Category Archives: Short Sale

Did We Replace Welfare with Home Ownership and HELOC Abuse?

The dramatic increase in the home ownership rate began when welfare reform was passed in 1996. Was that really the cause?

65 Olivehurst Kitchen

Irvine Home Address … 65 OLIVEHURST Irvine, CA 92602

Resale Home Price …… $447,900

I can't compete with history

We'll film it live but dub our tale

The mystery must stay inside

Look at our homes, look at our lives

You are creating all the bubbles at night

I'm chasing round trying to pop them all the time

We don't need to trust a single word they say

You are creating all the bubbles at play

Biffy Clyro — Bubbles

Why did the home ownership rate go up?

Many people have speculated as to why the home ownership rate rose from a stable 64% to an unstable 69% beginning in 1996.

Many political operatives have tried to tie this to one piece of legislation or another, and the article I am featuring today does the same. I am going to add a crazy idea to that mix. To be honest, I don't believe political decisions and government policies had much to do with the growth in home ownership. Lax lending standards and lowered down payment requirements added buyers to the pool by converting good renters into bad loan owners.

If you want to blame any particular policy for this, I would look to Alan Greenspan's refusal to regulate credit default swaps as a good candidate. The reason lending standards got so lax is because lenders believed they had transferred the risk to someone else, most often AIG. Since this risk was grossly mispriced, lending standards continued to fall and the mispricing of risk was hidden by the rampant appreciation the influx of new, unqualified buyers created. When it all blew up, we had a major financial crisis.

The delivery mechanism that put unqualified buyers into homes was not the GSEs, so it was not government policy that increased the home ownership rate: it was private subprime lenders. The data on this point is difficult to refute (see below). Republicans have tried to blame Barney Frank which is a joke considering he had no power while all this was going on. Democrats try to blame the Republicans because they were in charge, but that isn't right either because it was caused by private companies — not the GSEs — and not by any government programs.

Notice how well the increase in home ownership rates tracks the increase in subprime lending. Correlation is not always causation, but in this case, how can you deny it. We know that many subprime borrowers were put into homes that previously could not get one. We also know these are the borrowers who have largely been foreclosed on to date as the alt-A and prime borrowers have been allowed to squat.

Subprime was private lending. I have no doubt that policy makers where happy to see this industry grow, but it was not a government policy that made this happen, and it certainly was not caused by the GSEs. Keep that in mind when you read these bogus political "explanations" of what went on. Most of them are factually challenged, and all of them miss the bigger picture connection between the activities in the private sector, credit default swaps, and the mispricing of risk that caused money to flow into the market and increase the home ownership rate and inflate a massive housing bubble.

Subprime 2.0 Is Coming Soon to a Suburb Near You

By Edward Pinto – Sep 7, 2010 6:00 PM PT

On the second anniversary of the bailouts of Fannie Mae and Freddie Mac, it’s now obvious that weak lending standards, serving the political interest of affordable housing for all, were the main reason for the nation’s mortgage meltdown.

Actually, no, that is not obvious. Serving political interests of affordable housing was not the culprit.

But the government just can’t permit lending to anyone and everyone; it must insist on prudent judgment about who will repay and who will default. Not only will borrowers who lack a down payment, steady income, employment and a good credit history probably get into trouble — surprise! — but too much irresponsible lending also creates artificial demand for houses, driving prices into the stratosphere and, as we have just experienced, puts all homeowners at risk.

The same mistake occurred in 1929, when any investor could buy stocks on margin with as little as 10 percent down. Small wonder that after the crash the U.S. government instituted a margin requirement of 50 percent down.

Congress should apply the same principle to housing purchases, increasing the amount a buyer must put down and other safeguards to assure prudent lending. Congress refuses to do this. Why? Giving citizens cheap, easy housing is a great way to win votes, no matter what horrific repercussions ensue.

That is certainly part of the problem, but the main reason is because any increase in the down payment requirements would cause the already diminished buyer pool to shrink further.

Who’s Following Whom?

Consider the prevailing narrative that holds a greed-driven private sector responsible for the 2008 financial crisis. A secondary narrative points to a greed-driven Fannie Mae and Freddie Mac abandoning their credit standards in an effort to follow the lead of Wall Street.

If these explanations fail to convince, a third blames a combination of deregulation and insufficient regulation, again driven by greed, as rulemakers were asleep at their posts.

Yes, the first two narratives are only partially true, and the third one hits the nail on the head as I outlined above.

What is missing is the central role played by an affordable housing policy built upon the misguided concept of loosened underwriting — a policy created by Congress and implemented for 15 years by the Department of Housing and Urban Development and banking regulators.

The reason that is missing from the narrative is because affordable housing policy did not create the problem. The affordable housing policies did not cause money to go into subprime. Now if we had seen a dramatic increase in the number of GSE loans and an increase in their market share, I might give some creedance to his supposition; however, that is not what happened. The GSEs were losing market share to subprime lenders, and it wasn't until 2005 that the GSEs became more aggressive about buying subprime loans.

From 1993 onward, regulators worked with weakened lending policies as mandated by Congress. These policies systematically dismantled a housing-finance system based on the common sense principles of adequate down payments, good credit, and an ability to handle the mortgage debt.

No Money Down

Substituted was a scam of liberalized lending standards that turned out to be no standards at all. In 1990, one in 200 home-purchase loans (all government insured) had a down payment of less than or equal to 3 percent. By 2003, one in seven home buyers had such a low down payment, and by 2006 about one in three put no money down.

Again, this problem was not driven by the public sector or the GSEs (which were not public sector at the time). This was a private sector problem that was not caused by government policy.

These policies led millions of Americans to buy homes with little or no money down, impaired credit and insufficient income. As a result, our economy has been brought down and the taxpayers have had to foot the bill for bailout after bailout.

The taxpayers didn't have to bailout anyone. Our leaders thought it was the proper course of action to give our money to the idiots that created this mess, and despite the common belief this was necessary, I remain unconvinced.

Congress and U.S. President Barack Obama’s administration refuse to learn the lesson that is painfully aware to American taxpayers, and they have made it clear that they have no intention of fixing broken underwriting.

That much is true. They need every available buyer to help clean up this mess.

Let’s start with the latest pieces of evidence. The Dodd- Frank Bill, signed in July 2010 by the president, omitted both an adequate down payment and a good credit history from the list of criteria indicating a lower risk of default as regulators sought to define a qualified residential mortgage.

‘Prudent Underwriting’

This was no oversight. Republican Senator Robert Corker and others proposed an amendment that would have added both a minimum down-payment requirement and consideration of credit history along with the establishment by regulators of a “prudent underwriting” standard. This amendment was defeated.

In early September 2010, Fannie and Freddie’s regulator, the Federal Housing Finance Agency, following requirements set out in 2008 by Congress, finalized affordable housing mandates that are likely to prove more risky than those that led to Fannie and Freddie’s taxpayer bailout. As required by Congress, these new goals almost exclusively relate to very low- and low- income borrowers. Meeting these goals will necessitate a return to dangerous minimal down-payment lending, along with other imprudent lending standards.

Of course, FHFA Director Edward DeMarco notes that Fannie and Freddie aren’t to undertake risky lending to meet these goals. As has already been noted, Congress doesn’t consider low down payments and poor credit as indicative of risky lending. How convenient.

It is troubling that our financial reform didn't reform much. That Republican amendment was a good one. Unfortunately, Democrats feel they need warm bodies to take on bad loans, so now the US government is replacing subprime.

Return to Subprime

The Federal Housing Administration, in its actuarial study released late last year, projected that it will return to an average FICO credit score of 635 by 2013. This signals the FHA’s intention to return to subprime lending. Once again, Dodd-Frank supports this policy change.

The FHA, the Veterans Affairs Department and the Agriculture Department’s grip on the home-purchase market increases month by month. They now guarantee more than half of all home-purchase loans. However, skin in the game isn’t a requirement. For example, the FHA’s average down payment is just 4 percent. Even this meager amount disappears after adjusting for seller concessions and financed insurance premiums.

On Christmas Eve in 2009, the Treasury Department announced new terms to the bailouts of Fannie and Freddie. Starting on Jan. 1, 2013, the terms of the bailout agreement provide for a continuing obligation to provide about $274 billion in capital to Fannie and Freddie. This amount is in addition to the unlimited sums that are available between now and Dec. 31, 2012. As a result, one or both of these entities can now continue indefinitely as zombie institutions under conservatorship.

As a society, we have to go back to at least 20 percent down, with limited exceptions. Credit histories need to be solid. Documentation has to be iron-clad. Lender capital levels need to be raised.

Yes, that is exactly what we must do. Can you imagine how prices would crater if we did? Perhaps we could phase it in, but it seems more likely that we will not move in that direction at all.

Here’s my proposal to bring Congress’s penchant for imprudent lending to a quick end: All congressional pension assets should be invested in funds backed solely by the high- risk loans mandated by federal housing legislation. I have a feeling that things would change fast.

That is hilarious!

(Edward Pinto, a mortgage-finance consultant, was executive vice president and chief credit officer at Fannie Mae from 1987 to 1989. The opinions expressed are his own.)

To contact the writer of this column: Edward Pinto at

Despite my disagreement with many of his contentions in the article, I support his conclusions that we need to return to sane underwriting standards even if that caused prices to fall further. Do we really want a housing market completely controlled and financed by the US government?

Did We Replace Welfare with Home Ownership and HELOC Abuse?

Here is my bogus correlation to politics for your amusement. Democrat Bill Clinton promised to "end welfare as we know it." Newt Gingerich as part of the Republican Contract With America agreed. Together they passed the Personal Responsibility and Work Opportunity Act of 1996. Since poor people could no longer count on the government for ongoing support payments, they needed a new source of spending money. The government eager to avoid civil disorder came up with an idea: make all these people home owners to make them feel vested in the community, and give them home equity they can convert to spending money to make up for the lost welfare money.

This legislation does correspond to the beginning of the housing bubble, and the cause and effect is plausible. Also, during the bubble rally, there were certainly many poor subprime borrowers who got to take a ride on the HELOC gravy train. I don't happen to think this correlation is causation, but it is something to think about. It is certainly more plausible than most of the nonsense coming out of the Right-wing narratives I have read.

571 Days on the Market. Is it really for sale?

I first profiled today's featured property in Will HELOC Abuse Doom the Housing Market? After 571 days on the market it is still there. Do you sense any urgency in the banks to process short sales?

  • This house was purchased on 3/29/2004 for $539,000. The owner used a $431,200 first mortgage, and a $107,800 down payment.
  • On 12/10/2004 they opened a HELOC for $147,000.
  • On 11/2/2006 they refinanced with a $520,000 Option ARM, and opened a new HELOC for $65,000.
  • Total debt is $585,000.
  • Total Mortgage Equity Withdrawal is $153,800 including their down payment.

There is no filing on this property, so it does not appear in any foreclosure list. Do any of you believe she is still making the payments? Does anyone attempting a short sale bother making payments? Why would they. This has been for sale for nearly two years, so we have to assume she has been squatting without making a payment for at least that long.

What the hell are the banks waiting for? 571 days? Do they really believe prices will go up in the face of all the visible and shadow inventory? Not a chance.

65 Olivehurst Kitchen

Irvine Home Address … 65 OLIVEHURST Irvine, CA 92602

Resale Home Price … $447,900

Home Purchase Price … $539,000

Home Purchase Date …. 3/29/2004

Net Gain (Loss) ………. $(117,974)

Percent Change ………. -21.9%

Annual Appreciation … -2.6%

Cost of Ownership


$447,900 ………. Asking Price

$15,677 ………. 3.5% Down FHA Financing

4.36% …………… Mortgage Interest Rate

$432,224 ………. 30-Year Mortgage

$86,104 ………. Income Requirement

$2,154 ………. Monthly Mortgage Payment

$388 ………. Property Tax

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

$37 ………. Homeowners Insurance

$242 ………. Homeowners Association Fees


$2,947 ………. Monthly Cash Outlays

-$343 ………. Tax Savings (% of Interest and Property Tax)

-$584 ………. Equity Hidden in Payment

$25 ………. Lost Income to Down Payment (net of taxes)

$56 ………. Maintenance and Replacement Reserves


$2,101 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$4,479 ………. Furnishing and Move In @1%

$4,479 ………. Closing Costs @1%

$4,322 ………… Interest Points @1% of Loan

$15,677 ………. Down Payment


$28,957 ………. Total Cash Costs

$32,200 ………… Emergency Cash Reserves


$61,157 ………. Total Savings Needed

Property Details for 65 OLIVEHURST Irvine, CA 92602


Beds: 2

Baths: 2 baths

Home size: 1,550 sq ft

($289 / sq ft)

Lot Size: n/a

Year Built: 2001

Days on Market: 568

Listing Updated: 40360

MLS Number: I09021936

Property Type: Townhouse, Residential

Community: Northpark

Tract: Aubr


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


One Land Baron's Heartbreaking Implosion

Land barons acquire multiple negative-cashflow properties with hope of profiting from appreciation. It is a foolish investment strategy guaranteed to fail when the Ponzi Scheme implodes. Today we see the self-inflicted suffering of one failed land baron.

Today's featured property belongs to a knife catching squatter who managed to close on the day that marks the beginning of the credit crunch.

Irvine Home Address … 10 BLUEJAY Irvine, CA 92604

Resale Home Price …… $720,000


Turn the key

Walk through the gate

The great ascent

To reach a higher state

A rite of passage

The final stage

A sacred home

Unlock the door

And lay the cornerstone

A rite of passage

Dream Theater — A Rite of Passage

A rite of passage is is a ritual event that marks a person's progress from one status to another. Foreclosure is a rite of passage. Bankruptcy is a rite of passage. Many view foreclosure and bankruptcy at the hell fires of destruction when in reality they are a cleansing baptism into a new life — a life unburdened by debt and obligation — at least for a while. Many return to their lives of sin and indebtedness.

Everyone facing the fire shudders at the prospect. Many people face their fears and walk through fire — I did it at a weekend retreat in August of 2007. The entire event happens in the first step; having the courage to face the fear of the unknown, the spectre of pain — facing those fears can allow you to do tremendous things.

Debtors who are hunkered down in their bunkers of entitlement are going to experience the purifying fire of foreclosure. They can either embrace this opportunity, or curse their bad fortune. Which attitude do you think will get them farther in life?

Some homeowners facing the prospect of repeated foreclosures

March 21, 2010

[Brenda Duchemin offers a small moment of comfort to her husband, Mohammad Ashraf, as he sorts through a maze of paperwork related to the foreclosure of their Diamond Bar home. > > > > Multimedia (Robert Gauthier / Los Angeles Times)]

Every morning at 6 a.m., Brenda Duchemin kneels down on two plush throw pillows in front of a carved teak shrine in her Diamond Bar home and chants.

In front of a cluster of oranges, a small teacup and a golden lotus flower on the shrine, the slight 53-year-old tries to expel the negative images: the two homes she and her husband, Mohammad Ashraf, lost to foreclosure auctions last month, the bankruptcy petition they were forced to file in 2009, and their ongoing battle to stay in their spacious and airy home, which is furnished with soft blankets, leather couches and Elvis commemorative plates on the walls.

Daily chanting helps her karma, Duchemin says, which is currently not in such a good state.

"We don't know what we did in a past life to bring this out," she said, a slight Boston accent tinting her speech. "I must have been a horrendous person down the line."

I think it is sad that she believes that. Her suffering has little to do with transgressions in her past life and much to do with her attachments to possessions and a lifestyle she cannot afford in this life. Her failure to realize this is causing self-recrimination in the wrong area.

Though signs of recovery in the housing market are emerging, thousands of people throughout the Southland are still in a precarious position on the brink of foreclosure, struggling with monthly bills and mortgage payments.

Duchemin and Ashraf are an extreme example because they've gone through foreclosures on two homes and are in danger of losing a third. They aren't alone: Flimsy lending practices mean that thousands of other borrowers face the prospect of repeated foreclosures, mortgage and foreclosure experts said.

… "It wasn't unusual to allow folks to buy not only two homes but three, four or five," said Sean O'Toole, founder of data-tracking firm ForeclosureRadar.

Because people thought the price of real estate would keep climbing, O'Toole said, they figured that the more homes they bought, the more they'd earn eventually.

"In a lot of cases, you had folks in this gold rush mentality: 'Real estate is going up, the more houses I buy, the more money I'll make.' "

Sean gets it. This is the second bubble he has cleaned up after.

Duchemin and Ashraf say they are anything but flippers. Had not both their health and the economy taken bad turns, they say, their finances would have been able to support their real estate investments.

Bullshit. Only continued appreciation and continued Ponzi Scheme borrowing based on that appreciation was going to sustain the empire they built. There actions, as revealed below, demonstrate that they were property flippers regardless of how they may view themselves.

The couple bought their Diamond Bar house for $550,000 in 2006, hoping to finance the purchase by selling their town home in Brea — a sale that never materialized, they say, because of the housing crash. The year before, they'd also bought a $340,000 home in Las Vegas as a retirement property, which they rented to a tenant until last year. At the time of the purchases, their only sources of income were workers' compensation insurance payments and Social Security, but that wasn't a problem for the lender.

Their health problems were an issue before they bought. How does the economy impact their income an ability to make payments? They were expecting the payment to come from borrowing against the properties themselves. That is the essence of a Ponzi Scheme.

"We don't know how much longer we can keep going," Duchemin said, stroking their white Maltipoo, Sugar, one of four dogs the couple keep segregated in various areas of their house because the pets fight.

Ashraf, a warehouse supervisor, was injured in 2003 and had to have three discs replaced in his back. The surgery went poorly: He was in the intensive care unit for six days and had a stroke during that time. He now takes fistfuls of medicine each day, and has been even more subdued since his father died in Pakistan in 2008.

Duchemin was hit by an 18-wheeler truck in 1994 and has suffered severe seizures since then, although she had a device inserted in her chest to stem the seizures.

Ashraf is just a shell of the man he once was, Duchemin says. "This is a man who took pride in supporting me, making me feel like I was a queen — he was one of the strongest men I ever met," said Duchemin, who has voluminous brown hair and carefully sculpted eyebrows. "To see him go from that to an invalid. . . . " she said, trailing off.

Before we turn on the water works, let's take a look at what is sad and what is not. It is very sad that this couple has had personal accidents and injuries that has left them unable to earn the same amounts after the accident. When this happens to people, unless they have sufficient disability insurance, they will experience a decline in their standard of living. They suffer to the degree they cannot accept their new life.

The drop in their standard of living should have occurred years ago. It would have been sad, but it would have been over, and it would not have made the LA Times. It would have been an ordinary and unceremonious fall from entitlement.

This couple cooked up a Ponzi Scheme that worked for a while. They believed they had secured a style of life that was, in fact, an illusion. That is not sad. That is foolishness. These people developed attachments to an illusion, and this attachment makes their pain more intense and creates unnecessary suffering. That is sad.

If these people had not been lead to believe they could save their home and have a prosperous retirement on the appreciation of three houses, they would not now be suffering the loss of that dream — a dream sold to them by greedy lenders, mortgage brokers and realtors. That isn't sad. That is wrong, and it makes me angry.

Three houses is certainly capable of providing a comfortable retirement. It is part of my plan, but I intend to own them with no debt and live off the cashflow. That works. Owning three houses and milking them for appreciation by adding debt; that is a Ponzi Scheme. That doesn't work.

Many people have sad stories, and some people have foolish stories; this story is both. We need to be able to separate the two, or we will learn the wrong lesson. These people embarked on a foolish investment strategy. Land Barons all implode in the end, not because the economy turns, but because the investment strategy is foolish and the bad economy exposes that fact.

Should we all share our personal heartbreaks? This couple's sad medical problems have nothing to do with their investment Ponzi Scheme. Should everyone who has a sufficiently sad story get a government handout for their foolish investments that fail? If you can't separate sad from foolish, you might support helping people like this sustain their unsustainable and entitled lives. This report was designed to generate that sympathy, but when you see the truth beneath the story, you realize these people do not need or deserve any bailout assistance.

Ashraf's workers' comp payments were cut in half in 2008, hampering the couple's ability to pay any of their three mortgages.

Duchemin, who has worked as a teacher's assistant, a marketer for a chiropractic office and a locksmith, among other things, started looking for work last year but hasn't had any luck. Now she's applying for jobs that a high school student would be overqualified for, she says.

She's tired of hearing people say the economic downturn is ending. "There is no recovery," she said.

Though they were heartened by the news that the government was trying to help homeowners, the couple doesn't have much hope for mortgage help. They informed Washington Mutual in March 2008 that they were in trouble and asked for a modification on the Diamond Bar home, but tried to pay the mortgages on all three of their houses, missing a payment here, a payment there.

They received an initial boost of denial from one of the various government bailout attempts — notice the reporter doesn't bother to mention which one because they are all the same — and now that the denial has worn off, they are back where they started.

They eventually lost the Brea town house and Las Vegas home to foreclosure, and both properties went up for auction last month.

Duchemin and Ashraf say they are doing everything they can to keep their Diamond Bar house.

They filed for bankruptcy protection in July in the hope that it would enable them to keep the house. They've been to the U.S. Bankruptcy Court in Los Angeles three times since October to get their bankruptcy confirmed, but each time a problem has arisen. The next date is Monday.

They have been getting advice on how to game the system and prolong the misery. Do you think they are being helped? I think they would have been better off walking away and declaring bankruptcy months ago because then it would be over. All they are accomplishing now is prolonging their own agony; they are going to lose everything. The denial of their fate is causing suffering as is waiting for the inevitable foreclosure. When it is over, they can end to their suffering and rebuild their lives. Only their attachments are causing them pain.

To keep making payments on their home, they sold their Toyota Tacoma and family jewelry, including a gold anchor necklace Ashraf had since he served in the merchant marine. They canceled every service they could except for the Internet, which allows Ashraf to keep in touch with his family in Pakistan.

Duchemin rides her bike everywhere to save money on gas — when she goes out. Mostly they stay at home, worrying that the water or electricity will be turned off soon.

If they are forced to move, the two don't know where they'll come up with a deposit for a new place — filing for bankruptcy has ruined their credit.

"We can't afford to stay in our home, but we can't afford to move," Duchemin said.

This is what we want people to do. This is what HAMP applicants are supposed to do but don't. These people have cut everything to the bone, and they still can't make it. That doesn't mean they should be bailed out of their foolish Ponzi Scheme at your expense, does it?

Let's also remember their suffering is both self-created and relative to their level of entitlement. Others do not have it as good as they do.

They're entrenched for now: Board games are stacked up on tables, crystal figurines shine on display in a case, and the four bedrooms are packed full of stuff, including Duchemin's artwork and teddy bears bigger than a toddler.

But every day finds them on edge, waiting to see what happens next. They spend their days trying to appreciate the home they love, with its hand-laid brick walkway, fig and lemon trees in the yard and "Wizard of Oz" paintings on the walls, wondering what went wrong.

"I can't provide the way I used to provide everything for. . . . Excuse me," Ashraf said, breaking down. "For my family," he continued. "And I just — at this point, I don't know what I'm going to do."

It is not difficult to figure out what he is going to do. He is going to move out of his house into a rental and live within his means just like frugal and responsible people everywhere. He will abandon his dreams, and he will endure The Unceremonious Fall from Entitlement.

Is that sad?

I prefer to see these things from the perspective of a Phoenix, not the city, the mythical creature that rises from the ashes of destruction. Once this couple accepts their new lifestyle and standard of living, their suffering will stop, and their new lives will begin. It may not be the fairy tale they hoped for, but it is better than the nightmare they live today.

Today's featured property

Since I began writing for the IHB, I have advised people to rent, particularly in 2007 when there was no plausible scenario where people could benefit financially from owning real estate. Today's featured property was active in mid-2007, and one knife catcher picked the property up for $810,000.

Ordinarily, that would be an opportunity for me to say, "I was right, and the buyers were wrong," but this case is not so clear. Believe it or not, as late as 8 August 2007, lenders were underwriting 100% financing deals. This must have been one of the last because early August 2007 was when the credit crunch gripped mortgage lending. In short, these people bought at the worst possible time — or did they?

Since they did obtain the property with no money down, it was less expensive than moving into a rental. And since they quickly defaulted, and since they have been squatting in the property since they quit making payments in late 2008, their cost of housing has been much lower than mine during that time. And if I had been wrong and they had been right, they stood to make a fortune. Of course, now their credit is ruined, and they are facing foreclosure, but the squatting seems to go on with no end.

Foreclosure Record

Recording Date: 07/24/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 04/17/2009

Document Type: Notice of Default

Is frugality and self-restraint dead?

How do I advise people to do the right thing? I believe retiring debt is a positive, but the government goes out of its way to make debt positive — to the point of offering the possibility of free money through debt forgiveness. Is my advice old and outdated? Has the new permanent Ponzi Scheme mentality made my concern for the financial well-being of others quaint and endearing but not particularly helpful?

I am genuinely concerned about the system we are setting up. The incentives are all wrong. People are obtaining entitlements at the expense of others. People are gaming the system to stay in houses that do not rightfully belong to them. And the government has told our lenders this is OK because we will cover all the losses.

Perhaps it is better to game the system like everyone else? I would have enjoyed living in a nicer place rent-free for the last couple of years.

If 100% financing comes around again in the next cycle, it will be very tempting to take the money — and I am one of the people who think it's a bad idea. You know the spenders who don't care will be maxing out their HELOCs.

Our lenders are rightfully doomed, and we will pay dearly for the next bailout. Will you get your piece?

Irvine Home Address … 10 BLUEJAY Irvine, CA 92604

Resale Home Price … $720,000

Home Purchase Price … $810,000

Home Purchase Date …. 8/8/2007

Net Gain (Loss) ………. $(133,200)

Percent Change ………. -11.1%

Annual Appreciation … -4.3%

Cost of Ownership


$720,000 ………. Asking Price

$144,000 ………. 20% Down Conventional

5.11% …………… Mortgage Interest Rate

$576,000 ………. 30-Year Mortgage

$150,956 ………. Income Requirement

$3,131 ………. Monthly Mortgage Payment

$624 ………. Property Tax

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

$60 ………. Homeowners Insurance

$87 ………. Homeowners Association Fees


$3,902 ………. Monthly Cash Outlays

-$769 ………. Tax Savings (% of Interest and Property Tax)

-$678 ………. Equity Hidden in Payment

$289 ………. Lost Income to Down Payment (net of taxes)

$90 ………. Maintenance and Replacement Reserves


$2,833 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$7,200 ………. Furnishing and Move In @1%

$7,200 ………. Closing Costs @1%

$5,760 ………… Interest Points @1% of Loan

$144,000 ………. Down Payment


$164,160 ………. Total Cash Costs

$43,400 ………… Emergency Cash Reserves


$207,560 ………. Total Savings Needed

Property Details for 10 BLUEJAY Irvine, CA 92604


Beds: 4

Baths: 3 baths

Home size: 2,257 sq ft

($319 / sq ft)

Lot Size: 4,050 sq ft

Year Built: 1976

Days on Market: 139

MLS Number: S596056

Property Type: Single Family, Residential

Community: Woodbridge

Tract: Ck


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

This property is in backup or contingent offer status.

This is a must see now! Won't last long, very popular Woodbridge home. Motivated Sellers, Excellent value, priced to sell NOW! Elegant and Large 4BR home in Prestigious Woodbridge, with a Rose-Lined front yard, close to the lake, across the from the Park on a single loaded street. Very Quiet neighborhood, walking distance to all schools (award-winning Irvine Unified School District). Bright and spacious, vaulted ceiling, large family room plus living room. Mr. and Mrs. Clean live here! Big backyard, well maintained. Unique interior Patio, seen from different parts of the home. Schedule an appointment to see it now, it won't last long!

I am looking into Mr. Clean's toilet, and I am looking at Mr. Clean's toiletries.


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

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

Irvine Home Address … 14 BLUEBELL Irvine, CA 92618

Resale Home Price …… $469,900


The mountain is high, the valley is low

And you're confused 'bout which way to go

So I flew here to give you a hand

And lead you into the promised land

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

Come on and take it by my side

Come on and take a free ride

All over the country, I'm seeing the same

Nobody's winning, at this kind of game

The Edgar Winter Group — Free Ride

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

Recently, I exposed The Face of Housing Entitlement Today.

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

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

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

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

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

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

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

Irvine's Housing Entitlement

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

  • The owner of today's featured property paid $465,000 on 10/23/2003. She used a $372,000 first mortgage, a $93,000 second mortgage, and a $0 down payment.
  • On 12/30/2004 she refinanced into an Option ARM for $486,500.
  • Two months later on 2/3/2005 she opened a HELOC for $67,000.
  • Total property debt is $553,500 plus 3 years of missed payments, negative amortization, and fees.
  • Total mortgage equity withdrawal is $88,500.

Consider what this woman accomplished:

  1. She put no money into the transaction. None.
  2. She extracted $88,500 in just over one year. That is nearly the median income in Irvine, and that money came to her without tax withholding.
  3. She has lived in the property since 2003, and in the full term of ownership, she has not made payments totaling what she pulled from the property.

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

Foreclosure Record

Recording Date: 02/08/2010

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

Foreclosure Record

Recording Date: 12/03/2008

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

Foreclosure Record

Recording Date: 08/28/2008

Document Type: Notice of Default

Foreclosure Record

Recording Date: 08/08/2007

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 05/25/2007

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

Foreclosure Record

Recording Date: 01/24/2007

Document Type: Notice of Default

As I noted six months ago:

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

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

It is a mess but not a packing mess…

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

Irvine Home Address … 14 BLUEBELL Irvine, CA 92618

Resale Home Price … $469,900

Home Purchase Price … $465,000

Home Purchase Date …. 10/23/2003

Net Gain (Loss) ………. $(23,294)

Percent Change ………. 1.1%

Annual Appreciation … 0.1%

Cost of Ownership


$469,900 ………. Asking Price

$16,447 ………. 3.5% Down FHA Financing

5.00% …………… Mortgage Interest Rate

$453,454 ………. 30-Year Mortgage

$97,297 ………. Income Requirement

$2,434 ………. Monthly Mortgage Payment

$407 ………. Property Tax

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

$39 ………. Homeowners Insurance

$114 ………. Homeowners Association Fees


$3,145 ………. Monthly Cash Outlays

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

-$545 ………. Equity Hidden in Payment

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

$59 ………. Maintenance and Replacement Reserves


$2,289 ………. Monthly Cost of Ownership

Cash Acquisition Demands


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

$4,699 ………. Closing Costs @1%

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

$16,447 ………. Down Payment


$30,379 ………. Total Cash Costs

$35,000 ………… Emergency Cash Reserves


$65,379 ………. Total Savings Needed

Property Details for 14 BLUEBELL Irvine, CA 92618


2 Beds

1 full 1 part baths Baths

1,508 sq ft Home size

($312 / sq ft)

2,000 sq ft Lot Size

Year Built 2000

4 Days on Market

MLS Number S608286

Condominium, Residential Property Type

Oak Creek Community

Tract Acac



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

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

Uncle Sam Endorses Cash-For-Keys

Uncle Sam has embraced cash-for-keys as part of its initiative to streamline the short sale process. Can we expect to see many more successful short sales soon?

Irvine Home Address … 58 WOODLEAF Irvine, CA 92614

Resale Home Price …… $359,000


Stop your stalling,

And just give me more than you should,

Before we're all in

The same mess I knew we would;

I will not call you,

'Cos I know he'll answer the phone;

There's something stunning

About the way we lie till it's gone.

Snow Patrol — Steal

Now that the US taxpayer is absorbing the losses from the US housing and mortgage markets, someone in Washington has decided it is more cost effective to pay everyone off at short sale rather than forcing foreclosure. More transactions may be coming if short sales are expedited, and that is probably a good thing.

Program Will Pay Homeowners to Sell at a Loss


Published: March 7, 2010

In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.

This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.

More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.

For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.

Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.

“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.

Reach for your wallet; the government is streamlining….

Cash for Keys from Uncle Sam

To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.

Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”

There it is; Uncle Sam is paying people to pack their stuff and get out of the taxpayer's property — and it is the taxpayer's property given that the taxpayer is the only party putting money into the deal to pay everyone off. Didn't we all know it would come to this? How much longer before Uncle Sam gives up on this loan modification crap and cranks up the foreclosure meat grinder?

The owners of second mortgages must be thrilled with this program. The second mortgage is worth practically nothing when the property is underwater. Investors who expect little or nothing are getting a significant payout from Uncle Sam. I assume Goldman Sachs bought every underwater second mortgage in the country leading up to this policy change.

Cutting out flippers

This program will succeed by cutting out the cash market at foreclosure. Short sales are resales and subject to financing, so prices are higher and loss recoveries greater — at least in theory.

Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.

For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.

For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.

I think the statement about being better for a borrower's credit rating is dubious. How much better is it to stiff a lender for $50,000 if you do it on good terms? Short sales often come with some kind of long-term repayment agreement or acknowledgment of debt. Rarely is it a clean break.

The last statement about benefiting the community is true. Empty houses serve no one. A short sale keeps the property occupied and maintained and keeps continuity in neighborhoods and communities.

With the large amount of distressed inventory, expediting short sales will become a necessity. If every distressed property goes through foreclosure and remains empty for a significant time, everyone involved loses, except perhaps the trustee sale flippers who will be asked to clean up the mess.

Irvine Home Address … 58 WOODLEAF Irvine, CA 92614

Resale Home Price … $359,000

Home Purchase Price … $490,000

Home Purchase Date …. 1/24/2006

Net Gain (Loss) ………. $(152,540)

Percent Change ………. -26.7%

Annual Appreciation … -7.3%

Cost of Ownership


$359,000 ………. Asking Price

$12,565 ………. 3.5% Down FHA Financing

5.01% …………… Mortgage Interest Rate

$346,435 ………. 30-Year Mortgage

$74,419 ………. Income Requirement

$1,862 ………. Monthly Mortgage Payment

$311 ………. Property Tax

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

$30 ………. Homeowners Insurance

$362 ………. Homeowners Association Fees


$2,565 ………. Monthly Cash Outlays

-$308 ………. Tax Savings (% of Interest and Property Tax)

-$415 ………. Equity Hidden in Payment

$25 ………. Lost Income to Down Payment (net of taxes)

$45 ………. Maintenance and Replacement Reserves


$1,911 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$3,590 ………. Furnishing and Move In @1%

$3,590 ………. Closing Costs @1%

$3,464 ………… Interest Points @1% of Loan

$12,565 ………. Down Payment


$23,209 ………. Total Cash Costs

$29,200 ………… Emergency Cash Reserves


$52,409 ………. Total Savings Needed

Property Details for 58 WOODLEAF Irvine, CA 92614


3 Beds:

2 Baths:

1,267 Sq. Ft.:

$283/ Sq. Ft.

– Lot Size:

Property Type: Residential, Condominium

One Level, Other Style:

Community: Woodbridge

Orange County:

S607874 MLS#:

$0,000 0


Property has newer flooring, newer paint and all neutral colors. Master bathroom has been completely remodeled. Great location. One level with great floor plan. Quick cleaning and ready to move in! Very nice – Buyer's will be happy for years to come.

What does the photo above tell you about the occupant?

High-End Owners Compete for Buyers and Dance with Asking Prices

Lenders work to inflate our flagging housing bubble to limit their losses. The lender of today's featured property is hoping for $275,000 extra in its loss recovery efforts. Are you willing to step forward and help them out?

Irvine Home Address … 101 LATTICE Irvine, CA 92603

Resale Home Price …… $1,100,000


Oh dancing with myself

Oh dancing with myself

Well there's nothing to lose

And there's nothing to prove

I'll be dancing with myself

Dancing with Myself — Billy Idol

High-end market pricing is a symbolic, mutually-shared illusion with sellers and lenders — a group increasingly becoming sellers — pretending that current pricing is stable and praying preying they find a patsy to pay the huge note. Some gyrate their asking prices in a do-si-do dancing up and down and ending where they started. Today's featured property shuffled two steps back and six steps forward:

Property History for 101 LATTICE

Date Event Price
Mar 01, 2010 Price Changed $1,100,000
Mar 01, 2010 Price Changed $985,000
Mar 01, 2010 Relisted
Feb 08, 2010 Price Changed $875,000
Jan 18, 2010 Price Changed $925,000
Jan 12, 2010 Price Changed $895,000
Nov 18, 2009 Delisted
Nov 16, 2009 Price Changed $825,000
Oct 23, 2009 Delisted
Oct 21, 2009 Listed $875,000
Feb 28, 2006 Sold (Public Records) $1,380,000

What would possess whoever is in control of this asking price to raise it $275,000 over the last five months? Is this a short sale where the lender keeps raising their approved short-sale price? Did the realtor have influence? I don't think the sellers care any more:

Foreclosure Record

Recording Date: 02/16/2010

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

Foreclosure Record

Recording Date: 11/13/2009

Document Type: Notice of Default

Their $1,104,000 Option ARM blew up.

High-end inventory

According to recent reports, high-end house sellers lower their sights, and anyone selling mansion can expect to wait 3 years. I found these quotes from the first article interesting:

"The market moved, and so with it did the price," Eisenberg said. "The seller is a smart businessman and a reasonable guy — he gets it — and the best part is that he is under no real pressure to sell as the property is owned free and clear of any debt."

Therein lies one reason for more overpricing in the luxury home market, said Gary Painter, director of research at the USC Lusk Center for Real Estate.

"What's different about the high end, compared to the general population, is that people who have substantial resources are able to wait longer" to sell, Painter said. "In the bottom of the market you see negative-equity situations, loans going up, people must sell. Outside forces force them to price to sell. Those sorts of outside forces aren't as present [at the upper end]."

We all know this is not true for most properties between $1,000,000 and $3,000,000, and as I demonstrated in $3,367,500 HELOC Abuse from Hollywood, $5,000,000 HELOC abuse from Laguna Beach, $7,000,000 HELOC abuse in Newport Coast and 18 different properties in Huntington Beach, high end markets are inflated beyond belief, not by cash buyers, but by highly leveraged pretenders who are dancing with their lenders in amend-extend-pretend.

More so perhaps than in other parts of the nation, Southland sellers have another reason for overpricing at the onset: the magical belief that a star will happen upon their place and be willing to pay any price.

That statement — complete with its ironic truth about wishful thinking — is a setup for an even bigger delusion:

"The story of celebrities knocking on doors and overpaying for a house they 'have to have' still floats around," Malibu agent Gardner said.

Reinforcing the popular myth, Cotton said, is that "every once in a while the real estate god looks down and someone will buy a place that's overpriced."

In other words, stupid knife catchers are everywhere.

Quoting Steve Thomas?

From the Altera website:

President – Steven Thomas

Steven is a 3rd Generation real estate and it is truly in his blood. He is an Orange County native and has served as the dynamic leader through many of the changes in Orange County over the years and is THE expert on OC market dynamics.

Occasionally, even industry shills have a valid observation (from the OC Register story):

At the current pace, the overall market is a seller’s market without much appreciation at all. The number of distressed homes within the Orange County housing market is keeping a lid on appreciation. On the other hand, the higher end price ranges are experiencing a deep buyer’s market, the higher the price range, the deeper the buyer’s market. The hottest price range is homes priced between $250,000 and $500,000, with an expected market time of 1.75 months. Contrast that with homes priced above $4 million with an expected market time of 33.89 months.

Remember O.C. has 13 months of unlisted foreclosures, so the market-time is quickly approaching infinity. Lenders are very concerned about the massive losses they will take as the high end deflates, and they are doing everything possible to prevent it, but moving back to sustainable lending standards means that people really must have the incomes to support the loans.

This is a nice house, but is it the property fitting to someone making $230,000 a year with over $220,000 in the bank? That is who will buy this. Are there enough of these high wage earners to support the number of homes that must wash through the system? That is really the question we are exploring. According to sales volumes, the number of listings and the total shadow inventory, the answer appears to be a resounding "no" — unless you believe the cartel will hold together. I don't.

Irvine Home Address … 101 LATTICE Irvine, CA 92603

Resale Home Price … $1,100,000

Home Purchase Price … $1,380,000

Home Purchase Date …. 2/28/2006

Net Gain (Loss) ………. $(346,000)

Percent Change ………. -20.3%

Annual Appreciation … -5.3%

Cost of Ownership


$1,100,000 ………. Asking Price

$220,000 ………. 20% Down Conventional

5.06% …………… Mortgage Interest Rate

$880,000 ………. 30-Year Mortgage

$229,324 ………. Income Requirement

$4,756 ………. Monthly Mortgage Payment

$953 ………. Property Tax

$242 ………. Special Taxes and Levies (Mello Roos)

$92 ………. Homeowners Insurance

$252 ………. Homeowners Association Fees


$6,295 ………. Monthly Cash Outlays

-$1306 ………. Tax Savings (% of Interest and Property Tax)

-$1046 ………. Equity Hidden in Payment

$435 ………. Lost Income to Down Payment (net of taxes)

$138 ………. Maintenance and Replacement Reserves


$4,516 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$11,000 ………. Furnishing and Move In @1%

$11,000 ………. Closing Costs @1%

$8,800 ………… Interest Points

$220,000 ………. Down Payment


$250,800 ………. Total Cash Costs

$69,200 ………… Emergency Cash Reserves


$320,000 ………. Total Savings Needed

Property Details for 101 LATTICE Irvine, CA 92603


3 Beds

2 full 1 part baths Baths

2,460 sq ft Home Size

($447 / sq ft)

6,154 sq ft Lot Size

Year Built 2004

141 Days on Market

MLS Number S593530

Single Family, Residential Property Type

Quail Hill Community

Tract Othr


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

Nice home in Quail hill overlooking hospital, city area and local highways…Somewhat open spacious floor plan with vaulted ceilings, plantation shutters, canned lighting, newer carpet, hardwood flooring in some areas, partly travertine flooring, stainless steel appliances, granite countertop in kitchen, wood banister leading upstairs to smaller bedrooms and master has a small view balcony off the room….backyard has built in island bbq with room for entertaining with slight local freeway noise.

Did you read the honesty in that description? Somewhat open… slight local freeway noise… This description provides a balanced account of the property and mentions negatives, something quite rare. There is no puffing or realtorese in the description. I want to thank rkp for sharing this property in the astute observations.