The published figures for negative equity doesn't account for necessary sales discounts, sales costs, and realtor commissions. The true negative equity rate is much worse.

Irvine Home Address … 38 WILLOWGROVE Irvine, CA 92604

Resale Home Price …… $559,900

Well I know, I miss more than hit

With a face that was launched to sink

An' I seldom feel, the bright relief

It's been the Worst Day Since Yesterday

If there's one thing I have said

Is that the dreams I once had, now lay in bed

As the four winds blow, my wits through the door

It's been the Worst Day Since Yesterday

Fallin' down to you sweet ground

Where the flowers they bloom

It's there I'll be found

Hurry back to me, my wild calling

It's been the Worst Day Since Yesterday

Flogging Molly — The Worst Day Since Yesterday

Almost a quarter of all homeowners with a mortgage are underwater. It's a staggering number. But the effective home equity is worse than the officially reported figures would suggest. Since selling a house has a cost paid by the seller, 6% to 10% of home equity is pulverized to grease the wheels of commerce. That being the case, a prolonged period of stagnant home prices immobilizes the population. With no equity to pay the transaction costs of leaving, homeowners with less than 10% equity are effectively underwater.

IMO, the actions taken by lenders, the Federal Reserve and our government to create an artificial bottom in house prices is going to drag this problem out for years. Ultimately, not letting home prices fall will be viewed as a mistake.

When a market bottoms and prices start moving up slowly but consistently, the buyers during the bottoming phase begin to have equity in their properties. Once prices rise off the bottom, sellers with newfound equity raise their bids on prime properties, and the move-up market adds to the sales volumes. It is the additional demand of move-up buyers with equity that lifts the market out of the doldrums.

By creating the false bottom at a price higher than what the market would have, the powers-that-be prevented the formation of a true and durable bottom, and none of the buyers during the period of the false bottom will have the equity to get out. We trapped several more years worth of buyers in their homes and delayed their move-up purchase.

Buyers who are selling their current house to obtain another — move-up buyers — usually form 25% of the market activity. Today it is effectively zero. Thanks to the manipulations of the market, it will be effectively zero for several more years. In a market suffering from sales rates 30+% below historic norms, the move-up buyer segment is urgently needed. Unfortunately, these buyers cannot be manufactured.

Negative Home Equity Is Worse Than You Think

By: Diana Olick — Wednesday, 15 Dec 2010

There was a lot of talk last week about how negative equity, now at 22.5 percent of all homes with mortgages, according to CoreLogic [CLGX 18.20 -0.06 (-0.33%) ], will affect the housing recovery. Then mortgage rates popped up to 5 percent overnight, thanks to the 10-year Treasury, and more folks voiced concern over today's potential home buyer and his or her ability to take advantage of this low-priced housing market.

Owing more on your mortgage than your home is currently worth doesn't necessarily mean you can't afford your monthly mortgage payment or that you're going to go about your day any differently, other than feeling a little financially depressed. While it may make some more likely to walk away or "strategically default," most won't.

It does mean that you can't use your home to pay for anything, like a new car or your kids' college tuition, and it does mean that you can't move up to a nicer home without having to take a hit by paying off your mortgage with whatever stash of cash you have. Now here's the issue: The move-up buyer (which is the market we're counting on now to get us out of this mess, given that the home buyer tax credit pulled a lot of first-time buyer demand forward to the beginning of 2010). A significant number of move-up buyers, even if not underwater on their mortgages now, may be in a negative equity position when it comes to buying a new home.

Let me just preface that if you happen to be wealthy independent of your home, or a relative just died and left you a sizeable chunk of cash, this doesn't apply to you. Now here goes. Mortgage expert Mark Hanson makes an excellent point and did some math, which I want to share:

"In order to sell and re-buy, a homeowner must receive enough proceeds from the sale to 1) pay off the mortgage(s), 2) pay a Realtor 5-6 percent and 3) put a 3.5-20 percent down payment on a new vintage loan," begins Hanson, and those alone may be too financially off-putting in today's economy for many potential buyers.

"Effective negative-equity is the big weight on housing that has no easy or quick cure," continues Hanson.

His math:

* Real effective negative-equity as it pertains to house selling and buying starts at:

* <9.5% positive equity for FHA repeat buyers (6% Realtor fee + 3.5% down payment)

* <16% positive equity for Fannie/Freddie repeat buyers (6% Realtor fee + 10% down payment)

* <26% for Jumbo repeat buyers (6% Realtor fee + 20% down payment)

When lowering Corelogic's negative equity threshold to 75% on CA mortgages, 53% are effectively underwater.

And I would add to Hanson's logic, that CoreLogic also noted that an additional 2.4 million borrowers are in a "near-negative equity" position, with less than 5 percent equity in their homes. That puts them out of the move-up market as well.

With rising mortgage rates, even if they don't go much higher, the "effective" negative equity rate of the move-up buyer will impact recovery, slowing sales as more buyers/demand are priced out of the market.

The negative equity situation is a lead weight on the mid to high end of the local housing market. Most of the people who can afford to buy these houses already have, and they are locked up in that 53% of California mortgages effectively underwater (for 20% down buyers). The effect of so much mortgage equity withdrawal is to leave so many potential buyers are hopelessly underwater on their existing mortgages that they are removed from the buyer pool. It is only a matter of time before many of these people become supply when they sell, but they will create no demand as they move to the rental pool.

18 months of squatting and 18 months in shadow inventory

• Today's featured property was bought on 3/2/2006 near the peak for $745,000. The owner used a $633,250 first mortgage and a $117,750 down payment.
• They refinanced on 6/25/2007 with a $632,000 Option ARM and opened a $78,000 line of credit.
• They quit paying in late 2007 or early 2008. They did not pay for more than 9 months.

Foreclosure Record

Recording Date: 01/08/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 06/06/2008

Document Type: Notice of Default

The property was taken back by the bank on 6/11/2009 where it has rotted in shadow inventory for 18 months until it was listed for sale.

Irvine Home Address … 38 WILLOWGROVE Irvine, CA 92604

Resale Home Price … $559,900

Home Purchase Price … $745,000

Home Purchase Date …. 3/2/2006

Net Gain (Loss) ………. $(218,694)

Percent Change ………. -29.4%

Annual Appreciation … -5.9%

Cost of Ownership

————————————————-

$559,900 ………. Asking Price

$111,980 ………. 20% Down Conventional

4.87% …………… Mortgage Interest Rate

$447,920 ………. 30-Year Mortgage

$114,223 ………. Income Requirement

$2,369 ………. Monthly Mortgage Payment

$485 ………. Property Tax

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

$93 ………. Homeowners Insurance

$337 ………. Homeowners Association Fees

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

$3,285 ………. Monthly Cash Outlays

-$403 ………. Tax Savings (% of Interest and Property Tax)

-$551 ………. Equity Hidden in Payment

$210 ………. Lost Income to Down Payment (net of taxes)

$70 ………. Maintenance and Replacement Reserves

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

$2,610 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,599 ………. Furnishing and Move In @1%

$5,599 ………. Closing Costs @1%

$4,479 ………… Interest Points @1% of Loan

$111,980 ………. Down Payment

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

$127,657 ………. Total Cash Costs

$40,000 ………… Emergency Cash Reserves

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

$167,657 ………. Total Savings Needed

Property Details for 38 WILLOWGROVE Irvine, CA 92604

——————————————————————————

Beds: 3

Baths: 1 full 2 part baths

Home size: 2,040 sq ft

($274 / sq ft)

Lot Size: n/a

Year Built: 1978

Days on Market: 26

Listing Updated: 40505

MLS Number: S639895

Property Type: Condominium, Residential

Community: Woodbridge

Tract: Gr

——————————————————————————

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

Large attached single family home with granite counters in kitchen, cozy fireplace in living room, large walk-in closet in master bedroom, lovely arched doorways, high vaulted ceilings and a private rear courtyard with in-ground spa. Needs a little TLC, but has great potential! Close to schools, parks and North Lake!

.

Banks are again encouraging strategic default with their policies. This time they are reducing the FICO score impact because they want to keep the credit card business going with strategic defaulters.

Irvine Home Address … 8 CARMICHAEL Irvine, CA 92602

Resale Home Price …… $790,000

This is a thing I've

never known before

It's called easy livin'

This is a place I've

Never seen before

Now I've been forgiven

Easy livin’ and I've been forgiven

Uriah Heep — Easy Livin'

One of the major fears people have concerning acclerating their mortgage default is that they will be cut off from future borrowing by a lowered FICO score. This fear is important to the functioning of the system because if people do not fear the ramifications of default, many more will default, and bank losses will mount.

Back in April Io wrote Fannie Mae Encourages Strategic Default by Reducing Punishment Time for New Loan. Now, lenders are succumbing to pressures from the credit card side of their business to lessen the impact of mortgage delinquency. Will make enough on the credit cards to make up for what they will lose by encouraging strategic default?

Are Mortgage Defaulters Getting a Pass?

Posted by Stephen Gandel — Tuesday, December 14, 2010 at 1:13 pm

It appears not paying your mortgage won't hurt your credit as much as you think.

The New York Times reports that banks, in an effort to boost their credit card business, are courting customers who decided to default on their home loans. So-called "strategic defaulters," who walk away from their mortgage loan because they owe more than their house is worth, are now apparently considered to be good potential customers. Voluntarily choosing foreclosures was once seen as financial suicide. It was assumed that banks would shun those that didn't end up paying back their home loans. But it turns out that was more of a threat by the banks. That's good news from the millions of Americans who are underwater on their homes. But if banks are truly giving strategic defaulters a pass that could lead to a new wave defaults, and more pain for their mortgage lending divisions and the housing market in general. This seems like another dumb move for the banks and for our economy. Here's why:

The banks' credit card businesses have taken a hit from the recession and new financial regulations. So they need new customers. The question is where will they get those customers. In the past two years, many people have had problems paying off their debt. Others are already over leveraged. So in that context it would seem that people who walked away from their homes would make good candidates to be new credit card customers. First of all, they could have kept paying their loans. Second, most strategic defaulters are now all of a sudden much more debt free, especially if they chose to become renters. That may mean they are even a less risky borrower.

The truth is, strategic defaulters probably are better creidt risks after the default. It will be much easier for them to make payments once they don't have to pay the huge mortgage.

The problem is that while there have been a significant number of strategic defaulters, there are millions more who are underwater and still paying their mortgages. On Monday, research firm Corelogic reported that there are nearly 11 million homes around the country that are worth less what borrowers owe on those houses. That was down from a peak of 11.3 million homes in the beginning of the year. But it is still a lot. According to Corelogic, 22.5% of all homeowners with a mortgage are now underwater. Worse, home prices have started to fall again. If values were to drop another 5%, Corelogic estimates the number of borrowers who owe more than they own would jump 2.4 million.

Not all of these people will end up defaulting. Many borrowers, out of love for their house or obligation, will choose to continue to pay even if it makes more financial sense to walk away. Still, we have come a long when from the moral outrage that was once associated with walking away from your mortgage. And that makes sense to me. When a bank makes a home loan they should realize they are taking on real estate risk as well as credit risk. They share the risk of falling home prices along with the consumer. So individuals should have a right to stop paying on their mortgage if it will improve their finances. If banks want to keep them paying, they should have to offer incentives, like the very good Responsible Homeowner Reward Program.

I don't think banks should run special programs that encourage people to keep paying their debts. People should do that anyway. If they don't repay their debts, they are not extended credit in the future. Obtaining future credit is what motivated borrower behavior. People will do whatever they have to in order to obtain that next loan. Usually that means continuing to pay the last one.

Yet, I think shunning those customers that do end up walking away from their mortgages is a good thing as well, for the banks and for the economy. For the banks, even offering tacit approval for strategic defaulting seems like another dumb move. Even if many of the loans were sold off to investors, banks lose money when people stop paying their mortgages. And while I haven't done the numbers, my guess is that they would lose more money from the added defaults than they gain from the new card business.

Second, one of the problems that led to the financial crisis was too much risk. Strategic default should be one of the mechanisms that helps to deleverage the economy. But if the people who walk away from their mortgage just become the pool from which banks pitch high-cost credit cards, then financial healing process we need won't happen.

Lenders don't want to see deleveraging even if it sit he best thirng for our economy. The banks don't care about the economy. They only care about making the most money they can by keeping people in a state of indentured servitude. Bankers would be elated if people could borrow their way to prosperity and keep all their bad debt alive and active.

In many cases, second mortgage debt including old HELOCs simply become revolving credit debt that is no longer secured by real estate. Strategic defaulters opt to continue paying on second liens to keep access to the line of credit.

I agree with this author that the banks shouldn't be giving strategic defaulters access to easy credit so soon after the default. Word will get out, and people will have one less reason not to walk away from their mortgages.

Irvine Home Address … 8 CARMICHAEL Irvine, CA 92602

Resale Home Price … $790,000

Home Purchase Price … $876,000

Home Purchase Date …. 4/26/2004

Net Gain (Loss) ………. $(133,400)

Percent Change ………. -15.2%

Annual Appreciation … -1.5%

Cost of Ownership

————————————————-

$790,000 ………. Asking Price

$158,000 ………. 20% Down Conventional

4.87% …………… Mortgage Interest Rate

$632,000 ………. 30-Year Mortgage

$161,165 ………. Income Requirement

$3,343 ………. Monthly Mortgage Payment

$685 ………. Property Tax

$267 ………. Special Taxes and Levies (Mello Roos)

$132 ………. Homeowners Insurance

$146 ………. Homeowners Association Fees

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

$4,572 ………. Monthly Cash Outlays

-$812 ………. Tax Savings (% of Interest and Property Tax)

-$778 ………. Equity Hidden in Payment

$296 ………. Lost Income to Down Payment (net of taxes)

$99 ………. Maintenance and Replacement Reserves

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

$3,376 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$7,900 ………. Furnishing and Move In @1%

$7,900 ………. Closing Costs @1%

$6,320 ………… Interest Points @1% of Loan

$158,000 ………. Down Payment

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

$180,120 ………. Total Cash Costs

$51,700 ………… Emergency Cash Reserves

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

$231,820 ………. Total Savings Needed

Property Details for 8 CARMICHAEL Irvine, CA 92602

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 2,249 sq ft

($351 / sq ft)

Lot Size: 3,701 sq ft

Year Built: 2001

Days on Market: 16

Listing Updated: 40522

MLS Number: C10124820

Property Type: Single Family, Residential

Community: Northpark

Tract: Cust

——————————————————————————

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

BANK OWNED HOME!!! Beautiful Home in Highly Sought after Gated 'NORTHPARK' Community. Desirable Corner Lot Location! Home has 3 Bedrooms Plus Downstairs Office/Den that Could be Converted to 4th Bedroom. Tiled Entry/Living Room, Guest Bath Downstairs with Pedestal Sink, Open Modern Kitchen with Granite Countertops & Center Island with Space for Wine Refrigerator. Kitchen is Open to Family Room with Granite Fireplace, French Doors Open Up to Back Patio/Dining and Family Room Area, Spacious Master Suite with Walk In Closet and Dressing Area, Two Sinks Separated by Corner Bathtub with Tiled Floors in Master Bath. Upstairs Separate Laundry Room. Crown Molding and Ceiling Fans Included in this Exquisite Home! SUBMIT OFFERS BEFORE IT GONE!!!

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

The cartel of banks holding prices up are openly stating their contempt for the families of today's buyers and forcing them to pay inflated prices to obtain their American Dream.

Irvine Home Address … 26 LEWIS Irvine, CA 92620

Resale Home Price …… $584,900

Time for the final bow,

Rows of deserted houses,

All our stable mates highway bound.

Give us our measly sum,

Getting the air inside my lungs is heavenly,

Starting out, with nothing but crippling debt.

We'll rest easy justified.

Death Cab for Cutie — Stable Song

When you read trade publications you get a point of view on issues that is often unbiased by the political correctness of the mainstream media. I found the article today in www.bigbuilderonline.com written to interested parties in the homebuilding industry. The article in bold in its statements that the banking cartel is colluding to hold up prices. There is a matter-of-factness about the articles tone that says this activity is just and desirable. I think the bank's behavior sucks.

Banks holding onto foreclosed homes to keep market stable

Source: San Bernardino County Sun

Publication date: December 2, 2010

By Toni Momberger, San Bernardino County Sun, Calif.

Dec. 02–Inventory is low all over the area, and there are frustrated buyers among us.

They have saved a 3.5-percent down payment. They have an income and good credit. They want to take advantage of today's low prices and low interest rates. They tried to get the $8,000 tax credit.

They've made dozens of offers in the past year.

How can there be so little available when so many have lost their homes to foreclosure?

The properties are not all being released.

Banks are intent on screwing buyers. They are knowingly and intentionally withholding inventory in a futile attempt to sustain bubble prices — prices that were never supported by incomes.

Ultimately, the banks will fail to keep prices high. Competition among cartel members to liquidate their shadow inventory will put pressure on prices, and if the process drags on long enough affordable housing advocates may finally apply some political pressure to force government action.

"My understanding is there's between 1.2 (million) and 1.6 million in California alone," said Robert Laguna, an agent with ReMax Masters in Covina.

"Inventory has been diminished considerably, so they have to release some of these properties."

Shadow inventory, also called ghost inventory, is the population of houses that banks already own through foreclosure, but have not released to the market.

No, shadow inventory is both bank-owned properties not on the market and future foreclosures from currently delinquent borrowers. It is the latter group that is by far the largest segment of shadow inventory.

A small portion of the shadow inventory is a result of banks' being overwhelmed. The homes may just not have gotten processed yet.

But everyone seems to concur that most properties are being held to prevent another market crash.

And only a few vocal opponents are pointing out the problems with this approach. Lenders and loan owners fall on one side of this issue, and renters and buyers stand on the other.

"Fannie Mae and Freddie Mac own most," said Laguna. "The government said it doesn't want to flood the market with properties, because if it did, the properties will depreciate. Values will go down."

Adam Quinones of Mortgage News Daily added on MND site's NewsWire, "To reduce the cost of maintaining the condition of foreclosed properties, banks have delayed the liquidation process

and allowed delinquent borrowers to remain in their homes."

People who are not paying their mortgage or rent are living in property they don't own without paying for it. That is squatting by another name.

"In addition to that, by delaying the liquidation of foreclosed properties, banks have avoided large asset value write-downs."

Failing to recognize losses by avoiding the write down is amend-extend-pretend. This farce will ultimately shake confidence in our accounting and financial reporting systems here in the US. If not for the implied protection of our major banks as too-big-to-fail, investors would be avoiding our banks for lack of transparency and likelihood of bankruptcy.

Laguna said the key is to release some, then let the market stabilize, and repeat the cycle until all of the shadow inventory is bought.

"They have to release them in waves, not in tsunamis. They have to be very careful how they release them. They can't release them too slowly, because they'll drag it on for years and years."

How The Lending Cartel Disposes Their REO Will Determine the Market’s Fate.

Part of the frustration is that 3.5 percent means the buyers are planning on a Federal Housing Administration loan.

Because of the high default rate, the FHA has become pickier about the condition of homes it'll take as collateral.

"What banks are releasing in the marketplace are REOs that need work. FHA offers will be rejected in favor of conventional loans, so banks don't have to fix the house."

Banks are required to get three job bids per improvement.

They don't have the resources to deal with it. As a result, "very rarely does an FHA offer get chosen," Laguna said.

FHA loans always end up on the bottom of the list of seller's preference. There are so many costs and fees, and the hurdles to overcome that can kill escrows. FHA buyers are riskier candidates to fall out of escrow after wasting months of time in the process.

It can be argued that the cumbersome FHA process should be cumbersome so competitors can provide money under better terms and make a profit. The FHA is the lender of last resort, and right now it is three times the market share (25%) than normal (8%-10%).

If they're not immediately liveable — for instance, if the wiring has been yanked, or the toilet's gone — no bank will fund the purchase. Those houses must be bought with cash, and are often going to investors.

With foreclosures composing most of the transactions today, obviously, not all of the shadow inventory is being held.

Laguna said most of the houses not owned by Fannie Mae and Freddie Mac are getting released, and some government- owned properties are going on the market.

"How (Fannie and Freddie) decide what to release, I don't know," he said.

If you watched a family moving out of your dream home, and have been waiting for the sign to go up, you may just have to wait. Shadow inventory is not easy to buy.

Shadow inventory is impossible to buy. That is part of the problem.

.

Shadow inventory is composed of many delinquent borrowers many of whom are attempting short sales. When the short sale gets held up for months as owners and lien holders negotiate, the property is not effectively for sale. It is that rare gem under glass you can look at but can't touch. You know it's there, and it's ostensibly for sale, but it can't transact without approvals from lien holders that are not forthcoming.

None of the delinquent borrowers in this part of shadow inventory have gone through foreclosure. The bank does own them. The delinquent and most often underwater borrower has nothing and is paying nothing while this drama plays out.

Shadow inventory also consists of properties banks have foreclosed on and they now own. These properties may be renovated to sell, some are rented out, but many simply sit empty gaining no rental income and serving no family as a home. This inventory is considered shadow because it is not for sale on the MLS, but it will be someday soon because it isn't generating banking revenues sitting empty.

When I think of shadow inventory, I am not concerned about the stuff the banks already own. The inventory banks own but are not actively selling is not that large. It is the upcoming inventory from the delinquent borrowers that is the big, scary number. Millions of borrowers are not making their payments, and loan modification programs are not succeeding in resolving the the problem. Short sales are not working either. Foreclosure is the option everyone is trying to avoid, but it is exactly what is needed to get past this problem.

Laguna suggests starting by contacting a Realtor. Realtors have access to profiles and who owns the notes to houses.

"Sometimes the bank doesn't even know who would make the decision. You have to research that," he said.

"It's difficult to make an offer. The bank may say its Realtor has to be in charge. Then the Realtor says he hasn't got the listing yet."

After a foreclosure, there's a trustee sale, so all of the shadow inventory was for sale for at least a moment during the process. One of the consequences of shadow inventory is a high number of vacancies, which are targets for squatters and vandals.

"I don't know if vacancies are depreciating the market, because comparables use sold properties, but vandalized homes may make a neighboring conventional homes harder to sell," Laguna said. "Cities are being tougher and tougher on those properties, but there's just so many of them."

Whether property has been released for sale, the title holder of any property is responsible for basic maintenance. For example, pool water may not be green; lawns may not be brown.

Laguna said the city will impose a deadline for signs of neglect to be remedied.

After the deadline, there may be $1,000-a-day fine until the home is in compliance. If that fine is unpaid, the city may put a lien on the title. That property then cannot be sold until the lien is cleared.

"Every city is different.

Some (lien blemishes) follow the house; some follow the previous owners."

Laguna says buyers should not let the possibility of shadow inventory's release cause reluctance.

"Is it a good time to buy, with all this property about to come on the market? I think so. If I could afford it, I would buy. Who's to say how they're going to release it? The deals you can get on some of those properties now is incredible, and the interest rate!"

It's a good time to buy if you believe a cartel of lending interests that control the sale of millions of properties can hold price levels above what people can realistically afford and divest themselves of all their inventory. If you believe the banking cartel can do this, then we are near enough to the bottom that buying now doesn't hurt. On a nominal basis, it may not, but on an inflation-adjusted basis, it is not great planning to tie up money in an asset that treads water for 10 years while inflation ravages the buying power of the currency.

For the banking cartel to maintain the balance they are looking for between liquidation rates and asset prices, price volatility will be very low during the purging process. The inventory will prevent prices from going up. The real challenge for the asset managers is to dispose of their properties without pushing prices lower. This may be possible in some markets where inventory problems are smaller, but in over-debted California, the inventory and associated debt purge may take much longer.

If bank asset managers are successful, prices will probably drift slightly lower over a multi-year period while the debt winds down. Long periods of low volatility takes many appreciation traders out of the game. Why buy when prices are expensive and when prices are not going up? it takes a lot of faith.

A subprime casualty in Irvine

Many people who took out subprime loans did so because it was an easier process with less paperwork and less need for accuracy on the paperwork you had to fill out. We had less subprime in Irvine, mostly because the borrowers had higher FICO scores and became classified alt-a.

• This property was purchased on 12/22/2004 for $610,000. The owner used a $488,000 first mortgage, a $122,000 second mortgage, and a $0 down payment courtesy of New Century Mortgage Corporation.
• On 8/2/2005, only eight months after putting zero down on the property, the owners were given a $125,000 HELOC. There is a chance this simply replaced the second mortgage, and they didn't spend the extra $125,000 they were given for nothing. However…
• On 2/13/2007 they refinanced with a $588,000 first mortgage and obtained a $73,500 HELOC.
• Total property debt was $661,500.
• Total mortgage equity withdrawal was $51,500. Not a huge take, but considering they put nothing into the property, $51,500 in free money is not too bad.

She quit paying the mortgage in 2009.

Foreclosure Record

Recording Date: 02/03/2010

Document Type: Notice of Sale

The sale notice was in February, but the house did not sell until 11/12/2010 when the bank took the property back for $642,500.

Irvine Home Address … 26 LEWIS Irvine, CA 92620

Resale Home Price … $584,900

Home Purchase Price … $610,000

Home Purchase Date …. 12/22/2004

Net Gain (Loss) ………. $(60,194)

Percent Change ………. -9.9%

Annual Appreciation … -0.7%

Cost of Ownership

————————————————-

$584,900 ………. Asking Price

$116,980 ………. 20% Down Conventional

4.87% …………… Mortgage Interest Rate

$467,920 ………. 30-Year Mortgage

$119,323 ………. Income Requirement

$2,475 ………. Monthly Mortgage Payment

$507 ………. Property Tax

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

$97 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$3,079 ………. Monthly Cash Outlays

-$421 ………. Tax Savings (% of Interest and Property Tax)

-$576 ………. Equity Hidden in Payment

$219 ………. Lost Income to Down Payment (net of taxes)

$73 ………. Maintenance and Replacement Reserves

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

$2,374 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,849 ………. Furnishing and Move In @1%

$5,849 ………. Closing Costs @1%

$4,679 ………… Interest Points @1% of Loan

$116,980 ………. Down Payment

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

$133,357 ………. Total Cash Costs

$36,300 ………… Emergency Cash Reserves

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

$169,657 ………. Total Savings Needed

Property Details for 26 LEWIS Irvine, CA 92620

——————————————————————————

Beds : 3

Baths : 3 baths

Home size : 1,856 sq ft

$0,000

Lot Size : 5,642 sq ft

Year Built : 1979

Days on Market : 15

Listing Updated : 40515

MLS Number : P761430

Property Type : Single Family, Residential

Community : Northwood

Tract : Cust

——————————————————————————

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

And that's all we know about this property because the realtor didn't bother with a description.

.

A selloff in the bond market is moving mortgage interest rates higher. Is this the end of cheap money?

Irvine Home Address … 162 TRELLIS Ln Irvine, CA 92620

Resale Home Price …… $515,000

Baby what a big surprise

Right before my very eyes

Yesterday it seemed to me

My life was nothing more than wasted time

But here today you've softly changed my mind

Chicago — Baby What a Big Surprise

I recently wrote that mortgage interest rates hit a five-month high. The real story isn't that interest rates moved higher, it is that mortgage interest rates went up quickly, and the reasons for that move are not centered in real estate.

Rates have been going down along with mortgage demand and home sales since the expiration of the tax credits in the spring of 2010.

Unfortunately, the rise in interest rates is not being caused by a resurging economy paying a premium for capital. The economy is still in the doldrums, home sales are way down, the banks own a lot of homes, and they will ultimately foreclose on many more. Rising mortgage interest rates will hurt pricing and sales volumes. The weight of inventory will push prices lower.

So why are mortgage interest rates going up?

Is the Bond Bubble Bursting?

By BRETT ARENDS — DECEMBER 10, 2010

Has the bond market finally turned? And if so, what is this going to mean for you and your money?

Here's the answer to the first question: It sure looks like it.

The interest rate on five-year Treasury bonds has nearly doubled to 1.9%. The rate on the 10-year has rocketed to 3.2% from 2.4%. The 30-year bond is now paying 4.4%—nearly a full percentage point more than it was at the lows a few months ago. (Bonds work like a seesaw: The yields rise when the price falls.)

At the peak of the boom, about six weeks ago, investors in bond funds lined up to buy Wal-Mart Stores bonds in the hopes of earning 5% a year for 30 years. How's that working out? So far they have already seen their first year's interest effectively wiped out, as the bonds have slumped about 5% in price since the sale.

The usual caveats about forecasts—namely, that nothing in this business is certain—apply. Nonetheless, this looks ominously like the end of the bond mania.

Bonds were a bubble but for a different cause. The real estate bubble was formed because people drove up prices chasing appreciation. The bond bubble was formed because people drove up prices chasing capital protection and cashflow. To much money chasing too few opportunities bids up prices to unsustainable heights.

The reasons are partly positive and partly negative.

The positive: Fears of deflation, and a second economic downturn, have receded. As a result, it isn't just that the yields on regular bonds have risen. So, too, have the yields on inflation-protected government bonds.

But then there are negative reasons. Bonds looked seriously overvalued. Yields were desperately low. They offered little reward and a lot of risk. Meanwhile, the governance and finances of the U.S. government are deteriorating before our eyes.

No wonder bond prices have tumbled, sending yields much higher.

The asset overvaluation of a bubble creates the circumstances where there is little potential reward for a great deal of risk. It is an imbalance that needs to be corrected — usually by a violent change in price. Quantitative easing and the market's perception of government policy could serve as a catalyst to the price correction needed in the bond market.

The rumblings began in August, when Federal Reserve Chairman Ben Bernanke first unveiled his plans to invent yet more dollars and pump them into the economy. The market really began to sell off a month ago, when the elections left a bitterly dividend government.

But President Obama's tax Munich this week, apparently, has been the final straw. Economists at Macroeconomic Advisers estimate that the tax cuts and minor spending increases will add another $900 billion to the deficit in two years' time. But that's just the start. The real issue is the signal it sends about longer-term fiscal discipline.

So much for all those concerns about deficits.

At some point, without fiscal discipline, the world will simply lose confidence in U.S. government finances. They will demand higher yields as more compensation for risk, and for the dangers of inflation.

Are we at that point? Maybe not completely. But the movement in bond prices tells you people are worried.

Ben Bernanke is trying to devalue the dollar and generate inflation. His success will be presaged by a selloff in the bond market as investors come to believe Bernanke will succeed in printing enough money to create inflation. Right now deflation is still a problem.

So what does this mean for your finances?

We've seen so many bear markets in the past decade. But Treasury bonds are much more dangerous on the way down than other assets. When the dot-com bubble burst, blue chips like Johnson & Johnson and Bank of America carried on pretty much unscathed. When the real-estate market crashed, bull markets continued in the likes of Apple and gold and ExxonMobil. When Lehman Brothers imploded, at least Treasury bonds rose.

But if the Treasury market loses control, almost nothing will be safe.

Here's how the repercussions will be felt:

1. The wealth effect. Americans have at least $3 trillion invested in bond funds, according to the Investment Company Institute. A lot of that is in paper backed by one issuer: the U.S. Treasury. Investors have been assured that bonds are "safer" than stocks, but this is a half-truth at best. They are vulnerable to inflation, and to rises in interest rates. A 30-year bond paying $50 in coupons each year is worth $1,000 in an environment where long-term interest rates are 5%. If those long-term rates rise just to 6%, it's worth only $860—and the owner is down 14%. If those rates rise to 7%, that bond's value falls to $750—a 25% loss. Bonds are owned especially by older investors, who in turn are more dependent on their investments for income. A sustained slump can seriously hurt spending and confidence.

2. Corporate bonds. When Treasurys sell off, these get hit too. That's because they are priced in relation to Treasurys. When Treasury yields were down on the floor, brokers and advisers were able to argue corporate bonds were "cheap" because their yields were higher than Treasurys. (The gap is called the "spread.") But once the yields on Treasurys rise, those on corporate bonds have to follow suit just to maintain the same spread.

3. Real estate. Mortgage rates are effectively set relative to the yields on 10-year Treasury bonds. And the turmoil in the bond market has just sent those mortgage rates jumping to six-month highs. According to Bankrate.com, you'll now pay 4.91% on a typical 30-year conforming loan—compared to rates of just 4.4% a few weeks ago. Sure, 4.91% is still pretty low—if it stays there. But it's still very unwelcome news for the flattened housing market.

4. Corporate profits. The bond boom was terrific news for companies. They could take advantage of it to issue long-term paper at very low rates. They could often invest that money at higher rates via expansion—typically overseas, such as in Asia—or even just by buying back their stock. That boosted profits and cut taxes. But if the bond market has now peaked, that game is going to be over. Companies that need cash in the future are going to find it harder to come by—and they will have to pay more for it.

5. Everything else. When Treasury yields rise, that makes every other asset seem less valuable. There are two reasons for this. The first is that when Treasurys offer a higher yield, the yield on other assets needs to rise to compete. The second is that economists and investment analysts use Treasury rates—typically the rate on 10-year bonds—as the basis for many long-term calculations. All other things being equal, higher rates make future profits less valuable in today's money.

Maybe bonds will recover. This business is full of uncertainties. But investors need to understand that there is now a serious danger that the events of the last month are the start of a long-term slump in Treasurys. That makes this investment environment more dangerous than many people seem to realize. Look out.

Write to Brett Arends at brett.arends@wsj.com

The macroeconomic issues that move the bond market can have significant impact on mortgage interest rates. In markets with elevated prices dependant upon borrowers maximizing their loans (see Orange County), rising interest rates will lower prices because higher interest rates make for smaller loan balances.

So what do you think will happen? Have we seen the peak of the bond market? Have we seen the bottom of interest rates?

Loan Modification: Fail!

• The owners of today's featured property paid $460,000 on 11/20/2003. The mortgage data is unclear as my records show two mortgages for $68,900 which would leave a huge down payment.
• On 3/27/2007 these owners obtained a HELOC for $242,798.
• Somewhere after that, these people defaulted on some debt and restructured with a loan modification. The strange part is that IndyMac Bank is showing up as the loan originator on 12/28/2009, well after IndyMac was shut down. The loan was a $455,000 first mortgage at 1%. The owners went into default shortly thereafter.

Foreclosure Record

Recording Date: 10/07/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 05/06/2010

Document Type: Notice of Sale

The house was purchased by OneWest Bank on 11/3/2010 for $473,681.

Irvine Home Address … 162 TRELLIS Ln Irvine, CA 92620

Resale Home Price … $515,000

Home Purchase Price … $460,000

Home Purchase Date …. 11/20/2003

Net Gain (Loss) ………. $24,100

Percent Change ………. 5.2%

Annual Appreciation … 1.6%

Cost of Ownership

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$515,000 ………. Asking Price

$18,025 ………. 3.5% Down FHA Financing

4.87% …………… Mortgage Interest Rate

$496,975 ………. 30-Year Mortgage

$105,063 ………. Income Requirement

$2,629 ………. Monthly Mortgage Payment

$446 ………. Property Tax

$150 ………. Special Taxes and Levies (Mello Roos)

$86 ………. Homeowners Insurance

$134 ………. Homeowners Association Fees

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

$3,445 ………. Monthly Cash Outlays

-$431 ………. Tax Savings (% of Interest and Property Tax)

-$612 ………. Equity Hidden in Payment

$34 ………. Lost Income to Down Payment (net of taxes)

$64 ………. Maintenance and Replacement Reserves

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

$2,500 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$5,150 ………. Furnishing and Move In @1%

$5,150 ………. Closing Costs @1%

$4,970 ………… Interest Points @1% of Loan

$18,025 ………. Down Payment

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

$33,295 ………. Total Cash Costs

$38,300 ………… Emergency Cash Reserves

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

$71,595 ………. Total Savings Needed

Property Details for 162 TRELLIS Ln Irvine, CA 92620

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Beds: 2

Baths: 1 full 1 part baths

Home size: 1,180 sq ft

($436 / sq ft)

Lot Size: 2,408 sq ft

Year Built: 1998

Days on Market: 23

Listing Updated: 40511

MLS Number: P761192

Property Type: Single Family, Residential

Community: Northwood

Tract: Glle

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

What a lovely home in Glenneyre at Lanes End. This is a 2 bedroom + an office, den or gym. All bedrooms are upstairs with 2 full bathrooms. The property is in EXCELLENT condition, including appliances. You enter through a white picket gate, it's quite charming. The downstairs has an open floor plan. Gorgeous parquet floors throughout the downstairs. The living room and dining area both have a view of the fireplace, as does the kitchen. The kitchen has a garden window over the sink, looking toward the yard. There is also a guest bathroom downstairs as well a direct garage access. This home will sell quickly!!