Author Archives: IrvineRenter

IHB News 1-30-2010

Anyone going to the Irvine Company model homes this weekend? They've hit the reset button on our housing market, so it's time to start all over.

55 PLANTATION Irvine, CA 92620 kitchen

Irvine Home Address … 55 PLANTATION Irvine, CA 92620

Resale Home Price …… $849,000

{book1}

We can break the cycle – We can break the chain

We can start all over – In the new beginning

We can learn, we can teach

We can share the myths the dream the prayer

The notion that we can do better

Change our lives and paths

Create a new world and

Start all over

Start all over

Start all over

Start all over

New Beginning — Tracy Chapman

IHB News

Irvine Company Opens New Models

In case you have been hiding under a rock, I want to let you know that the Irvine Company is opening its new models to the general public this weekend. I will likely go visit myself soon and blog about what I see. As an industry observer and participant, and Irvine resident, I want to see them be successful. The success of the Irvine Company is inexorably tied to the success of Irvine itself. As they do good work, we live the results.

House of Blues Benefit Reminder

A long time reader of the Irvine Housing Blog recently contacted us for our support.

Todd Larsen, director of the Irvine Music Academy has been struck with leukemia at age 44. He was the family's sole wage earner taking care of his wife and 10 month old son by teaching music and coaching swim lessons in Irvine.

Thankfully Todd has great health insurance but unfortunately did not have disability insurance. As you can imagine his family's world has been turned upside down. The Irvine community has been holding walk-a-thons and auctions to help the family make ends meet. (Click below to read more about how the Irvine community is rallying around the family – the second link is to Todd's blog where tickets to the event can be purchased.

http://www.ocregister.com/articles/larsen-todd-family-2606906-leukemia-supporters)

Tickets to the event can be purchased on Todd's blog at http://www.toddrockinleukemia.blogspot.com/.

Housing Bubble News from Patrick.net

In Foreclosure 101: Non-Judicial Foreclosure, I discussed how mortgage debt is not discharged, and lenders can still try to collect from borrowers. Bloomberg, Calculated Risk and Mish all had articles on that subject this week.

Lenders Pursue Mortgage Money Long After Houseowners Default (bloomberg.com)

Fed Keeps "Extended Period" Pledge To Screw Savers; Hoenig Dissents (bloomberg.com)

So. CA Shadow Inventory (doctorhousingbubble.com)

Bankers have a NEGATIVE value to the rest of us (bloomberg.com)

Fed Weighs Interest on Reserves as New Policy Rate (bloomberg.com)

Unemployment rises in 43 states (articles.moneycentral.msn.com)

Fed Buys Another $12bn of Fannie, Freddie Crap With Counterfeit Money (housingwire.com)

Rents Fall to 3 1/2 Year Low in Orange County (calculatedriskblog.com)

55 PLANTATION Irvine, CA 92620 kitchen

Irvine Home Address … 55 PLANTATION Irvine, CA 92620

Resale Home Price … $849,000

Income Requirement ……. $178,405

Downpayment Needed … $169,800

20% Down Conventional

Home Purchase Price … $678,000

Home Purchase Date …. 12/27/2007

Net Gain (Loss) ………. $120,060

Percent Change ………. 25.2%

Annual Appreciation … 10.4%

Mortgage Interest Rate ………. 5.13%

Monthly Mortgage Payment … $3,700

Monthly Cash Outlays ………… $4,730

Monthly Cost of Ownership … $3,470

Property Details for 55 PLANTATION Irvine, CA 92620

Beds 3

Baths 2 full 1 part baths

Home Size 1,964 sq ft

($432 / sq ft)

Lot Size n/a

Year Built 2007

Days on Market 2

Listing Updated 1/28/2010

MLS Number S603288

Property Type Condominium, Residential

Community Woodbury

Tract Wdst

BEAUTIFUL HOME IN PRESTIGOUS WOODBERRY!! STONETREE MANOR WAS BUILT BY JOHN LAING HOMES**DESIRABLE FLOORPLAN OFFERS MAIN FLOOR BEDROOM AND AN ADDITIONAL MAIN FLOOR DEN/STUDY**MANY UPGRADES INCLUDE GRANITE KITCHEN COUNTERTOPS AND LARGE ISLAND**KITCHEN AID STAINLESS STEEL APPLIANCES***SECOND BEDROOM OFFERS PRIVATE BATH**BAMBOO FLOORING**TUMBLED MARBLE FLOORING IN ALL BATHS**DESIGNER CELING FANS IN ALL BEDROOMS AND CUSTOM PAINT**HUNTER DODUGLAS WOOD BLINDS THROUGHOUT**INSIDE LAUNDRY ROOM**MASTER OFFERS DUAL SINKS WALK- IN WARDROBE CLOSEST.MASTER SINKS AND TUB w MARBLE BACK SPLASH*RECESSED LIGHTING*ATTACHED TWO CAR GARAGE W/ BUILT-INS.

WOODBERRY!! Does an embarrassing misspelling like that make you want to cringe?

Is there something wrong with a period as end-stop punctuation? Is using two or three asterisks more efficient?

The Changing Face of Flipping

Are flippers the scourge of the earth, or are they capitalists exercising their freedom to make money? Depending on the circumstances, most flippers are somewhere in between.

388 FALLINGSTAR 39 Irvine, CA 92614 kitchen

Irvine Home Address … 388 FALLINGSTAR 39 Irvine, CA 92614
Resale Home Price …… $549,000

{book1}

Dear Prudence, won’t you come out to play
Dear Prudence, greet the brand new day
The sun is up, the sky is blue
It’s beautiful and so are you
Dear Prudence won’t you come out to play

Dear Prudence open up your eyes
Dear Prudence see the sunny skies
The wind is low the birds will sing
That you are part of everything
Dear Prudence won’t you open up your eyes?

Look around round round
Look around round round
Oh look around

Dear Prudence — The Beatles

Flips first attracted me to the Irvine Housing Blog. My wife discovered the IHB in November of 2006, and showed me property flips Zovall and IrvineSingleMom were profiling. I found flips funny because I foresaw flippers in the bag with bubble kool aid enduring equity seizure, and sadly to say, I enjoyed the schadenfreude (and picking on floplords).

Some notice that my attitudes and opinions about many facets of the housing bubble change over time. As circumstances change, new information becomes available, and hopefully with a small measure of wisdom from seeing a bigger picture, my views change — hopefully improve. Over the last year, I have been maligned by bulls for “missing the bottom” and various other spurious claims, and I have been attacked by the bears for losing my purity of vision and accepting that massive unprecedented government intervention may make the most dire of my prognostications unlikely. At times I feel like a politician hearing criticism from both extremes, but unlike a politician, I don’t have to please anyone; I need only report what I see and what I believe.

With that preamble, I want to look at flipping and relate my current opinion on the most common forms.

Retail Flipping

Retail flipping is the kind where a flipper purchases a normal resale home, does nothing with it while withholding it from the market briefly, then attempts to resell at a profit. Some will argue retail flipping is capitalism and the flipper earns money through taking risk. Fair enough, but consider the impact this has on families.

In a market without flippers, demand is lower, and so are prices. If a family buys a home, they pay less money, and any increase in value improves the family balance sheet. Contrast this to a flipper who is reselling for a profit; any increase in home value improves the flipper’s income statement, not his balance sheet. This income is robbed from the collective equity of families and instead is converted into flipper income, which in turn, provides a way of life for a person providing no tangible value to society (like realtors).

If retail flipping did not exist, many thousand people would no longer make money for nothing, and they would go find productive work.

Rehab Flipping

Rehab flippers, like many who watch HGTV, are at least attempting to add value to make a living. Most people who slap pergraniteel on property believe they are adding huge value, and many make a profit who have done this; however, the profit came not because they added great value, but because appreciation made money for everyone. The linkage of cause and effect — pergraniteel adds value — is deficient because improvements add about seventy cents value per dollar spent, and appreciation turns the loss into a gain — something painfully obvious to those who attempted rehab flipping since 2006.

The people who consistently make money rehab flipping are professionals who can add improvements at wholesale. For instance, a general contract can use his or her own crews to perform work at a cost less than its value resulting in profit. Only those with special advantages — or those willing to put in sweat equity — can make money this way.

Entrepreneurs investing their own time and effort to add value and make a profit are admirable, and when we see families doing it on HGTV, we can all relate. Wow! We can do that! We could either make money, or we could improve our balance sheet.

I have no problem with good rehab flipping that requires risk and special expertise. If these operators did not exist, our housing stock would quickly run down in marginal areas, and once dilapidated, it would never recover; think Detroit. Since retail flippers can’t make a living in a non-appreciating market environment, rehab flipping and Trustee Sale flipping will be the only successful flips over the next decade.

Trustee Sale Flipping

Trustee Sale flipping has the same dynamic as a rehab flip; a buyer risks cash to make a profit and takes special advantage of their cash.

Cash is king.

When a property is going to Trustee Sale, it is either going to be purchased by the first lien holder’s (lender’s) opening bid, or a third party must bid higher. In most cases these properties discount significantly from resale, and either the bank or the third party is going to obtain the resale finance market premium for buying at Trustee Sale: the bank hopes the additional funds will cover their processing losses and help them recover capital; the third-party buyer hopes to make a profit. Banks hope to improve their balance sheets while flippers improve their income statements.

Income Statement or Balance Sheet

The disdain for retail flipping and the delight in family rehab flipping are rooted in its impact on a family’s balance sheet. Retail flippers profit at the expense of family balance sheets, and family rehab projects improves it, but what about Trustee Sale flipping?

For reasons discussed at length in Foreclosure 101: Mechanics of a Trustee Sale, families rarely bid at Trustee Sales; consequently, Trustee Sales have no impact on family balance sheets. One of the things that appealed to me about offering a Trustee Sale Service was that we could put families into Trustee Sales, and the discount from resale is added to a family’s balance sheet rather than a bank’s balance sheet or a flipper’s income statement.

Have I gone soft on flips because I can make money off them? Perhaps I delude myself, but I don’t think so. When I put a family into a Trustee Sale and put equity on their balance sheet, I will feel I earned my fee.

388 FALLINGSTAR 39 Irvine, CA 92614 kitchen

Irvine Home Address … 388 FALLINGSTAR 39 Irvine, CA 92614

Resale Home Price … $549,000

Income Requirement ……. $115,104
Downpayment Needed … $109,800
20% Down Conventional

Home Purchase Price … $423,000
Home Purchase Date …. 11/4/2009

Net Gain (Loss) ………. $93,060
Percent Change ………. 29.8%
Annual Appreciation … 109.0%

Mortgage Interest Rate ………. 5.11%
Monthly Mortgage Payment … $2,387
Monthly Cash Outlays ………… $3,200
Monthly Cost of Ownership … $2,560

Property Details for 388 FALLINGSTAR 39 Irvine, CA 92614

Beds 3
Baths 2 full 1 part baths
Home Size 1,411 sq ft
($389 / sq ft)
Lot Size n/a
Year Built 1985
Days on Market 5
Listing Updated 1/19/2010
MLS Number S602409
Property Type Condominium, Townhouse, Residential
Community Woodbridge
Tract Sg

Gorgeous end unit townhome with hardwood floor. All newly upgraded/installed: Kitchen cabinets,Granite countertop,carpet,paint,baseboard,water heater,light switches,door knobs,blinds. No mello Roos assessment. Move-in ready.

Now that I point out the word “gorgeous,” do you see how overused it is?

This flipper is likely to discount this property to sell it quickly, but a significant amount of that $93,060 will be made, and it could have gone to provide security to a family instead.

Just Sayin’

Irvine Housing Blog No Kool Aid

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

Irvine Home Improvements Show No Bounds

Today we have another over-improved property bought at the peak. Properties like these will rival the North Korea towers for the most foolish investments during the bubble.

15332 MONTPELLIER Ave Irvine, CA 92604 front 2

Irvine Home Address … 15332 MONTPELLIER Ave Irvine, CA 92604
Resale Home Price …… $1,250,000

{book1}

I know you’re still just a dream
Your eyes migth be green
Or the bluest that I’ve ever seen
Anyway you’ll be blessed

And you, you’ll be blessed
You’ll have the best
I promise you that
I’ll pick a star form the sky
Pull your name from a hat
I promise you that
I promise you that
Promise you that
You’ll be blessed

Blessed — Elton John

California real estate is truly blessed; you can spend unlimited amounts on acquiring and improving houses, and someone will always come along and pay enough for the owner to recoup all their foolish spending and then some. Back in October of 2009, I covered the topic of Superadequacy and looked back on a number over-improved homes littering the Irvine landscape.

Do you remember the
Castle at Kron and Ecclestone Circle? Or perhaps the monstrosity at Angell and Michelson? Or the Joke on Karen Ann Lane? The trend in over-improvement during the bubble is most noticeable in the omnipresence of pergraniteel.

During the bubble, the more you spent, the more you made. People
actually believed that adding common improvements — something anyone
could do to their own taste — would add more value than the
improvement cost. Flippers made money because they were there; breathing was the only prerequisite to success. Skill
and financial acumen had nothing to do with it, as evidenced by the losses they took when they were left holding the bag.

4931 Karen Ann Ln front

Home improvement and flipping shows became so common, they developed
their own channel. Like moths to a flame, fools flocked to flip houses.
The infamous flops are profiled here.

Today’s featured property is another one where you have to ask yourself, why?

Why did someone take an ordinary house — overpay for it — then
proceed to demolish it in favor of something that is vastly
over-improved for the area. This makes no sense. If this made sense, we
could drive our entire economy on building and rebuilding homes…
wait, we tried that once, didn’t we?

Yesterday’s featured property was another in the superadequacy genre.

111 HILLCREST Irvine, CA 92603 inside

Over the last year or so, WTF asking prices have been somewhat less common as sellers simply did not bother. Now with a hint of stability in prices sellers are behaving as if the bubble never happened, the decline was a aberration, and prices have already surpassed the peak on their way to the moon.

15332 MONTPELLIER Ave Irvine, CA 92604 front 2

Irvine Home Address … 15332 MONTPELLIER Ave Irvine, CA 92604

Resale Home Price … $1,250,000

Income Requirement ……. $262,076
Downpayment Needed … $250,000
20% Down Conventional

Home Purchase Price … $770,000
Home Purchase Date …. 2/2/2006

Net Gain (Loss) ………. $405,000
Percent Change ………. 62.3%
Annual Appreciation … 12.3%

Mortgage Interest Rate ………. 5.11%
Monthly Mortgage Payment … $5,436
Monthly Cash Outlays ………… $6,630
Monthly Cost of Ownership … $4,620

Property Details for 15332 MONTPELLIER Ave Irvine, CA 92604 Superadequacy

Beds 5
Baths 5 baths
Home Size 3,800 sq ft
($329 / sq ft)
Lot Size 6,000 sq ft
Year Built 2007
Days on Market 10
Listing Updated 1/22/2010
MLS Number P718464
Property Type Single Family, Residential
Community El Camino Real
Tract Rc

Located in the heart of Irvine, spectacular and magnificent home custom designed by a renowned architect and completely remodeled in 2007, with spacious living room, dining room, family room, den, office, and 5 spacious bedrooms upstairs, each with attached full baths and built-in closet organizers. Top-notch materials, including imported travertine, wood, and bamboo flooring, iron-wrought stairway, upgraded crown molding, baseboards, and window treatments, all new electrical, plumbing, dual-pane windows, enhanced insulation, dual central AC/heating, and so much more to impress your guests. Gourmet kitchen with upgraded dark cabinetry, stainless steel appliances, and granite countertops. Upstairs laundry, large driveway, 3-car direct access garage, close to nearby park, schools, shopping & freeways. Great Irvine school district. Don’t miss this rare opportunity to own this incredible home! * Seller bought another home. * Not a short sale. * Please call to schedule a showing.

Not a short sale. Sure at this ridiculous asking price, it will not be a short, but when it rolls back to comparable value, it might end up a short.

The owner bought the original house at the peak, and demolished the value that was there, and spent hundreds of thousands rebuilding while comparable values were tanking. If he is lucky, the improvements may have brought the house back up to his purchase price, but recouping the renovation costs and making a profit?– I don’t think so.

Loan Modifications Make Payments Affordable

The current government loan modifications programs offer borrowers true payment affordability — if borrowers want to take advantage.

111 HILLCREST Irvine, CA 92603 kitchen

Irvine Home Address … 111 HILLCREST Irvine, CA 92603
Resale Home Price …… $3,188,000

{book1}

I watch the ripples change their size
But never leave the stream
Of warm impermanence and
So the days float through my eyes
But still the days seem the sameAnd these children that you spit on
As they try to change their worlds
Are immune to your consultations
They’re quite aware of what they’re going through

Ch-ch-ch-ch-Changes
(Turn and face the strain)
Ch-ch-Changes

Changes — David Bowie

Changes. Borrowers and lenders both want changes; borrowers want payments they can afford, and lenders want borrowers to make payments. There is supposed to be a meeting-of-minds before a loan is funded, but now in our era of retroactive loan qualification, lenders are forced to cope with lax underwriting standards of the bubble through loan modifications.

The Coto Housing Blog recently featured an excellent post on loan modification programs simply titled Loan Mods:

“The loan modifications in the news and brought forth as the second coming are government sponsored loan mods. The government wrote the qualifications and the government wrote the terms and the government is paying both the lenders and the borrowers to modify their loan according the terms the government has decided is best. HARP is government sponsored loan mods for Fannie and Freddie guaranteed loans. HAMP is for non Fannie/Freddie loans. But there are qualifications. The loan must have originated before January 1, 2009. The borrower must be able to prove they are having difficulty making their payments. The amount owed on the first mortgage must be equal to or less than $729,750. The loan must be for your primary residence. DTI must be more than 31%.

There are three terms that HARP or HAMP may modify and those three terms are approached in a specific order. The second term will only be modified if the first modified term does not bring the DTI equal to or below 31%. And the third term will only be modified if the second term mod does not bring DTI below 31%. The first term is the interest rate which will be lowered to bring DTI to 31% with a minimum rate of 2%. Not bad, eh? Wouldn’t you like you have your interest rate lowered to 2%. If the modified interest rate is below the market rate, the modified rate will be fixed for a minimum of five years as specified in the modification agreement. Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the rate cap indicated in the modification agreement. The cap is equal to the prevailing market interest rate on the date the modification is finalized as published by Freddie Mac based on a survey of its customers. This cap means that your rate can never be higher than the market rate on the day your loan was modified. If the modified rate is at or above the prevailing market rate, the modified rate will be fixed for the life of the loan. Simply, after five years, the interest rate will increase 1% per year until it gets to about 5.2%. …

The 2nd term that can modified is the length of the loan, and it can be extended up to 40 years to bring the borrowers DTI under 31%. …

The 3rd term that can modified is the principal, although under the conditions of HARP and HAMP, the principal may be foreborne, that is, the principal can be reduced for the period of the loan, but must be paid back when the house is sold, or foreclosed on, or borrowed on. … It changes a non-recourse portion of the loan into recourse.

Borrowers are enrolled in a three month trial period paying an amount equal to or less than the amount agreed upon in their loan modification agreement. If the borrowers do not make their new payments on time during the trial period, their trial period is extended. If the borrowers do not turn in the appropriate documentation necessary to qualify for the loan mod, the trial period is extended. If the borrower fails to meet the requirements of the trial period is any way, the trial period is extended. Currently, no borrower who is enrolled in the loan modification program may fail. On January 31, some of the trial loan modification extensions will end, unless they are extended again. If the maximum time period for a foreclosure proceeding is reached while a trial loan mod is in effect, the foreclosure is canceled.”

I appears that amend, extend, pretend is an integral part of the system.

Notice that the first loan amount must be under $729,750. That means every loan in Irvine in excess of $729,750 is ineligible, and since our median peaked above this number in 2006, it is fair to assume many loans in Irvine are over this threshold.

If you have a loan under $729,750, the 2% interest rate is a sweetheart deal. In 2006 at 6.5% interest, the payment on $729,750 is $4,612 per month, but at 2%, the payment falls to $2,697 — the ridiculous payment of 2006 is affordable. However, if this is not affordable enough, the term can be extended to 40 years which takes the payment down to $2,210 — less than half the original payment. If that is not enough, principal forbearance can lower payments to whatever level is necessary for a few years (sounds like an Option ARM).

&amp;amp;amp;amp;amp;amp;amp;nbsp;

When you look at how the terms can be modified and how significant the reductions in payments really are, it is surprising that everyone is not successfully modifying loans. Of course, if you are 30% underwater, you probably don’t see the point, but payment affordability is not a legitimate borrower excuse.

111 HILLCREST Irvine, CA 92603 kitchen

Irvine Home Address … 111 HILLCREST Irvine, CA 92603

Resale Home Price … $3,188,000

Income Requirement ……. $668,398
Downpayment Needed … $637,600
20% Down Conventional

Home Purchase Price … $2,150,000
Home Purchase Date …. 4/12/2008

Net Gain (Loss) ………. $846,720
Percent Change ………. 48.3%
Annual Appreciation … 21.7%

Mortgage Interest Rate ………. 5.11%
Monthly Mortgage Payment … $13,863
Monthly Cash Outlays ………… $17,770
Monthly Cost of Ownership … $12,650

Property Details for 111 HILLCREST Irvine, CA 92603

Beds 5
Baths 3 full 2 part baths
Home Size 5,475 sq ft
($582 / sq ft)
Lot Size 15,023 sq ft
Year Built 1987
Days on Market 5
Listing Updated 1/20/2010
MLS Number U10000273
Property Type Single Family, Residential
Community Turtle Rock
Tract Cs

Exquisite family home perched on an oversized double lot at the top of Turtle Rock Crest featuring sweeping views from Catalina Island to the San Bernardino mountains. Recently completed remodel offering customized finishes and quality craftsmanship throughout. Dramatic entry with soaring cathedral ceilings leading to formal living and dining rooms, each with their own fireplace. Gourmet kitchen with dual island work stations with granite counters, custom cabinetry, walk-in butler’s pantry, built-in refrigerators and top of the line stainless steel appliances. Extensive use of hardwood and stone flooring, custom wainscoting and moulding throughout. Large family room with French doors opening to side courtyard with cascading fountain.Upstairs bonus room with panoramic views, balcony, custom built-ins and private bath. Gracious master suite with dual walk-in closets, exercise room and luxurious master bath. This is truly a rare offering and must be seen firsthand to appreciate.

First, I want to recognize the excellence in photography shown in these listing pictures. The photographer would probably lament the poor lighting caused by the gray sky outside, but the photos themselves are outstanding. These were obviously taken with a wide angle lens, but there is barely a hint of distortion. The angles the photographer selected took advantages of interesting reflections and shadows making for beautiful photographs that display the property very well.

Second, I have to wonder WTF the owner was thinking when he (1) overpaid in 2008 and (2) over-improved a property he overpaid for. If someone steps up and pays $3,188,000, then Orange County must have infinite capacity for supporting high end real estate, and everyone should start flipping those.

Housing Guru Calls for Principal Reductions

No, not me. John Mulkey, Housing Guru from Waleska, Georgia, calls for principal reductions. Today we examine his arguments and a beautiful short sale in Shady Canyon.

96 CANYON Crk Irvine, CA 92603 kitchen

Irvine Home Address … 96 CANYON Crk Irvine, CA 92603
Resale Home Price …… $4,500,000

{book1}

Who are you?
Who, who, who, who?

I woke up in a Soho doorway
A policeman knew my name
He said “You can go sleep at home tonight
If you can get up and walk away”

I staggered back to the underground
And the breeze blew back my hair
I remember throwin’ punches around
And preachin’ from my chair

Who Are You — The Who

So who is John Mulkey, Housing Guru from Waleska, Georgia? He is a realtor who posts on Active Rain to network and find business. He expresses opinions shared by many realtors — and he couldn’t be more wrong. He managed to write a post I interpret as genius parody, a channeling of sheeple energy so full of unintentional irony that it casts reflective light on the tormented souls of the clueless masses.

Punishing Foreclosure Victims Only Continues The Pain For All Of Us

“While news stories, articles, and blogs continue to be written about “Strategic Default” and how those facing foreclosure shouldn’t be allowed to walk away or have their mortgage balance reduced, punishing foreclosure victims only continues the pain for all of us.
The problem we face isn’t one of a few hundred or even a few thousand
who carelessly spent beyond their means;”

It is way, way more than a few thousand who carelessly spent
beyond their means. Mortgage Equity withdrawal was fueling the US
economy for the last decade. The attempt at minimizing the issue is
hereby exposed as fraud.

“this issue touches tens of
millions of U. S. homeowners, the majority of whom acted responsibly,
and with the knowledge available to them at the time. Most thought they
were making wise choices. How
can we blame the homebuyer for not seeing the fallacy of never-ending
home price escalation?”

The sheeple bought on the foolish advice of realtors, the experts, probably using a toxic loan per the foolish advice of their mortgage broker, another expert. I will acknowledge that we cannot blame homebuyers; we should blame realtors and mortgage brokers who peddled that bad advice as experts.

“In their recent testimony before Congress, the
heads of the big banks said they didn’t see it. Jamie Dimon,
Chairman and CEO of JP Morgan Chase said, “Somehow we just missed that
home prices don’t go up forever,” an erroneous assumption shared by the
U. S. Treasury. And if the “brilliant” minds on Wall Street
didn’t see the crash coming, who could expect those on Main Street to
have superior knowledge? Regardless of what Mr. Dimon may have
known, few anticipated the intensity of the housing crash or the scope
of its reach.”

When I read this quote, I burst out laughing. The author of this post was using this quote as support for his argument that experts failed and therefore he is not responsible for anything. The irony of the quote and the subtle sarcasm in Mr. Dimon words completely escaped the author. And for the record, many people from Wall Street to Main Street saw this coming, me included.

“It’s time to stop blaming the home purchaser and to
accept the only workable solution for both them and for the housing
market in general. It’s time to see beyond what we perceive as the
“morality” of the solutions for those facing foreclosure, and to look
to what solution best serves the country as a whole. And that is to
reduce the principle of homes underwater to their current value.”

WTF? The reasons for me not wanting to give money to my underwater neighbor are many and complex, and “putting aside morality” and taking one for the team are not likely to persuade me to change my mind. Remember, responsible homeowners are NOT losing their homes. Who am I supposed to pity? The genius whose idea of personal finance is a Ponzi Scheme?

I have an idea; why doesn’t the author start writing personal checks to the lenders himself. Isn’t that what he is asking us to do? Somebody has to lose a great deal of money, and as someone who had nothing to do with the fiasco, I really don’t want it to be me. I don’t want the government to use my tax dollars to bail out anyone, much less a HELOC abuser who looks down on me as a lowly renter.

“Such
an action would immediately help to stabilize a large portion of the
market, and would protect neighboring homes from further declines in
value. It would not affect the bank’s or investor’s equity, for the
homes are only worth what they’re worth; and foreclosure sometimes
results in below market returns.”

The problem with banks is not the equity in the property, it is the book value of their loans. Writing off the balances would wipe out our banking system, that is the problem. The author thinks this has something to do with home values; it doesn’t. This crisis has everything to do with bank loan balances, capital ratios, and borrowers making payments. Since he has incorrectly defined the problem, any solution he comes up with will be erroneous.

“Those who speak of the inherent
unfairness of such a solution fail to consider the ultimate damage of
continued foreclosures, the consequences of which will depress home
prices for years.”

So what? Home prices are what they are. What difference does it make to society if home prices are up or if they are depressed? If people are living in their homes and making payments, it should not matter. Depressed or stagnating prices does rob realtors of their ability to stoke buyer fears to inflate housing bubbles, but it also makes housing affordable for real families and stimulates the economy by freeing up personal income for personal spending rather than spending on debt service.

“If we’re serious about solving the foreclosure
crisis, let’s address the underlying cause—homes worth less than their
mortgage.”

The underlying cause of default is not negative equity. Negative equity is motivating defaults because the sheeple were told by realtors and mortgage brokers prices would go up forever, and when that did not happen, they bailed. Negative equity merely exposes the poor underlying motivation for home ownership: making a profit, and the people are making a rational business and investment decision when they default. Perhaps if realtors didn’t create false expectations through their ridiculous representations about appreciation, then negative equity will stop being a problem because owners will pay less attention. In addition, negative equity will stop occurring because people will not buy for foolish reasons and inflate housing bubbles.

“I’ve recently seen comments from some
who said, “I don’t care if my home declines in value, I don’t want to
save those who acted stupidly.” And while I doubt that those making
such statements really aren’t concerned about future decreases in the
value of their own home, I do think they want to punish those who they
perceive as taking advantage of the situation.”

Did this guy just call everyone who disagrees with him a vindictive liar?

“However, the problem
extends beyond housing, and millions will continue to suffer until we
begin to restore economic order and sanity. We must do something; and
the palliative measures of government have demonstrated their
inadequacy to bring solutions. What is needed is bold action, from
leaders unafraid of the political consequences. Whether it’s
legislation to allow for “cram-downs” or forcing banks to lower
principle balances on homes underwater, to fail to enact a workable
solution is to allow the morass to continue; indeed to perpetuate it.”

I agree with his conclusion that failing to act will cause the morass to perpetuate.

Great! Bring it on!

Populist appeals to self-serving instincts give false hopes to many, and contrary to the author’s desires, such false hopes from posts like his only serve to allow the morass to continue; indeed to perpetuate it.

Negative equity is not a a complicated or confused situation, and the defaults and foreclosures are not a social problem requiring government intervention. Calling for someone else to pay the price, notably shifting the entire burden of poor decision making from borrowers to lenders and US taxpayers is never going to sit well with me.

Lenders are more culpable than borrowers, but not that much more, and I am not thrilled about seeing lender’s share of the losses increase as long as I am guaranteeing them.

No twist of logic or compelling narrative is going to remove the moral hazard; principal reductions to restore equity are wrong, and I will speak out against them as often and as loudly as I can.

96 CANYON Crk Irvine, CA 92603 kitchen

Irvine Home Address … 96 CANYON Crk Irvine, CA 92603

Resale Home Price … $4,500,000

Income Requirement ……. $943,473
Downpayment Needed … $900,000
20% Down Conventional

Home Purchase Price … $5,700,000
Home Purchase Date …. 5/11/2007

Net Gain (Loss) ………. $(1,470,000)
Percent Change ………. -21.1%
Annual Appreciation … -8.5%

Mortgage Interest Rate ………. 5.11%
Monthly Mortgage Payment … $19,568
Monthly Cash Outlays ………… $25,200
Monthly Cost of Ownership … $17,980

Property Details for 96 CANYON Crk Irvine, CA 92603

Beds 5
Baths 6 full 2 part baths
Home Size 9,489 sq ft
($474 / sq ft)
Lot Size 28,766 sq ft
Year Built 2009
Days on Market 373
Listing Updated 1/20/2010
MLS Number C10006941
Property Type Single Family, Residential
Community Turtle Rock
Tract Rb

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

Come see this beautiful Tuscan Style Estate with views of the canyon and city lights in the gated community of Shady Canyon! There is approx 9,489 square feet of living space including a separate pool house with 3/4 bathroom and kitchenet. The gourmet kitchen and butlers pantry has ample space to prepare for dinner parties yet functional for everyday cooking. Take the elevator to the basement for the theater room and an additional room that can be transformed into a wine room, gym or bonus craft room. The main floor boasts a library/study, formal living room, informal living room, TV family room, gourmet kitchen with butlers pantry. Outside you will find a pool and spa, built in BBQ and bar area, outdoor fireplace with seating area, three separate water features including the entry fountain. This Estate is awesome!

Two gourmet kitchens? How many do you need? Do you often have visiting gourmets that need a place to work?

A few weeks ago in Foreclosures Ravage Irvine’s High End, I profiled 63 CANYON Crk Irvine, CA 92603, a new build in Shady Canyon where the owner walked and let the lender take back the property. On that property, the lender is holding out for an unrealistic asking price hoping to break even.

Today’s featured property is another big lender loss on the way. They are advertising the property as a short sale to generate interest, but I question if they will find much. Everyone knows more of these properties is coming, and nobody wants to be a knife catcher. Many will anyway.

How long before they give up on the short sale and move this property?

Foreclosure Record
Recording Date: 12/23/2009
Document Type: Notice of Sale (aka Notice of Trustee’s Sale)

Foreclosure Record
Recording Date: 09/21/2009
Document Type: Notice of Default

IHB News

Irvine Company Opens New Models

House of Blues Benefit Reminder

Housing Bubble News from Patrick.net

No bottom

Home sales decline

Foreclosures

New Home Sales

Miscellaneous

Retail Flipping

Rehab Flipping

Trustee Sale Flipping

Income Statement or Balance Sheet

Punishing Foreclosure Victims Only Continues The Pain For All Of Us