundry area. Spacious Master bedroom with Balcony. Fireplace in Spacious Living room that has vaulted ceilings. Great Home!

With both prices and interest rates going down, affordability is expected to improve throughout 2011.

Irvine Home Address … 29 EARLY Lgt Irvine, CA 92620

Resale Home Price …… $1,000,000

You're holding me down (Oh Oh)

Turning me round(Oh Oh)

Filling me up with your rules(Oooh)

I've got to admit it's getting better (Better)

A little better all the time (It can't get no worse)

I have to admit it's getting better (better)

It's getting better

Beatles — Getting Better

With falling interest rates and falling prices, affordability in many markets is better than before the bubble began to inflate. Affordability has never been as good as it is now in Las Vegas. Even Orange County is affordable relative to its unaffordable history. If interest rates remain low and prices continue to fall, affordability will continue to improve throughout the year.

Zillow 30-year FRMs hit new low at 4.07%

by CHRISTINE RICCIARDI — Tuesday, November 9th, 2010, 3:48 pm

The 30-year, fixed-mortgage rate decreased after a stable two weeks, to new record low at 4.07%, according to the Zillow Mortgage Marketplace weekly update.

Zillow said the current 15-year, fixed average rate is 3.51% and the rate for a 5-1 adjustable rate mortgage is 2.91%. That type of mortgage maintains a steady rate for five years and then is adjusted annually thereafter.

Regionally, 30-year rates vary, but the majority of states witnessed a deflation. New York's average rate fell 30 basis points to 3.98% last week, down from 4.28%. Rates in Florida fell substantially also, down to 4.02% from 4.13% the previous week, California's rate decreased to 4.04% from 4.15%, and Texas saw its average rate disintegrate to 4.11% from 4.17%.

Pennsylvania's current rate of 4.08% is down from 4.11% last week. Colorado's average rate for a 30-year fixed mortgage shrunk to 4.10% from 4.14% at Nov. 2.

Washington's 30-year FRM increased to 4.12%.

Zillow bases its averages on real-time mortgage quotes from lenders registered with the company. The national average comes from thousands of daily quotes by anonymous borrowers through the Seattle-based company's website.

As mortgage demand continues to flag at historic lows, the pool of available money chasing that demand has been lowering its interest rate asking price to find a borrower. Each lower level increases payment affordability for buyers. Of course, this affordability is somewhat illusory because the debts are still very large. And Low Interest Rates Are Not Clearing the Market Inventory. Therefore prices will continue to fall, and as they do, affordability will improve even more.

Zillow: Home price depreciation to worsen market into 2011

by CHRISTINE RICCIARDI — Wednesday, November 10th, 2010, 10:53 am

Predictions for the fourth quarter housing market continue to dim as Zillow's third quarter market report released Wednesday suggests further house price depreciation through the end of the year.

September home prices depreciated 0.4% from August and 4.3% from one year a go to a national average of $179,900, according to the report. This is the 17th consecutive quarter of home price declines.

Zillow reported that nearly two-thirds (64.2%) of homes in the U.S. lost value between the third quarter of 2009 and the third quarter of 2010, and 27.3% of home sold in September were sold for a loss.

On Tuesday Foresight Analytics said residential, commercial, and construction loan delinquencies are expected to rise.

Delaware witnessed the most home price depreciation since 2009, down 18.5% to $174,700 in September 2010. California's home prices appreciated since 2009, up 1.9% to $337,200.

Approximately one in every 1,000 mortgaged homes in the U.S. was liquidated in September, according to Zillow, marking the highest liquidation rate the firm has recorded since it started tracking data in 1996.

The chart above is a good illustration of the workings of the banking cartel. Up through mid 2008, they kept pace with delinquencies so foreclosure rates rose quickly. When lenders saw that this was doing to prices in subprime areas where the delinquencies were concentrated, they collectively decided to stop foreclosing, allow squatting, and form a massive shadow inventory of unprocessed foreclosures on delinquent loans.

At first they were successful as the foreclosure rate declined, and prices began to stabilize. However, with any cartel, there is incentive to cheat and liquidate your holdings while prices are still high. The foreclosure rate has crept higher since the market superficially bottomed in early 2009. The result has been elevated inventories, and finally a reduction in prices.

Each of the last five years, housing inventory bottomed on December 31 and rose steadily through the spring. In 2008 and 2009, inventory was restricted and took out the end-of-year low. In 2010, we are poised to finish the year at levels similar to 2007 when the inventory rose from 795 houses to nearly 1300 in July of 2007. If we see inventory climb that high again next year, prices will certainly move lower.

The firm sees the liquidation rate remaining elevated because of an increase in negative equity rates. According to the report, the negative equity rate during the third quarter was 23.2%, up from 22.5% in the second quarter.

Foreclosure resales reached a near-peak level in September accounting for 20.1% of all sales made during the month. The peak percentage of sales attributable to foreclosure resales was in March 2009 at 20.5%.

Zillow said the firm doesn't expect home prices to hit rock bottom until the first half of 2011, but concluded that "the length and severity of the current turndown is fast approaching the length and depth of the Depression-era."

Zillow data is based on real-time mortgage quotes from lenders registered with the company. The third quarter report is available on their website and includes interactive charts and graphs broken down by state and by metropolitan statistical area.

Once prices are below rental parity for an owner occupant, how much lower does it have to go before you are motivated to buy? It is going to take a combination of enticed owner occupants and cashflow investors to stabilize the housing market.

What most people fail to understand is that this purging of debt and the economic problems that entails is for the long term benefit of the economy. As affordability improves, new buyers are spending less of their income on housing and more of it on other goods and services. The economy will not improve until the debt is purged, but the process will not be painless.

Freddie Mac says foreclosure problems may drain recovery

by JON PRIOR — Friday, November 12th, 2010, 10:46 am

Freddie Mac economists said recent problems in the banks' foreclosure processes could slow what little momentum the recovery holds, and perhaps send the housing market down to a new low.

In the broader economy, October payrolls, manufacturing production and consumer spending picked up in the third quarter. Housing, the October job report and struggles in other major economies are keeping the recovery too gradual.

"There has been a spate of good news in recent weeks that suggests the fears earlier in the year about a so-called 'double dip' recession were overblown," according to the report. "The recovery, though, remains too sluggish to do much good right now for the unemployment rate or the housing market."

Banks and the government-sponsored enterprises, including Freddie Mac, are working through the glut of foreclosures that is hampering credit lines. Many including Bank of America, JPMorgan Chase, Ally Financial and Wells Fargo had to begin resubmitting improperly signed affidavits in many states, delaying that work and pushing down foreclosures in October.

Freddie Mac, itself reported $120.1 billion in nonperforming assets in the third quarter, up 33% from a year ago, and more than $6 billion in REO that needs to be sold.

Even with the Federal Reserve's plan to purchase $600 billion in Treasury securities through quantitative easing, Freddie still expects "sub-par" growth in GDP over the near term with a slow acceleration through 2011.

"The sluggish nature of the recovery means the unemployment rate will likely remain at or above 9% through much or all of next year, with a decline in unemployment only gradually providing relief to the housing market," according to the report.

Investors buying in safe haven markets like Orange County are betting that incomes are going to rise. With 9% unemployment and no real prospect for recovery, it isn't likely that salaries will be going up soon. We will likely see some inflation as the Federal Reserve tries to print enough money to jumpstart the economy. This inflation will not make its way into wages; therefore, it will not put upward pressure on house prices.

Tell the second mortgage holder to pound sand

The reason short sales take so long is because the holder of a worthless second mortgage is trying to get money from insolvent debtors. The only power the second mortgage holder has is the ability to say no to a short sale.

In a foreclosure, the second mortgage's lien against the property is extinguished. Many borrowers think this means their debts are gone, but that is not the case. The debt survives as unsecured. Only the real estate is released from the debt claim.

If you look at the mortgage history and the listing history on this property, you see the negotiation and posturing of the borrower and the holder of the impaired second mortgage note. The final price reduction is the borrower giving that lender the bird.

• This house was purchased for $1,482,500 on 12/29/2005. The owner used a $1,000,000 first mortgage and a $482,500 down payment.
• On 8/7/2006 he refinanced the first mortgage for $1,000,000.
• On 2/6/2007 the obtained a $500,000 HELOC. I don't think he used the HELOC.
• On 10/19/2009 — about a year ago — he obtained a $444,507 second mortgage.

I think it is this mortgage lien holder that is negotiating with the insolvent borrower to resolve the debt. The asking price history is each player betting their cards in this negotiation of bluffing and posturing. The end game is often a delayed sale or a foreclosure. The bickering parties need to release the property back into the system.

If this lender and seller had someone willing to pay $1,390,000 back in May, they should have taken the deal. When they relisted, they found no takers.

The last price drop was the seller telling the second lien holder, "this is your problem, you figure out what you can get for it." If the house sells for $1,000,000, the first mortgage would be made whole, and the second mortgage would be entirely wiped out. Whatever this house nets for over $1,000,000 is how much of the lenders $444,507 they will get back.

Irvine Home Address … 29 EARLY Lgt Irvine, CA 92620

Resale Home Price … $1,000,000

Home Purchase Price … $1,482,500

Home Purchase Date …. 12/29/2005

Net Gain (Loss) ………. $(542,500)

Percent Change ………. -36.6%

Annual Appreciation … -8.0%

Cost of Ownership

————————————————-

$1,000,000 ………. Asking Price

$200,000 ………. 20% Down Conventional

4.38% …………… Mortgage Interest Rate

$800,000 ………. 30-Year Mortgage

$192,695 ………. Income Requirement

$3,997 ………. Monthly Mortgage Payment

$867 ………. Property Tax

$325 ………. Special Taxes and Levies (Mello Roos)

$167 ………. Homeowners Insurance

$142 ………. Homeowners Association Fees

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

$5,497 ………. Monthly Cash Outlays

-$947 ………. Tax Savings (% of Interest and Property Tax)

-$1077 ………. Equity Hidden in Payment

$320 ………. Lost Income to Down Payment (net of taxes)

$125 ………. Maintenance and Replacement Reserves

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

$3,919 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$10,000 ………. Furnishing and Move In @1%

$10,000 ………. Closing Costs @1%

$8,000 ………… Interest Points @1% of Loan

$200,000 ………. Down Payment

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

$228,000 ………. Total Cash Costs

$60,000 ………… Emergency Cash Reserves

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

$288,000 ………. Total Savings Needed

Property Details for 29 EARLY Lgt Irvine, CA 92620

——————————————————————————

Beds: 5

Baths: 4 full 1 part baths

Home size: 4,162 sq ft

($240 / sq ft)

Lot Size: 6,180 sq ft

Year Built: 2005

Days on Market: 209

Listing Updated: 40494

MLS Number: S10041925

Property Type: Single Family, Residential

Community: Northwood

Tract: Pt

——————————————————————————

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

Luxurious estate in northwood gated community built by Fieldstone homes. Open floor plan has spacious living room and dining area. Hardwood flooring throughout the house. Attractive gourmet kitchen has upgraded Cabinet, Counter top, wine cooler, and Appliances. Each bedroom has built-in cabinets in the closet. Additionally cabinets in the garage area provides even more storage space. You will enjoy upgraded bathrooms with stone tiles. Built in media center in the family room. Outdoor amusement park style Swimming Pool and Spa, and Built-in BBQ grill with refrigerator. Wine cooler and Built in cabinet & bathroom in the attic (3rd floor). Owner spend over $200,000 in upgrade thoughout the house. Already Bank approved and ready to close ASAP. Property sold "as is". The house is in good condition.

I'm not making this up. The CAr really said this.

Irvine Home Address … 16 CREEKWOOD 67 Irvine, CA 92604

Resale Home Price …… $549,900

The time has come

To say fair's fair

To pay the rent

To pay our share

The time has come

A fact's a fact

It belongs to them

Let's give it back

Midnight Oil — Beds are Burning

I wrote about the home mortgage interest deduction in detail back in January of 2009 in Tax Policy and Housing:

Debt Subsidies

Debt subsidies, in particular the home mortgage interest deduction, are seen as a great benefit to home ownership. The benefit is widely overestimated and misunderstood.

First, people fail to understand that to obtain a debt subsidy, you must have debt. You must be making an interest payment on this debt in order to qualify, and you get to reduce your tax burden by a small percentage of the interest amount. In short, you are paying a dollar to save a quarter. There are people who actually seek to maximize their interest payments in order to increase this subsidy. This is really, really foolish. Anyone out there who believes it is a good idea to spend $1 to receive $0.25 in return, please send me as much money as you wish, and I promise to send back 25% of it.

Realtors try to con people with the "throwing your money away on rent" argument. Homeowners buy into the fallacy. Interest is the rent on money. You throw away money on interest just like you throw it away on rent. In fact, people who overpay for housing throw away more money on interest than renters do to obtain the same property, even after the tax subsidy. The only argument one can make for paying extra interest is if you are receiving a return on that investment through property appreciation. We all see how that is turning out.

The main reason the benefits of the home mortgage interest deduction are overestimated is because people forget they must give up the standard deduction in order to obtain it. This is one area where tax policy can have hidden and indirect impact on housing. Changes in the standard deduction greatly impact the benefit of the home mortgage interest deduction. As the standard deduction is increased, the positive impact of the HMID is decreased. In fact, if the standard deduction were doubled, the average American holding a $150,000 mortgage probably would not bother itemizing to obtain the HMID because it would be of no tax benefit at all. This would certainly simplify people's tax returns. A higher standard deduction is also a boon to renters who do not have the option of obtaining the HMID.

When we set up the RentVsOwnulator, we put in a 25% tax benefit from the HMID. Some people have commented that this is too small a number. It is not. Several people have run the calculations both with and without the HMID, and the net difference is only 25% even at the highest tax brackets. Basically, if you want to figure out your real tax benefit, take your highest marginal tax rate and subtract 10%. That will be a much closer estimate to reality. This reduction is caused by losing the standard deduction.

Another facet to the HMID is the cap level. Currently mortgages up to $1,000,000 are eligible for the deduction. Does anyone think this is right? Do you realize you as a taxpayer are subsidizing $1,000,000 mortgages? When the GSEs were set up, they established a conforming loan limit. The reason they did this is because they are mandated to subsidize mid and low income housing. Why is the limit on the HMID any higher than the conforming loan limit from the GSEs? Why are we subsidizing high income borrowers?

If we were to reduce the HMID cap level to $500,000 and adjust it by the CPI going forward, we are still subsidizing relatively high income borrowers ($500,000 is still almost triple the median home price in the US). A reduction in this cap would have the same impact as the lower GSE conforming limit is having: it would lower prices at the high end by eliminating the subsidies.

IMO, the government has no place in subsidizing house prices that are well above the median. One can argue that the government should not be subsidizing anything in housing, but the low and middle income subsidies are here to stay. If we raise the standard deduction and lower the HMID caps, we can greatly reduce the impact of the HMID and the cost we pay for it as taxpayers. This would have the effect of lowering prices on more expensive homes, but it would help stabilize the lower end of the market. That is what the market needs right now.

I wonder if anyone on the Obama commission is an IHB reader?

Obama commission considers limits to mortgage interest tax deductions

by JON PRIOR — Wednesday, November 10th, 2010, 4:37 pm

The National Commission on Fiscal Responsibility and Reform, proposed limiting the mortgage interest rate deduction on taxes, one of the primary incentives for owning a home.

Silly me, I thought providing shelter was a primary incentive for owning a home.

President Obama created the bipartisan commission in February to provide options on overhauling the tax system and reducing the national deficit. According to a November report, one option excludes citizens from deducting interest payments on second residences, home equity loans or mortgages over $500,000.

The current cap on the HMID is $1,000,000 for first mortgages, and $100,000 for HELOCs. Basically, the commissions proposal would most effect cities like Irvine where high wage earners borrowing between $500,000 and $1,000,000 get to take advantage of this tax break.

Every Irvine home owner should contact their congressman and demand they resist this option. This tax increase is aimed squarely at the upper middle class wage earners in places like Irvine. It will take both your income and your property values.

Of course, don't expect us lowly renters to give you much support.

Other options would be to tax dividends and capital gains at the ordinary rates. The commission said its extensive plan would reduce the deficit by nearly $4 trillion through 2020. Cutting mortgage interest rates was, expectedly, met with resistence from the housing industry.

Michael Berman, chairman of the Mortgage Bankers Association, warned that now is not the time to be cutting back incentives.

"The mortgage interest deduction is one of the pillars of our national housing policy, and limiting its use will have negative repercussions for consumers and home values up and down the housing chain," Berman said.

Lawrence Yun, chief economist for the National Association of Realtors even told the Wall Street Journal that limiting the mortgage interest deduction would bring on another recession.

"We share the widespread concern over the growing national debt and want to help identify reasonable solutions," Berman said, "but we cannot support proposals that would chip away at the foundations of the real estate market."

Apparently, the California Association of realtors didn't think Lawrence Yun went far enough in his use of ridiculous scare tactics.

The CAr is pulling out the heavy artillery….

California Realtors say cutting mortgage interest tax deduction will devastate nation

by JON PRIOR — Thursday, November 11th, 2010, 5:03 pm

Santa Clara County Realtors Association President Karl Lee warned that limitations to the mortgage interest deductions a presidential commission is considering would devastate the national economy.

Home prices in the affluent California county increased roughly 6% to $699,174 in October, according to the association. It's up 11% from a year ago. The National Commission on Fiscal Responsibility and Reform, proposed two options in their efforts to overhaul the tax system. One was to reduce how much homeowners could deduct by 20%, and the other was to exclude second residences, home equity loans or mortgages over $500,000.

Each of those ideas are good ones. The impact would be to make debt more expensive and thereby less desireable. Another thing I would add is that they should raise the standard deduction so fewer people would gain advantage from itemizing and taking the HMID.

"This policy will immediately and unnecessarily reduce the net worth of many American households," Lee said.

Reducing the home mortgage interest deduction would certainly take much of the air out of the bubble. It would reduce loan balances, and thereby lower offers of new buyers. This will lower prices for homes in areas where loans exceed $500,000. It would immediately reduce the net worth of homeowners in those areas. However, this policy would not impact anyone else. New buyers would be taking on less debt — which is a good thing. Renters would no longer be subsidizing the debts of homeowners through tax incentives — which is a good thing. And tax revenues would increase — which is why the commission is considering it.

Isn't this objection really an admission that our current system of home values is a debt-dependant Ponzi scheme?

"Limiting mortgage interest deductions will also result in domestic job losses in many core American industries that are directly or indirectly impacted by housing."

Nonsense. Homebuilders can adjust to whatever price levels the market will offer. If you drive around Las Vegas, you see signs for new home developments with houses selling for less than $90/SF. They built and sold the same houses for $250/SF four years ago. The people most impacted by this price change would be owners of raw land who would see their depressed values remain low for a very long time. As long as the resale price of the home exceeds the cost of production, homebuilding — and all its associated employment — will do fine.

Santa Clara County is seeing some improvement in the market. In October, more than 1,000 home sales closed, a 4.5% decrease from September, but it was the lowest monthly decrease in five months. The inventory of homes on the market dropped nearly 7% in October.

The lowest decrease in five months is an improvement? That is really spinning.

"Removing a significant homeownership incentive is a short-sided answer to our larger national debt problem, a solution that in reality will drive the country into a deeper economic crisis," Lee said. "Every American, regardless of income status or geography, should oppose limiting mortgage interest deduction."

There are only two consituencies that should oppose the changes to the HMID offered by the commission: (1) homeowners with mortgages over $500,000 — which isn't very many people, and (2) raw land owners in the path of development — which is very few people. Everyone else should be in favor of these changes because everyone else is sending their tax dollars to the two effected groups every year through the tax break.

The fear in the comments of the realtors is obvious. The self-serving nature of those comments is equally obvious.

Typical Irvine Ponzi Investor

When people invest in real estate in Irvine, they expect the property to appreciate in value, and they further expect this appreciation to be convertible to cash by a stupid bank complicit in the Ponzi scheme. When house prices rally, this works out well. The investor gets much more money from the property than rents generate, and the bank gets an increasing loan balance, more interest payments, and higher profits. If it weren't for the fact that it is a Ponzi scheme guaranteed to blow up, it is a great arrangement for both parties.

• This property was purchased on 4/7/2003 for $383,000. The owner used a $306,400 first mortgage, a $57,450 second mortgage, and a $19,150 down payment.
• On 7/15/2004 the owner refinanced with a $412,500 first mortgage.
• On 8/29/2007 he refinanced again with a $437,500 first mortgage.
• He defaulted about a year later, and squatted off and on for about three years.

Foreclosure Record

Recording Date: 06/30/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 03/29/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 04/27/2009

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 12/10/2008

Document Type: Notice of Default

This loan was finally put out of its misery on 8/6/2010 when the property was purchased by a flipper for $426,500. Condos in this zip code are currently selling for $311/SF which would put the price of this property at $511,906. They have already lowered their wishing price once, but they still appear to be about $40,000 over market.

What do you think this will sell for?

Irvine Home Address … 16 CREEKWOOD 67 Irvine, CA 92604

Resale Home Price … $549,900

Home Purchase Price … $426,500

Home Purchase Date …. 8/6/2010

Net Gain (Loss) ………. $90,406

Percent Change ………. 21.2%

Annual Appreciation … 106.1%

Cost of Ownership

————————————————-

$549,900 ………. Asking Price

$109,980 ………. 20% Down Conventional

4.21% …………… Mortgage Interest Rate

$439,920 ………. 30-Year Mortgage

$103,846 ………. Income Requirement

$2,154 ………. Monthly Mortgage Payment

$477 ………. Property Tax

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

$46 ………. Homeowners Insurance

$335 ………. Homeowners Association Fees

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

$3,011 ………. Monthly Cash Outlays

-$353 ………. Tax Savings (% of Interest and Property Tax)

-$610 ………. Equity Hidden in Payment

$166 ………. Lost Income to Down Payment (net of taxes)

$69 ………. Maintenance and Replacement Reserves

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

$2,282 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,499 ………. Furnishing and Move In @1%

$5,499 ………. Closing Costs @1%

$4,399 ………… Interest Points @1% of Loan

$109,980 ………. Down Payment

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

$125,377 ………. Total Cash Costs

$34,900 ………… Emergency Cash Reserves

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

$160,277 ………. Total Savings Needed

Property Details for 16 CREEKWOOD 67 Irvine, CA 92604

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 1,646 sq ft

($334 / sq ft)

Lot Size: n/a

Year Built: 1977

Days on Market: 15

Listing Updated: 40485

MLS Number: S636494

Property Type: Condominium, Residential

Community: Woodbridge

Tract: Th

——————————————————————————

UPGRADES GALORE!!! This gorgeous 3 bedroom townhome is located in Woodbridge, one of Irvine s premier neighborhoods. This spacious and open layout has Dual Master Suites, with a possible 3rd bedroom downstairs. The home is turnkey and ready to be lived in. There is a long list of recent upgrades which include brand new stainless steel appliances, granite countertops, distressed hardwood floors, designer paint, crown moldings and baseboards, new fixtures and much more. There is a private backyard patio, an enjoyable indoor fireplace, and an attached 2-car garage.

The neighborhood has many amenities such as beach clubs, lagoons, kayaks, sailboats, tennis courts, swimming pools/spas, banquet rooms, and many recreational parks (including children's areas) within the four square miles making Woodbridge a community of interest to anyone who enjoys outdoors and luxury. The surrounding schools are wonderful and right at your doorstop. This home is a MUST SEE!

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