That housing markets in the most beaten down areas are now experiencing widespread despair. Prices are so low that existing owners have little hope of recovery.

Irvine Home Address … 263 HUNTINGTON Irvine, CA 92620

Resale Home Price …… $300,000

They used to tell me

I was building a dream.

And so I followed the mob

I was always there

Right on the job.

They used to tell me

I was building a dream

With peace and glory ahead.

Why should I be standing in line

Just waiting for bread?

Brother, can you spare a dime?

Al Jolson — Brother, Can You Spare a Dime?

Financial markets all exhibit the same psychological stages during a bout of irrational exuberance. A precipitating factor such as lowered interest rates or financial innovation folly, causes prices to rise when valuations suggest they should fall. This changes the market's perception of value, and buyers eagerly buy and drive prices higher. Greed and delusion set in as prices are propelled ever higher.

Finally, the bubble bursts, and the market enters a phase of denial. Irvine and Orange County have been stuck in this phase due to the bear rally. Finally, fear begins to set in, and sellers reduce their prices in order to get out while they still can. This is currently happening at the high end in California. The market is slipping into fear, but it is far from capitulation or despair.

The subprime real estate markets were crushed first because their loans reset before the alt-a and prime markets. The subprime markets are much farther along the process. Las Vegas capitulated in late 2009, and most other subprime markets have given up since then. Despair now rules these markets. Is that an opportunity?

Homeowners face 'new normal' in housing bust

By Julie Schmit, USA TODAY

MERCED, Calif. — Life has changed in ways big and small in this central California county, which is still trapped in the wreckage of a housing boom that went bust five years ago.

The median home price, $116,000, is down 68% from its peak in 2006. Three of five homeowners with a mortgage here owe more on their loans than their houses are worth, compared with about one in five nationally.

Socked by a sharp loss of property and sales tax revenue, Merced County and its cities have slashed budgets, workers and services. The grass is being mowed less often in city parks. A senior center is open fewer hours.

Families have adjusted, too. Forget dreams of making big bucks on California real estate. Many here now count the years — guessing, really — until they'll no longer owe more on their homes than they're worth.

“We're in survival mode, waiting for recovery,” says Stephen Hammond, 42, pastor at Bethel Community Church in Los Banos, a Merced County town of 35,000 amid cotton and tomato fields.

More cuts are possible because of looming budget deficits, Merced government officials say. Dozens of other communities nationwide may face the same tough choices in the wake of huge drops in home values, which often lead to less property tax revenue. In Merced, the impacts have hit hard, and they hint at what may be to come for others.

For Merced County government, property taxes are the No. 1 source of general fund revenue, says Scott De Moss, deputy county executive officer. Property tax revenue has dropped 25% during the past three years. Almost 15% of the county's workforce has been slashed. Social and mental health service positions took the biggest hits, officials say.

In the city of Merced, sales tax revenue is down 24% and property tax collections, about 34%, from 2007 levels, city officials say. That's forced cuts in the police and fire departments. Police might not show up anymore to take fender bender reports and firetrucks may no longer always roll on the same calls as ambulances, says Merced City Manager John Bramble. The city's 80,000 trees now get pruned once every three years, instead of every two. The senior center is open 28, not 40, hours a week. Asphalt patches, not new concrete, are being used to repair sidewalks.

“People are used to a higher level of service,” says Bill Spriggs, who serves as mayor for the city of 80,600. “But this is the new normal.“

The old normal was an unsustainable Ponzi scheme. The new normal is an endless series of financial bailouts to prevent losses from the collapse of the unsustainable Ponzi schemes that come about because investors believe the federal reserve will bail them out. A self-reinforcing vicious circle.

Now the Ponzi scheme is collapsing into a deflationary spiral. The cuts in city services will cause further declines in local spending which will hurt a fragile economy.

In Los Banos, the grass is now cut in city parks every 15 days. It used to be cut weekly. Vacant houses dot nearly every neighborhood. New roads end in cul-de-sacs surrounded by vacant lots. A weather-beaten billboard announces a 35,000-square-foot retail center that is “coming soon” but never has.

“This was, right here, all going to be industry,” says Tommy Jones, Los Banos' former mayor, as he points to a goat pasture.

Nationwide, local governments typically get more than half of their revenue from local sources, the largest of which is property taxes, says economics professor John Anderson at the University of Nebraska. Because property tax collections can lag behind market values by 18 months to several years, they continued to rise for U.S. cities through 2009 — despite housing price declines in most areas. But city property tax collections fell 2% last year as reduced assessments started to kick in, according to survey data collected by the National League of Cities. More drops are expected this year and next as the decline continues.

The Merced city and county governments have softened the blow to services by eating through millions in financial reserves. But budget deficits are still the norm. This summer, Merced city plans to ask residents to approve a half-cent sales tax increase to cover a $5.2 million budget shortfall.

If the new tax doesn't pass, Bramble says, “The quality of city services will be severely changed.”

This tax revenue is not coming back because house prices are not coming back. Local governments are going to have to adjust to budgets based on current property values, not some fantasy of what properties were selling for in 2006. California's Ponzi Scheme economy has collapsed. Municipalities like Merced that are spending their financial reserves are being foolish and irresponsible, and it will hurt them in the end.

Deeply underwater
At least half of homeowners with a mortgage owe more than their homes are worth in 17 of 386 U.S. counties. Counties with the highest percentage of mortgages under water as of Sept. 30.
Rank	County	State	Mortgages under water
1	Clark	Nev.	71.1%
2	Osceola	Fla.	66.5%
3	Merced	Calif.	63.1%
4	St Lucie	Fla.	62.4%
5	San Joaquin	Calif.	59.6%
6	Stanislaus	Calif.	57.5%
7	Clayton	Ga.	56.1%
8	Orange	Fla.	56.1%
9	Solano	Calif.	55.6%
10	Maricopa	Ariz.	54.4%
11	Washoe	Nev.	53.3%
12	Pinal	Ariz.	52.6%
13	Flagler	Fla.	52.5%
14	Pasco	Fla.	51.5%
15	Riverside	Calif.	50.5%
16	Kern	Calif.	50.2%
17	Broward	Fla.	50.1%
18	Lee	Fla.	49.5%
19	Canyon	Idaho	49.0%
20	Henry	Ga.	48.8%
21	Polk	Fla.	48.5%
22	Hillsborough	Fla.	48.5%
23	Dade	Fla.	48.2%
24	Sacramento	Calif.	47.9%
25	Paulding	Ga.	47.5%
26	Prince William	Va.	47.4%
27	San Bernardino	Calif.	46.9%
28	Brevard	Fla.	46.9%
29	Wayne	Mich.	46.6%
30	Hernando	Fla.	46.5%
Source: CoreLogic

Underwater, with few options

The double whammy of the recession and the real estate crash has forced changes in how consumers spend, plan for their futures and view their neighbors. Businesses also have suffered, because homeowners have less equity in their homes or none at all. Overlaying everything is a local economy in which one of five workers is jobless, in part because of the collapse of the area's once-fast-growing home construction industry.

The “last good year” was 2008, says Greg Parle, owner of the Branding Iron Restaurant in Merced. Business is off at least 20% since then, he says. He's adding lower-priced items to the menu.

The region's ability to foster such small businesses will suffer because of so much lost home equity. Almost one-quarter of small-business owners borrow against their homes or use them as collateral to fuel businesses, according to a 2009 Gallup survey of small-business owners. That'll likely be less now in Merced and other places with so many underwater homeowners. Start-ups will feel the greatest impact, says Mark Schweitzer, director of research for the Federal Reserve Bank of Cleveland.

Loreina Childress, 39, a county environmental health worker, has felt the impact of the new normal at home and work.

The previous work of 26 in her department is now done by 21. At home, a lot remains vacant, and there are more renters in her neighborhood than before the real estate bust.

Childress bought her Merced County home in 2006, when the market was still hot. She owes $241,000 on the 1,500-square-foot home that might sell for $140,000.

These people are so screwed. Typically, it takes 15 to 20 years for prices to double. People who have houses worth half their mortgage will spend the rest of their working lives paying a bloated debt and waiting for prices to come back.

Her husband, Gary, 38, switched careers a year ago, from forklift driver to emergency medical technician. He can't find full-time work. That's placed new stress on the family's finances, along with the reality of being so far underwater on the house.

Loreina now pours milk in her coffee, not cream. She eats TV dinners at her desk for lunch, rather than fresh sandwiches at a deli. She can recite, down to the penny, the cost of South Beach Diet bars at three retailers. Plans to landscape the yard have been scrapped.

Gary might have more luck pursuing work in other states. That would mean selling the house at a big loss or doing what the couple say they won't do: Give the house back to the bank and walk away.

“We made an agreement,” Loreina says. “We can't go anywhere until we can break even on the house.“

I hope they don't have anywhere to go any time soon. They are trapped in their debtors prison. I hope it is a gilded cage.

Los Banos Unified School District Superintendent Steve Tietjen, 55, is underwater on his home, too. He bought his Los Banos home in 2007. If a job change appears, “I'll have a dilemma,” he says. “I never would've conceived that somebody who's a superintendent would have that dilemma.”

Like Tietjen, many people here know someone who lost their house — either because of a job loss or a decision not to stick it out. Some former homeowners now rent. Some bought other homes at distressed prices, then walked away from underwater ones.

Buy-and-bail was a lot more common in the last housing bust. Lenders caught on early, and since 2007, most borrowers have been required to demonstrate the ability to make both house payments. That requirement prevented most buy-and-bail problems.

John Betham, 58, and his wife, Sandra, 55, are staying put. They owe $375,000 on their Los Banos home. They estimate it would sell now for $150,000.

The Bethams both teach in Los Banos. They can make the house payments and will delay their retirements if needed. They love their house and feel an obligation to pay the debt. “A lot of these people bailed. But we did everything right, and we're stuck,” John says. “It's a bit of a bitter pill.”

Not much relief in sight

Little relief is expected anytime soon here, despite signs of a strengthening U.S. economy.

Nationwide, home prices are down 30% from their 2006 peak. Moody's Analytics economist Celia Chen says national home prices will regain that ground by 2021.

Some areas will take far longer. In 22 U.S. metropolitan regions, most in California and Florida, home prices won't return to their 2006 peaks before 2030, Chen estimates. That includes such cities as Miami, Detroit, Phoenix, Las Vegas and Riverside, Calif.

Merced is so far off its peak that it'll take “many decades” for home prices to return to their 2006 peaks, Chen says.

People will have forgotten about the peak in these markets long before prices ever get there.

Like other central California communities, Merced's housing boom was fueled by San Francisco Bay Area commuters looking for cheaper housing. The opening of a University of California campus in Merced in 2005 attracted builders and investors who saw a big future for rentals.

In 2005, almost 3,500 single-family-home building permits were issued in Merced County, Moody's data show. That was up from an average of 1,053 a year in the 1990s. Merced's unemployment rate dropped below 10% in 2006 as home construction soared.

But Merced's fall was just as steep. Since 2006, the county has lost more than 2,500 construction jobs, state employment data indicate. In the past three years, just 415 single-family building permits have been issued countywide. Last year, one of 14 Merced homes received foreclosure filings vs. one of 45 nationwide, says researcher RealtyTrac.

Newcomers to Merced are winning in the hard-times economy. Home prices are so low that sales are made “as fast as we can stick a (for sale) sign in the ground,” says Loren Gonella, owner of Gonella Realty in Merced. In December, median prices were up 5% from a year ago, he adds.

He says home prices will recover. The UC campus is expanding, as is a relatively new hospital. Wal-Mart plans to open a distribution center here in the next few years, which would eventually employ up to 900. The San Francisco Bay Area has funneled home buyers to the Central Valley for decades. That will continue, he says.

The feared mass exodus from the county has not occurred. In Los Banos, student enrollment dipped in 2008 and 2009 but has returned to 2006 levels, Tietjen says. In many cases, multiple families inhabit homes that used to contain one, he says.

Ray Ortiz, 40, bought his Los Banos home in 2009 for $150,000. At the peak, it would have cost more than $400,000.

Ortiz commutes 90 minutes to his job in San Jose as a maintenance supervisor for a garbage company. He pays $50 more a month to own in Los Banos than he would to rent in San Jose.

Even if home prices drop more before they go up, Ortiz is confident he made a good buy.

“I feel like I won the lottery,” he says.

Buyers feel that way because they still believe prices will skyrocket and they will make a fortune. Kool aid will never die.

What was the bank doing for the last two years?

Today's featured property is the best example of seasoned shadow inventory I have found to date. This property has been bank owned since April of 2008. The owner, a buyer from 1991, managed to HELOC himself into oblivion with a $378,000 first mortgage in 2004.

The Notice of Default was issued on 12/5/2007, but it is safe to assume the loan was delinqent long before then.

I don't know if this has been empty or occupied. I presume it has sat empty as lenders continue to withhold inventory like this from the market.

When will the rest of this inventory be released? How the lending cartel releases its shadow inventory will determine the housing market's fate.

Irvine Home Address … 263 HUNTINGTON Irvine, CA 92620

Resale Home Price … $300,000

Home Purchase Price … $410,666

Home Purchase Date …. 4/8/2008

Net Gain (Loss) ………. $(128,666)

Percent Change ………. -31.3%

Annual Appreciation … -10.7%

Cost of Ownership

————————————————-

$300,000 ………. Asking Price

$10,500 ………. 3.5% Down FHA Financing

4.99% …………… Mortgage Interest Rate

$289,500 ………. 30-Year Mortgage

$62,047 ………. Income Requirement

$1,552 ………. Monthly Mortgage Payment

$260 ………. Property Tax

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

$50 ………. Homeowners Insurance

$250 ………. Homeowners Association Fees

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

$2,112 ………. Monthly Cash Outlays

-$146 ………. Tax Savings (% of Interest and Property Tax)

-$348 ………. Equity Hidden in Payment

$20 ………. Lost Income to Down Payment (net of taxes)

$38 ………. Maintenance and Replacement Reserves

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

$1,675 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,000 ………. Furnishing and Move In @1%

$3,000 ………. Closing Costs @1%

$2,895 ………… Interest Points @1% of Loan

$10,500 ………. Down Payment

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

$19,395 ………. Total Cash Costs

$25,600 ………… Emergency Cash Reserves

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

$44,995 ………. Total Savings Needed

Property Details for 263 HUNTINGTON Irvine, CA 92620

——————————————————————————

Beds: 2

Baths: 3

Sq. Ft.: 1058

$284/SF

Lot Size: –

Property Type: Residential, Condominium, Townhouse

Style: Two Level, Traditional

Year Built: 1986

Community: Northwood

County: Orange

MLS#: P767933

Source: SoCalMLS

Status: ActiveThis listing is for sale and the sellers are accepting offers.

On Redfin: 9 days

——————————————————————————

Northwood's Horizon premium interior location, close to pool and amenities, no one above or below. Dual master bedrooms, over 1,000 square feet, and bonus half bath down stairs. Must see! Irvine Unified School District, Close to Parks, Shopping, Irvine Spectrum, Tustin Market Place and much more. Easy Freeway access: 5, 405, 133, Toll Road 73, 44, 57 and 22. Turn-key condition , submit offer today!

The average time a defaulting loan owner gets to stay for free in the house has ballooned to over 500 days.

Irvine Home Address … 73 JUNEBERRY Irvine, CA 92606

Resale Home Price …… $510,000

She sits by the fireside,

The room is so warm.

Her children are sleeping,

She waits in their home.

Passing the time.

Passing the time.

Everything fine.

Passing the time, drinking red wine.

Cream — Passing The Time

I really don't get that worked up about the squatters and HELOC abusers anymore. I remember back in 2008 or 2009, when I would see someone who was given half a milion dollars for doing nothing — and spending it — I was shocked and angered that I would pay for that all with everyone else in a banking industry bailout — an ongoing bailout if you consider the inevitable inflation that will finish the process.

Now that I have seen several hundred HELOC abusers and squatters, they are a curiosity, nothing more. Sometimes the details are amusing, and imagining how they blew the money goes through everyone's mind. We're all watching the market, passing the time.

Wait until I tell you some of my eviction stories from Las Vegas… Another time…

Before the market improves, lenders must reach a point where loans are not going delinquent faster than they can cure them or foreclose on the squatters. Until the delinquency rates drops or the foreclosure rate rises, lenders will continue to build shadow inventory.

Then they must liquidate visible and shadow inventory at a rate faster than they are adding to it. Right now, shadow inventory is growing, visible inventory is growing, and liquidation rates are at a seasonal low. Liquidation must outpace additions before the inventory problem goes away.

The amount of inventory in visible and shadow inventory will take many years to clear out. The price levels after the liquidation will be determined by incomes and loan terms at the time. The weight of inventory will squeeze any remaining air out of the housing bubble.

LPS: Overall mortgage delinquencies declined in 2010

by CalculatedRisk on 2/07/2011 11:48:00 AM

LPS Applied Analytics released their December Mortgage Performance data. According to LPS:

• The average loan in foreclosure has been delinquent a record 507 days. This is up from 406 days at the end of 2009, and up from 499 days at the end of November.

• Overall, mortgage delinquencies dropped nearly 18% in 2010.

• On the other hand, foreclosure inventories were up almost 10% in 2010, and are now at nearly 8x historical averages

• “First-time” foreclosures are on the decline, with over 30% of new foreclosure starts having been in foreclosure before

Click on graph for larger image in graph gallery.

This graph provided by LPS Applied Analytics shows the percent delinquent, percent in foreclosure, and total non-current mortgages.

The percent in the foreclosure process is trending up because of the foreclosure moratoriums.

According to LPS, 8.83% of mortgages are delinquent (down from 9.02% in November), and another 4.15% are in the foreclosure process (up from 4.08% in November) for a total of 12.98%. It breaks down as:

• 2.56 million loans less than 90 days delinquent.

• 2.12 million loans 90+ days delinquent.

• 2.2 million loans in foreclosure process.

For a total of 6.87 million loans delinquent or in foreclosure.

The second graph shows the break down of serious delinquencies.

LPS reported “the share of seriously delinquent loans that have not made payments in over a year continues to increase.”.

Note: I've seen some people include these 7 million delinquent loans as “shadow inventory”. This is not correct because 1) some of these loans will cure, and 2) some of these homes are already listed for sale (so they are included in the visible inventory).

This data is not shadow inventory, but most shadow inventory resides there. CalculatedRisk is correct in pointing out that not all of these loans will become future for-sale inventory, and if you take this data as a direct measure of shadow inventory, there would be double counting with visible inventory. I would also note this data does not capture the number of loan owners with toxic financing that will give up over the next several years as prices grind lower and strategic default becomes more common.

Shadow inventory is continuing to grow larger. We aren't adding to it quite as quickly as the past, but we are still not over the hump and actually reducing shadow inventory. That may come this year if the foreclosure rates pick up.

The bottom line for struggling loan owners is that if they decide to quit paying their mortgage today, there is a good chance they will not get booted out of the property for nearly two years. Even then, they won't have to wait long to get a new GSE loan. It shouldn't be surprising that strategic default is on the rise.

A 40% loss in Irvine

The Irvine Company fans reading today will undoubtedly remind everyone that Columbus Grove is not an Irvine Company property. The supposition is that prices in Columbus Grove have cratered so badly because it isn't to the quality of the rest of Irvine. I don't think so. Columbus Grove was hit hard because the builder, Lennar, finished selling out and pushed prices lower until the found a market clearing level. Columbus Grove is close to the bottom, closer than the rest of Irvine.

Columbus Grove does have some negatives, but it is still in the Irvine school district, and it currently represents the best value for the money in the school district. New construction here goes for what 30+ year old construction sells for in El Camino Real. Of course, those old properties have no HOAs or Mello Roos, so the cost of ownership is much lower at the same price point.

Irrespective of your opinion of Columbus Grove, the price declines there have been extraordinary by Irvine standards, and today's featured property is a 40% loss for the bank. They gave out a 100% financing loan back in 2006. The owner quit paying, and this ended up in shadow inventory. How do I know this?

This property went through foreclosure twice. The HOA foreclosed on the property last March for non-payment of dues. They were hoping to force the first lien holder to act. A few days later, an NOD was filed, and the property finally went back to BofA in December.

Foreclosure Record

Recording Date: 04/06/2010

Document Type: Notice of Default

If the loan owner was not paying the HOA dues for long enough that the HOA went through a foreclosure, how likely was it that he was paying the mortgage during that time? Not likely at all. If he was not paying his mortgage and there was no NOD filed, this property was in shadow inventory for quite some time.

Irvine Home Address … 73 JUNEBERRY Irvine, CA 92606

Resale Home Price … $510,000

Home Purchase Price … $801,500

Home Purchase Date …. 11/17/06

Net Gain (Loss) ………. $(322,100)

Percent Change ………. -40.2%

Annual Appreciation … -10.6%

Cost of Ownership

————————————————-

$510,000 ………. Asking Price

$17,850 ………. 3.5% Down FHA Financing

4.84% …………… Mortgage Interest Rate

$492,150 ………. 30-Year Mortgage

$103,685 ………. Income Requirement

$2,594 ………. Monthly Mortgage Payment

$442 ………. Property Tax

$360 ………. Special Taxes and Levies (Mello Roos)

$85 ………. Homeowners Insurance

$420 ………. Homeowners Association Fees

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

$3,901 ………. Monthly Cash Outlays

-$425 ………. Tax Savings (% of Interest and Property Tax)

-$609 ………. Equity Hidden in Payment

$33 ………. Lost Income to Down Payment (net of taxes)

$64 ………. Maintenance and Replacement Reserves

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

$2,964 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,100 ………. Furnishing and Move In @1%

$5,100 ………. Closing Costs @1%

$4,922 ………… Interest Points @1% of Loan

$17,850 ………. Down Payment

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

$32,972 ………. Total Cash Costs

$45,400 ………… Emergency Cash Reserves

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

$78,372 ………. Total Savings Needed

Property Details for 73 JUNEBERRY Irvine, CA 92606

——————————————————————————

Beds:: 3

Baths:: 3

Sq. Ft.:: 2125

Lot Size:: –

Property Type:: Residential, Condominium, Townhouse

Style:: 3+ Levels

Year Built:: 2006

Community:: Columbus Grove

County:: Orange

MLS#:: S645081

Source:: SoCalMLS

Status:: ActiveThis listing is for sale and the sellers are accepting offers.

On Redfin:: 9 days

——————————————————————————

Elegant and refined defines this stunning townhome with upgraded finishes throughout including rich dark wood flooring, granite counters, espresso-colored cabinets and stainless steel appliances in kitchen, granite and travertine in bathrooms; plantation shutters, crown moulding, recessed lighting and extra-wide baseboards! Convenient indoor laundry room on same level as bedrooms. Living room has two-story high ceiling and cozy fireplace. Beautiful home – must see! Close to shopping and award-winning schools.

Having been found culpable in a government report, an embarrassed Ben Bernanke admits he failed to see the housing bubble (but it's okay because everyone else failed too, right?)

Irvine Home Address … 14 VIENTO Dr Irvine, CA 92620

Resale Home Price …… $360,000

You've been caught in a lie!!

You can't deny it!

So let the war begin

You're far from innocent

Hell I just don't know where it will end

You are the one to blame

Another fallacy

Is laid in front of me

Now I just don't know

What to believe

This idiot won't let me go

Slowly penetrating the mind

‪Disturbed — Deceiver‬

We want our government officials to lie. We must, or we wouldn't continually put liars in positions of power. Ben Bernanke made a number of public statements around the peak of the housing bubble and during the financial meltdown that suggested his grasp of the obvious was challenged.

Personally, I prefer to assume men like Bernanke are knowingly deceiving the general public to avoid feeding into a financial panic. If Bernanke is as clueless as his public statements make him out to be, he is more like Greenspan than I am comfortable with, and our financial system is being run by a fool.

Last week I noted that the government commission to study the housing bubble and the financial meltdown found Greenspan and Bernanke responsible for the debacle due to their negligent handling of monetary policy.

Bernanke Says Fed Failed to See Broader Risks From Housing

By Scott Lanman – Jan 27, 2011 9:14 AM PT

Federal Reserve policy makers failed to foresee a threat to the financial system from the housing market in 2005 in part because central bank economists didn’t find major risks, Chairman Ben S. Bernanke said.

At one Federal Open Market Committee meeting in mid-2005, Fed governors and regional presidents heard staff briefings suggesting that the U.S. mortgage system “might bend but would likely not break” from a large home-price drop, and that the market may rest on “solid fundamentals,” Bernanke said in a Dec. 21, 2010, letter to the Financial Crisis Inquiry Commission, providing his views and revealing new details on FOMC meetings from 2005 to 2008.

The evidence that prices were not resting on fundamentals was quite compelling. The price to rent ratio went up abruptly.

The price-to-income ratio showed the same inexplicable rise after years of flatlining.

And more importantly, as this is really an market fundamental, the debt-to-income ratio showed borrowers were taking on huge debt loads only sustainable with toxic financing.

Of course, Bernanke argues that none of these were important because money was flowing and the economy was making jobs. In his mind, those were the fundamentals, and anything happening with price would be resolved by continued economic growth. Obviously, Bernanke was totally wrong.

“Given these and other analyses, it was hard for many FOMC participants, in the summer of 2005, to ascribe substantial conviction to the proposition that overvaluation in the housing market posed the major systemic risks that we now know it did,” Bernanke said in the letter, posted on the FCIC’s website.

Really? Given the data above, it is hard not to believe the markets are poised to crash. I said so at the time, and I was not alone.

The FCIC, the congressionally appointed panel assigned to probe the origins of the 2008 credit crisis, heaps blame on “reckless” Wall Street firms and “weak” federal regulators and concludes that the meltdown could have been averted. Some points from Bernanke’s letter are included in the commission’s a 545-page report, released today.

The 2005 presentations were made public this month as part of transcripts of that year’s FOMC meetings. The Fed, which has a policy of giving out FOMC transcripts with a five-year lag, hasn’t published any records from 2006 or later.

It will be interesting to read the meeting notes from later meetings when the housing market was obviously crashing.

Change for ‘Worse’

While most participants at a June 2005 Federal Open Market Committee meeting agreed that “the probability of spillovers to financial institutions from lower housing prices seemed moderate, they recognized that circumstances could change for the worse,” and several officials raised concerns about subprime lending and mortgage-backed securities, Bernanke said in the letter.

Atlanta Fed President Jack Guynn called the housing bubble in 2005.

In 2006, Fed officials “expressed nervousness” about some practices in the mortgage industry, said Bernanke, who became chairman in February of that year. He said he “had in mind increased regulatory oversight” and “increased vigilance” for the implications of housing on interest-rate policy.

He was ready to start looking in to the industry after it already took every housing market in the country to the abyss.

FOMC members were briefed in June 2007 about the liquidation of subprime securities at two hedge funds sponsored by Bear Stearns Asset Management, Bernanke said. Some Fed officials were concerned that the Fed didn’t understand “the scope of the problem” because the central bank couldn’t “systematically collect information from hedge funds,” which were outside the Fed’s jurisdiction, he said.

Extent of Threat

In August 2007, as turbulence in the subprime-mortgage market rose to a “considerable” degree, policy makers at an FOMC meeting disagreed over the extent of the threat to the economy, Bernanke said.

“One participant, in a paraphrase of a quote he attributed to Churchill, said that no amount of rewriting of history would exonerate us if we did not prepare for the more dire scenarios discussed in the staff presentations,” the Fed chairman said.

The federal reserve knows they can commission studies after the fact to justify anything they do. Last year they exonerated themselves for responsibility for the housing bubble. Their argument was that interest rate policy did not cause the housing bubble; therefore, the federal reserve did not cause the housing bubble. The first part is true, but the second part is only true to the degree that interest rates were responsible for the housing bubble. The real failure at the federal reserve was in their oversight of the entire financial system as well as the toxic loans being churned out by the shadow banking system.

At that meeting, Bernanke and his colleagues judged that inflation was their “predominant” concern and left their benchmark interest rate at 5.25 percent. Within two months, they had scrapped that view and begun cutting rates. That December, the worst recession since the 1930s began, and a year later, the federal funds rate was cut almost to zero.

In September 2008, FOMC members briefed on the failure of Lehman Brothers Holdings Inc. were divided on what the government should do in such a situation. Some wanted the government to have no role in a rescue, while others sought capital injections instead of central bank liquidity or monetary policy interventions, Bernanke said.

“My own view at the time was that only a fiscal and perhaps regulatory response could address the potential for wide-scale failure of financial institutions during that period,” Bernanke said. “Such an approach would involve tools such as a robust resolution authority and a capital injection program, neither of which was authorized at that time.”

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

The real reason Bernanke had to step in and take over AIG was because the debt resolution of such a large entity with international creditors has not been worked out. In short, if we had not paid off a number of foreign banks (and Goldman Sachs) the entire financial system may have ground to a halt as countries begin seizing assets of distressed companies in an chaotic collapse. A wave of international protectionism and the resulting shutdown of international financial transactions would have been an economic catastrophe. It wasn't the housing market that needed to be saved.

The temporary liquidity operations launched by the federal reserve to get us through the crisis were quite successful. Before the fed enjoys too many kudos, it is worth noting that they were cleaning up their own mess.

Milking the cash cow

Many people who bought their first homes in the early 90s kept the property when they moved up and bought a larger home. It used to be that if you wait long enough, rents would rise to cover even the most bloated mortgage. Not thts time.

With payments on many houses significantly more than rental parity, people are faced with the prospect of negative cashflow, perhaps for decades. Of course, that can be made to work in the short term if appreciation is rampant, but most of the time, running negative cashflow is a financial cancer. All who nurture a negative cashflow investment will be consumed by it.

The owners of today's featured property paid $189,500 in 1991 at the peak of that housing bubble. The must have sustained ownership through a nine-year negative equity mortgage period, also known as a home prison sentence. After enduring such a protracted financial hardship, frugality should have been the lesson of the dark times. Instead, they went Ponzi.

• Their original mortgage data is not available, but they likely put 20% down ($37,900) leaving a first mortgage of $151,600. They may have borrowed more. In any case, on 1/4/1999, they had a $163,000 first mortgage.
• On 2/26/2002 they opened a HELOC for $40,000.
• On 7/24/2003 they refinanced the first mortgage for $200,000.
• On 5/27/2004 they obtained a $100,000 HELOC.
• On 1/28/2005 they enlarged to a $194,000 HELOC.
• On 11/3/2006 they got one last HELOC for $285,000.
• Total debt is $485,000.
• Total mortgage equity withdrawal is around $335,000, but I can't be sure how much was borrowed and spent. What would you guess?

Irvine Home Address … 14 VIENTO Dr Irvine, CA 92620

Resale Home Price … $360,000

Home Purchase Price … $189,500

Home Purchase Date …. 5/31/1991

Net Gain (Loss) ………. $148,900

Percent Change ………. 78.6%

Annual Appreciation … 3.3%

Cost of Ownership

————————————————-

$360,000 ………. Asking Price

$12,600 ………. 3.5% Down FHA Financing

4.84% …………… Mortgage Interest Rate

$347,400 ………. 30-Year Mortgage

$73,190 ………. Income Requirement

$1,831 ………. Monthly Mortgage Payment

$312 ………. Property Tax

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

$60 ………. Homeowners Insurance

$348 ………. Homeowners Association Fees

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

$2,551 ………. Monthly Cash Outlays

-$300 ………. Tax Savings (% of Interest and Property Tax)

-$430 ………. Equity Hidden in Payment

$23 ………. Lost Income to Down Payment (net of taxes)

$45 ………. Maintenance and Replacement Reserves

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

$1,890 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,600 ………. Furnishing and Move In @1%

$3,600 ………. Closing Costs @1%

$3,474 ………… Interest Points @1% of Loan

$12,600 ………. Down Payment

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

$23,274 ………. Total Cash Costs

$28,900 ………… Emergency Cash Reserves

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

$52,174 ………. Total Savings Needed

Property Details for 14 VIENTO Dr Irvine, CA 92620

——————————————————————————

Beds:: 2

Baths:: 3

Sq. Ft.:: 1460

Lot Size:: 2,269 Sq. Ft.

Property Type:: Residential, Condominium

Style:: Two Level, Traditional

Year Built:: 1978

Community:: Northwood

County:: Orange

MLS#:: S645459

Source:: SoCalMLS

—————————————————————————-

Charming and spacious Sundance home located at Northwood Irvine. Clean and in good conditon. Newer wood laminated flooring throughout. Newer dual-paned vinyl windows. Open and airy. Large living areas. Kitchen sink and great room opens to back patio for outdoor entertaining. Gas fireplace. Laundry area located in attached two car garage. Closet and half bath first level. Master bedroom suite and bath area with tub redone and updated. 2nd bedroom with large window and natural light. This home is close to and walking distance to public schools and shopping areas with restaurants. Northwood Irvine was once part of the old Irvine Ranch with romantic orange groves history and nearby eucalyptus trees and lining streets and roadways. This is a short sale listing.

California cities dominate Forbes.com's new list of America's most miserable cities. The housing bubble is the direct cause of the suffering.

Irvine Home Address … 50 ARBOLES Irvine, CA 92612

Resale Home Price …… $420,000

Looking out for number 1

California here we come

Right back where we started from

Hustlers grab your guns

Your shadow weighs a ton

Phantom Planet — California

California was the land of milk and honey, but with the collapse of the housing Ponzi scheme, Californians are not being given free money. It's making them miserable.

America's Most Miserable Cities

Kurt Badenhausen, 02.02.11, 12:00 PM EST

California has never looked less golden, with eight of its cities making the top 20 on our annual list.

Arnold Schwarzenegger was sworn in as the governor of California at the end of 2003 amid a wave of optimism that his independent thinking and fresh ideas would revive a state stumbling after the recall of Gov. Gray Davis.

The good vibes are a distant memory: The Governator exited office last month with the state facing a crippling checklist of problems including massive budget deficits, high unemployment, plunging home prices, rampant crime and sky-high taxes. Schwarzenegger's approval ratings hit 22% last year, a record low for any sitting California governor.

California's troubles helped it land eight of the 20 spots on our annual list of America's Most Miserable Cities, with Stockton ranking first for the second time in three years.

Congratulations, Stockton! I remember being contacted by a recruiter in 2005 about a position in Stockton. I remember thinking to myself that Stockton is not where I wanted to be trapped when the housing bubble burst. Construction related unemployment will be high there for a very long time.

In Pictures: America's Most Miserable Cities

Located in the state's Central Valley, Stockton has been ravaged by the housing bust. Median home prices in the city tripled between 1998 and 2005, when they peaked at $431,000. Now they are back to where they started, as the median price is forecast to be $142,000 this year, according to research firm Economy.com, a decline of 67% from 2005. Foreclosure filings affected 6.9% of homes last year in the Stockton area, the seventh-highest rate in the nation, according to online foreclosure marketplace RealtyTrac.

A 67% decline down to 1998 prices. Wow!

Stockton's violent crime and unemployment rates also rank among the 10 worst in the country, although violent crime was down 10% in the latest figures from the FBI. Jobless rates are expected to decline or stay flat in most U.S. metro areas in 2011, but in Stockton, unemployment is projected to rise to 18.1% in 2011 after averaging 17.2% in 2010, according to Economy.com.

“Stockton has issues that it needs to address, but an article like this is the equivalent of bayoneting the wounded,” says Bob Deis, Stockton city manager. “I find it unfair, and it does everybody a disservice. The people of Stockton are warm. The sense of community is fantastic. You have to come here and talk to leaders. The data is the data, but there is a richer story here.”

He is probably right. The misery in a town experiencing economic hardship is not bore equally. Those that are unemployed suffer greatly while those who continue working as during the boom suffer very little, other than perhaps the loss of their home equity. Those that are unemployed and did not take on a toxic mortgage to buy a house suffer most.

There are many ways to gauge misery. The most famous is the Misery Index developed by economist Arthur Okun, which adds unemployment and inflation rates together. Okun's index shows the U.S. is still is in the dumps despite the recent gains in the economy: It averaged 11.3 in 2010 (blame a 9.6% unemployment rate and not inflation), the highest annual rate since 1984.

Our list of America's Most Miserable Cities goes a step further: We consider a total of 10 factors, things that people gripe about around the water cooler every day. Most are serious issues, including unemployment, crime and taxes. A few we factor in are not as critical, but still elevate people's blood pressure, like the weather, commute times and how the local sports team is doing.

The Green Bay Packers do more to uplift Wisconsin than economic data. Go Packers!

One of the biggest issues causing Americans angst the past four years is the value of their homes. To account for that we tweaked the methodology for this year's list and considered foreclosure rates and the change in home prices over the past three years. Click here for a more detailed rundown of our methodology.

Florida and California have ample sunshine in common, but also massive housing problems that have millions of residents stuck with underwater mortgages. The two states are home to 16 of the top 20 metros in terms of home foreclosure rates in 2010. The metro area with the most foreclosure filings (171,704) and fifth-highest rate (7.1%) last year is Miami, which ranks No. 2 on our list of Most Miserable Cities.

The good weather and lack of a state income tax are the only things that kept Miami out of the top spot. In addition to housing problems (prices are down 50% over three years), corruption is off the charts, with 404 government officials convicted of crimes this decade in South Florida. Factor in violent crime rates among the worst in the country and long commutes, and it's easy to understand why Miami has steadily moved up our list, from No. 9 in 2009 to No. 6 last year to the runner-up spot this year.

California has its own miseries it heaps upon its cities. Do you think California will get a federal bailout?

California cities take the next three spots: Merced (No. 3), Modesto (No. 4) and Sacramento (No. 5). Each has struggled with declining home prices, high unemployment and high crime rates, in addition to the problems all Californians face, like high sales and income taxes and service cuts to help close massive budget shortfalls.

The Golden State has never looked less golden. “If I even mention California, they throw me out of the office,” says Ron Pollina, president of site selection firm Pollina Corporate Real Estate. “Every company hates California.”

There are many highly trained and talented people living in California, and this will always be a draw to employers to locate here, but the high taxes and highly regulated nature of the state makes it very unattractive to business.

Last year's most miserable city, Cleveland, fell back to No. 10 this year despite the stomach punch delivered by LeBron James when he announced his exit from Cleveland on national television last summer. Cleveland's unemployment rate rose slightly in 2010 to an average of 9.3%, but the city's unemployment rank improved relative to other cities, thanks to soaring job losses across the U.S. Cleveland benefited from a housing market that never overheated and therefore hasn't crashed as much as many other metros. Yet Cleveland was the only city to rank in the bottom half of each of the 10 categories we considered.

Two of the 10 largest metro areas make the list. Chicago ranks seventh on the strength of its long commutes (30.7 minutes on average–eighth-worst in the U.S.) and high sales tax (9.75%—tied for the highest). The Windy City also ranks in the bottom quartile on weather, crime, foreclosures and home price trends.

President Obama's (relatively) new home also makes the cut at No. 16. Washington, D.C., has one of the healthiest economies, but problems abound. Traffic is a nightmare, with commute times averaging 33.4 minutes–only New York is worse. Income tax rates are among the highest in the country and home prices are down 27% over three years.

I note that Las Vegas did not make the list. An oversight, perhaps?

I also note that Irvine didn't make the list. Like Disneyland, Irvine is the happiest place on earth.

Leaving the family holding the bag

Everything you will read about this property today is speculation based on a few facts. First, according to Redfin, the 2006 sale at the peak was not an arms-length transaction. That usually means the property was transfered to a family member.

However, when that sale occurred, the peak buyer borrowed $545,000 to complete the transaction. Arms length or not, the lender was happy to extend 100% financing to the borrower. Basically, the bank bought this property at the peak in exchange for the buyer's credit score.

If this was a family member non-arms-length transaction, how do these two parties feel about it? The original owner sold at the peak and obtained a huge windfall. He must feel good. The family member who paid peak price has trashed credit, but isn't out-of-pocket any money. Does the buyer feel ripped off? Does she ask grandpa to make her whole?

Irvine Home Address … 50 ARBOLES Irvine, CA 92612

Resale Home Price … $420,000

Home Purchase Price … $177,500

Home Purchase Date …. 2/17/1988

Net Gain (Loss) ………. $217,300

Percent Change ………. 122.4%

Annual Appreciation … 3.8%

Cost of Ownership

————————————————-

$420,000 ………. Asking Price

$14,700 ………. 3.5% Down FHA Financing

4.84% …………… Mortgage Interest Rate

$405,300 ………. 30-Year Mortgage

$85,388 ………. Income Requirement

$2,136 ………. Monthly Mortgage Payment

$364 ………. Property Tax

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

$70 ………. Homeowners Insurance

$384 ………. Homeowners Association Fees

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

$2,954 ………. Monthly Cash Outlays

-$350 ………. Tax Savings (% of Interest and Property Tax)

-$502 ………. Equity Hidden in Payment

$27 ………. Lost Income to Down Payment (net of taxes)

$53 ………. Maintenance and Replacement Reserves

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

$2,183 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,200 ………. Furnishing and Move In @1%

$4,200 ………. Closing Costs @1%

$4,053 ………… Interest Points @1% of Loan

$14,700 ………. Down Payment

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

$27,153 ………. Total Cash Costs

$33,400 ………… Emergency Cash Reserves

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

$60,553 ………. Total Savings Needed

Property Details for 50 ARBOLES Irvine, CA 92612

——————————————————————————

Beds:: 2

Baths:: 2

Sq. Ft.:: 1440

Property Type:: Residential, Condominium

Style:: One Level

View:: Mountain, Park/Green Belt, Faces South

Year Built:: 1975

Community:: Rancho San Joaquin

County:: Orange

MLS#:: 22147357

Source:: i-Tech MLS

Status:: ActiveThis listing is for sale and the sellers are accepting offers.

On Redfin:: 15 days

This sophisticated Town Home is situated on park-like grounds on a quiet cul-de-sac. A corner unit, this home features a spectacular view of the Newport Coast Mountain RangE & Mason Wildlife Regional Park. This single-level unit with warm neutral tones and an abundance of natural light accentuate the exotic cherry wood flooring throughout the main living area. The spacious entry boasts a handsome built-in Alderwood desk, while the open living room and dining area is graced by an outstanding stacked stone fireplace. The bright and airy kitchen offers beautiful white Hartmark cabinetry, Delerium granite countertops, double porcelain Kohler sink & bay garden window. The well appointed master suite offers an impressive 16 feet of custom built-ins in a mirrored closet complete with cedar ceiling, a master bath that includes a bright picture window with a spectacular view, and 13.5' vaulted ceiling. The guest bedroom features French doors & custom closet with cedar ceiling.

A California court ruled that irregularities in the Notice of Default do not harm the borrower and are not grounds to avoid foreclosure.

Irvine Home Address … 362 DEERFIELD Ave #111 Irvine, CA 92606

Resale Home Price …… $420,000

It was a long and dark December

From the rooftops I remember

There was snow, white snow

Clearly I remember

From the windows they were watching

While we froze down below

When the future's architectured

By a carnival of idiots on show

You'd better lie low

Coldplay — Violet Hill

Last week I wrote Notice of Default irregularities: new false hope for loan owners. Well, the false hope didn't last very long. A recent ruling has struck down the idea of suing based on irregularities in the Notice of Default.

Aceves ruling: Foreclosed homeowner has cause to sue bank for fraud

by KERRY CURRY

Tuesday, February 1st, 2011, 12:22 pm

A California appeals court ruled that a former homeowner's lawsuit against U.S. Bank (USB: 27.39 -0.98%) for fraud may continue after the bank allegedly reneged on a promise to negotiate a mortgage modification, opening the door for claims from potentially thousands of similarly situated troubled borrowers in the Golden State.

While the court ruled that a case for fraud–which includes claims for damages–could proceed, it also ruled that the homeowner, Claudia Jacqueline Aceves, lacked sufficient cause to get her home back after the foreclosure sale.

What could become a landmark foreclosure ruling appears to be both a win and a loss, for mortgage servicers and foreclosure defense attorneys alike. Mortgage servicers prevailed on issues of alleged defects in the foreclosure process, with the court ruling that none of the Aceves allegations of irregularities “would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.” Aceves had claimed, for example, that the notice of default was defective and therefore void, a claim the court rejected outright. “Absent prejudice, the error does not warrant relief,” according to the ruling.

The idea of getting a free house because someone made a clerical error on a Notice of Default is crazy. We live in a society that believes unjustified enrichment due to “technicalities” is fine, and if millions of deadbeats get free houses, justice must somehow be served.

The court spent most of its 15-page ruling, however, discussing how U.S. Bank had purportedly promised to negotiate a potential loan modification if the homeowner agreed to allow the bank to lift a bankruptcy stay, which had protected the home from seizure. Yet, when the homeowner agreed and attempted to begin negotiation on a loan modification, the bank allegedly opted to foreclose without negotiating.

Another feature of this ruling is going to be a renewed reliance on the defense that borrowers are immune from foreclosure while a loan modification is being negotiated. Banks will need paperwork from the loan modification department demonstrating the loan modification has been denied before a foreclosure can go forward.

Paul Jackson notes the passing of the Notice of Default irregularity defense in his editorial on the case:

Aceves: Far more than meets the eye

by PAUL JACKSON

As we roll the 2011 calendar over to February — already?— outcomes of hand-to-hand legal combat in courtrooms across the nation over the sprawling foreclosure mess are continuing to unfold. Early this year, a state supreme court case out of Massachusetts called Ibanez managed to forever alter the meaning associated with one of the world’s most famous electric guitar makers.

Innocent music instruments aside, a new ruling out of California in the past week has the potential to be every bit as important: Aceves v. U.S. Bank. HousingWire’s own Kerry Curry broke the story Tuesday afternoon, which really is a Jeckyll and Hyde sort of ruling that has the potential to be one of the nation’s most significant rulings in the foreclosure morass.

Depending on your view, in Aceves, you have something to cheer; and depending on your view, you also have something to fear. Regardless of your view, you have a ruling you can’t ignore, especially in California.

But, as we’ll see, the real bombshell in the Aceves ruling isn’t at all what you might expect.

The majority of the ruling’s text discusses the borrower’s right to pursue potential fraud and so-called promissory estoppel claims against the servicer, as HousingWire's original coverage provides strong detail on. And while the ruling should be instructive on that front to servicers working with borrowers in bankruptcy in California, there is far more buried in the pages of the ruling that is likely to be missed by the media hype.

Instead, the real importance of Aceves is buried on page 14 of a 15-page ruling, in a section called, innocuously enough, “Remaining Claims.”

And in particular, within a single paragraph:

Aceves also takes issue with the notice of default, pointing out that it mistakenly identified Option One as the beneficiary under the deed of trust when U.S. Bank was actually the beneficiary. Although this contention is factually correct, it is of no legal consequence. Aceves did not suffer any prejudice as a result of the error. Nor could she. The notice instructed Aceves to contact Quality Loan Service, the trustee, not Option One, if she wanted ― “[t]o find out the amount you must pay, or arrange for payment to stop the foreclosure, or if your property is in foreclosure for any other reason.” The notice also included the address and telephone number for Quality Loan Service, not Option One. Absent prejudice, the error does not warrant relief. (See Knapp v. Doherty (2004) 123 Cal.App.4th 76, 93–94 & fn. 9.)

This is a much larger finding than it might seem, according to at least two California attorneys I spoke with that practice in creditor’s rights. Explaining why, however, requires some unpacking.

Let’s get legal

For those of you that are intrepid researchers, you’ll note that the appellate court ruling in Aceves above cites Knapp v. Doherty as the controlling authority regarding its finding on the validity of the notice of default — that full case ruling is available here.

And if you read Knapp v. Doherty, you’ll note that the 2004 California state appellate ruling in that case applied only to the notice of sale in a nonjudicial foreclosure, not explicitly to notices of default.

But by granting the Aceves allegation of errors on the notice of default — and then still tossing out the claim anyway — the court in Aceves made it unmistakably clear that the so-called “prejudice rule” as applied to notices of sale in Knapp v. Doherty now applies to notices of default in the state of California, as well.

In plain English, the court basically said: We don’t care what the alleged defect in the notice of default is, unless you can also demonstrate that you were somehow harmed by that same defect.

This is common sense. The delinquent borrowers knew they were delinquent, and with notices taped to their door, they knew it was their property coming to auction. Notice of Default irregularities should not have become a defense against foreclosure. It no longer is.

It’s worth noting that state appellate court rulings are binding on lower-level trial courts, according to the legal sources I’ve spoken with — so this ruling has extremely wide implications on potentially thousands of existing cases in the state of California where borrowers are contesting a foreclosure on something akin to the validity of the notice of default. It's equally worth noting that California's so-called “prejudice rule” is not new, and is extremely well-established.

Going forward, attorneys I’ve spoken with tell me this is a sea change relative to how foreclosure-related litigation will be managed in the state. It also is likely to influence other states with similar “prejudice rules,” especially those that permit a nonjudicial foreclosure process, these attorneys have suggested. California attorneys have told me for months that nearly every contested foreclosure case in the state has involved a challenge in some way to the notice of default; it’s the single most common claim, I've been told.

I suppose when borrowers have nothing else, finding some minor technical error is weak but better than nothing.

It was only a few weeks back, after all, that colleague Kate Berry at American Banker made national headlines with a story that echoed the concerns (hopes?) of many lawyers contesting foreclosure actions, who were quick to suggest to the press that procedural errors in notices of default—including that evil of all judicial foreclosure evils, robo-signing — could render even nonjudicial foreclosures invalid, too.

Now? Probably not so much, at least in California.

I’d guess some of the same sources that led Berry to write her original story are moving fairly quickly at this point to marshal their resources around the fraud issue now green-lighted in Aceves (and detailed in HW’s news coverage of the case). After all, while the facts in the case are pretty unusual, pretty much every troubled borrower on Earth can allege: “I would have filed bankruptcy, too, if only I’d known the truth about loan modification.”

Paul Jackson is the founder and editor-in-chief of HousingWire. As with any HW columnist, his views are his own only and do not represent those of HousingWire. Follow him on Twitter: @pjackson

Attorneys will have to retool their cases by taking out the claims about deficient NODs and put in claims about being foreclosed while a loan modification was being considered. The latter circumstance being quite troubling for lenders. Everyone who went though a foreclosure who made a verifiable attempt at a loan modification will make a claim against the banks.

What a mess.

Zero down, $100K free money

Sometimes, I feel pretty stupid not buying a house in 2004-2006. I might have bought if I had known that I could purchase with nothing down and within a couple of years go back to the bank and get free money.

Of course, I know that is going Ponzi, so I couldn't get myself to do that; however, through ignorance, carelessness, and greed, many bubble-era buyers did buy these properties, and they did go Ponzi.

The owner of today's featured property paid $385,500 on 8/26/2003. He used a $308,080 first mortgage, an $77,020 second mortgage, and a $400 down payment. Perhaps the bank saw that as a security deposit?

On 10/31/2005 the obtained a $401,250 first mortgage and a $80,200 HELOC to raise the total property debt to $481,450 and the total mortgage equity withdrawal to $95,950.

Now that prices have gone south, this borrower is short selling and leaving the lender wondering how they are going to get their free money gift back.

Irvine Home Address … 362 DEERFIELD Ave #111 Irvine, CA 92606

Resale Home Price … $420,000

Home Purchase Price … $385,000

Home Purchase Date …. 8/26/2003

Net Gain (Loss) ………. $9,800

Percent Change ………. 2.5%

Annual Appreciation … 1.2%

Cost of Ownership

————————————————-

$420,000 ………. Asking Price

$14,700 ………. 3.5% Down FHA Financing

4.84% …………… Mortgage Interest Rate

$405,300 ………. 30-Year Mortgage

$85,388 ………. Income Requirement

$2,136 ………. Monthly Mortgage Payment

$364 ………. Property Tax

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

$70 ………. Homeowners Insurance

$289 ………. Homeowners Association Fees

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

$2,859 ………. Monthly Cash Outlays

-$350 ………. Tax Savings (% of Interest and Property Tax)

-$502 ………. Equity Hidden in Payment

$27 ………. Lost Income to Down Payment (net of taxes)

$53 ………. Maintenance and Replacement Reserves

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

$2,088 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,200 ………. Furnishing and Move In @1%

$4,200 ………. Closing Costs @1%

$4,053 ………… Interest Points @1% of Loan

$14,700 ………. Down Payment

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

$27,153 ………. Total Cash Costs

$32,000 ………… Emergency Cash Reserves

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

$59,153 ………. Total Savings Needed

Property Details for 362 DEERFIELD Ave #111 Irvine, CA 92606

——————————————————————————

Beds:: 2

Baths:: 2

Sq. Ft.:: 1367

$0,307

Lot Size:: –

Property Type:: Residential, Townhouse

Style:: Two Level

Year Built:: 1985

Community:: Walnut

County:: Orange

MLS#:: C11009806

Source:: MRMLS

——————————————————————————

Status:

On Redfin:

2 bedrooms, 2.5 bath.