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

Irvine Home Address … 10 BUTTONWOOD Irvine, CA 92614

Resale Home Price …… $699,500

Suspicions lead to questions

And questions to alibis

Is it just my imagination

Or has her love turned into lies

There's a stranger in my house

Somebody's here that I can't see

Stranger in my house

Ronnie Milsap — Stranger In My House

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

Mortgage Default Update: Homeowners Staying in Homes Longer

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

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

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

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

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

Let them squat, of course.

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

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

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

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

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

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

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

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

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

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

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

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

They couldn't afford it

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

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

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

Irvine Home Address … 10 BUTTONWOOD Irvine, CA 92614

Resale Home Price … $699,500

Home Purchase Price … $804,000

Home Purchase Date …. 5/31/2006

Net Gain (Loss) ………. $(146,470)

Percent Change ………. -18.2%

Annual Appreciation … -3.3%

Cost of Ownership

————————————————-

$699,500 ………. Asking Price

$139,900 ………. 20% Down Conventional

4.61% …………… Mortgage Interest Rate

$559,600 ………. 30-Year Mortgage

$138,476 ………. Income Requirement

$2,872 ………. Monthly Mortgage Payment

$606 ………. Property Tax

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

$58 ………. Homeowners Insurance

$78 ………. Homeowners Association Fees

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

$3,615 ………. Monthly Cash Outlays

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

-$722 ………. Equity Hidden in Payment

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

$87 ………. Maintenance and Replacement Reserves

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

$2,532 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

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

$6,995 ………. Closing Costs @1%

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

$139,900 ………. Down Payment

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

$159,486 ………. Total Cash Costs

$38,800 ………… Emergency Cash Reserves

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

$198,286 ………. Total Savings Needed

Property Details for 10 BUTTONWOOD Irvine, CA 92614

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 1,789 sq ft

($391 / sq ft)

Lot Size: 6,742 sq ft

Year Built: 1985

Days on Market: 107

Listing Updated: 40351

MLS Number: S610348

Property Type: Single Family, Residential

Community: Woodbridge

Tract: Bg

——————————————————————————

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

This property is in backup or contingent offer status.

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

Rare listing? Give me a break.

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

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

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

Irvine Home Address … 155 CHURCH Pl Irvine, CA 92602

Resale Home Price …… $649,000

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

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

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

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

Ludacris — How Low

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

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

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

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

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

Market clearing rates?

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

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

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

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

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

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

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

100% financing implosion

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

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

These owners gave up earlier this year.

Foreclosure Record

Recording Date: 06/09/2010

Document Type: Notice of Default

Irvine Home Address … 155 CHURCH Pl Irvine, CA 92602

Resale Home Price … $649,000

Home Purchase Price … $710,000

Home Purchase Date …. 4/13/2005

Net Gain (Loss) ………. $(99,940)

Percent Change ………. -14.1%

Annual Appreciation … -1.7%

Cost of Ownership

————————————————-

$649,000 ………. Asking Price

$129,800 ………. 20% Down Conventional

4.80% …………… Mortgage Interest Rate

$519,200 ………. 30-Year Mortgage

$131,339 ………. Income Requirement

$2,724 ………. Monthly Mortgage Payment

$562 ………. Property Tax

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

$54 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$3,457 ………. Monthly Cash Outlays

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

-$647 ………. Equity Hidden in Payment

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

$81 ………. Maintenance and Replacement Reserves

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

$2,667 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

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

$6,490 ………. Closing Costs @1%

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

$129,800 ………. Down Payment

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

$147,972 ………. Total Cash Costs

$40,800 ………… Emergency Cash Reserves

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

$188,772 ………. Total Savings Needed

Property Details for 155 CHURCH Pl Irvine, CA 92602

——————————————————————————

Beds: 4

Baths: 2 full 1 part baths

Home size: 1,750 sq ft

($371 / sq ft)

Lot Size: 3,254 sq ft

Year Built: 1999

Days on Market: 170

Listing Updated: 40308

MLS Number: S10000806

Property Type: Single Family, Residential

Community: West Irvine

Tract: Ol

——————————————————————————

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

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

Fannie Mae announces a policy to withhold loans from strategic defaulters for seven years and pursue deficiency judgements. Do you think they will really do it?

Irvine Home Address … 28 BELMONTE Irvine, CA 92620

Resale Home Price …… $650,000

I'm the one to taste your death

Basking in your dying breath

Messenger of all demise

Point is where all die

Piercing, impaling no judgement, just punishment

Desecrate, annihilate assault with no regret

Born to kill sweep and clear

Staring down the face of fear

Slayer — Point

A few months ago, I chastised Fannie Mae for their stupid policy of reducing the punishment time for getting a new loan from 5 years to 2 years after a default. Perhaps someone there read the post Fannie Mae Encourages Strategic Default by Reducing Punishment Time for New Loan where I pointed out their new policy would encourage strategic default because now they are modifying their own policy to target those who walk away.

Fannie Mae Increases Penalties for Borrowers Who Walk Away

Seven-Year Lockout Policy for Strategic Defaulters

WASHINGTON, DC — Fannie Mae (FNM/NYSE) announced today policy changes designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure. Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for new loan in a shorter timeframe.

So they have added two conditions: (1) must not have capacity to pay, or (2) must complete a loan modification in good faith.

How is that supposed to work?

First, who determines whether or not the borrower had capacity to pay? Let's say a borrower defaults, and three years from now, they want a new Fannie Mae loan. Is the burden of proof now on the borrower to document that they couldn't afford the payments years earlier when they defaulted? What is the criteria for establishing capacity? Who sets these criteria? Who keeps track of the documentation? Do you really think if the government — who still runs Fannie Mae — will turn away potential buyers in the future when they will be desperately needed?

Second, it is obvious that anyone planning to strategically default will simply get a loan modification and then stop paying. This must be obvious even to Fannie Mae who slipped in a "good faith" clause. Who will determine if the borrower made a good faith effort? And like the previous issue, if there is a need for borrowers to fill foreclosed homes, do you think the government will turn people away? I don't.

I commend Fannie Mae for trying to prevent strategic default, but all they are doing is bluffing existing borrowers with a threat they will never follow through on.

"We're taking these steps to highlight the importance of working with your servicer," said Terence Edwards, executive vice president for credit portfolio management. "Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time."

Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.

This is another empty threat. Fannie Mae like any servicer already has criteria for going after defaulting owners who have assets. Nothing has changed. Including this in the press release is an obvious bluff intended only to scare potential borrowers. Most people who strategically default — actually accelerated default — don't have any assets for Fannie Mae to recover.

Troubled borrowers who work with their servicers, and provide information to help the servicer assess their situation, can be considered for foreclosure alternatives, such as a loan modification, a short sale, or a deed-in-lieu of foreclosure. A borrower with extenuating circumstances who works out one of these options with their servicer could be eligible for a new mortgage loan in three years and in as little as two years depending on the circumstances. These policy changes were announced in April, in Fannie Mae's Selling Guide Announcement SEL-2010-05.

Fannie Mae recognizes that strategic default is going to become a bigger problem as people realize that prices are not coming back and that they are merely renting their houses from Fannie Mae at an inflated rental rate. Previous policies of the GSEs have encouraged strategic default, and now that people are doing so in large numbers, they are resorting to empty threats to keep borrowers from walking away. Good idea, but it is too little too late.

Another Ponzi implosion

The owners of today's featured property didn't put much into it, but they certainly pulled a great deal out of it. They are typical of the detritus washing through the Irvine market.

• The property was purchased on 12/8/2003 for $600,000. The owners used a $400,000 first mortgage, a $170,000 second mortgage, and a $30,000 down payment.
• On 7/26/2004 they obtained a $196,000 HELOC.
• On 1/26/2005 they refinanced with a $585,000 first mortgage and a $99,900 stand-alone second.
• On 3/31/2005 they refinanced again with a $585,000 Option ARM with a 1% teaser rate.
• On 12/14/2006 they refinanced with a $710,000 first mortgage.
• On 5/7/2007 they obtained a $131,000 HELOC.
• Total property debt is $841,000.
• Total mortgage equity withdrawal is $271,000.
• Total squatting time is at least 7 months.

Foreclosure Record

Recording Date: 04/28/2010

Document Type: Notice of Default

Irvine Home Address … 28 BELMONTE Irvine, CA 92620

Resale Home Price … $650,000

Home Purchase Price … $600,000

Home Purchase Date …. 12/8/2003

Net Gain (Loss) ………. $11,000

Percent Change ………. 1.8%

Annual Appreciation … 1.2%

Cost of Ownership

————————————————-

$650,000 ………. Asking Price

$130,000 ………. 20% Down Conventional

4.80% …………… Mortgage Interest Rate

$520,000 ………. 30-Year Mortgage

$131,541 ………. Income Requirement

$2,728 ………. Monthly Mortgage Payment

$563 ………. Property Tax

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

$54 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$3,346 ………. Monthly Cash Outlays

-$463 ………. Tax Savings (% of Interest and Property Tax)

-$648 ………. Equity Hidden in Payment

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

$81 ………. Maintenance and Replacement Reserves

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

$2,555 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,500 ………. Furnishing and Move In @1%

$6,500 ………. Closing Costs @1%

$5,200 ………… Interest Points @1% of Loan

$130,000 ………. Down Payment

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

$148,200 ………. Total Cash Costs

$39,100 ………… Emergency Cash Reserves

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

$187,300 ………. Total Savings Needed

Property Details for 28 BELMONTE Irvine, CA 92620

——————————————————————————

Beds: 4

Baths: 2 full 1 part baths

Home size: 2,144 sq ft

($303 / sq ft)

Lot Size: 5,000 sq ft

Year Built: 1979

Days on Market: 43

Listing Updated: 40348

MLS Number: S616799

Property Type: Single Family, Residential

Community: Northwood

Tract: Ol

——————————————————————————

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

Spacious home on a quiet cul-de-sac location. Living room with fireplace. Dining room with wet bar. Kitchen overlooks family room. Oversized master bedroom. Large private backyard. Three car attached garage.

I'm Back

I made it back from my vacation yesterday. I really did go off the grid for 10 days. I managed to not think about work or real estate for the entire trip (I'll talk more about my trip on the weekend Writer's Corner). It may take me a few days to get back into the swing of things. I need a vacation from my vacation.

I plowed through about 200 emails — and I apologize to anyone I may have missed responding to. I will try to go back through the comments, but I may miss a few.

I hope you all enjoyed your holiday weekend.

Housing will remain stagnate from 2010 to 2020 due to demographic shifts, higher mortgage rates, and shifting consumer taste in real estate

Irvine Home Address … 8 BLACKBIRD Irvine, CA 92618

Resale Home Price …… $829,000

I'm gonna get me a motor car

Maybe a Jaguar

Maybe a plane or a day of fame

I'm gonna be a millionaire

So can you take me there

Wanna be wilde 'cos my life's so tame

Here am I, going nowhere on a train

Here am I, growing older in the rain

Oasis — Going Nowhere

Gear up for another lost decade in real estate. Housing will remain stagnate from 2010 to 2020. Demographic shifts, higher mortgage rates, and shifting consumer taste in real estate.

The dynamics for housing moving forward point to a very bleak future and a potential lost decade yet again from 2010 to 2020. Housing has a treacherous path moving forward and deep down demographic shifts will keep a lid on any significant housing appreciation moving forward. The economy is in the process of deleveraging from a market highly dependent on real estate. Wall Street and the government are doing everything they can to bring back the economy of yesterday but have had little success. This recession has shrunk the middle class so those looking to buy homes have declined simply because many can no longer afford to purchase a home even at today’s lower prices. Focusing on housing first was a big expensive policy mistake where we should have focused on creating sustainable jobs. The market is slowly shifting to a new housing paradigm. Family growth rates, employment trends, baby boomers, and wages will all keep a lid on housing prices moving forward.

First we should break down the entire housing market:

Source: Census

The U.S. has a large number of homeowners. A total of 75 million Americans can lay the claim to owning their home. 23 million of this group (31 percent) actually owns their homes outright with no mortgage. Of course not having a mortgage does not mean that these homeowners have no housing associated cost. They still need to pay yearly property taxes, insurance, and all the cost in maintaining a home. Another 37 million American households rent. These are the basic dynamics of the housing market.

Of those homeowners with a mortgage, 7.2 million (14%) are in foreclosure or 30+ days late on their mortgage. This practically guarantees a few years of cheaper housing hitting the market in a steady trickle. This puts a herculean hold on any significant home building going forward.

From the recent Federal Reserve Flow of Funds Report, we find that current outstanding mortgage debt is $10.334 trillion. We have to break out the renters and the homeowners with no mortgage and find that the average mortgage debt for homeowners is:

$10.334 trillion / 51.575 million mortgaged households = $200,374

The current median home price comes in at approximately $170,000. Now some would argue that housing will regain traction and go on to rising to new levels. Yet this assumption assumes that middle class wages will be growing moving forward. If we look closely at the data the only real winner so far in this economic crisis is Wall Street but average Americans have seen very little benefit from the current bailout measures. Now those with big investment bank salaries can afford their piece of prime real estate in Manhattan or the Hamptons but this does not make up the bulk of the housing market. The bulk of the housing market is highly dependent on how middle class Americans are doing.

If we look at the current unemployment levels by age group, we see that those in the household forming age ranges or those entering into these categories, are taking on the brunt of this recession:

You can see that up to age 34, the unemployment rate is trending much higher than the total national average. These are prime age groups for forming households and if a family is not feeling safe financially, they will delay on purchasing a home. The middle class young family is also delaying on having children so the necessity for a bigger home is also being pushed out. This demographic shift is happening at the same time that baby boomers start entering retirement age and many will want to downsize.

And many of these people have a buffer for equity to sell since they bought prior to the housing bubble. Take for example data on current owner households:

Moved in before 1989: 20.5% of all homeowners

Moved in before 1999: 40.9% of all homeowners

It is highly likely that in this group, you have many baby boomers that will sell to downsize in the years coming forward and the current decline in prices will only cut into their equity but not put them underwater given the decade long bubble. They purchased before that. Those that moved in before 1989 will have a much larger cushion. So there is a large group of people that will sell regardless of market trends because they will have to simply because of life changing events.

And then on the other hand we have the fact that one-third of homeowners in certain states are underwater on their mortgages. Take for example California:

California has a large renting population and most that own a home carry a mortgage (77 percent). Of those that carry a mortgage a stunning one-third are underwater. In other words 1.76 million mortgages in California are attached to homes that are worth less than the actual balance of the mortgage creating a large incentive to walk-away. Many of these loans come from Alt-A paper and option ARMs. These loans will impact the market at least until 2012 and hurt the state. California isn’t immune and other states like Nevada, Florida, and Arizona have similar dynamics. In fact, here is the amount of mortgage debt in a negative equity position according to a recent Deutsche Bank analysis:

California: $969 billion

Florida: $432 billion

Arizona: $140 billion

The only way that things would improve for banks is if prices moved higher. But how can prices move higher if middle class Americans are dealing with high unemployment and stagnant wages? The Federal Reserve and U.S. Treasury have really reached the end of options in terms of what they can do. Even the 30 year fixed mortgage is at all time lows in the midst of all this turmoil:

The 40 year average for 30 year rates is closer to 9 percent. Today it is under 5 percent. That is unsustainable and as we move forward with insurmountable levels of national debt, the rate will have to rise. I know this seems impossible for many but as we have seen with other debt ridden countries, the market can turn on like a tornado and quickly change the dynamics of the situation. For the housing market, this will mean even more pressure to keep prices muted.

The only way home prices can rise in a healthy manner is if we start seeing wage inflation. We saw some of this in the 1970s where wages went up in tandem with home prices. In the last decade, wages moved sideways while home prices went into a bubble. As far as the economy going forward, the big job sectors seem to be in low paying service sector jobs. Certainly someone can purchase a house with these jobs but not at current prices even though they appear to be solid.

The Federal Reserve and the U.S. Treasury have done everything to slam the dollar and create some level of inflation. Yet other central banks are doing the same. So what happens is easy money flows to Wall Street for gambling while the real economy stagnates. It is hard for many to believe that we will have another lost decade in housing but there is little reason to believe that prices will soon start to outpace inflation. In fact, in the last year or two we have been dealing more with aspects of deflation. We need to keep an eye on the real value of home prices adjusting for inflation/deflation.

Four years of squatting

Today's featured property is the worst example of squatting I have seen to date.

• The property was purchased on 6/7/1999 for $348,500. The owners used a $260,000 first mortgage and an $88,500 down payment.
• On 3/31/2003 they refinanced with a $369,000 first mortgage.
• On 8/5/2003 they opened a $100,000 HELOC.
• On 10/14/2005 the obtained a stand-alone second from a private party.
• On 5/25/2006 they obtained a $57,000 HELOC. Here is where the story gets wierd.
• The began squatting shortly after getting the last HELOC.

Foreclosure Record

Recording Date: 11/30/2006

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Click here to get Foreclosure Report.

Foreclosure Record

Recording Date: 11/22/2006

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

• Then they managed to consolidate their private-party second and their HELOC with a $310,000 stand-alone second on 12/7/2006. It doesn't look like they bothered to make a payment.

Recording Date: 04/12/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 06/10/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 12/31/2007

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 09/26/2007

Document Type: Notice of Default

Foreclosure Record

Recording Date: 08/02/2007

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 07/18/2007

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 04/12/2007

Document Type: Notice of Default

The second mortgage holder finally foreclosed on 4/30/2010 for $445,274. At first glance it looks like they got a great deal, but unfortunately, the $369,000 first mortgage — which probably has not been paid since 2006 — is still there. The balance on that mortgage probably exceeds $500,000. The second mortgage holder is trying to sell to recover what they can of the $445,274 they have in the property. Based on the listing description, it appears they had to evict the squatting homeowners.

I guess 4 years of squatting wasn't enough….

Irvine Home Address … 8 BLACKBIRD Irvine, CA 92618

Resale Home Price … $829,000

Home Purchase Price … $348,500

Home Purchase Date …. 6/7/1999

Net Gain (Loss) ………. $430,760

Percent Change ………. 123.6%

Annual Appreciation … 7.5%

Cost of Ownership

————————————————-

$829,000 ………. Asking Price

$165,800 ………. 20% Down Conventional

4.80% …………… Mortgage Interest Rate

$663,200 ………. 30-Year Mortgage

$167,765 ………. Income Requirement

$3,480 ………. Monthly Mortgage Payment

$718 ………. Property Tax

$250 ………. Special Taxes and Levies (Mello Roos)

$69 ………. Homeowners Insurance

$139 ………. Homeowners Association Fees

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

$4,656 ………. Monthly Cash Outlays

-$843 ………. Tax Savings (% of Interest and Property Tax)

-$827 ………. Equity Hidden in Payment

$304 ………. Lost Income to Down Payment (net of taxes)

$104 ………. Maintenance and Replacement Reserves

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

$3,394 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,290 ………. Furnishing and Move In @1%

$8,290 ………. Closing Costs @1%

$6,632 ………… Interest Points @1% of Loan

$165,800 ………. Down Payment

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

$189,012 ………. Total Cash Costs

$52,000 ………… Emergency Cash Reserves

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

$241,012 ………. Total Savings Needed

Property Details for 8 BLACKBIRD Irvine, CA 92618

——————————————————————————

Beds: 4

Baths: 2 full 1 part baths

Home size: 2,389 sq ft

($347 / sq ft)

Lot Size: 7,840 sq ft

Year Built: 1999

Days on Market: 52

Listing Updated: 40302

MLS Number: P733648

Property Type: Single Family, Residential

Community: Oak Creek

Tract: Othr

——————————————————————————

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

Beautiful area of Irvine , home is only eleven years old , gated commuinty drive by only at this time

This week starts a showdown on mortgage-lending rules. How strong the protections will be for consumers will depend upon how successful lenders are at softening the rules proposed by Congress.

Irvine Home Address … 67 WATERSPOUT Irvine, CA 92620

Resale Home Price …… $750,000

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New Mortgage Rules: Battle Looms in Congress

By Lita Epstein Jun 21st 2010

This week starts a showdown on mortgage-lending rules. How strong the protections will be for consumers will depend upon how successful lenders are at softening the rules proposed by Congress. Up for grabs are rules for: loan repayment; appraisals; how much skin lenders must have in the game; and suing a lender for fraud or poorly underwritten mortgages.

Most of these rules ultimately will affect the cost of mortgages and the types of mortgages pushed by lenders. One of the key rules that mortgage lenders want to soften is the rule requiring lenders to hold a 5 percent stake in loans that are bundled and sold with other loans. Those bundles are the mortgage-backed securities that imploded and caused the financial disaster.

By requiring lenders to hold a stake, Congress believes that they will be more cautious about their underwriting. When lenders had no skin in the game they were very careless with their underwriting, allowing "liar loans" and other exotic types of mortgages that are now the most likely to default.

Some lenders worry that these stricter rules will make mortgages more expensive for consumers, especially loans with terms other than 30-year conforming fixed-rate mortgages. But consumer groups support "encouraging the market" to choose to sell those safer products, according to Barry Zigas, director of housing and credit policy for the Consumer Federation of America. He thinks these rules are "very important and reasonable" to prevent a repeat of the "economic disaster" we all just experienced. Sounds like the right way to go. Hopefully lenders will not be able to soften these rules during the process of reconciling the bills between the House and Senate this week.

Under these new rules you will need to push more paper to get a mortgage, but it probably won't be much different than what we are seeing in today's very cautious mortgage market. Banks may become even more diligent about collecting the documents that prove your income. Self-employed people without two years of provable business income likely will find it nearly impossible to get a mortgage under the new rules.

Another major rule lenders would like to change involves how lenders are compensated. Under the new rules, lenders no longer can pay commissions based on the rate or type of loan you choose. This form of compensation encouraged mortgage brokers to steer people into higher interest loans or more risky loans for which brokers received better compensation. This change is critical to protect all consumers. It would be a travesty if lenders kill this new provision this week.

The good news with the new law: The burden of proof would shift from the consumer to the provider of mortgage services, to prove that the fees they charge are justified. Under the old law, the consumer had to prove that the fees were not justified. This change will make it much easier for consumers to shop and compare mortgage loans.

Mortgage lenders will be limited in their ability to charge fees if you refinance or pay off your loan early. Also, lenders would have to prove that it was in your best interest to refinance. They won't be able to push you into a new loan just because they will benefit from new fees or get a great commission.

Another key provision that lenders hope to kill is the ability to sue your lender under certain circumstances. Right now, lenders want to delete or revise language that will allow borrowers to to sue lenders for violations of underwriting standards. The law as now written will allow you to sue your lender or mortgage investor if you can prove the loan was written fraudulently or poorly underwritten. Some in the industry say this will make mortgage investing too risky.

One other key issue up for grabs is the rules on appraisals. Real estate agents and brokers want changes in the current rules on ordering appraisals. These new rules were established after the mortgage market collapsed because there was so much evidence of game-playing in the appraisal marketplace. But real estate professionals say the rules have gone too far, and too often an appraiser is assigned who does not understand the local real estate market.

In this case, I hope something is done to correct this problem. I live in one of those types of developments where the homes inside the development are upscale and very different from the surrounding neighborhoods. Many home sales have fallen apart because appraisals came in well below true market value when they were done by appraisers who were based hundreds of miles away from my community and didn't understand neighborhood differences. Some tweaking is definitely needed to improve the current appraisal mess.

HELOC Fraud?

• The owner of today's featured property paid $848,000 on 10/28/2005. She used a $650,000 first mortgage, a $113,050 HELOC, and a $84,950 down payment.
• On 1/3/2007 she obtained a HELOC for $135,000 from Greenpoint Mortgage Funding, and on 1/18/2007 she got a HELOC from IndyMac for $196,000. The timing of those two HELOCs looks suspiciously like parallel processing and mortgage fraud. Both loans are delinquent.
• Total property debt is $981,000
• Total mortgage equity withdrawal is $217,950.
• Total squatting time is at least 17 months.

Recording Date: 07/07/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 03/26/2009

Document Type: Notice of Default

I don't know if both of those final HELOCs was fully funded and outstanding, but the timing looks suspicious. It is possible that she changed her mind on the first HELOC and only used the one from IndyMac, but I rather doubt it.

Irvine Home Address … 67 WATERSPOUT Irvine, CA 92620

Resale Home Price … $750,000

Home Purchase Price … $848,000

Home Purchase Date …. 10/28/2005

Net Gain (Loss) ………. $(143,000)

Percent Change ………. -16.9%

Annual Appreciation … -2.6%

Cost of Ownership

————————————————-

$750,000 ………. Asking Price

$150,000 ………. 20% Down Conventional

4.80% …………… Mortgage Interest Rate

$600,000 ………. 30-Year Mortgage

$151,778 ………. Income Requirement

$3,148 ………. Monthly Mortgage Payment

$650 ………. Property Tax

$317 ………. Special Taxes and Levies (Mello Roos)

$63 ………. Homeowners Insurance

$105 ………. Homeowners Association Fees

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

$4,282 ………. Monthly Cash Outlays

-$763 ………. Tax Savings (% of Interest and Property Tax)

-$748 ………. Equity Hidden in Payment

$275 ………. Lost Income to Down Payment (net of taxes)

$94 ………. Maintenance and Replacement Reserves

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

$3,140 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$7,500 ………. Furnishing and Move In @1%

$7,500 ………. Closing Costs @1%

$6,000 ………… Interest Points @1% of Loan

$150,000 ………. Down Payment

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

$171,000 ………. Total Cash Costs

$48,100 ………… Emergency Cash Reserves

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

$219,100 ………. Total Savings Needed

Property Details for 67 WATERSPOUT Irvine, CA 92620

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 1,949 sq ft

($385 / sq ft)

Lot Size: 4,000 sq ft

Year Built: 2005

Days on Market: 507

Listing Updated: 40238

MLS Number: S562006

Property Type: Single Family, Residential

Community: Woodbury

Tract: Wdpt

——————————————————————————

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

This property is in backup or contingent offer status.

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