Despite the downgrade of US government debt from AAA to AA+, US mortgage interest rates hit record lows. Is this the bottom of mortgage interest rates?

Irvine Home Address … 5 CROSSKEY Irvine, CA 92620

Resale Home Price …… $515,000

Our soul stew is the baddest in the land

But one dollar's worth was all that I could stand

But sometimes, sometimes bad is bad

Cool is a rule, but, sometimes, bad is bad.

The witches brew of toxic mortgages brought down the US economy, and now the copious amounts of debt the US government took on to help prop up the housing market and the economy is starting to have its own ill effects.

S&P Downgrades U.S. to AA+: So What?

Peter Cohan — Aug. 6 2011 – 9:21 am

Late Friday evening, S&P downgraded the U.S.’s long-term debt rating to AA+ with a negative outlook. If that downgrade has no economic impact, it will fade from the headlines. And that is the most likely scenario.

I agree with this author. Investors are obviously not sharing S&Ps concern over the United States's ability to meet its debt obligations. Worldwide investors are looking at their alternatives and deciding that the United States is as stable as it gets.

The downgrade should come as no surprise. On July 25, The Daily Beast quoted me as saying that a downgrade was “inevitable.” And since I am not on Wall Street, I am confident that I was among the last to come to that conclusion.

After all, S&P was telegraphing that it would downgrade the U.S. for weeks when it said it would do so unless it saw a plan to cut the deficit by $4 trillion. Late last month it became quite clear that there would be no plan that big. So investors’ only uncertainty regarding S&P was whether it would follow through on its threat — and it did so, albeit a week later than anticipated.

How much of this was the people in charge at the S&P trying to influence US politics? Investors obviously don't think S&P has much credibility, and after their less than stellar ratings on mortgage CDOs, who could blame them?

Behind S&P’s downgrade is an economic model of the U.S.’s fiscal state over the next decade. That S&P model uses a Congressional Budget Office projection of $2.1 trillion in budget reductions over 10 years from the recently passed debt ceiling deal to forecast a rise in the U.S.’s net general government debt-to-GDP ratio.

The U.S.’s ratio is forecast to rise above those of governments that are retaining their AAA rating. Specifically, S&P forecasts that the U.S.’s debt-to-GDP ratio will increase steadily from 74% (2011) to 79% in 2015 and 85% by 2021.

Interestingly, AAA-rated governments — including Canada, France, Germany, and the U.K. — do better than the U.S. in some cases and worse in others. For example, Canada is the world’s healthiest AAA-rated government with debt-to-GDP of 34% in 2011 and 30% in 2015. But the U.K. is worse off than the U.S. in 2011 (80%) and France, with 83% is worse off in 2015.

The difference in S&P’s view between the U.S. and the U.K. and France is that it forecasts that our debt-to-GDP ratio will keep going up by 2021 whereas their ratios will start to go down by 2021.

The S&P is not considering the effect a resurgent US economy would have on its tax revenues. Further, it also doesn't reflect the likelihood of further budget battles to close the deficit when the economy does improve. Most economists agree that austerity during a time of financial recession generally makes the problem worse. It may be necessary, but it is economically harmful.

Wall Street operates on the gap between expectations and reality. And S&P’s decision should come as no surprise. The only question is whether any institutions will be required by their charters to sell U.S. treasury securities now that S&P no longer rates them AAA.

Some public pension funds and mutual funds may be required to sell U.S. treasuries. My guess is that will amount to sales of 3% of their combined U.S. treasury holdings — assuming that those funds did not sell them in anticipation of S&P’s move.

This is the main impact a downgrade might have. Many funds have limited discretion when dealing with their holdings. They must hold only highly rated securities, and if a security is downgraded, they must sell it.

For most investors, an S&P rating is not the critical factor in their investment decisions.

Meanwhile, assuming S&P’s move had been anticipated by the markets, one would expect to see higher interest rates in the U.S. and lower interest rates in the AAA-rated countries. That’s because prudent investors would be dumping U.S. securities and buying securities in AAA-rated Canada, France, Germany, and the U.K.

If the S&P carried weight with investors, this is exactly what would occur.

As it turns out, that is not quite what happened. Instead, rates tumbled in the U.S. and in all the other countries and the U.S. ended last week with the third-lowest 10 year bond yield of its peers — just slightly higher than those of the world’s healthiest AAA-rated country, Canada.

Here are the sizes in trillions of dollars of the five countries’ marketable treasury securities markets along with changes to their 10-year treasury yields between July 1 and August 5:

• U.S. ($9.3 T) from 3.15% to 2.56%
• Canada ($0.6 T) from 3.08% to 2.50%
• France ($1.9 T) from 3.38% to 3.01%
• Germany ($1.6 T) from 3.01% to 2.34%
• U.K. ($1.8 T) from 3.33% to 2.78%

Not surprisingly, big investors who set these rates are coming to a different conclusion than S&P. The U.S. treasury market is over four times bigger than Germany’s. And for investors like China — that own $1.1 trillion in U.S. treasuries – that superior size offers a comforting level of liquidity.

For all the joy that some take in S&P’s decision to downgrade the U.S., global investors passed their verdict on the U.S. before S&P’s late night press release — by lending the U.S. money for 10 years at a 19% lower rate than they did a month ago.

It remains to be seen whether all the weekend huffing and puffing will change that.

Further evidence of the flight to quality embracing the US is in its mortgage interest rates. Since nearly all US mortgage finance is directly backed by the full faith and credit of the US government, GSE asset-backed securities are a proxy for US Treasuries. Most would speculate that if the US starts having credit problems, mortgage interest rates would invariably move higher.

It isn't working out that way.

Mortgage Rates Hit Record Lows Amid Signs of Weakening Economy

Aug. 4, 2011 /PRNewswire/ — Freddie Mac

MCLEAN, Va., Aug. 4, 2011 /PRNewswire/ — Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS^®), showing mortgage rates dropping sharply amid falling bond yields and signs of a weaker than expected economy. The 30-year fixed averaged 4.39 percent, its lowest level for 2011. The 15-year fixed and 5-year ARM set new historical record lows averaging 3.54 percent and 3.18 percent, respectively.

News Facts

• 30-year fixed-rate mortgage (FRM) averaged 4.39 percent with an average 0.8 point for the week ending August 4, 2011, down from last week when it averaged 4.55 percent. Last year at this time, the 30-year FRM averaged 4.49 percent.

• 15-year FRM this week averaged 3.54 percent with an average 0.7 point, down from last week when it also averaged 3.66 percent. A year ago at this time, the 15-year FRM averaged 3.95 percent.

• 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.18 percent this week, with an average 0.6 point, down from last week when it averaged 3.25 percent. A year ago, the 5-year ARM averaged 3.63 percent.

• 1-year Treasury-indexed ARM averaged 3.02 percent this week with an average 0.5 point, up from last week when it averaged 2.95 percent. At this time last year, the 1-year ARM averaged 3.55 percent.

Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage. Visit the following links for Regional and National Mortgage Rate Details and Definitions.

The stock market is tanking right now because investors believe the semi-austerity in the budget agreement will hurt economic output. Bond prices are moving higher (and yields are moving lower) because money is fleeing the stock market and seeking the safety of government-backed mortgage securities.

The downgrade of the US government should be having the opposite effect on bond markets. Instead, investors are more afraid of a weakening economy than they are of the US defaulting on it obligations.

Quotes

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

• “Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought allowing fixed mortgage rates to follow this week with the 15-year fixed and 5-year ARM setting new historical lows. The economy grew 1.3 percent in the second quarter, which was below the market consensus forecast, and first quarter growth was cut to less than a quarter of what was originally reported. In fact, the first half of this year was the worst six-month period since the economic recovery began in June 2009. Moreover, consumer spending fell 0.2 percent in June, representing the first decline since September 2009.

If the economy is hurting, the housing market will remain in the doldrums. The only thing that is going to save the housing market is more demand from people going back to work and qualifying for mortgages.

• “On a positive note, there were indications that the housing market is firming. Real residential fixed investments added growth to the economy in the second quarter after subtracting from growth over the first three months of the year. The CoreLogic® National House Price Index rose for the third straight month in June (not seasonally adjusted) and was the first three-month gain since June 2010. Finally, pending existing home sales rose for a second consecutive month in June and was up nearly 20 percent from June 2010 when the housing tax credits expired.”

If strength in the housing market is being touted as the good news, we are in serious economic trouble. The good news in the housing market is an illusion. Without continued strong job growth, the housing market is going nowhere.

What does this mean for today's home buyers?

Anyone who was going to buy, lower interest rates are great news. The abundance of bank inventory in many markets is making for a buyer's market. Sellers are competing with each other, and asking prices are generally falling. Lower interest rates in a buyer's market makes for better deals for buyers. Anyone considering a property with a cost of ownership lower than rent should take advantage of the low rates and take on fixed-rate debt while the rates are still this low. When rates go up, and they will eventually move higher, resale prices will likely come down further, but for those with a long ownership horizon, locking in a low cost of ownership is a nice benefit.

A note on FHA financing costs

Since FHA is facing mounting losses, the cost of FHA insurance has been going up and up. It currently stands at 1.15% of the purchase price. The cost of FHA insurance is so high that it pushes effective interest rates up over 6%. When interest rates get very low like they are now, conventional buyers obtain a huge cost advantage over FHA buyers.

For instance, today's featured property would have an FHA insurance cost of $572 per month. That cost comes directly out of the buyers ability to finance a payment. Magnified by 4.31% interest rates, and the additional $572 creates a significant reduction in buying power. Looked at another way, to finance today's featured property, an FHA borrower would need to make $144,286. A conventional buyer needs only a $105,868 income.

The bottom line is that many properties in Irvine now trade at or below rental parity, but only for conventional borrowers putting 20% down. Those borrowers have the lowest opportunity cost (they are pulling money out of CDs paying less than 2%) and they have the lowest borrowing costs because they avoid private mortgage insurance.

Irvine has traditionally been a move-up market with relatively little FHA financing. The cost differential will make that phenomenon continue unless prices come down significantly. The question is, “How many conventional buyers are still out there?” The low sales volumes attest to the lack of conventional buyers. If distressed inventories remain low — which is doubtful — then prices may hold where they are. However, with the low demand, prices may need to fall to where FHA buyers can afford to help clean up the mess.

No Red Tape Mortgage

The former owners of today's featured property paid $450,000 on 1/15/2003 using a $360,000 first mortgage and a $90,000 down payment. On 11/26/2003 they refinanced with a $460,000 first mortgage from New Century and withdrew their down payment plus $10,000 of spending money.

On 9/1/2006 the now defunct No Red Tape Mortgage company gave them a $637,500 first mortgage. I think No Red Tape Mortgage was well named. It epitomized the complete lack of mortgage qualification standards rampant during the housing bubble. No red tape means no documentation and no qualification standards. Just ask you you shall receive.

The former owners received $277,500 in mortgage equity withdrawal before they quit paying.

Foreclosure Record

Recording Date: 04/06/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/04/2010

Document Type: Notice of Default

Domestic Cash Buyer

The property was sold to an all-cash buyer who lives in Irvine, probably as an investment. With limited opportunity for appreciation and an extremely poor cap rate, it isn't an investment I would chose.

——————————————————————————————————————————————-

This property is not available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 5 CROSSKEY Irvine, CA 92620

Resale House Price …… $515,000

Beds: 4

Baths: 2

Sq. Ft.: 1918

$269/SF

Property Type: Residential, Single Family

Style: One Level, Ground Level, Ranch

Year Built: 1977

Community: Northwood

County: Orange

MLS#: K11068939

Source: CRMLS

Status: Closed

——————————————————————————

CASH OFFERS ONLY AT THIS TIME. A great fixer for you investors. Nice property in Northwood area. Needs work but ready for the right buyer that wants to make this place their own. 3 bedrooms, 2 bath, 2 car garage with direct access to home. High ceilings. Property has great potential. This is not a short sale.

——————————————————————————————————————————————-

Proprietary IHB commentary and analysis

The previous owners who pulled over $250K out of the property obviously didn't put any back into it. Their seven years of ownership left it as a fixer.

Resale Home Price …… $515,000

House Purchase Price … $450,000

House Purchase Date …. 1/15/2003

Net Gain (Loss) ………. $34,100

Percent Change ………. 7.6%

Annual Appreciation … 1.5%

Cost of Home Ownership

————————————————-

$515,000 ………. Asking Price

$18,025 ………. 3.5% Down FHA Financing

4.31% …………… Mortgage Interest Rate

$496,975 ………. 30-Year Mortgage

$144,288 ………. Income Requirement

$2,462 ………. Monthly Mortgage Payment

$446 ………. Property Tax (@1.04%)

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

$107 ………. Homeowners Insurance (@ 0.25%)

$572 ………. Private Mortgage Insurance

$140 ………. Homeowners Association Fees

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

$3,727 ………. Monthly Cash Outlays

-$558 ………. Tax Savings (% of Interest and Property Tax)

-$677 ………. Equity Hidden in Payment (Amortization)

$28 ………. Lost Income to Down Payment (net of taxes)

$84 ………. Maintenance and Replacement Reserves

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

$2,605 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,150 ………. Furnishing and Move In @1%

$5,150 ………. Closing Costs @1%

$4,970 ………… Interest Points @1% of Loan

$18,025 ………. Down Payment

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

$33,295 ………. Total Cash Costs

$39,900 ………… Emergency Cash Reserves

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

$73,195 ………. Total Savings Needed

——————————————————————————————————————————————————-

Today we have a loan owner's sobering tale of recovering from kool aid intoxication. The hangover is not pleasant.

Irvine Home Address … 46 OAKDALE Irvine, CA 92604

Resale Home Price …… $675,000

Somewhere, somehow, somebody must have kicked you around some

Tell me why you want to lay there, revel in your abandon

Honey, it don't make no difference to me baby

Everybody's had to fight to be free, you see

You don't have to live like a refugee

(Don't have to live like a refugee)

No baby you don't have to live like a refugee

(Dont have to live like a refugee)

Tom Petty and the Heartbreakers — Refugee

Foreclosure sob stories always seem to lack a few pertinent details explaining exactly how the unfortunate circumstances came to pass. Today's featured article is written by a renting former owner who works at the newspaper. She tries to portray herself as a victim, but in reality, she is only a victim of her own poor decisions.

No refuge from the mortgage crisis

A homeowner tries to work with bankers to hold on to her modest but beloved house, but her pleas mean little to the number crunchers.

By Kathy Gosnell Seiler — July 24, 2011

From the front door of the house to the back is a straight shot unbroken by walls, handy for pacing, 24 steps each way.

It is a small house on a small lot in Highland Park, a Los Angeles neighborhood that was on its way up until the recession. The house has not always been well tended: It's old and a bit shabby, but it stands pretty much foursquare.

I bought it in 2005 for $503,000, most of it borrowed,

When she pleaded with the number crunchers back in 2005, she was thrilled when they approved her loan. Now that they want her to make the payments and won't alter the terms to her favor, she considers them heartless. If she borrowed most of the money, the only thing she really invested in the house was her own emotions.

and lived there six years, longer than I'd lived anywhere since childhood. The house was meant to be my refuge, a place where I could plant perennials and know I'd see them flower year after year, an investment for my daughter and me after many years of renting.

The sellers had trashed the house before leaving for Colorado, and perhaps I should have walked away when I discovered the devastation. Instead, friends helped me clear away rotten food and broken furniture and repair gouged walls. I rescued a dog. I made improvements: bolting and bracing the foundation, removing one tree and planting others, installing a security system and attic insulation.

To help pay for the work, I refinanced in 2007 at $511,000 with a five-year fixed-interest first lien and a variable-rate equity loan.

She tried to emphasize her “investment” of sweat equity, but she went to the housing ATM to do the real heavy lifting.

With the real estate market continuing to rise, a Wells Fargo Bank loan officer assured me, it would be easy to refinance to a fixed-rate loan before my rate went up in 2012.

She's claiming her Wells Fargo representative assured her she could serial refinance? Doesn't anyone recognize serial refinancing as a Ponzi scheme? Did she not realize the assurances she was receiving mean nothing and that she was taking on a huge risk? She was buying a house she couldn't afford, but she thought everything would be okay. Foolish.

With little money for extras after fixing the foundation, I scaled back to projects I could do myself: painting and planting. I tore out the frontyard grass and filled the garden with roses, irises, bougainvillea, jasmine, trumpet vines, gardenias, callas and cannas, hibiscus. Springs were glorious.

If she were to keep making her payments, she could continue to enjoy her glorious springs. Since she was relying on Ponzi borrowing, she is going to lose her home. She and everyone else who relied on serial refinancing should lose their homes so they and others can learn the foolishness of that form of financial planning.

By mid-2008, some neighbors on my short hillside street had started defaulting on their loans. One eventually negotiated a short sale; two others went into foreclosure. Worried, I called Wells Fargo in March 2009 to see about refinancing in advance of my adjustable-rate mortgage payments rising significantly. The house was already underwater, the banker told me. My equity was gone, so there was no way I could refinance. He suggested that I wait it out and hope things improved before the rate rise in 2012.

How many other debt zombies are waiting and hoping for future events not to be?

By October 2009, it was clear that the real estate market was only getting worse. I sent Wells Fargo my first application for a mortgage modification, beginning a months-long slog through dead-end phone calls, faxes, lost documents and conflicting information from the bank.

Over a period of five months, Wells Fargo denied three mortgage modification applications.

Loan modifications are not an entitlement, banks don’t want to make them one. She was likely denied because she could afford her payments and didn't deserve the break.

The last denial was based on a bank error suggesting that I had a spending deficit of more than $1,600 a month, despite my having exemplary credit. When I wrote a detailed explanation, the banker with whom I next spoke said, unapologetically, “We read numbers, not words.”

Why should a bank care about her circumstances? The numbers say she could afford the payment, so she is obligated to make them if she wants to keep her home. She isn't the only person in America with a sob story, and quite honestly, hers isn't that compelling.

In November 2009, the Los Angeles County assessor's office informed me that the assessed valuation of my home had dropped $129,060 since the 2006-07 tax year. As I grew more anxious about money, my health declined. Problems that had been in abeyance for more than 20 years returned, and my medical bills began to climb as a result.

She should let go of her attachments which are causing her grief. Further she should probably strategically default on her loan because either the payments will wipe her out, or the stress will. If we can expect reduced housing costs due to stress, I want my landlord to give me a break as well.

In January 2010, one of the telephone bankers at Wells Fargo suggested a short sale. It felt like a gut blow. Sell my home? My refuge? My garden full of flowers and fruit trees?

Her reaction only underscores her need to let go of her attachments.

In February, Zillow.com said the house on which I owed $511,000 was worth $381,500. A comparable house a block away sold for $260,000. I clearly needed a bailout.

WTF? She clearly needed to bail on her mortgage and get out of her house. Perhaps she felt she needed a bailout, but who is supposed to pay for that? The bank? Me as a taxpayer? Screw her.

I made my last desperate bid for help from the bank, offering to pay the full mortgage at a lower interest rate if only I could keep my home. I also wrote to regulatory agencies and to my elected federal, state and local politicians to ask for ideas. Some responded; most didn't; none could offer an idea I hadn't tried.

I have an idea: strategically default on the mortgage and walk away from the house. Once it's over, she will be able to grieve the loss and get on with her life.

In April, I consulted a credit counselor; he said that I was doing all the right things and that my credit score was “fabulous.” His only suggestion was the one I'd already rejected: Consider a short sale.

In May, a senior vice president at Wells Fargo Home Mortgage suggested a short sale.

On June 1, 2010, I acknowledged defeat. I declined to make my mortgage payment and two weeks later hired a short-sale expert and listed the house.

She declined to make her mortgage payment? She means to say that she strategically defaulted. Have you ever noticed that people come up with unusual evasions when confronted with their own guilt? Bill Clinton said, “I did not have sexual relations with that woman.” Sexual relations? This woman's evasion is just as odd. Why doesn't she just admit she told the bank to take their loan and shove it?

That decision brought no relief. Instead, I endured months of daily dunning phone calls from Wells Fargo, which then rejected an offer from a buyer. The bank set a date for a foreclosure sale, then postponed it. Finally, in April, it agreed to an offer of $325,000 for the house. The sale closed less than 48 hours before the bank's scheduled foreclosure sale.

By that time I'd moved. My rental house is three times as far from work as the old one and about half its size.

If her rental is further from work and smaller than her old house, she must have drastically reduced her housing cost because the house she owned would have cost twice as much as a comparable rental. She is attempting to make is sound like she took a big step down in lifestyle, but I call bullshit on that notion.

The new neighborhood is quieter and less friendly, but the air is cleaner. Gardening, once a joy, is a chore I'd rather skip.

I noticed the same thing when I sold my house. The housing bubble and crash is causing great psychological harm. I get no joy out of maintaining plants in a rental. It's hard to feel rooted in a rental, and tending a garden is all about being rooted to your surroundings.

Once in a while I return to Highland Park, but I cannot drive past my house. I fear the changes I might see.

A couple of months before moving, I applied for a small credit union loan, just to see if I could get one. I could not. My credit, once exemplary, is shot. My lack of financial security is disconcerting, and I expect it will dog me for years.

No. It won't. Strategic default consequences minor and likely to decrease. She is succumbing to the lies perpetrated by the lending industry to deter strategic default. It just isn't true.

I can't find a life's lesson here;

Open your eyes: you were irresponsible with the debt you took on. Perhaps this will help:

Further, it is not wise to form such strong attachments to anything in life.

no insight into why this has happened to so many people.

This happened because many people stopped making their loan payments. Duh. Many were just as foolish as this author.

The banks could help us, but they don't.

I will recover, but it's unlikely I will ever own another house.

Kathy Gosnell Seiler is a copy editor at The Times.

If she saves some money, Fannie Mae will let her buy another one in two years.

Are there really no lessons to be learned here? Is this woman so vacuous that she does not see the mistakes she made? If she isn't bright enough to figure it out, I don't hold out much hope for the rest of the clueless masses.

My HELOC is bigger than yours

The owners of today's featured property paid $675,000 on 7/29/2003. They used a $463,920 first mortgage, a $57,990 second mortgage, a $57,990 HELOC, and a $0 down payment. It is possible they put 10% down and didn't use the HELOC, and it is possible they didn't use the $196,700 HELOC they got on 12/2/2004 and the $322,000 HELOC they got on 4/12/2007, but they obviously used some if it, or this wouldn't be a short sale.

If they maxed out their HELOCs, they obtained $264,010 in mortgage equity withdrawal. How much HELOC booty do you think they escaped with?

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 46 OAKDALE Irvine, CA 92604

Resale House Price …… $675,000

Beds: 4

Baths: 2

Sq. Ft.: 2260

$299/SF

Property Type: Residential, Single Family

Style: Two Level, Contemporary

Year Built: 1977

Community: Woodbridge

County: Orange

MLS#: S665753

Source: SoCalMLS

Status: Active

On Redfin: 19 days

—————————————————————————–

This is a Great house! It is a fixer but it has good floor plan and is in a great location! This is one to see! Worth the short sale wait.

——————————————————————————————————————————————-

Proprietary IHB commentary and analysis

If this house is a fixer, that rules out home improvement as the recipient of their HELOC spending.

Resale Home Price …… $675,000

House Purchase Price … $579,000

House Purchase Date …. 7/23/2003

Net Gain (Loss) ………. $55,500

Percent Change ………. 9.6%

Annual Appreciation … 1.9%

Cost of Home Ownership

————————————————-

$675,000 ………. Asking Price

$135,000 ………. 20% Down Conventional

4.53% …………… Mortgage Interest Rate

$540,000 ………. 30-Year Mortgage

$137,549 ………. Income Requirement

$2,746 ………. Monthly Mortgage Payment

$585 ………. Property Tax (@1.04%)

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

$141 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$82 ………. Homeowners Association Fees

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

$3,553 ………. Monthly Cash Outlays

-$656 ………. Tax Savings (% of Interest and Property Tax)

-$707 ………. Equity Hidden in Payment (Amortization)

$227 ………. Lost Income to Down Payment (net of taxes)

$104 ………. Maintenance and Replacement Reserves

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

$2,522 ………. 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

$38,600 ………… Emergency Cash Reserves

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

$192,500 ………. Total Savings Needed

——————————————————————————————————————————————————-

David A. Benson, a citizen of Sacramento, California, has proposed an amendment to the California Constitution that would outlaw foreclosures. The proposal has been cleared by the Secretary of State.

Irvine Home Address … 2372 SCHOLARSHIP Irvine, CA 92612

Resale Home Price …… $300,000

I tear my brain out endlessly,

searching for something that will never be.

No rest, never to expect something of this world,

'cause this world owes me nothing.

Submission.

What you deserve is what you will get in the end

No handouts.

Vision of Disorder — Adelaide

The culture of housing entitlement in California has reached its ultimate extreme. People have come to believe they are entitled to free money from free housing and that everyone else should pay for it. The beliefs that spawn mental manure like this proposal warrant closer examination. The cultural pathology infecting California homeowners is truly remarkable. An exorcism is badly needed — and the market itself is working to banish those demons — perhaps proposals such as this are the demon's last gasp before the kool aid drains from its veins.

This is no joke, someone has actually proposed the outlaw of foreclosures, mandated principal forgiveness, and other borrower perks and cloaked it as the birthright of all Californians. Let's carefully examine what this amendment says, and what would happen if it became law.

Foreclosure Modification Act

To the Honorable Kamala D. Harris Attorney General of the State of California

California Homeowners and I, the undersigned David A. Benson, a citizen of the State of California and located at PO Box 292452 Sacramento, CA 95829

916-247-4743

Temporary Numbers Fax 916-685-0385

e-mail: protect.our.home.now@gmail.com

Do hereby request a Title and Summary for the attached proposed initiative constitutional amendment.

JUN 07, 2011

INITIATIVE COORDINATOR ATTORNEY GENERAL'S OFFICE

This initiative measure is submitted to the people in accordance with the provisions of Section 8 of Article II of the California Constitution.

This initiative measure expressly amends the California Constitution by amending a article and by adding sections thereto of the Article 1 dealing with Declaration Of Rights.

PROPOSED AMENDMENT

FORECLOSURE MODIFICATION ACT

SECTION 1. Title

This act shall be known as the “Foreclosure Modification Act”.

SECTION 2. Findings and Declarations

The People of the State of California hereby find and declare that:

(a) Real estate lending institutions have failed to provide a simple method of loan modification and foreclosure prevention.

Loan modifications are not an entitlement and banks don’t want to make them one. Loan modifications should not become an entitlement, and foreclosures should not be prevented. Foreclosures are essential to the economic recovery. Just because someone declares something to be a problem doesn't mean that it really is.

(b) That lending institutions, loan servicers, mortgagees, trustees and beneficiaries of home loans are not taking into account the devalue that has occurred in property values and adjusted loans accordingly in loan modifications.

Lenders should not care about the value of the borrower's collateral except to the degree their collateral is protected. If lenders were forced to write down principal if values declined, how do you think lenders would react? The first thing that would happen is that down payment requirements would go sky high. If 50% declines are possible, and if lenders had to reduce principal to match, no lender would ever loan more that 50% of the value of the loan.

Of course, we could always look to the US government to continue to provide those 96.5% FHA loans and expect taxpayers to eat the losses when the inevitable write downs came. If you think the 1.15% FHA insurance premium is high now, wait until the actuaries factor in the cost of California principal reductions.

Basically, if principal reductions were mandated, all home loan lending in California would cease. No private lender wants to give away their money, and the government can't afford to.

This act should be retitled as the “Loan Owner Giveaway Act.”

(c) That borrowers would continue to make payments on notes held by these lending institutions, loan servicers, mortgagees, trustees and beneficiaries, if given the opportunity.

If the above statement were true, why do 25% of loan owners walk away through strategic default? If given the opportunity borrowers will take free money and reduced payments, and if not given that, they will simply walk away.

(d) That foreclosure has become a method of increasing a lending institution, loan servicer, mortgagee, trustee and beneficiary's bottom line and profits by turning borrowers out of their homes.

I profit from foreclosures, I do so at the expense of lenders. No lender is making money from the auction site. That is where their huge losses are finally realized. The above statement is complete nonsense. Further, so what if people are making money from foreclosure auctions. The auctions would not be occurring if borrowers continued making their loan payments.

(e) That currently it is a time consuming and sometimes costly process that is required by lending institutions, loan servicers, mortgagees, trustees and beneficiaries for refinancing

of a home loan in order that a borrower may take advantage of lower interest rates.

Lenders don't want borrowers to take advantage of lower interest rates. Lenders want to make money by charging higher interest rates. So now low interest rate refinancing is an entitlement?

I suppose the free-money cash-out refinances at ever-decreasing interest rates are an entitlement too, right?

How are the statements above identified as problems? Why don't we give everyone free houses and free money for life? That's basically what this amendment would accomplish.

SECTION 3. Purposes and Intent

The People of the State of California do hereby enact this measure to:

(a) Assist all citizens of this great State of California in the purchase and ownership of a home or property and that associated therewith.

This is not assistance of the citizens of a great state. What he is describing is theft, and it will not make our citizens great, it will make them entitled whiners.

(b) Make available principal reduction as well as but not limited to interest rate reduction a method of aiding borrowers in retaining their home or properly.

If this were to come to pass, any borrower who behaved in any prudent way is a fool. Everyone would be strongly encouraged to borrow as much money as possible against their homes, then when prices crash petition for their mandated principal forgiveness. At that point, anyone who isn't gaming the system is a fool.

(c) Prevent the lost of one's personal home property by foreclosure or other means due to hardship or illness or other calamity.

So when the calamity is self inflicted — which the vast majority in California are — the intent is to eliminate the consequences for unwise behavior and give foolish borrowers a pass. Moral hazard will be enshrined into the California constitution.

(e) Make refinance for a lower interest rate and payment simple, easy and available to all homeowners.

Who exactly is going to provide this money? Given the terms dictated by this amendment, no private lender will be stupid enough to extend these loans. Will the government do it? Or will the government be asked to provide loan guarantees and take the risk?

SECTION 4. Article 1 of the California Constitution is amended, with the addition of SEC. 31 to read:

It is a fundamental right for every Californian to purchase and own a home and real property. As such no township, city, county, municipality, corporate entity, the Legislature or agents thereof shall infringe on this given right of the State of California to its citizens. In that this right is granted to the citizens of California, the State and its agents (townships, cities, counties, legislature and departments thereof) shall endeavor to assist and encourage the ownership of a personal home or property and such as related to same.

Home ownership as a fundamental right? An entitlement? If it is, I want a beachfront home in Laguna. It's my right as a California citizen, right? All I have to do is get a loan to get through the door, then it's mine.

No citizen of the State of California shall lose or have that deemed as their personal home or property taken by foreclosure or any instrument thereof or similar to.

No citizen of the State of California will ever be given a home loan. Why would any lender fund a loan they knew they could only get back if the borrower decided to pay them back? What happens when borrowers strategically default and decide to squat forever? Fear of foreclosure is essential to the operation of our real property system. Without it, borrowers have no incentive to borrow responsibly, and lenders have every reason not to loan at all.

In the event of non payment in the time defined by standard loan contracts, due to financial hardship or illness by the home or property borrower, then the lending institution, loan servicers, mortgagees, trustees and beneficiaries shall make every effort to assist California borrowers and in the event of a reduction of local property values of more then 10%, a reduction of principal to reflect the new value shall be used, as well as to reschedule payments and or reduce interest rates and or refinance without credit review of the loan in order to bring said loan current.

There are two positions you can take in finance: equity or debt. Equity gets to participate in the upside and the downside of the change in asset value. Debt is fixed, and debt positions do not participate in either the upside or the downside. This provision gives borrowers the best of both worlds and makes lenders eat a shit sandwich.

In addition any such loan issued for and secured by a home or property by any lending institutions, loan servicers, mortgagees, trustees and beneficiaries doing business in the State of California, shall be able to be refinanced without credit review or penalty at minimum cost, within 45 days of being requested, by the original loan borrower or home owner, provided said owner or borrower has maintained said loan for a period of no less than 3 years.

This provision shifts all interest rate risk onto the lender. If rates go up, the borrower gets the advantage of their mortgage being fixed at a low rate, but if rates go down, the borrower automatically gets the benefit of the lower rate even if they no longer qualify. Again the borrower is getting the best of both sets of terms, and the lender is being forced to endure the worst.

If lenders have to face both depreciation risk and interest rate risk, they will dramatically increase down payment requirements, and interest rates will go sky high — assuming lenders are willing to lend at all. The follow-up amendment to this one is to force lenders to loan money in California because otherwise they won't under the new terms.

All borrowers shall have the right and the ability to meet in person if desired, with an agent of the lending institutions, loan servicers, mortgagees, trustees and beneficiaries in order to facilitate any required review with said agent who will be authorized to make any changes in loan terms at that time.

To top it off, lenders must absorb some unnecessary servicing fees. I get the impression the guy who wrote this amendment wanted to see how bad he could make the deal for lenders. He succeeded.

This shall apply also to property taxes, fees and levies collected on a citizen's home by any township, city, county, municipality, political subdivision or agents thereof.

There goes the last time any home owner paid their HOA dues or property taxes. Why pay when they can't foreclose? To be nice?

These groups shall make every effort possible to assist the home owner in the payment of current or back property taxes or assessments, even to the extent of allowing payments on a weekly or monthly schedule at no additional cost or interest thereof, in order that the citizen may retain their personal home or properly. This does not prohibit those laws dealing with mechanics liens and lien laws, but is in addition to same.

This amendment is foolish on many levels, but it does reveal how pervasive the housing entitlement has become in California. If I were going to write an amendment as satire, I couldn't do it as well. This encompasses every bad idea of loan owner bailouts into one tome. Kudos for the satire. Condemnation for the serious attempt at expanding homeowner entitlements.

California Citizen Proposes Amendment Outlawing Foreclosures

08/02/2011 — By: Krista Franks

A Sacramento, California citizen has proposed an amendment to the California Constitution that would outlaw foreclosures.

Declaring that “real estate lending institutions have failed to provide a simple method of loan modification and foreclosure prevention,” David A. Benson’s Foreclosure Modification Act would require lenders to provide principal reductions and interest rate reductions to help borrowers keep their homes.

Benson asserts that loan servicers are “not taking into account the devalue that has occurred in property values,” and thus, his amendment would require lenders and servicers to offer refinancing options with lower interest rates to all homeowners. According to the amendment, any home loan “shall be able to be refinanced without credit review or penalty at minimum cost, within 45 days of being requested by the original loan borrower or home owner” given the borrower has maintained the loan for at least three years.

“It is a fundamental right for every Californian to purchase and own a home and real property,” the proposed amendment states. “As such no township, city, county, municipality, corporate entity, the Legislature or agents thereof shall infringe on this given right of the State of California to its citizens.”

The proposal, already cleared by the Secretary of State, now requires 807,615 signatures — 8 percent of the total votes cast in California’s 2010 gubernatorial election — in order to be listed on the ballot for California voters to consider.

Benson has until December 27 to collect the signatures.

A nonpartisan legislative analyst and the California governor’s director of finance say the amendment might conflict with the U.S. and California Constitutions and other federal laws, according to an article in the Central Valley Business Times.

It probably won't be too difficult to find 807,615 loan owners to sign up to get free money. I wouldn't be surprised to see this initiative get on the ballot. If it passes, hopefully the judges will write a scathing rebuke when they throw it out in court.

The school of hard knocks

Whenever I see a property with an address on Scholarship, I think about how the buyers were schooled by the market. Today's featured property is a huge loss on a Jamboree corridor condo.

The original buyers put 20% down on this condo, so both they and the bank shared the pain equally. It must suck to lose $107,400 of your own money and have your credit trashed.

——————————————————————————————————————————————-

This property is not available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 2372 SCHOLARSHIP Irvine, CA 92612

Resale House Price …… $300,000

Beds: 2

Baths: 2

Sq. Ft.: 1037

$289/SF

Property Type: Residential, Condominium

Style: One Level, Other

Year Built: 2006

Community: Airport Area

County: Orange

MLS#: U11000507

Source: SoCalMLS

Status: Closed

——————————————————————————

Upgraded home offers 2 master bedrooms, 2 baths located on the third floor with open views. Home includes natural granite slab countertops & designer European-style cabinetry in kitchen and bathrooms, black Whirlpool appliances, hardwood flooring in kitchen and entry, and dual glazed energy efficient windows. Separate inside laundry room includes a full size washer & dryer. Two side by side assigned parking spaces in gated covered garage. The home is desirably located near the amenities which include pool, spa, fitness center, indoor basketball court, putting green, billiard room, tot lot, club house, business center, conference room, and more.

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Proprietary IHB commentary and analysis

The North Korea towers are not the only condo complex to see massive losses. This unit sold for more than 40% off its peak purchase price. With transaction costs, the loss was nearly half of what was paid.

Resale Home Price …… $300,000

House Purchase Price … $535,000

House Purchase Date …. 2/24/2006

Net Gain (Loss) ………. ($253,000)

Percent Change ………. -47.3%

Annual Appreciation … -10.4%

Cost of Home Ownership

————————————————-

$300,000 ………. Asking Price

$10,500 ………. 3.5% Down FHA Financing

4.53% …………… Mortgage Interest Rate

$289,500 ………. 30-Year Mortgage

$63,087 ………. Income Requirement

$1,472 ………. Monthly Mortgage Payment

$260 ………. Property Tax (@1.04%)

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

$62 ………. Homeowners Insurance (@ 0.25%)

$333 ………. Private Mortgage Insurance

$390 ………. Homeowners Association Fees

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

$2,517 ………. Monthly Cash Outlays

-$135 ………. Tax Savings (% of Interest and Property Tax)

-$379 ………. Equity Hidden in Payment (Amortization)

$18 ………. Lost Income to Down Payment (net of taxes)

$58 ………. Maintenance and Replacement Reserves

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

$2,078 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,000 ………. Furnishing and Move In @1%

$3,000 ………. Closing Costs @1%

$2,895 ………… Interest Points @1% of Loan

$10,500 ………. Down Payment

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

$19,395 ………. Total Cash Costs

$31,800 ………… Emergency Cash Reserves

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

$51,195 ………. Total Savings Needed

——————————————————————————————————————————————————-

I would like to thank the Newport Harbor Rotary Club for inviting me to speak last night. It was fun.

Irvine condos are showing the same price weakness as homes in other areas. If Irvine is different and immune to price declines, why aren't it's condos behaving differently as well?

Irvine Home Address … 203 BRIARWOOD Irvine, CA 92604

Resale Home Price …… $229,000

I'm Hunting High and Low

Sometimes I may win sometimes I'll lose

It's just a game that I play

Stratovarius — Hunting High and Low

Many people are hunting for houses. Some are looking at the high end, and some are lookiing low. Which is the better way to go?

Over the last several weeks, the IHB has been proud to present a series of hedonic house price analyses by Jaysen Gillespie of Global Decision:

An accurate view of the Irvine housing market by Global Decision and IHB

A detailed look at Irvine Village premiums by Global Decision and IHB

The market value of Irvine home features by Global Decision and IHB, and

OC Housewife, Ponzi borrower, failed land baron.

This week Jaysen has taken on a comparison of the single family market with the condo market in Irvine to see the similarities and differences. Some of the conclusions may be surprising. Below is Jaysen's writing. My comments pick up afterward.

A presentation by Jaysen Gillespie of Global Decision

info@globaldecision.com

Global Decision is an analytics consulting firm. While our methods are not industry-specific, our engagements are skewed towards specific industries in Southern California, such as real estate (along with online gaming and restaurant chains). We specialize in applying both foundational and advanced analytics to better understand business and economic issues.

Today continues our series on using the Global Decision Hedonic Price Model to determine how homes values are trending and the underlying factors that create such value.

Up to this point, we’ve focused on single-family homes (SFRs). In some parts of the country, SFRs represent the vast majority of the market. Irvine is not one of them. In fact, in the Irvine sales data from 2000-2011Q2, condos represent over 50% of all sales by quantity. As a result, no understanding of the Irvine market is complete without an equally in-depth review of how condos sales are trending. In expensive coastal California, condos serve as an entry-level market for those moving from rentership to ownership. More importantly, condos *had* served as a source of equity for those wishing to move up the ownership ladder – into a single-family home.

In the above chart, we compare Irvine SFRs to Irvine condos over the last 11 years. Not surprisingly, the lower-cost condos rose a bit higher (as a percentage of their Year-2000 starting point) than houses. Said condos have also fallen farther from their peak.

Because Irvine condo values rose at a faster rate than the values of Irvine single family homes while the housing bubble was inflating, the above chart’s ratio of home-to-condo values initially shows a “negative premium” for single family residences. However, as the bubble deflates the home-to-condo value ratio quickly reverts to 1:1 and then rises further as condo prices decline more rapidly than SFR prices.

An interesting chart results when we start the x-axis from peak pricing (2006) for both homes and condos. Both series peaked in 2006 and have declined 18% (SFRs) and 30% (condos) in the last 5 years. The magnitude of the decline is important to understand because it directly impacts the probability that a given homeowner is underwater. At this point, a sizable percentage of 2006 Irvine condo buyers are likely underwater. Those who purchased in 2006 are especially likely to be underwater as a down payment of 30% would have been required to keep that cohort in a positive equity position after an assumed 5% “get out” cost.

Irvine condo buyers who carefully saved a 20% down payment to buy a condo in 2006 (or even 2007) now find themselves with a paper loss of 100% of invested equity. At peak median condo prices of around $580,000, such buyers have paper losses of $116,000. Such losses do not have to be realized until a sale and some owners may not find the loss of said amounts to be particularly problematic. However, the losses do have a few serious impacts in the market. First, 2006-2007 condo buyers have no equity to fuel the purchase of more-costly SFRs. This fact is reflected in the data showing that higher-end homes in Orange County take much longer to sell than lower-end homes. Second, once buyers are underwater, each additional drop in home values makes them more likely to consider walking away from the debt.

http://faculty.chicagobooth.edu/luigi.zingales/papers/Determinants_of_Attitudes_towards_Strategic_Default_on_Mortgages.pdf

Page 30 of the linked .pdf file, shows that a shortfall of $100k induces 2.5X the propensity to strategically default vs a shortfall of $50k. Page 49 shows that knowing someone who strategically defaulted also increases reported propensity to strategically default. For a full read on attitudes regarding strategic default, please see the March 2011 paper at the University of Chicago’s Booth School of Business linked above.

Somewhat perversely, the 2006-2007 Irvine condo buyer who put down the bare minimum (0-3%) has a much smaller paper loss and has preserved the option of “walking away” with a smaller financial hit. Using a zero-down program to purchase a home is essentially obtaining a free call option: if home values rise, you pocket the gain. If home values fall, you have the option of walking away from the debt (in exchange for a lowered credit rating). Low-down payment programs thus create a feedback loop that exacerbates swings in the direction of the housing market. When home values are rising, they induce people to over-invest in residential real estate. When home values are falling, they exacerbate the drop by adding to inventory (shadow and real) and sap buyer demand for move-up housing. It’s hard to argue that low down payment programs make sense from a stability standpoint.

With the Irvine condo dataset, we find that a large chunk (21%) of all condo sales occur in the Irvine village of Woodbridge. As a result, we can also construct a valid hedonic price index for Woodbridge Condos. Doing so allows us to not only see trends in an established high-quality area (see our previous analysis of Irvine neighborhood values to see why “high-quality” is not our opinion, but based on market valuations), but also allows us to remove the “area” as a variable in the underlying regression.

In the chart above, you can see that the value trend for Woodbridge condos (light blue) and the value trend for Irvine condos (light green) are similar. Such results provide evidence that having an “area” variable in our underlying Irvine condo model is not skewing price trends and serve as a good gut check for each other.

Looking again at the post-bubble behavior of price trends in Irvine, Coto, and the region (as proxied by the Case-Shiller LAOC high tier index), we find that most indexes have fallen between 29% and 33% in value. Irvine’s condos (in both Woodbridge and city-wide) have dropped 30-31% in value while the LAOC Case Shiller High-Tier is also down just under 30%. Coto SFRs have slightly underperformed with a drop of 33%.

The Future: Irvine SFRs vs. Irvine Condos

Interestingly, Irvine SFRs have declined only about 18% from peak pricing. Even more interesting, it appears that temporary incentives (such as an $8,000 tax credit) lifted Irvine SFR prices more, as compared to a 2009-Q1 floor, than condo prices. Irvine SFRs have retained some of their gains since the 2009-Q1 recent bottom, while Irvine condos have now reached new post-bubble lows. Logic would have dictated an opposite result – a fixed $8,000 “incentive” should have more greatly swayed lower-priced markets.

A common theme in housing analysis is the (in)famous substitution effect. We’ve discussed this effect when looking at Coto vs. Irvine, and now we can consider the Irvine-vs-Irvine substitution effect of SFRs vs Condos. A frequently mentioned benefit of living in Irvine is access to excellent schools and proximity to employment. Unless the Irvine Unified School District utilizes some highly gerrymandered attendance zones, owners of Irvine condos are entitled to receive and same quality of schools as Irvine SFR owners. Rumor also has it that the IUSD allows children from SFRs, condos, and even apartments to sit in the same classrooms as each other. We do indeed hope that SFR parents have that difficult talk with their children about what a “middle unit” is before kids learn the hard way. Oh, the horror!

All Irvine residents enjoy the same overall crime rate, proximity to jobs, microclimate and so forth. As a result, Irvine condos are a close substitute for Irvine SFRs, especially given that Irvine contains many larger 3-bedroom condos. A long-term equilibrium will likely either have condo prices rebound, relative to SFR prices – or will have SFR prices decline, relative to condo prices.

IrvineRenter's Commentary

Falling condo prices mean the move-up market is broken. It isn't until condo prices bottom then come up a bit that buyers have equity to put 20% down on a different property. The move up market doesn't happen by magic. People still need a raise in pay to afford better accommodations because houses all rise in price together in a healthy market. If the low end of the market is moving down, it is robbing the equity of prospective buyers looking to move upward.

Condo prices are more volatile than SFR prices because not all the equity from a condo sale is used to push up the next rung on the property ladder. There is always some diffusion as people endure transaction costs, and during the housing bubble, extracted and spent their equity. This makes condo prices rise quicker in a good market; however, since condos are less desirable than SFRs, they also tend to fall faster in a bad market.

Jaysen's commentary on the effects of 100% financing are right on. Mortgages take on the characteristics of options, and what started as an affordability program, 100% financing ended up making houses very unaffordable as prices were driven up to the stratosphere.

Jaysen's conclusion is a point I want to reitereate; “A long-term equilibrium will likely either have condo prices rebound, relative to SFR prices – or will have SFR prices decline, relative to condo prices.“

Regardless of which path the market takes, if you are buying as an investment, it makes little sense to buy an Irvine SFR. If you believe in the Gospel of Irvine, and you want to make money purchasing Irvine real estate, you should be buying condos. When the equilibrium is restored — up or down — condos will move positively more than SFRs.

What capitulation looks like

If you are interested in Irvine condos as an investment, today's featured property is an opportunity to make money from a desperate seller capitulating to the market. If you want to see what capitulation looks like, examine the price history of this previously featured condo.

Date	Event		Price	Source
Jul 27, 2011	Price Changed		$229,000	SoCalMLS #P776605
Jul 14, 2011	Price Changed		$239,000	SoCalMLS #P776605
Jun 29, 2011	Price Changed		$244,900	SoCalMLS #P776605
Jun 04, 2011	Price Changed		$247,000	SoCalMLS #P776605
May 27, 2011	Price Changed		$248,000	SoCalMLS #P776605
May 19, 2011	Price Changed		$249,000	SoCalMLS #P776605
May 13, 2011	Price Changed		$254,900	SoCalMLS #P776605
Apr 28, 2011	Price Changed		$259,000	SoCalMLS #P776605
Apr 06, 2011	Listed (Active)		$269,000	SoCalMLS #P776605
Apr 04, 2011	– Delisted (Cancelled)		—	Inactive SoCalMLS #2
Apr 02, 2011	– Price Changed		*	Inactive SoCalMLS #2
Mar 26, 2011	– Price Changed		*	Inactive SoCalMLS #2
Mar 24, 2011	– Price Changed		*	Inactive SoCalMLS #2
Mar 18, 2011	– Price Changed		*	Inactive SoCalMLS #2
Mar 05, 2011	– Price Changed		*	Inactive SoCalMLS #2
Feb 24, 2011	– Price Changed		*	Inactive SoCalMLS #2
Feb 09, 2011	– Price Changed		*	Inactive SoCalMLS #2
Jan 15, 2011	– Price Changed		*	Inactive SoCalMLS #2
Dec 14, 2010	– Price Changed		*	Inactive SoCalMLS #2
Nov 23, 2010	– Price Changed		*	Inactive SoCalMLS #2
Nov 18, 2010	– Price Changed		*	Inactive SoCalMLS #2
Sep 07, 2010	– Price Changed		*	Inactive SoCalMLS #2
Jul 23, 2010	– Price Changed		*	Inactive SoCalMLS #2
Jun 30, 2010	– Price Changed		*	Inactive SoCalMLS #2
Jun 22, 2010	– Price Changed		*	Inactive SoCalMLS #2
Jun 07, 2010	– Price Changed		*	Inactive SoCalMLS #2
May 20, 2010	– Listed (Active)		*	Inactive SoCalMLS #2
May 19, 2010	– Delisted (Cancelled)		—	Inactive SoCalMLS #1
May 01, 2010	– Relisted (Active)		—	Inactive SoCalMLS #1
May 01, 2010	– Pending (Backup Offers Accepted)		—	Inactive SoCalMLS #1
Mar 20, 2010	– Price Changed		*	Inactive SoCalMLS #1
Mar 15, 2010	– Price Changed		*	Inactive SoCalMLS #1
Feb 23, 2010	– Price Changed		*	Inactive SoCalMLS #1
Feb 22, 2010	– Price Changed		*	Inactive SoCalMLS #1
Feb 12, 2010	– Price Changed		*	Inactive SoCalMLS #1
Feb 03, 2010	– Listed (Active)		*	Inactive SoCalMLS #1
Jan 27, 2010	Sold (Public Records) This home was sold at a foreclosure auction.		$258,000	Public Records

This property was purchased at auction on 1/27/2010 for $258,000. As all auction purchases are, this one was all cash.

It looks as if they had the property in escrow just as the tax credit was expiring in May of 2010, and the property fell out of escrow. As we all know, prices have gone straight down ever since.

They relisted the property and chased the double-dip for a full year finally terminating their listing in April. After 16 months of ownership paying the $385 per month association fee, property taxes, insurance, and utilities, the carrying costs finally forced these sellers to give up their denial and lower their price to sell the property.

The emotional decision to sell a loser is tough, but once it's made, only then does a seller really get to assess the damage their denial caused. They have lowered their price $40,000 since April 4. That is over 15% of the purchase price, and they still haven't found a buyer.

That is a motivated seller. If you're interested, give them a lowball offer. They might surprise you and take it.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 203 BRIARWOOD Irvine, CA 92604

Resale House Price …… $229,000

Beds: 2

Baths: 1

Sq. Ft.: 941

$243/SF

Property Type: Residential, Condominium

Style: One Level, Other

Year Built: 1978

Community: Woodbridge

County: Orange

MLS#: P776605

Source: SoCalMLS

Status: Active

On Redfin: 113 days

——————————————————————————

===== PRICE REDUCED FOR QUICK SALE AND BEST PRICE IN THIS COMMUNITY ===== Private end unit overlooking greenbelt in beautiful, peaceful neighborhood of Irvine. This unit has been renovated with new paint throughout, new carpet, new baseboards around all rooms and brand new kitchen appliances. Tile entry opens to spacious living room. There is also a separate room for laundry. Walking distance to parks, North Lake, schools and association pool. === CLOSE TO UCI & IVC ===

——————————————————————————————————————————————-

Proprietary IHB commentary and analysis

Their description should read ===== PRICE REDUCED OVER AND OVER AGAIN FOR QUICK SALE AND BETTER PRICING IN THIS COMMUNITY =====

Resale Home Price …… $229,000

House Purchase Price … $258,000

House Purchase Date …. 1/27/2010

Net Gain (Loss) ………. ($42,740)

Percent Change ………. -16.6%

Annual Appreciation … -7.5%

Cost of Home Ownership

————————————————-

$229,000 ………. Asking Price

$8,015 ………. 3.5% Down FHA Financing

4.53% …………… Mortgage Interest Rate

$220,985 ………. 30-Year Mortgage

$48,156 ………. Income Requirement

$1,124 ………. Monthly Mortgage Payment

$198 ………. Property Tax (@1.04%)

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

$48 ………. Homeowners Insurance (@ 0.25%)

$254 ………. Private Mortgage Insurance

$385 ………. Homeowners Association Fees

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

$2,009 ………. Monthly Cash Outlays

-$103 ………. Tax Savings (% of Interest and Property Tax)

-$289 ………. Equity Hidden in Payment (Amortization)

$13 ………. Lost Income to Down Payment (net of taxes)

$49 ………. Maintenance and Replacement Reserves

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

$1,678 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,290 ………. Furnishing and Move In @1%

$2,290 ………. Closing Costs @1%

$2,210 ………… Interest Points @1% of Loan

$8,015 ………. Down Payment

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

$14,805 ………. Total Cash Costs

$25,700 ………… Emergency Cash Reserves

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

$40,505 ………. Total Savings Needed

——————————————————————————————————————————————————-

Despite the drop in foreclosure notices and sales, lenders have increased their REO inventory holdings 42% since last July, and shadow inventory continues to grow as well.

Irvine Home Address … 90 OVAL Rd #1 Irvine, CA 92604

Resale Home Price …… $326,900

You say you haven't been the same since you had your little crash

But you might feel better if I gave you some cash

You don't want to work, you want to live like a king

But the big, bad world doesn't owe you a thing

Get over it

Get over it

The Eagles — Get Over It

The market hasn't been the same since it had its little crash. There's too much debt and too little cash. Too many people didn't want to work, but they wanted to live like a King. For a while their houses made it real, but those days are long gone, and now everyone just has to get over it.

Understanding the dynamics of our market crash

There are a number of key relationships that control the dynamic of the ongoing market crash. Current and future market prices are impacted by delinquency, foreclosure, shadow inventory, cure rates, and MLS saturation.

Delinquency, foreclosure, and shadow inventory

When borrowers quit making their payments, they are classified as delinquent. Prior to the housing bubble, lenders typically gave borrowers 90 days to catch up on their payments, then they would issue a notice of default. Ninety days later, lenders would issue a notice of trustee sale, and three weeks after that, the foreclosure auction would take place. Those timelines have not been adhered to since 2006 or perhaps even earlier.

Once borrowers are delinquent, but before they are issued a notice of default, they exist in a strange limbo known as shadow inventory. It's called shadow inventory because there are no official statistics on the number of homes trapped here, and this inventory will ultimately be pushed through the system and become visible inventory picked up by vendors who track the public records. Most properties in visible inventory end up as foreclosures.

Shadow inventory was not discussed much in the past because houses were not allowed to accumulate there. Lenders didn't used to fool around with delinquent borrowers. The time between delinquency and notice of default was short, and shadow inventory was merely a conduit along the processing timeline. Now shadow inventory is a significant portion of the market (see red area below).

Delinquency rates, cure rates, and foreclosure

Shadow inventory is like a room with only two doors. Door number one is a cure. The borrower can cure the delinquency through a loan modification (most of which ultimately fail) or the borrower can come up with the cash to make up the missed payments. Door number one is everyone's favorite, but few have been able to pry it open.

Door number two exiting shadow inventory is through a sale. In an appreciating market, buyers can merely sell their house to pay off the loan from equity stored in the property, but after a crash like ours, many loan owners are underwater and unable to sell and pay off the loan. Many sell anyway through a short sale. Another method of selling and clearing shadow inventory is through foreclosure. Most homes in shadow inventory will ultimately face this fate.

Delinquency rates have been very high since 2007. In Orange County it peaked near 9%. With cure rates being very low, short sale and foreclosure has been the most widely used method of clearing out this mortgage debris.

Shadow inventory, foreclosure, and MLS saturation

Lenders build shadow inventory for two reasons: (1) many lenders lack the financial stability to write down the bad debts from their balance sheets and remain solvent, and (2) the faster lenders clear this inventory, the quicker it hits the MLS and builds up as REO inventory. There is only so much inventory the market can absorb at one time, so lenders must manage this inventory to prevent prices from falling further.

Think of shadow inventory and visible inventory as being like a pool and spa with a small drain. The spa is like shadow inventory spilling over into the pool which is visible inventory. The small drain is the final sale on the MLS. Whether the water is in shadow inventory or visible inventory, it will ultimately have to pass through the drain to empty the pool. If this water is released too quickly, the flood of properties ruins the market. if the water is drained too slowly, lenders have non-performing assets on their books inhibiting lending and the overall economy.

The balance sheet constraints have largely determined what lenders have foreclosed on so far; low-priced homes. Look at the problem from a lender's point of view. Let's say you are Wells Fargo, and you plan to write down $1B per quarter of your bad residential loans. Do you write down a large number of loans in a low-cost area, or do you write off a small number of loans in a high cost area? If you want to look like you are making progress, you would choose to write off loans from the bottom up. That's exactly what lenders are doing.

[below: house foreclosure timelines of high priced (red) and low priced (blue).]

In effect, what looks like cartel behavior is merely each lender taking the balance sheet write downs they can afford each quarter. Since they all still face similar constraints, they all act in a similar manner and resemble a cartel. However, this behavior will not continue indefinitely. At some point, the stronger banks will begin to work their way up the housing ladder and begin foreclosing on higher priced homes. The lender that does this first will be rewarded with the best recovery prices. The strong get stronger, and the weak are left as insolvent take-over targets.

How is the situation remedied?

There is no magic cure. Increased employment and more buyer demand will clean up the mess quicker, but lenders only make a certain amount each quarter, and they can only write off so much of their bad debt. Delinquency rates must fall down below 2% and stay there signifying shadow inventory has been purged. Foreclosure activity must also slow to its historically low levels to signify the visible inventory has been purged. And finally, the REO inventory available for sale must be sold and the percentage of distressed sales must fall from its clearance levels of 30% to 40% of the market to well under 10%. Until all three of those conditions are met, the crash is not over.

Toward the end of the cycle, house prices may start to rise, but appreciation will be tepid as long as the inventory clearance process is going forward. Lenders are working feverishly to manage inventories to prevent prices from going lower and causing more strategic default. No realistic seller is anticipating appreciation, they are merely hoping to stop more depreciation. Right now, their efforts to restrict supply are failing, and prices are still going down.

O.C. late-mortgage rate tumbles 20%

July 28th, 2011, 8:06 am · 1 Comment · posted by Jon Lansner

According to CoreLogic’s latest late-mortgage report, 6.24% of Orange County home-loan borrowers as of May are 90 days-plus late with their house payments.

This 90-day delinquency number is seen as a key indicator of future mortgages woes as it captures patterns of property owners skipping house payments before the formal foreclosure process begins. This most recent reading for Orange County is down 1.57 percentage points — or 20% – compared to a year earlier.

That is good news. A declining delinquency rate is a sign the landers are starting to process their REO faster than new mortgage defaults are being added to the system. Of course, falling prices may cause many still in denial to capitulate in which case strategic default will cause the delinquency rate to go up again.

As a comparison, California’s 90-day delinquency rate was down 24% in the same period while the nation’s rate fell 10% in a year.

Also in this report …

May	OC	CA	US
90+ day delinquency (This year)	6.24%	8.17%	7.29%
90+ day delinquency (Last year)	7.81%	10.70%	8.13%
Percentage pt. chg. in delinquency	-1.57	-2.53	-0.84
Foreclosure rate (This year)	2.09%	2.71%	3.45%
Foreclosure rate (Last year)	2.24%	2.98%	3.10%
Percentage pt. chg. in foreclosure	-0.15	-0.27	+0.35
REO rate (This year)	0.51%	0.92%	0.67%
REO rate (Last Year)	0.36%	0.82%	0.57%
Percentage pt. chg. in REO	+0.15	+0.10	+0.10

• Orange County’s foreclosure rate — owners losing homes — fell 7% in a year vs. California’s foreclosure rate falling 9% and a increase of 11% nationally.
• Lender portfolios of homes they’ve repossessed is rising. The share of Orange County homes that are bank-owned after foreclosure rose 42% in a year vs. California’s REO rate rising 12% and a increase of 18% nationally.
• Orange County’s 90-day delinquency rate is 1.93 percentage points lower than the state’s slow-pay rate and 1.05 percentage points lower vs. national pace.
• 2.09% of Orange County homes in May were in the foreclosure process; -0.15 percentage points vs. a year earlier.
• 0.51% of Orange County homes in May were repossessed by banks as REO (real estate owned); +0.15 percentage points vs. a year earlier.
• At right is a table showing how Orange County mortgage troubles compare to state and national payment woes.

At the rate lenders are chipping away at the delinquency rate — assuming strategic default doesn't make it go back up — in another three or four years, the delinquency rate will be back within historic norms.

Unfortunately, since lenders have been accumulating REO and are unable to dispose of it on the MLS, they have been dialing back on their foreclosure rates. The lower foreclosure rates are not a sign that there are not plenty of delinquent mortgages for lenders to foreclose on. The mistake most casual observers make when they hear foreclosure rates are declining is to assume that decline is from lack of mortgage delinquencies for lenders to foreclose on. The recent slowdown is pure REO and MLS inventory management. A slower foreclosure rate means the foreclosure pool is draining slowly and will take much longer to clear.

Irvine REO

When preparing for today's post, I noticed Redfin provides the ability to quantify REO inventory not available for sale. When I ran the results last night, 70 homes showed up. I can't say that is a big or small number, but it does make me wonder why there are any at all. This one in Shady Canyon (21 Needle Grass Irvine, CA 92603) was purchased by the bank on September 9, 2009, nearly two years ago. If they are waiting for the high end to recover, they are making a very big mistake.

There are some interesting HELOC abuse cases in the REO debris. 78 Dovecrest, Irvine, CA 92620 was purchased on 4/3/1998 for $381,500. It went to the bank for $856,029 on 12/8/2008. That's almost half a million dollars in HELOC abuse plus a lender aging its inventory for two and a half years.

There must be a reason lenders are sitting on this inventory, and it isn't because they don't need the money back.

Today's featured property is part of the REO inventory lenders are willing to liquidate. To no surprise, it is at the low end. The previous owners did very well buying for $178,500 on 9/16/2000 and selling for $429,000 on 5/31/2007. They made a huge profit while the bagholder turned out to the the California Housing Finance Agency who provided the second and third mortgages to make this zero-down transaction happen. Apparently, the buyer for whom they opened the door stopped paying for a house they had nothing invested in. What a shock.

Foreclosure Record

Recording Date: 02/07/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 11/03/2010

Document Type: Notice of Default

At least they didn't mess around when it came time to foreclose. This property when from the first notice of default to foreclosure in near record time.

It's been stated by many in the MSM that lenders are behind on their foreclosures due to robo-signer and other made-up delays. That may be true in some judicial foreclosure states, but here in California, the only lender delays are the ones they create themselves.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 90 OVAL Rd #1 Irvine, CA 92604

Resale House Price …… $326,900

Beds: 2

Baths: 2

Sq. Ft.: 1059

$309/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1972

Community: El Camino Real

County: Orange

MLS#: P783612

Source: SoCalMLS

Status: Active

On Redfin: 61 days

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* * * * BANK OWNED * * * * * WELL MAINTAINED 2 BEDROOM – 2 BATH CONDO – SELLER HAS COMPLETED RECENT REPAIRS – END UNIT – INSIDE LAUNDRY – CENTRAL A/C – GRANITE COUNTER – SMALL PRIVATE YARD. .

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Proprietary IHB commentary and analysis

The cost of FHA insurance drives the cost of ownership on these low-end properties much higher. Anyone who saves their 20% down is going to be enjoying a much lower cost of ownership. This property is still priced above rental parity signifying these properties still have room to fall more in price.

Resale Home Price …… $326,900

House Purchase Price … $442,034

House Purchase Date …. 3/16/2011

Net Gain (Loss) ………. ($134,748)

Percent Change ………. -30.5%

Annual Appreciation … -70.3%

Cost of Home Ownership

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$326,900 ………. Asking Price

$11,442 ………. 3.5% Down FHA Financing

4.53% …………… Mortgage Interest Rate

$315,458 ………. 30-Year Mortgage

$68,743 ………. Income Requirement

$1,604 ………. Monthly Mortgage Payment

$283 ………. Property Tax (@1.04%)

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

$68 ………. Homeowners Insurance (@ 0.25%)

$363 ………. Private Mortgage Insurance

$270 ………. Homeowners Association Fees

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$2,588 ………. Monthly Cash Outlays

-$258 ………. Tax Savings (% of Interest and Property Tax)

-$413 ………. Equity Hidden in Payment (Amortization)

$19 ………. Lost Income to Down Payment (net of taxes)

$61 ………. Maintenance and Replacement Reserves

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$1,997 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$3,269 ………. Furnishing and Move In @1%

$3,269 ………. Closing Costs @1%

$3,155 ………… Interest Points @1% of Loan

$11,442 ………. Down Payment

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$21,134 ………. Total Cash Costs

$30,600 ………… Emergency Cash Reserves

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$51,734 ………. Total Savings Needed

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