To give the hopeless a reason not to strategically default, several banks have singled out a few deeply underwater loan owners for principal forgiveness. By spreading news of their magnanimous deeds, they hope the remainder will keep paying.

Irvine Home Address … 37 LONG Mdw #15 Irvine, CA 92620

Resale Home Price …… $374,900

There are secrets that we still have left to find

There have been mysteries from the beginning of time

There are answers we're not wise enough to see

Five For Fighting — The Riddle

Banks have a problem, a riddle they must solve. Twenty-five percent of their borrowers are underwater, and when you factor in second mortgages and sales commissions, more than half can't sell their homes without writing a check for the shortfall. And house prices are still going down. When homeowners have no equity, they are no longer homeowners, they are loan owners. If a loan owner's payments are less than the cost of a comparable rental, they have an incentive to stay and pay, but when the payment exceeds a comparable rental — and the huge mortgage balances of the bubble make this common — loan owners have an incentive to keep their money and strategically default on their mortgage.

Underwater loan owners have their names on title, and if they keep making payments long enough, amortization may catch them up, and prices may come back, so they may have equity again someday. The more their payments exceed the cost of rental, the further a loan owner is underwater, and the longer they perceive they will have to wait to have equity again, the more likely they are to give up and strategically default. If a loan owner strategically defaults, the lender is forced to make a choice; foreclose on the property when the resale value is worth less than the loan, or allow the loan owner to squat in the property. Neither choice is palatable to the lender.

Lenders have responded to these circumstances — conditions the lenders created through irresponsible lending which inflated the housing bubble — by using both a carrot and a stick to keep borrowers paying when it is in the best interest of the borrower to strategically default. The stick is the threat of foreclosure, debt collection, reduced access to credit in the future, and an appeal to morality. The specter of consequences to borrowers has been wildly exaggerated, and these circumstances are lessening by the day. The appeal to morality has been steadily eroding as borrowers are coming to realize they have a greater moral responsibility to their families than they have to their lenders.

Lenders threats of foreclosure have been neutralized by reports of delinquent mortgage squatters obtaining years of free rent. In fact, instead of being a deterrent to strategic default, the long foreclosure timelines have actually become an inducement. Lenders combat this perception with the use of terrorist tactics. Each month, lenders will randomly select a small number of fresh delinquencies to push through the system as quickly as possible. If some of the herd are executed quickly while others are allowed to squat indefinitely, it creates uncertainty. This uncertainty keeps some paying rather than play Russian roulette.

The carrot lenders dangle in front of loan owners comes through rumors of principal reduction windfalls. Like the random executions of freshly delinquent borrowers, a very small number of principal reductions given to loan owners who are doing what lenders want — making all payments — provides the lottery-style false hope to motivate the masses. Today's featured article is part of the public relations campaign lenders use to get the word out concerning the principal reduction lottery windfall ostensibly available to loan owners who dutifully make their payments.

If someone somewhere got a principal reduction, it could happen to anyone. I hope nobody is holding their breath.

Big Banks Easing Terms on Loans Deemed as Risks

By DAVID STREITFELD

Published: July 2, 2011

As millions of Americans struggle in foreclosure with little hope of relief, big banks are going to borrowers who are not even in default and cutting their debt or easing the mortgage terms, sometimes with no questions asked.

The ultimate debtors fantasy: money for nothing.

Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.

Rula Giosmas is one of the beneficiaries. Last year she received a letter from Chase saying it was cutting in half the amount she owed on her condominium.

Ms. Giosmas, who lives in Miami, was not in default on her $300,000 loan. She did not understand why she would receive this gift — although she wasted no time in taking it.

Ms. Giosmas received the gift because Chase probably recognized she was one of the last who didn't strategically default, and based on their analysis, there was a very high probability of her doing so in the future. The likely reduced her balance to a level that reduced their loss from what it would have been if Chase had to foreclose and resell another REO. Plus, they could then get this story written.

Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

Before Chase shaved $150,000 off her mortgage, Ms. Giosmas owed much more on her place than it was worth. It was a fate she shared with a quarter of all homeowners with mortgages across the nation. Being underwater, as it is called, can prevent these owners from moving and taking new jobs, and places the households at greater risk of foreclosure.

“It’s a huge problem,” said the economist Sam Khater. “Reducing negative equity would spark a housing recovery.”

Giving away free money will not spark a housing recovery. It would however reward those who overborrowed under stupid terms which would encourage imprudent borrowing again in the future.

While many homeowners desperately need help to keep their homes and cannot get it, the borrowers getting unsolicited relief from Chase sometimes suspect a trick. Cutting loan balances, even for loans in default, is supposedly so rare that Federal Reserve economists wrote in a paper in March that “we could find no evidence that any lender was actually reducing principal” on mortgages.

Principal forgiveness is rare because it is really stupid. Rumors of principal reduction have been used by lenders in the past to get borrowers to contact them to try to work out loan modifications, but lenders don't want to start reducing principal because all of their customers would ask for it. Besides, foreclosure is a superior form of principal reduction because the borrower has consequences for their foolish borrowing.

“I used to say every day, ‘Why doesn’t anyone get rewarded for doing the right thing and paying their bills on time?’ ” said Ms. Giosmas, who is an acupuncturist and real estate investor. “And I got rewarded.”

No, Ms. Giosmas got rewarded for taking out a very foolish loan at the worst possible time. It encourages the worst form of borrower stupidity. Lenders are happy to have this framed as a reward for making payments on time in hopes that others will do the same. They couldn't have scripted her comments any better.

Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

Bank of America and Chase inherited their portfolios of option ARMs when they bought troubled lenders during the housing crash.

Chase, which declined to comment on its program, got $50 billion in option ARM loans when it bought Washington Mutual in 2008. The lender, which said last fall that it had dealt with 22,000 option ARM loans with an unpaid principal balance of $8 billion, still has $33 billion of them in its portfolio.

I foresee some major write-downs still to come.

Bank of America acquired a portfolio of 550,000 option ARMs from its purchase of Countrywide Financial in 2008. The lender said more than 200,000 had been converted to more stable mortgages.

Dan B. Frahm, a spokesman for Bank of America, said it was using every technique short of principal reduction to remake its loans, including waiving prepayment penalties, refinancing, lowering the interest rate, postponing some of the balance and extending the term.

“By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Mr. Frahm said.

Chase, Bank of America and the other big lenders are negotiating with the Obama administration and the nation’s attorneys general over foreclosures. Debt forgiveness and the moral hazard question of who deserves to be helped are among the most contentious issues.

These news stories make moral hazard sound like some minor inconvenience when it is the core of the problem. If you give away money, it isn't a loan anymore, it is welfare going to the least deserving.

The banks say cutting mortgage balances would be unfair to borrowers who remain current as well as impractical because so many loans are securitized into pools owned by investors. Bank of America’s chief executive, Brian T. Moynihan, told the attorneys general in April that cutting principal for current borrowers would send the wrong message to all those who have struggled to pay their bills. His counterpart at Chase, Jamie Dimon, bluntly said it was “off the table.”

Good. It should be off the table. Foreclosure and bankruptcy are viable alternatives which provide consequences to the borrower for their behavior. Without consequences, no borrower would exercise any judgment or self control when considering a loan. Loans become free money for the taking.

Having an option ARM loan, however, apparently qualifies the borrower for special help. The loans, with their low initial payments and “teaser” interest rates, were immediately popular with buyers who could not afford or did not want to pay the soaring prices on houses. The problem was, eventually the rate would reset or the loan balance would have to be paid in full. “Nightmare Mortgages” they were called in a 2006 BusinessWeek cover piece.

Option ARMs were never quite as bad as predicted, partly because the crisis pushed down interest rates so far that the resets were relatively mild. Many owners did default on them, but others, like Ms. Giosmas, were quite happy to pay less for years than they would have under a conventional loan. She used option ARMs on her investment properties too.

“They saved me,” she said. “Why would I want to pay a lot more every month? I’d rather have it in my pocket.”

Does anyone else see the insanity being encouraged here? This woman believed she was making a wise financial decision using an Option ARM, and the bank is reinforcing this belief by giving her a principal reduction. Borrowers incentives should be to pay down debt to reduce risk for both the lender and the borrower. If borrowers have the mindset to maximize their debt and minimize their payments, that's how Ponzi schemes are born. Our housing market will never find stability under those terms.

The concern the banks are showing for those who might get in trouble contrasts sharply with their efforts toward those already foreclosed. Bank of America and Chase were penalized last month by regulators for doing a poor job modifying mortgages in default.

Adam J. Levitin, a Georgetown University law professor, said these little-publicized programs were more evidence that the banks were behaving in contradictory and often maddening ways.

“Loan modifications that should be happening aren’t, while loan modifications that shouldn’t be happening are,” he said. “Homeowners of any sort, whether current or in default, would rightly be confused and angry by this.”

Borrowers who borrowed prudently and make their loan payments should be the most outraged by principal reductions. They aren't getting any free money from the banks; however, their foolish neighbors who borrowed irresponsibly are obtaining windfalls.

The homeowners getting new loans, however, are quite pleased. In effect, the banks are paying the debt these owners accrued as the housing market plunged.

Ms. Giosmas bought her two-bedroom, two-bath apartment north of downtown Miami for $359,000 in early 2006, according to real estate records. She made a large down payment, but because each month she paid less than was necessary to pay off the loan, her debt swelled to about $300,000.

Meanwhile, the value of the apartment nosedived. By the time Ms. Giosmas got the letter from Chase, the condominium was worth less than half what she paid. “I would not have defaulted,” she said. “But they don’t know that.”

The letter, which Ms. Giosmas remembers as brief and “totally vague,” said Chase was cutting her principal by $150,000 while raising her interest rate to about 5 percent. Her payments would stay roughly the same.

A few months ago, Ms. Giosmas sold the place for $170,000, making a small profit. Having a loan that her lender considered toxic, she said, “turned out to be a blessing in disguise.”

Everyone should take out toxic loans, right? This woman got a principal reduction and actually made money after the sale, all because she took out the worst loan imaginable at the worst possible time and made only the minimum payment. Lenders are telling borrowers they can get free money if they borrow imprudently enough. What impact will that have?

The real message lenders are trying to send is aimed at the masses: keep making your payments, and you may also receive free money from the bank. Of course, the odds are about the same as playing the lottery, but as lottery sales attest to, if there is a chance, many will be willing to play.

Too late to Ponzi

Today's featured property was purchased on 10/19/2005 for $504,500. The original loan information isn't in my records. However, on 10/23/2007, these owners refinanced with a $480,000 first mortgage, and on 12/6/2007 they obtained a $59,950 HELOC. If they took the HELOC money, they got $30,450 in booty despite buying so close to the peak. They got to squat for about a year.

Foreclosure Record

Recording Date: 10/29/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/25/2010

Document Type: Notice of Default

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 37 LONG Mdw #15 Irvine, CA 92620

Resale House Price …… $374,900

Beds: 2

Baths: 2

Sq. Ft.: 1567

$239/SF

Property Type: Residential, Condominium

Style: One Level, Contemporary

Year Built: 2006

Community: 0

County: Orange

MLS#: P779996

Source: SoCalMLS

Status: Active

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WOW!! WOW!! GEORGEOUS CONDO IN FANTASTIC IRVINE NEIGHBORHOOD. THIS CONDO IS LIGHT, BRIGHT, OPEN AND SPACIOUS. VERY NICE KITCHEN WITH LARGE ISLAND AND TILED COUNTERTOPS. CONVENIENT LAUNDRY ROOM WITH PLENTY OF STORAGE SPACE. LARGE MASTER BEDROOM AND BATHROOM. BATH HAS A DOUBLE SINK AND SEPARATE SHOWER AND BATHTUB. THERE PLENTY OF STORAGE SPACE. ATTACHED GARAGE. COMPLEX OFFERS ASSOCIATION POOL AND SPA. BASKETBALL/TENNIS COURTS AND SOCCER/BASEBALL FIELDS ARE ALL WITHIN WALKING DISTANCE. EASY ACCESS TO SEVERAL MAJOR FREEWAYS AND LOCATED NEAR SEVERAL SHOPPING CENTERS/MALLS. THIS IS TRULY A MUST SEE. COME AND TAKE A LOOK BEFORE ITS GONE.

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Proprietary IHB commentary and analysis

The total cost of ownership of $2,273 is near rental parity. Generally, condos should trade at a discount to rental parity, but a 2005 condo in Woodbury will be perceived as a bargain by someone looking to live in that community.

Resale Home Price …… $374,900

House Purchase Price … $504,500

House Purchase Date …. 10/19/2005

Net Gain (Loss) ………. ($152,094)

Percent Change ………. -30.1%

Annual Appreciation … -5.1%

Cost of Home Ownership

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$374,900 ………. Asking Price

$13,122 ………. 3.5% Down FHA Financing

4.59% …………… Mortgage Interest Rate

$361,778 ………. 30-Year Mortgage

$79,392 ………. Income Requirement

$1,852 ………. Monthly Mortgage Payment

$325 ………. Property Tax (@1.04%)

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

$78 ………. Homeowners Insurance (@ 0.25%)

$416 ………. Private Mortgage Insurance

$280 ………. Homeowners Association Fees

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

$2,952 ………. Monthly Cash Outlays

-$299 ………. Tax Savings (% of Interest and Property Tax)

-$469 ………. Equity Hidden in Payment (Amortization)

$23 ………. Lost Income to Down Payment (net of taxes)

$67 ………. Maintenance and Replacement Reserves

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

$2,273 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$3,749 ………. Furnishing and Move In @1%

$3,749 ………. Closing Costs @1%

$3,618 ………… Interest Points @1% of Loan

$13,122 ………. Down Payment

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

$24,237 ………. Total Cash Costs

$34,800 ………… Emergency Cash Reserves

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

$59,037 ………. Total Savings Needed

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The spring-summer selling season of 2006 marked the peak of the housing bubble. Fannie Mae just lowered its projections and signaled the bust will drag on.

Irvine Home Address … 10 FIGARO Irvine, CA 92606

Resale Home Price …… $825,000

Grandmas sit in chairs and reminisce

Boys keep chasing girls to get a kiss

The cars keep going faster all the time

Bums still cry “hey buddy, have you got a dime”

The beat goes on, the beat goes on

Drums keep pounding a rhythm to the brain

Sonny & Cher — The Beat Goes On

Despite the minor bear rallies, the housing crash continues. The beat does on. Prices peaked about 5 years ago with some markets peaking earlier and some later. With problems of shadow inventory looming over the markets, the bottom is not in place, and recovery is a distant fantasy.

Not a happy anniversary: Real estate bust turns 5

By SHANNON BEHNKEN — The Tampa Tribune Published: June 24, 2011

TAMPA — It's an inauspicious anniversary. Five long years ago this month, the Tampa Bay area's supercharged housing prices finally ran out of steam, and the housing bust officially began.

Prices have been free-falling ever since.

The dips have slowed, even reversed at times, but every month new data shows median home prices are far below what they were the previous year. Sales, too, have struggled to regain forward momentum.

We've become painfully aware of the drumbeat of dour housing market reports. And yet, the question we all keep coming back to is this: How far will prices fall and how long will it take for them to bounce back?

If the history of deflating bubbles holds true, the bottom will be lower and later than anyone expects, and the time to bounce back will take much longer. How many people are holding out for 5,200 on the NASDAQ?

Area prices have already plummeted 46 percent. More than any time since World War II. More even than during the Great Depression, when the national average home price tumbled 31 percent.

Back then, it took 19 years for prices to recover. And get this: even though our economy hasn't been hit nearly as severely as in the 1930s, it will likely take the same amount of time for Tampa metro prices to recover from the latest downturn.

Not all economists think the turnaround will take decades, but Moody's Economy.com predicts it will be 2025 before median sales prices in the Tampa-St. Petersburg-Clearwater metro recover to the June 2006 median of $239,600. Compare that to the current median of $120,200 and consider that Moody's also expects local prices to fall 7 percent more before they begin to rise sustainably.

“It will be a long time because prices have fallen so much,” said Chris LaFakis, a Moody's economist who covers Tampa Bay.

The asymmetric nature of losses is a real problem. If prices fall 50%, it takes a 100% increase in price to regain the peak. Also, since historic appreciation rates include an unsustainable bubble, people who are anticipating 6% appreciation once prices bottom will be disappointed when 3% appreciation is the norm. Typically it takes 16 years for prices to double. In those markets where prices have dropped more than 50%, it will take 25 years or more to reach the bubble peaks.

Still, the area is in better shape than others. Florida as a whole could see prices fall 10.7 percent further, much more than the national average of 4.2 percent. And prices in Detroit, which has been hit much harder than Florida, won't likely hit its peak price again until 2035.

If you think that's gloomy, just listen to Stan Gerberer, an economist with Orlando-based Fishkind & Associates Inc. He said homeowners need to quit asking when prices will return to peak levels.

“The value was never there in the first place,” he said. “It's not reasonable to think prices will ever get back to those bubble prices.”

There is a truthful statement that won't help those in denial. Prices from the bubble were not real. We are not recovering. At best we will resume a normal rate of appreciation after prices have reached a fundamental value based on rental cashflows.

Consider this example Gerberer gave. If a home was worth $150,000 in 1995 and rose to $400,000 during the boom years, it's likely worth only around $250,000 now, he said.

“It's hard to imagine a scenario where the true value of that house would ever reach $400,000 again,” he said.

Prices will hit $400,000 again eventually, the current owner's grandchildren will consider that price reasonable.

That's bad news for homeowners who purchased during the boom years. Foreclosures are still ticking up in some areas and economists expect it to take years to work off the inventory.

But Mark Dotzour, chief economist with the real estate center at Texas A&M, doesn't like to compare today's housing slump with the Great Depression. It shouldn't take as long for the overall economy to recover as it did 70 years ago because unemployment isn't nearly as high, he said.

Unemployment was as high as 25 percent back then and is now hovering around 9.1 percent. Tampa Bay's unemployment rate is 10.5 percent.

“The magnitude of the situation isn't even comparable,” Dotzour said. “But the housing market is certainly in distress because of the massive job loss we have had.”

His assessment is partially true. Unemployment is not as bad as the Great Depression, but it is far worse than government statistic show. Since the Great Depression the government has revised its methodology to underreport unemployment. They no longer count discouraged workers, nor do they classify the underemployed as a problem.

However, Dotzour is more optimistic than Moody's.

“I think people are way oversold on the notion that housing isn't coming back,” he said. “Americans get carried away. We think whatever has happened in the past 24 month will go on forever.”

The real estate market's problems are largely attributable to the way the government has handled the downturn, Dotzour said. He points to bailouts and the home buyer's tax credit, which he says just prolonged the recovery.

“It can't possibly take 19 years for prices to recover,” he said. “I have faith that our government will figure it out before then.”

Being an Aggie, I want to support Mr. Dotzour; however, those comments are pure nonsense. Based on the bear rally of the last 24 months, Americans sustained denial of the problem and are likely more optimistic than they should be. Further, it can easily take 19 years or longer for prices to reach the peak because it was the peak of a housing bubble, not some appropriate price level from which we have temporarily declined. And worst of all, anyone who has faith that our government will figure it out should simply hide his head in shame.

As painful as it is for people to lose home, Dotzour said the market won't improve until foreclosure homes are resold.

“All these people who lost their homes will have to rent somewhere,” he said. “There's nothing wrong with that. That's the way America has always worked.”

I agree with those statements. Foreclosures are essential to the economic recovery. Renters move in and out of properties with changes in their income and employment status, and nobody gets worked up about it. Why are loan owners any different?

Fannie Mae Revises Down Growth,Home Prices,30Y Rate Outlook

By Yali N'Diaye — Monday, June 20, 2011

WASHINGTON (MNI) – Fannie Mae Monday revised down its estimates for both home prices and growth in the United States this year, noting that the key to the housing recovery remains the labor market.

“Weakness in economic activities spanning manufacturing, consumer spending, jobs, and housing has resulted in the group downgrading projected growth for the current quarter, as well as for the second half of they year,” Fannie Mae's Economics & Mortgage Market Analysis Group said in its June Economic Outlook.

Without job creation, there will be no new household formation. The unemployed don't buy houses.

The mortgage giant also revised down it projections for the 30-year fixed mortgage rate, which it now expects to remain below 5% through the second half of 2012.

The housing forecasts show the 30-year mortgage at 4.8% at the end of this year, compared with the May estimate of 5.2%. In fact, Fannie Mae said it is likely to remain under 5% until the second quarter of 2012, when it is projected to reach 5.0%.

Interest rates will eventually go back up, but it won't happen until the economy improves and lenders write off more of their bad debts. Low interest rates may be with us for a while.

“Prospects for accelerating growth have grown dimmer recently due to downward revisions of first-quarter economic activity and slowdowns across a broad set of indicators during May,” Fannie Mae said. As a result, it now forecasts 2.5% GDP growth this year, compared with a projection of 2.9% last month.

The 2.5% growth estimate is “more than a full percentage point lower than the forecast at the beginning of the year,” the report said.

Going forward, “Ultimately, the labor market holds the key to a housing recovery, but job growth is needed in order to activate housing demand,” said Fannie Mae's Chief Economist Doug Duncan. “Hiring delays will continue to push out timing for the housing rebound.”

Fannie Mae now sees the unemployment rate at 8.8% at the end of 2011, up from it's 8.5% estimate in May. The improvement in the jobs situation through the end of 2012 is also expected to be slower, with the unemployment rate now expected to be 8.6% at the end of 2012, compared with 8.0% in May.

Against this backdrop, home prices are not only expected to decline more than had been anticipated in May, but next year's rebound — while still expected to happen — is projected to be weaker.

The FHFA index is seen down 3.3% in 2011, compared with a 2.0% decline initially expected in May. In 2012, prices are seen recovering by 1.8%, compared with a 2.5% estimate in May.

The economy is not improving, partly because the homebuilding industry, which is usually a strong economic force in a recovery, is not growing. Until the plethora of the unemployed in real estate related industries go back to work, the economy is going to suffer.

Housing slump to last 3 or 4 more years

June 29th, 2011 — posted by Jeff Collins

The housing slump has been going on for nearly six years.

But it’s going to take another three or four years before the backlog of foreclosures that’s dragging the market down can be cleared, an Irvine housing consultant told Orange County business leaders Wednesday.

The housing market took a couple years to muddle back to normal after hitting bottom in 1995, consultant John Burns told the Orange County Forum’s luncheon on housing’s outlook. This time around, “the muddling will be a couple years more (than in the 1990′s) because the problems are more severe.”

John Burns is right. We have not dealt with the excesses of the housing bubble, and until we do, the housing crash will grind on.

Burns was one of three speakers at the forum. But the other speakers, both homebuilders, weren’t much more optimistic.

“We were really hopeful a year ago. … Today, it’s much more sobering for us,” said Standard Pacific Homes President Scott Stowell. “We’re still somewhat bearish.”

Emile Haddad, CEO of developer FivePoint Communities, said that a backlog of vacant homes in Orange County needs to be cleared up before homebuying demand can get back to normal.

May I take this opportunity to say “I told you so?” In my dealings with colleagues in the homebuilding industry (I've never met Stowell or Haddad), I have been consistently telling people what the two above are finally acknowledging. Nobody wants to hear from Cassandra.

That said, the speakers believe that Orange County is a bright spot in the housing market and will revive more quickly than other, harder-hit areas.

Highlights of their comments include:

Burns: “If you look around the country, nationally, there’s 3.1 million more vacant home than there are supposed to be. The good news is there’s only 19,000 of those in Orange County, and we’ll have all those cleared out sometime next year. Orange County and San Antonio will be the first two markets to clear up all of their vacant housing in the entire country.”

Haddad: Five Point Communities, which is managing housing and commercial development surrounding the Orange County Great Park at the former El Toro marine base, said his firm is on track to start building homes by 2013.

“That’s our story for the Great Park,” he said. “It’s a good story.”

Stowell: There’s a huge difference in sales in Standard Pacific projects in north and south Orange County. The company is selling five to eight homes a month in its two Blackstone projects in Brea, but in the Talega project in San Clemente, “We struggle to sell houses.” One reason, he said, is builder competition is stiff in in South County, but hardly exists in north Orange County.

Haddad: Immigrant and Generation Y buyers make up a significant amount of housing demand going forward. Both are looking for a more ubran lifestyle and want to reconnect to the larger community.

Two of the three above want to sell product in Orange County, so their comments should be taken with some skepticism. Further, despite having less vacant housing stock, Orange County has more unresolved mortgages in shadow inventory. In the beaten down markets, many more bad loans have been processed, and pricing is much closer to the bottom than to the top. There is little reason to believe OCs mortgage woes will be resolved quickly.

Fannie Mae and Freddie Mac: All three speakers expressed concerns about congressional proposals to eliminate the mortgage giants created to spur homebuying. Burns noted that the two entities are responsible for the bulk of liquidity in today’s housing market.

Added Haddad: “If the government makes the mistake and gets out of subsidizing housing, you could collapse the housing market.”

We can only hope so. The government will not exit the housing market all at once, but they will exit the over $471,000 market sooner rather than later. Building and selling at price points requiring jumbo financing is going to be a persistent drag on Orange County house prices making the bottom elusive and the recovery tepid.

2.5% annual appreciation since 2000

Today's featured property is a closed sale that was part of shadow inventory. The former owners put 20% down, and during the housing bubble, they didn't raid the housing ATM. Unfortunately, on 1/12/2007 they thought it was a good idea to take out a $880,000 Option ARM and a $109,995 HELOC. That $500,000 in mortgage equity withdrawal cost them their house.

Foreclosure Record

Recording Date: 05/10/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/08/2010

Document Type: Notice of Default

Perhaps they didn't care. They got more out of the property by refinancing near the peak rather than selling four years later.

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Blog Note: I have reorganized the presentation of property information to make a clearer distinction between MLS derived information and that which is proprietary to Irvine Housing Blog. Any comments or suggestions are appreciated.

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MLS information

Irvine House Address … 10 FIGARO Irvine, CA 92606

Resale House Price …… $825,000

Property Details for 10 FIGARO Irvine, CA 92606

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Beds: 4

Baths: 3

Sq. Ft.: 2750

$300/SF

Property Type: Residential, Single Family

Style: Two Level

Year Built: 1996

Community: 0

County: Orange

MLS#: F11043464

Source: CRISNet

Status: Closed

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APPROVED SHORT SALE!!!! Wonderful home in wonderful West Park Neighborhood. This elegant Vintage Plan home has a great layout with huge windows that give true illumination to this house. It further offers high ceilings, hardwood floors, plantation shutters, a gorgeous spiral staircase, one bed and bath on main level, separate family room with fireplace, large kitchen with island, a private back yard with cabana and built in BBQ. Separate laundry room with sink and storage, a good size loft/den that's perfect for a home office or play room. The bathrooms are very clean and well maintained that have tile flooring and double vanities. A huge master bedroom with stand up shower and tub. The community offer tennis courts, large playground, and gorgeous pool and spa.

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This property is no longer for sale.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

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Public record and proprietary Irvine Housing Blog analysis

Resale Home Price …… $825,000

House Purchase Price … $625,000

House Purchase Date …. 9/12/2000

Net Gain (Loss) ………. $150,500

Percent Change ………. 24.1%

Annual Appreciation … 2.5%

Cost of Home Ownership

————————————————-

$825,000 ………. Asking Price

$165,000 ………. 20% Down Conventional

4.49% …………… Mortgage Interest Rate

$660,000 ………. 30-Year Mortgage

$143,152 ………. Income Requirement

$3,340 ………. Monthly Mortgage Payment

$715 ………. Property Tax (@1.04%)

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

$172 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$40 ………. Homeowners Association Fees

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$4,267 ………. Monthly Cash Outlays

-$796 ………. Tax Savings (% of Interest and Property Tax)

-$871 ………. Equity Hidden in Payment (Amortization)

$274 ………. Lost Income to Down Payment (net of taxes)

$123 ………. Maintenance and Replacement Reserves

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$2,997 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$8,250 ………. Furnishing and Move In @1%

$8,250 ………. Closing Costs @1%

$6,600 ………… Interest Points @1% of Loan

$165,000 ………. Down Payment

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$188,100 ………. Total Cash Costs

$45,900 ………… Emergency Cash Reserves

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

$234,000 ………. Total Savings Needed

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Have a great weekend,

Irvine Renter