Home — Simple Minds

Perhaps the best illustration of the problem with the housing market is the simplest one. Speculators with access to 100% financing did not have to worry about losing money, so they went out and bought every property available and bid prices up to very high levels. Now that prices are falling, they are simply walking away and letting the lender absorb the loss. The big lesson lenders are learning is that 100% financing brings in more business, it just isn’t the kind of business you want. The new housing bailout bill passed by Congress and signed by the President has a provision in it eliminating downpayment assistance programs. From this day forward everyone will need a downpayment. With all the losses lenders are absorbing due to the defaults of 100% financing purchases and refinances, you will not see them bringing those programs back any time soon.

When I first started putting downpayment requirements on posts, people were incredulous. I was repeatedly told 20% downpayments will never be required again. Zero down financing was here to stay. Perhaps it will rise to 5% or maybe 10%, but 20% is from a bygone era. Well, go try to get a loan from anyone other than the FHA and see what they tell you. There will always be programs allowing you to put less than 20% down, but good luck qualifying for one of them. From this day forward — until we build the next bubble — a minimum of 3% down through the FHA will be the primary avenue of first-time buyers. Everyone else better have 20% down, or you will not be buying.

One of the overlooked features of the bottom of the market is the difficulty in qualifying for a loan. Prices drop because buyers cannot get loans. When prices look relatively cheap, very few people will qualify for loans to take advantage of the low prices. That is why prices are low. If everyone could qualify for a loan, they would bid prices up like we saw in the bubble rally. The future of Irvine’s housing market is going to be a lot of loans at the conforming limit — currently $417,000 — plus whatever downpayment people have saved. The median will probably be supported at around $430,000 because that is the conforming limit plus 3%. If you have saved 20% or more, you will be one of the few buyers who can bid higher, and you will likely find some outstanding deals at the bottom. Those $900,000 homes at the peak will be going for $500,000 for the conforming limit borrower with 20% down.

Save your money. Cash is king.

Asking Price: $579,900

Income Requirement: $144,975

Downpayment Needed: $115,980

Monthly Equity Burn: $4,832

Purchase Price: $690,000

Purchase Date: 8/30/2006

Address: 66 Stepping Stone, Irvine, CA 92603

Beds:	3
Baths:	3
Sq. Ft.:	1,700
$/Sq. Ft.:	$341
Lot Size:	–
Property Type:	Condominium
Style:	Mediterranean
Year Built:	2004
Stories:	2 Levels
Area:	Quail Hill
County:	Orange
MLS#:	S542271
Source:	SoCalMLS
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

Yes, there is a garage, and inside, there is a wall…

As I mentioned in the introduction, this is a simple transaction. The former owner bought this property at the peak with 100% financing. The first mortgage was $552,000. The owner made some payments, but then stopped. The total outstanding balance was $555,044 at the time of foreclosure, so that is what the lender bought it back for. The second mortgage was a complete loss (JP Morgan Chase Bank is hating life.) If this property sells for its asking price, and if they pay a 6% commission, the total loss on the property will be $144,894. The bank is trying to get a few bucks back but they are over market, and they will need to reduce price to find a knife catcher. Expect to see this same, simple story over and over again as this crash drags on.

I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

🙂

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God gave me travelling shoes, God gave me the wanderer’s eye,
God gave me a few gold coins to help me to the other side.
Looked around and said: be careful how small things grow,
God gave me travelling shoes and I knew that it was time to go.

Miles and miles and miles and miles and miles away
Where can i go?
Where can I hide?

Home — Simple Mind

Bee Gees — Tragedy

The behavior of HELOC abusing owners during The Great Housing Bubble was tragic. They believed the fantasies of the religion of real estate, drank the kool aid, and now they are losing their homes. The classic Greek tragedy a good person experiences a reversal of fortune most often due to the decisions and mistakes they made along the way. The tragic outcome for many homeowners was not caused by some unforeseeable, random event, but rather it is the direct result of the decisions they made and the actions they took because they subscribed to the fallacies of the religion of real estate. A good tragedy or morality play leaves the audience with mixed emotions. Part of you feels sorrow for the pain and suffering the character must endure, and part of you feels they character is getting what they deserve. It brings up feelings of schadenfreude and a sense of thankfulness that you did not suffer the same fate.

You can see this mixture of emotions in the comments on the blog which often exhibit both sides of this false dichotomy. Life is seldom black and white, and the tragic outcome for homeowners caught up in The Great Housing Bubble is no different. The full range of these emotions are normal and appropriate given the events we are witnessing. Hopefully, everyone who explores these issues and the outcomes that results from the behavior sees the mistakes these people made and does not repeat them in their own life. If that occurs, the I will feel my work at the Irvine Housing Blog has been worthwhile.

Today's featured property is another HELOC abuser who lost his home. Let's explore how he did it.

Asking Price: $389,900

Income Requirement: $97,475

Downpayment Needed: $77,980

Monthly Equity Burn: $3,249

Purchase Price: $226,500

Purchase Date: 10/10/2000

Address: 9 Helena #26, Irvine, CA 92604

Beds:	3
Baths:	2
Sq. Ft.:	1,205
$/Sq. Ft.:	$324
Lot Size:	–
Property Type:	Condominium
Style:	Other
Year Built:	1977
Stories:	Split-Level
Area:	El Camino Real
County:	Orange
MLS#:	S541769
Source:	SoCalMLS
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

It isn't hard to see how people were enticed to go over to the Dark Side. If you are living paycheck to paycheck, and the house you own suddenly doubles in value, and the entire mortgage industry is encouraging you to take the free money, it is a temptation too big for many to resist, particularly since the religion of real estate has convinced you the value of your house will go up forever. So how did today's owner make the journey?

• The house was purchased for $226,500 on 10/10/2000. The owner used a $219,705 first mortgage and a $6,795 downpayment.
• On 6/29/2001 the house was refinanced for $218,431. There was no mortgage equity withdrawal.
• On 11/26/2001 he opened a HELOC for $72,400, but did not use it.
• On 9/3/2002 he refinanced again with a $218,431 through the FHA. To this point, the owner has resisted temptation.
• On 6/3/2003 he refinanced with a $303,300 first mortgage and opened a HELOC for $21,721. This was his first sip of kool aid. It was all downhill from here.
• On 10/7/2004 he refinanced with a $400,000 first mortgage.
• On 4/19/2005 he refinanced with a $475,000 first mortgage.
• The total debt on the property was $475,000.
• The total mortgage equity withdrawal was $255,295 including is $6,795 downpayment.

It really looks like this owner tried to resist temptation. There was ample opportunity to drink the kool aid before 2003, and he did not do it. He probably fell victim to the sales pitch of the mortgage industry and came to believe he could serially refinance the ever increasing debt which would be paid off by someone else when he sold. Of course, the homedebtor got in over his head and was unable to make the payments. The property went back to the lender on 3/12/2008 for $450,000. The total gain on the sale was $223,500. The are trying to dump it for $389,900. If this property sells for its asking price, and if a 6% commission is paid, the total loss to the investor in DEUTSCHE BANK NATIONAL TRUST CO, ; NEW CENTURY HOME EQUITY LOAN TR 2005-4 will lose $108,494.

So what do you feel when you read these stories?

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Here I lie

Goin nowhere

Bee Gees — Tragedy