The Obama administration is taking money from taxpaying renters and giving it to unemployed loan owners so they can give it to banksters. Unemployed renters get to sleep in the street.

Irvine Home Address … 9 STARDUST #5 Irvine, CA 92603

Resale Home Price …… $499,000

Oh it's not fair,

And it's really not OK,

It's really not OK,

It's really not OK,

Oh, you're supposed to care,

But all you do is take,

Yeah, all you do is take.

Lily Allen — Not Fair

Has fairness been a casualty of the housing bubble? At times it looks that way. The government keeps implementing policies to benefit one group over another not because it is the right thing to do but because it buys them votes. Last year, I wrote about The Policy of Screwing Prudent Renters to Benefit Loan Owners.

One housing bubble phenomenon was that the right ones — prudent people who knew what they could afford — were kept out, and the wrong ones — kool aid intoxicated fools — were let in. That mistake was bad enough, but now our own government is frantically working to repeat this mistake. Rather than doing something corrective, like letting house prices fall, our government is going to extreme lengths to keep the right ones out and keep the wrong ones in.

Since the previous failed policies of screwing renters did not succeed, the Obama administration is looking for ways of expanding the failed policies to really screw prudent renters.

Obama administration boosts aid for unemployed homeowners

Unemployed homeowners with government-insured mortgages will be allowed to miss a year of payments while they try to find a job.

While unemployed loan owners get to benefit from government largess, unemployed renters get to sleep in their cars or on the street.

By Jim Puzzanghera, Los Angeles Times

July 7, 2011

Reporting from Washington — Still scrambling to stabilize the struggling housing market, the Obama administration will allow some unemployed homeowners to miss a year of mortgage payments without threat of foreclosure while they try to find a new job.

Why do loan owners get such a dramatic increase in unemployment benefits while renters get nothing? Free housing is far more valuable than the paltry unemployment checks people receive. If lawmakers wanted to increase unemployment benefits, why don't they just do that? Because the real policy is to give money to the banks. The unfairness of this policy is unconscionable.

The expanded assistance — triple the current limit of four months for those with government-insured mortgages — could help “tens of thousands” of people keep their homes, Housing and Urban Development Secretary Shaun Donovan said.

Why should working renters care if loan owners are allowed to continue to occupy real estate they are not paying for? And why should working renters subsidize loan owners? Either give all unemployed increased benefits or let loan owners lose their houses. Why isn't anyone upset about renters getting kicked out of their homes?

“Helping struggling borrowers avoid default is not only good for those borrowers, it is good for the economy,” he said.

Bullshit. It is good for the banks and only the banks. Giving money to lenders to keep people in properties they cannot afford does not benefit the economy. However, it does displace a wouldbe buyer who would have purchased the property currently being occupied by an unemployed delinquent mortgage squatter. Further it provides false hope to the borrower and fosters the borrower's sense of entitlement to occupy real estate they aren't paying for.

But hoping to avoid high expectations that have accompanied other administration foreclosure efforts, Donovan cautioned Thursday that the move wasn't a “silver bullet.”

The new requirement for so-called forbearance comes on top of several initiatives the White House has launched since 2009 to try to stem the tide of foreclosures, which continue to drive down real estate prices.

President Obama admitted this week that those efforts — such as the much-maligned Home Affordable Modification Program, which offered incentives to banks to lower monthly payments for troubled borrowers — haven't tamed the problem.

“We've had to revamp our housing program several times to try to help people stay in their homes and try to start lifting home values up,” Obama said. “That's probably been the area that's been most stubborn to us trying to solve the problem.”

Attention all renters and prospective home buyers: Obama is screwing you. He is taking your money and giving it to loan owners in an effort to make prices unaffordable so you can never own a home. Obama is placing the financial interests of lenders and loan owners over the interests of renters.

Falling home prices are not a problem that needs to be solved. It is a healthy correction from an unsustainable bubble. Efforts to prevent this correction are what has been hurting the economy over the last few years.

Housing advocates and some lawmakers have pushed the administration to increase the amount of time unemployed homeowners would be allowed to skip payments. The White House agreed partly because 60% of people without jobs have been unemployed for more than three months, Donovan said.

If house prices had been allowed to crash and bottom, the economy would be improving now because homebuilders would have the elusive price stability they need to go back to work. With high unemployment in construction, the economy continues to suffer, and it will as long as government policy prevents a natural bottom from forming in the housing market.

Separately, the Federal Reserve told Congress on Thursday that it wanted uniform standards for how mortgage servicers handle modifications, foreclosures and other issues. The Fed, along with HUD and other federal regulators, is working on such standards.

In addition, regulators are working with attorneys general from all 50 states on a broad settlement with major banks of investigations into botched foreclosure paperwork.

The administration's latest plan, unveiled Thursday, affects a small group of homeowners — about 3,500 borrowers a month who default on loans backed by the Federal Housing Administration and a total of about 1 million people eligible for HAMP aid.

The only solace I find for this misguided effort is how few it actually impacts.

But Donovan said he hoped that the new requirements would be adopted voluntarily throughout the broader mortgage industry.

Under the plan, mortgage servicers for FHA-insured loans will be required to allow qualified homeowners to miss up to 12 months of payments as unemployed borrowers look for new jobs.

The administration also is making it easier for unemployed homeowners to qualify for the assistance, removing what it called some “upfront hurdles” involving screening for employment and payment history.

In addition, mortgage servicers participating in the administration's mortgage modification program will be required “whenever possible” to extend the minimum period that eligible unemployed homeowners can miss payments to 12 months.

The missed payments would be added to the mortgage balance and made up by the homeowner, though in some cases those debts could be forgiven by the lender, Donovan said.

Lenders get to pocket this free money and get the balance added to the borrowers debt. It truly is a win-win for them.

Under what circumstances would the lender forgive this debt? Why would they?

But like the other government attempts to aid homeowners, the new effort has limitations. Only about 10% of some 50 million mortgage loans outstanding nationwide are backed by the FHA. And less than a quarter of the approximately 4.6 million homeowners who are behind on their mortgages qualify for the HAMP program.

Bert Ely, an independent banking consultant, said allowing unemployed homeowners to skip payments sounds good in theory but has problems that would make it difficult for the industry to adopt a 12-month standard.

“Unfortunately, a lot of times forbearance just postpones the problem,” he said. “So you extend from four months to 12 months and things don't work out. Who eats the loss?“

The government, of course. Who else would you expect to eat the loss?

Forbearance is at the heart of the shadow inventory problem. Lenders have been kicking the can down the road endlessly with hopes the problem will somehow work itself out. As they accumulate deadbeats, lenders run into cashflow problems, so now they are looking to the government to pick up the tab.

But the People Improving Communities Through Organizing National Network, a coalition of faith-based community groups, said the administration's announcement Thursday was “yet another step toward breaking the link in America between losing your job and losing your home.”

Yes, this is another step toward breaking the link between losing your job and losing your home. Is that a good thing? People borrowed a great deal of money on the premise that they would work to pay off the debt. Shouldn't they lose their homes if they stop working? If borrowers can break that link, I will see how much I can borrow, then I will quit work and just keep the house. Wouldn't you?

Rep. Barney Frank (D-Mass.) also cheered the move, saying many of his colleagues believed that the previous minimum “was not nearly enough time.”

“I think the 12-month extension will help very much,” he said.

I think Barney Frank is a tool, and if there is one thing I cheered with the Democrats lost the House of Representatives, it was Barney Frank losing power.

Last year, the special inspector general for the Troubled Asset Relief Program, which funded the administration's mortgage modification initiative, urged that the minimum period for skipped payments be increased.

Wells Fargo Home Mortgage, one of the nation's largest mortgage servicers, said it already offered homeowners the ability to skip up to 12 months of payments “in some cases.” From January 2009 to last April, the company has offered assistance to 173,000 customers who have lost their jobs, spokesman Tom Goyda said.

It's called amend-extend-pretend, and all the lenders are doing it. Whether the program is formalized or not, lenders have been accumulating delinquent borrowers in shadow inventory for years, and they will continue to do so as long as the resale market is too weak to absorb the inventory.

Because the administration hasn't released details of the changes in its programs, Wells Fargo would not comment specifically on them, he said.

jim.puzzanghera@latimes.com

Obama and the Democrats in power are not the only ones endorsing bad policy ideas. Bill Clinton, the master triangulator, has decided pandering to loan owners is good politics.

Bill Clinton Says BofA Deal May Lead to Principal Reductions

June 30, 2011, 7:11 PM EDT

July 1 (Bloomberg) — Former President Bill Clinton said Bank of America Corp.’s accord with mortgage-bond investors may give more “underwater” borrowers a chance to cut the amount owed on their home loans.

“You’d relieve the anxiety of countless Americans who would know they could hold onto their homes,” Clinton, 64, said in an interview yesterday with Bloomberg Television’s Al Hunt.

If giving away free money is considered a treatment to relieve anxiety, I will attest to being very stressed lately. Can I have some free money too? Oh, wait… I am not a loan owner, so I don't qualify.

Bank of America, the largest U.S. lender by assets, agreed this week to pay $8.5 billion to bondholders who said they were duped into investing in defective mortgages. The deal calls for specialized servicers to manage some of the highest-risk loans, an arrangement that Clinton said could lead to debt reductions and avert foreclosures.

So-called sub-servicers “are often very effective at effecting principal-reduction modifications,” said Laurie Goodman, an analyst at Amherst Securities Group LP, which specializes in fixed-income assets such as mortgage bonds, in a note yesterday. Bank of America, which was blamed by regulators for mishandling foreclosures and modifications, may hand over loans in groups of less than 30,000 to the smaller firms.

What does it take to be very effective at giving away free money? I suspect it really isn't that hard.

Dan Frahm, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment. Kevin Heine of Bank of New York Mellon Corp., the debt’s trustee, also declined to comment. Kathy Patrick, a lawyer for the bondholder group, didn’t respond to a request for comment.

Leaders at some of the biggest mortgage lenders have opposed cutting homeowner debts. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has said principal reductions may be unfair and difficult to implement.

‘Hard to See’

Brian T. Moynihan, 51, CEO of Bank of America, said in April that “we do not see broad-based principal reduction as a sound policy decision” for the country.

“It’s hard to see how we could justify reducing principal for many delinquent customers who represent a small portion of borrowers, but not for the vast majority of our customers who have stayed current on their loans,” he said in the prepared text of a speech.

Exactly. How can banks reward the least prudent borrowers in their portfolio at the expense of everyone else?

There is “enormous potential” to reduce the drag of U.S. housing on the economy if aspects of the Bank of America settlement are applied to the entire industry, Clinton said. The government could give an incentive to have that happen, he said.

Bill Clinton is right. If we give away billions of dollars of free money, it will certainly stimulate the economy. Of course, it is the dumbest policy idea I can think of, but if the Democrats pull it off, they might buy the loan owner vote.

“What I would like to see happen is some system set up to have the same thing done that they did because of this lawsuit, voluntarily, that encompasses everybody else,” Clinton said.

What i would like to see happen is for loan owners to get foreclosed on. Foreclosure is a superior form of principal reduction, and only through foreclosure will the mortgage mess get cleaned up and the economy will prosper.

Should banks forgive the debts of HELOC abusers?

• The owners of todays featured property paid $419,000 on 4/15/2003. They used a $322,700 first mortgage and a $96,300 down payment.
• On 2/27/2004 they obtained a $50,000 HELOC.
• On 11/16/2004 they got a $100,000 HELOC.
• On 12/29/2005 they refinanced with a $512,000 one-year ARM.
• On 3/31/2006 they obtained a $112,000 HELOC they apparently did not use.
• On 12/12/2006 they refinanced with a $517,500 first mortgage with a 10-year fixed rate.
• They stopped making payments late last year, and the NOD was filled in April of 2011.

Foreclosure Record

Recording Date: 04/22/2011

Document Type: Notice of Default

These borrowers added $200,000 to their mortgage in a three-year span. They likely spent some of it on upgrades to the property, but I think it's fair to say they blew the rest. Is there any potential benefit to the country that makes forgiving their debts a good idea?

I don't think so.

If we forgive the debts of borrowers like these, we implicitly say this behavior is okay. If we do that, everyone will Ponzi borrow until the entire system collapses, then they will expect principal forgiveness to fix it. Home ownership truly does become a path to free money. All one has to do is sign some loan papers, and free money flows like ambrosia conferring endless wealth upon all who own a loan.

This is exactly what Bill Clinton is endorsing above, and many on the left who have been pandering to loan owners for the last few years would be happy to go along.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 9 STARDUST #5 Irvine, CA 92603

Resale House Price …… $499,000

Beds: 2

Baths: 2

Sq. Ft.: 1747

$286/SF

Property Type: Residential, Condominium

Style: 3+ Levels, Other

View: Hills, Park/Green Belt, Pool

Year Built: 1982

Community: Turtle Rock

County: Orange

MLS#: S665311

Source: SoCalMLS

Status: Active

——————————————————————————

Beautifully remodeled, wonderful location, and great views. You will fall in love with this upgraded townhome offering 2 master suites, 2.5 baths, formal living and dining rooms, fantastic French country kitchen with granite counters and beautiful cabinetry. Enjoy the private patio, the pools and spas, the walking trails and the park across the way with tennis courts. Award winning schools and just a few minutes drive to Newport beaches, Fashion Island, and South Coast Plaza.

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

Proprietary IHB commentary and analysis

Resale Home Price …… $499,000

House Purchase Price … $419,000

House Purchase Date …. 4/15/2003

Net Gain (Loss) ………. $50,060

Percent Change ………. 11.9%

Annual Appreciation … 2.1%

Cost of Home Ownership

————————————————-

$499,000 ………. Asking Price

$17,465 ………. 3.5% Down FHA Financing

4.59% …………… Mortgage Interest Rate

$481,535 ………. 30-Year Mortgage

$105,672 ………. Income Requirement

$2,466 ………. Monthly Mortgage Payment

$432 ………. Property Tax (@1.04%)

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

$104 ………. Homeowners Insurance (@ 0.25%)

$554 ………. Private Mortgage Insurance

$260 ………. Homeowners Association Fees

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

$3,816 ………. Monthly Cash Outlays

-$398 ………. Tax Savings (% of Interest and Property Tax)

-$624 ………. Equity Hidden in Payment (Amortization)

$30 ………. Lost Income to Down Payment (net of taxes)

$82 ………. Maintenance and Replacement Reserves

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

$2,906 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,990 ………. Furnishing and Move In @1%

$4,990 ………. Closing Costs @1%

$4,815 ………… Interest Points @1% of Loan

$17,465 ………. Down Payment

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

$32,260 ………. Total Cash Costs

$44,500 ………… Emergency Cash Reserves

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

$76,760 ………. Total Savings Needed

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

The Orange County unemployment rate is under 10%, but unemployment in the construction industry is an astounding 38%. Projections are for a slow recovery.

Irvine Home Address … 4 PINEWOOD #67 Irvine, CA 92604

Resale Home Price …… $498,000

When they've tortured and scared you for twenty hard years

Then they expect you to pick a career

When you can't really function you're so full of fear

A working class hero is something to be

A working class hero is something to be

John Lennon — Working Class Hero

I know many people whose livelihood depends on construction and real estate. Most of them are hurting right now. With 38% unemployment, and 62% underemployment (that's a guess), nearly everyone in a real estate related field is suffering. Thirty-eight percent unemployment is remarkably high. Unemployment rates higher than 10% represent widespread suffering. Back when the government kept accurate and reliable records of unemployment during the Great Depression, the rate exceeded 25%. Thirty-eight percent unemployment is beyond description.

It's not only people in construction and real estate that suffer. With so many out of work, the demand for goods and services of all kinds is diminished. In short, the troubles in construction and real estate are not confined to that sector of the economy. On the bright side, it is getting a little better.

1st gain in O.C. construction jobs in 4 years

By JON LANSNER — July 5, 2011

The number of Orange County construction workers in May was 200 jobs higher than a year ago. That's no hiring spree but it's the first year-over-year gain since December 2006.

State Employment Development Dept. stats show Orange County construction bosses reported 67,000 workers in May – up 1,800 from April. That's the largest month-to-month gain since June 2007.

What's driving what is at a minimum a stabilization of Orange County construction work?

• Well, EDD figures show big Orange County projects – so-called heavy and civil engineering jobs — up 600 in a year to 6,900 positions in May. That's the 7th consecutive gain for this Orange County construction niche, driving by big infrastructure programs such as highway work in northern Orange County and grading efforts for new housing in Irvine. Heavy and civil engineering jobs had previously been falling, year-to-year, for 16 months before the recent surge that leave employment in this category 2,200 positions – 24% – below the September 2006.
• Specialty trade contractors add 300 workers in the year ended in May to total reported Orange County payrolls of 46,200 positions. That's the second straight year=to-year gain; and third in four months. This Orange County group is benefiting from slowly improved homebuilding efforts around the county and renewed boost in remodeling work for both homeowner and corporate clients. Specialty construction trade jobs in Orange County had previously been falling, year-to-year, for 51 months before the recent surge that leave employment in this category 30,000 positions – 39% – below the September 2006.
• Still hurting are jobs in Orange County building construction, down 700 in a year – the 41st consecutive drop in a losing streak that dates to August 2007. Modest homebuilding efforts have not stemmed job losses in this niche, as construction of Orange County commercial real estate – from offices to shopping centers – remains all-but dead. Employment in this Orange County construction niche is down 10,300 jobs – 41% – from its September 2006.

Nobody wants to dampen good news, but it's been a painful Orange County real estate downturn: 42,500 construction jobs – 38% of the work force – gone since the September 2006 peak. In that same period, Orange County lost 157,000 jobs – so, construction alone was 27% of the drop.

The end of this suffering is nowhere in site. The Irvine Company has been employing construction workers for the last couple of years, but they aren't selling many of the homes they built recently, and some wonder if they won't stop due to lack of sales. If the Irvine Company stops construction, it isn't very likely that Rancho Mission Viejo or other competitors will pick up the slack. With residential, commercial and industrial all out of commission, only apartment construction will keep the industry afloat.

UCLA: Calif. housing ‘completely imploded’

June 15th, 2011, 12:00 am — posted by Jon Lansner

UCLA economists offer little near-term hope for California real estate in their latest forecast:

• “Even the glimmer of hope we saw with slightly elevated prices in the coastal cities of California during the home purchase incentive months has now faded. The basic story of today's housing markets is that of a market that completely imploded, that has many Californians underwater and a market with demand diminished by both a lack of easy financing and a lack of jobs.”
• “Another year before we see significant increases in the demand for housing.”
• Homebuilding runs at historically low levels. “There are no signs of that changing soon.”
• “When the potential demand finally turns into actual demand it is going to look a bit different than just a recovery in the housing market. It will be on the coast, and focused on multi-family housing. That is important because it has implications for the number and location of construction and real estate jobs generated by the resurgence in residential markets towards the end of next year.”
• Multifamily construction is expect to eclipse its peak of the previous cycle — permits pulled for 62,000 units — by 2013. But home construction will peak this cycle at 119,000 units — 23% below the 2005 peak.
• Construction employment will grow 25% in the next decade to 709,000. Still, that’s 225,000 jobs short of the previous cycle’s 2006 peak.

If UCLA is correct, we are witnessing a structural change in the California construction industry. The golden age of homebuilding and construction has past. By the chart above, they do not project reaching year 2000 employment levels by 2020. The only thing reducing unemployment will be workers giving up and seeking work in other fields.

Why the Housing Crash Remains a Wreck

By Marcie Geffner — Published June 27, 2011 — Bankrate.com

Foreclosures. Short Sales. Unemployment. Tight credit. Overbuilding. Those are but some of the reasons housing markets in many parts of the country remain stubbornly depressed, even while activity in other economic sectors has begun to rebound.

New-home building and sales of existing homes historically have been leading economic indicators, pointing the way to robust recovery after a downturn. In the current cycle, however, that hasn't happened, says Lawrence Yun, chief economist at the National Association of Realtors.

“Housing has always been the leader in terms of getting the economy back on track,” Yun says, “but that is not the case this time around.”

On rare occasions, Lawrence Yun says something that is not complete bullshit. In this instance, he is right. Residential investment has historically been the best indicator of the bottom of a recession. With homebuilding at historic lows, construction employment and spending is not boosting the economy and helping us pull out of recession.

Housing Starts Shrivel

The biggest stumbling block has been the sharp downturn in new-home construction, which is usually a major contributor to economic growth not only through new-home sales, but also jobs in home construction and purchases of new appliances, fixtures and furnishings.

But construction starts for residential units fell to an annualized pace of 560,000 units in May, a drop of 3.4% compared with the 582,000-unit pace for construction starts set a year earlier, according to the U.S. Census. Sales of new-built homes have lifted from last year's rock-bottom levels, but are still far lower than normal.

Building has been constrained, Yun says, due to a plentiful supply of existing for-sale homes relative to demand, rising prices of building materials such as lumber and steel, and builders' difficulty in getting construction loans.

The ample inventory of for-sale homes includes an “enormous overhang” of bank-owned properties that depress home prices and present tough competition for builders, says Rick Sharga, senior vice president of RealtyTrac, a foreclosure data firm in Irvine, Calif. Homes that are in some stage of the foreclosure process are so commonplace that they accounted for 28% of all homes sold nationwide in the first quarter of this year, RealtyTrac's latest survey showed.

Anyone who believed residential investment would bottom in 2009 was ignoring the overhang of REO. The UCLA forecast is probably a realistic assessment of what the future holds.

Tight Credit Squeezes Demand

Meanwhile, homebuying has been held back largely due to lenders' tighter grip on mortgage financing. Higher credit scores, fatter down payments and pickier underwriting have combined to outweigh fallen home prices and low interest rates, which have made owning cheaper than renting in some U.S. cities. One indicator of just how tight lending has become: 31% of U.S. home sales in April were to all-cash buyers, down only slightly compared with a record-high 35% share of cash transactions in March, according to the National Association of Realtors. Most cash buyers are investors who don't intend to occupy the homes they purchase.

The influx of all-cash buyers has corresponded to the declining home ownership rate. This was fully expected by anyone who anticipated a looming foreclosure crisis from insolvent borrowers.

Another demand-depressing factor has been the trend toward young adults living with their parents or an additional roommate, rather than forming their own new households. Household formation traditionally creates demand for smaller or less costly starter homes, the sales of which, in turn, allow current homeowners to buy larger or more expensive residences.

“What we have today is a weak recovery in the labor market, which is holding back some of the household formation,” Yun says. “The only way to unleash this household formation is to have strong consistent job growth.”

The national unemployment rate stood at 9.1%, or nearly 14 million people, in May. Another 8.5 million people were employed part time, but wanted full-time positions.

Homeownership Loses Appeal

Sharga points to a shift in consumers' attitudes toward homeownership as a factor in the housing sector's weakness: People aren't as interested in buying homes as they used to be. One recent RealtyTrac survey found that a huge percentage of today's renters don't want to buy a home — ever.

“No one wants to catch that proverbial falling knife (of lower home prices) and no one wants to become the next foreclosure statistic, so it really is an issue,” Sharga says.

Like the slower household formation, that lack of homebuying enthusiasm translates to less demand for entry-level houses and less opportunity for current homeowners, who might not have much equity, to trade up to another home.

So what will it take to get housing back in action? In short, a chain reaction of a robust economy, strong job growth and more household formation, easier credit, fewer foreclosures and an absorption of the existing excess supply of for-sale homes.

I have argued it will take an outside stimulus from an industry other than homebuilding to restart the economy. Once one sector the economy begins to flourish, the demand for housing will pick up, and then we will see the chain reaction everyone is waiting for.

Perhaps that Option ARM wasn't such a good idea

Today's featured property is an Option ARM gone bad. The owners are Ponzis savvy mortgage managers who extracted about $350,000 after investing $13,750 of their own money. Now they are selling short.

• The owners paid $275,000 on 9/18/2001 using a $220,000 first mortgage, a $41,250 second mortgage, and a $13,750 down payment.
• On 8/29/2002 they refinanced with a $268,000 first mortgage.
• On 3/3/2003 they obtained a $60,000 stand-alone second.
• On 3/17/2003 they obtained a $66,000 HELOC.
• On 10/28/2003 they refinanced with a $346,500 first mortgage and a $99,000 stand-alone second.
• On 4/12/2005 they got another cash infusion with a $190,000 HELOC.
• On 11/10/2005 they refinanced with a $600,000 Option ARM.
• In a stunningly stupid move, Bank of America gave them a $37,900 HELOC on 1/18/2008. They quit paying shortly thereafter.

Foreclosure Record

Recording Date: 03/02/2009

Document Type: Notice of Default

I looks like they followed with a loan modification which allowed the Option ARM holder to delay the short sale or foreclosure until today.

Foreclosure Record

Recording Date: 06/09/2009

Document Type: Notice of Rescission

Apparently their income did not more than double while their mortgage did.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 4 PINEWOOD #67 Irvine, CA 92604

Resale Home Price …… $498,000

Beds: 3

Baths: 3

Sq. Ft.: 2300

$228/SF

Property Type: Residential, Condominium

Style: Two Level, French

Year Built: 1977

Community: 0

County: Orange

MLS#: S661690

Source: SoCalMLS

Status: Active

——————————————————————————

BACKS TO SHOREBIRD PARK!!! BEAUTY & HARMONY SURROUNDS YOU IN THIS LOVELY 3 BEDROOM (MASTER & OTHER DOWNSTAIRS), PLUS ARTIST/SEWING ROOM & 3 FULL BATHROOMS. SUNSHINE FILLS THIS HOME WHICH HAS BEEN EXPANDED/REMODELED FOR ELEGANT ENTERTAINING, & MAKING MEMORIES WITH FAMILY & FRIENDS. SNUGGLE AND READ A BOOK IN THE CHARMING, QUAINT LIBRARY/OFFICE UPSTAIRS. KITCHEN FEATURES CORIAN COUNTERS, UNDER COUNTER LIGHTS, CANNED LIGHTS, TILE FLOOR, PANTRY CLOSET, GAS COOKTOP. BREAKFAST NOOK LEADS TO PATIO & VIEW OF PARK. LIVING ROOM & FORMAL DINING ROOM INCLUDE SOARING VAULTED CEILING. WOOD/GAS BURNING FIREPLACE IN ELEGANT LIVING ROOM WITH SLIDING DOOR LEADS TO BACK PATIO/PARK. TRAVERTINE FLR IN MSTR SHOWER RM. NEWER HVAC SYSTEM & SOME NEWER DUCTS. EXTERNAL GAS HOOKUP IN BACKYARD PATIO FOR PICNICS. RAISED PANEL DOORS THROUGH-OUT, DECORATOR INTERIOR PAINT, NEWER SKYLIGHT IN MASTER BATH, SPECIAL TREATED WOOD SHAKE ROOF. WOODBRIDGE OFFERS TENNIS COURTS, CLUBHOUSE, BEACH, BOATING, POOLS.

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

Proprietary IHB commentary and analysis

The word “snuggle” has no place in a real estate listing.

This property is at the cusp of what I consider an FHA financing candidate. With the cost of mortgage insurance, this property is still quite expensive. With 20% down, perhaps the cost of ownership is close to rental parity.

Resale Home Price …… $498,000

House Purchase Price … $275,000

House Purchase Date …. 9/18/2001

Net Gain (Loss) ………. $193,120

Percent Change ………. 70.2%

Annual Appreciation … 6.0%

Cost of Home Ownership

————————————————-

$498,000 ………. Asking Price

$17,430 ………. 3.5% Down FHA Financing

4.49% …………… Mortgage Interest Rate

$480,570 ………. 30-Year Mortgage

$104,234 ………. Income Requirement

$2,432 ………. Monthly Mortgage Payment

$432 ………. Property Tax (@1.04%)

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

$104 ………. Homeowners Insurance (@ 0.25%)

$553 ………. Private Mortgage Insurance

$456 ………. Homeowners Association Fees

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

$3,976 ………. Monthly Cash Outlays

-$390 ………. Tax Savings (% of Interest and Property Tax)

-$634 ………. Equity Hidden in Payment (Amortization)

$29 ………. Lost Income to Down Payment (net of taxes)

$82 ………. Maintenance and Replacement Reserves

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

$3,063 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,980 ………. Furnishing and Move In @1%

$4,980 ………. Closing Costs @1%

$4,806 ………… Interest Points @1% of Loan

$17,430 ………. Down Payment

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

$32,196 ………. Total Cash Costs

$46,900 ………… Emergency Cash Reserves

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

$79,096 ………. Total Savings Needed

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

Have a great weekend,

IrvineRenter

Underwater loan owners with payments exceeding rent have a moral imperitive to strategically default to provide deterence for banks to inflate future housing bubbles.

Irvine Home Address … 43 GREENFIELD Irvine, CA 92614

Resale Home Price …… $249,000

A sacred cash cow with sickly tits

Dripping temptation for hypocrites

to death she's beaten

The prosperous endlessly stating the obvious

Caught in your words, sever the knot this time

Somebody show me their true face

Face me once as I leave all that I despise

Face me as I unleash this hate refined

Lamb Of God — In Your Words

The fear of strategic default is a necessary deterrent to foolish lending. Without it, lenders are emboldened to make all manner of bad loans because they believe they will get paid back. Lenders will make nearly any loan if they believe they will get their money back with interest. It's only when they feel they won't get repaid are they prompted to loan responsibly.

Signatory versus asset-backed debt

Some have questioned how I can be so against debt, yet I am leveraging up to the max to buy cashflow properties in Las Vegas. Isn't that being hypocritical?

No. Not all debt is created equal. The debt I am taking on is backed by a cashflow-producing asset. The income stream is being used to repay the debt with interest, and if for some reason I am unwilling to pay back the loan, the lender can take back the property and obtain a cashflow equal to or greater than the payment on the debt. That is asset-backed debt.

I had the good fortune to meet a gentlemen who provides asset-backed debt from a major lender. His company provides debt for property, plant, and equipment to other major corporations. When he analyzes the collateral for a loan, he considers it's useful life, the recovery and resale value, and the cashflow the asset may generate (if any). He assumes the debtor's word means nothing and any recovery of capital will come solely from the collateral pledged to cover the loan. In his world, there is no signatory assurance of repayment. There is only collateral repossession, cashflow, and resale.

Asset-backed debt is essential to the functioning of our economic system. Many businesses could not raise the equity to obtain the property or equipment necessary to it's operations. Lenders can loan against working capital at very low rates with little risk. If businesses have their money freed up to grow the business, our economy grows and prospers. In short, asset-backed debt is useful and freeing.

On the other hand, signatory debt is slavery. Signatory debt is money given to a borrower simply based on the borrower's promise to repay. It has nothing to do with an asset, and if the borrower chooses not to repay, recovering signatory debt can be very difficult because it is not backed by tangible collateral.

Signatory debt provides no useful purpose. It provides a short-term economic boost as demand is pulled forward, but once it is consumed, money that would ordinarily have been spent by the borrower on consumer goods is instead diverted to the lender for debt service. It's only when signatory debt is expanding that the economy is stimulated. The expansion of signatory debt is a Ponzi scheme.

Signatory debt creates Ponzis

The problem with signatory debt is simple: people don't want to keep their promise to repay when it is inconvenient. Ponzis live to consume. They will take money under any terms offered, and when it comes time to pay the bills, they will seek more borrowed money to keep the system going. Borrowing money to repay debt is the essence of Ponzi living. Has anyone been watching events in Greece unfold?

Ponzis will inevitably spring from signatory debt. Not everyone who borrows with no collateral is a Ponzi, but Ponzis could not exist without signatory debt. The losses created by Ponzis are the only deterrent from lenders giving out free money. In our current home mortgage lending system backed by the government, without strict controls, Ponzi borrowing with home loans is inevitable.

Conflating asset-backed debt and signatory debt

Lenders are keen to conflate the distinction between asset-backed debt and signatory debt by over-loaning on assets. The housing bubble is a classic example, but lenders do this with car loans, commercial loans, and personal property loans.

A home loan has a component of asset-backed debt. The portion of the cost of ownership (payment, interest, taxes, insurance, HOA) equal to rental is asset-backed. If the loan balance is limited the size supportable at rental parity, the property could be rented for an income stream capable of sustaining the debt service.

However, once the cost of ownership exceeds the cost of a comparable rental, the only assurance the lender has of getting repaid is based on the signatory promise of the borrower. Therefore, the loan is part asset-backed and part signatory. When lenders cross the line from asset-backed to signatory debt, they turn good debt into evil debt and inflate asset bubbles. Lenders did this in both the residential and the commercial real estate markets during the 00s.

Once lenders cross the line from asset-backed debt to signatory debt, they are inflating an unsustainable Ponzi scheme. Inevitably, prices will crash back to asset-backed levels determined by rental parity. it's not a matter of if, only when. We are seeing this play out across America right now with the deflation of the housing bubble.

Strategic default is moral imperative

Lenders attempted to enslave an entire generation. They issued copious amounts of signatory debt to borrowers who only intended to repay that debt if house prices went up. Lenders created the Ponzis I profile on this blog on a daily basis.

Strategic default has been portrayed as immoral by lenders. This is wrong. Lenders were immoral when they abdicated their responsibility to sound lending practices that ensured their borrowers could remain solvent. It is outrageous after such irresponsible lender behavior that lenders have the nerve to chastise borrowers for being immoral when borrowers fail to repay their debts.

Borrowers have moral responsibility to default on loans where the payment on an amortizing mortgage exceeds the cost of a comparable rental.

If borrowers don't default, if lenders are given a free pass to make another generation insolvent, then we have failed our children. We are sentencing them to live in a world where lenders enslave them through excessive mortgage payments to afford properties comparable to rentals.

Without the fear of strategic default, lenders will conflate asset-backed debt and signatory debt again. Lenders will inflate future housing bubbles, and our children will be faced with the decision to own something far less desirable than what they can rent or sentence themselves to a lifetime of debt servitude.

The next time you read or hear that borrowers who default are being immoral, ask yourself who is really being immoral, the lender or the borrower. In my opinion, it is the lenders who were immoral when they inflated the housing bubble and over-burdened borrowers. The borrower who strategically defaults is behaving morally by doing what's best for their family.

Conforming Loan Limit Decrease Will Increase Strategic Default

Gary Anderson — Jun. 27, 2011, 1:31 PM

The conforming loan limit will be decreased by varying amounts in high end markets throughout the nation, according to the New York Times.

If congress does not take action, and I hope they don't, September 30th is the date these homes will be governed by the private market, with interest rates likely being higher.

The FHA, Fannie Mae, and Freddie Mac will pull out of these markets, as these loans are perceived by both political parties as being a burden on taxpayers. Potentially, less demand will cause the values of these homes to go down.

Yes, Pending conforming loan limit decrease will make California houses more affordable.

Of course, this deflation of housing brought on by less demand is necessary to forge another housing bubble down the road which bankers apparently want. I think government believes, however, that strategic default will not be an overwhelming issue, since polling seems to back the view that only 39 percent of eligible defaulters would consider defaulting. This actually emboldens banks to want more easy money loans because they know that everyone will not default. If everyone did default, banks would reconsider easy money lending, which would be a good thing. But there could be a change coming regarding views on the morality of the practice.

The change in morality has already occurred: Strategic mortgage default has become common and accepted in 2011.

It is this change of view regarding the morality of the practice that has banks worried. They are so worried that they are instituting tough measures to scare the potential defaulter into obedience.

While I don't like to see housing values decline, because it hurts people who have worked hard to attain their status, housing should not be inflated artificially. Housing should be shelter first, and an inflation hedge second. It should never be a speculative commodity, rising faster than inflation, because it is too important to the nation. If the decline in price for these houses becomes a long term reality, then many more people could afford to buy these houses for a long time into the future, and they would have more discretionary income than some owners have now. Their wealth would be founded upon a sound market and not on the shifting sands of speculation.

It's simple math. If a smaller portion of a wage earner's salary is diverted to housing costs, particularly interest, then money is freed up to be saved or spent on other things. Mortgage debt is a drain on the economy.

People in New York, Massachusetts, California and other high end regions should brace for less demand and higher interest rates for mortgages above the conforming limit. This is the jumbo mortgage arena where less demand has already caused a decline in house prices. But perhaps we haven't seen anything yet, as people will flee the higher rates until the prices themselves bottom out.

And owners should beware, because in the highest of high end areas, conforming loan limits could drop by the hundreds of thousands of dollars. This is something for even the most affluent members of our nation to think about. But knowing that most of them are staunch free market zealots should make the decline of their house values more palatable. Or maybe not.

The Irvine Company has already been plagued by flagging sales. What is going to happen when borrowers find it tougher to get loans at the price points they want to sell?

But since Fannie and Freddie are pulling out of this high end arena, they will have no influence on the defaulter like they did. As of last year, they were scaring defaulters with the threat of a 7 year ban on their mortgages. Now there is little to scare the strategic defaulter other than a credit score decline.

And, it has been shown that defaulters have a shorter window of risk in recourse states to lawsuit than do short sellers. And we know that California is a non recourse state. If a borrower does not have a recourse HELOC, or a refinance into a recourse loan, that borrower is really free to walk away in a non recourse state. So, potential strategic defaulters, what are you waiting for?

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I predict a wave of strategic default at the $750,000+ price ranges. Many of these borrowers were Ponzis who were only holding on because they believed prices were coming back. Once they realize the demand is gone, and it may not come back in the next decade, why would they keep making the oversized payments? After all, the plan was to live off the HELOC booty and appreciation, and that isn't going to happen. I expect Orange County delinquency rates to rise along with the rest of Coastal California.

No appreciation eight and a half years later

Back in 2007 and 2008, we would marvel at 2004 rollbacks. Those only represented about four years of zero appreciation. However, as the housing bust has dragged on, prices keep rolling back, and the dead time of zero appreciation has not extended to over eight years — and it will get worse.

Buyers from 2002 and 2003 are facing resale prices that often barely cover their sales commissions. There certainly isn't enough gain to compensate them for the additional cost of ownership they paid during the years of bloated mortgage payments. Also, inflation has eroded the value of money over the last eight years, so on an inflation adjusted basis, they are certainly behind those who rented instead.

Appreciation is supposed to justify making excessive payments. When it doesn't materialize, the people who opted for oversized loans played the fool. Banks are the beneficiaries along with realtors, mortgage brokers, and the former owners who obtained a windfall.

Slow steady gains in the housing market are much preferable to periods of boom and bust. If home prices were tethered to incomes through sane debt-to-income ratios and stable interest rates, homeowners would steadily gain equity, and none would be facing the terrible problems they are today. The goal of government policy should not be to maximize borrowing to save the banks and preserve loan owners illusions of wealth. The goal should be stable home prices and sound lending practices to sustain home ownership and preserve disposable income to sustain a consumer economy.

The owners of today's featured property paid $253,000 back on 1/28/2003. They borrowed $202,400 and put $50,600 down. The opened two HELOCs in late 2005 for $50,000 and $59,000, but there is no evidence they borrowed this money. Although they are now in default, these were not foolish borrowers who spent their home. They were merely unfortunate enough to have overpaid for a property in the price segment banks have been foreclosing on. Their property values have been pushed back to rental parity levels while their more affluent neighbors have been allowed to squat.

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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 … 43 GREENFIELD Irvine, CA 92614

Resale House Price …… $249,000

Beds: 2

Baths: 1

Sq. Ft.: 1060

$235/SF

Property Type: Residential, Condominium

Style: One Level, Cape Cod

View: Trees/Woods

Year Built: 1984

Community: Woodbridge

County: Orange

MLS#: P784798

Source: SoCalMLS

Status: Active

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Wonderful, convenient upper condo-walking distance to the South Lake & lagoon. Nearby is Woodbridge High, Meadow Park Ele and South Lake Middle schools, shopping, Irvine Spectrum, Gelsons, Albertsons, Office Deport, Ace Hardware–restaurants. Great location and cute 1-level condo with 2 bedrooms and 1 full bath plus 1/4 ba (dressing area & sink) in master bedroom. Could look into adding a shower in master/may be room. Resort-style living, Woodbridge is THE master-planned community! Investors will love the ease of leasing in Woodbridge, evryone will enjoy the great lay-out of large living room, separate dining room open to the kitchen, inside laundry hook-ups and 2 generous-size bedrooms.

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Proprietary IHB commentary and analysis

Another condo at or just below rental parity. Does that make it an enticing purchase? How much money would you have to save to be trapped here for several years? And why buy it as an investment for breakeven cashflow? Oh yeah, the price will double in five or ten years, right?

Resale Home Price …… $249,000

House Purchase Price … $253,000

House Purchase Date …. 1/28/2003

Net Gain (Loss) ………. ($18,940)

Percent Change ………. -7.5%

Annual Appreciation … -0.2%

Cost of Home Ownership

————————————————-

$249,000 ………. Asking Price

$8,715 ………. 3.5% Down FHA Financing

4.49% …………… Mortgage Interest Rate

$240,285 ………. 30-Year Mortgage

$52,117 ………. Income Requirement

$1,216 ………. Monthly Mortgage Payment

$216 ………. Property Tax (@1.04%)

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

$52 ………. Homeowners Insurance (@ 0.25%)

$276 ………. Private Mortgage Insurance

$417 ………. Homeowners Association Fees

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

$2,177 ………. Monthly Cash Outlays

-$111 ………. Tax Savings (% of Interest and Property Tax)

-$317 ………. Equity Hidden in Payment (Amortization)

$14 ………. Lost Income to Down Payment (net of taxes)

$51 ………. Maintenance and Replacement Reserves

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

$1,814 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$2,490 ………. Furnishing and Move In @1%

$2,490 ………. Closing Costs @1%

$2,403 ………… Interest Points @1% of Loan

$8,715 ………. Down Payment

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

$16,098 ………. Total Cash Costs

$27,800 ………… Emergency Cash Reserves

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

$43,898 ………. Total Savings Needed

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To give the hopeless a reason not to strategically default, several banks have singled out a few deeply underwater loan owners for principal forgiveness. By spreading news of their magnanimous deeds, they hope the remainder will keep paying.

Irvine Home Address … 37 LONG Mdw #15 Irvine, CA 92620

Resale Home Price …… $374,900

There are secrets that we still have left to find

There have been mysteries from the beginning of time

There are answers we're not wise enough to see

Five For Fighting — The Riddle

Banks have a problem, a riddle they must solve. Twenty-five percent of their borrowers are underwater, and when you factor in second mortgages and sales commissions, more than half can't sell their homes without writing a check for the shortfall. And house prices are still going down. When homeowners have no equity, they are no longer homeowners, they are loan owners. If a loan owner's payments are less than the cost of a comparable rental, they have an incentive to stay and pay, but when the payment exceeds a comparable rental — and the huge mortgage balances of the bubble make this common — loan owners have an incentive to keep their money and strategically default on their mortgage.

Underwater loan owners have their names on title, and if they keep making payments long enough, amortization may catch them up, and prices may come back, so they may have equity again someday. The more their payments exceed the cost of rental, the further a loan owner is underwater, and the longer they perceive they will have to wait to have equity again, the more likely they are to give up and strategically default. If a loan owner strategically defaults, the lender is forced to make a choice; foreclose on the property when the resale value is worth less than the loan, or allow the loan owner to squat in the property. Neither choice is palatable to the lender.

Lenders have responded to these circumstances — conditions the lenders created through irresponsible lending which inflated the housing bubble — by using both a carrot and a stick to keep borrowers paying when it is in the best interest of the borrower to strategically default. The stick is the threat of foreclosure, debt collection, reduced access to credit in the future, and an appeal to morality. The specter of consequences to borrowers has been wildly exaggerated, and these circumstances are lessening by the day. The appeal to morality has been steadily eroding as borrowers are coming to realize they have a greater moral responsibility to their families than they have to their lenders.

Lenders threats of foreclosure have been neutralized by reports of delinquent mortgage squatters obtaining years of free rent. In fact, instead of being a deterrent to strategic default, the long foreclosure timelines have actually become an inducement. Lenders combat this perception with the use of terrorist tactics. Each month, lenders will randomly select a small number of fresh delinquencies to push through the system as quickly as possible. If some of the herd are executed quickly while others are allowed to squat indefinitely, it creates uncertainty. This uncertainty keeps some paying rather than play Russian roulette.

The carrot lenders dangle in front of loan owners comes through rumors of principal reduction windfalls. Like the random executions of freshly delinquent borrowers, a very small number of principal reductions given to loan owners who are doing what lenders want — making all payments — provides the lottery-style false hope to motivate the masses. Today's featured article is part of the public relations campaign lenders use to get the word out concerning the principal reduction lottery windfall ostensibly available to loan owners who dutifully make their payments.

If someone somewhere got a principal reduction, it could happen to anyone. I hope nobody is holding their breath.

Big Banks Easing Terms on Loans Deemed as Risks

By DAVID STREITFELD

Published: July 2, 2011

As millions of Americans struggle in foreclosure with little hope of relief, big banks are going to borrowers who are not even in default and cutting their debt or easing the mortgage terms, sometimes with no questions asked.

The ultimate debtors fantasy: money for nothing.

Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.

Rula Giosmas is one of the beneficiaries. Last year she received a letter from Chase saying it was cutting in half the amount she owed on her condominium.

Ms. Giosmas, who lives in Miami, was not in default on her $300,000 loan. She did not understand why she would receive this gift — although she wasted no time in taking it.

Ms. Giosmas received the gift because Chase probably recognized she was one of the last who didn't strategically default, and based on their analysis, there was a very high probability of her doing so in the future. The likely reduced her balance to a level that reduced their loss from what it would have been if Chase had to foreclose and resell another REO. Plus, they could then get this story written.

Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

Before Chase shaved $150,000 off her mortgage, Ms. Giosmas owed much more on her place than it was worth. It was a fate she shared with a quarter of all homeowners with mortgages across the nation. Being underwater, as it is called, can prevent these owners from moving and taking new jobs, and places the households at greater risk of foreclosure.

“It’s a huge problem,” said the economist Sam Khater. “Reducing negative equity would spark a housing recovery.”

Giving away free money will not spark a housing recovery. It would however reward those who overborrowed under stupid terms which would encourage imprudent borrowing again in the future.

While many homeowners desperately need help to keep their homes and cannot get it, the borrowers getting unsolicited relief from Chase sometimes suspect a trick. Cutting loan balances, even for loans in default, is supposedly so rare that Federal Reserve economists wrote in a paper in March that “we could find no evidence that any lender was actually reducing principal” on mortgages.

Principal forgiveness is rare because it is really stupid. Rumors of principal reduction have been used by lenders in the past to get borrowers to contact them to try to work out loan modifications, but lenders don't want to start reducing principal because all of their customers would ask for it. Besides, foreclosure is a superior form of principal reduction because the borrower has consequences for their foolish borrowing.

“I used to say every day, ‘Why doesn’t anyone get rewarded for doing the right thing and paying their bills on time?’ ” said Ms. Giosmas, who is an acupuncturist and real estate investor. “And I got rewarded.”

No, Ms. Giosmas got rewarded for taking out a very foolish loan at the worst possible time. It encourages the worst form of borrower stupidity. Lenders are happy to have this framed as a reward for making payments on time in hopes that others will do the same. They couldn't have scripted her comments any better.

Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

Bank of America and Chase inherited their portfolios of option ARMs when they bought troubled lenders during the housing crash.

Chase, which declined to comment on its program, got $50 billion in option ARM loans when it bought Washington Mutual in 2008. The lender, which said last fall that it had dealt with 22,000 option ARM loans with an unpaid principal balance of $8 billion, still has $33 billion of them in its portfolio.

I foresee some major write-downs still to come.

Bank of America acquired a portfolio of 550,000 option ARMs from its purchase of Countrywide Financial in 2008. The lender said more than 200,000 had been converted to more stable mortgages.

Dan B. Frahm, a spokesman for Bank of America, said it was using every technique short of principal reduction to remake its loans, including waiving prepayment penalties, refinancing, lowering the interest rate, postponing some of the balance and extending the term.

“By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Mr. Frahm said.

Chase, Bank of America and the other big lenders are negotiating with the Obama administration and the nation’s attorneys general over foreclosures. Debt forgiveness and the moral hazard question of who deserves to be helped are among the most contentious issues.

These news stories make moral hazard sound like some minor inconvenience when it is the core of the problem. If you give away money, it isn't a loan anymore, it is welfare going to the least deserving.

The banks say cutting mortgage balances would be unfair to borrowers who remain current as well as impractical because so many loans are securitized into pools owned by investors. Bank of America’s chief executive, Brian T. Moynihan, told the attorneys general in April that cutting principal for current borrowers would send the wrong message to all those who have struggled to pay their bills. His counterpart at Chase, Jamie Dimon, bluntly said it was “off the table.”

Good. It should be off the table. Foreclosure and bankruptcy are viable alternatives which provide consequences to the borrower for their behavior. Without consequences, no borrower would exercise any judgment or self control when considering a loan. Loans become free money for the taking.

Having an option ARM loan, however, apparently qualifies the borrower for special help. The loans, with their low initial payments and “teaser” interest rates, were immediately popular with buyers who could not afford or did not want to pay the soaring prices on houses. The problem was, eventually the rate would reset or the loan balance would have to be paid in full. “Nightmare Mortgages” they were called in a 2006 BusinessWeek cover piece.

Option ARMs were never quite as bad as predicted, partly because the crisis pushed down interest rates so far that the resets were relatively mild. Many owners did default on them, but others, like Ms. Giosmas, were quite happy to pay less for years than they would have under a conventional loan. She used option ARMs on her investment properties too.

“They saved me,” she said. “Why would I want to pay a lot more every month? I’d rather have it in my pocket.”

Does anyone else see the insanity being encouraged here? This woman believed she was making a wise financial decision using an Option ARM, and the bank is reinforcing this belief by giving her a principal reduction. Borrowers incentives should be to pay down debt to reduce risk for both the lender and the borrower. If borrowers have the mindset to maximize their debt and minimize their payments, that's how Ponzi schemes are born. Our housing market will never find stability under those terms.

The concern the banks are showing for those who might get in trouble contrasts sharply with their efforts toward those already foreclosed. Bank of America and Chase were penalized last month by regulators for doing a poor job modifying mortgages in default.

Adam J. Levitin, a Georgetown University law professor, said these little-publicized programs were more evidence that the banks were behaving in contradictory and often maddening ways.

“Loan modifications that should be happening aren’t, while loan modifications that shouldn’t be happening are,” he said. “Homeowners of any sort, whether current or in default, would rightly be confused and angry by this.”

Borrowers who borrowed prudently and make their loan payments should be the most outraged by principal reductions. They aren't getting any free money from the banks; however, their foolish neighbors who borrowed irresponsibly are obtaining windfalls.

The homeowners getting new loans, however, are quite pleased. In effect, the banks are paying the debt these owners accrued as the housing market plunged.

Ms. Giosmas bought her two-bedroom, two-bath apartment north of downtown Miami for $359,000 in early 2006, according to real estate records. She made a large down payment, but because each month she paid less than was necessary to pay off the loan, her debt swelled to about $300,000.

Meanwhile, the value of the apartment nosedived. By the time Ms. Giosmas got the letter from Chase, the condominium was worth less than half what she paid. “I would not have defaulted,” she said. “But they don’t know that.”

The letter, which Ms. Giosmas remembers as brief and “totally vague,” said Chase was cutting her principal by $150,000 while raising her interest rate to about 5 percent. Her payments would stay roughly the same.

A few months ago, Ms. Giosmas sold the place for $170,000, making a small profit. Having a loan that her lender considered toxic, she said, “turned out to be a blessing in disguise.”

Everyone should take out toxic loans, right? This woman got a principal reduction and actually made money after the sale, all because she took out the worst loan imaginable at the worst possible time and made only the minimum payment. Lenders are telling borrowers they can get free money if they borrow imprudently enough. What impact will that have?

The real message lenders are trying to send is aimed at the masses: keep making your payments, and you may also receive free money from the bank. Of course, the odds are about the same as playing the lottery, but as lottery sales attest to, if there is a chance, many will be willing to play.

Too late to Ponzi

Today's featured property was purchased on 10/19/2005 for $504,500. The original loan information isn't in my records. However, on 10/23/2007, these owners refinanced with a $480,000 first mortgage, and on 12/6/2007 they obtained a $59,950 HELOC. If they took the HELOC money, they got $30,450 in booty despite buying so close to the peak. They got to squat for about a year.

Foreclosure Record

Recording Date: 10/29/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/25/2010

Document Type: Notice of Default

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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 … 37 LONG Mdw #15 Irvine, CA 92620

Resale House Price …… $374,900

Beds: 2

Baths: 2

Sq. Ft.: 1567

$239/SF

Property Type: Residential, Condominium

Style: One Level, Contemporary

Year Built: 2006

Community: 0

County: Orange

MLS#: P779996

Source: SoCalMLS

Status: Active

——————————————————————————

WOW!! WOW!! GEORGEOUS CONDO IN FANTASTIC IRVINE NEIGHBORHOOD. THIS CONDO IS LIGHT, BRIGHT, OPEN AND SPACIOUS. VERY NICE KITCHEN WITH LARGE ISLAND AND TILED COUNTERTOPS. CONVENIENT LAUNDRY ROOM WITH PLENTY OF STORAGE SPACE. LARGE MASTER BEDROOM AND BATHROOM. BATH HAS A DOUBLE SINK AND SEPARATE SHOWER AND BATHTUB. THERE PLENTY OF STORAGE SPACE. ATTACHED GARAGE. COMPLEX OFFERS ASSOCIATION POOL AND SPA. BASKETBALL/TENNIS COURTS AND SOCCER/BASEBALL FIELDS ARE ALL WITHIN WALKING DISTANCE. EASY ACCESS TO SEVERAL MAJOR FREEWAYS AND LOCATED NEAR SEVERAL SHOPPING CENTERS/MALLS. THIS IS TRULY A MUST SEE. COME AND TAKE A LOOK BEFORE ITS GONE.

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Proprietary IHB commentary and analysis

The total cost of ownership of $2,273 is near rental parity. Generally, condos should trade at a discount to rental parity, but a 2005 condo in Woodbury will be perceived as a bargain by someone looking to live in that community.

Resale Home Price …… $374,900

House Purchase Price … $504,500

House Purchase Date …. 10/19/2005

Net Gain (Loss) ………. ($152,094)

Percent Change ………. -30.1%

Annual Appreciation … -5.1%

Cost of Home Ownership

————————————————-

$374,900 ………. Asking Price

$13,122 ………. 3.5% Down FHA Financing

4.59% …………… Mortgage Interest Rate

$361,778 ………. 30-Year Mortgage

$79,392 ………. Income Requirement

$1,852 ………. Monthly Mortgage Payment

$325 ………. Property Tax (@1.04%)

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

$78 ………. Homeowners Insurance (@ 0.25%)

$416 ………. Private Mortgage Insurance

$280 ………. Homeowners Association Fees

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

$2,952 ………. Monthly Cash Outlays

-$299 ………. Tax Savings (% of Interest and Property Tax)

-$469 ………. Equity Hidden in Payment (Amortization)

$23 ………. Lost Income to Down Payment (net of taxes)

$67 ………. Maintenance and Replacement Reserves

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

$2,273 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,749 ………. Furnishing and Move In @1%

$3,749 ………. Closing Costs @1%

$3,618 ………… Interest Points @1% of Loan

$13,122 ………. Down Payment

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

$24,237 ………. Total Cash Costs

$34,800 ………… Emergency Cash Reserves

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

$59,037 ………. Total Savings Needed

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