Author Archives: IrvineRenter

Hopelessly Over-Leveraged Pretenders Quit Paying Because Lenders Allow Them to Squat

Lenders worry about accelerated or strategic default because their behavior encourages it. As lenders allow more borrowers to live for free, more borrowers will opt to do so.

Irvine Home Address … 24 PISMO Bch Irvine, CA 92602

Resale Home Price …… $1,499,000

Think what that money could bring

I'd buy everything

Clean out Vivienne Westwood

In my Galliano gown

No, wouldn't just have one hood

A Hollywood mansion if I could

Please book me first-class to my fancy house in London town

Gwen Stefani — Rich Girl

The rich posers can't be content with just one home. A Hollywood mansion and a flat in London would be great, particularly if they were going up in value and you could get a HELOC to spend the appreciation. It works great until lenders take away the punch bowl.

Biggest Defaulters on Mortgages Are the Rich

By DAVID STREITFELD

Published: July 8, 2010

LOS ALTOS, Calif. — No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

This article has a seriously flawed assumption: debt is wealth.

Rich people are not defaulting on their loans. Most truly rich people don't have home loans. It is the over-leveraged posers who have loans over $1,000,000. In fact, since the home mortgage interest deduction is capped at $1,000,000 the only reason someone would borrow that much is because they aren't rich. Also, contrary to popular belief, it isn't sophisticated financial management to carry leverage on a personal residence. Smart rich people don't do that. Dumbass posers do.

The owners of today's featured property undoubtedly felt rich when they borrowed $1,460,000. Now that they are living in a rental, they probably don't feel quite so wealthy and sophisticated.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

The delinquency among large loan owners is not a sign of the rich being ruthless, it is a sign of the pretenders getting wiped out by a weak economy and the huge debt-service payments on their borrowed lives.

Five properties here in Los Altos were scheduled for foreclosure auctions in a recent issue of The Los Altos Town Crier, the weekly newspaper where local legal notices are posted. Four have unpaid mortgage debt of more than $1 million, with the highest amount $2.8 million.

Not so long ago, said Chris Redden, the paper’s advertising services director, “it was a surprise if we had one foreclosure a month.”

If you look at the chart provided to the New York Times by CoreLogic, the rich posers have been defaulting just like their subprime brethren, but lenders have opted not to foreclose on this group because they know what it will do to prices — and the associated bank losses.

The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago — like Wilmette, La Grange and Glencoe. The occupants are always gone by the time a deputy gets there, a spokesman said, but just barely.

In Las Vegas, Ken Lowman, a longtime agent for luxury properties, said four of the 11 sales he brokered in June were distressed properties.

“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios — that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

Speculative bubbles are a form of mass insanity where everyone ignores the obvious risks, and nobody makes a plan B. Paradoxical as it may sound, that is one of the reasons these things blow up. Whichever way the herd moves, the market is sure to move counter to it.

The defaulting owners, he said, often remain as long as they can. “They’re in denial,” he said.

Some are in denial, but many have accepted their fate and gaming the system.

… Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

Fannie Mae and Freddie Mac, the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

Yep: Fannie Mae Encourages Strategic Default by Reducing Punishment Time for New Loan and Fannie Mae Bluffs Strategic Defaulters with Empty Threats. There appears to be no coherent policy at the GSEs, nor is there likely to be as long as politicians control them.

In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.

The "trashing their communities" argument is silly. Houses change occupancy all the time without disruption to the community. Accelerated default may harm property values, but other than remaining owner's fantasies, and lenders' balance sheets, nothing changes. It angers me when lenders resort to childish peer pressure to keep people paying onerous mortgages.

The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

OMG! Those numbers are a catastrophe.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

This guy simply doesn't get it. THESE PEOPLE ARE NOT RICH: THEY ARE POSERS!

There are some truly wealthy people defaulting on mortgages because it is a wise business decision for them, but the vast majority are simply pretenders who couldn't make the payments if they wanted to.

Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.

“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.

“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

Dr. White gets it.

… In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.

His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.

“I’m going to be downsizing,” he said.

The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”

Ahhh the schadenfreude….

Lenders cause defaults by allowing borrowers to squat

The uproar over what lenders call strategic default (and I call Accelerated Default: What Strategic Default Really Is) centers around one key idea: borrowers won't repay loans if they don't fear foreclosure. Lenders created their own moral hazard when they chose not to foreclose on delinquent borrowers. Did they really think the word wouldn't get out?

Once people see their neighbors stop paying their mortgages and stay in their houses, they get angry. If those who are paying are struggling themselves, they start to feel foolish for being a chump. People won't endure much hardship when they believe they don't have to. Put yourself in their shoes: if you knew you could quit making your housing payment (rent or mortgage) and you wouldn't have to move, would you keep paying?

Squatting causes strategic default. That moral hazard cannot be avoided. Lenders cannot simply wait out the bad times and let people squat without having millions of other borrowers quit paying. I am amazed lenders thought they could allow squatting without consequence. They were tragically mistaken.

Option ARM Implosion

  • This property was purchased on 11/17/2005 for $1,825,000. The owners used a $1,460,000 Option ARM from WAMU and a $365,000 down payment.

  • On 10/10/2006 they opened a HELOC for $240,000. For their sake, I hope they maxed it out and got some of their down payment back.

  • They got to squat for about 18 months.

Foreclosure Record

Recording Date: 07/14/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 04/07/2009

Document Type: Notice of Default

Irvine Home Address … 24 PISMO Bch Irvine, CA 92602

Resale Home Price … $1,499,000

Home Purchase Price … $1,147,500

Home Purchase Date …. 6/10/2010

Net Gain (Loss) ………. $261,560

Percent Change ………. 22.8%

Annual Appreciation … 367.6%

Cost of Ownership

————————————————-

$1,499,000 ………. Asking Price

$299,800 ………. 20% Down Conventional

4.61% …………… Mortgage Interest Rate

$1,199,200 ………. 30-Year Mortgage

$296,749 ………. Income Requirement

$6,155 ………. Monthly Mortgage Payment

$1299 ………. Property Tax

$100 ………. Special Taxes and Levies (Mello Roos)

$125 ………. Homeowners Insurance

$142 ………. Homeowners Association Fees

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

$7,821 ………. Monthly Cash Outlays

-$1439 ………. Tax Savings (% of Interest and Property Tax)

-$1548 ………. Equity Hidden in Payment

$518 ………. Lost Income to Down Payment (net of taxes)

$187 ………. Maintenance and Replacement Reserves

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

$5,539 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$14,990 ………. Furnishing and Move In @1%

$14,990 ………. Closing Costs @1%

$11,992 ………… Interest Points @1% of Loan

$299,800 ………. Down Payment

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

$341,772 ………. Total Cash Costs

$84,900 ………… Emergency Cash Reserves

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

$426,672 ………. Total Savings Needed

Property Details for 24 PISMO Bch Irvine, CA 92602

——————————————————————————

Beds: 4

Baths: 3 full 2 part baths

Home size: 3,900 sq ft

($384 / sq ft)

Lot Size: 9,391 sq ft

Year Built: 2000

Days on Market: 15

Listing Updated: 40358

MLS Number: P741000

Property Type: Single Family, Residential

Community: Northpark

Tract: Cmbr

——————————————————————————

Model perfect home in the guard gated community of Northpark. This Spanish Colonial style home is highly upgraded and features 4 spacious bedrooms, 4.5 baths, and an executive office off of the luscious landscaped courtyard. Fabulous chef's kitchen with s/s appliances,Sub-Zero built-in refrigerator ,elegant granite,breakfast bar and butlers pantry. Gorgeous master suite and bath with large walk-in closet. Entertainer's dream backyard with pool and waterfalls, spa,and built-in BBQ center. This home sits on one of the largest lots in the community and resides right across from the large common area.

The flipper will make a fortune

I was at the auction on June 10 when this property was purchased. It was the first property that will require financing over the conforming limit that has gone to auction in Irvine in quite some time. I expected it to be postponed at the last minute. When the bidding started, the young man who bought the place bid $1 over the opening bid of $1,147,500. It must have been hard for him to contain his excitement when nobody bid him up.

This property sold for $1,825,000 back in 2005, and he bought it for $1,147,501 at auction. Assuming it has dropped 20% from the peak, it is still worth $1,460,000. Any way you look at it, this will be a home run.

It is risky. It may be difficult to sell because jumbo financing is still very hard to come by, and there is much competition at the higher price points, but still… he has plenty of room to lower his price and get out with a hefty profit.

I can see why people are forming funds to buy trustee sales and flip them. It is a lucrative business, and there is no shortage of properties in the foreclosure pipeline.

As many of you know, we launched a trustee sale business earlier this year helping individuals buy and sell trustee sale properties. If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

How to Lose $1,100,000 in Irvine Real Estate

A recent trustee sale in the North Korea towers sets a new standard for housing bubble losses in Irvine: $1,099,400. Perhaps Irvine isn't such a safe haven after all.

Marquee at Park Place at Night

Irvine Home Address … 3131 MICHELSON Dr #1702 Irvine, CA 92612

Trustee Sale Price …… $653,100

He Wants To Dream Like A Young Man

With The Wisdom Of An Old Man.

He Wants His Home And Security,

He wants to live lke a sailor at sea.

Beautiful Loser, Where You Goona Fall?

You Realize You Just Can't Have It All.

Bob Seager — Beautiful Loser

The Marquee at Park Place: The North Korea Towers: The Beautiful Loser. Every original owner has lost a fortune. Some have realized their losses and given up, and some are still holding on waiting for 20 years when prices come back. Today's featured property transacted for 63% off the peak. That is quite a fall.

Was the housing bubble foreseeable? Did buyers like those profiled below simply get caught up in an unusual event, or was their foolishness obvious to anyone willing to examine the costs and benefits to make a rational decision?

I take you back to the prime of the housing bubble. In June of 2004 the kool aid was free flowing, people believed prices could only go up, and everyone who bought real estate was going to make a fortune. How wrong they were….

Penthouse Living at Marquee Park Place Offers Luxury, Panoramic Views

Publication: Orange County Business Journal

Date: Monday, June 7 2004

The luxurious penthouse condominiums atop the 17th and 18th floors of the Marquee Park Place residential towers in Irvine offer distinctive floorplans with up to 2,088 square feet of living space and panoramic views of city lights, distant mountains and the coastal horizon.

Orange County's first high-rise residential community, Marquee Park Place is being built by Bosa Development in ' the Park Place commercial and residential district. Nearly 95 percent of Marquee's 232 luxury condominiums are sold or reserved to date.

Marquee Park Place is Orange County's first high-rise residential community.

With the first move-ins scheduled for late 2005, Marquee Park Place consists of two gleaming concrete and glass 18-story towers. Each of Marquee's distinctive towers will house two-bedroom, two-bath luxury homes, as well as two-bedroom plans with den, ranging from approximately 1,275 to 2,088 square feet. Complementing the towers are four unique two-story townhomes that will be built as part of the Marquee community.

"The Marquee penthouses are elegantly designed and luxuriously appointed," said Ingrid Siikov, sales executive for Marquee Park Place. "The views from every penthouse are spectacular. When you're on the penthouse floors of Marquee Park Place, you're in your own world."

The marketing copy sounds very exciting, doesn't it? Living there seems like the American dream. And the prices will go sky high after the rich Asians come over to buy them later on.

Spectacular views

The Penthouse Plan F encompasses approximately 2,088 square feet and features a master bedroom suite with master bath and large walk-in closet. The bedroom suite has direct access to the home's expansive view deck with up to 700 square feet that commands a spectacular view of the surrounding city lights, mountains and coastal horizon.

The stylish home also has a large second bedroom with walk-in closet, spacious living room with an exterior view balcony, formal dining room and contemporary kitchen.

The Penthouse Plan H floorplan features 1,908 square feet with a view deck off the dining room and covered deck off the master bedroom.

When Pat Burkhart read about Marquee Park Place last year, she knew immediately that she wanted Marquee to be her new home. Currently living in Newport Beach's Big Canyon golf course community, Burkhart was the first person to buy a Marquee penthouse, and she says she can't wait to move in. "I'm very excited about living at the Marquee," she exclaims.

I wonder how excited she is now?

Stylish, safe living

Burkhart is not new to living in a high-rise community. When she lived in Singapore in the late 1990s, she lived in a high-rise and she says, "I loved it. I could walk to stores, movie theaters, just about everyplace I wanted to go. I think living in the Marquee will be the same."

That is part of the problem with these towers: it isn't the same as living in an urban area. It has all the inconveniences of suburban, car-dependant living and all the inconveniences of urban living — no yard, plenty of noise, and so on.

A world traveler, Burkhart says she also likes the idea of being able to lock her door and leave on a trip without concern for maintenance or security. And when she's home, she can savor the view from her penthouse vantage point. "I've wanted to live in a high-rise community ever since Singapore, and the Marquee will be perfect for me and my lifestyle."

Another penthouse buyer who can't wait to move into the Marquee is Jenny Szell, who is planning to sell her larger single-family detached home in Irvine to downsize and simplify her life. An interior designer, Szell says she lived in a high-rise apartment in Marina del Rey and was enamored with the lifestyle and the view.

"I really look forward to moving into Marquee Park Place," she says. "The convenience of high-rise living is very attractive to me. It's all very exciting."

Szell points out that she was first introduced to Bosa Development and its high-rise communities when she visited Vancouver, where Bosa is headquartered, and immediately decided that she wanted to live in a high-rise. "I was pleasantly surprised when I discovered that Bosa was building the Marquee in Irvine. It took only 15 minutes for me to complete the sale."

It took this woman only15 minutes to complete a sale on a nearly $2M condo? Brilliant!

New trend in condo sales

Burkhart and Szell are among several single professional women who've purchased Marquee homes, and they also represent a national trend in condominium sales, according to the National Association of Home Builders. About a third of condo buyers today are single women, compared to those who purchase single-family homes, where single women makeup 20 percent of buyers.

Given how bad the condo markets have already been crushed nationwide, single professional women must not be too happy about the housing bubble.

In addition to the Marquee penthouses, Siikov says buyers can still choose from a selection of the Marquee Plan E signature residences, 2,063 square-foot homes on the 13th through 16th floors. Along with panoramic views, the Plan E encompasses special amenities such as a breakfast nook, a den, powder room, and spacious living and dining room areas contiguous to the contemporary kitchen.

Beautiful amenities

All of the striking Marquee homes are appointed with the finest materials and fixtures, including quality wood cabinetry of cherry, walnut or zebrawood, and professional quality stainless steel appliances, and a state-of-the-art home-office communications/ Internet panel. Other amenities include rich carpeting and flooring selections in hardwood, limestone and marble, granite countertops, high ceilings, seven-foot interior doors, and a convenient storage locker.

Reflective of a five-star resort, the Marquee community will be served by a gated circular driveway with classic porte codiere and secured entrance leading to the elegant lobby with 24-hour concierge. Additionally, a 24-hour entry attendant will monitor access to the complex and closed-circuit cameras are stationed throughout the high-rise community. Residents and guests will park in a fourlevel, gated garage; each residence will have two reserved parking spaces in the garage.

The landscaped Marquee complex also features a business center, social room, billiards room, and an inviting outdoor plaza with a pool, barbecue area, lush gardens, and fitness facility with changing and locker rooms.

For $998 a month in HOA dues, the amenities need to be outstanding. The cashflow drain on these properties is enormous, particularly for those still paying on the ridiculous mortgages.

The Marquee Park Place sales gallery and model homes are open 11 a.m. to 5 p.m. Saturday through Thursday, and are closed Fridays.

To visit the Marquee sales gallery, from Jamboree Road take Michelson Drive east and turn left at Carlson Drive into Park Place. Drive through two stop signs going past the Edwards Cinemas, and take the first right after the second stop sign, at the six-story office building (3121 Michelson Drive) where the sales gallery is in Suite 150. Park in the parking structure adjacent to the office building (tickets will be validated). From Culver, take Michelson Drive west to Carlson Drive, turn right into Park Place.

For more information on Marquee Park Place contact the Marquee sales gallery, at 949-474-7703 or visit www.marqueeparkplace.com. For more information about Bosa Development, visit www.bosadev.com.

For more happy owners, please see Jan. 22, 2006: Orange County's high-rise era is under way.

The biggest loser

It is a policy of the IHB not to reveal the names of owners of properties. I am not out to embarrass any particular kool aid intoxicated fool but rather the mindset and thought process that produced their bad decision. Unfortunately, the name of the owner is in today's post because it is listed in the article above. I won't tell you which one because it doesn't really matter. Everyone who bought here was been wiped out.

The owner of this property paid $1,752,500 on 2/17/2006. She may have put down a deposit in 2004, but the sale is listed as occurring in 2006. She used a $1,226,600 one-year ARM and a $525,900 down payment. Ouch!

The property went up for auction on 7/2/2010 with an opening bid of $630,000: the bank was ready to lose half its stake on the courthouse steps. The bidders drove the price up to $653,100 leaving a total property loss of $1,099,400.

Let me repeat that: closed sale to closed sale, the loss was $1,099,400. The price of speculating in real estate can be quite high or those who have no idea what they are doing. Do you think the flipper will fare any better?

Marquee at Park Place at Night

Irvine Home Address … 3131 MICHELSON Dr #1702 Irvine, CA 92612

Trustee Sale Price … $653,100

Home Purchase Price … $1,752,500

Home Purchase Date …. 2/17/2006

Net Gain (Loss) ………. $(1,099,400)

Percent Change ………. -62.7%

Annual Appreciation … -17.9%

Cost of Ownership

————————————————-

$653,100 ………. Asking Price

$130,620 ………. 20% Down Conventional

4.61% …………… Mortgage Interest Rate

$522,480 ………. 30-Year Mortgage

$129,291 ………. Income Requirement

$2,682 ………. Monthly Mortgage Payment

$566 ………. Property Tax

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

$54 ………. Homeowners Insurance

$998 ………. Homeowners Association Fees

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

$4,300 ………. Monthly Cash Outlays

-$450 ………. Tax Savings (% of Interest and Property Tax)

-$674 ………. Equity Hidden in Payment

$226 ………. Lost Income to Down Payment (net of taxes)

$82 ………. Maintenance and Replacement Reserves

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

$3,483 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,531 ………. Furnishing and Move In @1%

$6,531 ………. Closing Costs @1%

$5,225 ………… Interest Points @1% of Loan

$130,620 ………. Down Payment

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

$148,907 ………. Total Cash Costs

$53,300 ………… Emergency Cash Reserves

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

$202,207 ………. Total Savings Needed

Property Details for 3131 MICHELSON Dr #1702 Irvine, CA 92612

——————————————————————————

Beds: 2

Baths: 2 baths

Home Size: 2,062 sq ft

($436 / sq ft)

Lot Size: n/a

Year Built: 2006

Days on Market: 3

Listing Updated: 40219

MLS Number: U10000651

Property Type: Condominium, Residential

Community: Airport Area

Tract: Marq

——————————————————————————

Penthouse Suite. .. 2 bedroom plus den. Highly upgraded. .. ultra luxury with 24 hour concierge. HOA dues were just lowered below $1,000. Unit comes with 2 parking spots next to elevator. .. Floor Plans can be obtained at www. bosadev. com H Model on 17th floor

IHB News 7-10-2010

For your weekend viewing pleasure, we have a bank owned property where the borrowers invested $200 and pulled out $145,500. No wonder houses are so popular in California.

Irvine Home Address … 49 BAMBOO Irvine, CA 92620

Resale Home Price …… $699,900

You're simply the best,

better than all the rest

Better than anyone,

anyone I've ever met

Tina Turner — Simply the Best

IHB News

We have been operating the brokerage, Ideal Home Brokers for nearly a year now. I have tried to keep references to the brokerage business to a minimum on the blog because none of us wanted the blog to change, particularly a change into an overt commercial enterprise. However, on the weekend open thread, I reserve this place to talk about the business.

Here is what our clients have been saying about us so far:

“Shevy, Thanks for your work on Eastview. I've worked with a lot of agents and you are the best. ”

John B. (Orange County) – June 24th, 2010

“Hi Shevy,

Thanks for sticking with us for a long time. As you know I almost gave up finding a house due to lack of selections.

Both Rick and I enjoyed working with you through out the process and appreciate all you have done for us.

Sincerely,”

Chiaki R. (Irvine) – June 22nd, 2010

“Shevy & Rana are the best! We could not have hoped for better agents to work with!”

Ed H. (Crystal Cove) – May 21st, 2010

“As my wife and I decided to buy our first home in Orange County, we quickly learned it’s a jungle out there. Irrational pricing, agents who care more about themselves than their clients, and the list goes on. In the jungle of Orange County real estate, Shevy Akason is Tarzan. He’s a trusted guide who strives to represent your best interests while maintaining the highest standards of integrity. But he’s not naïve. He has the experience, intellect and intuition to understand the laws of the jungle. And he always sees the forest in the trees by maintaining a strategic perspective on each potential transaction. After 6+ months of searching, we just purchased a home in Irvine. Whether buying or selling in Orange County, I can’t imagine working with any other realtor.”

Gerard B. (Irvine) – April 13th, 2010

“IR, by the way…wanted to let you know that I recently used IHB’s services to lease a home to move into right after the new year. I’m very happy with the service provided by Shevy and his partner George Ross. He negotiated a $100/mo discount off of the offer price as well as making the move a smooth transition while i’m out of town during xmas by coordinating w/the cleaning crew, pool fence installation (for the safety of my young children), checking to ensure everything is in working order and such..so when i get back, the mover just have to transfer my belongings to the new place. ”

MRExpert (Tustin) – December 17th, 2009

“As an immigrant from South Africa in 2001 my dream was to purchase a home. In 2008, with a dip in the market and rates still low I saw a good time and opportunity to purchase. After working with an agent for a couple of months that didn't have a great understanding of the area and my price range I met Shevy at an open house. He asked me what my budget was, what areas I liked, and what my goals were. He assisted me by arranging for Ameri-dream down payment assistance and seller assistance for closing costs which allowed me to purchase the home I was looking for in Irvine. Without his assistance and his understanding of what my needs and goals were, I'm not sure that I could have purchased such a great home.”

Beverly K. (Irvine) – September 29th, 2009

“Dear Brother,

I thank you. I consider my self being lucky to have known you not only because you found me this awesome house that everyone is envying me about but also because I know now that I have a new brother in OC. You are a wonderful person and an excellent Realtor whose professionalism shows in every aspect. I hope I can make more money so I can buy more houses through you. I hope and I know this one is not far fetched to see you running your own agency one day. You make me proud to say that you are a dear friend/brother and I can tell you that you will have enormous success in your future. The qualities personal and professional that you have are genuine and a rare currency in today's world. so keep up the good work and God speed.

Best Regards,”

Tamer K (Laguna Niguel) – May 21st, 2009

“I was relocated from Australia and my wife, daugther, and I were unfamiliar with many areas of Southern California. We wanted a large home and we preferred to have a pool. Working for Kone elevators I'm responsible for the western region of the United States including Hawaii. As a result I can live anywhere in Southern California. After spending some time with an agent that did not understand our needs we found Shevy through internet advertising he was doing for a home in Huntington Beach. We spent the next few months looking at different areas and finally found the exact home we were looking for. It was over 4000 square feet, with a pool, spa, rock waterfall, and gorgeous views. It had previously been in escrow for $675,000 and we negotiated the final price down to $600,000. We highly recommend Shevy for his ability to listen to needs, his patience, and his real estate knowledge.”

Andrew P. (Corona) – October 15th, 2008

“We would like to thank you for helping us to sell our home. Your knowledge of the short sale process was comforting. We would recommend you to anyone.”

Hong (Corona) – September 15th, 2008

“Erik and I found Shevy when looking for a lease or purchase for my parents who were relocating from Arizona. He was extremely helpful and a valuable resource. We had recently sold our home in Coto De Caza and were looking to purchase in Ladera Ranch. However, Shevy advised us that there would be much better deals in Ladera Ranch in 12-18 months. That was almost 6 months ago and we are glad that we have waited. We are still leasing and waiting until we find the right time to buy. We have saved so much money. It's rare and refreshing to work with an agent like Shevy, we would recommend him to anyone. In fact, since we first met him he assisted my parents to purchase in Coto De Caza for over $100,000 under market value and assisted my sister and husband on a purchase in Fullerton.”

Jill and Erik (Ladera Ranch) – August 1st, 2008

Writer's Corner

I had a great time on my vacation. I was able to completely clear my mind. I didn't check email, and I didn't even read the IHB (sacrilege, right?)

Part of my journey every time I go back is to climb the Friendship Mound. It is only about 300 feet high, and there are many pathways to the top.

The view of sleepy Friendship, Wisconsin, is always a place of reflection for me.

I spent a fair amount of time on the water this trip. Below is a dusk photo from the pond's edge.

One of the early mornings on the water was particularly still. I missed being the first boat on the water, so there are a few ripples. Ten minutes earlier, you couldn't tell the water from the sky.

An old cottonwood tree at Friendship park on its way to becoming woodpecker habitat.

Just south of Friendship is Wisconsin Dells, a tourist trap known for its beautiful rock formations.

A family of ducks was enjoying the solitude.

The ferns and trees cling precariously to the sandstone rocks covered with moss and lichens.

It is always fun and rejuvenating to go back to Friendship, but I am glad to be back where my life is now. Irvine is my home.

Housing Bubble News from Patrick.net

Fri Jul 9 2010

Biggest Defaulters on Mortgages Are the Rich (nytimes.com)

MA Buyers paid $39,000 extra in price to get $8,000 tax credit (bostonherald.com)

Subsidized mortgage lending: A government sanctioned Ponzi scheme (cisionwire.com)

Pending Houses Sales Crash in a Record Fall as Tax Break Expires (housingstory.net)

Las Vegas prices fall, benefitting buyers (lasvegassun.com)

South Florida house sales: 45 percent of May sales are for a loss (sun-sentinel.com)

Metro Vancouver new-house prices slow down in May (vancouversun.com)

Korean property bubble unstable (koreatimes.co.kr)

Mortgage rates drop to new low of 4.57%, increasing danger for buyers (finance.yahoo.com)

House prices will fall in 2011 (telegraph.co.uk)

Consumer borrowing down sharply in May (news.yahoo.com)

Joblessness and housing add risks to U.S. recovery (news.yahoo.com)

Sovereign Debt: The Death of Nations (zerohedge.com)

How Large is the Outstanding Value of Sovereign Bonds? (calculatedriskblog.com)

West looks for austerity lessons down under (businessspectator.com.au)

Waking Up to the Economic Depression (housingpredictor.com)

America plunges into Depression for real (thefirstpost.co.uk)

The highest rents are advertised on Sundays (patrick.net)

Free Trial of the Landlord's Property Finder

Thu Jul 8 2010

Housing Double Dip Appears To Be Underway (forbes.com)

San Diego Explained: The Housing Bubble (voiceofsandiego.org)

Price plunges on Sandra Bullock's former house (ocregister.com)

In a tough spot – so what's the answer? (patrick.net)

Illinois Stops Paying Bills, but Can't Stop Digging Hole (nytimes.com)

Detroit's Do-It-Yourselfers Provide City Services (online.wsj.com)

Office Vacancy Rate in U.S. Climbs to 17-Year High as Jobs Recovery Slows (bloomberg.com)

$3.5T in commercial real estate debt and $10.3T in residential real estate debt (doctorhousingbubble.com)

V-shaped recovery, where art thou? (csmonitor.com)

Housing Market Weighs on the Struggling Economy (pbs.org)

The economy as confidence game (washingtonpost.com)

Why you're not making more money than a decade ago (marketwatch.com)

The Craigslist Jobs Indicator (Mish)

FHFA Proposes Rule Clarifying Fannie Mae, Freddie Mac Conservatorships (housingwire.com)

Is Now a Good Time to Buy a House? (Charles Hugh Smith)

Rent comparison service is now working again.

Wed Jul 7 2010

House prices could fall another 50% (finance.yahoo.com)

Vancouver House Sales Drop 30 Percent, Calgary 42 Percent (Mish)

Bulk Condo Sales Clear Supply — at a Cost – (online.wsj.com)

Low mortgage rates won't make up for tax credit (sfgate.com)

House Sale Blues: Foreclosures Up, Recovery Stalled (styleweekly.com)

New Loan Delinquencies on the Rise Again (cnbc.com)

Default debt lingers for refinanced mortgages (sfgate.com)

Foreclosure means tenant lives rent free for years! (hoocoodanode.org)

Housing price and rent graphs (patrick.net)

The Games Realtors Play With "Original Price" and Days On Market (rocktrueblood.blogspot.com)

Mood Swings and Lebensraum (theautomaticearth.blogspot.com)

Investors buying foreclosures in Phoenix (calculatedriskblog.com)

Investors Fear Rising Risk of US Regional Defaults (cnbc.com)

Economist Rogoff Gloomy on China Property (nytimes.com)

Wall Street donors annoyed at Democrats (washingtonpost.com)

Utility Consumer Advocates (turn.org)

Free Trial of the Landlord's Property Finder

Tue Jul 6 2010

House prices to turn down again; stock market to stall (msn.com)

Cities in Broward County consider tax increases and service cuts as property values plunge (sun-sentinel.com)

Mansion Foreclosures Surge (blogs.wsj.com)

Gov't owns nearly half of all foreclosed houses (csmonitor.com)

Mortgage rates scream buy, but who is listening? (news.yahoo.com)

Mortgage Rates Scream DO NOT BUY (patrick.net)

Record-low mortgage rates — who cares? (marketwatch.com)

U.S. housing market remains fragile despite low mortgage rates (washingtonpost.com)

Americans ramp up bankruptcy filings in 2010 (money.cnn.com)

California bankruptcies soar despite overhaul (sfgate.com)

Houseownership – A Milestone, Or A Millstone Around Your Neck? (blog.youwalkaway.com)

When Smaller Houses Were Better (opinionator.blogs.nytimes.com)

Slouching Toward a Double Dip or a Lousy Recovery at Best (robertreich.org)

Jobless rate falls as many quit looking (sfgate.com)

The Deceptions of Price Stabilization (patrick.net)

Dollar-Denominated Debt Deflation (theautomaticearth.blogspot.com)

A Market Forecast That Says "Take Cover" (nytimes.com)

With the US trapped in depression, this really is starting to feel like 1932 (telegraph.co.uk)

Crises of Capitalism (youtube.com)

Hey, Sometimes Government Works (tnr.com)

Typical Irvine equity robber

The owners of today's featured property took a free ride on their lenders in typical Irvine style.

  • They purchased the property on 8/5/2004 for $720,000 using a $575,900 first mortgage, a $143,900 second mortgage, and a $200 down payment.

  • On 7/29/2005 they refinanced with a $739,500 first mortgage.

  • On 3/20/2007 they refinanced with a the second mortgage for $117,000.

  • Total property debt is $865,500.

  • Total mortgage equity withdrawal is $145,500.

  • Total squatting time is at least 18 months.

Foreclosure Record

Recording Date: 08/06/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 04/23/2009

Document Type: Notice of Default

Irvine Home Address … 49 BAMBOO Irvine, CA 92620

Resale Home Price … $699,900

Home Purchase Price … $720,000

Home Purchase Date …. 8/5/2004

Net Gain (Loss) ………. $(62,094)

Percent Change ………. -8.6%

Annual Appreciation … -0.5%

Cost of Ownership

————————————————-

$699,900 ………. Asking Price

$139,980 ………. 20% Down Conventional

4.61% …………… Mortgage Interest Rate

$559,920 ………. 30-Year Mortgage

$138,556 ………. Income Requirement

$2,874 ………. Monthly Mortgage Payment

$607 ………. Property Tax

$200 ………. Special Taxes and Levies (Mello Roos)

$58 ………. Homeowners Insurance

$291 ………. Homeowners Association Fees

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

$4,030 ………. Monthly Cash Outlays

-$689 ………. Tax Savings (% of Interest and Property Tax)

-$723 ………. Equity Hidden in Payment

$242 ………. Lost Income to Down Payment (net of taxes)

$87 ………. Maintenance and Replacement Reserves

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

$2,947 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,999 ………. Furnishing and Move In @1%

$6,999 ………. Closing Costs @1%

$5,599 ………… Interest Points @1% of Loan

$139,980 ………. Down Payment

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

$159,577 ………. Total Cash Costs

$45,100 ………… Emergency Cash Reserves

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

$204,677 ………. Total Savings Needed

Property Details for 49 BAMBOO Irvine, CA 92620

——————————————————————————

Beds: 4

Baths: 4 baths

Home size: 2,492 sq ft

($281 / sq ft)

Lot Size: n/a

Year Built: 2004

Days on Market: 18

Listing Updated: 40361

MLS Number: P740526

Property Type: Condominium, Residential

Community: Northwood

Tract: Seri

——————————————————————————

According to the listing agent, this listing is a bank owned (foreclosed) property.

Popular Northwood II Gated Community Upgraded Unit; Gourmet kitchen with a center island, granite counters; stainless steel applinaces;recessed lighting. Open to Spacious family room combo dining area. Downstair Master Bedroom with full bathroom double vanity; Separate guest bedroom downstairs with common bathroom; full size laundry room; Upstair open to great loft/retreat area. Upstaris with a Master Suite and Upgraded master bedroom with a walk-in closet; roman oval bathtub; double vanities; Plus a 2nd bedroom upstairs with a private bathroom. Assoication Pool and Spa. Centrally located to shopping center, schools and freeway access. Propety is Being sold As IS conditions, no warranties, express or implied. Agents: See remarks

This property went back to the bank at auction on 4/14/2010 for $725,000. They will likely unload it this summer for whatever they can get.

Thinking About Accelerated Default? The Average Squatting Time Is Up to 449 Days

For those thinking about accelerated default, they can look forward to an average of 15 months before they have to leave their properties — and that is if they don't game the system for more time.

Irvine Home Address … 10 BUTTONWOOD Irvine, CA 92614

Resale Home Price …… $699,500

Suspicions lead to questions

And questions to alibis

Is it just my imagination

Or has her love turned into lies

There's a stranger in my house

Somebody's here that I can't see

Stranger in my house

Ronnie Milsap — Stranger In My House

Attention renters looking to buy: Right now, there is a stranger living in your house — squatting in your house. Banks are refusing to foreclose on delinquent borrowers and allowing them to live freely in what should be your house. Are you waiting patiently for them to foreclose and kick out the squatters? Don't hold your breath. Lenders continue to increase the time squatters get to live for nothing in your house. It isn't your imagination; it is really happening. Squatters are gaming the system in order to stay in your house, and the government and the banks are conspiring to keep it that way.

Mortgage Default Update: Homeowners Staying in Homes Longer

By Lita Epstein Jul 8th 2010 @ 12:54PM

More than 7.3 million home loans are in some state of delinquency or foreclosure, and there's no end in sight. That's because the number of homeowners who are 90 days or more delinquent jumped 9.2 percent in May 2010 over May 2009, according to the Mortgage Monitor Report from Lender Processing Services (LPS).

When you add that to the inventory of home foreclosures (3.18 percent), 12.38 percent of homeowners are at risk of losing their homes.

In 12 states the delinquency rate is even higher — over 10 percent. These include Nevada (14.5 percent), Mississippi (14 percent), Georgia (12.3 percent), Florida (11.2 percent), Arizona (11 percent), California (10.8 percent), Rhode Island (10.6 percent), Tennessee (10.6 percent), Alabama (10.5 percent), Michigan (10.4 percent), Louisiana (10.3 percent), and West Virginia (10.3 percent).

Truly abysmal numbers. We have gotten so used to numbers several orders of magnitude outside of historic norms that we don't think much of it. What are we going to do with all those mortgage holders in default?

Let them squat, of course.

The good news, if you can call it that, is that people in trouble are able to stay in their homes longer — even if they do default on a mortgage.

Thanks to the backlog from the record-breaking foreclosure activity, people in trouble might stay in their homes 449 days — starting from the time they are 30-days delinquent and ending at the foreclosure sale — which is a new all-time high.

If you had told me back in 2007 that lenders would simply allow people to live indefinitely in homes they were not paying for, I would have thought you were crazy. Isn't that going to cause everyone to quit paying? Won't that cause our entire mortgage-based property acquisition system to cease to function?

Well, we all know the answers to those questions. Many have quit paying, and strategic default is becoming the norm. If the government were not underwriting almost all new mortgages, private lenders would not be making new loans, and our system would grind to a halt. There isn't much of a private mortgage market today, and with the extreme moral hazard we are creating, investors would be crazy to put their money into mortgage loans not insured by the federal government.

Were these problems will finally surface is in the jumbo market. Right now, the spreads between conforming and jumbo are very, very large, and there is little reason to think the jumbo loan market will recover. Why would banks underwrite loans with risk at very low interest rates when government-backed loans with no risk are available?

Eventually, the bad loans and bloated prices in the jumbo market will need to clear — unless we are going to give those homes away. If lenders don't start to foreclose on these squatters soon, more will join their ranks, particularly if they no longer believe in the threat of foreclosure. Why would anyone pay when they can keep the house for free?

Banks are finally wising up and allowing more people to sell their homes using a short sale process rather than dragging their feet and waiting until they can foreclose. In March 2009 only 18,619 homes were sold using short sales. That number jumped 120.4 percent to 41,030 in March 2010. But even with that improvement, there were foreclosures on152,654 homes in March 2010 versus 90,695, an increase of 68.3 percent.

Is it really "wising up" or are they merely recognizing that they already have many more foreclosures in process than the system can handle? I watch the local trustee sale market very closely, and with an 80% postponement and cancelation rate and an 18 month supply of properties, closing a few more short sales isn't going to relieve the pressure on the trustee sale backlog. Either process will put more inventory on the market, and the MLS inventory locally has already risen from 434 homes to 749 since January 1, 2010.

In the past two months more homes fell into a "worse" status. LPS found that two-and-one-half times as many loans rolled to "worse" status than "improved." The number of "delinquent loans that 'cured' [become current] declined for every category" except those greater than six months delinquent. LPS thinks the improvement in the six-months category can be credited to newly completed loan modifications.

LPS also found improvement in the success of mortgage modifications. While 19.4 percent defaulted again in just three months, in the fourth quarter of 2008. In the fourth quarter of 2009, the number of new defaults dropped to 6.4 percent.

So that may mean that the banks and the government have gotten better at finding mortgage modifications that work.

LOL! Loan modification programs that work. ROFLMAO! Those borrowers will all default again. With a back-end DTI over 70%, these borrowers still have way too much debt. The only thing the loan modification did accomplish was moving the debt from the bank's balance sheet to the government's. The ripoff of the US taxpayer continues unabated.

They couldn't afford it

Like most buyers in Irvine during the bubble, the owners of today's featured property could never afford their mortgage. Through a combination of greed and wishful thinking, they leveraged themselves into a property in hopes of HELOC riches from the boundless appreciation that was sure to come their way.

These owners put some of their own money into the deal. They probably wished they didn't.

This property was purchased at the peak in the prime season of 2006. The owners paid $804,000 using a $643,200 Option ARM, an $84,400 HELOC and a $76,400 down payment. Since they were peak buyers, they never got the chance to live off the HELOC.

Irvine Home Address … 10 BUTTONWOOD Irvine, CA 92614

Resale Home Price … $699,500

Home Purchase Price … $804,000

Home Purchase Date …. 5/31/2006

Net Gain (Loss) ………. $(146,470)

Percent Change ………. -18.2%

Annual Appreciation … -3.3%

Cost of Ownership

————————————————-

$699,500 ………. Asking Price

$139,900 ………. 20% Down Conventional

4.61% …………… Mortgage Interest Rate

$559,600 ………. 30-Year Mortgage

$138,476 ………. Income Requirement

$2,872 ………. Monthly Mortgage Payment

$606 ………. Property Tax

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

$58 ………. Homeowners Insurance

$78 ………. Homeowners Association Fees

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

$3,615 ………. Monthly Cash Outlays

-$689 ………. Tax Savings (% of Interest and Property Tax)

-$722 ………. Equity Hidden in Payment

$242 ………. Lost Income to Down Payment (net of taxes)

$87 ………. Maintenance and Replacement Reserves

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

$2,532 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,995 ………. Furnishing and Move In @1%

$6,995 ………. Closing Costs @1%

$5,596 ………… Interest Points @1% of Loan

$139,900 ………. Down Payment

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

$159,486 ………. Total Cash Costs

$38,800 ………… Emergency Cash Reserves

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

$198,286 ………. Total Savings Needed

Property Details for 10 BUTTONWOOD Irvine, CA 92614

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 1,789 sq ft

($391 / sq ft)

Lot Size: 6,742 sq ft

Year Built: 1985

Days on Market: 107

Listing Updated: 40351

MLS Number: S610348

Property Type: Single Family, Residential

Community: Woodbridge

Tract: Bg

——————————————————————————

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

This property is in backup or contingent offer status.

Rare Listing in Irvine. Property is pie-shaped, opening to a very large yard on the side and rear. Lots of fruit trees in a private park-like yard. Excellent location/location/location in the middle of Woodbridge SouthLake and Irvine. Easy commute access: minutes from John Wayne Airport, 405 Fwy, Beach Cities, UCI campus, shopping, entertainment and, of course, quiet walks around Woodbridge South and North Lakes. The home doesn't have many modern upgrades but it has lots of potential in a light bright home that is truly a wonderful home in a great location. You won't be disappointed that you came to see this home. Offers are expected soon.

Rare listing? Give me a break.

Offers are expected soon? Do you feel the urgency. You better run down and make an offer quickly. It's only been on the market 107 days.

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

How Low Will Mortgage Rates Go?

Mortgage interest rates have hit historic lows over the last few weeks. Will they continue to go lower?

Irvine Home Address … 155 CHURCH Pl Irvine, CA 92602

Resale Home Price …… $649,000

How – low – can you go? How – low, can you go?

How – low – can you go? How – low, can you go?

How – low – can you go? How – low, can you go?

How – low – can you go? How – low, can you go?

Ludacris — How Low

Mortgage interest rates have dropped sharply over the last few weeks, and they show no signs of bottoming. The stock market has been selling off and everyone is bracing themselves for a renewed recession as our economy double dips.

Mortgage rates hit new lows but housing demand lags without tax credits

July 1, 2010

A good news-bad news scenario continues on the housing front, with mortgage interest rates dropping again to record lows, according to the latest survey by home-loan buyer Freddie Mac.

The bad news: With the winding down of government stimulus programs, even fewer people are taking advantage of the eye-popping rates to buy homes.

Mortgage interest rates are determined by supply and demand like prices in any market. Right now, there are few investment opportunities in our moribund economy, so money is seeking the low risk of government-backed mortgages. Since the GSEs now carry the full faith and credit of the US government, GSE mortgage-backed securities are no different than 10-year Treasuries. Since yields on those securities have dropped below 3%, it is not surprising that money would seek a higher yielding alternative.

What is surprising is how weak the economy is. For mortgage interest rates to be this low and falling means that investors see no other viable investment opportunities. Why would you tie your money up in long-term mortgage debt — especially if you thought inflation was coming? The only reason anyone would do this is because no other viable opportunities exist. The double-dip recession is on its way.

The lenders that Freddie surveyed early this week were offering well-qualified borrowers 30-year fixed loans for up to $417,000 at an average rate of 4.58%, the lowest since the survey began in 1971.

For 15-year fixed-rate mortgages the average was 4.04%. Adjustable-rate loans with the first five years at fixed rates were being offered at an initial rate of 3.79%.

The borrowers would have paid an average of 0.7% of the loan balance in upfront lender fees and points, Freddie Mac said in its survey Thursday, and would have had 20% down payments or equity in their homes.

For solid borrowers who shop around and pay 1% of the loan balance in fees, rates were lower yet, mortgage professionals said. The website freerateupdate.com, which tracks rates being offered through brokers, said 30-year funding was available at 4.25% for such borrowers and 15-year mortgages at 3.75%.

Those rates are incredible. I wish I were in a position to buy rental properties in Las Vegas, Southwest Florida, parts of Arizona or even Riverside County where pricing is at or near the bottom. When inflation does come back, we could easily see inflation rates exceeding current mortgage interest rates. It's a shame prices are still so elevated here.

The bad news, of course, is that the rates are scraping bottom because of fears that the global economy is in terrible shape. And that has continued a pattern that economists are watching with mounting concern — a mini-boom in refinancings coupled with lagging actual home purchases.

A Mortgage Bankers Assn. index released Wednesday showed applications for refinance loans jumped 12.6% last week from the previous week and were at the highest level since the week ending May 22, 2009.

An index of home purchase applications, by contrast, fell 3.3% from one week earlier. That left refis at 76.8% of total applications, the highest share since April 2009.

"The bad news is we're driving rates down and there's still nothing on the housing sales side," said Anthony Sanders, a senior scholar in real estate finance at George Mason University's Mercatus Center. "It's mostly refinancings, and 50% of the sales out there are foreclosures and distress sales."

Sanders noted that spooked investors worldwide are pouring funds into U.S. Treasury securities, still regarded as a bastion of safety. With the increased demand, the yield on Treasuries has dropped, dragging down the yield on Freddie and Fannie Mae mortgage bonds in the process.

The yield on the 10-year Treasury bond, which serves as a benchmark for fixed mortgage rates, dropped below 3% this week for the first time in more than a year.

That ultimately means lenders can offer lower rates on the mortgages backing the bonds.

Loans insured by the Federal Housing Administration remain available with 3% down payments to those who can qualify and pay the premiums for the insurance.

But government-controlled Fannie Mae and Freddie Mac have tightened their lending standards after heavy losses left them wards of the U.S. government. Federal tax credits for home buyers ran out at the end of April, and unemployment remains distressingly high, Sanders said.

"The facts of the matter are that we've exhausted what the government can do for the housing market," Sanders said. "The tax credits were the last hurrah of the stimulus."

Not surprisingly, given his comments, he's expecting another dip in housing prices as "the subsidies go away, the Bush tax cuts wear off and healthcare costs go up."

–E. Scott Reckard

Ultimately, mortgage interest rates have to go up, but as long as the economy remains in the doldrums and there are few competing investment opportunities, mortgage interest rates can still go lower. Far from being a good thing, it is a sign of how bad things really are.

Market clearing rates?

Markets generally seek an equilibrium of supply and demand known as the market clearing price.

For 150 years (from approximately 1785 to 1935), the vast majority of economists — the classical or neoclassical school — took the smooth operation of this market-clearing mechanism as inevitable and inviolate, based largely on faith in Say's law. But the Great Depression of the 1930s caused many economists, including John Maynard Keynes, to doubt their classical faith. If markets were supposed to clear, how could ruinously high rates of unemployment persist for so many painful years? Was the market mechanism not supposed to eliminate such surpluses? In one interpretation, Keynes identified imperfections in the adjustment mechanism that, if present, could introduce rigidities and make prices sticky. In another interpretation, price adjustment could make matters worse, causing what Irving Fisher called "debt deflation". Not all economists accept these theories. They attribute what appears to be imperfect clearing to factors like labor unions or government policy, thereby exonerating the clearing mechanism.

Most economists see the assumption of continuous market clearing as not very realistic. However, many see the assumption of flexible prices as useful in long-run analysis, since prices are not stuck forever: market-clearing models describe the equilibrium towards which the economy gravitates. Therefore, many macroeconomists feel that price flexibility is a good assumption for studying long-run issues, such as growth in real GDP. Other economists argue that price adjustment may take so much time that the process of equilibration may change the underlying conditions that determine long-run equilibrium.

There is no question that the housing market has been manipulated by government intervention and lenders refusal to foreclose on squatters. This has created circumstances were prices are artificially supported at levels where market clearing has been greatly delayed. However, since housing markets are nearly completely dependant upon borrowed money, perhaps the market can be cleared by lowering the cost of financing so much that the inventory of distressed properties can be cleared by low interest rates rather than low home prices. At least, that is what our government and banks hope will happen.

I don't think it works that way. I believe we can find a temporary equilibrium where low mortgage interest rates can support prices, but at some point, competing demands for capital will force interest rates to go higher, probably long before the inventory of distressed properties has cleared the market, particularly in the hardest hit markets. As interest rates go up, the amounts financed will go down and prices will enter a long period of slow decline.

I am very bullish on real estate in beaten down markets because the price-to-rent ratio is so favorable. I am not bullish because I believe resale prices will go up because they probably won't. I am bullish because owning for positive cashflow is a superior method of investment, and opportunities in many markets are the best they have ever been, and if safe-haven investors are willing to put money into mortgage debt at rates likely to be below future inflation rates (something I consider foolish), taking on mortgage debt for investment properties — mortgage debt held to a 15-year maturity — is a great idea.

The old notion of speculating on resale price is dead. The new real estate market is about buying for future cashflow.

100% financing implosion

Those with the least in the transaction are generally the first to give up. We used to see many 100% financing deals gone bad, but this is the first I have seen in a while. I thought we had flushed most of them out of the system, but apparently a few have held on.

Today's featured property was purchased for $710,000 on 4/13/2005. The owner used a $567,920 first mortgage, a $141,980 second mortgage, an a $100 down payment… I guess, technically, it isn't 100% financing, but the amount put down is less than a rental deposit.

These owners gave up earlier this year.

Foreclosure Record

Recording Date: 06/09/2010

Document Type: Notice of Default

Irvine Home Address … 155 CHURCH Pl Irvine, CA 92602

Resale Home Price … $649,000

Home Purchase Price … $710,000

Home Purchase Date …. 4/13/2005

Net Gain (Loss) ………. $(99,940)

Percent Change ………. -14.1%

Annual Appreciation … -1.7%

Cost of Ownership

————————————————-

$649,000 ………. Asking Price

$129,800 ………. 20% Down Conventional

4.80% …………… Mortgage Interest Rate

$519,200 ………. 30-Year Mortgage

$131,339 ………. Income Requirement

$2,724 ………. Monthly Mortgage Payment

$562 ………. Property Tax

$117 ………. Special Taxes and Levies (Mello Roos)

$54 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$3,457 ………. Monthly Cash Outlays

-$462 ………. Tax Savings (% of Interest and Property Tax)

-$647 ………. Equity Hidden in Payment

$238 ………. Lost Income to Down Payment (net of taxes)

$81 ………. Maintenance and Replacement Reserves

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

$2,667 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,490 ………. Furnishing and Move In @1%

$6,490 ………. Closing Costs @1%

$5,192 ………… Interest Points @1% of Loan

$129,800 ………. Down Payment

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

$147,972 ………. Total Cash Costs

$40,800 ………… Emergency Cash Reserves

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

$188,772 ………. Total Savings Needed

Property Details for 155 CHURCH Pl Irvine, CA 92602

——————————————————————————

Beds: 4

Baths: 2 full 1 part baths

Home size: 1,750 sq ft

($371 / sq ft)

Lot Size: 3,254 sq ft

Year Built: 1999

Days on Market: 170

Listing Updated: 40308

MLS Number: S10000806

Property Type: Single Family, Residential

Community: West Irvine

Tract: Ol

——————————————————————————

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

Great Irvine location, best city, best neighborhood, great house.