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

Irvine Home Address … 67 WATERSPOUT Irvine, CA 92620

Resale Home Price …… $750,000

We are young, heartache to heartache we stand

NO PROMISES, NO DEMANDS

Love Is A Battlefield

We are strong, no one can tell us we're wrong

Searchin' our hearts for so long, both of us knowing

Love Is A Battlefield

Pat Benatar — Love is a Battlefield

New Mortgage Rules: Battle Looms in Congress

By Lita Epstein Jun 21st 2010

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

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

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

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

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

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

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

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

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

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

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

HELOC Fraud?

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

Recording Date: 07/07/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 03/26/2009

Document Type: Notice of Default

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

Irvine Home Address … 67 WATERSPOUT Irvine, CA 92620

Resale Home Price … $750,000

Home Purchase Price … $848,000

Home Purchase Date …. 10/28/2005

Net Gain (Loss) ………. $(143,000)

Percent Change ………. -16.9%

Annual Appreciation … -2.6%

Cost of Ownership

————————————————-

$750,000 ………. Asking Price

$150,000 ………. 20% Down Conventional

4.80% …………… Mortgage Interest Rate

$600,000 ………. 30-Year Mortgage

$151,778 ………. Income Requirement

$3,148 ………. Monthly Mortgage Payment

$650 ………. Property Tax

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

$63 ………. Homeowners Insurance

$105 ………. Homeowners Association Fees

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

$4,282 ………. Monthly Cash Outlays

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

-$748 ………. Equity Hidden in Payment

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

$94 ………. Maintenance and Replacement Reserves

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

$3,140 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

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

$7,500 ………. Closing Costs @1%

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

$150,000 ………. Down Payment

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

$171,000 ………. Total Cash Costs

$48,100 ………… Emergency Cash Reserves

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

$219,100 ………. Total Savings Needed

Property Details for 67 WATERSPOUT Irvine, CA 92620

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 1,949 sq ft

($385 / sq ft)

Lot Size: 4,000 sq ft

Year Built: 2005

Days on Market: 507

Listing Updated: 40238

MLS Number: S562006

Property Type: Single Family, Residential

Community: Woodbury

Tract: Wdpt

——————————————————————————

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

This property is in backup or contingent offer status.

Approved Short Sale!! Best Buy In Woodbury! Home Is Model Perfect! Light, Bright, Airy & Tranquil with Upgrades Galore: Granite Counters, Plantation Shutters, Custom Paint, Romantic Fireplace In Living Room, Cathedral Ceilings, Bamboo Flooring, Security System, Built-In Office, Interior & Exterior Surround Sound. Fabulous Master Bath with Spa Tub & Separate Custom Shower. Home Is Tucked Away in a Quiet Corner of the Community with Great Sunset Views. A Must See!

The expiration of the latest government program has curtailed demand more than most analysts thought possible.

Irvine Home Address … 37 EXPLORATION Irvine, CA 92618

Resale Home Price …… $1,649,000

We're going down,

And you can see it too.

We're going down,

And you know that we're doomed.

My dear,

We're slow dancing in a burning room.

John Mayer — Slow Dancing In A Burning Room

As a worker in the homebuilding industry, it pains me to see bad news. Our industry is barely limping along dependent upon a plethora of government subsidies and facing a potential avalanche of distressed properties to compete with us for sales. The amend-pretend-extend policy of lenders has created a small degree of demand for our product, but with the overhang of distressed properties, it feels like we are slow dancing in a burning room.

New-home sales plunge 33 pct with tax credits gone

By ALAN ZIBEL (AP) – June 23,2010

WASHINGTON — Sales of new homes collapsed in May, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer receive government tax credits.

The bleak report from the Commerce Department on Wednesday is the latest sign of a precarious housing market that is struggling to recover and could weaken the broader economic recovery. It follows a disappointing report issued earlier in the week showing sales of previously occupied homes had dipped in May.

Analysts linked the sudden drop in new-home sales to the expiration of federal tax credits of up to $8,000. But double-digit unemployment and slow job growth have also weighed on the market, even with mortgage rates at near-historic lows.

In most markets — at least those away from the California coast — affordability is not a problem. In Riverside County, houses are as affordable as they have ever been thanks to low interest rates. Right now, what the market lacks is wage earners who can qualify for a mortgage and absorb the inventory.

"We fear that the appetite to buy a home has disappeared alongside the tax credit," Paul Dales, U.S. economist with Capital Economics," wrote in a note to clients. "After all, unemployment remains high, job security is low and credit conditions are tight."

To sustain the economic rebound, the Federal Reserve is expected to leave interest rates at record lows and repeat a pledge to keep them there for a while. The Fed resumed its two-day meeting Wednesday with policymakers having some cause for optimism as well as caution.

Fed Chairman Ben Bernanke has expressed confidence that the nation won't fall back into a "double dip" recession. At the same time, the recovery remains vulnerable to threats and chief among them is a fragile housing market.

If a strong housing market is what is necessary to avoid a double-dip recession, then we are going to see a double-dip recession.

New-home sales fell in May from April to a seasonally adjusted annual sales pace of 300,000, the government said Wednesday. That was the slowest sales pace on records dating back to 1963. It also was the largest monthly drop on record. Sales have now sunk 78 percent from their peak in July 2005.

Each month I go to the Building Industry Association's Riverside County Chapter meeting on Governmental Affairs. Each meeting we are updated on the number of building permits in the county. At the peak in 2005, we pulled about 35,000 permits. In 2009 we pulled about 3,500. This year — assuming demand does not drop off further, we may issue about 5,000 permits. Riverside County has seen a 90% drop in new home construction, and the recovery is very sluggish. When we finally get back to the sustainable rate of 20,000 houses a year, business will have picked up 400% from 2010 levels.

The tax credits expired on April 30. Buyers who signed sales contracts by the deadline have until June 30 to close on their homes and qualify.

The new-home sales report measures contracts to buy homes rather than completed sales. So it offered a glimpse of what the housing industry will endure throughout the summer.

"We all knew there would be a housing hangover from the expiration of the tax credit," wrote Mike Larson, real estate and interest rate analyst at Weiss Research. "But this decline takes your breath away."

Breathtaking! Yes, the decline has certainly felt breathtaking to the homebuilding industry.

Sales of previously occupied homes are recorded when buyers close, so there were expectations for strong numbers in that sector through June. The 2.2 percent drop in May from the previous month showed the entire industry is weakening.

New-home sales fell nationwide from April's levels. They dropped 53 percent from a month earlier in the West and 33 percent in the Northeast. Sales in the South dropped 25 percent. The Midwest posted a 24 percent decline.

Builders have sharply scaled back construction in the face of a severe housing market bust. The number of new homes up for sale in March fell 0.5 percent to 213,000, the lowest level in nearly 40 years. But due to the sluggish sales pace in May, it would still take 8.5 months to exhaust that supply, above a healthy level of about six months.

The median sales price in May was $200,900. That was down 9.6 percent from a year earlier and down 1 percent from April.

New-homes sales made up about 7 percent of the housing market last year. That's down from about 15 percent before the bust.

The drop in new-home sales means fewer jobs in the construction industry, which normally powers economic recoveries but has remained lackluster this time.

Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders. The impact is felt across multiple industries, from makers of faucets and dishwashers to lumber yards.

The only bright spot — if you want to call it that — is that Southern California doesn't have any standing inventory of unsold new homes like many other markets. If demand picks up, homebuilders will go to work and build more houses.

Now we need people to start getting jobs again in California….

Defaulting Dreamer

This was not a wise purchase. The owner of today's featured property paid $1,422,000 on 2/29/2008. He used a $995,400 first mortgage and a $426,600 down payment., then he defaulted.

Foreclosure Record

Recording Date: 06/03/2010

Document Type: Notice of Default

Rather than put the property for sale at a reasonable asking price to try to recover his investment, this owner is asking a WTF price hoping to make over $100,000. Good luck with that.

Irvine Home Address … 37 EXPLORATION Irvine, CA 92618

Resale Home Price … $1,649,000

Home Purchase Price … $1,422,000

Home Purchase Date …. 2/29/2008

Net Gain (Loss) ………. $128,060

Percent Change ………. 9.0%

Annual Appreciation … 6.0%

Cost of Ownership

————————————————-

$1,649,000 ………. Asking Price

$329,800 ………. 20% Down Conventional

4.80% …………… Mortgage Interest Rate

$1,319,200 ………. 30-Year Mortgage

$333,710 ………. Income Requirement

$6,921 ………. Monthly Mortgage Payment

$1429 ………. Property Tax

$600 ………. Special Taxes and Levies (Mello Roos)

$137 ………. Homeowners Insurance

$175 ………. Homeowners Association Fees

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

$9,263 ………. Monthly Cash Outlays

-$1520 ………. Tax Savings (% of Interest and Property Tax)

-$1645 ………. Equity Hidden in Payment

$605 ………. Lost Income to Down Payment (net of taxes)

$206 ………. Maintenance and Replacement Reserves

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

$6,909 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$16,490 ………. Furnishing and Move In @1%

$16,490 ………. Closing Costs @1%

$13,192 ………… Interest Points @1% of Loan

$329,800 ………. Down Payment

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

$375,972 ………. Total Cash Costs

$105,900 ………… Emergency Cash Reserves

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

$481,872 ………. Total Savings Needed

Property Details for 37 EXPLORATION Irvine, CA 92618

——————————————————————————

Beds: 5

Baths: 4 full 1 part baths

Home size: 4,209 sq ft

($392 / sq ft)

Lot Size: 7,192 sq ft

Year Built: 2008

Days on Market: 27

Listing Updated: 40344

MLS Number: P736173

Property Type: Single Family, Residential

Community: Portola Springs

Tract: Sera

——————————————————————————

This beautiful house is so unique and highly upgraded throughout. Totally custom fisnishes and awsome amenities. Imported chandelier, French doors that look out into the middle courtyard. Master suite w/walk-in closet and custom designed cabinets. Built-In security camera system monitored by computer.

so unique? I don't think the word unique can be modified.

fisnishes? awsome?

Do you think the realtor allowed her teenage daughter to write this description? Totally awesome!

Loan modifications fail at a very high rate, not because borrowers are unemployed, but because borrowers were Ponzi borrowing, and now they are being cut off from credit necessary to continue making their payments.

Irvine Home Address … 37 FRESCO Irvine, CA 92603

Resale Home Price …… $1,750,000

I wanna go back

I wanna go back

Uh cause I remember way back when

Got kicked out the crib and had a place to stay

Sometimes I cant help but think, I Wanna Go Back

I Wanna Go Back…back in the time

I Wanna Go Back

I Wanna Go Back…go way back way back y'all

I Wanna Go Back…back in the time

Kid Rock — I wanna Go Back

Everyone who participated in the Great Housing Bubble wants to go back to the way things were before. That is the problem with Ponzi schemes; once they collapse, you can't rebuild them. Borrowers were only making their debt-service payments by borrowing more money. When faced with the prospect of paying their debts without continued borrowing, Ponzis can't do it.

Loan modifications seem like a great idea: borrowers resume making payments and get to keep their houses, and lenders don't have to foreclose and recognize any losses. In other circumstances, this solution may have worked, but with recidivism rates exceeding 50%, these programs are largely a failure.

Imagine a residential real estate market where all the owners borrowed using fixed-rate financing with at least 20% down and reasonable debt-to-income ratios and there was limited mortgage equity withdrawal (think Texas). A market like that would have significant equity and owners capable to withstanding some financial distress. An economic downturn would cause problems, but in a market like that, loan modification programs offering temporary payment relief would probably keep a majority of homeowners in their properties.

Unfortunately, that is not our housing market.

Borrowers in our market used 100% financing with debt-to-income ratios exceeding 50% and borrowed any equity as it appeared. In a market that has gone Ponzi, people can't afford their debt-service payments without additional debt. That is the essence of a Ponzi scheme. Loan modifications will not be successful in a Ponzi market because borrowers could not afford the debt prior to the financial distress. Therefore, loan modifications in our current market environment are doomed, and the statistics prove it.

Mortgage Mods: Most Borrowers Are Likely to Redefault Within a Year

By Lita Epstein

Mortgage modifications may not be the solution to the nation's housing problems, after all. Fitch Ratings predicts that 65 percent to 75 percent of modifications on subprime mortgages will redefault in 12 months. The redefault level predicted for prime loans that have been modified is slightly lower — 55 percent to 65 percent within 12 months of modification.

Along with foreclosures, the use of short sales and short payoffs increased in 2009, according the the recent report from Fitch. "Currently 50 percent of prime and 35 percent of subprime and Alt A distressed liquidation sales are not by REO [lender-owned] sale," according to Fitch. The percentage of loans that ended up in foreclosure was 25.7 percent by the end of 2009, up from 11.7 percent in the first half of that year.

All those statistics show how little can be done to help people as long as the job market continues to be weak.

Even when the job market picks up, these statistics will not improve. These borrowers went Ponzi. The only thing the recession did was accelerate their financial demise.

Yet Fitch said that "potential new moratoriums and mandated mediations are becoming more widely required," which Fitch thinks will delay final resolution on many of these properties until sometime in 2012. So we're still looking at distressed sales impacting the housing market for at least another two years. Maybe these delays will be long enough to help some people find a job and keep their homes.

Hope is not a plan, but that is all lenders have. Everyone seems to think they are benefiting from the amend-pretend-extend policies of lenders. Expect that behavior to continue until the cartel falls apart.

The good news for borrowers looking to get out of property underwater is that short sales appear to be increasing in popularity. While lenders have discouraged short sales until recently, the use of short sales has increased since mid-2009.

California leads the way in the use of short sales. Fitch found that 50 percent of all short sales or short payoffs were located in California. About 8 percent were in Florida and 7 percent in Arizona. With new guidelines from the Obama administration changing the rules for short sales, Fitch expects the percentage of loans "liquidated outside of REO sale will continue to increase."

Short sales are the solution du jour. Once lenders realize that will not solve the problem, look for foreclosure rates to go back up… unless lenders are going to enable permanent squatting through gifts of homes.

Even when a home defaults, it does not necessarily result in foreclosure. Fitch found that about 15 percent of all modified non-agency residential mortgage back securities (RMBS) get additional modifications. Of the modifications that were completed in the first quarter of 2009, 18 percent have been remodified to date.

Second, third, forth modifications. The amend-pretend-extend dance is getting ridiculous.

The data for the U.S. Treasury's Home Affordable Modification Program (HAMP) still are not available, since the first completed modifications under HAMP were seen in July 2009. Of the 1.7 million loans identified as HAMP eligible, 1.4 million were offered a trial plan by their servicer, but only 299,000 had actually converted to a permanent modification plan. Fitch expects that these modifications will default at about the same rate as the RMBS modifications.

Those modifications could show up later in the process, since the reduced payments are allowed over a five-year period. Then the payments increase to established caps.

When those payments start increasing another wave a defaults could be been.

No, when those payments start increasing there will be another wave of defaults. The policies being implemented by lenders will ensure we have supplies of distressed properties for many years to come.

Eat the Nouveau Riche

I first profiled today's featured property last year. The owner has now been squatting in a multi-million dollar mansion for a very long time. He certainly isn't complaining about the amend-pretend-extend dance.

Over two years squatting in a $2,000,000 mansion

I must admit, when I see people living with no payments for over two years in an opulent mansion, it pisses me off.

This property was purchased on 7/28/2006 for $2,337,000. The owners used a $1,635,700 first mortgage, a $467,350 HELOC and a $233,950 down payment. Then, the fun begins….

Foreclosure Record

Recording Date: 06/02/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 07/28/2008

Document Type: Notice of Default

Irvine Home Address … 37 FRESCO Irvine, CA 92603

Resale Home Price … $1,750,000

Home Purchase Price … $759,000

Home Purchase Date …. 5/27/2005

Net Gain (Loss) ………. $886,000

Percent Change ………. 116.7%

Annual Appreciation … 16.2%

Cost of Ownership

————————————————-

$1,750,000 ………. Asking Price

$350,000 ………. 20% Down Conventional

4.80% …………… Mortgage Interest Rate

$1,400,000 ………. 30-Year Mortgage

$354,149 ………. Income Requirement

$7,345 ………. Monthly Mortgage Payment

$1517 ………. Property Tax

$400 ………. Special Taxes and Levies (Mello Roos)

$146 ………. Homeowners Insurance

$245 ………. Homeowners Association Fees

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

$9,653 ………. Monthly Cash Outlays

-$1545 ………. Tax Savings (% of Interest and Property Tax)

-$1745 ………. Equity Hidden in Payment

$642 ………. Lost Income to Down Payment (net of taxes)

$219 ………. Maintenance and Replacement Reserves

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

$7,223 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$17,500 ………. Furnishing and Move In @1%

$17,500 ………. Closing Costs @1%

$14,000 ………… Interest Points @1% of Loan

$350,000 ………. Down Payment

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

$399,000 ………. Total Cash Costs

$110,700 ………… Emergency Cash Reserves

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

$509,700 ………. Total Savings Needed

Property Details for 37 FRESCO Irvine, CA 92603

——————————————————————————

Beds:: 5

Baths:: 5

Sq. Ft.:: 4750

$0,368

Lot Size:: 7,225 Sq. Ft.

Property Type:: Residential, Single Family

Style:: Two Level, Contemporary

View:: City Lights, City, Mountain, Faces South

Year Built:: 2006

Community:: Quail Hill

County:: Orange

MLS#:: P674831

——————————————————————————

Best Value at Quail Hill, Over $500,000 spent in Custom Upgrades. Beautiful Trevertine and Exotic Hardwood Floors. Custum Built in Family Room and Hallway & Kitchen. Central Vacuum & Clean Air Purification System and Much More!!!!

Custum?

The realtor is really excited about that central vacuum and air purification system.