Category Archives: Short Sale

IHB News 12-26-2009

Happy Boxing Day!

5322 PLUM TREE Irvine, CA 92612 kitchen

Irvine Home Address … 5322 PLUM TREE Irvine, CA 92612
Resale Home Price …… $520,000

{book1}

Take it all down, Christmas is over
But do not despair, but rather be glad
We had a good year, now let’s have another
Remembering all the good times that we had
Oh no more lights glistening
No more carols to sing
But Christmas, it makes way for spring
Though hearts of man are bitter in weather
As cold as the snow that falls from above
But just for one day we all came together
We showed the whole world that we know how to love
Oh no more lights glistening
No more carols to sing
But Christmas, it makes way for spring
Oh no more lights glistening
No more carols to sing
Christmas, it makes way for spring
Oh remember that Christmas, it makes way for spring

Boxing Day — Relient K

I want to thank my wife for the inspiration of today’s post.

From Wikipedia:

The name [Boxing Day] derives from the tradition of giving seasonal gifts, on the
day after Christmas, to less wealthy people and social inferiors, which
was later extended to various workpeople such as labourers and servants.

The traditional recorded celebration of Boxing Day has long included
giving money and other gifts to charitable institutions, the needy and
people in service positions. The European tradition has been dated to
the Middle Ages, but the exact origin is unknown and there are some
claims that it goes back to the late Roman/early christian era.

In the United Kingdom it certainly became a custom of the nineteenth
century Victorians for tradesmen to collect their ‘Christmas boxes’ or
gifts in return for good and reliable service throughout the year on
the day after Christmas. [1].

The establishment of Boxing Day as a defined public Holiday under
the legislation that created the UK’s Bank Holidays started the
separation of ‘Boxing Day’ from the ‘Feast of St Stephen’ and today it
is almost entirely a secular holiday with a tradition of shopping and
post Christmas sales starting.

Christmas Day is usually spent quietly with the family (my son was thrilled to spend all day in pajamas). According to my British sources, Boxing Day is the day to get outside, whatever the weather. Watch sport. Play sport. Have fun!

Housing Bubble News from Patrick.net

2010: Another year, another crisis (blogs.reuters.com)
Housing May Stay Shaky Without U.S. Aid (online.wsj.com)
Despite modified loans, many houseowners lag again (miamiherald.com)
Watchdog needed to prevent financial collapse (heraldtribune.com)
Small-business bankruptcies rise 81% in California (latimes.com)
Serious U.S. mortgage delinquencies up 20 percent (finance.yahoo.com)
Borrowers with modified loans falling into trouble (finance.yahoo.com)
U.S. property faces long road to recovery (reuters.com)
Foreclosures for “seriously delinquent loans” topped 1 million in Q3 (latimes.com)
Spend or save — what’s an American supposed to do? (latimes.com)
With rates so low, where should your cash go? (msnbc.msn.com)
Top 10 Outrageous Predictions for 2010 (cnbc.com)
More houses are poised to hit the market (latimes.com)
Glut of shadow properties could hurt housing prices (tennessean.com)
Foreclosure backlog estimated at 1.7M (news.yahoo.com)
My Half-Baked Bubble (nytimes.com)
Realtors Try Used-Car Salesman Tactics (minyanville.com)

5322 PLUM TREE Irvine, CA 92612 kitchen

Irvine Home Address … 5322 PLUM TREE Irvine, CA 92612

Resale Home Price … $520,000

Income Requirement ……. $108,654
Downpayment Needed … $104,000
20% Down Conventional

Home Purchase Price … $212,000
Home Purchase Date …. 5/14/1998

Net Gain (Loss) ………. $276,800
Percent Change ………. 145.3%
Annual Appreciation … 7.8%

Mortgage Interest Rate ………. 5.08%
Monthly Mortgage Payment … $2,254
Monthly Cash Outlays ………… $2,960
Monthly Cost of Ownership … $2,390

Property Details for 5322 PLUM TREE Irvine, CA 92612

Beds 3
Baths 1 full 1 part baths
Size 1,372 sq ft
($379 / sq ft)
Lot Size 1,500 sq ft
Year Built 1974
Days on Market 1
Listing Updated 12/16/2009
MLS Number S599118
Property Type Single Family, Residential
Community University Park
Tract Tr

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

***Short Sale in process with a professional short sale negotiator***Upgraded University Park Home With Remodeled Kitchen, Recessed Lights, French Doors, Skylights And Much More. Bright And Open Floor Plan Featuring Large Living Room With Fireplace, Sunny Kitchen With A Bay Window, Two Large Private Patios. Tract Is Like No Other With Huge Parks, Lots Of Trees, Private Driveways, Assoc Maintained Front Lawns And Landscaping, Pools/spas/clubhouse.

***Short Sale in process with a professional short sale negotiator*** LOL! People are carving out niches as professionals with respect to short sales. Does anyone remember 3 years ago when nobody knew what a short sale was?

Merry Christmas from the IHB

Santa left Super Mario Bros. Wii!!! I am having so much fun!!!

27 KERNVILLE Irvine, CA 92602 kitchen

Irvine Home Address … 27 KERNVILLE Irvine, CA 92602
Resale Home Price …… $1,250,000

{book1}

Oh come all ye faithful
Joyful and triumphant
Oh come ye, oh come ye to Bethlehem

Sing choirs of angels
Sing in exultation
Oh sing, all ye senders of the heaven above

Oh Come All Ye Faithful — Nat King Cole

Merry Christmas from the IHB

I hope you are enjoying this Holiday whatever your faith or belief. Few are working today, and for those that are at their jobs, thank you for giving up your Holiday to make ours possible.

27 KERNVILLE Irvine, CA 92602 kitchen

Irvine Home Address … 27 KERNVILLE Irvine, CA 92602

Resale Home Price … $1,250,000

Income Requirement ……. $261,187
Downpayment Needed … $250,000
20% Down Conventional

Home Purchase Price … $641,500
Home Purchase Date …. 10/2/2002

Net Gain (Loss) ………. $533,500
Percent Change ………. 94.9%
Annual Appreciation … 9.3%

Mortgage Interest Rate ………. 5.08%
Monthly Mortgage Payment … $5,417
Monthly Cash Outlays ………… $7,100
Monthly Cost of Ownership … $5,190

Property Details for 27 KERNVILLE Irvine, CA 92602

Beds 4
Baths 3 baths
Size 3,650 sq ft
($342 / sq ft)
Lot Size 6,000 sq ft
Year Built 2002
Days on Market 9
Listing Updated 12/16/2009
MLS Number S599020
Property Type Single Family, Residential
Community Northpark
Tract Tria

A must see. Best floorplan in track. 3 bedrooms downstairs (including master) and one studio master with loft upstairs. Built-in BBQ and fountains. Travertine in living room, family room and kitchen.

Does is seem right to you that this property has appreciated at 9.3% per year every year since 2002? I don’t see how these houses maintain these price levels.

Should You Walk Away from Home Debt?

For many underwater homeowners, walking away from their mortgage debt is the best financial decision; however, most will not walk away from their mortgages. Enough borrowers will default to make a steady stream of properties like today’s.

806 SILK TREE Irvine, CA 92606 kitchen

Irvine Home Address … 806 SILK TREE Irvine, CA 92606
Resale Home Price …… $459,000

{book1}

From the lands lying at the end of World
I am bringing this dress as a gift, it is
Made with the purest silk
She smiled at me,
She never wore the dress
Touching the fabric was like holding
Nothing in your hand

The Silk Dilemma — Elvenking

Nothing in your hand; it is what underwater homedebtors have. They occupy a house — just like renters do — but most of them do so at a huge premium to renting. Underwater homedebtors have no equity; what they do have is the dream of equity in the future. They have a position in a financial market that most resembles an option contract that is out-of-the-money.

People who are underwater today and paying a premium are still hoping they will get a return on those premium dollars when their house value rises above their mortgage and puts them back in-the-money. Mostly this is based on fantasy or Zillow Zestimates or some other such nonsense, when in reality, their property values will likely decline further, and it will take much longer than they want for prices to come back. That is the way financial bubbles deflate.

Most people will not walk away. Most will continue to suffer in silence wait the decade or more for prices to recover. People become invested in the process. Once they have held on for two or three years too long, they feel committed to seeing it through, and many will. This was the experience of the early 90s, and since that bubble wasn’t near so massive, the market did recover in 8-10 years and life went on.

{book3}

The Great Housing Bubble was much, much larger than the bubble of the 90s, and we have not deflated back to stable price levels yet. Those that hang on will likely wait much longer than those who bought in the last bubble.

Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis

Brent T. White

Abstract

“Contrary to reports that homeowners are increasingly “walking away” from their mortgages, most homeowners continue to make their payments even when they are significantly underwater. This article suggests that most homeowners do not strategically default as a result of two emotional forces: 1) the desire to avoid the shame and guilt of foreclosure; and 2) exaggerated anxiety over foreclosure’s perceived consequences. Moreover, these emotional constraints are actively cultivated by the government and other social control agents in order to induce homeowners to ignore market and legal norms under which strategic default might not only be a viable option, but also the wisest financial decision. Unlike lenders, individual homeowners have thus generally not acted to minimize their losses and have born a disproportionate share of the burden from the housing collapse.”

WalkingAway1029.pdf

From the main text:

“This article suggest that most underwater homeowners don’t default as a result of two emotional forces: 1) the desire to avoid the shame or guilt associated with foreclosure; and 2) fear over the perceived consequences of foreclosure – consequences that are in actuality much less severe than most homeowners have been led to believe. Moreover, fear, shame, and guilt are not mere “transaction costs” that homeowners calculate according to their own personal tolerance for each. Rather, these emotional constraints are actively cultivated by the government, the financial industry, and other social control agents in order to induce individual homeowners to act in ways that are against their own self interest, but which are – wrongly this article contends – argued to be socially beneficial.”

I totally agree with the observation made here. The powers-that-be are working in a coordinated effort to convince people to keep hanging on, not because it helps the borrower, but because it benefits the lender. The culmination of these efforts is a series of Bailouts and False Hopes.

“Unlike lenders who follow market norms, individual homeowners are encouraged to behave in accordance with social norms of “personal responsibility” and “promise-keeping.” Thus, individual homeowners tend to ignore market and legal norms under which
strategic default might not only be a viable option but also the wisest financial decision. As a result, individual homeowners have born a disproportionate share of the costs of the housing meltdown.”

When a borrower defaults at a bank, it is a tiny blip on some complicated financial statement of a large, faceless lender — the same lender that made a fortune putting the borrower into an unstable loan to begin with. Lenders made the problem, but they are trying, hoping, praying they can pass off the responsibility to everyone else — particularly underwater homeowners. It is the individual homeowners who bear the greatest burden and it is the borrowers who will pay the price through a decade of debt slavery with the feeble hope of appreciation to bait them on.

{book2}

IMO, this is where it gets even worse. For the whole system to hold together, kool aid intoxication must be sustained. If the underwater homeowners truly accepted the idea that prices may not come back in a reasonable time — and prices will never come back as quickly as homedebtors imagine — people will default in larger numbers.

In one of the more damning portions of the paper, Dr. White writes:

… social control agents such as the government, the media, and the financial industry use both moral suasion and disinformation to cultivate these emotional constraints in homeowners.

Is he a conspiracy-theory nutter, or is he an accurate observer of what is going on? I will let you decide.

Should You Walk Away?

I found a link to a site, Pay or Go. With a few simple inputs the site will tell you whether or not it is in your best interest financially to walk away. It also has a number of informative links to major newspaper articles on the subject.

The calculator on the site has an important note that drives to the heart of the problem: people believe house prices appreciate faster than they really do.

IS IT IN MY ECONOMIC INTEREST TO WALK AWAY?

You decide. This calculator is just a tool to help. Numerous variables are involved but the biggest is probably your assessment of the future of housing pricing. No one can predict future prices, but the conventional wisdom says that it is probably not realistic to believe that housing prices will increase by more than 4%-8% per year on average.

It seems obvious to me that one of problems people were having with this tool was that they put in assumptions for appreciation that are too aggressive. It is the same kind of thinking that inflated the bubble.

Faith in market kool aid is not enough. With a massive overhead inventory of those who want or need to get out at breakeven (including the lenders and their shadow inventory), no amount of wishful thinking is going to make prices rise. Timing Does Matter. Low interest rates may help cushion the blow, but peak prices are not right around the corner.

I am starting to believe that kool aid intoxication may never go away, particularly now that it is in the government’s best interest to keep it tasty and keep it flowing.

806 SILK TREE Irvine, CA 92606 kitchen

Irvine Home Address … 806 SILK TREE Irvine, CA 92606

Resale Home Price … $459,000

Income Requirement ……. $95,908
Downpayment Needed … $91,800
20% Down Conventional

Home Purchase Price … $650,000
Home Purchase Date …. 6/29/2007

Net Gain (Loss) ………. $(218,540)
Percent Change ………. -29.4%
Annual Appreciation … -13.7%

Mortgage Interest Rate ………. 5.08%
Monthly Mortgage Payment … $1,989
Monthly Cash Outlays ………… $2,800
Monthly Cost of Ownership … $2,300

Property Details for 806 SILK TREE Irvine, CA 92606

Beds 3
Baths 4 baths
Size 868 sq ft
($329 / sq ft)
Lot Size n/a
Year Built 2007
Days on Market 62
Listing Updated 11/7/2009
MLS Number 9405653
Property Type Condominium, Townhouse, Residential
Community Columbus Grove
Tract Oakp

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

A MUST SEE! 3BED+4BA+3CAR GARAGE W/WIDE OPEN VIEW IN PRIME LOCATION. HARD WOOD FLOORS & UPGRADED CARPET,GRANITE COUNTERS IN KITCHEN, GE PROFILE STAINLESS STEEL APPLIANCES,SPA,CLUB HOUSE, TENNIS CT. CITY LIGHTS, NEAR THE DISTRICT FOR ALL SHOPPING, DINING & ENTERTAINMENT,BIKING, RUN/WALK.

ALL CAPS

A MUST SEE! Wow! I am so motivated….

I could have titled this post, “How to Lose a Fortune Quickly.” A 30% drop in just over 2 years is remarkable… documenting the transaction that began 5 months after I started warning buyers on the IHB… that is priceless.

IHB News 12-19-2009

I hope you are enjoying your pre-holiday weekend. Are you finished shopping for the holidays? Spend or save — what’s an American supposed to do?

41 GILLMAN St Irvine, CA 92612 kitchen

Irvine Home Address … 41 GILLMAN St Irvine, CA 92612
Resale Home Price …… $510,000

{book1}

The battled starts adversaries
We bathe in our blood
The worst is yet to come
We’ve reached the covenant
To kill what we have started

Escape the Fate — The Guillotine

IHB News

When I first started writing for the blog, there was no set format or template for anything, so each post was made from scratch or with a little cut and paste. Over time, with the desire to improve accuracy, deliver more information, and do it quickly (and still have a life), I developed an Excel Spreadsheet I use to create the structure of a post.

Each week I sit down to select properties and write my posts for the week (yes, I batch them). My first task is to look up the average APR on a 30-year fixed-rate mortgage and put it into my template. Each property I evaluate will be using the same interest rate assumption, and as long as the post isn’t delayed too long, the rates are current. I use the average APR instead of the average interest rate because I want to look at the true cost of financing instead of the rate that gets attention.

For each post, I need 6 specific data points plus the data dump from the MLS. The key data points are (1) address, (2) asking price, (3) original purchase price, (4) original purchase date, (5) Mello Roos fees, and (6) HOA Fees. Information below the property details is cut and paste from the IDX so there are no inaccuracies in typing.

The cool part is how much calculation goes on in the background to generate the tables of numbers.

The Income Requirement started out as a simple 25% of purchase price. I wanted to emphasize to people back in 2007 to the fact that house prices bottomed at 4-times income, and if you go back to traditional financing, you need much larger incomes to support the prices at the time. Well, that served its purpose, but to give a more accurate vision of the financing picture, I created a formula that takes traditional underwriting standards to calculate the income it takes to support the asking price at current interest rates. People can judge for themselves if a property is affordable or desirable.

The Downpayment needed used to be a simple 20% of the purchase price. Again, back in 2007, I wanted to emphasize to people who were not accustomed to 20% downpayments that these monsters were coming back, and the sticker prices on houses was going to have to adjust to the fact that nobody has a downpayment (cue FHA). Now, the formula I use is more nuanced; it displays 20% down for any property over $417,000 (a somewhat arbitrary cutoff), and it displays 3.5% down for any property under $417,000. The assumption is that lower priced properties are probably first-time buyers using FHA financing, and their financial picture is different than the 20% down buyer.

I used to get out a hand calculator and type the details of each transaction to calculate the total profit and loss. I am amazed I did not make more mistakes. Now it is in a spreadsheet, and I accurately represent the amount the owner (or lender) netted after sales commissions. A benefit of this is that I can accurately measure the financial performance of the “trade” — since so many are obsessed with making a fortune in real estate, it seems appropriate to see the truth, good or bad.

The calculation of annual appreciation is the most complex of the ones I make. It is really an internal rate of return calculation where I assume the purchase price was spent in period 1, and the proceeds come back later. The calculation is difficult because the holding period for houses can range from a few months to 30 years so getting a stable number of periods that did not crash the calculation was tough. I finally duplicated the formula in three different time periods, and I take the result of the most precise time period that does not return an error… I think this is probably only interesting to Excel buffs, but…

The Mortgage Payment, Monthly Cash Outlays and the Monthly Cost of Ownership are directly from our fundamental value reports. I don’t display it in the post, but my spreadsheet has the complete breakdown of the cost of ownership including the Mello Roos and HOA fees. I investigate those for each property, but I don’t directly post the result. I can if people are interested, but I want to keep the size of the posts manageable and the content relevant.

So that is where we are with the post information and presentation. Sometimes the interesting part of the post is in these numbers, and sometimes it is not. Either way, the data is always available, and I try to make it as accurate as possible.

Housing Bubble News from Patrick.net

Luxury-House Owners in U.S. Walk Away More Than Others (bloomberg.com)
Debtor’s Dilemma: Pay the Mortgage or Walk Away (online.wsj.com)
Shadow inventory looms over housing market (centralvalleybusinesstimes.com)
Federal government is selling lots of houses in South Florida (sun-sentinel.com)
More People Remaining Unemployed Longer (courant.com)
Spend or save — what’s an American supposed to do? (latimes.com)
Banks walk away, while telling you not to! (market-ticker.denninger.net)
Citigroup to stop admitting losses for 30 days (usatoday.com)
More foreclosures on horizon in LV (lvrj.com)
Housing’s Treacherous Path: From 44% Houseownership to 70% (financemymoney.com)
Many counties in California are still overpriced. Massively overpriced. (doctorhousingbubble.com)
Foreclosure buyer demand dips as supply mounts (reuters.com)
Realtor: “All the CRAZIES are out there buying now” (healdsburgbubble.blogspot.com)
Underwater Houseowner Should Have Waited Longer To Buy (online.wsj.com)
The Fed will hike rates — in 2011 (money.cnn.com)
The biggest real estate flops of 2009 (finance.yahoo.com)
Luxury house markets show bigger % price cuts (lansner.freedomblogging.com)
California house values likely to be down in 2010 (nctimes.com)
Nearly 650,000 are long-term jobless in CA (economy.freedomblogging.com)
Another wave of Phoenix-area foreclosures forseen (google.com)
Why a 35% Decline in Housing Values Would Be Good for the Nation (Charles Hugh Smith)
Weathering the Downhill Slope of Recreational Real Estate (nytimes.com)
Fannie Mae Losses May Exceed $200Bn (housingwire.com)
America’s municipal-bond market: State of pay (economist.com)
How buying a house is gambling (seekingalpha.com)
Los Angeles-area foreclosure rate increases in October (latimesblogs.latimes.com)
California housing market will face another bad year in 2010 (doctorhousingbubble.com)
Foreclosures fall, but banks bracing for next big wave (csmonitor.com)
U.S. House rejects mortgage “cramdown” measure (news.yahoo.com)
Goldman Trades Shouldn’t Get U.S. Aid, Volcker Says (bloomberg.com)
Interest Rates Are Low, but Banks Balk at Refinancing (nytimes.com)
There is no “Free Market” Housing Solution (newgeography.com)

Housing Bubble News

Payback For Bernanke

Forbes – Joshua Zumbrun – ‎Dec 17, 2009‎

Worse, he denied that the housing bubble was a concern, and as a highly-regarded Harvard- and MIT-educated economist, who went on to chair the economics …

Which Bubbles Should The Fed Pop?

Atlantic Online – Daniel Indiviglio – ‎Dec 14, 2009‎

The tech bubble of the late 90s, for example, didn’t hurt many people who lived outside Silicon Valley or didn’t own many tech stocks. The housing bubble …

FHA Troubles Are Likely to Curtail Demand

Monthly Review – Dean Baker – ‎Dec 12, 2009‎

It seems that many policymakers even now have not come to the grips with the housing bubble. They fail to recognize that the surge in house prices from 1996 .

41 GILLMAN St Irvine, CA 92612 kitchen

Irvine Home Address … 41 GILLMAN St Irvine, CA 92612

Resale Home Price … $510,000

Income Requirement ……. $105,721
Downpayment Needed … $102,000
20% Down Conventional

Home Purchase Price … $265,000
Home Purchase Date …. 8/31/2001

Net Gain (Loss) ………. $214,400
Percent Change ………. 92.5%
Annual Appreciation … 7.5%

Mortgage Interest Rate ………. 5.01%
Monthly Mortgage Payment … $2,193
Monthly Cash Outlays ………… $2,800
Monthly Cost of Ownership … $2,240

Property Details for 41 GILLMAN St Irvine, CA 92612

Beds 2
Baths 2 baths
Size 1,594 sq ft
($320 / sq ft)
Lot Size 6,608 sq ft
Year Built 1965
Days on Market 85
Listing Updated 12/8/2009
MLS Number S598344
Property Type Single Family, Residential
Community University Park
Tract V1

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

Beautiful single level home, 2BD/2BA + den. Nicely upgraded, well maintained, wood flooring throughout. Spacious kitchen. Bright, open floor plan. Fireplace in living room and den. Large lot which includes a spacious back yard and an enclosed front yard. Walking distance from association pools/club house. Conveniently located in University Park, top schools. This unit is a must see unit.

When I first saw this property listed as a short sale, I figured it was a familiar story; Irvine homeowner more than doubles mortgage and ends up walking away. This one is not quite so clear. From my data source, it shows about $310,000 in mortgage debt and about $90,000 in mortgage equity withdrawal. There may be an mortgage or refi that isn’t showing up in my data source to explain why this would be a short sale.

Will the Federal Reserve Take Over?

The Federal Reserve currently controls mortgage interest rates through its direct purchase of Agency debt. Now that we have given the Federal Reserve this ability, are they going to keep it?

6 LAKEVIEW 73 Irvine, CA 92604 kitchen

Irvine Home Address … 6 LAKEVIEW 73 Irvine, CA 92604
Resale Home Price …… $700,000

{book1}

Tear down these walls for me
Stop me from going underYou are the only one who knows
I’m holding back

It’s not too late for me
To keep from sinking further
I’m trying to find my way out
Tear down these walls for me now

These Walls — Dream Theater

Today, I want to start with a simple question: What would it be like if everyone in California won the lottery at the same time?

There was a scene in the movie Bruce Almighty where Jim Carry’s character is given the power of God, and with it the commensurate responsibility to answer prayers. In frustration, he answers “yes” to everyone. In the next scene you hear people lamenting how they won the lottery and had to split it with so many people very little was gained.

The combination of kool aid intoxication and lender greed results in access to appreciation through HELOCs and a near-lottery payoff for every homeowner in California. It is as widespread as everyone winning the lottery except: no dilution. In fact, it is the nearly the opposite of dilution — the activities of a few borrowers bidding up prices provides wealth for every homeowner in the area.

The Federal Reserve could make prices go up. They have already artificially increased affordability by 20% or more by lowing interest rates a full point below market value. If the Federal Reserve wanted prices to go up, there is no limit to how low they could take mortgage interest rates. It might be tempting if the Federal Reserve had a reason to do so.

If appreciation returns to California, and if lenders and investors repeat previous mistakes (give away HELOCs like crack to an addict), then the economic stimulus will be huge — It was last time — homeowners borrowed and spent their futures believing tomorrow would never come; it didn’t. People defaulted on HELOC debt and faced no restitution or retribution.

For those of us who did not participate in the bubble, our perception of events and the incentives of the system matters. We know from observation that next time we will face few consequences, and we will be bailed out if it gets really bad. This will change borrower behavior — our behavior — and not for the better.

Federal Reserve induced appreciation is moral hazard leading to a larger Ponzi Scheme.

{book4}

I don’t think our legislators really comprehend the problem. Government financing is a massive Ponzi Scheme, so even if regulators were to recognize the oft ambiguous signs of a Ponzi Scheme credit bubble, I doubt anything would be done. Legislators do not see bubbles as a danger, and they do see economic expansion as a societal good, so if a housing bubble grows the economy, regulators will usually go along for the ride and wait to point fingers and affix blame later.

I have proposed solutions for Preventing the Next Housing Bubble, but anything that limits the ability of lenders to push debt service thresholds higher will be met with fierce resistance. The government does not mind seeing 40% or more of the incomes of its
citizens go toward debt service — the Finance Oligarchs have plenty of
lobbying money with so much of your income going toward their
profitability. Will they use this power to take over? Haven’t they already?

Federal Reserve as God

I am becoming more and more concerned that we will go the road of inflating another bubble to stimulate the economy. What would happen if the FED took mortgage interest rates down to 3%? Since they are the buyer of all GSE debt, they can pay as much as they want and drive rates as low as they want.

What if the Federal Reserve kept control of the real estate market permanently through setting mortgage interest rates? Any time we need to stimulate the economy, the FED can lower mortgage interest rates which will (1) increase prices, (2) increase borrowing and (3) provide stimulus through HELOC spending. When the FED wants to cool the economy down, they can (1) raise mortgage interest rates, (2) decrease borrowing (and appreciation) and (3) reduce the HELOC stimulus to the economy.

Mortgage interest rates can be controlled independently of the Federal Funds Rate (within some constraints) giving the Federal Reserve another tool for managing our economy besides setting the Federal Funds Rate. The “wealth effect” of real estate has proven it can stimulate consumer spending in a recession.

Hmmm….

I don’t know about you, but I think the Federal Reserve with that much power is a bit scary. I also fear that is where we are going. Isn’t the argument I laid out for giving the Federal Reserve permanent control of mortgage interest rates compelling to legislators? The idea has the short term benefit of economic expansion, and any problem — like the fact it is a Ponzi Scheme — can be pushed to a later date. when the Ponzi Scheme does finally blow up, there are plenty of opportunity to blame someone else. It is the perfect solution for a politico.

6 LAKEVIEW 73 Irvine, CA 92604 kitchen

Irvine Home Address … 6 LAKEVIEW 73 Irvine, CA 92604

Resale Home Price … $700,000

Income Requirement ……. $144,283
Downpayment Needed … $140,000
20% Down Conventional

Home Purchase Price … $689,000
Home Purchase Date …. 9/16/2003

Net Gain (Loss) ………. $(31,000)
Percent Change ………. 1.6%
Annual Appreciation … 0.2%

Mortgage Interest Rate ………. 4.96%
Monthly Mortgage Payment … $2,993
Monthly Cash Outlays ………… $4,090
Monthly Cost of Ownership … $3,100

Property Details for 6 LAKEVIEW 73 Irvine, CA 92604

Beds 3
Baths 2 full 1 part baths
Size 2,366 sq ft
($296 / sq ft)
Lot Size n/a
Year Built 1977
Days on Market 3
Listing Updated 12/3/2009
MLS Number P712738
Property Type Single Family, Residential
Community Woodbridge
Tract Al

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

Huge 2,366 sq ft beauty gated home! 3 BR plus office (can convert to a 4th BR). Steps to the lake and desirable lakes in popular Woodbridge. Gated community. Partial Lake views from kitchen, entry and bedroom. Take an evening stroll around the lake in the safest city in the U.S. Lovely 3 bedroom condominium plus bonus gorgeous wall-to-wall cherry wood office (with its own entrance) with lots of views throughout and tons of UPGRADES! Crown molding, granite countertops, real ‘waterfall’ as you enter the home which can be used as koi pond or enjoy its serenity. An entertainer’s delight. Gorgeous interior with crown molding throughout. Lots of open space. This home is huge and has the feel of a SFR. Remodeled bathrooms, office. Hugest garage on the block with above storage in garage. Lagoon, beaches and tennis courts nearby. This model rarely on the market! Walk to Woodbridge Theatre nearby, or Toy Store or Candy Store. This is definitely a ‘dream‘ location and home unlike any other!

Personally, I would very much like to live near either of the lakes in Woodbridge; although, the north lake is my favorite of the two due to the complete shorline walking trail. If I lived in this neighborhood, I would probably go for a walk around the lake each evening, get to know its moods and rhythms. It is one of the few suburban places where you can get a touch of nature; albeit a planned and civilized touch of nature.

The owner’s of today’s featured property had been paying down the conventionally amortized first mortgage, but is looks as if the $150,000 stand-alone second was too much for them.

Foreclosure Record
Recording Date: 11/09/2009
Document Type: Notice of Default

It is possible the owners are having problems with unemployment, and I expect we will see more listings where there is no apparent reason for default. Unemployment is high, and despite the recent one-month decline, we will likely not see a peak in unemployment until mid to late 2010, and it will take years afterward before the unemployment foreclosures are washed through the system.