Category Archives: Library

Why Do Struggling Homeowners Keep Paying Their Mortgages?

With the housing entitlement firmly in place, borrowers have little incentive to continue making mortgage payments, particularly if they have difficulty with the payment or if they are underwater. [image content warning]

Irvine Home Address … 1 West ALBA Irvine, CA 92620

Resale Home Price …… $675,000

{book1}

You can get just so much from a good thing

You can linger too long in your dreams

Say goodbye to the "Oldies But Goodies"

Cause the good ole days weren't always good

And tomorrow ain't as bad as it seems

Billy Joel — Keeping the Faith

Homedebtors are struggling borrowers who cannot afford their payments or are deeply underwater. They are keeping the faith in appreciation and dutifully making their payments — for now. Homedebtors are the lynchpin holding together the housing market; if they lose faith in appreciation, as they have in subprime markets, then they may strategically default in large numbers.

The banking cartel in cahoots with the US government created a huge problem for themselves. They provide borrowers an attractive alternative to paying their mortgage; borrowers who strategically default and properly game the system can take advantage of the loan owner housing entitlement and squat in the property indefinitely. Over the last few days, I profiled HELOC abusers in Irvine and Riverside County who are living in homes they don't own and are not paying for, squatting by virtue of signing loan documents — if only lease documents were so advantageous…

It really makes me pause and wonder why any struggling homeowners make their payments. They have much to gain and little to lose. If they stop paying, it frees up thousands of dollars of income each month. That is, after all, why people want to pay off their house, so they don't have a payment. If homeowners simply stop paying now, they will still have a house, and they will not have a payment. It is just as useful as having the house paid off, it is much easier to accomplish, and it requires no patience or discipline — we wouldn't want to burden mortgage holders with that.

Absent false hope and faith in the miraculous recovery, there isn't much reason to hold on. Many homedebtors simply can't afford the properties they have. If they stop paying, the lender will not boot them out; they can dance with lenders indefinitely, and when those ploys run out, they can game the system further. If enough people dance at the same time, lenders will fear stopping the music, and shadow inventory will cover the land.

Millions of defaulting borrowers are occupying homes without paying. Few are saving this money. Some don't save because they are unemployed and don't have it, and some don't save because it is a four-letter word. Much of the money that went into mortgages is being spent by squatters and propping up the economy. Here in California the economy is not showing many signs of life — improvement yes, but activity is not robust. Those that are unemployed are not contributing to the economy, and those that are over leveraged are not either because so little of their income is available to spend.

How Strategic Default Could Save Our Economy

… So what’s the answer? Less debt. Also known as de-leveraging. Not more stimulus and bailout paid for by taxpayers… which partly ends up in the bankers bonus check. The answer is also in getting back to freedom. Our country was founded on freedom and we have betrayed ourselves by thinking it’s ok to owe thousands of dollars to other people. This has robbed our freedom and caused us to be so dependent upon working long hours and doing everything to just “get by”. I am sick of just “Getting by”.

Since the government can theoretically spend only what it takes from the people (taxpayers), its increased spending will drive the people to poverty. We are allowing this to happen to our country.

After 2 and a half years of listening to YouWalkAway.com customers and seeing time after time that by defaulting, they feel freedom again, they can afford a normal life again, I am convinced that a strategic default could possibly save our economy…and much quicker than any other solution that I’ve seen thus far. Let’s look at a real life example.

In the WSJ, there is an article titled: American Dream 2: Default, Then Rent

“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth. People’s increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.

In the WSJ, there is an article titled: Americans Pare Down Debt

“The speed of the adjustment is lightning fast because it’s happening through debt destruction,” said Joseph Carson, director of global economic research at AllianceBernstein in New York. “It puts us closer to the point where the consumer can start making a stronger contribution to recovery.”

I guess I’m not alone in my thinking. In essence, you are taking back the power from the bank by saying I don’t care about my credit score right now, I care about my economic future. You are creating your own stimulus package by following the law and staying in the home until the bank takes it back. There is a breakdown of how it works here.

“A rapid and cost-efficient mark to market”. consider: Snow Job: Strategic Defaults in an Era of Negative Equity

Strategic walkaways employ laws established to protect them from predatory or avaricious lending practices. They create an efficient, rapid, cost-efficient mark to market, stripping away inaccurate and illusory pricing practices that lenders cling to. Solving the mortgage crisis is going to take more than nibbling away at the edges of valuation, tweaking monthly loan payments through interest rate adjustments and loan extensions.

Being protected from crisis may simply be doing nothing more than preventing and delaying a true healthy economic recovery. Strategic defaults are paving the way for true home values, responsible lending practices and allowing for homeowners that once felt trapped…to be free again.

Jon Maddux, CEO

More homeowners are opting for 'strategic defaults'

Borrowers are certainly sending a message to lenders.

By Alana Semuels

March 17, 2010

[Wynn Bloch bought her Palm Desert house for $385,000 in 2006. Now she says it will never be worth anywhere near the amount of her mortgage, so she stopped paying on her loan and moved out. (Bret Hartman / For The Times / March 4, 2010). Not pictured right?]

Wynn Bloch has always dutifully paid her bills and socked away money for retirement. But in December she defaulted on the mortgage on her Palm Desert home, even though she could afford the payments.

Bloch paid $385,000 for the two-bedroom in 2006, when prices were still surging. Comparable homes are now selling in the low-$200,000s. At 66, the retired psychologist doubted she'd see her investment rebound in her lifetime. Plus, she said she was duped into an expensive loan.

The way she sees it, big banks that helped fuel the mess all got bailouts while small fry like her are left holding the bag. No more.

"There was not a chance that house was ever going to be worth anywhere near what my mortgage was," said Bloch, who is now renting a few miles away after defaulting on the $310,000 loan. "I haven't cheated or stolen."

Ms. Bloch is right. Her and her lender entered into a contract; they loaned her money, and she agreed to to give up her house if she failed to pay the money back. She is exercising her contractual right. It just annoys me that the lender is passing the loss on to us.

Many homeowners are just coming to grips with the idea that prices will take years to reach the pre-crash peak: as long as 14 years in California, according to economist Chris Thornberg.

Stuck with properties whose negative equity won't recover for years, and feeling betrayed by financial institutions that bankrolled the frenzy, some homeowners are concluding it's smarter to walk away than to stick it out.

"There is a growing sense of anger, a growing recognition that there is a double standard if it's OK for financial institutions to look after themselves but not OK for homeowners," said Brent T. White, a law professor at the University of Arizona who wrote a paper on the subject.

People who conclude it is wiser to default are generally correct. Financially, it is not in their best interest to hang on.

To some homeowners those consequences are a small price to pay to gain a measure of revenge against the financial institutions whose loose money helped fuel the crisis.

Joseph Shull, a 68-year-old marketing professor, said he's planning to walk away from the town house he bought in Moorpark in June 2006.

"I'm angry, and there are a lot of people like me who are angry," he said.

He purchased the home for $410,000 and spent $30,000 renovating. Now the house is worth around $225,000.

Shull admits he overpaid for his property. But he said it fell in value in part because of "regulatory mismanagement."

"The bank stabbed me, but at least I got in a pinprick back," he said. "This is the new economy. The old rules don't apply any more."

As people realize they were screwed by lenders, they default and send their lenders a strong message.

Lenders brought this on themselves

It is difficult to make a case for continuing to pay on oversized mortgages. It is financially crippling to the borrower, and this limitation hurts the local economy because so much borrower money goes elsewhere. If continuing to pay too much is harmful to the borrower and harmful to the borrower's community, and if there are no repercussions for stopping payment with our new housing entitlement, why should borrowers continue to struggle with burdensome debt-service payments? Why should any borrower continue making payments? Why not rely on entitlement? Squat?

I hope you picked up on the subtle sarcasm throughout this post. But my tongue is only slightly in cheek because lenders, enabled by our government, created a situation loaded with moral hazard that encourages people to default in larger numbers. If the entire mortgage system falls apart, you and I as taxpayers will pay for it. Even now, we pick up the unpaid mortgage bills.

You are paying the bills of squatters everywhere.

Irvine Home Address … 1 West ALBA Irvine, CA 92620

Resale Home Price … $675,000

Home Purchase Price … $674,000

Home Purchase Date …. 12/10/2009

Net Gain (Loss) ………. $(39,500)

Percent Change ………. 0.1%

Annual Appreciation … 0.4%

Cost of Ownership

————————————————-

$675,000 ………. Asking Price

$135,000 ………. 20% Down Conventional

5.00% …………… Mortgage Interest Rate

$540,000 ………. 30-Year Mortgage

$139,765 ………. Income Requirement

$2,899 ………. Monthly Mortgage Payment

$585 ………. Property Tax

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

$56 ………. Homeowners Insurance

$79 ………. Homeowners Association Fees

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

$3,619 ………. Monthly Cash Outlays

-$709 ………. Tax Savings (% of Interest and Property Tax)

-$649 ………. Equity Hidden in Payment

$263 ………. Lost Income to Down Payment (net of taxes)

$84 ………. Maintenance and Replacement Reserves

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

$2,608 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,750 ………. Furnishing and Move In @1%

$6,750 ………. Closing Costs @1%

$5,400 ………… Interest Points @1% of Loan

$135,000 ………. Down Payment

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

$153,900 ………. Total Cash Costs

$39,900 ………… Emergency Cash Reserves

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

$193,800 ………. Total Savings Needed

Property Details for 1 West ALBA Irvine, CA 92620

——————————————————————————

4 Beds

2 full 1 part baths Baths

2,266 sq ft Home size

($298 / sq ft)

4,320 sq ft Lot Size

Year Built 1980

58 Days on Market

MLS Number S602198

Single Family, Residential Property Type

Northwood Community

Tract Ps

——————————————————————————

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

Private Location at the End of a Cul-De-Sac. Sides to Greenbelt, No Homes Behind. Expanded Master Bedroom with Fireplace, Dual Vanities, Walk-In Closet, Seperate Shower and Tub. Fireplace in Family Room. Attached 2 Car Garage with Direct Access. Private Spa in Back Yard. Side Yard on Both Sides of Home, Breakfast Nook, Formal Dining. It does need some minor repairs, but at this price it's worth it.

That description is a bit austere, but I appreciate the truthful observation in the final sentence.

Who lived here?

Gaming the System

How many loan modifications are we going to give this borrower?

Foreclosure Record

Recording Date: 11/12/2009

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

Foreclosure Record

Recording Date: 05/07/2009

Document Type: Notice of Default

Foreclosure Record

Recording Date: 12/30/2008

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 12/04/2008

Document Type: Notice of Default

Foreclosure Record

Recording Date: 08/14/2008

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 06/11/2008

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

Foreclosure Record

Recording Date: 03/06/2008

Document Type: Notice of Default

Foreclosure Record

Recording Date: 11/05/2007

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 07/02/2007

Document Type: Notice of Default

Who do you think is absorbing the last three years worth of missed payments?

Now we are paying the piano man.

Responsible Home Owners Are Hurt by Irresponsible Loan Owners

Responsible homeowners are not losing their homes, but they are forced to pay a price for the foolish irresponsibility displayed around them.

Irvine Home Address … 43 SANTA COMBA Irvine, CA 92606

Resale Home Price …… $799,990

{book1}

Dance with me

I want to be your partner

Can't you see the music is just starting

Night is calling and i am falling

Dance with me

Fantasy could never be so giving

I feel free I hope that you are willing

Pick the beat up and kick your feet up

Dance with me

Let it lift you off the ground

Starry eyes and love is all around us

I can take you if you want to go

Oh oh

Orleans — Dance With Me

Lenders and borrowers dance with disaster. Borrowers have the lead in the amend-pretend-extend fandango, but as the economy improves, along with lender balance sheets, lenders will take the lead. As the default shuffle plays out, wallflowers who chose not to cha-cha are wilting under the economic distress caused when the music stopped. Dancers are short on chairs.

Walking One Block Damaged By The Housing Crisis

by Tamara Keith

Dana Lane doesn't look devastated.

It's part of a California subdivision built in the late 1980s, a mix of stucco and wood siding with mismatched fences. It looks like so many working-class suburban blocks.

But since the foreclosure crisis started, Riverside County, Calif., has ranked near the top of the list for its rate of homes being taken back by banks. This is a county that has long attracted Los Angeles refugees who drove east until they could afford to buy, then had to commute hours every day. Neighborhoods are hurting. Even people who didn't get swept up in the bubble have been hurt by the bust.

Dana Lane is one particularly hard-hit block in the city of Moreno Valley. There are hints of what its residents have been through — a broken window, for-sale signs and brown lawns.

More than two years into the housing bust, 20 percent of the homes on Dana Lane have gone into foreclosure, and residents here wonder who will be next.

It is difficult for us to relate in our elitist bubble here in Irvine, but prices have been crushed in neighborhoods where borrowers in default have been foreclosed from their homes. Many more foreclosures are yet to come.

Fall from entitlement

Anita Sandoval stopped paying her mortgage five months ago. …

The house across the street just went for $75,000 in a foreclosure sale.

"And I bought mine for $260,000, and it's the exact same home," Sandoval says. "I've been in the house. It's the exact same home." [Ouch!]

But that's not why Sandoval stopped making her mortgage payments. Her savings ran out, and she was finally hit with the painful reality that she and her husband really couldn't afford this house. They never could.

Isn't that a textbook example of The Unceremonious Fall from Entitlement?

HELOC Abuse Riverside County Style

The Bubble Mindset

"Like everybody else, I'm in an upside-down loan," says Brenda Moore, who owes more than $300,000 on her mortgage. This is remarkable considering she bought her house in 1989 for $80,000. A search of public records reveals that Moore, a retired nurse, has refinanced her home eight times since 1998.

The loans are from a who's who of subprime lenders. With each loan she took out more equity, and each time the loan terms got worse.

"Hey, I had a lot of equity, so I would just go in there using it and having a lot of things done — outside and inside," Moore says.

Please, help me with the HELOC abuse grade. Based on her statement — and the fact that she quadrupled her mortgage — would you characterize her spending as thoughtless? She clearly rationalizes spending appreciation, so the grade is at least a D. But do you think she maintained her delusion that she was not spending her house? Or did she cross the line to earn an E?

Moore replaced a sagging fence. She put in new carpet and a tile floor in the kitchen. But that doesn't explain where all the money went. Most of it didn't go to tangible things; it went to raising her five grandchildren and two great-grandchildren even after she was no longer able to work.

At one point, Moore had just pulled out a chunk of equity when a family member passed away. She used the money to help pay for the burial.

"So that was a blessing because I had just — about a week [ago] — had just did the refi and was going to do some more work around the house, and that happened," Moore says.

Who are we kidding here? She blew the money on her entitlements. Even her justifications are weak. This woman spent the money obtained from her home through mortgage equity withdrawal as if this money were earned income. She carelessly managed her finances and created a Ponzi Scheme of debt. Her theft was enabled by her victim, so it is difficult to apportion blame, but there is plenty of guilt to go around. Is that character deserving of sympathy? And your tax money? Not that you have much choice in the matter….

When it got to the point that she could no longer make her mortgage payments, Moore thought about walking away.

But she says the Lord intervened. A nonprofit group helped her get a loan modification. Her payments have been cut in half. When a reporter tells her about the Betts family down the street, she seems a little surprised that there's anyone on the block who didn't refinance.

She is surprised her moral bankruptcy wasn't shared by her neighbors. Extraordinary Popular Delusions and the Madness of Crowds documents this behavior over the centuries; it's nothing new.

The Lord is now fostering moral hazard? The Lord wanted to bail this woman out rather than see her experience the consequences of her decisions? That isn't the Being I revere. A 50% reduction in payment means her modification is acting like an Option ARM, and this woman will be in foreclosure once banks stop dancing. I wonder if she will feel blessed then?

"So that's good they didn't have to," Moore says. "But then, too, I look at it this way: You're sitting on a bank, so if you can use it, use it because you can't take it with you, so enjoy it while you can."

Any of you that thought she earned a HELOC abuse grade of D rather than an E because you thought her spending was not thoughtless, do you want to rethink your grade?

My Heroes

[William and Laura Betts live on Dana Lane in the community of Moreno Valley, Calif. The couple stand out because they actually paid off their mortgage in 2005. William, who lost his job in November 2009, is glad they don't have to worry about making payments on their house.]

The bubble mindset here was infectious, but it didn't affect everyone.

William and Laura Betts stand out on Dana Lane. They've actually paid off their mortgage. They made their last payment in 2005 at the height of the refinance frenzy. It was a goal from the moment they moved in back in 1986.

This couple made paying off a mortgage a goal and a priority just as I recommend in Time to Payoff and Accelerated Amortization.

"Payment was $750, I think, and the very first payment we sent in 10 extra dollars, and they sent it back because we had to pay at least a whole month's principle, and that was $15 or something — I forget the exact number, but it was more than we had sent in," says William Betts.

Resisting Temptation

Every month they sent in a little extra. They are Mormon and say their faith guided them to be fiscally responsible. Sure, they got calls from mortgage brokers who were eager to help them turn their home into an ATM. But they resisted. They weren't even tempted.

"I'd hear the commercials on the radio about OK, 'This is the ultimate refinance.' And then three months later, the same company and the same radio host was [saying], 'This is the ultimate final refinance,' " William Betts recalls. "And you know that things just can't keep going like they're going without something happening. You think, this is crazy, this is insane. These people — they're foolish." …

It didn't take a PhD in economics to realize the housing bubble was wrong. In fact, that is perhaps the most upsetting element of the entire injustice: anyone could have seen this coming if they chose to open their eyes.

When William Betts thinks about what's happened to this street, he doesn't resent his neighbors' choices or the nice furniture and granite countertops they bought with imagined equity. He just feels bad for them.

"How do I say this?" Betts asks. "Most of our neighbors, I think, sold their inheritance for a bowl of pottage. The Jet Skis are gone, and so is their house." …

I have stated the same many times; conspicuous consumption can be viewed with pity and astonishment rather than envy and jealousy.

Back in November, Betts lost his job. It's the second time in four years he and his wife have had to live off of savings and unemployment. But at least they don't have to worry about their home.

"I just remember the day that we signed the papers that the house was now ours," Betts recalls. "You know, I've slept pretty good every night since then, 'cause when you own your house, you never have to worry about where you're going to live."

That is inner peace emanating from true financial freedom, and it is this family's reward for showing fiscal discipline, ignoring the Joneses, and living a virtuous life. It is sad that they are getting punished for the insanity around them; worst of all, they are being forced to pay for it in taxes as well.

Home prices in this neighborhood may have bottomed — nobody knows. The Bettses' home is now worth little more than it was when they bought it 25 years ago — not much of a reward for doing everything right.

But that's not how the Bettses see it: "Be it ever so humble," says William Betts, "it's ours."

I respect everything these people thought, said, and did.

These are financial titans worthy of much more respect than fools like the Emperor of Irvine. Net worth isn't the value of assets you control, it's the difference between asset value and debt. Debt subtracts from wealth. Debt does not make people rich.

More than a year ago, I wrote Responsible Homeowners are NOT Losing Their Homes. This couple proves it.

Responsible homeowners are NOT losing their homes.

To see the truth in this statement, one needs to have a clear definition of “responsible homeowner.”

A “responsible homeowner” is a buyer who, if they utilized financing, did not stray from the conservative parameters set forth by lenders (prior to the bubble) and financial planners. This includes using a maximum 28% debt-to-income ratio on the mortgage, at least a 20% down payment and fixed-rate conventionally amortizing financing.

Few who fit this definition are going to lose their homes; although, some of them may chose to walk away from the debt because they are hopelessly underwater. The only ones who fit the above definition who are in danger of losing their homes are those who lose jobs; they are the truly sad casualties of the housing bubble. Unfortunately, this is becoming more common due to the financial crisis caused by all the homeowners who borrowed irresponsibly.

Responsible borrowers are not the ones defaulting on their mortgages; irresponsible homeowners are.

If “responsible homeowner” is defined as a buyer who believed they could manage their monthly payment and did so until the loan terms changed, then by this definition, many responsible homeowners are going to lose their homes.

Almost everyone who signed up for a toxic loan thought they could make the payment; most did for a while. Many were convinced they could make the payments by a predatory lender out to make a few bucks on the origination. Many more believed they could supplement their incomes with the rapid appreciation they would enjoy as their house values rose to infinity. Does ignorance to their inability to sustain their housing payments make them responsible?

With so many Californians believing and acting like the irresponsible loan owners at the beginning of this profile, and with so few Californians believing and acting as our heroes, it becomes very difficult to foresee what the future holds. Contrary to popular belief that the housing bust is behind us, we are only in the 4th inning. The consequences of the bust — millions of foreclosures — have been delayed and deferred but not avoided. Will California kool aid survive the bust resulting in permanently inflated prices?

Irvine Home Address … 43 SANTA COMBA Irvine, CA 92606

Resale Home Price … $799,990

Home Purchase Price … $680,000

Home Purchase Date …. 2/9/2010

Net Gain (Loss) ………. $71,991

Percent Change ………. 17.6%

Annual Appreciation … 101.6%

Cost of Ownership

————————————————-

$799,990 ………. Asking Price

$159,998 ………. 20% Down Conventional

5.00% …………… Mortgage Interest Rate

$639,992 ………. 30-Year Mortgage

$165,646 ………. Income Requirement

$3,436 ………. Monthly Mortgage Payment

$693 ………. Property Tax

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

$67 ………. Homeowners Insurance

$47 ………. Homeowners Association Fees

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

$4,493 ………. Monthly Cash Outlays

-$840 ………. Tax Savings (% of Interest and Property Tax)

-$769 ………. Equity Hidden in Payment

$311 ………. Lost Income to Down Payment (net of taxes)

$100 ………. Maintenance and Replacement Reserves

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

$3,295 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,000 ………. Furnishing and Move In @1%

$8,000 ………. Closing Costs @1%

$6,400 ………… Interest Points @1% of Loan

$159,998 ………. Down Payment

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

$182,398 ………. Total Cash Costs

$50,500 ………… Emergency Cash Reserves

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

$232,898 ………. Total Savings Needed

Property Details for 43 SANTA COMBA Irvine, CA 92606

——————————————————————————

4 Beds

2 full 1 part baths Baths

2,300 sq ft Home size

($348 / sq ft)

6,005 sq ft Lot Size

Year Built 1996

8 Days on Market

MLS Number S608182

Single Family, Residential Property Type

Westpark Community

Tract Mon

——————————————————————————

Remodeled and Customized 4/5 Bedroom Home at End of Cul De Sac. Entry to Sunny Living Room with High Ceilings and Custom Modern Flooring. Kitchen with Nook Opens to Family Room with Cozy Fireplace and Sliders to Large Backyard with lots of grass. Kitchen is upgraded with Stainless Steel Oven, Dishwasher and Sink, Glass Back Splash and Modern Decor European Cabinets. Main Floor Bedroom Now Used as Den, could be office of converted to 5th Bedroom. Master Suite Has Dual Vanity Sinks, Shower Stall, Tub and Large Walk-in Closet. Large drive-way, and only 4 homes at the end of the Cul de Sac, so great for children to play.. Apx 42 Acre Irvine Memorial Park Nearby with Tennis courts, Soccer Fields, Softball Diamonds, Batting Cages, Outdoor Amphitheatre, Gardens, Fountains, Large Playground, Tot Lot and Gazebo with Picnic Tables. THIS IS NOT A SHORT SALE OR A BANK REO, EQUITY SELLER CAN CLOSE QUICKLY.. OPEN HOUSE MARCH 13 – 12:00 TO 4:00

The flipper spent money well on staging.

Location, Location, Location:

Do you think this site may have some sound and air quality issues?

In the post, Do We Owe Baby Boomers Their Imagined Home Equity for Retirement? I profiled 55 Castillo which was also a corner property. I speculated then as I do now, "Do you think asset managers are disposing of their worst properties first?"

Previous Owners

I am not sure how to grade these owners as HELOC abusers; the choices are D, E, or F. Please help me out.

They purchased the property on 4/29/2005 for $865,000. They used a $692,000 first mortgage, an $86,500 second mortgage, and an $86,500 downpayment. On 12/11/2007 they refinanced with an ARM for $852,000 which withdrew all but $13,000 of their downpayment that was subsequently lost. They defaulted about a year later:

Foreclosure Record

Recording Date: 08/10/2009

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

Foreclosure Record

Recording Date: 05/04/2009

Document Type: Notice of Default

When these owners took out the new loan and withdrew most of their downpayment, what was going through their minds? If there were merely setting up a routine practice of equity extraction to fuel consumer spending, then they earn a D. If they took this money out carelessly, then they earn a E, but if they took this money out knowing they were likely to go under, then they gamed the system and earn an F.

One Defaulting Owner's Free Ride: Three Years and Counting

Freeloaders enjoying the entitled life are not confined to subprime areas. Today's featured property may be the worst case of housing entitlement in the country, and it is right here in Irvine.

Irvine Home Address … 14 BLUEBELL Irvine, CA 92618

Resale Home Price …… $469,900

{book1}

The mountain is high, the valley is low

And you're confused 'bout which way to go

So I flew here to give you a hand

And lead you into the promised land

So, come on and take a free ride (free ride)

Come on and take it by my side

Come on and take a free ride

All over the country, I'm seeing the same

Nobody's winning, at this kind of game

The Edgar Winter Group — Free Ride

If people get to have free rides, don't you want to be one of them? Looks like great fun to me. I can see why everyone wants to own a house in California; you get a nice entitlement during the rough times, and you get free money during the good times. Where do I sign up?

Recently, I exposed The Face of Housing Entitlement Today.

… from the LA Times article Many borrowers in default live for free as lenders delay evictions:

Despite being months behind, many strapped residents are hanging on to their homes, essentially living rent-free. Pressure on banks to modify loans and a glut of inventory are driving the trend.

[Patricia and Eugene Harrison, who bought their Perris home seven years ago, have lived there since October 2008 without making any payments on their mortgage. (Irfan Khan / Los Angeles Times / February 19, 2010)]

Do you think any unemployed renters who are failing to pay rent are living that well? Full dinner plates, a solid roof, mementos and permanent storage, comfortable surroundings; we endow these entitlements on those who own. …

If you can sign your name to a mortgage, you no longer have to fear homelessness, and your level of entitlement increases significantly. …

[Pictured above: Unemployed renter and family who failed to sign loan documents and squat in a house]

Many people astutely observed that squatting is more common in Riverside County, mostly due to higher levels of unemployment, but Irvine is not immune to its effect. In fact, people squat in Irvine houses just as they do in the valley of the dirt people, and in the case of today's featured property, it is much, much worse.

Irvine's Housing Entitlement

I first profiled today's featured property back in September of 2009 in the post Bluebell, a shocking example of gaming the system here in Irvine.

  • The owner of today's featured property paid $465,000 on 10/23/2003. She used a $372,000 first mortgage, a $93,000 second mortgage, and a $0 down payment.

  • On 12/30/2004 she refinanced into an Option ARM for $486,500.

  • Two months later on 2/3/2005 she opened a HELOC for $67,000.

  • Total property debt is $553,500 plus 3 years of missed payments, negative amortization, and fees.

  • Total mortgage equity withdrawal is $88,500.

Consider what this woman accomplished:

  1. She put no money into the transaction. None.

  2. She extracted $88,500 in just over one year. That is nearly the median income in Irvine, and that money came to her without tax withholding.

  3. She has lived in the property since 2003, and in the full term of ownership, she has not made payments totaling what she pulled from the property.

I admit to feeling foolish. I looked at property in late 2003, and I deemed it too expensive. It never occurred to me that anyone could accomplish what this woman has done, or I might have followed in her footsteps. I feel like an idiot struggling to actually pay for my housing costs when I could have obtained a free ride for the last seven years. I hope lenders know that California borrowers are learning their lessons well.

Foreclosure Record

Recording Date: 02/08/2010

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

Foreclosure Record

Recording Date: 12/03/2008

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

Foreclosure Record

Recording Date: 08/28/2008

Document Type: Notice of Default

Foreclosure Record

Recording Date: 08/08/2007

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 05/25/2007

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

Foreclosure Record

Recording Date: 01/24/2007

Document Type: Notice of Default

As I noted six months ago:

The owner of this property stopped making payments sometime in late 2006. It has been over two and one-half years [now three years] since this owner stopped paying, and she is still listed as the property owner, so one can assume she still occupies the property. That is two and one-half years without a housing payment—a bill we will all pick up as taxpayers at some point. How does that make you feel? Did you pay for your housing since 2006? I did.

The place looks very lived-in. Despite not paying a mortgage or rent, the owner looks in no hurry to leave.

It is a mess but not a packing mess…

How many of you who have been paying for your housing are living this well?

Irvine Home Address … 14 BLUEBELL Irvine, CA 92618

Resale Home Price … $469,900

Home Purchase Price … $465,000

Home Purchase Date …. 10/23/2003

Net Gain (Loss) ………. $(23,294)

Percent Change ………. 1.1%

Annual Appreciation … 0.1%

Cost of Ownership

————————————————-

$469,900 ………. Asking Price

$16,447 ………. 3.5% Down FHA Financing

5.00% …………… Mortgage Interest Rate

$453,454 ………. 30-Year Mortgage

$97,297 ………. Income Requirement

$2,434 ………. Monthly Mortgage Payment

$407 ………. Property Tax

$150 ………. Special Taxes and Levies (Mello Roos)

$39 ………. Homeowners Insurance

$114 ………. Homeowners Association Fees

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

$3,145 ………. Monthly Cash Outlays

-$402 ………. Tax Savings (% of Interest and Property Tax)

-$545 ………. Equity Hidden in Payment

$32 ………. Lost Income to Down Payment (net of taxes)

$59 ………. Maintenance and Replacement Reserves

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

$2,289 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,699 ………. Furnishing and Move In @1%

$4,699 ………. Closing Costs @1%

$4,535 ………… Interest Points @1% of Loan

$16,447 ………. Down Payment

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

$30,379 ………. Total Cash Costs

$35,000 ………… Emergency Cash Reserves

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

$65,379 ………. Total Savings Needed

Property Details for 14 BLUEBELL Irvine, CA 92618

——————————————————————————

2 Beds

1 full 1 part baths Baths

1,508 sq ft Home size

($312 / sq ft)

2,000 sq ft Lot Size

Year Built 2000

4 Days on Market

MLS Number S608286

Condominium, Residential Property Type

Oak Creek Community

Tract Acac

——————————————————————————

LIVE THE DREAM IN THIS MAGNIFICENT 2 BEDROOM PLUS LOFT/OFFICE, 2.5 BATHROOM OAK CREEK HOME. SOME OF THE MANY FEATURES INCLUDE RICH, STRESSED HARDWOOD FLOORS THRU-OUT MAIN LEVEL, 2 MASTER SUITES, CUSTOMIZED WINDOW TREATMENTS, STAINLESS STEEL APPLIANCES, LARGE CENTER ISLAND WITH BAR TOP, TILE COUNTERS, PLUS A PRIVATE BACKYARD, WALKING PAVERS AND LUSH, MATURE SOFTSCAPE. DON'T MISS OUT ON THIS BEAUTIFUL HOME!

Live the dream? Yes, my dream is to live in this house for several years at no cost. Can you do that for me?

BTW, what is this picture supposed to show me? And are you tilting your head to the left?

Reconveyance Fee Rights: Long-Term Equity Theft by Real Estate Developers

Developers are embracing a new reconveyance fee designed to strip sellers of their equity for the next 100 years.

Today's featured property has fully recovered to peak pricing… NOT!

Irvine Home Address … 79 EDGEWOOD Irvine, CA 92618

Resale Home Price …… $699,000

{book1}

I want your ugly

I want your disease

I want your everything

As long as it’s free

I want your horror

I want your design

‘Cause you’re a criminal

Lady Gaga — Bad Romance

It is human nature to want everything, and if you can get it for free, that makes it even better. There is a program where developers extract free money from houses they build over the next 100 years. Well, it isn't exactly free: it comes out of seller's equity. It is a great deal for developers. For sellers, not so much.

Most of my professional life, I have worked with real estate developers. I spent almost 20 years acting as a project manager, developer representative, and most recently as a land planner. I have worked closely with brilliant and very wealthy individuals. I am fortunate to work with men I admire; although, I have witnessed the actions of many I do not.

Developers are primarily motivated by money, and if there is a method for squeezing a few extra dollars out of real estate, most developers will embrace it. In fact, my livelihood depends on my ability to help developers create, find, and obtain the value in their land. Adding and extracting value has societal benefit, but not every tool available to developers benefits society, and some exist only to enrich developers. Mello Roos is a classic example in California of a financing racket that enriches developers. The latest scam in the development world is called Reconveyance Fee Rights.

Community Facilities District Act enriches developers

According to Wikipedia:

A Mello-Roos District is an area where a special property tax on real estate, in addition to the normal property tax, is imposed on those real property owners within a Community Facilities District. These districts seek public financing through the sale of bonds for the purpose of financing public improvements and services.[2] These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The tax paid is used to make the payments of principal and interest on the bonds.

When a homebuyer in California purchases a property, most believe they have completely paid for the house. Not so. Instead of building subdivisions with their own money, real estate developers float bonds to pay for the improvements, and buyers pay for these improvements through their tax bills as a special levy. What should be an expense of doing business borne by the developer instead gets passed on to the consumer.

Imagine you purchased a new Ford. After you buy you find out the tires were not paid for as part of the car, and you will have an additional payment for the tires separate from any payments you may have for the car. That is what happens to homebuyers when they purchase in a neighborhood with Mello Roos — and nearly every neighborhood built since 1982 either has or had Mello Roos fees attached to them.

Revenues from Community Facility District bonds serve to make marginal project feasible, and as long as owners realize they have a large tax liability, then I see no real harm in the legislation. It is a big bonus to developers, but there are so many special tax breaks given out for dubious reasons that this one sinks into the morass and generates little outrage.

Reconveyance Fee Rights

A group of entrepreneurs has put together a gross ripoff of future homeowners by leaching seller equity. From the Freehold Capital Partners' website:

Simply put, a Reconveyance Fee Instrument represents the right to receive 1% of the gross sales price each time a particular piece of real estate property sells. These rights represent a valuable, fully collateralized long-term income stream with no risk of default.

realtor commissions are too high, but at least realtors participate in the transaction and provide some justification for the piece of seller equity they get at closing. No such justification exists for what Freehold Capital Partners is proposing. It is simply theft.

A new real estate cost to watch for: Developer's private transfer fee

Kenneth R. Harney

Saturday, March 6, 2010

How about this for a new and ingenious real estate money machine? Every time a house sells during the next 99 years, 1 percent of the price goes back to the original developer or is shared among investor partners. Ka-ching!

The levy won't be subject to haggling between future buyers and sellers, either. That's because it's a covenanted mandate — a novel type of lien on the underlying real estate — called a private transfer fee. It's not a government transfer tax. Nor is it a homeowner association or environmental protection covenant. It's purely a private requirement that runs with the land. If a seller refuses to pay it to a third-party trustee at closing, the sale won't proceed.

It isn't something a seller can fight because no party at the closing table can negotiate. The seller's choices are (1) pay the fee, or (2) don't sell the house. I suppose they could try to sue some asset-backed security holder somewhere, but how far do you think that will get?

Guess who doesn't like this idea?

The National Association of Realtors and the American Land Title Association, for example, are asking their members to persuade legislators to prohibit or limit the use of investor-oriented private-transfer-fee programs. Even the National Association of Home Builders, some of whose members reportedly have signed up to participate in the transfer fee program, isn't convinced that the idea is sound.

"It's a very creative concept," said David Ledford, the builder association's senior vice president for housing finance, "but it's largely untested and controversial politically."

realtors hate the idea for obvious reasons: they don't want anyone else in the seller's wallet at closing because it draws undo attention to how much they are getting. The National Association of Home Builders doesn't like the idea, partly because they see it for the fraud it is, and partly because they know the inevitable lawsuits will mostly be directed toward its members.

For its part, Freehold maintains that its transfer-fee covenants are good for consumers and good for cash-strapped builders. Curtis Campbell, a spokesman for the firm, said in an e-mail that "private transfer fees represent an adaptation in how to pay for development costs" incurred by builders "at a time when funding is not available" to them on "reasonable terms."

Did you giggle when you read that? I did. I can tell you from personal observation that builders have no shortage of capital available to them right now. Most builders have restructured their debt, and they have plenty of cash on hand which they are currently using to buy up land.

By creating future revenue streams — which builders can monetize upfront by selling to investors — the plan allows developers to sell houses for lower prices than they otherwise could, Campbell said.

OK, that one isn't funny, that lie is so offensive it makes me angry. Mr. Campbell is insinuating that customers may actually benefit from this practice with lower prices. No way. The builder is going to sell the house at market, and a transfer fee is not going to create conditions where buyers get bargains from builders.

There is no rational justification for this fee. It is only being charged because they think they can get away with it. The facts are obvious, and the feeble rationalizations are laughably stupid.

Developers Embrace New 'Flip Tax'

By Charles Feldman

And as if we haven't learned a lesson about slice-and-dice packaging of mortgages, Freehold Capital apparently wants to "securitize" pools of transfer fees that can then be spun off and sold to investors.

Yes, let's bring in all the complicated issues of securitization. That way, when this all blows up, the syndicators will already have their money and the government can step in and bail everyone out.

Will cooler heads prevail? Will the legislatures around the country strike this one down?

Now this is, as you might imagine, controversial. So much so, some states have apparently either limited or banned these "private transfer fees." OK, I should have known you'd want to know which ones: Kansas, Oregon, Florida and Missouri, just plain ban the practice, according to the paper, while Texas and California have some restrictions on it.

But most states do not address the issue of these fees at all, so it is something you the potential home buyer should look for before signing a contract for a new home. That's vital because the fees (which are paid by the seller) are not subject to negotiation. If you end up selling a house one day that has one of these private transfer fee deals attached to it, you either pay a trustee at closing or, sorry, no sale!

Developers think this is a swell concept because they can, over years, get back some of the initial upfront costs of the project without having to have the first buyer of the property cough up the entire amount. However, others argue that, in the long run, homes with transfer fees attached will actually become more difficult to sell, which, if you happen to be the current homeowner, is not such a good thing!

If you think you may be able to fight this in court someday, think again. Not so easy, apparently.

On the PR Newswire this past weekend, one expert on private transfer fees delivered a commentary of sorts. Says attorney RJon Robins, a member of the Florida Bar's Real Property, Probate & Trust Law Section, "…absent a specific statutory prohibition, a well-crafted private transfer fee covenant will likely be enforceable, particularly when undertaken in connection with a real estate development project."

So how long before the Irvine Company does this on the Ranch? Should you buy now before they figure out they can get a piece of your equity as well? Perhaps the California restrictions prevent them, or perhaps they recognize this fee for the theft it is and don't want to participate. I hope it's the latter.

Irvine Home Address … 79 EDGEWOOD Irvine, CA 92618

Resale Home Price … $699,000

Home Purchase Price … $650,000

Home Purchase Date …. 6/7/2006

Net Gain (Loss) ………. $7,060

Percent Change ………. 7.5%

Annual Appreciation … 1.8%

Cost of Ownership

————————————————-

$699,000 ………. Asking Price

$139,800 ………. 20% Down Conventional

5.00% …………… Mortgage Interest Rate

$559,200 ………. 30-Year Mortgage

$144,735 ………. Income Requirement

$3,002 ………. Monthly Mortgage Payment

$606 ………. Property Tax

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

$58 ………. Homeowners Insurance

$139 ………. Homeowners Association Fees

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

$4,030 ………. Monthly Cash Outlays

-$734 ………. Tax Savings (% of Interest and Property Tax)

-$672 ………. Equity Hidden in Payment

$272 ………. Lost Income to Down Payment (net of taxes)

$87 ………. Maintenance and Replacement Reserves

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

$2,983 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,990 ………. Furnishing and Move In @1%

$6,990 ………. Closing Costs @1%

$5,592 ………… Interest Points @1% of Loan

$139,800 ………. Down Payment

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

$159,372 ………. Total Cash Costs

$45,700 ………… Emergency Cash Reserves

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

$205,072 ………. Total Savings Needed

Property Details for 79 EDGEWOOD Irvine, CA 92618

——————————————————————————

3 Beds

2 full 1 part baths Baths

1,650 sq ft Home size

($424 / sq ft)

4,444 sq ft Lot Size

Year Built 2000

2 Days on Market

MLS Number S608565

Single Family, Residential Property Type

Oak Creek Community

Tract Kell

——————————————————————————

Darling home located in desirable Oakcreek in the gated community of Kelsey Lane*3 spacious bedrooms, 2.5 baths*Popular style great room w/open living, dining & kitchen*Living/family room has upgraded brick fireplace w/battenboard detail & white mantel & is wired for surround sound*Dining room is large w/plenty of space for a computer niche*Spacious white on white kitchen has thermafoil cabinets w/high-end knobs, tile countertops, large pantry, center island, new faucet & dishwasher*Lovely master bedroom w/distrelled wood floor & bath w/tub & stall shower, double sinks, walk-in closet*Large secondary bedrooms*Features include Pergo-style pine flooring, newer high quality Berber carpet, white plantation shutters, crown molding, designer paint*Beautiful backyard w/large outdoor entertaining area w/bbq, large bar w/seating, firepit, raised beds, & extra-large grassy sideyard perfect for a swingset*Garage has lots of cabinets & epoxy floor*Walk to pool,spa,tennis & school too

Another writer who confuses asterisks for periods. This punctuation is working its way into realtorspeak.

Past the bubble peak?

This owner has priced this property to get out at breakeven — a property purchased at the peak of the bubble. WTF? Have we so restricted inventory and pimped interest rates that sellers can get prices higher than 2006?

What do you see?

This owner likes the color green and working out.

Is it creepy to have pictures of sexy dead people over a headboard (the image is Marilyn Monroe)? When would you look at this picture and under what circumstances?

Is this place small, or is the furniture too large?

Can anyone identify what is in the washer?

Is that like Jesus Toast or Virgin Mary Grilled Cheese?

The Swiss Central Bank Openly Discourages Mortgage Lending Due to Housing Bubble Fears

Other governments around the world take steps to curb lending and warn citizens of the perils of excessive mortgage debt. Why don't we?

Someone should have warned the owner of today's featured property that smaller mortgages and lower prices were going to make resale challenging… and painful.

Irvine Home Address … 28 WILLOWHURST Irvine, CA 92602

Resale Home Price …… $825,000

{book1}

My friends feel it's their appointed duty

They keep trying to tell me all you want to do is use me

But my answer yeah to all that use me stuff

Is I wanna spread the news that if it feels this good getting used

Oh you just keep on using me until you use me up

Bill Withers — Use Me

Lenders with encouragement from the US Government want to use you to pay for their mistakes; they want to use you, and they want you to feel good about it. Buy now, it doesn't matter if you go underwater; lenders don't care as long as you make your rent payments on the money.

Recently, I wrote about Canadian finance minister Jim Flaherty preventing further inflation of Canadian housing bubble.

Allow me to recap and interpret:

(1) He is forcing qualification at a higher payment rate. If he had stated 30-year fixed rather than a 5-year fixed, It would be better, but it is a step toward stable financing. I wish the statement clarified whether or not interest-only ARMs are permitted there. I believe the qualification standard he is imposing is based on a 30-year amortizing mortgage with only a 5 year fixed rate.

(2) Twenty percent down payments? I would like to see this on all property, but common sense says investment properties and second homes should require a significant down payment — people don't hesitate to walk away from investment properties.

(3) And limiting cash-out refinancing to 90% LTV is identical to the proposal I made. I like this requirement because it provides an equity cushion that stabilizes markets and prevents walkaways.

"We do want to discourage the tendency by some to use their home as an ATM machine, the tendency by some to buy three or four condominiums by way of speculation," Flaherty said. "This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up."

Our government actively encouraged us to borrow, spend and be happy while Canadians are being warned about excessive debt and spending their equity foolishly. The contrast is conspicuous.

It isn't just the Canadians who exercise better control over lending and warn their citizens of the perils of buying and borrowing today. The Swiss, long known for their banking prowess, do not cave in to banking interests.

The Swiss Central Bank sends warning on excessive mortgage borrowing

ZURICH, March 11 (Reuters) –

The Swiss National Bank warned banks and borrowers on Thursday about taking on too much debt while interest rates were still very low, indicating it is concerned about a possible housing bubble.

…"The SNB is warning banks and borrowers to be extremely cautious," the central bank said in its quarterly policy statement. "The fact that interest rates are exceptionally low by historical standards must be taken into account."

…"What they wanted to avoid is house prices going up too much in response to a slightly brighter economic outlook. That would mean another bubble," said Henrik Gullberg of Deutsche Bank. "One way of doing that is to keep sending these verbal warning shots while policy is still very expansive."

The Swiss government is openly concerned about its citizens financial well being, and they post warnings about mortgage borrowing to help people. Why is it only bloggers like me who issue these warnings here in the US?

The US Government wants its citizens to borrow as much as possible to help out ailing banks even if that destroys the borrower. Shameful.

Some analysts have argued that the central bank may raise borrowing costs earlier than the market currently predicts, and despite the strong Swiss franc, due to the housing concerns.

The SNB said it was conducting an in-depth investigation into banks' mortgage-granting practices and that it would work with regulators to see if any corrective steps were needed.

SNB statistics show that prices for single family homes in Switzerland rose by some 4 percent last year.

SNB vice-chairman Thomas Jordan warned as early as autumn last year of a possible bubble in the private housing market.

Why is the US Government out to screw us?

Hasn't it become obvious that our government does not care about the people? As a citizen of this country, you should be outraged by the way your government puts your interests last. Our government openly advocates destructive policies that transfer wealth from you to the lenders. The US Government as ruled today is completely captured by money interests; they feed us a steady stream of bullshit bailouts and false hopes to convince us to take on more debt and keep the Ponzi Scheme alive.

It wasn't always that way.

Andrew Jackson and the Second Bank of the United States

AIG was not the first institution that was too big to fail. Andrew Jackson waged a personal war against the banking behemoth of his era, and as a former general, he knew how to win a battle. From Wikipedia:

The Second Bank of the United States was authorized for a twenty year period during James Madison's tenure in 1816. As President, Jackson worked to rescind the bank's federal charter. In Jackson's veto message (written by George Bancroft), the bank needed to be abolished because:

  • It concentrated the nation's financial strength in a single institution.

  • It exposed the government to control by foreign interests.

  • It served mainly to make the rich richer.

  • It exercised too much control over members of Congress.

  • It favored northeastern states over southern and western states.

Following Jefferson, Jackson supported an "agricultural republic" and felt the Bank improved the fortunes of an "elite circle" of commercial and industrial entrepreneurs at the expense of farmers and laborers. After a titanic struggle, Jackson succeeded in destroying the Bank by vetoing its 1832 re-charter by Congress and by withdrawing U.S. funds in 1833.

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.” — Andrew Jackson

Does Jackson's reasoning sound familiar to you? Isn't most of what he identified as problems exactly what we have with too-big-to-fail institutions? Who will be our modern Andrew Jackson who will crush our banking cartel? Our current crop of politicians are hopeless or worthless completely captured by banking interests and too fearful to do anything to help the people. We are lost, and we need a real leader like Andrew Jackson to help us find our way.

Irvine Home Address … 28 WILLOWHURST Irvine, CA 92602

Resale Home Price … $825,000

Home Purchase Price … $888,000

Home Purchase Date …. 7/20/2007

Net Gain (Loss) ………. $(112,500)

Percent Change ………. -7.1%

Annual Appreciation … -2.7%

Cost of Ownership

————————————————-

$825,000 ………. Asking Price

$165,000 ………. 20% Down Conventional

5.01% …………… Mortgage Interest Rate

$660,000 ………. 30-Year Mortgage

$171,019 ………. Income Requirement

$3,547 ………. Monthly Mortgage Payment

$715 ………. Property Tax

$150 ………. Special Taxes and Levies (Mello Roos)

$69 ………. Homeowners Insurance

$55 ………. Homeowners Association Fees

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

$4,536 ………. Monthly Cash Outlays

-$868 ………. Tax Savings (% of Interest and Property Tax)

-$792 ………. Equity Hidden in Payment

$322 ………. Lost Income to Down Payment (net of taxes)

$103 ………. Maintenance and Replacement Reserves

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

$3,302 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,250 ………. Furnishing and Move In @1%

$8,250 ………. Closing Costs @1%

$6,600 ………… Interest Points @1% of Loan

$165,000 ………. Down Payment

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

$188,100 ………. Total Cash Costs

$50,600 ………… Emergency Cash Reserves

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

$238,700 ………. Total Savings Needed

Property Details for 28 WILLOWHURST Irvine, CA 92602

——————————————————————————

5 Beds

2 full 1 part baths Baths

2,558 sq ft Home size

($323 / sq ft)

3,429 sq ft Lot Size

Year Built 2000

2 Days on Market

MLS Number P724538

Single Family, Residential Property Type

West Irvine Community

Tract Ivyw

——————————————————————————

Spectacular cul de sac 5 bedroom, 3 story dream home. Gleaming granite kitchen center island, distressed hardwood flooring, and tons of extra space. Wonderful family room with gorgeous fireplace. Breakfast area leads to large, fully-fenced rear yard and calming retreat. Open, bright floorplan with formal dining room, large secondary bedrooms and walk-in closets. Third-floor space and views are breathtaking. Don't forget the nationally recognized schools – Myford, Pioneer, and Beckman. Act now!

The slow grind of lower prices

When the current owners bought back in 2007, they probably never considered the possibility that prices might be lower when they sold. They put $200,000 of their own money into the deal, and they will be lucky to escape with any of it.

Everyone thinks they are either buying into an appreciating market, or that they are buying at the bottom. If a buyer steps up to pay this ridiculous price, they will be the ones selling for a $100K+ loss in 2013.

The scenario this owner faces is what I keep warning people about. Nobody wants to be in the same circumstances as this seller, but all who buy today risk it.

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