Mortgage delinquencies are on the rise again because of a faltering economy and strategic default from falling prices.

Irvine Home Address … 63 LEMON Grv #279 Irvine, CA 92618

Resale Home Price …… $149,000

That was just you

Now who's telling who

With every step you take

Do you feel yourself falling?

Grasping for that handrail

That's leading you nowhere

Parental guidance gone

Well, it's just another delinquent song

Voodoo Glow Skulls — Delinquent Song

Borrowers who quit paying thier mortgages is nothing new. Historically, delinquency rates on mortgages have hovered between 3.5% and 5.5% in good times and in bad.

What is new and unprecedented is the 11% delinquency rate we saw during the collapse of the housing bubble. For the last two years, this rate has been slowly declining, but it is still elevated well above historic norms.

Personally, I was not surprised to see the delinquency rate go back up as prices resumed their downward spiral. The weak economy was bound to cause an increase in delinquency, and coupled with strategic default from falling prices, higher delinquency rates are to be expected. Apparently, other economists completely missed these obvious signs.

Mortgage payments show surprising rise in delinquencies

By Eileen AJ Connelly, Associated Press — November 9, 2011

NEW YORK – While lawmakers in Washington debated the debt ceiling and consumer confidence dropped, more homeowners were having a harder time making their mortgage payments.

The rate at which mortgage holders were late with their payments by 60 days or more rose in the June-to-September period for the first time since the last three months of 2009, according to TransUnion.

The credit reporting agency said 5.88% of homeowners missed two or more payments, an early sign of possible foreclosure. That was up from 5.82% in the second quarter.

It isn't a big increase, but any increase goes against the downward trend in place for the last two years.

The increase surprised TransUnion researchers, who had expected late payments, or delinquencies, to fall for the quarter.

“It's much different than we've been talking about the last few quarters,” said Tim Martin, group vice president of U.S. Housing in TransUnion's financial services business unit.

In other words, they blew it. They put on the happy-days-are-here-again goggles and saw what they wanted to see. They probably told all their clients things were getting better when in fact they weren't.

The problems were widespread. Between the second and third quarters, all but 10 states and the District of Columbia saw delinquency rates increase.

TransUnion's data is culled from 27 million credit reports, about 10% of U.S. consumers who actively use some form of credit.

Martin could not pinpoint one particular reason for the jump. Normally, for instance, housing prices and unemployment have a big influence on delinquency.

“Those are both still important, but neither has noticeably deteriorated,” he said. In fact, unemployment was steady during the summer and the Standard & Poor's/Case-Shiller index showed small improvements in housing prices in most major cities during July and August.

Prices didn't rise when they should have risen, and this fall and winter, they are plummeting. He missed the obvious.

That leaves wider economic issues having a larger role, Martin said. He pointed to the U.S. credit rating downgrade, the U.S. and European debt crises and the tanking U.S. stock markets during this period. And he noted that two different measures of consumer confidence — the Conference Board and the University of Michigan— both showed those issues hurt consumer attitudes.

That atmosphere “could make folks question paying their mortgage,” he observed, especially if they are under water, that is, they owe more than the house is now worth.

That's nonsense. Does he really think someone, somewhere decided to stop paying their mortgage because the Greeks weren't paying their bills? Give me a break. This is the kind of crap economists come out with when they don't have a clue what they are talking about. It sounds plausible at first, but when you examine it closer, you realize it makes no sense at all.

Martin said there's no real way to tell if some of the delinquency increase was driven by those under water. On the contrary, three of the 10 states that saw declines in late payments were among the hardest hit by the foreclosure crisis: Arizona, California and Nevada.

The decline in delinquency rates in those states is largely because the delinquent got foreclosed on. The rate of foreclosure exceeded the rate of fresh delinquencies. All of those states are non-judicial foreclosure states which weren't impacted by robo-signer delays.

In fact, Arizona had the best rate of improvement in the nation, and now has a delinquency rate of 7.46%. That still places it fourth worst in the country, but the rate is vastly improved from where it stood. In the fourth quarter 2009, Arizona's delinquency rate hit 16%, highest for any state since the foreclosure crisis began.

Arizona does, however, still have the highest foreclosure rate in the nation — one in every 44 housing units with a foreclosure filing in the third quarter, according to Realtytrac.

Another possibility for the bump in the delinquency rate is that a new crop of adjustable mortgages written toward the end of the housing bubble is resetting. Even if their interest rates remain low after the adjustment, payments might have increased, said Darren Blomquist, a Realtytrac spokesman. “We still have the bad loans mixed in that are resetting.”

Remember, it's the recast to a fully amortized payment that causes the real payment shock. Even if interest rates are low, the conversion from interest-only to fully amortized is going to be a problem. The only reason this problem is not worse is because many of these people have already defaulted.

Although TransUnion still expects the delinquency rate to continue to fall in 2012, the company is now forecasting a few quarters of elevated nonpayment rates due to the uncertain economic outlook. The company doesn't predict a return to the national peak rate of 6.9%, but said some increase is expected.

“More and more homeowners are likely to struggle,” Martin said. “I'm not sure this is a one-quarter blip.“

That echoes predictions from other sources, like RealtyTrac.

“This isn't just about bad loans anymore,” said Blomquist. “It's about a bad economy that's pushing people into foreclosure.“

1% appreciation since 1990

$369,000 debt on a $149,000 condo

I didn't know how to headline this property as both stories were interesting.

The condo was purchased at the peak of the 1990s housing bubble, and the bottom of this trough is nearly wiping out all appreciation since then. Buying at the peak of a housing bubble has yielded this property 1% annual appreciation over the last 20 years. The owner would have done better in CDs without all the volatility.

Of course, the owner actually did do better because they managed to borrow $369,000 against the inflated value of this property back in late 2006. Can you believe an 819 SF 1/1 condo appraised for $369,000?

And people say the bubble wasn't obvious to see… bullshit.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 63 LEMON Grv #279 Irvine, CA 92618

Resale House Price …… $149,000

Beds: 1

Baths: 1

Sq. Ft.: 819

$182/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1977

Community: Orangetree

County: Orange

MLS#: P801590

Source: CRMLS

Status: Active

On Redfin: 11 days

——————————————————————————

Second level 1 bedroom with a loft floorplan, bright and light condo, spacious living room with vaulted ceiling open to a balcony off the living room tile flooring through out. ONE OF THE LEAST EXPENSIVE CONDOS IN ALL OF IRVINE. Hoa includes pools, spa, tennis courts, gym, clubhouse, water and trash Close to colleage/freeways and toll way for easy commute.

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

Proprietary IHB commentary and analysis

House Purchase Price … $121,000

House Purchase Date …. 10/4/1991

Net Gain (Loss) ………. $19,060

Percent Change ………. 15.8%

Annual Appreciation … 1.0%

Cost of Home Ownership

————————————————-

$149,000 ………. Asking Price

$5,215 ………. 3.5% Down FHA Financing

4.06% …………… Mortgage Interest Rate

$143,785 ………. 30-Year Mortgage

$50,011 ………. Income Requirement

$691 ………. Monthly Mortgage Payment

$129 ………. Property Tax (@1.04%)

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

$31 ………. Homeowners Insurance (@ 0.25%)

$165 ………. Private Mortgage Insurance

$275 ………. Homeowners Association Fees

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

$1292 ………. Monthly Cash Outlays

-$62 ………. Tax Savings (% of Interest and Property Tax)

-$205 ………. Equity Hidden in Payment (Amortization)

$7 ………. Lost Income to Down Payment (net of taxes)

$39 ………. Maintenance and Replacement Reserves

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

$1,071 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

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

$1,490 ………. Closing Costs @1%

$1,438 ………. Interest Points

$5,215 ………. Down Payment

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

$9,633 ………. Total Cash Costs

$16,400 ………… Emergency Cash Reserves

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

$26,033 ………. Total Savings Needed

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

realtors are a whining chorus loudly proclaiming lenders are to blame for failing to inflate a replacement housing bubble.

Irvine Home Address … 12 VIENTO Dr Irvine, CA 92620

Resale Home Price …… $275,000

You've got a little worry,

I know it all too well,

I've got your number,

But so does every kiss-and-tell

Who dares to cross your threshold,

Or happens on your way,

Stop laying blame

You know that's not my thing

R.E.M. — Bang and Blame

Most often blaming others is a way to dodge taking personal responsibility. realtors are suffering right now. Transaction volumes are off and prices are well below what they were a few years ago. Since realtors have disavowed any responsibility for the role their amoral sales practices played in inflated the bubble, they are now blaming banks for failing to inflate a new one.

It's a low risk position for realtors to take. It isn't their money at risk. Lenders must put their money at risk to make loans which results in a real estate transaction and realtor commission. Since lenders don't want to lose any more money, they are being careful about who they loan it to. realtors don't understand that. Or worse yet, they probably do understand, but they just don't care. They just want another commission.

Realtors blame banks for slow recovery

November 11th, 2011, 9:30 am — posted by Jeff Collins

Banks.

That’s the top obstacle to the housing market recovery, Realtors gathered for an annual conference in Anaheim said.

Specifically, tight credit, which makes it hard for many homebuyers to get a loan;

Credit is tight by bubble standards, but it isn't tight by historical standards. Lenders don't want to lose more money, so they don't want to give loans to people who won't pay them back.

and inefficient practices, which make it hard to process loans and short sales on time.

It isn't inefficient practices which is slowing up short sales. It's the fact that lenders are trying to squeeze money out of their deadbeat borrowers who don't want to give them any.

If your a bank, and a borrower is asking you to accept a $150,000 loss, wouldn't you ask for some of the $50,000 they have in other assets? Borrowers are trying to keep their other assets and have the bank eat the entire loss on the short sale, and banks aren't willing to do it. This standoff continues until one party or the other gives up. The bank may decide to foreclose, or the borrower may walk away from the debt and dare the lender to sue them. It's not a process designed for expediency.

We caught up with a handful of Realtors at a 5K run that started this week’s activities at the National Association of Realtors meeting at the Anaheim Convention Center. We asked what they believe is the greatest impediment to recovery.

First, that isn't a good question. What is recovery? When prices stabilize at rental parity, I will consider the market “recovered.” I suspect most realtors and loan owners would define “recovery” as when prices regain their peak. The only thing that will make that happen is the passage of time and wage inflation or a new housing bubble. realtors want a new housing bubble.

Here’s a sampling of what they said:

Renee Holt, Keller Williams Realty, Oviedo, Fla.: “Banks. Banks don’t have the system to help homeowners recover, and they’re not hiring and/or training employees to make the process less painful for homeowners.”

What obligation to the banks have to make their losses less painful for loan owners? These people cost them billions of dollars, and the banks are supposed to be worried about the loan owner's pain?

Former California Association of Realtors President Ann Pettijohn, Oak Tree Realtors in Orange: “Banks,” she said, echoing Holt. “They’re making it tough to borrow.”

Yes, they only want to loan money to people who can pay them back. It's a good business practice they abandoned during the housing bubble.

Former New Jersey Association of Realtors President Chris Clemans: “Before, (lending standards) were too loose. Now they’ve gone to the other side.”

No, they haven't. In the 1980s, there was FHA and 20% down conventional financing. That's it. Today we still have 5% conventional financing, we allow low FICO scores (above 580 FHA can put 3.5% down), and many fringe qualifying standards we did not have 25 years ago. Credit is not tight by historical standards, and the loosening of credit standards over the last 25 years was not innovation, it was folly.

Cindy Wu, Keller Williams Realty, Encino: “It’s really confidence” that’s holding back the recovery. “People are just very pessimistic these days.”

Buyer sentiment does play a minor role, but the real problems are a depleted buyer pool, and the lack of a move-up market caused by a lack of equity.

Mark Gavin, director of administrative services for the Iowa Association of Realtors: “It’s more than one thing, but probably some of the contributing factors are the ability to get loans. They’ve tightened up some of the restrictions and limitations on getting loans. … We want responsible lending practices, but we don’t want it to be over-restrictive.”

Fair enough, but we should also let the people whose money is at risk determine what standards are not over-restrictive.

2011 National Association of Realtor President Ron Phipps: “Our number one strategic priority is a reliable flow of mortgage capital.

“We live (in an industry) that requires mortgage capital, and our biggest single priority and challenge this year was making sure that was reliable and that the credit standards and underwriting standards move more toward equilibrium, rather than the extremely vigorous dynamics that we have right now.”

Every quote I have read from Mr. Phipps has been complete and utter bullshit, and the above is no exception. What does this mean, “credit standards and underwriting standards move more toward equilibrium, rather than the extremely vigorous dynamics”? equilibrium? vigorous dynamics? To me it reads like a rectal extraction.

What he means to say is that he has been lobbying hard to get free money flowing again to inflate a new housing bubble, and he has failed.

We also asked what the mood of the industry is as we enter a seventh year since the housing slump started. Here are a few responses:

Art Carter, CEO of the California Regional Multiple Listing Service in San Dimas: “I’d say the mood of the industry is acceptance and realization that we’re not near the bottom yet.”

Wow! I don't see that attitude in the industry at all, despite the fact it is the truth.

Rob Arrietta, Corona associate broker and president of CRMLS: “Distressed properties are on everybody’s mind in the last couple of days. … (But if) you work hard in this business, and you’ll survive and you’ll thrive.”

Yes, hard work and perseverance will win in the end. realtors should stop looking for people or conditions to blame and work harder to serve their customers. That will contribute to their success.

Hunt Cooper, communications and education director for the Kentucky Association of Realtors: “In Kentucky, we didn’t see the spikes and the down side. So we’ve been pretty strong — strong and steady. Sales have picked up over the last quarter.”

The non-bubble markets of flyover country have not been suffering like we have. realtors in these markets probably wonder what everyone here is whining about.

44 months of squatting on a 2002 rollback

Today's featured property was purchased for $378,000 on 11/7/2003. The owners used a $302,300 first mortgage, a $75,550 second mortgage, and a $150 down payment.

On 8/3/3005 they refinanced with a $424,000 first mortgage, and on 3/1/2006 they obtained a $89,000 HELOC. They quit paying the mortgage at the latest in January of 2008.

Foreclosure Record

Recording Date: 12/08/2008

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 08/25/2008

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 05/16/2008

Document Type: Notice of Default

It looks as if the house was purchased by a third party on 9/27/2011 for $275,000. That makes this a closed sale on a 2002 rollback.

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

This property is not available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 12 VIENTO Dr Irvine, CA 92620

Resale House Price …… $275,000

Beds: 2

Baths: 2

Sq. Ft.: 1419

$194/SF

Property Type: Residential, Single Family

Style: Two Level, Cape Cod

Year Built: 1979

Community: Northwood

County: Orange

MLS#: S624194

Source: CRMLS

Status: Closed

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

Proprietary IHB commentary and analysis

Resale Home Price …… $275,000

House Purchase Price … $300,000

House Purchase Date …. 10/18/2002

Net Gain (Loss) ………. ($41,500)

Percent Change ………. -13.8%

Annual Appreciation … -0.9%

Cost of Home Ownership

————————————————-

$275,000 ………. Asking Price

$9,625 ………. 3.5% Down FHA Financing

4.06% …………… Mortgage Interest Rate

$265,375 ………. 30-Year Mortgage

$84,075 ………. Income Requirement

$1276 ………. Monthly Mortgage Payment

$238 ………. Property Tax (@1.04%)

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

$57 ………. Homeowners Insurance (@ 0.25%)

$305 ………. Private Mortgage Insurance

$295 ………. Homeowners Association Fees

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

$2172 ………. Monthly Cash Outlays

-$199 ………. Tax Savings (% of Interest and Property Tax)

-$378 ………. Equity Hidden in Payment (Amortization)

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

$54 ………. Maintenance and Replacement Reserves

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

$1,663 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,750 ………. Furnishing and Move In @1%

$2,750 ………. Closing Costs @1%

$2,654 ………. Interest Points

$9,625 ………. Down Payment

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

$17,779 ………. Total Cash Costs

$25,400 ………… Emergency Cash Reserves

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

$43,179 ………. Total Savings Needed

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

When factoring in second mortgage debt, seller closing costs, and sales commission, more than 50% of owners with a mortgage are unable to sell their homes and pay off their debts.

Irvine Home Address … 46 REUNION Irvine, CA 92603

Resale Home Price …… $485,000

I tried to grow a mermaids tale,

'caus here's a lot of danger.

The grey big sharks with long sharp teeth,

would love to catch a stranger.

Under the water, under the water,

uo, you left me drowning.

Under the water, under the water,

ou, you left me drowning.

Brother Brown — Under the Water

To be underwater with a cost of ownership exceeding a comparable rental is to be trapped in a debtor's prison. Loan owners in these circumstances have few good options.

• If they move and rent the house, they lose money each month until rents rise enough to allow them to break even. In a weak economy with stagnant wage growth, it may be a very long time before these owners get back to even on a payment basis.
• If they sell, it will be a short sale. They will endure a decline in their credit score, and they may have to arrange repayment with a lender as a condition of the sale.
• If they can't negotiate a short sale, and they decide to move, they will have to walk away from the debt and endure the consequences of that decision. Their credit score will decline, and they may face lender collection efforts.
• They can decide to stay and remain trapped in their debtor's prison.

None of the above options are particularly desirable. The worst part is, all of these problems could have been avoided. If prices are so high that a comparable rental doesn't cover the cost, then renting is a better choice than owning. Rental parity is a powerful price point. Above rental partly, owners face the situation described above. Below rental parity, and those problems go away.

Half of US Mortgages Are Effectively Underwater

Published: Tuesday, 8 Nov 2011 | 5:45 PM ET

By: Diana Olick

CNBC Real Estate Reporter

A new report on still-falling home prices today highlights the fact that the lower those prices go, the more American borrowers fall into an negative equity position; that is, they owe more on their mortgages than their homes are worth.

Most analysts will tell you that negative equity is the number one problem in the housing market today, even worse than foreclosures, because it causes foreclosures, stymies consumer spending and traps potential home buyers and sellers in place.

The fact that negative equity shuts of the housing ATM and stymies consumer spending is a good thing. That kind of consumer spending is a Ponzi scheme, and to the degree an economy depends on Ponzi borrowing is the degree to which the ensuring recession will cause pain. Ponzi borrowing always leads to a fall. Always.

Negative equity rose to 28.6 percent of single-family homes with mortgages in the third quarter of this year, according to Zillow. That's up from 26.8 percent in the second quarter. In real terms, that's 14.6 million borrowers.

Zillow's numbers are often quoted, but they are also all wrong. Zillow only looks at the Zillow Zestimate relative to the originally reported first mortgage amount. Their methodology misses all second mortgages and subsequent refinances of the first mortgage. Since the mortgages it misses are the real problem, the actual number of underwater homes is much, much higher. Plus, their methodology does not consider the hefty transaction costs required to sell a house.

Many of those borrowers are already behind on their mortgage payments, and some are likely already in the foreclosure process. The rest of them are in danger of defaulting, not because they can't pay their mortgages, but because they either won't want to (seeing as they will never see any real appreciation in their investment) or because any change in their economic or personal situation might force them into default (change of job, divorce).

In other words, negative equity provides significant incentive to strategically default. Most underwater borrowers also face payments in excess of comparable rents, so they are prime candidates to walk away. It's in their best interest to do so.

While 14.6 million might seem like a lot, it's not the real number when you consider negative equity in housing's recovery. That's because it doesn't factor in “effective” negative equity, which is borrowers who have so little equity in their homes that they cannot afford to move.

Consider the following from mortgage analyst Mark Hanson:

On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10 percent down to buy in addition to the 6 percent Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out.

Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time

As I recently pointed out, No equity, no move-up buyer; no move-up buyer, you get a slow market. The move-up market is paralyzed by the lack of equity, and this situation will not change any time soon.

It's as simple as buying and selling. Negative and effective negative equity are causing stagnation, which may in the end be far more detrimental than foreclosures. The argument to solve this problem is principal forgiveness, and it is gaining traction politically and somewhat less in the banking sector.

LOL! Principal forgiveness is not gaining traction in the banking sector? Perhaps because that's otherwise known as giving away money. Lenders make a living lending money which is to be repaid, not by giving away money they will never see again.

And of course its popular in political circles. Most politicians will pander to whatever large group whose votes are for sale. Loan owners are a very large group, and giving them free money would almost certainly buy a few votes.

Principal forgiveness, or lowering the balance of a large chunk of the nation's mortgages, would be costly at best but could be catastrophic at worst. “Those thinking principal reductions are a panacea have never originated a loan, done the street level research, and do not really know the borrowers behind their data,” argues Hanson. “More than likely it would create a far greater number of new strategic defaulters than the number it would legitimately save from Foreclosure.”

I wrote about the consequences of principal forgiveness in the post, Foreclosure is a superior form of principal forgiveness:

Lenders will lose money on their portfolios whether through principal reduction or through foreclosure. They will lose less if they go through foreclosure because fewer loans will go bad. If they forgive principal, they will need to forgive everyone in their entire portfolio. How could they selectively forgive principal and achieve fairness to all borrowers? Do we forgive principal for HELOC abusers? They really need it.

What message does principal forgiveness send to those who were foolishly prudent? Think about it: if you were prudent and paid down your mortgage, you will probably not see much if any principal reduction; however, if you were a wildly irresponsible HELOC abuser, you will see significant principal reduction which will merely enable more HELOC abuse later. Principal reductions will serve as a major incentive for reckless borrowing. Everyone knows if enough people take the money and behave stupidly that everyone will get bailed out.

Foreclosure balances the equation. There must be some consequences to borrowers for their behavior, not because it is immoral, but because what you don't punish, you encourage. We can't afford to privatize gains and collectivize losses or we will go broke as a country. We are not a banana republic, but principal reduction without consequence is certainly a path that leads us there.

Nothing has changed. The results of widespread principal forgiveness is easily predictable. The only question is whether or not politicians in their desire to pander for votes will do the wrong thing. Let's hope not.

Chick Fil A Inc. eats the loss

Today's featured property appears to be part of a corporate benefit package. The original buyer paid $575,000 on 7/27/2007. On 12/1/2010, Chick Fil A Inc. buys the property from him for $575,000. Why would they do that unless they were contractually obligated to do so?

Chick Fil A Inc. is hoping to cut its losses. With nearly a year on the market, they apparently are not very motivated to sell the property. Prices are coming back, right?

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 46 REUNION Irvine, CA 92603

Resale House Price …… $485,000

Beds: 2

Baths: 2

Sq. Ft.: 1145

$424/SF

Property Type: Residential, Condominium

Style: Two Level, Other

View: Mountain

Year Built: 2004

Community: Quail Hill

County: Orange

MLS#: S640271

Source: CRMLS

On Redfin: 345 days

——————————————————————————

Turnkey detached two story home with dual master bedrooms and beautiful curb appeal. Great location with easy access to the 405 & 133 freeways, the Irvine Spectrum, hiking trails and the beach. STANDARD SALE–no need to wait for bank approval.

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

Proprietary IHB commentary and analysis

Post Body

House Purchase Price … $575,000

House Purchase Date …. 12/1/2010

Net Gain (Loss) ………. ($119,100)

Percent Change ………. -20.7%

Annual Appreciation … -16.9%

Cost of Home Ownership

————————————————-

$485,000 ………. Asking Price

$16,975 ………. 3.5% Down FHA Financing

4.06% …………… Mortgage Interest Rate

$468,025 ………. 30-Year Mortgage

$143,210 ………. Income Requirement

$2251 ………. Monthly Mortgage Payment

$420 ………. Property Tax (@1.04%)

$183 ………. Special Taxes and Levies (Mello Roos)

$101 ………. Homeowners Insurance (@ 0.25%)

$538 ………. Private Mortgage Insurance

$206 ………. Homeowners Association Fees

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

$3700 ………. Monthly Cash Outlays

-$501 ………. Tax Savings (% of Interest and Property Tax)

-$667 ………. Equity Hidden in Payment (Amortization)

$24 ………. Lost Income to Down Payment (net of taxes)

$81 ………. Maintenance and Replacement Reserves

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

$2,636 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,850 ………. Furnishing and Move In @1%

$4,850 ………. Closing Costs @1%

$4,680 ………. Interest Points

$16,975 ………. Down Payment

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

$31,355 ………. Total Cash Costs

$40,400 ………… Emergency Cash Reserves

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

$71,755 ………. Total Savings Needed

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

The FHA is losing money faster than the insurance premiums are coming in. A bailout is on the way.

Irvine Home Address … 22 HEATHERGREEN #78 Irvine, CA 92614

Resale Home Price …… $444,900

You know that it's moving too fast

Your out of bounds

Your too late

To sound the alarm in your head

To break up, to break up

And turn this thing around

We can't go back

We've come too far

Young Heretics — Risk/Loss

Everyone is familiar with the billions we are spending to bail out the GSEs, but little is known about similar problems at the FHA. So far through a hefty increase in FHA insurance and a large dose of head-in-the-sand accounting, the troubles at the FHA have been largely obscured from view.

Despite the good job bureaucrats have done at hiding the problem, the FHA is facing major losses on its loan portfolio which has been expanding rapidly as the housing bubble began to deflate in 2007.

Risk Rises for Housing Agency

By NICK TIMIRAOS — November 11, 2011

Concerns are rising that the Federal Housing Administration could run out money if the economy doesn't recover soon, raising the risk the agency would seek a taxpayer bailout for the first time in its 77-year history.

Since the mortgage crisis erupted five years ago, the FHA has played a critical role in housing finance as private lenders retreated. It backs about a third of all new mortgages originated for home purchases, up from around 5% in 2006.

But, as the FHA prepares to release its annual financial report next week, a forthcoming study by Joseph Gyourko [see embedded document below], a real estate and finance professor at the University of Pennsylvania's Wharton School, estimates that the FHA faces around $50 billion in losses in the coming years.

The study says only a “quick and substantial economic and housing market recovery” can avoid “substantial losses for American taxpayers.” The paper was commissioned by the American Enterprise Institute, a conservative think tank.

Since we know a “quick and substantial economic and housing market recovery” is not forthcoming, it's safe to assume the American taxpayer will see substantial losses on the FHA portfolio.

The study says the losses will be spread over a period of many years and are unlikely to bankrupt the agency this year or next.

The study isn't the first to predict the FHA's insolvency. Last year, economists from New York University and the New York Federal Reserve issued a paper warning of the growing likelihood the agency would need to a taxpayer bailout. FHA officials disputed some of that report's findings.

Last month, Paul Miller, an analyst with FBR Capital Markets, warned that the largest U.S. banks could face billions in losses if the FHA tries to push back defaulted mortgages onto the lenders that originated them. “Unless home prices rebound, I don't understand how they're able to avoid a restructuring and a Treasury infusion,” he said.

I think we all know how that will turn out… The FHA will not make the banks buy back their toxic crap because then we would have to bail out the banks again. It's far easier to simply bail out the FHA. The government has to bail out the FHA, but it does not have to bail out the banks. It would be too politically unpopular to bail out the banks, so the losses will be kept in the FHA so the bailout can be contained there.

FHA officials said they couldn't comment on Mr. Gyourko's paper because they hadn't reviewed it. The FHA's independent audit is likely to show that while losses are rising, it will maintain positive reserves assuming the economy doesn't dip back into recession, say people familiar with the matter.

Still, the Gyourko study along with the FHA's own annual report could have political ramifications. Some Republicans have pushed for the FHA to begin raising its down payments. Higher forecasted losses could also force the agency to raise its insurance premiums paid by homeowners even higher.

Despite the fact that the FHA should raise its downpayment requirement and its insurance premium, neither one is going to happen because the effect it would have on the housing market would be too politically unpopular. We are already having difficulty finding wam bodies with jobs to clean up the foreclosure mess. If we make the qualified buyer pool even smaller, the market bottom and ultimate recovery would be even further off into the future.

The FHA has long served first-time buyers and borrowers with modest incomes. Its market share collapsed during the housing boom because it didn't abandon underwriting standards.

The one and only thing the government did right during the housing bubble was to leave the FHA standards alone. Since the FHA is a true government agency and not a quasi-governmental body like the GSEs, it has no pressure to loosen its standards to maintain market share during the bubble.

U.S. home prices inched 0.2% higher in August, according to a closely watched index released Tuesday. That prompted one economist to see a “modest glimmer of hope” for the downtrodden housing market. Mitra Kalita has details on The News Hub.

A lot of that business returned after the private mortgage market's implosion in 2007 and sharp tightening by Fannie Mae and Freddie Mac in 2008.

The FHA, which is funded through the mortgage-insurance premiums it collects, doesn't make loans but instead insures lenders against defaults. At the end of August, it guaranteed 7.2 million mortgages worth $1 trillion, a record sum. It held nearly $31.7 billion in reserve at the end of June, of which all but $2.8 billion was set aside to cover anticipated losses.

They are only expecting to lose $31 billion on its trillion dollar portfolio? Since the vast majority of these loans were underwritten with 3.5% down payments, most of this portfolio is underwater. There is no way they will only lose 3% on a trillion dollar portfolio of underwater loans.

The bulk of the FHA's anticipated losses stem from loans made in 2007 and 2008, when the financial crisis was at its peak. More recent loans have among the best credit characteristics the agency has guaranteed.

Still, the majority of homeowners taking out FHA-backed mortgages have very little equity—the minimum down payment is 3.5%.

In reality, these borrowers have no equity. If the transaction costs between closing costs and commissions is about 8%, they are 5% underwater the day they close on the loan.

WSJ Heard on the Street columnist David Reilly stops on Mean Street to discuss the merits of the government's plan to help some refinancing homeowners.

Because home prices have fallen sharply and continue to decline in many markets, many borrowers are underwater and at risk of default if they lose their jobs or experience other financial shocks. Losses also can occur when borrowers simply walk away from their homes.

“I don't think many of the borrowers truly understand what a risky position they're putting themselves in,” said Mr. Gyourko. He estimated that more than half of all homes with FHA loans are worth less than the outstanding debt.

To assume only half the the FHA portfolio is underwater is wishful thinking. These people were underwater from the day they bought, and prices have been going down steadily for the last five years. The real number of effectively underwater FHA loan owners is well over 90% from this era. Based on the dramatic expansion of the portfolio since 2007, it's more likely the percentage underwater on the total FHA portfolio is 75% or more.

If the FHA's reserve account were to run out of money, the agency has what is known as indefinite budget authority to draw on funds from the Treasury Department without a congressional appropriation.

In other words, the FHA has a blank check.

FHA officials have taken steps to shore up the agency's finances, including twice raising the insurance premiums that borrowers must pay in the past year. Last year, the agency raised down payment requirements to 10% for borrowers with credit scores below 580.

WSJ's Jon Hilsenrath reports on a Fed plan to revitalize the housing market by purchasing mortgage-backed securities.

David Stevens, who served as the agency's commissioner for two years until he became chief executive of the Mortgage Bankers Association in April, said the Obama administration had moved aggressively to shore up reserves without undermining housing markets.

“The FHA has faced a precarious financial position since the day the administration took office,” he said. “Is it at risk? Yes. Is it better off than virtually any other portfolio based on its ability to have reserved appropriately? Yes.“

It may be better off than any other portfolio, but that isn't saying much. The GSE portfolio is a disaster, and the private-label MBS pools from the bubble are not performing well either to say the least.

Mr. Gyourko says the agency is underestimating by billions of dollars the future losses related to borrowers who used an $8,000 federal tax credit to fund their down payment. The paper also says the FHA is underestimating default risk related to unemployment.

It's been pretty well documented that buyers paid $30,000 to $40,000 more to obtain the $8,000 FHA tax credit. Everyone who bought the bear rally is substantially underwater.

The study could also reignite debate over the government's role in stabilizing the housing market. Congress is now considering a proposal to restore higher FHA loan limits.

WSJ's Alan Zibel heads to Mean Street to discuss the White House's proposed program to draw private investment back into government-backed Freddie Mac and Fannie Mae mortgage programs.

“Without the FHA, the housing market would not be in a recession, it would be in a depression,” said Kenneth Rosen, chairman of the Fisher Center for Real Estate Research at the University of California at Berkeley. The most certain way to increase losses for Fannie, Freddie and the FHA would be “by making loans harder to get.“

Mr. Gyourko says he isn't advocating an “immediate withdrawal” by the FHA, which he said could create a “real risk” of future price declines.

But he said a gradual withdrawal is warranted and that policy makers “should all be clear about whether we understand the risks we're taking on, and whether the benefits justify the risks.”

Write to Nick Timiraos at nick.timiraos@wsj.com

Unfortunately, Kenneth Rosen is right: without the FHA, the housing market would crash even harder, and the losses to the GSEs and the FHA itself would be even larger. However, Mr Gyourko is right too: the benefits must be worth the risks taxpayers are taking on. Right now, these risks are far too high. Taxpayers are writing a blank check through the FHA to stabilize the housing market. We aren't accurately evaluating this cost today, and the losses are mounting.

Realistically, we won't do anything differently until the market puts in a durable natural bottom. At that point, we may raise the FHA minimum down payment and insurance premiums. realtors and mortgage brokers will whine about “killing the recovery,” but it's essential to protect the American taxpayer — to protect you.

fha1110

$116,000 down payment lost

The former owners of today's featured property paid $580,000 on 7/29/2005 using a $464,000 first mortgage and a $116,000 down payment. Apparently, they couldn't afford it.

The property went into foreclosure on 8/30/2011, and the bank paid $439,245 which was the outstanding balance on the loan. If they get their asking price, the bank won't lose much on this one; the former owners, however, have lost everything.

Sometimes, that's the way it works out.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 22 HEATHERGREEN #78 Irvine, CA 92614

Resale House Price …… $444,900

Beds: 3

Baths: 2

Sq. Ft.: 1600

$278/SF

Property Type: Residential, Condominium

Style: Two Level

Year Built: 1981

Community: Woodbridge

County: Orange

MLS#: S678873

Source: CRMLS

Status: Active

On Redfin: 7 days

——————————————————————————

FANTASTIC END UNIT TOWNHOME NESTLED IN A VERY PRIVATE LOCATION IN THE HIGHLY SOUGHT AFTER WOODBRIDGE PARKVIEW COMMUNITY. THIS WONDERFUL HOME HAS IT ALL. LOVELY FLOOR PLAN WITH 3 BEDROOMS, 2.5 BATH, COZY LIVINGROOM WITH FIREPLACE, CATHEDRAL CEILINGS, PLANTATION SHUTTERS, OPEN KITCHEN WITH DINING AREA AND GOOD SIZE PATIO. CLOSE TO SHOPPING, SCHOOLS, ENTERTAINMENT, FREEWAYS AND MUCH MUCH MORE!!

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

Proprietary IHB commentary and analysis

Post Body

House Purchase Price … $580,000

House Purchase Date …. 7/29/2005

Net Gain (Loss) ………. ($161,794)

Percent Change ………. -27.9%

Annual Appreciation … -4.1%

Cost of Home Ownership

————————————————-

$444,900 ………. Asking Price

$15,572 ………. 3.5% Down FHA Financing

4.06% …………… Mortgage Interest Rate

$429,328 ………. 30-Year Mortgage

$131,286 ………. Income Requirement

$2065 ………. Monthly Mortgage Payment

$386 ………. Property Tax (@1.04%)

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

$93 ………. Homeowners Insurance (@ 0.25%)

$494 ………. Private Mortgage Insurance

$355 ………. Homeowners Association Fees

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

$3392 ………. Monthly Cash Outlays

-$322 ………. Tax Savings (% of Interest and Property Tax)

-$612 ………. Equity Hidden in Payment (Amortization)

$22 ………. Lost Income to Down Payment (net of taxes)

$76 ………. Maintenance and Replacement Reserves

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

$2,556 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,449 ………. Furnishing and Move In @1%

$4,449 ………. Closing Costs @1%

$4,293 ………. Interest Points

$15,572 ………. Down Payment

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

$28,763 ………. Total Cash Costs

$39,100 ………… Emergency Cash Reserves

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

$67,863 ………. Total Savings Needed

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