An accepted Calfornia oxymoron is debt is equal to wealth. Today we take a special look at the lives of debt millionaires.

Irvine Home Address … 29 LOOKOUT Irvine, CA 92620

Resale Home Price …… $1,300,000

{book1}

Some boys kiss me, some boys hug me

I think they’re o.k.

If they don’t give me proper credit

I just walk away

They can beg and they can plead

But they can’t see the light, that’s right

’cause the boy with the cold hard cash

Is always mister right, ’cause we are

Living in a material world

And I am a material girl

You know that we are living in a material world

And I am a material girl

Madonna — Material Girl

Arriving Early

I have noticed that many in California believe the trappings of success are immediate. You get a job, and you lease the BMW. You get a $1,000 a year raise at work, you get an additional $10,000 credit line. You get married, and you borrow $1,000,000 and get your dream home. You have no need to save or wait, you can have it all now. You service the debt for your working life, and you obtain a reverse mortgage to retire on your boundless appreciation. Once you go into debt, you never, ever get out.

To "arrive" in life is to obtain every object of status you desire. Rich people arrive once they have saved enough money to pay cash for a few indulgences. High wage earners arrive once they can prove enough income to service a $1,000,000 debt.

Ponzis are changing the definition of a millionaire. In California debt equals wealth, so a millionaire is someone capable of obtaining and servicing a $1,000,000 debt. A million dollars in debt makes you rich.

I cannot fathom what is must be like to feed a beast that large. Right now the debt monster has a low 5% appetite, but what will those adjustable rate mortgages feel like when rates go up? To paraphrase and parody Irving Fisher, perhaps interest rates have reached what looks like a permanently low floor.

Irvine properties in default on $1,000,000+ mortgages

The following list of addresses are in default on mortgages over $1,000,000.

Address	Value	Loan Balance	SaleDate	Published Bid
59 GRANDVIEW	$ 2,975,376	$ 3,350,000	6/9/2010	$ 3,542,938
65 GRANDVIEW	$ 3,018,675	$ 3,556,567	5/28/2010	$ 3,351,639
1672 REYNOLDS AVE	$ 1,924,306	$ 7,170,000	9/10/2010	$ 2,570,000
27 STARVIEW	$ 2,149,100	$ 2,990,000	7/7/2010	$ 2,361,129
58 CEZANNE	$ 1,339,060	$ 2,250,000	6/16/2010	$ 2,186,850
136 STARCREST	$ 1,369,470	$ 3,900,000	7/19/2010	$ 2,119,577
31 VILLAGE WAY	$ 1,842,061	$ 2,485,750	7/6/2010	$ 2,089,102
17801 CARTWRIGHT RD 250	$ 3,036,374	$ 3,487,500	6/10/2010	$ 1,981,419
8871 RESEARCH DR	$ 2,788,321	$ 3,609,000	9/1/2010	$ 1,980,000
51 CEZANNE	$ 1,549,068	$ 3,770,000	6/7/2010	$ 1,939,524
28 SYLVAN	$ 1,739,418	$ 1,810,000	6/28/2010	$ 1,851,139
23 CLOUDS PT	$ 1,617,945	$ 3,550,000	7/2/2010	$ 1,800,000
35 TRIPLE LEAF	$ 1,128,734	$ 1,726,660	6/3/2010	$ 1,725,079
24 ROSE TRELLIS	$ 1,212,019	$ 282,800	6/10/2010	$ 1,693,240
27 MOMENTO	$ 1,794,521	$ 1,800,700	5/27/2010	$ 1,652,288
24 PISMO BCH	$ 1,432,305	$ 1,700,000	5/27/2010	$ 1,644,278
23 SHADY LN	$ 1,393,233	$ 1,990,000	7/28/2010	$ 1,600,000
33 TALL HEDGE	$ 1,553,769	$ 2,836,709	6/3/2010	$ 1,563,247
29 ANTIQUE ROSE	$ 1,127,091	$ 1,630,000	6/10/2010	$ 1,504,574
29 LILY POOL	$ 1,218,079	$ 1,470,000	6/10/2010	$ 1,484,931
16500 ASTON	$ 1,200,270	$ 2,916,000	8/13/2010	$ 1,458,000
11 GAVIOTA	$ 1,520,671	$ 6,652,937	5/27/2010	$ 1,411,878
7 BUELLTON	$ 1,179,546	$ 1,426,000	6/8/2010	$ 1,327,302
101 LATTICE	$ 1,188,392	$ 1,104,000	6/10/2010	$ 1,322,836
24 TWIGGS	$ 1,181,325	$ 1,529,800	6/1/2010	$ 1,301,968
3131 MICHELSON DR 1702	$ 1,276,361	$ 1,226,600	6/3/2010	$ 1,295,430
109 LATTICE	$ 1,218,342	$ 1,282,500	5/28/2010	$ 1,270,512
20 ROSE TRELLIS	$ 1,294,508	$ 1,883,023	6/16/2010	$ 1,267,500
24 ARBORWOOD	$ 1,092,891	$ 1,428,000	6/18/2010	$ 1,228,000
22 FAITH	$ 1,194,303	$ 2,650,000	6/4/2010	$ 1,223,705
40 DESERT WILLOW	$ 964,519	$ 1,175,420	6/24/2010	$ 1,205,941
15 PASO ROBLES	$ 1,219,922	$ 1,346,250	6/10/2010	$ 1,205,837
9 OLYMPUS	$ 1,520,417	$ 1,200,000	7/10/2010	$ 1,200,000
103 RETREAT	$ 1,200,302	$ 1,620,000	6/22/2010	$ 1,196,779
152 TAPESTRY	$ 982,692	$ 956,250	6/14/2010	$ 1,183,656
23 WALNUT CRK	$ 1,162,055	$ 1,247,467	6/9/2010	$ 1,153,285
39 CRIMSON ROSE	$ 1,340,634	$ 1,760,000	6/2/2010	$ 1,089,990
28 CRIMSON ROSE	$ 1,250,228	$ 1,530,000	5/27/2010	$ 1,088,739
147 TAPESTRY	$ 1,183,862	$ 1,341,000	6/21/2010	$ 1,088,509
16480 BAKE PKWY	$ 1,689,903	$ 1,946,700	6/30/2010	$ 1,081,500
5 BAYPORTE	$ 1,060,316	$ 1,347,500	6/16/2010	$ 1,079,174
41 MOJAVE	$ 1,248,973	$ 1,080,000	6/21/2010	$ 1,062,837
129 LATTICE	$ 1,071,133	$ 1,000,000	6/10/2010	$ 1,062,797
29 LOOKOUT	$ 1,248,257	$ 1,048,000	5/29/2010	$ 1,048,000
59 BAMBOO	$ 857,115	$ 1,601,000	6/14/2010	$ 1,043,759
19 PETRIA	$ 930,592	$ 1,080,000	6/7/2010	$ 1,034,881
8083 SCHOLARSHIP	$ 1,313,197	$ 2,595,000	6/28/2010	$ 1,033,331
29 PASO ROBLES	$ 1,395,677	$ 2,010,000	6/3/2010	$ 1,018,865
20 VILLAGER	$ 1,018,786	$ 952,000	6/14/2010	$ 1,006,757
36 PRAIRIE	$ 1,266,928	$ 1,401,486	6/22/2010	$ 1,000,000
20 TOPIARY	$ 1,531,562	$ 1,704,347	7/29/2010	$ 999,950
12 GALAXY 24	$ 861,094	$ 1,062,000	6/11/2010	$ 988,749
20 BRIGADIER	$ 1,824,777	$ 1,880,000	6/29/2010	$ 980,000
31 SHEPARD	$ 1,148,118	$ 1,366,000	8/21/2010	$ 966,000
40 VACAVILLE	$ 899,371	$ 1,289,880	7/16/2010	$ 960,000
13645 ALTON PKWY A	$ 1,099,580	$ 2,047,000	5/27/2010	$ 899,679
18971 GLENMONT TER	$ 1,064,859	$ 1,091,800	6/28/2010	$ 895,949
64 ROCKPORT	$ 808,905	$ 1,026,000	6/2/2010	$ 872,698
2 HICKORY TREE LN	$ 897,980	$ 1,102,900	6/10/2010	$ 863,428
5502 SIERRA ROJA RD	$ 955,606	$ 1,375,250	6/2/2010	$ 818,490
6052 SIERRA SIENA RD	$ 1,029,837	$ 1,000,800	6/10/2010	$ 801,982
46 WHITFORD	$ 831,784	$ 1,016,000	7/24/2010	$ 791,000
17752 FITCH	$ 2,752,146	$ 2,216,657	8/18/2010	$ 750,000
18 HIDDEN CRK	$ 1,330,028	$ 1,911,641	7/20/2010	$ 200,000

This list barely scratches the surface on the problems stemming from the lack of a jumbo loan market. For example, only 6 homes in Irvine with an estimated value over the conforming limit of $729,750 went through foreclosure last month. There are 146 in pre-foreclosure or scheduled for auction. In Orange County, there are 2,046 in the foreclosure process over the conforming limit, and only 101 foreclosure sales.

Also, since banks know the jumbo market is hopeless, fewer of these homes have been served notice. The shadow inventory of squatters with huge loans is bigger than the banks are willing to face.

Shadow Inventory's Shadow

It isn't only the distress we see that feeds into the problems with housing. Visible inventory includes the properties on ForeclosureRadar.com on which there has been some filings. Shadow Inventory includes those properties where the owners are not making payments but the bank has not begun foreclosure proceedings. Shadow inventory's shadow includes all the Ponzis who are not currently behind on their mortgage payments but are completely dependant upon increasing debt in order to survive. The people in Shadow inventory's shadow living the life of a Ponzi will implode before this debacle is truly behind us.

Over the last few weeks, I have collected a few stories about Ponzis living in shadow inventory's shadow. The names and circumstances have been changed, but the essential facts of the following stories are true.

Property ladder to oblivion

One family lived in a 1,500 SF 3/2 in a comfortable area of Irvine. They HELOCed about $200,000 out of their property, but they still sold it in 2006 for a hefty profit and a check for $250,000 of remaining equity. They took this $250,000 and put it down on a $1,100,000 dream home. They now have an $800,000 interest-only mortgage. The husband is a sole breadwinner whose based salary is about $120,000 a year.

This family is treading water after borrowing 6.6 times their income. Unless or until house prices go back up and they are able to access HELOC money like they used to in their old house, they will not make it. In 2016, their $800,000 mortgage will amortize over 20 years, and their payment will go sky high. Of course, their plan is to refinance the $800,000 debt in 2016, probably with another interest-only loan. They cannot afford their house, but they pay the huge rent on money to stay there. They do not show up in statistics on shadow inventory, but they are doomed.

Baby on the way

One family bought a small home in a really expensive market in 2005. They put $100,000 down, and they have a $950,000 mortgage which is now underwater. The husbands job is secure, but the wife is pregnant and wants to quit work when the baby is born. She can't afford to. Because of their house loan, she must work to make ends meet. The HELOC money they were counting on to renovate the house and substitute for her wage income is not forthcoming. They are trapped and unhappy. They may not be doomed to lose the house, but keeping it is ruining their family life and future plans. They are very house poor.

Side business suffers

One family bought an ocean view property in 2004 for about $1,100,000. Two years later, they sink several hundred thousand into a renovation, and they refinance with a $1,400,000 Option ARM. The property would currently sell for about $1,000,000.

When they took out the Option ARM, the man had a base salary of $120,000 per year, and he was running a side business making about $100,000 — or so he said on his loan application. The side business dried up during the recession, so they have drained all savings and tapped their other credit lines to keep making the minimum payment on their Option ARM. The only way these people survive is another infusion of borrowed money or the side business coming back. Even then, their prospects are bleak. Their real hope was for the housing ATM machine.

I need that bonus

Many people spend like drunken sailors running up huge credit card bills and pay them off with yearly bonuses. Over the last two years, one family received no bonus which used to be almost 50% of the husbands take-home pay. The lack of a bonus did nothing to curb their spending. They are paying the bills on their $1,300,000 mansion, taking vacations, and generally continuing to spend in a conspicuous manner. So far they have managed on increasing credit card balances.

Perhaps they believe big bonuses are in the future, perhaps they think the housing ATM will save them, or perhaps they are simply committed to living as Ponzis until their creditors cut them off. Either way, it doesn't seem likely they will sustain ownership even when the bonus money comes in.

None of the people I described above appear on any measure of housing distress, but given their situations, most of them will not make in through the next five years in their homes. Financial distress will cause them to sell and move.

Who will take their place?

The Ponzis are far more common than frugal savers with huge down payments and high incomes. Heavy cash buyers are common in Irvine's market, not because there are so many of them, but because they are the only ones capable of paying our still inflated prices. Because there are more Ponzis than frugal replacements, there will be more Ponzi homes coming to market than the frugal buyers can absorb. Lenders know this. They are restricting inventory as long as they can hoping that somehow the Ponzis will get bailed out and the banks will have someone to sell their houses to. So far denial and inaction has worked out well for the banks — unless you count the loss of income from all those squatters….

Today's would-be millionaire couldn't cut it

The owner of today's featured property used his million dollar loan and a substantial down payment to acquire the property. Unfortunately, his reach exceeded his grasp.

Today's featured property was purchased on 11/16/2006 for $1,478,000. The first mortgage is $1,048,000 and the owner used a $430,000 down payment. The current asking price. would yield him about $180,000 out of the $430,000 he put down. I question whether he will get the asking price. Not much is selling at these price points.

Irvine Home Address … 29 LOOKOUT Irvine, CA 92620

Resale Home Price … $1,300,000

Home Purchase Price … $1,478,000

Home Purchase Date …. 11/16/2006

Net Gain (Loss) ………. $(256,000)

Percent Change ………. -12.0%

Annual Appreciation … -3.4%

Cost of Ownership

————————————————-

$1,300,000 ………. Asking Price

$260,000 ………. 20% Down Conventional

4.94% …………… Mortgage Interest Rate

$1,040,000 ………. 30-Year Mortgage

$267,342 ………. Income Requirement

$5,545 ………. Monthly Mortgage Payment

$1127 ………. Property Tax

$450 ………. Special Taxes and Levies (Mello Roos)

$108 ………. Homeowners Insurance

$105 ………. Homeowners Association Fees

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

$7,335 ………. Monthly Cash Outlays

-$1468 ………. Tax Savings (% of Interest and Property Tax)

-$1264 ………. Equity Hidden in Payment

$497 ………. Lost Income to Down Payment (net of taxes)

$163 ………. Maintenance and Replacement Reserves

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

$5,263 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$13,000 ………. Furnishing and Move In @1%

$13,000 ………. Closing Costs @1%

$10,400 ………… Interest Points @1% of Loan

$260,000 ………. Down Payment

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

$296,400 ………. Total Cash Costs

$80,600 ………… Emergency Cash Reserves

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

$377,000 ………. Total Savings Needed

Property Details for 29 LOOKOUT Irvine, CA 92620

——————————————————————————

Beds: 6

Baths: 6 full 1 part baths

Home size: 3,500 sq ft

($371 / sq ft)

Lot Size: 5,300 sq ft

Year Built: 2007

Days on Market: 16

Listing Updated: 40318

MLS Number: P734262

Property Type: Single Family, Residential

Community: Woodbury

Tract: Wdmf

——————————————————————————

3,500 sq2 house with 6 bedrooms, 6 1/2 baths, marble floor, granite countertop and island, fully landscaped and hardscaped, gorgeous conditions, more than $100,000 upgrade w/ backyard barbecue island for family entertainment.

Do you know anyone living in shadow inventory's shadow?

After years of free HELOC money, our economy is not completely dependent upon Ponzi borrowers. Today's featured property was another spent by its owners who stimulated California's economy.

Irvine Home Address … 74 LINHAVEN Irvine, CA 92602

Resale Home Price …… $710,000

{book1}

It's like you're a drug

It's like you're a demon I can't face down

It's like I'm stuck

It's like I'm running from you all the time

And I know I let you have all the power

It's like the only company I seek is misery all around

It's like you're a leech

Sucking the life from me

Kelly Clarkson — Addicted

Californians are addicted to borrowed money. We are stuck waiting for lenders to make us feel powerful again. Borrowed money is a vice provided by lenders who suck the life blood from our economy.

Yesterday we explored what it means to be a Ponzi, and today, we are going to look at some of the ramifications of widespread Ponzi borrowing.

Ponzi borrowing and HELOC Abuse

Most people fail to budget properly for unexpected expenses or expenses that do not occur monthly. When these expenses occur, most will borrow the money, often on credit cards. During the year, this debt will accumulate like tooth plaque, and at the end of the year, many debtors hope for a work bonus or a tax refund to clean the debt from their balance sheets. Homeowners, particularly in California, would go to the housing ATM and add to their mortgage to pay for these un-budgeted expenses of daily life.

The sad reality is that this method of Ponzi borrowing can work as long as (1) the amounts added to the home mortgage are less than the sustained rate of appreciation and (2) if the payments are still affordable with wage income. During the housing bubble, many borrowed much more than the sustained rate of appreciation and took out every penny as it accumulated. With the steadily falling interest rates of the last 30 years and the profusion of toxic financing, affordable payments were seldom a problem. Therefore, many people have become accustomed to Ponzi borrowing on the home ATM, and that source of borrowing is shut down for a while — probably for a very long time.

Personal Ponzi Schemes

First, let's review how personal Ponzi Schemes work:

Examine the graphic above. The first column shows a graphical breakdown of the income of a typical homeowner. Total home related debt (including taxes, insurance, HOA and other monthly expenses) is limited to 28% of gross income. Consumer debt including all other debt service payments is limited to 8%. Taxes take up about 24% (depending on income and tax bracket), and the remaining 40% is disposable income to cover the other expenses of daily life.

The second column shows what happens as people start to stretch to buy a home in a financial mania (charts are below). The increasing home debt reduces the tax burden a little, but the increased consumer spending and home debt takes a big chunk out of disposable income. The recession of the early 90s lingered for so long here in California because the people who bought in the frenzy of the late 1980s found themselves with crushing debts and greatly reduced disposable income. Prior to the increase in housing debt, this disposable income would have been spent in the local economy; instead, this money was sent out of state to the creditor who made the loan.

The big financial innovation—if you want to call it that—of the Great Housing Bubble was the nearly unrestricted use of cash-out refinancing and HELOCs to tap into home price appreciation. The third column shows the impact this new source of credit had on personal income statements. HELOC money allowed people to pay off their consumer debt while only modestly increasing their home debt. Since this income was untaxed (borrowed money is not truly income), the extracted money was entirely converted to disposable income. This incredible influx of disposable income caused our economy to explode.

Unfortunately, as is documented in the post Our HELOC Economy, the loss of this HELOC income is having devastating effects on local tax revenues and our economy. When you examine the personal income statements of borrowers in column four, you see that home debt and consumer debt have now become so burdensome that there is no longer enough disposable income to cover life’s basic needs; borrowers are insolvent.

The only solution to the problem of borrower insolvency is a monumental restructuring of both home and consumer debt. Realistically, the only way this is going to occur is through foreclosure and bankruptcy. We are not going to re-inflate this Ponzi Scheme because when sustainable loan terms are applied to real incomes, people cannot raise bids to sustain or inflate home prices—even with 4.5% interest rates. Without home price appreciation and subsequent HELOC borrowing, the Ponzi Scheme does not work.

The implications of this are clear; we are going to experience an extended recession bordering on depression here in California that is going to linger for many, many years. During this extended crisis, a significant percentage of California homeowners are going to face foreclosure and personal bankruptcy.

Lending to Ponzis

Lenders may loan to Ponzis for a time, but eventually the losses mount, and lenders realize their folly and stop making Ponzi loans. That is the market mechanism in place right now. The credit crunch was a direct result of lenders realizing they were making Ponzi loans and abruptly stopping.

The market-only solution to keeping lenders from making dumb loans is working for the most part. The US Government in cahoots with the Federal Reserve has completely taken over mortgage finance because they are the only entities willing to underwrite loans. Borrowers who try to get a jumbo loan, a HELOC or a stand-alone second right now are shocked at the qualification standards and the high interest rate spreads. The lack of a jumbo market is also why lenders are not foreclosing on anything above the $729,750 conforming limit and thereby allowing a great deal of squatting.

The problem with the market-only solution is that the mechanism that inflated the housing bubble is still in place, and the market will likely inflate another bubble once lenders believe they have no risk. Borrowers and owners would be delighted to see the lure of HELOC riches prompt a rally in prices. Lenders would also be delighted as they could sell their garbage into the rally. Without some basic reforms, our market will become very volatile as changes in credit availability take prices up and down. The ongoing turmoil and the capricious nature of winners and losers in the real estate market would be very unsettling just as it has over the last several years.

Ponzi borrowing and loan amortization

In Conservative House Financing – Part 1, I wrote about the basic loan types in mortgage finance:

There are 3 main categories of loans: Conventional, Interest-Only, and Negative Amortization. The distinction between these loans is how the amount of principal is impacted by monthly payments. A Conventional mortgage includes some amount of principal in the payment in order to repay the original loan amount. The greater the amount of principal repaid, the quicker the loan is paid off. An Interest-Only loan does just what it describes; it only pays the interest. This loan does not pay back any of the principal, but it at least “treads water” and does not fall behind. The Negative Amortization loan is one in which the full amount of interest is not paid with each payment, and the unpaid interest gets added to the principal balance. Each month, the borrower is increasing the debt.

A conventionally amortized mortgage loan pays off the principal over time — sometimes over a very long time. The best form of mortgage finance is the 15-year fixed-rate mortgage, but 30-year terms are common, and provide a reasonable balance between purchasing power and Time to Payoff. Japan experimented with 100-year loans as their housing bubble deflated. The marginal returns in the form of reduced payments get very small as the amortization length gets much over 30 years.

The interest-only loan is a Ponzi limit loan. This is the event horizon that leads to the singularity. Of course, the kool aid intoxicated think this loan is too conservative because it fails to capture and spend the inevitable and unending home price appreciation. The solution many fools employ is the interest-only loan in combination with a HELOC that can grow with appreciation. Once the cost of HELOC financing gets too high, the debt can be reconsolidated into a lower cost first mortgage or a stand-alone second. The trip to foreclosure and bankruptcy sounds very reasoned and reasonable, doesn't it?

The negative amortization loan (Option ARM) is the pinnacle of Ponzi financing. The Ponzi borrowing is directly built in to the loan itself. Borrowers are able to spend some of their appreciation each month through a payment subsidy built into the loan. Rather than combine an interest-only with a HELOC, the Option ARM indirectly builds the HELOC into it. As long as home prices go up faster than Option ARM loan balances, these loans successfully convert appreciation to income. Work of genius, when you think about it, except that the loan ignores the reality of Ponzi financing and the inevitable collapse that entails.

The larger impact of Ponzi borrowing

The cultural reliance on appreciation and Ponzi borrowing creates a number of disturbing conditions:

1. Ponzis live a life of luxury that far exceeds their contribution, and responsible people pay for it.
2. California's economy depends on borrowed money.
3. The economic recovery depends on re-inflating the housing bubble and turning on the housing ATM.
4. The collapse of the Ponzis will be a long-term drag on the economy.

Do you like paying the bills of the Ponzis? You are. If you are a responsible saver, the Federal Reserve has lowered interest rates to take money from you and give it to banks. If that form of theft is not enough, the Federal Reserve will keep interest rates low and steal from savers by devaluing the currency with inflation. One way or the other, the Federal Reserve is stealing from the responsible to pay for the irresponsible. If that wasn't enough, our own federal government is stealing from you with a variety of tax incentives and bogus loan modification programs to transfer the losses from banks to the taxpayer.

The dependency of California on Ponzi borrowing is evident. Our state budget is a Ponzi scheme imploding right now, but the real reason for the state budget problems isn't just Sacramento's inability to say no to special interest groups. The state budget is a wreck because tax revenues rely heavily on Ponzi borrowers spending borrowed money and circulating it through the economy.

How many people do you know that are borrowing from other sources until the housing ATM gets turned on? I will tackle this subject in more detail tomorrow, but for many Californians the end of the recession will not come when they find a job or get a raise, it will come when they get a new credit line or when house prices come back enough to allow them to get more HELOC money. Our state economy is on hold until HELOC money returns.

Since HELOC riches and ATM spending isn't coming back any time soon, our state economy will limp along with the Ponzis collapsing one at a time. With each Ponzi collapse, the money that used to go to debt service payments is freed up to circulate in the local economy. It is a slow and painful process, but weaning society off Ponzi borrowing is necessary to have a real economy based on wages and growth in productivity. Do any of you remember the lingering effects of the last bubble from 1993-1997? Unfortunately, we will probably take the short cut through Ponzi borrowing if given the chance.

Today's featured Ponzi borrower

• Today's featured property was purchased on 11/13/1999 for $485,000. My records say the owners used a $502,000 first mortgage, but that is unlikely. It is more likely they used a $402,000 first mortgage and a $83,000 down payment.
• On 5/13/2003 they opened a HELOC for $63,400
• On 1/26/2004 they got a HELOC for $100,000.
• On 2/1/2005 they refinanced with a $634,500 Option ARM with a 1% teaser rate.
• On 3/23/2005 they obtained a $80,000 HELOC.
• On 8/10/2005 they got a HELOC for $100,000.
• On 11/3/2006 they refinanced with a $688,000 first mortgage and a $85,000 HELOC from Wells Fargo. Since Wells owns both mortgages, they are in no hurry to foreclose on this owner and wipe out their HELOC. Look for this property to be in the amend-pretend-extend dance forever.
• Total property debt is $773,000.
• Total mortgage equity withdrawal is $484,227 plus whatever down payment they put into the property.
• Total squatting is at least 5 months.

Foreclosure Record

Recording Date: 04/15/2010

Document Type: Notice of Default

This couple spent almost half a million dollars in a four-year span. That is a one-family stimulus plan. If they were an isolated case, it may be a titillating story, but I have profiled hundreds of these here in Irvine. It is a widespread practice.

California implicitly endorses Ponzi finance

Since we have done nothing in California to reform mortgage finance, we are implicitly saying this is acceptable behavior. Apparently, we want people to do this. It stimulates the economy, and since the losses are passed on to investors around the world, California gets all of the benefit and endures only a fraction of the pain. And now that the US taxpayer is covering all future losses either through the GSEs or FHA, there is no reason at all for California to do anything other than inflate another housing bubble.

Truth be told, nobody in power to do anything in California sees HELOC abuse as a problem. It is spending. It stimulates the California economy, and fills the State's coffers with tax revenues. Few in Sacramento seem to care about the stability of the tax stream, so we will continue on this cycle of boom and bust completely dependent upon creditors. For all its economic prowess, California is the weakest state in the nation. Financially, everything here is an illusion.

What will happen to government entitlements and the individual entitlements of loan owners everywhere should lenders realize they are supporting a entire state of Ponzis? They might just cut us off.

I wish they would. California would be a much better place.

Irvine Home Address … 74 LINHAVEN Irvine, CA 92602

Resale Home Price … $710,000

Home Purchase Price … $485,000

Home Purchase Date …. 11/13/1999

Net Gain (Loss) ………. $182,400

Percent Change ………. 46.4%

Annual Appreciation … 4.3%

Cost of Ownership

————————————————-

$710,000 ………. Asking Price

$142,000 ………. 20% Down Conventional

4.94% …………… Mortgage Interest Rate

$568,000 ………. 30-Year Mortgage

$146,010 ………. Income Requirement

$3,028 ………. Monthly Mortgage Payment

$615 ………. Property Tax

$125 ………. Special Taxes and Levies (Mello Roos)

$59 ………. Homeowners Insurance

$200 ………. Homeowners Association Fees

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$4,028 ………. Monthly Cash Outlays

-$738 ………. Tax Savings (% of Interest and Property Tax)

-$690 ………. Equity Hidden in Payment

$271 ………. Lost Income to Down Payment (net of taxes)

$89 ………. Maintenance and Replacement Reserves

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$2,959 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$7,100 ………. Furnishing and Move In @1%

$7,100 ………. Closing Costs @1%

$5,680 ………… Interest Points @1% of Loan

$142,000 ………. Down Payment

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$161,880 ………. Total Cash Costs

$45,300 ………… Emergency Cash Reserves

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$207,180 ………. Total Savings Needed

Property Details for 74 LINHAVEN Irvine, CA 92602

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Beds: 4

Baths: 2 full 1 part baths

Home size: 2,478 sq ft

($287 / sq ft)

Lot Size: 6,937 sq ft

Year Built: 1999

Days on Market: 14

Listing Updated: 40315

MLS Number: S616662

Property Type: Single Family, Residential

Community: West Irvine

Tract: Othr

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This property is in backup or contingent offer status.

Highly upgraded home in West Irvine! Very private yard, extra long driveway, Granite countertops.

In case you missed it a few weeks ago, not all lenders are anxious to loan money to the Ponzis….