To funnel billions to banks while looking like they are helping families, CalHFA implements $2 billion 'Keep Your Home California' initiative.

Irvine Home Address … 4471 WYNGATE Cir Irvine, CA 92604

Resale Home Price …… $699,900

I just want to ask a question

Who really cares?

To save a world in despair

Who really cares?

Who's willing to try to save a world

That's destined to die

When I look at the world it fills me with sorrow

Little children today are really gonna suffer tomorrow

Oh what a shame, such a bad way to live

Marvin Gaye — Save The Children

Politicians are always delighted to get behind a policy that they can spin as family friendly. Politicians are giving out free money again, this time ostensibly to save the family home. What selfless and devoted men and women we have doling out the free money from your pocket.

Last fall I uncovered The Policy of Screwing Prudent Renters to Benefit Loan Owners. The government's policy is transferring wealth from renters to lenders through loan owners.

CalHFA implements $2 billion 'Keep Your Home California' initiative

by CHRISTINE RICCIARDI — Thursday, February 10th, 2011, 3:12 pm

California residents who are unemployed or owe more on their mortgages than what their homes are worth now have four new state programs that will help them stay in their house and current on their mortgage.

The California Housing Finance Agency fully implanted the programs under its “Keep Your Home California” initiative, a nearly $2 billion endeavor funded by the U.S. Treasury's Hardest Hit Fund. Alabama recently jump-started a program to distribute its funds from the Treasury HHF.

“Our goal is to get the very most out of these federal dollars to assist California families,” said Steven Spears, executive director of CalHFA. “With families struggling through a number of financial hardships and the disruption in the real estate market, these programs will help those in need while stabilizing neighborhoods and communities severely impacted by foreclosures.”

Assisting families? Is it helping families if you keep them in property they can't afford? Perhaps the family feels they get the beneficial use of a nice property so the rest doesn't matter? The arrangements people make in loan modifications to keep their houses most resemble Option ARMs. They are deferring interest and adding to their already bloated principal balance.

Let's say the Ponzi family is making a $1,000 per month payment on their property using an Option ARM or loan modification, and the fully amortizing payment is $3,000 per month. The property rents for $1,500, so the Option ARM allowed them to pay less than rental parity, but the fully amortized payment was double rental parity. That was 2006 in most bubble housing markets.

Fast forward to 2011, and the same mechanism is allowing borrowers with loan modifications and government assistance programs to pay less than rental parity, but the fully amortized payment is double rental parity. The bigger amortizing payment is coming in three to five years.

If we give the Ponzi family $3,000 per month to give to the bank, aren't we just funneling bailout funds to the bank?

If the Ponzi family can still only afford a $1,000 to $1,500 payment, and we are giving the banks $3,000 for the Ponzis, how does this end? The moment the assistance runs out, the house will go into foreclosure because the Ponzis can't afford it. They never could.

What we really have here is the banks arranging to get bailout money to maintain their shadow inventory by keeping delusional loan owners in place. Lenders will have to clear out these assisted borrowers in the long run because these borrowers simply cannot afford the payments. Lenders don't care as long as their collateral is taken care of and the payments are being made.

Under Keep Your Home California are three programs that offer several forms of mortgage assistance and one program that provides transition assistance to borrowers in the process of a short sale of deed-in-lieu transaction.

The Unemployment Mortgage Assistance Program is designed to give unemployed homeowners up to $3,000 a month or 100% of the existing total monthly mortgage payment stay current, depending on which amount is less.

Why do we have unemployment mortgage assistance programs, but we don't have unemployment rent assistance programs?

Brazen ripoff.

The politicians are slapping every renter in the face. No, it's worse than that. Politicians are reaching into the wallets of every renter to give the renter's money to the delinquent borrower squatting in the home the renter wants to buy but can't because the loan owner is being given the renter's money.

The Mortgage Reinstatement Assistance Program is intended to help homeowners who have defaulted on their mortgage payment due to a temporary change in household circumstance, such as death or serious illness. The Cali Housing Finance Agency will fund up to $15,000 per household under this program.

CalHFA is also offering a principal reduction to borrowers at risk of default because of an economic hardship coupled with a severe decline in the home's value. The Principal Reduction Program provides capital to reduce outstanding principal balances of qualifying borrowers with negative equity and most likely prelude a loan modification, the agency said.

Homeowners receive assistance with relocating under the Transition Assistance Program. The program is used in conjunction with a servicer-approved short sale or deed-in-lieu of foreclosure program.

All programs were supposed to be in effect by Nov. 1, but were delayed due to logistical issues, according to an article by the Sacramento Bee. Still, Norma Torres, a member of California's Assembly Committee on Housing and Community Development, commented that any action taken is a step in the right direction.

“No one program will solve the foreclosure crisis affecting our state, but together we hope to make a difference for as many families as possible,” she said.

Write to Christine Ricciardi.

Follow her on Twitter @HWnewbieCR.

Saving families? I have a better idea. It starts with wiping out the debt rather than servicing it with $3,000 per debtor per month from the US taxpayer.

How Gaming Interests Could Save the Las Vegas Housing Market, and Why They Should

Slow steady mortgage growth

The HELOC abusers who I pick on the least are the ones like today's who consistently grew their mortgage, but they did so at a slow rate suggesting a modicum of prudence in what was an insane world of keeping up with the Joneses.

The house was purchased back in 1988 for $192,000 just as prices were taking off in the second housing bubble. Their mortgage information is not available. In 2009 taking advantage of very low rates, they refinanced with a $264,500 first mortgage which is more than they paid for the house 23 years ago, but not much more. They certainly are at no risk of going underwater.

Irvine Home Address … 4471 WYNGATE Cir Irvine, CA 92604

Resale Home Price … $699,900

Home Purchase Price … $192,000

Home Purchase Date …. 6/17/1988

Net Gain (Loss) ………. $465,906

Percent Change ………. 242.7%

Annual Appreciation … 5.8%

Cost of Ownership

————————————————-

$699,900 ………. Asking Price

$139,980 ………. 20% Down Conventional

4.99% …………… Mortgage Interest Rate

$559,920 ………. 30-Year Mortgage

$144,756 ………. Income Requirement

$3,002 ………. Monthly Mortgage Payment

$607 ………. Property Tax

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

$117 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$3,726 ………. Monthly Cash Outlays

-$734 ………. Tax Savings (% of Interest and Property Tax)

-$674 ………. Equity Hidden in Payment

$271 ………. Lost Income to Down Payment (net of taxes)

$87 ………. Maintenance and Replacement Reserves

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

$2,677 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,999 ………. Furnishing and Move In @1%

$6,999 ………. Closing Costs @1%

$5,599 ………… Interest Points @1% of Loan

$139,980 ………. Down Payment

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

$159,577 ………. Total Cash Costs

$41,000 ………… Emergency Cash Reserves

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

$200,577 ………. Total Savings Needed

Property Details for 4471 WYNGATE Cir Irvine, CA 92604

——————————————————————————

Beds: 5

Baths: 3

Sq. Ft.: 2700

$259/SF

Lot Size: 5,000 Sq. Ft.

Property Type: Residential, Single Family

Style: Two Level, Contemporary

View: Faces South

Year Built: 1970

Community: El Camino Real

County: Orange

MLS#: S645732

Source: SoCalMLS

Status: ActiveThis listing is for sale and the sellers are accepting offers.

——————————————————————————

Impressive Custom Showplace!!FANTASTIC OPPORTUNITY!!Seller has priced this Wonderful 5 Bedroom 2700 sqft Beauty to SELL FAST!!Your clients will be BLOWN AWAY the moment they walk in the door. Dramatic two story entry w/ WALL of WINDOWS brings in tons of Natural Light. Designer Decor & Custom Appointment Thru-Out. Custom Wood Builtins seperate the Step Down Sitting Room from the Spacious Living w/ Hardwood Floors, Recessed Lighting & Brick Fireplace. Sunny Kitchen, Gorgeous Granite Countertops, Enlarged Granite Breakfast Bar, Custom Lighting & Breakfast Nook. You'll never want to leave the downstairs Master Suite which boasts ROMANTIC FIREPLACE, Incredible Master Bath W/ Sunken Jacuzzi Tub, Massaging Jets, Dual Marble Vanities & Marble Accents. Downstairs OFFICE/DEN & Bedroom. Stunning Spiral Staircase leads to Huge Bonus Room w/ Vaulted Ceilings, Builtin Cabinetry, Work Station & MURPHY BED. Large backyard Perfect for entertaining w/ Patio and Firepit. Prime Cul De Sac Lot. Walk to IRVINES BEST SCHOOLS. HURRY!

Thank you for reading the Irvine Housing Blog.

Astutely observing the housing market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

Fiserv Case-Shiller is now calling a bottom in most housing markets over the next 18 months followed by years of grinding along the bottom.

Irvine Home Address … 1 LANCEWOOD Way Irvine, CA 92612

Resale Home Price …… $395,000

I'm trying to scream but I can't exhale

The world seems to spin as I'm left on this square

With no will to hold on

Am I the only one crushed by the weight of the world?

Antimatter — The Weight of the World

When a bubble bursts, sellers compete to bail out before prices fall further. Strategic defaults and the inevitable foreclosures plus those who purchased at higher price points form an overhead supply that must be liquidated before prices can go back up. The weight of this inventory if left unchecked will push prices well below the previous equilibrium as is now happening in Las Vegas. Over time this inventory is sold, and the weight of this inventory lessens, and prices can slowly begin to rise. It is only after all this inventory is purged can prices resume a level of appreciation equal to wage incomes.

Fiserv Case-Shiller Home Price Insights: After Five Years of Record Declines, U.S. Home Prices Begin To Stabilize

Source: Business Wire

Publication date: February 1, 2011

Fiserv, Inc. (NASDAQ: FISV) today released an analysis of home price trends in more than 375 U.S. markets based on the Fiserv® Case-Shiller Indexes®. The indexes are owned and generated by Fiserv, the leading global provider of financial services technology solutions, and data from the Federal Housing Finance Agency (FHFA).

In the third quarter of 2010, U.S. single-family home prices saw an average decrease of just 1.5 percent over the year-ago quarter, as a growing number of metro area housing markets begin to stabilize after five years of record home price declines. Fiserv and Moody's Analytics report that home prices have already leveled out in one out of four metro areas. They estimate that price stability will characterize 75 percent of U.S. metro markets by the end of this year and 100 percent of markets by the end of 2012.

Even as metro markets stabilize, the Fiserv Case-Shiller data analysis indicates a slow recovery in home prices with many false starts, especially in markets with large amounts of foreclosed properties.

“Large supplies of foreclosed properties will continue to be the biggest downside risk for home prices and metro area housing markets,” said David Stiff, chief economist, Fiserv. “Foreclosure activity declined at the end of 2010, but sales activity of bank-owned homes increased. In bubble and crash markets, the uncertain timing and volume of bank liquidated properties will cause home prices to bounce around their lows for many years.”

I described this same phenomenon in Shadow Inventory Signals Three Years of Falling Prices.

The weight of overhead supply stops prices from moving upward in any meaningful way because as soon as prices start to rise, sellers come out to liquidate inventory and blunt any price increases.

Expected stabilization in specific markets include:

Markets where prices have already stabilized include San Diego, Washington, D.C., and San Francisco.

I think coastal California is far more at risk than lenders are willing to admit.

Markets where prices will stabilize by the end of 2011 include Minneapolis, New York City and Portland, Ore.

Markets where prices will not stabilize until 2012 include Miami, Phoenix and Las Vegas.

Data from the Fiserv Case-Shiller showed that improved housing affordability is luring many buyers into the market, as the huge decline in home prices and low mortgage interest rates have reduced the cost of owning a home to pre-bubble levels. Other factors, however, are dampening demand.

“Since a significant number of households no longer have access to mortgage credit, improving affordability does not necessarily translate into sustained housing demand in every metro market,” added Stiff.

The depleted buyer pool is one of the biggest obstacles the market faces. There simply aren't enough qualifying people to absorb all the inventory at all price points. Far too much of our real estate is considered high end based on its price-to-income ratio.

Every house on the MLS is affordable to someone, but the low end in Orange County is generally depleted of supply so 10 buyers compete for one property, but the high end is depleted of demand, so 10 sellers compete for one buyer. Most of the high end inventory sits there waiting to see if they are that lucky homeowner who gets out while prices are still inflated.

The Fiserv Case-Shiller Indexes forecast that average single-family home prices will fall another 5.5 percent over the next 12 months, with steep home price declines expected to continue in markets that have been hurt most by the housing crisis. These markets, including many in Florida, California, Nevada and Arizona, will begin seeing prices stabilizing throughout this year and through the end of 2012. Factors weighing on the housing market continue to include chronic high unemployment and the large number of distressed properties that remain in many of the bubble markets.

The Fiserv Case-Shiller Indexes, which include data covering thousands of zip codes, counties, metro areas and state markets, are owned and generated by Fiserv. The historical and forecast home price trend information in this report is calculated with the Fiserv proprietary Case-Shiller indexes, supplemented with data from the FHFA. The historical home price trends highlighted in this release are for the 12-month period that ended September 30, 2010. One-year forecasts are for the 12 months ending on September 30, 2011. The Fiserv Case-Shiller home price forecasts are produced by Fiserv and Moody's Analytics.

More information on the Indexes can be found at the Fiserv Case-Shiller website at www.caseshiller.fiserv.com.

Mortgage equity withdrawal that exceeds the current purchase price

They spent the whole house… and then some. The owners of today's featured property purchased back in 1995, and by the time of their last refinance ten years later in 2005, they had already pulled out nearly half a million dollars — a number that exceeds the resale price of that house today.

• Back on 5/13/1995, the owners of today's featured property paid $180,000. They used a $171,000 first mortgage and a $9,000 down payment. Nine thousand got them five hundred thousand. Not bad.
• On 5/15/1998 they refinanced for $193,000. Almost three years to the day later, and they have withdrawn their down payment, and they picked up another $13,000 for Ponzi money.
• On 10/29/1998 they refinanced for $192,500.
• On 7/2/1999 they needed another $15,000, so the got a HELOC.
• On 6/26/2000 the obtained a stand-alone second for $65,000.
• On 7/12/2002 they obtained a $134,475 stand-alone second.
• On 9/24/2003 they refinanced with a $356,000 first mortgage.
• On 8/11/2004 the got a $140,000 HELOC.
• On 8/18/2005 they refinanced the first mortgage for $540,000
• Finally, on 6/20/2006 in a last gasp of desperation, these owners refinanced with a $548,000 Option ARM and took out a $68,500 HELOC.
• Total property debt is $616,500 plus negative amortization.
• Total mortgage equity withdrawal is $445,500.
• They quit paying last year.

Foreclosure Record

Recording Date: 11/30/2010

Document Type: Notice of Default

It shouldn't be surprising that so many think California real estate is a pot of gold. It certainly was for this couple. They put down less than $10,000 and nearly pulled out half a million. That is living the California dream.

Irvine Home Address … 1 LANCEWOOD Way Irvine, CA 92612

Resale Home Price … $395,000

Home Purchase Price … $180,000

Home Purchase Date …. 5/12/95

Net Gain (Loss) ………. $191,300

Percent Change ………. 106.3%

Annual Appreciation … 5.0%

Cost of Ownership

————————————————-

$395,000 ………. Asking Price

$13,825 ………. 3.5% Down FHA Financing

4.99% …………… Mortgage Interest Rate

$381,175 ………. 30-Year Mortgage

$81,696 ………. Income Requirement

$2,044 ………. Monthly Mortgage Payment

$342 ………. Property Tax

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

$66 ………. Homeowners Insurance

$110 ………. Homeowners Association Fees

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

$2,562 ………. Monthly Cash Outlays

-$337 ………. Tax Savings (% of Interest and Property Tax)

-$459 ………. Equity Hidden in Payment

$27 ………. Lost Income to Down Payment (net of taxes)

$49 ………. Maintenance and Replacement Reserves

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

$1,842 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,950 ………. Furnishing and Move In @1%

$3,950 ………. Closing Costs @1%

$3,812 ………… Interest Points @1% of Loan

$13,825 ………. Down Payment

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

$25,537 ………. Total Cash Costs

$28,200 ………… Emergency Cash Reserves

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

$53,737 ………. Total Savings Needed

Property Details for 1 LANCEWOOD Way Irvine, CA 92612

——————————————————————————

Beds: 3

Baths: 2

Sq. Ft.: 1493

$265/SF

Lot Size: 3,441 Sq. Ft.

Property Type: Residential, Single Family

Style: One Level, A-Frame

Year Built: 1966

Community: University Park

County: Orange

MLS#: S646211

Source: SoCalMLS

Status: Backup Offers AcceptedThis listing is under contract, but the sellers are looking for additional offers in case the current offer falls through.

On Redfin: 8 days

——————————————————————————

Lowest price 3 bed in University Park. Beautiful end unit in a desirable location. Huge living room with cozy fireplace. Enclosed front patio with private backyard. Easy access to freeways, outstanding schools and association amenities. Low association fee, NO MELLO ROOS.

That housing markets in the most beaten down areas are now experiencing widespread despair. Prices are so low that existing owners have little hope of recovery.

Irvine Home Address … 263 HUNTINGTON Irvine, CA 92620

Resale Home Price …… $300,000

They used to tell me

I was building a dream.

And so I followed the mob

I was always there

Right on the job.

They used to tell me

I was building a dream

With peace and glory ahead.

Why should I be standing in line

Just waiting for bread?

Brother, can you spare a dime?

Al Jolson — Brother, Can You Spare a Dime?

Financial markets all exhibit the same psychological stages during a bout of irrational exuberance. A precipitating factor such as lowered interest rates or financial innovation folly, causes prices to rise when valuations suggest they should fall. This changes the market's perception of value, and buyers eagerly buy and drive prices higher. Greed and delusion set in as prices are propelled ever higher.

Finally, the bubble bursts, and the market enters a phase of denial. Irvine and Orange County have been stuck in this phase due to the bear rally. Finally, fear begins to set in, and sellers reduce their prices in order to get out while they still can. This is currently happening at the high end in California. The market is slipping into fear, but it is far from capitulation or despair.

The subprime real estate markets were crushed first because their loans reset before the alt-a and prime markets. The subprime markets are much farther along the process. Las Vegas capitulated in late 2009, and most other subprime markets have given up since then. Despair now rules these markets. Is that an opportunity?

Homeowners face 'new normal' in housing bust

By Julie Schmit, USA TODAY

MERCED, Calif. — Life has changed in ways big and small in this central California county, which is still trapped in the wreckage of a housing boom that went bust five years ago.

The median home price, $116,000, is down 68% from its peak in 2006. Three of five homeowners with a mortgage here owe more on their loans than their houses are worth, compared with about one in five nationally.

Socked by a sharp loss of property and sales tax revenue, Merced County and its cities have slashed budgets, workers and services. The grass is being mowed less often in city parks. A senior center is open fewer hours.

Families have adjusted, too. Forget dreams of making big bucks on California real estate. Many here now count the years — guessing, really — until they'll no longer owe more on their homes than they're worth.

“We're in survival mode, waiting for recovery,” says Stephen Hammond, 42, pastor at Bethel Community Church in Los Banos, a Merced County town of 35,000 amid cotton and tomato fields.

More cuts are possible because of looming budget deficits, Merced government officials say. Dozens of other communities nationwide may face the same tough choices in the wake of huge drops in home values, which often lead to less property tax revenue. In Merced, the impacts have hit hard, and they hint at what may be to come for others.

For Merced County government, property taxes are the No. 1 source of general fund revenue, says Scott De Moss, deputy county executive officer. Property tax revenue has dropped 25% during the past three years. Almost 15% of the county's workforce has been slashed. Social and mental health service positions took the biggest hits, officials say.

In the city of Merced, sales tax revenue is down 24% and property tax collections, about 34%, from 2007 levels, city officials say. That's forced cuts in the police and fire departments. Police might not show up anymore to take fender bender reports and firetrucks may no longer always roll on the same calls as ambulances, says Merced City Manager John Bramble. The city's 80,000 trees now get pruned once every three years, instead of every two. The senior center is open 28, not 40, hours a week. Asphalt patches, not new concrete, are being used to repair sidewalks.

“People are used to a higher level of service,” says Bill Spriggs, who serves as mayor for the city of 80,600. “But this is the new normal.“

The old normal was an unsustainable Ponzi scheme. The new normal is an endless series of financial bailouts to prevent losses from the collapse of the unsustainable Ponzi schemes that come about because investors believe the federal reserve will bail them out. A self-reinforcing vicious circle.

Now the Ponzi scheme is collapsing into a deflationary spiral. The cuts in city services will cause further declines in local spending which will hurt a fragile economy.

In Los Banos, the grass is now cut in city parks every 15 days. It used to be cut weekly. Vacant houses dot nearly every neighborhood. New roads end in cul-de-sacs surrounded by vacant lots. A weather-beaten billboard announces a 35,000-square-foot retail center that is “coming soon” but never has.

“This was, right here, all going to be industry,” says Tommy Jones, Los Banos' former mayor, as he points to a goat pasture.

Nationwide, local governments typically get more than half of their revenue from local sources, the largest of which is property taxes, says economics professor John Anderson at the University of Nebraska. Because property tax collections can lag behind market values by 18 months to several years, they continued to rise for U.S. cities through 2009 — despite housing price declines in most areas. But city property tax collections fell 2% last year as reduced assessments started to kick in, according to survey data collected by the National League of Cities. More drops are expected this year and next as the decline continues.

The Merced city and county governments have softened the blow to services by eating through millions in financial reserves. But budget deficits are still the norm. This summer, Merced city plans to ask residents to approve a half-cent sales tax increase to cover a $5.2 million budget shortfall.

If the new tax doesn't pass, Bramble says, “The quality of city services will be severely changed.”

This tax revenue is not coming back because house prices are not coming back. Local governments are going to have to adjust to budgets based on current property values, not some fantasy of what properties were selling for in 2006. California's Ponzi Scheme economy has collapsed. Municipalities like Merced that are spending their financial reserves are being foolish and irresponsible, and it will hurt them in the end.

Deeply underwater
At least half of homeowners with a mortgage owe more than their homes are worth in 17 of 386 U.S. counties. Counties with the highest percentage of mortgages under water as of Sept. 30.
Rank	County	State	Mortgages under water
1	Clark	Nev.	71.1%
2	Osceola	Fla.	66.5%
3	Merced	Calif.	63.1%
4	St Lucie	Fla.	62.4%
5	San Joaquin	Calif.	59.6%
6	Stanislaus	Calif.	57.5%
7	Clayton	Ga.	56.1%
8	Orange	Fla.	56.1%
9	Solano	Calif.	55.6%
10	Maricopa	Ariz.	54.4%
11	Washoe	Nev.	53.3%
12	Pinal	Ariz.	52.6%
13	Flagler	Fla.	52.5%
14	Pasco	Fla.	51.5%
15	Riverside	Calif.	50.5%
16	Kern	Calif.	50.2%
17	Broward	Fla.	50.1%
18	Lee	Fla.	49.5%
19	Canyon	Idaho	49.0%
20	Henry	Ga.	48.8%
21	Polk	Fla.	48.5%
22	Hillsborough	Fla.	48.5%
23	Dade	Fla.	48.2%
24	Sacramento	Calif.	47.9%
25	Paulding	Ga.	47.5%
26	Prince William	Va.	47.4%
27	San Bernardino	Calif.	46.9%
28	Brevard	Fla.	46.9%
29	Wayne	Mich.	46.6%
30	Hernando	Fla.	46.5%
Source: CoreLogic

Underwater, with few options

The double whammy of the recession and the real estate crash has forced changes in how consumers spend, plan for their futures and view their neighbors. Businesses also have suffered, because homeowners have less equity in their homes or none at all. Overlaying everything is a local economy in which one of five workers is jobless, in part because of the collapse of the area's once-fast-growing home construction industry.

The “last good year” was 2008, says Greg Parle, owner of the Branding Iron Restaurant in Merced. Business is off at least 20% since then, he says. He's adding lower-priced items to the menu.

The region's ability to foster such small businesses will suffer because of so much lost home equity. Almost one-quarter of small-business owners borrow against their homes or use them as collateral to fuel businesses, according to a 2009 Gallup survey of small-business owners. That'll likely be less now in Merced and other places with so many underwater homeowners. Start-ups will feel the greatest impact, says Mark Schweitzer, director of research for the Federal Reserve Bank of Cleveland.

Loreina Childress, 39, a county environmental health worker, has felt the impact of the new normal at home and work.

The previous work of 26 in her department is now done by 21. At home, a lot remains vacant, and there are more renters in her neighborhood than before the real estate bust.

Childress bought her Merced County home in 2006, when the market was still hot. She owes $241,000 on the 1,500-square-foot home that might sell for $140,000.

These people are so screwed. Typically, it takes 15 to 20 years for prices to double. People who have houses worth half their mortgage will spend the rest of their working lives paying a bloated debt and waiting for prices to come back.

Her husband, Gary, 38, switched careers a year ago, from forklift driver to emergency medical technician. He can't find full-time work. That's placed new stress on the family's finances, along with the reality of being so far underwater on the house.

Loreina now pours milk in her coffee, not cream. She eats TV dinners at her desk for lunch, rather than fresh sandwiches at a deli. She can recite, down to the penny, the cost of South Beach Diet bars at three retailers. Plans to landscape the yard have been scrapped.

Gary might have more luck pursuing work in other states. That would mean selling the house at a big loss or doing what the couple say they won't do: Give the house back to the bank and walk away.

“We made an agreement,” Loreina says. “We can't go anywhere until we can break even on the house.“

I hope they don't have anywhere to go any time soon. They are trapped in their debtors prison. I hope it is a gilded cage.

Los Banos Unified School District Superintendent Steve Tietjen, 55, is underwater on his home, too. He bought his Los Banos home in 2007. If a job change appears, “I'll have a dilemma,” he says. “I never would've conceived that somebody who's a superintendent would have that dilemma.”

Like Tietjen, many people here know someone who lost their house — either because of a job loss or a decision not to stick it out. Some former homeowners now rent. Some bought other homes at distressed prices, then walked away from underwater ones.

Buy-and-bail was a lot more common in the last housing bust. Lenders caught on early, and since 2007, most borrowers have been required to demonstrate the ability to make both house payments. That requirement prevented most buy-and-bail problems.

John Betham, 58, and his wife, Sandra, 55, are staying put. They owe $375,000 on their Los Banos home. They estimate it would sell now for $150,000.

The Bethams both teach in Los Banos. They can make the house payments and will delay their retirements if needed. They love their house and feel an obligation to pay the debt. “A lot of these people bailed. But we did everything right, and we're stuck,” John says. “It's a bit of a bitter pill.”

Not much relief in sight

Little relief is expected anytime soon here, despite signs of a strengthening U.S. economy.

Nationwide, home prices are down 30% from their 2006 peak. Moody's Analytics economist Celia Chen says national home prices will regain that ground by 2021.

Some areas will take far longer. In 22 U.S. metropolitan regions, most in California and Florida, home prices won't return to their 2006 peaks before 2030, Chen estimates. That includes such cities as Miami, Detroit, Phoenix, Las Vegas and Riverside, Calif.

Merced is so far off its peak that it'll take “many decades” for home prices to return to their 2006 peaks, Chen says.

People will have forgotten about the peak in these markets long before prices ever get there.

Like other central California communities, Merced's housing boom was fueled by San Francisco Bay Area commuters looking for cheaper housing. The opening of a University of California campus in Merced in 2005 attracted builders and investors who saw a big future for rentals.

In 2005, almost 3,500 single-family-home building permits were issued in Merced County, Moody's data show. That was up from an average of 1,053 a year in the 1990s. Merced's unemployment rate dropped below 10% in 2006 as home construction soared.

But Merced's fall was just as steep. Since 2006, the county has lost more than 2,500 construction jobs, state employment data indicate. In the past three years, just 415 single-family building permits have been issued countywide. Last year, one of 14 Merced homes received foreclosure filings vs. one of 45 nationwide, says researcher RealtyTrac.

Newcomers to Merced are winning in the hard-times economy. Home prices are so low that sales are made “as fast as we can stick a (for sale) sign in the ground,” says Loren Gonella, owner of Gonella Realty in Merced. In December, median prices were up 5% from a year ago, he adds.

He says home prices will recover. The UC campus is expanding, as is a relatively new hospital. Wal-Mart plans to open a distribution center here in the next few years, which would eventually employ up to 900. The San Francisco Bay Area has funneled home buyers to the Central Valley for decades. That will continue, he says.

The feared mass exodus from the county has not occurred. In Los Banos, student enrollment dipped in 2008 and 2009 but has returned to 2006 levels, Tietjen says. In many cases, multiple families inhabit homes that used to contain one, he says.

Ray Ortiz, 40, bought his Los Banos home in 2009 for $150,000. At the peak, it would have cost more than $400,000.

Ortiz commutes 90 minutes to his job in San Jose as a maintenance supervisor for a garbage company. He pays $50 more a month to own in Los Banos than he would to rent in San Jose.

Even if home prices drop more before they go up, Ortiz is confident he made a good buy.

“I feel like I won the lottery,” he says.

Buyers feel that way because they still believe prices will skyrocket and they will make a fortune. Kool aid will never die.

What was the bank doing for the last two years?

Today's featured property is the best example of seasoned shadow inventory I have found to date. This property has been bank owned since April of 2008. The owner, a buyer from 1991, managed to HELOC himself into oblivion with a $378,000 first mortgage in 2004.

The Notice of Default was issued on 12/5/2007, but it is safe to assume the loan was delinqent long before then.

I don't know if this has been empty or occupied. I presume it has sat empty as lenders continue to withhold inventory like this from the market.

When will the rest of this inventory be released? How the lending cartel releases its shadow inventory will determine the housing market's fate.

Irvine Home Address … 263 HUNTINGTON Irvine, CA 92620

Resale Home Price … $300,000

Home Purchase Price … $410,666

Home Purchase Date …. 4/8/2008

Net Gain (Loss) ………. $(128,666)

Percent Change ………. -31.3%

Annual Appreciation … -10.7%

Cost of Ownership

————————————————-

$300,000 ………. Asking Price

$10,500 ………. 3.5% Down FHA Financing

4.99% …………… Mortgage Interest Rate

$289,500 ………. 30-Year Mortgage

$62,047 ………. Income Requirement

$1,552 ………. Monthly Mortgage Payment

$260 ………. Property Tax

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

$50 ………. Homeowners Insurance

$250 ………. Homeowners Association Fees

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

$2,112 ………. Monthly Cash Outlays

-$146 ………. Tax Savings (% of Interest and Property Tax)

-$348 ………. Equity Hidden in Payment

$20 ………. Lost Income to Down Payment (net of taxes)

$38 ………. Maintenance and Replacement Reserves

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

$1,675 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

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

$3,000 ………. Closing Costs @1%

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

$10,500 ………. Down Payment

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

$19,395 ………. Total Cash Costs

$25,600 ………… Emergency Cash Reserves

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

$44,995 ………. Total Savings Needed

Property Details for 263 HUNTINGTON Irvine, CA 92620

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Beds: 2

Baths: 3

Sq. Ft.: 1058

$284/SF

Lot Size: –

Property Type: Residential, Condominium, Townhouse

Style: Two Level, Traditional

Year Built: 1986

Community: Northwood

County: Orange

MLS#: P767933

Source: SoCalMLS

Status: ActiveThis listing is for sale and the sellers are accepting offers.

On Redfin: 9 days

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Northwood's Horizon premium interior location, close to pool and amenities, no one above or below. Dual master bedrooms, over 1,000 square feet, and bonus half bath down stairs. Must see! Irvine Unified School District, Close to Parks, Shopping, Irvine Spectrum, Tustin Market Place and much more. Easy Freeway access: 5, 405, 133, Toll Road 73, 44, 57 and 22. Turn-key condition , submit offer today!

The average time a defaulting loan owner gets to stay for free in the house has ballooned to over 500 days.

Irvine Home Address … 73 JUNEBERRY Irvine, CA 92606

Resale Home Price …… $510,000

She sits by the fireside,

The room is so warm.

Her children are sleeping,

She waits in their home.

Passing the time.

Passing the time.

Everything fine.

Passing the time, drinking red wine.

Cream — Passing The Time

I really don't get that worked up about the squatters and HELOC abusers anymore. I remember back in 2008 or 2009, when I would see someone who was given half a milion dollars for doing nothing — and spending it — I was shocked and angered that I would pay for that all with everyone else in a banking industry bailout — an ongoing bailout if you consider the inevitable inflation that will finish the process.

Now that I have seen several hundred HELOC abusers and squatters, they are a curiosity, nothing more. Sometimes the details are amusing, and imagining how they blew the money goes through everyone's mind. We're all watching the market, passing the time.

Wait until I tell you some of my eviction stories from Las Vegas… Another time…

Before the market improves, lenders must reach a point where loans are not going delinquent faster than they can cure them or foreclose on the squatters. Until the delinquency rates drops or the foreclosure rate rises, lenders will continue to build shadow inventory.

Then they must liquidate visible and shadow inventory at a rate faster than they are adding to it. Right now, shadow inventory is growing, visible inventory is growing, and liquidation rates are at a seasonal low. Liquidation must outpace additions before the inventory problem goes away.

The amount of inventory in visible and shadow inventory will take many years to clear out. The price levels after the liquidation will be determined by incomes and loan terms at the time. The weight of inventory will squeeze any remaining air out of the housing bubble.

LPS: Overall mortgage delinquencies declined in 2010

by CalculatedRisk on 2/07/2011 11:48:00 AM

LPS Applied Analytics released their December Mortgage Performance data. According to LPS:

• The average loan in foreclosure has been delinquent a record 507 days. This is up from 406 days at the end of 2009, and up from 499 days at the end of November.

• Overall, mortgage delinquencies dropped nearly 18% in 2010.

• On the other hand, foreclosure inventories were up almost 10% in 2010, and are now at nearly 8x historical averages

• “First-time” foreclosures are on the decline, with over 30% of new foreclosure starts having been in foreclosure before

Click on graph for larger image in graph gallery.

This graph provided by LPS Applied Analytics shows the percent delinquent, percent in foreclosure, and total non-current mortgages.

The percent in the foreclosure process is trending up because of the foreclosure moratoriums.

According to LPS, 8.83% of mortgages are delinquent (down from 9.02% in November), and another 4.15% are in the foreclosure process (up from 4.08% in November) for a total of 12.98%. It breaks down as:

• 2.56 million loans less than 90 days delinquent.

• 2.12 million loans 90+ days delinquent.

• 2.2 million loans in foreclosure process.

For a total of 6.87 million loans delinquent or in foreclosure.

The second graph shows the break down of serious delinquencies.

LPS reported “the share of seriously delinquent loans that have not made payments in over a year continues to increase.”.

Note: I've seen some people include these 7 million delinquent loans as “shadow inventory”. This is not correct because 1) some of these loans will cure, and 2) some of these homes are already listed for sale (so they are included in the visible inventory).

This data is not shadow inventory, but most shadow inventory resides there. CalculatedRisk is correct in pointing out that not all of these loans will become future for-sale inventory, and if you take this data as a direct measure of shadow inventory, there would be double counting with visible inventory. I would also note this data does not capture the number of loan owners with toxic financing that will give up over the next several years as prices grind lower and strategic default becomes more common.

Shadow inventory is continuing to grow larger. We aren't adding to it quite as quickly as the past, but we are still not over the hump and actually reducing shadow inventory. That may come this year if the foreclosure rates pick up.

The bottom line for struggling loan owners is that if they decide to quit paying their mortgage today, there is a good chance they will not get booted out of the property for nearly two years. Even then, they won't have to wait long to get a new GSE loan. It shouldn't be surprising that strategic default is on the rise.

A 40% loss in Irvine

The Irvine Company fans reading today will undoubtedly remind everyone that Columbus Grove is not an Irvine Company property. The supposition is that prices in Columbus Grove have cratered so badly because it isn't to the quality of the rest of Irvine. I don't think so. Columbus Grove was hit hard because the builder, Lennar, finished selling out and pushed prices lower until the found a market clearing level. Columbus Grove is close to the bottom, closer than the rest of Irvine.

Columbus Grove does have some negatives, but it is still in the Irvine school district, and it currently represents the best value for the money in the school district. New construction here goes for what 30+ year old construction sells for in El Camino Real. Of course, those old properties have no HOAs or Mello Roos, so the cost of ownership is much lower at the same price point.

Irrespective of your opinion of Columbus Grove, the price declines there have been extraordinary by Irvine standards, and today's featured property is a 40% loss for the bank. They gave out a 100% financing loan back in 2006. The owner quit paying, and this ended up in shadow inventory. How do I know this?

This property went through foreclosure twice. The HOA foreclosed on the property last March for non-payment of dues. They were hoping to force the first lien holder to act. A few days later, an NOD was filed, and the property finally went back to BofA in December.

Foreclosure Record

Recording Date: 04/06/2010

Document Type: Notice of Default

If the loan owner was not paying the HOA dues for long enough that the HOA went through a foreclosure, how likely was it that he was paying the mortgage during that time? Not likely at all. If he was not paying his mortgage and there was no NOD filed, this property was in shadow inventory for quite some time.

Irvine Home Address … 73 JUNEBERRY Irvine, CA 92606

Resale Home Price … $510,000

Home Purchase Price … $801,500

Home Purchase Date …. 11/17/06

Net Gain (Loss) ………. $(322,100)

Percent Change ………. -40.2%

Annual Appreciation … -10.6%

Cost of Ownership

————————————————-

$510,000 ………. Asking Price

$17,850 ………. 3.5% Down FHA Financing

4.84% …………… Mortgage Interest Rate

$492,150 ………. 30-Year Mortgage

$103,685 ………. Income Requirement

$2,594 ………. Monthly Mortgage Payment

$442 ………. Property Tax

$360 ………. Special Taxes and Levies (Mello Roos)

$85 ………. Homeowners Insurance

$420 ………. Homeowners Association Fees

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

$3,901 ………. Monthly Cash Outlays

-$425 ………. Tax Savings (% of Interest and Property Tax)

-$609 ………. Equity Hidden in Payment

$33 ………. Lost Income to Down Payment (net of taxes)

$64 ………. Maintenance and Replacement Reserves

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

$2,964 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,100 ………. Furnishing and Move In @1%

$5,100 ………. Closing Costs @1%

$4,922 ………… Interest Points @1% of Loan

$17,850 ………. Down Payment

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

$32,972 ………. Total Cash Costs

$45,400 ………… Emergency Cash Reserves

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

$78,372 ………. Total Savings Needed

Property Details for 73 JUNEBERRY Irvine, CA 92606

——————————————————————————

Beds:: 3

Baths:: 3

Sq. Ft.:: 2125

Lot Size:: –

Property Type:: Residential, Condominium, Townhouse

Style:: 3+ Levels

Year Built:: 2006

Community:: Columbus Grove

County:: Orange

MLS#:: S645081

Source:: SoCalMLS

Status:: ActiveThis listing is for sale and the sellers are accepting offers.

On Redfin:: 9 days

——————————————————————————

Elegant and refined defines this stunning townhome with upgraded finishes throughout including rich dark wood flooring, granite counters, espresso-colored cabinets and stainless steel appliances in kitchen, granite and travertine in bathrooms; plantation shutters, crown moulding, recessed lighting and extra-wide baseboards! Convenient indoor laundry room on same level as bedrooms. Living room has two-story high ceiling and cozy fireplace. Beautiful home – must see! Close to shopping and award-winning schools.