The 30-year fixed rate mortgage provides a reasonable balance between affordability and buying power. Historically, it has been associated with stable housing markets. Despite these facts, some foolishly want to see it replaced with adjustable-rate mortgages.

Irvine Home Address … 14 IRON Spgs Irvine, CA 92602

Resale Home Price …… $839,000

I was born with the wrong sign

In the wrong house

With the wrong ascendancy

I took the wrong road

That led to the wrong tendencies

I was in the wrong place

At the wrong time

For the wrong reason

And the wrong rhyme

On the wrong day

Of the wrong week

I used the wrong method

With the wrong technique

Wrong

Wrong

Depeche Mode — Wrong

I recently wrote the post Government Bureaucrat Recommends Against 30-Year Fixed-Rate Mortgages. The author of that article wrote a scathing and dismissive rant against the 30-year fixed rate mortgage, and he provided no rational arguments for his opposition to its widespread use. I thought it was a one-off written by a crank who had too much coffee that day. Apparently he has company.

I am prone to write stinging rebukes to poorly written garbage on the web, but when I call someone out, I will devote the post to building a factual argument as to why they are wrong. I never ask anyone to just take my word for it because I am some kind of expert. Authority comes from the presentation of data in a compelling argument. Mindless rants don't make authors an authority, it makes them lunatics.

The source article for today's post is horrible. I don't know if the writer is a lunatic, but she certainly is very wrong about her reasons for opposing the 30-year fixed rate mortgage.

The Government's Role in the Housing Bubble

Megan McArdle — Jul 23 2010

I never would have guessed that years in, we'd still be debating the role of the government in the housing bubble. Conservatives are still pinning most of the blame on the Community Reinvestment Act, while liberals are saying that there's no evidence that government played any significant role–unless, perhaps, it was all the fault of Alan Greenspan.

As it happens, I think that the government did play a role. A big role. But I think it's rather subtler, and thus, rather more problematic, than most people on either side are discussing.

To me, the unsung villain of the mortgage crisis is the 30-year fixed rate self-amortizing mortgage with no prepayment penalty. This hothouse creature is beloved of liberals, who like any product that gives the consumer the power to shaft banks whenever it is to their advantage. And it is beloved of conservatives because it smacks of sober citizens taking on modest, stable obligations they can meet.

The 30-year fixed-rate mortgage has been popular among progressives and conservatives alike because it is a good loan product. (Note she used the old term liberals demagogueed by the Right rather than the more fashionable progressives.) She makes a ridiculous straw-man argument that the Left is out to screw the banks. Perhaps some die-hard conservatives who are willing to believe anything bad about progressives will believe that, but the reason the Left likes the 30-year loan is because it provides a means for average wage earners to acquire wealth. Paying down a mortgage through the forced savings of an amortizing mortgage used to be the primary wealth generating mechanism of the middle class — that is until we allowed everyone to rob the piggy bank with HELOCs.

Did you notice the writer setting the emotional groundwork with the phrases "unsung villain" and "hothouse creature" and "the power to shaft banks?" This dismissive language is not presenting a sound argument based on facts, it is setting the stage for an emotional argument based on hyperbole.

But this product is about as stable as a nitroglycerine shot with a TNT chaser.

That statement is complete and utter bullshit. Actually, bullshit is a statement with a casual disregard for the truth — realtorspeak is a good example. The statement above is an intentional lie. A lie cloaked with emotional baggage to disguise its intent.

The 30 year fixed rate mortgage was ultimately at the heart of the Savings and Loan crisis.

That statement is a half-truth used to support a weak argument. The heart of the S&L fiasco was an asset-liability mismatch. Banks often borrow with short-term funds and lend on a long-term basis. The 30-year fixed rate mortgage contributes to this problem, but ultimately this is a financial management problem at banks. Nobody forces banks to underwrite these loans, and nobody forces them to match those loans with short-term deposits. This is a choice banks make that sometimes blows up in their face. Banks could float long-term bonds to match their loans, and they can also offload them to the secondary market; in fact, that is one of the primary arguments for keeping a secondary market in place.

Yes, yes, deregulation set the stage for the ultimate denouement–but the Savings and Loans were deregulated in such a haphazard fashion in part because they were being slowly driven into bankruptcy by their huge collection of low-interest, long-term real estate loans, in an environment where Paul Volcker had briefly driven short-term interest rates up to 20%. While fraud and abuse were certainly rampant, the enormous scope of the problem was not due to S&L officers suddenly becoming more thievish, or regulators more tolerant of thievery, but because everyone in the industry was flopping as wildly a a beached sturgeon in an attempt to keep their banks solvent atop large portfolios of low-interest loans. Meanwhile, whenever interest rates dropped, people would refinance, meaning that even the high-interest loans they did make didn't help much.

The answer to this, as you may recall, was . . . the creation of the massive private market in mortgage bonds. In an environment with a floating currency and considerable worries about inflation, the only thing that can neutralize the risks of the 30-year mortgage is laying them off to as large a pool as possible.

Selling low-interest loans in the secondary market is still the answer. There is no problem here. Banks are currently under no obligation to keep any loans they originate on their balance sheets. During the debates on financial reform, there was a proposal for banks to keep 5% of the loans they originated on their balance sheets, and it was defeated by intense opposition from the banking lobby. Their primary argument was that it created asset-liability mismatch. They were right.

MIchael Lewis chronicles what happened next in the still-terrifyingly-relevant Liar's Poker.

Give me a break. She has now associated all the evils of Wall Street with a 30-year fixed rate loan? Did she really think nobody on the web would call her on that nonsense?

Moreover, this product exists, as far as I can tell, only because of massive government intervention into the markets, a point that Reihan Salam and Chris Papagianis made in their recent, excellent piece.

"As far as I can tell?" I respect that she has the courage to flaunt her ignorance so publicly. The product exists because people demand it. People demand it because it is a good and stable loan product that builds wealth for ordinary Americans. The government supports it because it provides stability in housing markets.

Until the Great Depression, the mortgage was a very, very different product. There was no amortization, and down-payments were often massive–half or more of a home's value. They lasted perhaps 3 or 5 years, and were rolled over if borrowers could not meet the balloon payment. The default crisis of the 1930s resulted from the inability to roll those loans, and so the government stepped in, causing the fifteen year self-amortizing loan to proliferate. This process was especially accelerated by the VA loans that were offered to returning veterans. Eventually, the payment terms stretched out to allow more and more people to buy homes.

This had some curious effects. As aforementioned, it was ultimately not good for banks that were restricted to the kind of boring business many commentators would like to see banks return to: loaning money to consumers and small businesses, and taking deposits.

Yes, that is exactly what banks are supposed to do. Is that boring? Are we supposed to have an exciting banking system? Did everyone enjoy the volatility in our economy over the last several years? It was certainly exciting. Financial innovation is a fallacy. Banks are supposed to be boring, stable institutions. What does she want?

The mismatch between their short-term obligations and their long-term assets too easily becomes catastrophic.

Nonsense. If banks do not properly utilize the tools available to them to prevent asset-liability mismatch, they can certainly go broke, but that is only a catastrophe for the poorly managed bank. It isn't a catastrophe for the economy. She is pointing to some bogeyman that doesn't exist.

It also–at least according to economists I've interviewed–contributed to the long, broad run-up in housing prices that took place in the latter half of the twentieth century.

She must have interviewed some real idiots. The transition from a 50% down interest-only loan market of the Great Depression to the 20% down conventionally amortizing loan market beginning after WWII did see a runup in prices. However, once prices stabilized in the early 1950s, the 30-year fixed rate mortgage provided a stable price-to-income structure with excellent affordability for the next 25 years (see graph below). Even then the system broke down in the late 1970s because allowable DTIs got out of control, not because of the mortgage product.

People price their homes by their monthly payment, and what the bank will lend them. As banks lent more, and longer terms lowered the monthly payment for a given loan amount, people bid up the price of housing. This created the expectation of steadily appreciating home values–something that had not been historically true.

This statement is inaccurate. Robert Shiller did detailed studies on this subject for the book Irrational Exuberance. His studies showed that expectation of appreciation was not present prior to the late 1970s. The 25 year period of stability from 1950-1975 — the heyday of the 30-year fixed rate mortgage — did not have expectation of appreciation. If you look carefully at the chart of inflation-adjusted home prices, you see that prices did not rise faster than the general rate of inflation during this period.

Over time, people began pricing expected appreciation into their purchase price as well, a phenomenon that again, tended to accelerate over time.

No, this was a phenomenon of the first bubble of the late 70s, and with each successive bubble and continued "innovations" which allowed people to access appreciation for spending money, the expectation of appreciation and the desire for free money has created an entire population of kool aid addicts.

Most subtly, and most perniciously of all, it created generations of buyers who thought of all mortgages as thirty-year fixed rate loans.

Perniciously? I wish everyone thought of mortgages as 30-year fixed-rate loans. If they did, we wouldn't have a demand for interest-only and Option ARMs — the real culprits of the housing bubble.

People in other countries understand that their mortgage rate resets when interest rates go up.

I think the author is revealing her hidden agenda here: she is pandering to banking interests that would rather issue adjustable rate mortgages at the bottom of the interest rate cycle. Banks would certainly rather have everyone on ARMs because it offloads the interest rate risk. When interest rates go up, the value of fixed-rate annuities goes down. The value of fixed-rate loans held on bank balance sheets will plummet. I wonder if she it receiving compensation from banking interests?

Even the people who theoretically understood that they were taking on an adjustable rate mortgage didn't have any cultural context for them–no unhappy childhood memories, no newspaper stories, no parents or friends to warn them about what would happen when the loan rate reset. And of course, many very naive people simply assumed that their floating-rate mortgage was fixed–and were rooked by unscrupulous mortgage brokers.

I am not sure what she is arguing for here, but the fact that we have had 25 years of steadily falling interest rates is exactly why some boneheads continue taking out adjustable-rate mortgages when it makes no sense to do so. The next bailout of the mortgage and housing industry will come from those idiots taking out ARMs today. The ARM reset issue hasn't gone away, it has only been temporarily deferred by even lower interest rates.

As I see it, this decades long intervention in the housing market took a terrible toll. And whenever this product went bad, rather than reconsidering its support, the government staged another intervention to keep this type of loan alive.

The first statement is true: government intervention has certainly ruined the housing market, but the connection to the 30-year mortgage is a figment of her imagination.

It gave an implicit guarantee to Fannie and Freddie, deregulated the savings and loans (and then bailed them out), had its regulators and lawmakers help create the market in mortgage securities, and so forth. All the while, it gave a giant tax subsidy to mortgage interest that convinced people they were fools not to buy.

No, the National Association of realtors is what worked to convince people there were fools not to buy. They are bullshit artists who will use any tool available. (Graphic below is from 2006.)

As of this writing, are we rethinking any of it? Will the new head of the CFPA crack down on mortgages that offer prepayment options?

I certainly hope not.

Will lawmakers finally break up Fannie and Freddie and cut off the flow of cheap capital they glean from the implicit government guarantee? Will it get the FHA out of the business of propping up the conventional loan market?

I certainly hope so.

Of course not. There is no constituency for such a thing except for a few crazy libertarians.

It is rare that I find an article that annoys me as much as that one. I don't mind that people promote their agendas. I do it. I just prefer it when people do so with rational arguments based on facts and data. The piece of crap this woman wrote reads like something from a tawdry political blog. Many of the best articles I have read on the web have come from the Atlantic. This isn't one of them.

Palladio Properties is at it again

These guys are very active in the Irvine market. Today we have yet another flip.

The previous owners did not buy at the peak, and they did not abuse their HELOC, but they still over borrowed and lost their home.

• This property was purchased for $952,000 on 6/16/2004. The owners used a $714,000 Option ARM first mortgage with a 1.25% teaser rate and a $238,000 down payment.
• They quit making payments in early 2008 and squatted for over two years before being kicked to the curb.

Foreclosure Record

Recording Date: 05/18/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 07/25/2008

Document Type: Notice of Default

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 14 IRON Spgs Irvine, CA 92602

Resale Home Price … $839,000

Home Purchase Price … $708,000

Home Purchase Date …. 6/10/2010

Net Gain (Loss) ………. $80,660

Percent Change ………. 11.4%

Annual Appreciation … 106.3%

Cost of Ownership

————————————————-

$839,000 ………. Asking Price

$167,800 ………. 20% Down Conventional

4.62% …………… Mortgage Interest Rate

$671,200 ………. 30-Year Mortgage

$166,286 ………. Income Requirement

$3,449 ………. Monthly Mortgage Payment

$727 ………. Property Tax

$225 ………. Special Taxes and Levies (Mello Roos)

$70 ………. Homeowners Insurance

$100 ………. Homeowners Association Fees

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

$4,571 ………. Monthly Cash Outlays

-$828 ………. Tax Savings (% of Interest and Property Tax)

-$865 ………. Equity Hidden in Payment

$291 ………. Lost Income to Down Payment (net of taxes)

$105 ………. Maintenance and Replacement Reserves

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

$3,274 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,390 ………. Furnishing and Move In @1%

$8,390 ………. Closing Costs @1%

$6,712 ………… Interest Points @1% of Loan

$167,800 ………. Down Payment

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

$191,292 ………. Total Cash Costs

$50,100 ………… Emergency Cash Reserves

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

$241,392 ………. Total Savings Needed

Property Details for 14 IRON Spgs Irvine, CA 92602

——————————————————————————

Beds: 4

Baths: 2 full 2 part baths

Home size: 2,600 sq ft

($323 / sq ft)

Lot Size: 3,755 sq ft

Year Built: 2002

Days on Market: 12

Listing Updated: 40370

MLS Number: S624557

Property Type: Single Family, Residential

Community: Northpark

Tract: Aldc

——————————————————————————

Beautiful home located in Northpark Square. 4 Bedrooms and 1 Den. Granite countertop. Hardwood flooring. New carpet & New paint. Built-in BBQ in backyard. Move-in ready.

We thought we were giving millions of people the American Dream when financial innovations like the Option ARM put people into homes. Instead these innovations and a variety of government subsidies have diminished home ownership and created hardships for millions.

Irvine Home Address … 6 Twin Branch Irvine, CA 92620

Resale Home Price …… $1,159,900

I work so hard, man, so don't trip me up

Shakin' a leg like the tail o' the pup

I'm payin' dues till I register heat

Sure hope I don't end up on the street

Home, boy

Home, boy

Everybody needs a home

Iggy Pop — Home

Does everyone really need to own a home? Our government, which rarely acts with a single mind, certainly seems to think we all need to own a home. Of course, to accomplish that feat, we have so perverted the meaning of home ownership that people with no equity — those merely renting money from a bank to occupy property — are considered homeowners. They aren't. They don't own anything — except perhaps a loan.

As a nation we can't all afford to be homeowners. Some people are not up to the task. It requires the ability to save and to consistently make payments. Home ownership reduces mobility, and some people have careers that require them to move. During the housing bubble, we were selling homes to migrant farm workers, and nobody bothered to question whether or not that is a good idea.

Renting is making a comeback. Not because anyone wants to rent, and not because anyone in our government sees a virtue in renting. Renting is coming back because we are foreclosing on millions of former home owners, and they don't have much choice. Perhaps after they have rented for a while and they see some of the benefits, many won't we quite so anxious to own again. Although, if HELOC money is still made available so people can spend the slightest bit of market-induced home equity, home ownership will not lose its appeal.

We Can't Afford This House

Christopher Papagianis and Reihan Salam — July 20, 2010

Part 1 of 2:

At the end of June, the House of Representatives voted to extend the $8,000 homebuyers’ tax credit, by an extraordinary margin of 409–5. The Senate approved the measure on a voice vote. At a polarized political moment, this near unanimity was noteworthy in itself. Conservative Republicans and liberal Democrats, from cities and suburbs and small towns across the country, joined together to shower a bit more taxpayer largesse on one of America’s favorite industries: real estate. But there’s a problem with this bipartisan idyll.

Though the homebuyers’ credit was sold as a stimulus measure, we have no reason to believe that it is anything other than another wealth transfer to a large and powerful industry, one with allies conveniently situated in every congressional district. Casey Mulligan of the University of Chicago has suggested that the credit had almost no economic impact. As Harvard economist Edward Glaeser observed, it did little more than create an incentive for “mindless house swapping.” It didn’t even have a meaningful impact on the behavior of first-time homebuyers — people already planning to make purchases simply moved them forward a few months. Yet this is where we find a consensus in policymaking: We can’t agree on balancing the budget or reforming entitlements or the tax code, but we can agree to churn the housing market so that a handful of real-estate agents can make a buck on commissions while the economy crumbles.

It is very rare that both parties in government agree on anything. Unfortunately, they happen to agree on providing taxpayer money to realtors. The NAR has a very powerful lobby.

Across the world, governments have spent vast sums on doomed industrial policies. We often hear about the occasional success of efforts in East Asia to nurture shipbuilding and automobile manufacture and electronics. But we don’t hear about the countless failures, in which cronies of the party in power receive endless subsidies and concessions, getting richer at the expense of the economy as a whole.

In the United States, our industrial policy for most of the last century has been centered on housing. Tax subsidies and the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have helped channel hundreds of billions of dollars into housing. There was a certain logic, however flawed, behind this policy. As opportunities for less-skilled workers declined, construction jobs provided a much-needed income boost to many working- and middle-class households. But like any arrangement built on government favoritism, this one was bound to fall apart. Long-term unemployment has skyrocketed in no small part because of the evaporation of construction jobs that date from the overbuilding that occurred during the bubble years.

What we need now is to turn away from this disastrous policy and find new, sustainable sources of jobs and economic growth. That will require a series of painful steps — among them, phasing out the mortgage-interest deduction and eliminating the GSEs — that will minimize the privileges housing enjoys relative to investments in other industries. By shifting resources from housing to more productive sectors, we will have higher and more sustainable growth. With trillions of dollars and the health of the economy at stake, the question isn’t whether we must do it, but whether we will do it now or wait until our economy is in even worse shape.

There is no question that we will not do anything that might hinder real estate sales at the highest possible price, probably for years. If we are giving tax credits and other incentives to get people to buy who probably shouldn't at prices that are way too high, we certainly aren't going to undermine that effort by eliminating some of the other government props to the market — even if those props are what helped inflate the housing bubble in the first place.

The basic argument for housing subsidies is that homeownership allows Americans of modest means to accumulate wealth. From the New Deal on, the federal government has played a decisive role in the mortgage marketplace. As journalist Alyssa Katz recounts in her 2009 study of the housing industry, Our Lot: How Real Estate Came to Own Us, homeownership was far less common in the United States of the 1920s than it is today. Borrowers had to make down payments that approached half the purchase price of a house to secure a three- to five-year mortgage. For families without enough savings, there was a market in second mortgages to finance down payments, at startlingly high interest rates. As housing prices collapsed with the onset of the Great Depression, millions found themselves underwater, and this created intense pressure for what we might reasonably call a government takeover of the mortgage industry.

The political case for federal intervention was strong. Americans had come to believe that homeownership was essential to economic security and that it made for better citizens. Research had found that housing was a particularly important component of total wealth accumulation for lower-income households and suggested that it led to improved educational outcomes. The portion of the monthly mortgage payment that pays down the principal constituted a source of savings for households that were unlikely to have other significant savings or investments.

The forced-savings aspect of conventionally amortized mortgages is exactly what makes them such a good idea. Most people don't have the discipline to save for themselves. Unless that discipline is forced on them by a mortgage loan — or even government withheld tax money — most Americans won't save a penny. An amortizing mortgage created wealth because it forced people to save and because people had no way to access this savings account until they sold their houses.

The high down payments and short-term mortgages meant that households all over the country held a significant amount of equity in their homes just a few years after buying them. In some cases, the value of this equity grew as the value of the home appreciated. These capital gains, in conjunction with the forced savings of mortgage payments, meant that millions of families had assets they could pass on to future generations. The New Dealers believed this was the path industrial workers could take to reach the independence once associated with prosperous ranchers and farmers in the American West.

Our housing markets from the late 40s to the early 70s were very stable despite frequent deep recessions and other unsettling events. This stability was a direct result of the widespread use of 30-year fixed-rate mortgages with conventional amortization. It isn't until we tried to "innovate" that we destabilized the housing market. First, we ruined the market with "inflation expectation" when lenders allowed borrowers to utilize insane debt-to-income ratios with the idea that wage inflation would make the mortgage payment affordable after a few years.

In the late 1980s, we experimented with affordability products, but we found that Affordability Mortgage Products Make Prices Unaffordable. We inflated another housing bubble that took seven years to deflate. Finally we tried interest-only loans and Option ARMs, and we all know how that turned out.

The formula, however, changed dramatically at the end of the 20th century. From 1994 to 2005, the homeownership rate reached record highs, thanks largely to innovations in the mortgage-finance market that reduced down payments and minimized equity. This shifted the basic wealth-building proposition of homeownership away from savings to an almost exclusive focus on capital gains.

In other words, kool aid intoxication took over. The entire market no longer cared about saving money or paying down debt.

Average down payments fell, reducing the savings required to “get in the door.” More significant was the rise of mortgages that involved no forced savings: the interest-only loan, in which no equity is built because the principal is never paid down, and the “negative amortization” loan, in which payments are so low that they do not even keep up with the interest, leaving homeowners more indebted, rather than less, each month. By 2006, more than one-third of subprime mortgages had amortization schedules longer than 30 years, nearly half of Alt-A mortgages were interest-only, and more than one-fourth were negative-amortization loans.

One effect was to reduce the social benefits of homeownership, because the benefits are a product of equity and not of the mere fact that a contract has been signed and a mortgage taken out. The relationship between homeownership and social goods had been misunderstood: The traits that enabled households to build up the savings necessary for significant down payments — hard work and the deferral of gratification — were misattributed to homeownership itself. Paying a mortgage did nothing to improve children’s educational outcomes; instead, the factors that gave rise to homeownership also led parents to raise children in a manner that led to greater educational attainment.

Without substantial down payments and conservative amortization schedules, the entire proposition of homeownership as a social good is turned on its head. Think of a homeowner with a zero-down, negative-amortization mortgage: The balance would equal at least 100 percent of the value of the house at origination and would steadily grow, putting him ever deeper in debt unless the market value of the house grew at an even faster rate. Rather than being a source of wealth, the mortgage would actually reduce the net worth of this homeowner below what it would have been had he rented.

I wrote about this in Money Rentership: Housing and the New American Dream: "The mortgage encumbrance gets to the core of the unnoticed change in people's concept of property ownership; people who have little or no equity stake in a property have no ownership despite what legal documents may say. What they have is money rentership and the illusion of home ownership. Emotionally, they still feel like homeowners; they still behave and believe like homeowners, but they're not home owners. They own a loan; they're loan owners."

Rather than providing a social benefit, then, homeownership without equity imposes costs. Andrew Oswald of the University of Warwick has argued that such homeownership can exacerbate unemployment by making workers less likely to move from one labor market to another. Labor mobility is badly undermined when homeowners in a depressed market can’t sell their property for anything approaching the principal balance of the mortgage they originally took out to buy it.

The macroeconomic consequences of this shift toward low-equity homeownership are visible in research from the Federal Reserve that examines the assets and liabilities of U.S. households. In the first quarter of 2001, U.S. households’ home equity stood at $7.7 trillion, or 61 percent of the value of all residential real estate. By the third quarter of 2008, it had declined to $7.6 trillion, even as outstanding mortgage debt increased by $5.6 trillion over the same period. By the first quarter of 2009, home equity was $1.35 trillion lower than it had been in 2001. Put another way: Despite the housing boom, the portion of residential real estate actually owned by households declined. This means that the increase in homeownership rates (and the subsequent rise in housing prices) was entirely debt-financed.

In 2009 people actually own less of their homes than they did in 2001. All the innovation in finance, all the government subsidies and market props were a dismal failure. How else do you explain the results? We have managed to obtain the opposite of what we desire, and we are paying a huge amount of money to do so. We would be better off to do nothing. The money we spend as a society to encourage home ownership actually diminishes it.

These developments provide important lessons for policymakers. First, subsidies designed to turn renters into homeowners likely did harm to many households, given that home equity declined over the 2001–09 period. Second, there was a reduction in real mortgage rates, thanks to the subsidies provided by the GSEs, the Federal Housing Administration (FHA), and the tax code. By increasing households’ purchasing power, such measures drive up the prices of homes — over the period in question, by as much as 25 percent — without doing anything to encourage real affordability. This is why homeownership rates in Canada and in European countries that do not offer a mortgage-interest deduction are roughly the same as in the United States. While ending these subsidies would probably not alter homeownership rates, it would likely shift capital away from artificially bid-up residential real estate to more productive uses.

(Part 2 tomorrow)

For all our government programs, we don't have higher home ownership rates than countries with no props at all. It's time for everyone to stand up and say no. Enough is enough. We are spending money and creating problems… well, problems for most people. The Ponzis have certainly enjoyed themselves.

Irvine equity surfers fall on hard times

Irvine is full of "sophisticated" financial managers who routinely withdrew the equity from their homes. Those that didn't take out too much still have a few pennies in the home equity piggy bank. Of course, their debts are now outrageously high, but if they can sell to someone who can afford to pay off their debts, the cycle can restart again.

• This property was purchased on 4/13/1998 for $541,000. The owners used a $432,600 first mortgage and a $108,400 down payment.
• On 1/20/1999 they obtained a HELOC for $85,406.
• On 1/16/2003 they refinanced with a $560,000 first mortgage.
• On 9/25/2003 the refinanced the first mortgage again for $610,000.
• On 12/16/2005 they obtained a HELOC for $250,000. Although there is no direct evidence they took this money out, their pattern would suggest they did.
• Total property debt is $860,000.
• Total mortgage equity withdrawal is $427,400.
• Total squatting is at least 10 months and counting.

Foreclosure Record

Recording Date: 06/23/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 04/21/2010

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 04/01/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 03/08/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 12/31/2009

Document Type: Notice of Default

You have to wonder if lenders are going to be so stupid with HELOCs on the next cycle.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 6 Twin Branch Irvine, CA 92620

Resale Home Price … $1,159,900

Home Purchase Price … $541,000

Home Purchase Date …. 4/13/1998

Net Gain (Loss) ………. $549,306

Percent Change ………. 101.5%

Annual Appreciation … 6.0%

Cost of Ownership

————————————————-

$1,159,900 ………. Asking Price

$231,980 ………. 20% Down Conventional

4.62% …………… Mortgage Interest Rate

$927,920 ………. 30-Year Mortgage

$229,887 ………. Income Requirement

$4,768 ………. Monthly Mortgage Payment

$1005 ………. Property Tax

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

$97 ………. Homeowners Insurance

$175 ………. Homeowners Association Fees

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

$6,240 ………. Monthly Cash Outlays

-$1282 ………. Tax Savings (% of Interest and Property Tax)

-$1196 ………. Equity Hidden in Payment

$402 ………. Lost Income to Down Payment (net of taxes)

$145 ………. Maintenance and Replacement Reserves

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

$4,310 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$11,599 ………. Furnishing and Move In @1%

$11,599 ………. Closing Costs @1%

$9,279 ………… Interest Points @1% of Loan

$231,980 ………. Down Payment

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

$264,457 ………. Total Cash Costs

$66,000 ………… Emergency Cash Reserves

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

$330,457 ………. Total Savings Needed

Property Details for 6 Twin Branch Irvine, CA 92620

——————————————————————————

Beds: 5

Baths: 4 full 1 part baths

Home size: 3,700 sq ft

($313 / sq ft)

Lot Size: 6,807 sq ft

Year Built: 1998

Days on Market: 1

Listing Updated: 40380

MLS Number: S625891

Property Type: Single Family, Residential

Community: Northwood

Tract: Cris

——————————————————————————

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

Priced to sell NOW!!! Priced under Market!!!Private cul-de-sac location and great curb appeal. Dramatic floor plan, foyer with vaulted ceilings invites you to a living room open to courtyard and separate dining. Gourmet kitchen with granite counter and large center island. Cozy family room with fireplace open to breakfast nook. One bedroom downstairs with full bath. Master suite with retreat , master bath and oversized walk-in closet. Two secondary bedrooms with a Jack and Jill bath, open to loft. Separate private bedroom with full bath perfect for guests or home office. Private yard professionally landscaped. Minutes from Canyon View elementary and Northwood high. Close to parks, pools, nearby tennis courts and more. Dues $40+$135.

The realtor is certainly excited about the price. I count six exclamation points. WOW!!!!!!