Author Archives: IrvineRenter

Estimated Prophet

California, preaching on the burning shore

California, Ill be knocking on the golden door

Like an angel, standing in a shaft of light

Rising up to paradise, I know I’m gonna shine.

My time coming, any day, don’t worry about me, no

Its gonna be just like they say, them voices tell me so

Seems so long I felt this way and time sure passin’ slow

Still I know I lead the way, they tell me where I go.

Estimated Prophet — Grateful Dead

This could be the song of the guy who delivers the paperwork for a foreclosure…

Today’s owner must have estimated a fair profit for their property; otherwise, they probably would not have gone out and borrowed more than they paid for the property. In context with the previous HELOC abusers we have profiled, today’s seller is a minor leaguer. They are extraordinary in their ordinariness. They are stereotypical of many homeowner’s behavior during the bubble. People really believed their home appreciation was free money they could spend as income because their house would go up in value forever. In hindsight, it is laughable and ludicrous — and to some of use in foresight it was as well — but to those caught up in the mania, it made perfect sense.

Irvine will not be savaged by subprime (other than the job losses.) Irvine will be devoured by its own consumption. As I demonstrated in What is Equity?, if you consume your equity or buy at too high a price, the inflation hedge is the only thing keeping you above water, and if you consume too much through bad loan terms or HELOC abuse, you will go underwater and you will be at serious risk of losing your house.

Today’s seller bought in the upward trajectory of the speculative equity curve. Since they bought in 2003, they were too late to stay above water at the bottom of the trough; however, it might have been manageable if they had used conservative financing and not used their HELOC. Instead, they chose a different path, and now they are a short sale. This actually makes it easy to estimate their profit: they paid $830,000, and they borrowed $952,000, so the made $122,000 on the property. Of course, since they have recourse loans on the property, and they are a short sale, they have no protection from the lenders collections department. There may be a question as to how much of this “profit” they will be able to keep…

Asking Price: $899,000

Income Requirement: $224,750

Downpayment Needed: $179,800

Monthly Equity Burn: $7,491

Purchase Price: $830,000

Purchase Date: 10/6/2003

Address: 2 Valente, Irvine, CA 92602

Beds:	5
Baths:	5
Sq. Ft.:	3,103
$/Sq. Ft.:	$290
Lot Size:	6,500 Sq. Ft.
Type:	Single Family Residence
Style:	Contemporary/Modern
Year Built:	2001
Stories:	Two Levels
Area:	West Irvine
County:	Orange
MLS#:	S511815
Status:	Active
On Redfin:	94 days
Unsold in 90+ days

Magnificent turnkey gem nestled on ultra-premium lot on end of safe & quiet CDS! Gorgeous curb appeal thanks to contemporary styling + stone detailing & mature landscaping. Dramatic living room entry boasts nice hardwood flooring + custom lighting & French door access to patio. Stunning gourmet kitchen w/ rich European cabinetry, granite counters, backsplash, island & built-in range & hood. HUGE master suite w/ private bath & walk-in closets. Entertainers’ yard.

Ultra-premium end lot? You mean the one backing on to Jamboree? safe & quiet? Have they no shame?

CDS? Collateralized Debt Servitude?

Magnificent Turkey…

This property will probable look like a breakeven transaction when it finally sells. If they had used a 30 year fixed and avoided the HELOC, they probably would escape with some equity. As it stands, any assets they do escape with will be a target for their lender, although in the short term, they made $122,000. If this house sells for asking price and a 6% commission is paid, the lender stands to lose $106,940.

If you were the lender who had the second lien that did not get paid off in full, aren’t you going after the money the borrower took?

Quail Hell

Must be getting early, clocks are running late.

Paint my love a morning sky, its all cold.

Dawn is breaking everywhere, light a candle, curse the glare

Draw the curtains I dont care, but its all right

I will get by, I will get by, I will get by, I will survive.

I see youve got your list out, say your piece and kiss off.

Guess I get the gist of it, but its all right

Oh well anyway, sorry that you feel that way.

Every silver linings got a touch of grey

I will get by, I will get by, I will get by, I will survive.

Its a lesson to me, the ablers and the beggars and the thieves

The abcs we all think of, try to win a little love.

I know the rent is in arrears, the dog has not been fed in years

Its even worse than it appears, but its all right

Touch of Grey — Grateful Dead

What will be the silver lining in the housing bust? What will be the touch of grey? Right now, it is even worse than it appears, but its all right…

(The rent isn't in arrears, but the mortgage payments certainly are.)

Quail Hill is a great Irvine Village. It is unfortunate it was built during the later stages of the housing bubble because it will become Quail Hell for those who bought there. The discussion about housing is no longer about whether or not there was a real estate bubble: there was. The discussion now is about the depth and devastation of the crash which follows. The bulls will call the bottom every so often, and they will be consistently wrong until we ultimately hit bottom. I have made my case housing prices will fall back to fundamental valuations about 40% off the peak in Irvine. It might get worse. If prices do fall back to fundamental valuations, every buyer in Quail Hill will be underwater — all of them. Think about that for a moment… an entire neighborhood where every homeowner owns a property worth less than they paid, and the vast majority owe more on a mortgage than it is worth. The last time that many were underwater, Noah built a boat.

What would it be like at the local shopping center when conditions are bad, and every person you look at is in financial distress? This is Irvine, so we probably will not see much urban blight or other outward signs of distress, but inwardly, it will be hell on earth. A touch of grey? I hope affordable housing is the silver lining…

Asking Price: $525,000

Income Requirement: $131,250

Downpayment Needed: $105,000

Monthly Equity Burn: $4,375

Purchase Price: $621,000

Purchase Date: 12/30/2004

Address: 356 Quail Ridge, Irvine, CA 92603

Beds:	3
Baths:	3
Sq. Ft.:	1,843
$/Sq. Ft.:	$285
Lot Size:	–
Type:	Condominium
Style:	Spanish
Year Built:	2005
Stories:	Two Levels
Area:	Quail Hill
County:	Orange
MLS#:	S519520
Status:	Backup Offers Accepted
On Redfin:	11 days

The largest floor plan in Ambridge community with one bed and bath on main floor. Spacious living room with fireplace, dining area, all hardwood floor. Open kitchen with granite counters, large master suit, direct access to two car garage with full size driveway. Short distance to Laguna Beach, shopping, 405/133 Fwys.

Don't you love the picture of the garage door? That has to be the worst, most useless photo on the MLS.

Look at this unit — a 3/3 in a new Irvine neighborhood selling for $285 / SF. This is almost $100,000 off a 2004 price. As sales like this one set the comps, it will soon become apparent that every homeowner in Quail Hill is underwater. There will certainly be many who hold out for ridiculous wishing prices, but the fact is the market transactions are occurring at steep rollback pricing. If this selling comp killer gets their full asking price (which looks likely as they are in escrow) and pay a 6% commission, they stand to lose $127,500 on their 2004 purchase.

Who said they wouldn't just give it away?

WOT 2-9-2008

Britney Spears explains the subprime Housing Bubble Crash

I love Subprime

Scary chart of the day.

There are some who do not believe we will have a big foreclosure problem here in Irvine. Orange County has already broken all previous records as has San Diego County. If fact, if you look at the chart, the rate of Notices of Default and Notices of Trustee Sale are well past the previous peaks and still increasing. There is no sign of leveling or stabilization. Things will get much worse.

Keep in mind, this is just the ARM reset problem. This is not considering the unique problems of Option ARMs and Liar Loans. Any one of these issues on their own has the capacity to flatten the housing market.

Notice how the foreclosure chart looks like the ARM reset chart with a 9 month lag period for the foreclosure process?

For something on the lighter side…

Liar Loans

Living easy

Loving free

Season ticket on a one way ride

Asking nothing

Leave me be

Taking everything in my stride

Don’t need reason

Don’t need rhyme

Ain’t nothin’ I would rather do

Going down

Party time

My friends are gonna be there too, eh

I’m on a highway to hell

On the highway to hell

Highway to hell

I’m on the highway to hell

Highway to Hell — AC/DC

“The Road to Hell is Paved with Good Intentions.” — Samuel Johnson. Most people who took out a “liar loan” did so to provide shelter for their families and hopefully make a few dollars speculating in real estate. Most people did not intend to defraud anyone when they took out the loan, but they ended up doing so by walking away from their payment obligations. This Highway to Hell is paved with good intentions, and it is very well traveled.

State Income Loans

One unique phenomenon of The Great Housing Bubble was the utilization of state-income loans, also known as “liar loans” because most people were not truthful when stating their income. Loan documentation is usually a routine part of obtaining financing. Lenders ordinarily require a borrower to provide documentation proving income, assets and debt. However, during the final stages of the Great Housing Bubble, loan documentation was seen as an unnecessary barrier to completing more transactions, and loan programs which circumvented normal documentation procedures flourished. The fact that these programs existed at all is a remarkable proof of the risk lenders were taking through the relaxing or outright elimination of lending standards. According to a study by Credit Suisse, 81% of Alt-A purchase originations in 2006 were stated income, and 50% of subprime originations in 2005 and 2006 were stated income. Stated income loans increased from 18% of originations in 2001 to 49% in 2006 according to Loan Performance. In a related study by the Mortgage Asset Research Institute, 60% of stated-income borrowers had exaggerated their incomes by more than 50%. Obviously, lying about one’s income to obtain a loan is not a conservative method of financing a property purchase.

The stated-income loan, also known as liar loan due to the built-in incentive to exaggerate one’s income, was originally provided to borrowers such as the self-employed who most often do not have W-2s to verify income. When these loan programs were first started, they were not made available to borrowers with W-2s as the transparency of the lie would have been obvious to all parties. During the bubble rally, these loans were made available to anyone, and not just were the borrowers encouraged to lie, they were often assisted in fabricating paperwork by aggressive loan officers and mortgage brokers. Since the loan could be packaged and sold to investors who had no idea what they were buying, there was a complete lack of concern for whether or not the borrower actually made the money stated in the loan application and thereby could actually make the payments on the loan. Everyone involved was making large fees, the borrower was obtaining the real estate they desired, and for a time, the investor was receiving payments from the borrower. As long as prices were rising, everyone benefited from the arrangement. Of course, once prices started to fall, borrowers did not want to continue making payments they could not afford, and the whole system collapsed in a massive credit crunch.

Today’s property is a WTF listing price in Northwood II. This neighborhood is getting destroyed, and most sellers are losing money on their 2004 and 2005 purchases; however, today’s seller believes his property is different, and in fact, it has appreciated over 40% since he bought in 2004. I imagine he wishes liar loans were still available so someone could come up with the money to buy him out.

Asking Price: $1,699,000

Income Requirement: $424,750

Downpayment Needed: $339,800

Monthly Equity Burn: $14,158

Purchase Price: $1,237,000

Purchase Date: 11/9/2004

Address: 31 Lily Pond, Irvine, CA 92620

Beds:	5
Baths:	4.5
Sq. Ft.:	3,963
$/Sq. Ft.:	$429
Lot Size:	6,000 Sq. Ft.
Type:	Single Family Residence
Style:	Mediterranean
Year Built:	2004
Stories:	Two Levels
Area:	Northwood
County:	Orange
MLS#:	P620491
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

Absolutely Gorgeous , Luxurious Home in Gated community! Very Open , Roomy Floor Plan. Incredible Highly Upgraded top to Bottom. Professional Paradise Landscape! AttractiveCustomised paint all inside house, * * Crown Molding , Hardwood Floors, Customised Carpet, Wood shutters, Large Gourmet Kitchen w/ Granite Counter Top & Huge Island, Luxurious master suites w/ walk-in closet. Large walk-in Pantry, Extended Family Room , Charming water fountain in Backyard. Best Location in NW II.

No greed here, this seller only wants to make $462,000 for a little over three years of ownership. It might have worked out if he had purchased in 2001 or 2002, but a late 2004 purchase makes him late to the party. He is not a real estate mogul, he is a bagholder.

That concludes another 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.

BTW, since AC/DC is one of my favorite groups, I want to share two more songs with you.

Hells Bells

Back in Black

Crash and Burn

When you feel all alone

And a loyal friend is hard to find

You’re caught in a one way street

With the monsters in your head

When hopes and dreams are far away and

You feel like you can’t face they day

Let me be the one you call

If you jump I’ll break your fall

Lift you up and fly away with you into the night

If you need to fall apart

I can mend a broken heart

If you need to crash then crash and burn

You’re not alone

Because there has always been heartache and pain

And when it’s over you’ll breathe again

You’ll breath again

Crash and Burn — Savage Garden

Asking Price: $489,900

Income Requirement: $122,475

Downpayment Needed: $97,980

Monthly Equity Burn: $4,082

Purchase Price: $563,790

Purchase Date: 10/25/2007

Address: 322 Quail Ridge, Irvine, CA 92603

Sales History

Date………………..Price

10/25/2007 $563,790

09/28/2006 $640,000

10/31/2005 $537,000

Beds:	2
Baths:	2
Sq. Ft.:	1,441
$/Sq. Ft.:	$340
Lot Size:	–
Type:	Condominium
Style:	Contemporary
Year Built:	2005
Stories:	Three or More Levels
Area:	Quail Hill
County:	Orange
MLS#:	S517997
Status:	Active
On Redfin:	11 days

Quail Ridge at its Best. Gorgeous unit with granite counters in kitchen, ceramic tile and breakfast bar. Cozy fireplace in living room with built in media niche. Ample storage. Great location and close to shops and toll road.

Do you like how they carefully staged the garbage can in front of this very ugly front elevation? Judging by the shadows cast from the condos on the other side of the street, this ally/street must feel like a concrete valley.

When I first came out with my predictions of a 40% decline in the median home price early last year, I knew it would take a long time for prices to drop down to those levels. Many bloggers saw the credit crunch coming because of the onslaught of defaults are REOs, but I must admit I have been surprised by the speed of the correction since the credit crunch has taken hold. Today’s unit is priced 23% below its peak purchase price from less than a year and a half ago. The mortgage history on this property is unclear. There appears to have been a straw buyer in May 2007, but there is little information on this sale. It is difficult to tell who is losing here, but if this property sells at its current asking price, and there is a 6% commission paid, the total loss from the peak would be $179,494. That is a lot of money to lose on a 2 bedroom condo.