Despite low interest rates, home sales are not picking up. Lower prices are ahead.

Irvine Home Address … 9 SOUTHWIND Irvine, CA 92614

Resale Home Price …… $775,000

THE MARKET'S BOTTOM HAS FALLEN RIGHT OUT

AND ONLY THE STRONG ARE SURVIVORS.

WELL I FEAR, MY DEAR, THAT IT'S EMINENTLY CLEAR,

THAT YOU CAN'T SEE THE TREES FOR THE FOREST.

THE DOLLAR'S MOVING,

THE ROUBLE'S RISING.

THE YEN IS KEEPING UP

WHICH HARDLY SEEMS SURPRISING.

Paul McCartney — The Pound Is Sinking

In July I reported that Amid Weak Sales Volume Irvine Inventory Hits 23-Month High. In August I reported that Existing-Home Sales Sink to Lowest Level Ever Recorded. And recently, I reported that due to the low sales rates, Time Estimates for Clearing Shadow Inventory Are Too Low. Well, things aren't getting any better.

Southern California homes sales at lowest level in three years

by KERRY CURRY — Wednesday, November 17th, 2010, 1:21 pm

Southern California home sales dropped in October to their lowest level in three years amid doubts about the drawn-out housing recovery, tight mortgage lending and the expired homebuyer tax credit.

Let's be clear: home sales rates are low because the prices are too high. High unemployment and a return to sane lending standards has reduced the size of the buyer pool, but the high prices are keeping many investors out of the market. As Las Vegas clearly shows, low prices increase the sales volumes.

Volume always precedes price. Sellers always hesitate in lowering their prices until the lack of sales volume forces them too. Lower prices are on the way.

The median price paid for a home rose on a year-over-year basis for the 11th consecutive month, but was the year’s smallest increase with just a 1.1% uptick in pricing over October 2009, according to MDA DataQuick of San Diego.

The percentage of sales that were foreclosures declined from year-ago figures, the company said.

A total of 16,744 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month, down 7.4% from 18,091 in September, and down 24.3% from 22,132 in October 2009.

MDA DataQuick said last month’s sales were the lowest for an October since 2007, when 12,913 homes sold, and the second-lowest since 1988, when DataQuick’s statistics begin.

In late 2007, the volume of inventory and low sales rates signaled the beginning of a rapid decline in prices that went unabated until the government props gave some support in 2009. We are witnessing a repeat of the conditions in 2007 except that prices are a bit lower, and loans are even harder to come by.

"In addition to a lousy economy, the housing market still has a couple of nasty bottlenecks it has to contend with," said John Walsh, MDA DataQuick president. "First, sales of newly built homes are at a low, mostly because builders can’t build at a low enough price to compete with the inventory of resale homes, many of which are short sales or foreclosures."

One of the main reasons our economy is not improving is because homebuilding is not recovering. As long as about 50% of workers in that industry are either unemployed or underemployed, the economy will go nowhere. As John Walsh points out above, the inventory of foreclosed homes and shadow inventory is creating uncertainty in the new home market. Sales rates are low because prices are still too high. Until the foreclosures are liquidated and the shadow inventory cleaned up, homebuilding will continue to be moribund, and the economy will limp along.

"Also, lenders still haven’t opened the mortgage money spigot for buying move-up and prestige properties. These properties have come down in value by about half as much as entry-level homes.

That's because the high end has not deflated yet. The prices are being held up by widespread squatting and shadow inventory. Lenders are wise not to open up the mortgage money spigot because prices are still going to fall on these properties, and whoever starts writing jumbo loans first will lose a lot of money. Since the government is not backing these properties, there is no backstop until prices reach $729,750.

But trying to finance a higher-end purchase can be a real grind, even for well-qualified buyers," he said.

Lenders are not suddenly going to open the credit spigot on high end homes. The problem isn't that a mortgage is difficult to get — the problem is that a huge mortgage is difficult to get because people don't make enough money to qualify. They never did. The prices simply aren't realistic, and as people reach for the stars, they come up short because prices are too high. That is why lower prices will show better sales rates.

Mr. Walsh is making is sound like relaxing lending standards will support high end pricing. I suppose he is partially correct. If lenders went back to their stupid lending habits of the housing bubble, we could try to re-inflate it, but the defaults will prevent that from happening. When lenders make loans that are too large to get paid back, it benefits no one.

The median price paid for a Southern California home was $283,000 in October, down 4.2% from $295,500 in September, and up 1.1% from $280,000 in October 2009.

Foreclosure resales accounted for 34.7% of the resale market in October, up slightly from a revised 33.6% in September but down from 40.4% a year ago. The all-time high was 56.7% in February 2009, DataQuick reported.

Since the delinquency rate is still sky-high, the decline in foreclosure sales is a result of the activity of the banking cartel rather than any real improvement in the rate of delinquency or a reduction in the number of foreclosures.

Government-insured FHA loans accounted for 35.8% of all mortgages used to purchase homes in October, relatively flat from September and a year ago.

Absentee buyers — mostly investors and some second-home purchasers — bought 21.8% of the homes sold in Southern California in October, paying a median of $204,500. Buyers who appeared to have paid all cash – with no indication that a mortgage was recorded — accounted for 27.1% of October sales.

Buyers who paid all cash have historically been about a third of the housing market. If there is an influx of foreign cash buyers, it isn't showing up in the sales statistics, unless perhaps US cash buyers are buying less.

Flipping — buying and reselling a home within a six-month period — accounted for 3.7% of the sales, flat with September but up from 2.9% a year earlier.

I'm part of that statistic.

Southern California housing market weakens in October

Figures show prices barely rising and sales falling to near-record lows for the month. The median price for new and previously owned homes was $283,000, up 1.1% from October 2009 and a 4.2% drop from September.

By Alejandro Lazo, Los Angeles Times — November 17, 2010

Southern California's median home price stumbled last month and sales fell to near-record lows for an October — a weak performance with little promise for improvement as the traditionally slow season for housing begins.

The October median price for all houses and condominiums in October was $283,000, a slight increase of 1.1% from the same month one year earlier. That made for the weakest year-over-year increase since prices began their ascent last year, San Diego real estate research firm MDA DataQuick said Tuesday. Prices fell 4.2% compared with September as measured by the median price, which is the point at which half the homes sell for more and half for less.

The monthly drop is quite substantial. The year-over-year numbers will turn negative in the next month or two.

…San Diego real estate agent Jim Klinge, who maintains the popular blog Bubbleinfo.com, said the key behind the sales slowdown last month was simple: Prices are just too high.

"Sellers are too optimistic on price. They think the market is better than it is, and they think they deserve more money," Klinge said. "The buyers are smart. The Internet has leveled the playing field, and buyers are paying attention — they are checking the comps closer than ever, and they are not going to overpay for a house."

Jim the Realtor gets it. Notice I captialized the R.

Klinge credited those cautious, well-informed consumers as partially to blame for the October sales slowdown. Escrow closed on only 16,744 properties last month, down 24.3% from the same month last year, for the second-worst October since 1988, when DataQuick began its tracking. Sales of newly built homes posted their worst month on record.

Patrick Duffy, principal for research firm MetroIntelligence Real Estate Advisors, which closely tracks the market for new homes, said builders overestimated the demand for new homes and were likely to retrench in the months to come. The markets for both new homes and previously owned dwellings were driven by tax credits that expired earlier this year.

Those credits gave the market an artificial bump, pulling sales that would have occurred in the latter part of 2010 into the earlier part, Duffy said.

"We are continue to pay a price for the incentives," he said. "You have to pay a price for those — we are having to pay it in the slowest time of year."

Do any readers currently negotiating with the Irvine Company want to share what incentives they are currently offering?

The slowdown comes despite record-low and near-record-low interest rates since April. Home loan rates again hit new lows last week after the Federal Reserve introduced its controversial program to buy $600 billion in Treasury bonds.

Mortgage finance giant Freddie Mac said in its weekly report on rates last week that the lenders it surveyed were offering 30-year fixed-rate loans at an average of 4.17% with 0.8% in upfront fees, down from 4.24% the week before and lower than the survey's previous record of 4.19% set Oct. 14.

Has anyone else noticed the sharp rise in rates over the last two weeks? Bankrate.com has gone from about 4.21% to 4.55% for the 30-year fixed. (Each post has the prevailing interest rate in the property details.)

Esmael Adibi, director of Chapman University's Gary Anderson Center for Economic Research, said a housing recovery in Southern California would depend more on the ability to get the jobs engine churning again and less on low interest rates.

"We need to have household formation, and for that to happen we need job creation," Adibi said. "It is not really interest rates that are drivers of home prices and purchases." … alejandro.lazo@latimes.com

We need job creation, yet we offer businesses nothing but high taxes and red tape, and we offer potential employees high housing costs and high taxes. I don't think that is a winning combination for job creation. Do you?

Kool aid sippers

Even though I profile the most interesting stories of HELOC abuse here each day, not everyone in Irvine is a HELOC abuser. When I set up the HELOC abuse grade system, I set up a special category for those who increased their mortgage a little bit, but not enough to cause any real damage. Usually this comes in the form of periodically paying off consumer debt and credit cards with a HELOC or some other form of cash-out refinancing.

I think this kind of HELOC use is foolish. Many argue that consolidating debts at lower interest rates with tax deductibility is a good thing. That may be true, but it is only a good emergency measure, not a regular habit. Once people make adding to their mortgage a habit, they start financing short-term consumer spending with long-term debt. Is it wise to pay for a vacation on credit over 30-years?

Cash out refinancing for anything other than home improvements should be either completely prohibited, or at least the tax deductibility should be removed. Our tax code bans the deductibility of consumer debt to renters, but the code allows loan owners to spend all they want, consolidate the consumer debt into mortgage debt, and deduct the interest on the mortgage debt. Another perk offered only to loan owners.

• Today's featured property was purchased on 9/16/199 for $370,000. The owners used a $275,000 first mortgage and a $95,000 down payment.
• On 8/14/2001 they refinanced with a $274,500 first mortgage.
• On 8/29/2002 they refinanced with a $275,000 first mortgage.
• On 12/23/2002 they refinanced with a $274,000 first mortgage. So far they haven't made any progress on paying down their mortgage, but they haven't added to it either. They were treading water on the Ponzi limit.
• On 9/23/2003 they refinanced for $297,000 and sipped a nip of kool aid. Only $23,000.
• On 2/9/2004 they opened a $120,000 HELOC but didn't use it.
• On 5/10/2004 they refinanced the first mortgage for $315,000 and sipped another $18,000 in kool aid.
• On 6/21/2004 they obtained a $200,000 HELOC, but there is no indication that they used it. Based on their previous imbibe rate, I guess they have used about $40,000 of it.

Irvine Home Address … 9 SOUTHWIND Irvine, CA 92614

Resale Home Price … $775,000

Home Purchase Price … $775,000

Home Purchase Date …. 11/4/2010

Net Gain (Loss) ………. $(46,500)

Percent Change ………. -6.0%

Annual Appreciation … 0.0%

Cost of Ownership

————————————————-

$775,000 ………. Asking Price

$155,000 ………. 20% Down Conventional

4.38% …………… Mortgage Interest Rate

$620,000 ………. 30-Year Mortgage

$149,339 ………. Income Requirement

$3,097 ………. Monthly Mortgage Payment

$672 ………. Property Tax

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

$129 ………. Homeowners Insurance

$310 ………. Homeowners Association Fees

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

$4,208 ………. Monthly Cash Outlays

-$734 ………. Tax Savings (% of Interest and Property Tax)

-$834 ………. Equity Hidden in Payment

$248 ………. Lost Income to Down Payment (net of taxes)

$97 ………. Maintenance and Replacement Reserves

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

$2,985 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$7,750 ………. Furnishing and Move In @1%

$7,750 ………. Closing Costs @1%

$6,200 ………… Interest Points @1% of Loan

$155,000 ………. Down Payment

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

$176,700 ………. Total Cash Costs

$45,700 ………… Emergency Cash Reserves

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

$222,400 ………. Total Savings Needed

Property Details for 9 SOUTHWIND Irvine, CA 92614

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 2,669 sq ft

($290 / sq ft)

Lot Size: n/a

Year Built: 1985

Days on Market: 20

Listing Updated: 40487

MLS Number: S636966

Property Type: Condominium, Residential

Community: Woodbridge

Tract: Ls

——————————————————————————

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

BEAUTIFUL LAKE AND LAGOON VIEW HOME!FULLY REMODELED AND UPGRADED THROUGHOUT. UPGRADED KITCHEN WITH GRANITE COUNTER TOPS, MARBLE FLOORS, NEW APPLIANCES, AND RECESSED LIGHTING. LOVELY ATRIUM WITH FOUNTAIN. LIGHT AND BRIGHT WITH HIGH CEILINGS AND SKYLIGHT. FAMILY ROOM WITH ENGINEERED HARDWOOD FLOORS AND COMPLETE SURROUND SOUND WIRING AND SPEAKER SET UP. UPSTAIRS LAUNDRY ROOM WITH TILE FLOORS AND NEW WASHER/DRYER. NEW CARPET AND PAINT. MASTER SUITE WITH RETREAT AND BATHROOM WITH NEW TILE. BALCONIES WITH LAGOON VIEW AND MASTER BEDROOM WITH GORGEOUS LAKE VIEW. A MUST SEE!

Question of the day

If the sustained rate of appreciation is $40,000 a year for your property, and if you have equity at the bottom of the market cycle, is it okay to add $20,000 per year to your mortgage to supplement your spending? In short, is it okay for your house to work part time?

A California State Keep Your Home plan tries to funnel $2,000,000,000 to the banks; however, lenders are turning down the money due to the moral hazard of principal reduction.

Irvine Home Address … 7 IRON BARK Way Irvine, CA 92612

Resale Home Price …… $580,000

Well now, the eagle on the dollar says "In God we trust"

You say you won't obey me, you wanna see that dollar first

How long, dear, do I have to wait ?

Can I get you now, dear, mm, must I hesitate ?

Janis Joplin — Hesitation Blues

The government is itching to give banks money, but the banks have to give up a dollar first. This is more than hesitation. Banks won't take the money because they know that giving up that first dollar will encourage moral hazard guaranteed to bring down the banks in the end.

California foreclosure aid fund swells, but banks hesitate

The state's Keep Your Home plan has grown to $2 billion from $700 million. However, mortgage servicers haven't officially agreed to participate in the principal reduction part of the program.

By Alejandro Lazo and E. Scott Reckard, Los Angeles Times — November 10, 2010

Federal funding for a California plan that helps borrowers facing foreclosure has snowballed to $2 billion, enough to potentially help more than 100,000 homeowners.

Is anyone surprised that the cost of this government boondoggle has grown significantly from when it was first introduced? Has anyone seen a program like this get smaller?

But the program lacks formal agreements with the nation's largest banks and investors, and their cooperation is needed to make the proposed effort broadly successful.

Out of the three major mortgage servicers — Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. — only Bank of America has told the state that it will participate in a central part of its Keep Your Home program that would reduce the principal balance of certain troubled mortgages, and even BofA has yet to sign an agreement. Fannie Mae and Freddie Mac have declined to participate in the principal reduction part of the plan.

Wait a minute. How can the GSEs fail to participate in any government program? They are in conservatorship owned and run by the Treasury department. If the GSEs are not participating, then the government doesn't truly believe this is a good idea. This is a deep acknowledgement that the entire program is symbolic politics intended to help no one.

The Keep Your Home program, which uses federal funds reserved for the 2008 rescue of the financial system, is intended for low- and moderate-income people who own only one property. To qualify in Los Angeles County, a family of four couldn't earn more than $75,600. The maximum benefit for any household participating in the program is $50,000.

The income limitation excludes nearly every loan owner in Irvine.

The biggest part of the plan gives $875 million in temporary financial help to homeowners who have seen their paychecks cut or have lost their jobs. The program would provide as much as $3,000 a month for six months to cover home payments, including principal, interest, insurance and homeowner association dues.

Another piece would provide as much as $15,000 to help homeowners get current on their mortgages, and another would provide assistance to move for those people who can't afford to remain in their homes. Most of the big banks and Fannie and Freddie have signaled that they're willing to participate with these parts of the plan.

Look at those massive bank bailouts. Who benefits from a homeowner making payments and getting current on their mortgage? The loan owner? No way. The bank ends up with all the money, and the loan owner ends up with an ongoing mortgage obligation they cannot meet. It delays a few foreclosures for a while, and gives lenders a lot of money. I wonder who designed that program?

But the most controversial part of the program, and the one most difficult for banks and investors to sign on to, dedicates $790 million to principal reduction. This would write down the value of an estimated 25,135 "underwater" mortgages, which are loans in which homeowners owe more on their properties than what they are worth.

All that money, and it is only going to help about 25,000 loan owners? The crash has impacted many more households than what this program will fix.

By making principal reduction part of the program, no bank is going to participate — which is a good thing because this program is a waste of money. Rather than participate in this program, banks would rather lose more money and avoid the moral hazard of principal forgiveness.

The California plan — as well as programs created by Nevada and Arizona — would pay lenders $1 for every dollar of mortgage debt forgiven. Experts say reducing principal on such underwater loans would go far to reducing foreclosures in the three states because home values have fallen so steeply that homeowners are tempted to walk away from their obligations.

Loan owners are more than tempted, they are walking away in huge numbers.

But the financial industry has been reluctant to participate in government-administered programs that would require them to reduce the amount that borrowers owe them.

The reason banks are reluctant to participate is because they are not in a business of giving away money. Once people believe the banks are giving away money, banks become charities and quickly go out of business. Our entire banking system rests of the belief that borrowed money must be repaid. If borrowers believe they can easily get out of repaying financial obligations with no repercussions, the banking system crumbles.

"If you can't do the principal write-down, you are limited in what you can do," said Dan Immergluck, an associate professor at the Georgia Institute of Technology, who studied the different state plans developed with the federal bailout money.

"It is one thing for them to agree not to write down principal when they are being asked to foot the whole bill," he said, "but when the states are agreeing to match this 50-50, it seems rather ridiculous of the servicers and the investors not to agree to this."

It only seems ridiculous to an associate professor who does not understand the moral hazard associated with principal reduction. The banks shouldn't agree to any principal reductions under any circumstances outside of a bankruptcy.

Diane Richardson, director of legislation for the state's housing finance agency, which created the California plan, said she expects other lenders to follow Bank of America's lead once the program is underway.

"Once the program gets going, and other lenders see how successful it is, I think others will come aboard," she said.

Does she really believe lenders will rush to write off billions of dollars in loans and encourage moral hazard?

The Keep Your Home program was slated to begin Nov. 1, but the launch was pushed back until early next year because the effort grew in complexity and size from when it was announced in February.

A government program grew in size and complexity? I am shocked.

Originally, five states in which home values had dropped more than 20% since 2006 were selected to receive $1.5 billion from the Treasury Department's Troubled Asset Relief Program. The program grew to cover states with high unemployment, which included California, and more federal money was added. California was initially slated to receive $700 million when the Treasury approved the state's plan in July. Then even more money was added, resulting in a $7.6-billion program involving 18 states and the District of Columbia.

California, which accounts for 21% of the nation's foreclosure activity, is the largest recipient of the bailout money.

How long do you think California can convince the rest of the nation to support its housing Ponzi scheme? Any money poured into California mortgages by the US taxpayer is money wasted. The rest of America should not responsible for paying the debts of squatters and squanderers in California, nor should they have their tax money diverted here to bail out the lenders that created this mess.

Homeowners in the Golden State also remain deeply underwater, according to recent data. In California, 27.9% of homeowners who owned single-family residences were underwater at the end of the third quarter, according to data released Wednesday by real estate information site Zillow.com. In Los Angeles County, 17.4% of borrowers owed more on their mortgages than what their homes were worth.

Even as the state struggles to get big lenders to sign on, the program has provoked complaints that it's a giveaway to the banks. Critics say property values have fallen so steeply that much troubled mortgage debt is not worth 50 cents on the dollar.

In Las Vegas, it is common to see properties where the debt is double the current mortgage value. When the banks forecloses, it is assured of losing at least half its loan value. If they participate in this program, they can write down the mortgage and get 50% of that loss paid for by the government. This program is obviously a giveaway to the banks. Critics are pointing out the obvious. The government wants to subsidize and encourage moral hazard.

Foreclosures on these homes are so costly that the banks will come out ahead financially by writing down loan balances to keep borrowers in the homes, they contend.

"I don't think we should have to be paying the lenders," said Prentiss Cox, a professor at the University of Minnesota Law School Clinic. "We have already paid them in the form of the bailout, and it seems to me what we need is enforced loan modification, because that is in everyone's interest."

What is an enforced loan modification? All our loan modification programs are stealth bank bailouts which also encourage moral hazard.

Critics also are unhappy that homeowners who refinanced their homes to take cash out of their properties will not be allowed to participate in the program. That will exclude many African American and Latino borrowers in low-income communities who were hustled into loans they did not understand or could not afford, said Yvonne Mariajimenez, deputy director of Neighborhood Legal Services of Los Angeles County.

These borrowers were "enticed by predatory lenders to refinance and pull out equity to pay medical debt, fix their houses and the like," Mariajimenez said.

I find this kind of bullshit particularly offensive.

First, perhaps one in a thousand pulled out equity to pay a medical debt. That is always the first excuse offered, and in most cases, it is not true.

Second, although a small percentage of borrowers put a small percentage of their mortgage equity withdrawal toward "fixing" their houses with pergraniteel, the vast majority spent the vast majority of their HELOC money on cars, vacations, massages and other non-essential consumer goods.

Third, no matter what use people had for this money, why am I supposed to pay for it? Why is the US taxpayer supposed to pay for some HELOC abusers trip to Tahiti and new Porsche?

If people were enticed by evil lenders, let them experience the consequences of their poor decision making, and perhaps they will not repeat their mistake. Give them free money, and they will almost certainly spend their equity again in the next cycle and look for a bailout when the Ponzi Scheme collapses again.

"A disproportionate number were people of color that live in minority communities."

Playing the race card too? Shame on her. Lenders were not discriminating in their targeting of fools.

Getting banks to write down principal has proved difficult through government programs, though some lenders have done it through their own proprietary initiatives. The federal government's loan modification program, which is also funded by money from TARP, has always allowed loan servicers to forgive principal on troubled mortgages, but has never required them to do so.

Proponents of forgiving principal say this is a serious flaw. They contend that debt forgiveness is the only workable way to address the problem created by underwater loans. alejandro.lazo@latimes.com, scott.reckard@latimes.com

Proponents of forgiving principal are idiots. Foreclosure Is a Superior Form of Principal Reduction.

Too good to be true

I'm sure many in Irvine and the rest of America don't pay much attention to financial matters unless something changes. People will pay the same mortgage for years even if great refinancing opportunities exist. But if a sales pitch that is too-good-to-be-true is backed up with real money, the result can be a catastrophic housing bubble.

The sales pitch is easy: "fill out some loan paperwork (with the broker's help), and I will give you a lower payment and $200,000 to spend any way you want." That is a very tempting offer.

Imagine ordinary worker bees paying their bills and watching late-night TV when that sales pitch comes from a subprime lender. Call a number to get free money. The response rates must have been very high.

It only takes one mistake if it's for hundreds of thousands of dollars. And once they go Ponzi, it is only a matter of time before creditor cutoff signals an end of ignorant bliss.

• Today's featured property was purchased on 6/19/2002 for $385,000. The owners used a $308,000 first mortgage, a $38,500 second mortgage, and a $38,500 down payment.
• On 7/16/2003 they refinanced with a $424,000 first mortgage and a $106,000 second mortgage. On that day about a year after buying, they cashed out their $38,500 down payment plus another $68,000 in booty. Not bad for one year of ownership. The extra $68,000 per year income would be a nice ownership stipend.
• On 1/19/2005 they refinanced with a $520,000 first mortgage and a $130,000 stand alone second. That is going Ponzi.

With their final refinance, they put $650,000 in debt on the property. The managed to loot $226,500.

In some ways you have to admire the swashbucklers. The swooped in, took the money, raped and pillaged the economy, and took off without a trace. For most, it must have been a very good time. A worthy adventure. Not a virtuous way to live, but it serves some people.

In the end, all those who went Ponzi is a lost home, a low credit score, and an unceremonious fall from entitlement.

Irvine Home Address … 7 IRON BARK Way Irvine, CA 92612

Resale Home Price … $580,000

Home Purchase Price … $385,000

Home Purchase Date …. 6/19/2002

Net Gain (Loss) ………. $160,200

Percent Change ………. 41.6%

Annual Appreciation … 4.9%

Cost of Ownership

————————————————-

$580,000 ………. Asking Price

$116,000 ………. 20% Down Conventional

4.38% …………… Mortgage Interest Rate

$464,000 ………. 30-Year Mortgage

$111,763 ………. Income Requirement

$2,318 ………. Monthly Mortgage Payment

$503 ………. Property Tax

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

$97 ………. Homeowners Insurance

$179 ………. Homeowners Association Fees

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

$3,096 ………. Monthly Cash Outlays

-$384 ………. Tax Savings (% of Interest and Property Tax)

-$624 ………. Equity Hidden in Payment

$186 ………. Lost Income to Down Payment (net of taxes)

$73 ………. Maintenance and Replacement Reserves

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

$2,346 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,800 ………. Furnishing and Move In @1%

$5,800 ………. Closing Costs @1%

$4,640 ………… Interest Points @1% of Loan

$116,000 ………. Down Payment

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

$132,240 ………. Total Cash Costs

$35,900 ………… Emergency Cash Reserves

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

$168,140 ………. Total Savings Needed

Property Details for 7 IRON BARK Way Irvine, CA 92612

——————————————————————————

Beds: 4

Baths: 2 full 1 part baths

Home size: 1,900 sq ft

($305 / sq ft)

Lot Size: 3,328 sq ft

Year Built: 1966

Days on Market: 286

Listing Updated: 40469

MLS Number: P719994

Property Type: Single Family, Residential

Community: University Park

Tract: Othr

——————————————————————————

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

Back on the Market!!!! Bank already approved for $580,000, they wont take any less. This 2 story home is located in a nice quiet area of Irvine. Features wood and ceramic floors, granite counter tops, the backyard opens up to the park which is near the pool, 2 fireplaces and much more. The home is in excellent condition and a Must See. Thank you and Good Luck.

HOA delinquencies have caused many associations to under-fund their reserves. Are assessments coming to make up for the losses? What other choice does an HOA have?

Irvine Home Address … 14941 GREENBRAE St Irvine, CA 92604

Resale Home Price …… $659,900

The road is long

With many a winding turn

That leads us to who knows where

Who knows where

But I'm strong

Strong enough to carry him

He ain't heavy, he's my brother

So on we go

His welfare is of my concern

No burden is he to bear

We'll get there

Hollies — He Ain't Heavy, He's My Brother

Are you ready to carry your neighbor.

Some time ago, I wrote about the problems California HOAs are having with delinquent properties the banks do not foreclose on.

The amend-extend-pretend policies of lenders is fraught with unintended consequences. The obvious costs to lenders is lost revenue from squatters who get to stay in their homes without making any payments, but lenders are not the only parties involved who aren't getting paid.

Local taxing authorities and Home Owners Associations (HOAs) also are not being paid. The taxes will get paid eventually because property tax obligations survive the foreclosure. Whatever bills the old owners left behind are the responsibility of the new owner. Bills due to HOAs are only paid after mortgage holders are paid in full. Since most delinquent homeowners are underwater, there is no equity left over to pay the HOA bills, and any delinquent amounts are not paid by the new owner. The costs of extinguished HOA dues are passed on to existing homeowners who are still paying their bills.

Home owners associations have only one recourse to compel an owner to pay their dues: foreclosure. In a normal real estate market — one where home owners have equity — the threat of foreclosure is an effective threat; however, when owners do not have equity and they are not paying their mortgage, HOAs have no leverage. HOAs are generally unwilling to foreclose because their ownership position after the foreclosure is subordinate to the surviving mortgages — an HOA foreclosure does not wipe out the superior liens. In other words, HOAs can take possession of an underwater property — which provides them no benefit — and in the process wipe out any claims to back HOA dues. Taking ownership of a property they cannot sell to a dues-paying owner does not help them.

Shared homeownership could mean paying your neighbors' bills

People in condo, co-op and town house communities may have to pick up the slack for missed dues when other owners walk away from their homes or lose them to foreclosure.

By Kathy M. Kristof — November 7, 2010

For those who have a lot of cash or can get credit, this could be an ideal time to buy a house — the foreclosure crisis has pushed prices down and interest rates are way low.

But beware if you are looking to buy a condominium, co-op, town house or other property that's part of a homeownership group. Another side effect of the foreclosure crisis is that you could end up responsible for some of your neighbors' bills.

That's because people in shared ownership communities chip in to pay the cost of maintaining the buildings and amenities such as swimming pools. Also, the funds, usually paid in monthly installments, are often used to pay for landscaping, as well as to insure the structures.

But when individual owners in a group walk away from their homes or lose them to foreclosures, the bills end up getting split by the remaining homeowners.

Sometimes those costs don't get passed on immediately. Instead associations have been known to let bills pile up, creating potentially devastating surprises for owners.

Can you imagine how bad the assessments are going to be in the North Korea towers? The dues there are $998 per month, and probably less than a third of the "owners" are paying them. Assessments of tens of thousands of dollars are inevitable.

"There's really a crisis within a crisis in the shared ownership community," said Gary Poliakoff, coauthor of "New Neighborhoods: The Consumer's Guide to Condominium, Co-op and HOA Living."

The Community Assns. Institute trade group recently reported that more than half of the nation's 310,000 community associations are struggling with "serious" or "severe" financial woes.

Some 59% of association managers reported that more than 3% of homes in their community groups were vacant, the study said, because the owners either had walked away from their mortgages or were unable to rent the homes. Some 65% of associations reported that more than 5% of their homeowners were delinquent on their monthly assessments.

"When some owners, including banks that have foreclosed on homes and now own them, don't pay their share, other homeowners often must make up the difference through higher regular assessments or special assessments," said Thomas M. Skiba, chief executive of the trade group.

If an association determines that it needs to levy a special assessment on homeowners, there's no legal limit on how high that assessment can be. Unlike rent, homeowner dues aren't subject to price controls.

And homeowners can't just decide not to pay. Associations can get legal judgments to allow them to take a portion of homeowners' wages or put liens on their properties.

"You are an owner, not a tenant," Poliakoff said. "You are responsible for paying a share of the expenses, no matter how high they might be."

To help avoid problems, check out the association thoroughly before you buy.

• Dig deep into financial records. Normally you are given a disclosure that reveals the level of dues. But you need more, Poliakoff said. You should get the association's financial statement and find out what expenses the complex is paying, and what percentage of its overall obligations is handled by the dues.

Associations should have a balanced budget that covers both current and anticipated costs, he explained. But an increasing number of associations are either dipping into reserves or putting off prudent saving for anticipated big expenses, such as roof repair, because of the financial crisis.

The Community Assns. Institute survey, for example, said 38% of associations have delayed capital improvement projects, 31% are contributing less to reserves, 23% have borrowed from reserves and 6% have borrowed from banks and other lenders. Any of these factors can be a warning flag of trouble ahead.

• Make sure the association has adequate insurance coverage. Owners normally insure their possessions and the interior of their units, but associations generally hold the policy on structures.

One complex recently burned down and the owners found out too late that the association had cut costs by letting the fire insurance policy lapse, Poliakoff said.

• Check into an association's reserves. Some states require that the associations maintain reserves for any expense that's likely to exceed threshold amounts, such as $10,000. In those states the association must have a reserve study showing what the anticipated costs are, when they're expected to be needed and how much money is set aside to handle them.

If the roof would cost $50,000 to repair and needs fixing each 10 years, for example, you'd expect that nearly half of that anticipated cost would be saved by year five. Even if a reserve study is not legally required, your association should have one.

• Look over the grounds. Some 35% of associations have reduced landscaping services and 12% are asking homeowners to do some work themselves, the Community Assns. Institute study said. If the grounds are not well-maintained, the value of a home is likely to diminish over time.

All good advice.

It's different in Nevada

One of the first things I learned when I started analyzing properties in Nevada is that their HOA liens suvive a foreclosure. Unlike California where this debt is wiped out and the debt is spread to all the owners, in Nevada, HOA liens survive, and like back taxes, they must be paid by the new owner of the property. Being familiar with the HOA problems brewing in Calfornia, I think the Nevada law is a good one.

However, Nevada does create its own problems. There is currently no limit on the collection fees the attorneys for Nevada HOAs can charge. I saw a recent property with a $380 outstanding HOA bill. After all the collection fees were added up, the final bill was over $3,800. That is highway robbery.

The good news is that HOAs in Nevada are solvent and well funded. The bad news is that attorneys are using extortion tactics to make a fortune off collecting for HOAs. In the end, this hurts the banks because they must lower their expectations at public auction because buyers there know they must reserve enough to pay off the HOAs. The more money that goes to paying off the HOAs, the less money is left to recover on the loan.

Ms. Imploding Ponzi

Women were big participants in the housing bubble. Mary Tyler Moore would be proud of the independence demonstrated by the various spendthrifts during the bubble. Of course, swapping dependence upon men for dependence upon lenders isn't real liberation, it's merely becoming a slave to a different master. I wonder how many Ms. Ponzis are seeking out men to bail them out?

• The previous owner paid $293,000 on 4/29/1999. She used a $263,700 first mortgage and a $29,300 down payment.
• On 3/22/2001 she refinanced with a $300,700 first mortgage.
• On 11/14/2002 she obtained a $86,800 HELOC. That taste of kool aid sent her shoppping.
• On 7/2/2004 she enlarged her HELOC to $186,800. What do you think she spent that $100,000 on?
• On 3/16/2005 she obtained a $475,000 Option ARM with a 1% teaser rate and got a $77,000 HELOC.
• On 7/31/2006 she refinanced with a $650,000 first mortgage.
• On 8/30/2006 she obtained a stand-alone second for $125,000.
• On 1/11/2007 she got a third mortgage for $65,000.
• Total property debt was $840,000.
• Total mortgage equity withdrawal was $576,300. That's a lot of trips to Nordstroms.
• She quit paying in mid 2007, and she was foreclosed on in March of 2008.

Foreclosure Record

Recording Date: 03/07/2008

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 12/05/2007

Document Type: Notice of Default

Juggling with knives

The bank foreclosed and wiped out the second and third mortgages. They paid $675,750. The resold the property to the current sellers on 9/10/2008 for $610,000. Apparently the current owners — cash buyers from out of state — are worried about the strength of the market and have decided to sell.

It looks like the current owners improved in the property. Do you think they will get out without losing any money?

Irvine Home Address … 14941 GREENBRAE St Irvine, CA 92604

Resale Home Price … $659,900

Home Purchase Price … $610,000

Home Purchase Date …. 9/10/2008

Net Gain (Loss) ………. $10,306

Percent Change ………. 1.7%

Annual Appreciation … 3.5%

Cost of Ownership

————————————————-

$659,900 ………. Asking Price

$131,980 ………. 20% Down Conventional

4.38% …………… Mortgage Interest Rate

$527,920 ………. 30-Year Mortgage

$127,160 ………. Income Requirement

$2,637 ………. Monthly Mortgage Payment

$572 ………. Property Tax

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

$110 ………. Homeowners Insurance

$50 ………. Homeowners Association Fees

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

$3,369 ………. Monthly Cash Outlays

-$437 ………. Tax Savings (% of Interest and Property Tax)

-$710 ………. Equity Hidden in Payment

$211 ………. Lost Income to Down Payment (net of taxes)

$82 ………. Maintenance and Replacement Reserves

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

$2,515 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,599 ………. Furnishing and Move In @1%

$6,599 ………. Closing Costs @1%

$5,279 ………… Interest Points @1% of Loan

$131,980 ………. Down Payment

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

$150,457 ………. Total Cash Costs

$38,500 ………… Emergency Cash Reserves

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

$188,957 ………. Total Savings Needed

Property Details for 14941 GREENBRAE St Irvine, CA 92604

——————————————————————————

Beds: 4

Baths: 2 full 1 part baths

Home size: 2,300 sq ft

($287 / sq ft)

Lot Size: 5,289 sq ft

Year Built: 1974

Days on Market: 16

Listing Updated: 40481

MLS Number: S637295

Property Type: Single Family, Residential

Community: Orangetree

Tract: Othr

——————————————————————————

Great Cul-de-sac inside tract location. Remodeled Kitchen with added Eating area. Upgrades in Kitchen include Granite Counters, upgraded cabinets, stainless steel appliances, wood flooring, Plantation Shutters and French Windows. Inside laundry area. Spacious Master bedroom with Balcony. Fireplace in Spacious Living room that has vaulted ceilings. Great Home!