Is the TARP program a failure or a success? It depends on whether you ask Wall Street or Main Street.

Irvine Home Address … 117 ROCKWOOD 55 Irvine, CA 92614

Resale Home Price …… $289,000

Winners and losers, turn the pages of my life

We’re beggars and choosers, with all the struggles and the strife

I got no reason to turn my head and look the other way

We’re good and we’re evil, which one will I be today?

There’s saints and sinners

Life’s a gamble and you might lose

There’s cowards and heroes

Both have been known now to break the rules

Social Distortion — Winners and Losers

The story of the TARP program has been about winners and losers. Contrary to the much touted goal of preventing foreclosures, the TARP program is primarily designed to prop up our ailing banks. In this regard, it has succeeded. As for helping loan owners stay in their homes, not so much. Of course, the loan owners have benefited from amend-extend-pretend because they have been allowed to squat, but people don't want to squat, they want to own their homes with a reasonable payment. Unfortunately, they paid so much that owning with reasonable payments is not going to happen.

SIGTARP Quarterly Report (PDF)

Office of the Special Inspector General for the Troubled Asset Relief Program

General Telephone: 202.622.1419 Hotline: 877.SIG.2009

SIGTARP@do.treas.gov

www.SIGTARP.gov

October 2010

More than two years have passed since the Emergency Economic Stabilization Act of 2008 (“EESA”) authorized the creation of the Troubled Asset Relief Program (“TARP”). On October 3, 2010, Treasury’s authority to initiate new TARP invest- ments expired, marking a significant milestone in TARP’s history but also leading to the widespread, but mistaken, belief that TARP is at or near its end. As of October 3, $178.4 billion in TARP funds were still outstanding, and although no new TARP obligations can be made, money already obligated to existing programs may still be expended. Indeed, with more than $80 billion still obligated and available for spending, it is likely that far more TARP funds will be expended after October 3, 2010, than in the year since last October when U.S. Treasury Secretary Timothy Geithner (“Treasury Secretary”) extended TARP’s authority by one year. In short, it is still far too early to write TARP’s obituary.

At the same time, TARP’s two-year anniversary is a fitting time for an interim assessment. To what extent has TARP met the goals set for it by the U.S. Department of the Treasury (“Treasury”) in announcing TARP programs and by Congress in providing Treasury authorization to expend TARP funds — avoiding financial collapse, “increas[ing] lending,” “maximiz[ing] overall returns to the taxpayers,” “provid[ing] public accountability,” “preserv[ing] homeownership,” and “promot[ing] jobs and economic growth” — and at what cost? In answering these questions, it is instructive to compare TARP’s impact on Wall Street with its impact on Main Street. By fulfilling the goal of avoiding a financial collapse, there is no question that the dramatic steps taken by Treasury and other Federal agencies through TARP and related programs were a success for Wall Street. Those actions have helped garner a swift and striking turnaround, accompanied by a return to profitability and seemingly ever-increasing executive bonuses. For large Wall Street banks, credit is cheap and plentiful and the stock market has made a tremendous rebound. Main Street, too, has reaped a significant benefit from the prevention of a complete collapse of the financial industry and domestic automobile manufacturers, the ripple effects such collapses would have caused, and increased stock market prices. Main Street has largely suffered alone, however, in those areas in which TARP has fallen short of its other goals.

As these quarterly reports to Congress have well chronicled and as Treasury itself recently conceded in its acknowledgment that “banks continue to report falling loan balances,” TARP has failed to “increase lending,” with small businesses in particular unable to secure badly needed credit.

As an aside, I note that I was contacted by my bank and asked if I wanted a credit line for my new business. When I said, no, I run a cash business trading in hard assets, the loan officer told me they are getting pressure to extend these credit lines, and if I change my mind, they want to loan money.

Indeed, even now, overall lending continues to contract, despite the hundreds of billions of TARP dollars provided to banks with the express purpose to increase lending. As to the goal of “promot[ing] jobs and economic growth,” while job losses may have been far worse without TARP support, unemployment continues to hold at roughly 9.6%, 3% higher than at the start of the program. While large bonuses are returning to Wall Street, the nation’s poverty rate increased from 13.2% in 2008 to 14.3% in 2009, and for far too many, the recession has ended in name only. Finally, the most specific of TARP’s Main Street goals, “preserving homeownership,” has so far fallen woefully short, with TARP’s portion of the Administration’s mortgage modification program yielding only approximately 207,000 (out of a total of 467,000) ongoing permanent modifications since TARP’s inception, a number that stands in stark contrast to the 5.5 million homes receiving foreclosure filings and more than 1.7 million homes that have been lost to foreclosure since January 2009.

I find the blunt truthfulness of this report refreshing. I am amazed this came from our own government.

On the cost side of the ledger, the results have been mixed as well. It is undoubtedly good news that recent loss estimates continue to suggest that the financial costs of TARP may be far lower than earlier anticipated, with the most recent estimates placing the dollar loss at between $51 billion and $66 billion. But costs can involve far more than just dollars and cents. Any fair assessment of TARP must account for other costs that, while more difficult to measure, may be even more significant. For example, as SIGTARP has noted in past quarterly reports, increased moral hazard and concentration in the financial industry continue to be a TARP legacy. The biggest banks are bigger than ever, fueled by Government support and taxpayer-assisted mergers and acquisitions. And the repeated statements that the Government would stand by these banks during the financial crisis has given a significant advantage to the larger “too big to fail” banks, as reflected in their enhanced credit ratings borne from a market perception that the Government will still not let these institutions fail, although the impact of this cost may be blunted by recently enacted regulatory reform.

Indeed our big banks are in a race to see who can get too big to fail. Once there, they no longer have to worry about maintaining good financial ratios, making good loans that will get repaid, or sacrificing short-term gains for long-term growth.

Another even more fundamental non-financial cost, as SIGTARP warned in October 2009, is the potential harm to the Government’s credibility that has attended this program. Despite the recent surge in reporting on TARP’s successes, many Americans to continue to view TARP with anger, cynicism, and mistrust. While some of that hostility may be misplaced, much of it is based on entirely legitimate concerns about the lack of transparency, program mismanagement, and flawed decision-making processes that continue to plague the program. When Treasury refuses for more than a year to require TARP recipients to account for the use of TARP funds, or claims that Capital Purchase Program participants were “healthy, viable” institutions knowing full well that some are not, or when it provides hundreds of billions of dollars in TARP assistance to institutions, and then relies on those same institutions to self-report any violations of their obligations to TARP, it damages the public’s trust to a degree that is difficult to repair. Similarly, when the Government promotes programs without meaningful goals or metrics for success, such as its mortgage modification programs, or when it makes critical and far-reaching decisions without taking an even modestly broad view of their impact, such as pushing for dramatically accelerated car dealership closings without considering the potential for devastating job losses, or when it fails to negotiate robustly on behalf of the taxpayer, as it did when agreeing to compensate American International Group, Inc.’s (“AIG”) counterparties 100 cents on the dollar for securities worth less than half that amount, the Government invites public anger, hostility, and mistrust. And by doing so, it dangerously undermines its ability to respond effectively to the next crisis.

Interesting that this report documents exactly how the government corporatocracy is screwing us.

While TARP is arguably moving to a new phase, recent actions this past quarter unfortunately suggest that the risks it poses to the public’s trust in Government will continue. Indeed, two areas of the greatest anticipated spending going forward — the Home Affordable Modification Program (“HAMP”) and the AIG recapitalization plan — highlight those risks.

This rather scathing report has generated some uncomfortable questions at the Congressional Oversight Panel.

Schwartz to Congressional Oversight Panel: HAMP gets a bad rap

The government's much-criticized Home Affordable Modification Program helped set the stage for a successful private loan modification effort that likely wouldn't have gotten off the ground without it, said Faith Schwartz, former executive director of Hope Now.

If that is true, I wish this program had never started. Loan modifications do nothing but provide false hope to loan owners and extend this crisis.

Schwartz testified Wednesday before the Congressional Oversight Panel on the Troubled Asset Relief Program, in a hearing about TARP foreclosure mitigation programs.

"The HAMP roadmap set the stage for servicers to better apply solutions for distressed borrowers who failed to meet the HAMP requirements," Schwartz said in written testimony submitted to the panel.

"The Home Affordable Modification Program (HAMP) has received criticism, in part, because it did not immediately produce certain projected numbers of permanent loan modifications," she wrote.

The program has also been criticized by people like me who think it should not exist at all.

"This criticism is not entirely accurate," according to Schwartz. "HAMP has played an important role by helping to organize the participants and process in the loan modification effort and instituted a loan modification protocol that would have been difficult to mandate in any other way. Hope Now and government agencies attempted this in 2008 through the streamlined modification program, but it did not reflect all investors and primarily focused on GSE-owned loans. That was a start, but the HAMP program expanded and formalized those initial standards for loan modifications."

The Hope Now Alliance was formed in 2007 to expand and better coordinate the private sector and nonprofit counseling community to reach borrowers at risk.

"Early on, the goal of the Alliance was simple: reach at-risk borrowers that had no contact with their servicer," Schwartz said. "Research showed that over 50% of all foreclosures involved homeowners who were not in contact with their servicer."

Have you noticed rumors of principal forgiveness crop up whenever lenders want to get people to contact them? I think they use that as a bait-and-switch enticement to get people to contact their lender.

The alliance established a hotline, organized community outreach events, sent letters to delinquent borrowers and launched a website.

It also established HOPE LoanPort, a Web-based system that enables for uniform intake of an application for a modification, allows stakeholders to see the same information in a secure manner, and delivers a completed loan package to the servicer that is actionable. The pilot program includes 14 large mortgage servicers, representing a majority share of the market.

Everyone knows how slow and inneficient government programs are. As soon as the government got involved, it should have been apparent to everyone that by the time they got their programs working, the majority of loan owners would already be foreclosed on.

"HAMP modifications offer a well-defined safety net for borrowers as a first line of defense," Schwartz said. "As evidenced by Hope Now data, servicers are implementing significant modifications after reviewing for HAMP eligibility by offering alternative modifications in lieu of foreclosure. Servicers report proprietary non-HAMP solutions run almost three times greater than HAMP modifications due to eligibility challenges."

"These are modifications that do not require taxpayer dollars and they are meant to benefit the homeowner and investor in lieu of foreclosure," she said.

HAMP should not exist. It has largely been a failure; and in that, I think it was a success.

Get as much as possible as quickly as possible

One of the lessons the Ponzis learned from the housing bubble is that they need to refinance as soon as a new comp gives them some equity, and they need to keep borrowing to the full extend of their borrowing power. Besides the immediacy of the spending money, it gives them downside protection. When the market inevitably crashes, they have already sold the property to the bank for peak pricing. Then they get to walk away, and while the air comes out of the bubble, they can repair their credit to get ready for the next cycle.

• The owner of today's featured property paid $170,000 on 10/3/2000. He used a $163,150 first mortgage and a $6,850 down payment.
• On 8/20/2002 he refinanced with a $189,000 first mortgage.
• On 7/30/2003 he refinanced with a $189,200 first mortgage.
• On 8/29/2003 he refinanced with a $201,000 first mortgage.
• On 10/23/2003 he obtained a 21,500 stand-alone second.
• On 3/25/2005 he refinanced with a $251,000 Option ARM with a 1% teaser rate.
• On 1/10/2006 he refinanced with a $328,000 Option ARM with a 2% teaser rate. and obtained a $90,000 HELOC.
• Total property debt is $418,000 plus negative amortization and almost two years of missed payments.
• Total squatting time is about 20 months so far.

Foreclosure Record

Recording Date: 08/16/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 11/19/2009

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 06/18/2009

Document Type: Notice of Default

Do you ever wonder when I will run out of these? Irvine is supposed to be an upscale neighborhood where everyone makes hundreds of thousands of dollars a year. Why do we have so much HELOC abuse? Why are so many losing their homes due to their excessive borrowing? Could it be that Irvine is a facade? How much of Irvine is populated by posers trying to impress other posers?

Irvine Home Address … 117 ROCKWOOD 55 Irvine, CA 92614

Resale Home Price … $289,000

Home Purchase Price … $170,000

Home Purchase Date …. 10/3/2000

Net Gain (Loss) ………. $101,660

Percent Change ………. 59.8%

Annual Appreciation … 5.2%

Cost of Ownership

————————————————-

$289,000 ………. Asking Price

$10,115 ………. 3.5% Down FHA Financing

4.29% …………… Mortgage Interest Rate

$278,885 ………. 30-Year Mortgage

$55,099 ………. Income Requirement

$1,378 ………. Monthly Mortgage Payment

$250 ………. Property Tax

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

$48 ………. Homeowners Insurance

$490 ………. Homeowners Association Fees

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

$2,167 ………. Monthly Cash Outlays

-$125 ………. Tax Savings (% of Interest and Property Tax)

-$381 ………. Equity Hidden in Payment

$16 ………. Lost Income to Down Payment (net of taxes)

$36 ………. Maintenance and Replacement Reserves

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

$1,713 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,890 ………. Furnishing and Move In @1%

$2,890 ………. Closing Costs @1%

$2,789 ………… Interest Points @1% of Loan

$10,115 ………. Down Payment

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

$18,684 ………. Total Cash Costs

$26,200 ………… Emergency Cash Reserves

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

$44,884 ………. Total Savings Needed

Property Details for 117 ROCKWOOD 55 Irvine, CA 92614

——————————————————————————

Beds: 2

Baths: 1 full 1 part baths

Home size: 917 sq ft

($315 / sq ft)

Lot Size: n/a

Year Built: 1980

Days on Market: 65

Listing Updated: 40474

MLS Number: S630604

Property Type: Condominium, Residential

Community: Woodbridge

Tract: Othr

——————————————————————————

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

Price Reduction!!! CLEAN UPSTAIRS 2 BEDROOM, 2 BATH CONDO. BEAUTIFUL VIEW OF PARK/GREEN BELT. GREAT FOR FIRST TIME BUYERS/INVESTORS AND WONDERFUL FAMILY COMMUNITY. WOODEN BLINDS THROUGHOUT. NEWER CARPET AND PAINT. SEPARATE DINING ROOM.

Good for investors? Sure, I want to pay $289,000 to obtain $1,700 a month in rent, and give $490 a month to the HOA. Only a kool aid intoxicated fool would consider this a good investment.

I hope you are enjoying your Halloween weekend.

Irvine Home Address … 325 TANGELO 324 Irvine, CA 92618

Resale Home Price …… $208,800

Back in black

I hit the sack

I've been too long I'm glad to be back

Yes, I'm let loose

From the noose

That's kept me hanging about

AC/DC — Back in Black

Writer's Corner

I've been feeling energized lately. Everything is going very well personally and professionaly, and i am very excited about the new venture. After two or three years of the red-ink recession, I am back in the black. It's not just financial, its feeling useful, needed, and productive again. Long periods of professional inactivity dulls the mind and the senses. That's a hidden toll the recession exacts on people, even those who don't experience the full brunt of unemployment.

I have been reluctant to write much about the new venture. There are some business secrets I have an obligation to keep. I have been obtaining very good margins, but I don't want to broadcast it too loudly and bring in competitors. The blog has a loud voice at times.

I will start writing some posts about these Las Vegas properties, but I need to think through what I should and should not reveal as my greater duty is to the interests of my investors. If i spent a week documenting the details of each of the seven properties I have purchased, I would likely see a number of new competitors show up at the auction site. There is a balance, and I will find it.

Las Vegas

Las Vegas is an interesting town to travel to for business. Since I am there when the tourists are not, the rooms are much cheaper, and all the activities are less expensive and less crowded.

I have my own barometer of the financial health of Las Vegas. I am still driving to Las Vegas each week. As I go through Victorville and reach the edge of civilization before heading across the high desert, there is a Motel 6. Lately, the rate has been $44.95 per night on Sunday when I drive past. I have been staying at the Sahara for $30 per night. There are often rooms available for less than $20 per night in Las Vegas. When the Motel 6 on the fringe charges more than a big casino hotel on Las Vegas Boulevard, times are tough in Las Vegas. Maybe I am wrong, and perhaps fringe motel rooms always carry a premiium, but the Las Vegas casino hotel is a billion times more fun and interesting.

When I go out in Las Vegas (I like to throw dice), it still feels alive and vibrant. Fremont street is often packed with people, and the strip casinos have a lot of activity. The problem with Las Vegas isn't a decline in the traffic of people (there has been some of that too). The problem is that visitors are not losing or spending as much money as they used to. And while about 50% of the construction industry remains unemployed, those idle workers are not earning money and contributing to the economy. The lack of a viable housing market and its associated labor market is what makes this recession go on and on.

I have always liked Las Vegas for a variety of reasons. And going there every week is a responsibility I enjoy.

Housing Crash News

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Fri Oct 29 2010

Foreclosure activity up across most US metro areas (mynorthwest.com)

Foreclosure Crisis Is Spreading, New Data Show (npr.org)

Treasury Links Foreclosure Ills to Better Housing Prices (nytimes.com)

TARP Watchdog Makes Chilling Comment About Foreclosure-Gate (businessinsider.com)

New House Sales Stuck at Rock-Bottom (blogs.wsj.com)

'How To Forge A Client's Signature' And Other Lessons From Ameriquest (dailybail.com)

"Straight Talk" with Economic Bloggers (Mish)

Signs Hyperinflation Is Arriving (gonzalolira.blogspot.com)

2010 Contraction Now Crushing Consumers More Than Great Recession (businessinsider.com)

In Spain, Houses Are Taken but Debt Remains (nytimes.com)

GOP leader calls for weaning housing market from government support (scrippsnews.com)

New Theory on Evolution of Poltical Beliefs (miller-mccune.com)

The Robin Hood Tax (robinhoodtax.org)

Bill Gates, Sr, Promotes 'Robin Hood' Tax On WA Wealthy (huffingtonpost.com)

Portrait emerges of woman whose mummified body was found in realtor's car (latimes.com)

What's it really worth?

---

Thu Oct 28 2010

Scholar says lower housing prices are here to stay (lvrj.com)

Low household formations translate to high vacancy rates (firsttuesdayjournal.com)

Bernanke's Failed CNBC Predictions From 2005-07 (dailybail.com)

Bill Gross' calls QE Policy History's Most "Brazen Ponzi Scheme" (Mish)

Fed zombies hungry for quantitative easing (marketwatch.com)

Treasury: Foreclosure woes not systemic threat (financialpost.com)

Irwindale officials spent lavishly during trips to discuss housing for poor (latimesblogs.latimes.com)

Economy is running out of gas (marketwatch.com)

How Much Does It Cost the Government To Prevent a Foreclosure? (theatlantic.com)

Mortgage Mess Could Hit Banks, Housing (sandiegoreader.com)

The real foreclosure mess: Lack of accountability for banks (washingtonpost.com)

Mortgage scandal boosts investors' campaign to get banks to buy back securities (washingtonpost.com)

Elite group organizing campain to recover mortgage bond losses (blogs.wsj.com)

Mortgage Fraud and Foreclosure Fraud: The Perfect No-Prosecution Crime (usawatchdog.com)

Wall Street banks seeking to hide risks (bloomberg.com)

The real danger: another stealth bailout of the big banks (washingtonsblog.com)

Most Americans worry about ability to pay mortgage or rent (washingtonpost.com)

Val Kilmer slashes price of New Mexico ranch by $10 million (sfgate.com)

Thank You Damon S. ($20) for your kind donation.

What's it really worth?

---

Wed Oct 27 2010

Mortgage Bankers Push Housing Recovery to uh, 2012 (blogs.wsj.com)

Housing Cliffdives (hard to see that last data point, so small…) (dailybail.com)

US stocks down after weak housing report (economictimes.indiatimes.com)

US house prices dip again in August (bbc.co.uk)

House prices fell in August, near lows (finance.yahoo.com)

San Diego's slight house price rise stalls in August (signonsandiego.com)

Beach house from list at $2,900,000 to selling for $900,000 (doctorhousingbubble.com)

LA houses advertised in China (shanghai.craigslist.com.cn)

Australian housing hurtles toward disaster (smh.domain.com.au)

Real House Prices, Price-to-Rent Ratio (calculatedriskblog.com)

With foreclosures crisis, banks undermine faith in markets (money.cnn.com)

US should remove top bank execs over foreclosure mess (voices.washingtonpost.com)

Mortgages to Drop Below $1 Trillion in 2011 to Least Since 1996 (bloomberg.com)

Even The Super-Rich Prefer Renting To Buying In This Market (businessinsider.com)

Top Incomes Grew Five-Fold in 2009 to an Average of $519 Million (dailyfinance.com)

Number of Californians entering foreclosure rises 19% (latimes.com)

How Long Does Foreclosure Take? (npr.org)

Judge Judy: Before the Mortgage Crisis (youtube.com)

End Social Security And Medicare Now! (patrick.net)

Thank You Jaime L. ($10) for your kind donation.

What's it really worth?

---

Tue Oct 26 2010

Plans to cut the federal budget deficit could affect mortgage debt subsidies (articles.latimes.com)

Housing and banking lobbies will kill any attempt to free citizens from debt (marketwatch.com)

Existing House Inventory increases 8.9% Year-over-Year (calculatedriskblog.com)

99 Weeks: When Unemployment Benefits Run Out (cbsnews.com)

The Real Unemployment Rate Is 17% (realclearpolitics.com)

226,000 could lose jobless benefits (economy.ocregister.com)

Backdoor Foreclosure Via Insurance (mindonmoney.wordpress.com)

Liquidity Traps, Falling Velocity, Commodity Hoarding, and Bernanke's Misguided Tinkering (Mish)

Why the Fed's 'Trickle-Down Economics' Is Failing (dailyfinance.com)

Fed is dumpster for banks' smallpox-blanket-grade mortgage bonds (kunstler.com)

What is a currency war, and how do you win one? (slate.com)

US banking regulators in new foreclosures probe (bbc.co.uk)

Banks can't even manage to act in their own interest (nytimes.com)

Commercial Property Prices in U.S. Decline to Eight-Year Low (bloomberg.com)

Global house prices (economist.com)

A $10 million house in bubble days is now a $5 million house (reuters.com)

Unemployment Misery, Lower Earnings For All But Super Wealthy (huffingtonpost.com)

One rich guy who wants to pay higher taxes: Bill Gates Sr. (mcclatchydc.com)

Mukesh Ambani: India billionaire's house in Mumbai (latimes.com)

Housing Cartoons (Last one best) (ritholtz.com)

What's it really worth?

---

Mon Oct 25 2010

Interview with Gary Shilling: housing to fall 20% more (cnbc.com)

Sudden and Dramatic Drop in U.S. House Prices: 5.9% price drop in 2 months (clearcapital.com)

Unmentioned Elephant In Foreclosure Fraud Room: Second Liens (blogs.alternet.org)

Foreclosure crisis is about who gets stuck with $1.1 trillion in losses (businessweek.com)

We'd like to return these bad loans, please (money.cnn.com)

To fix the economy, let bad banks die (latimes.com)

FDIC Called On To Put Bank Of America Into Receivership (commondreams.org)

Mortgage interest deduction subsidizes wealthy at expense of middle class (mybudget360.com)

Reduction in debt subsidies could be in houseowners' futures (contracostatimes.com)

California unemployment: Government job losses (latimes.com)

Housing Calculator Guy Apologizes For Lack Of Negative Numbers (npr.org)

Dubai: Real Estate Crash Sends Prices, Rents Falling (news.yahoo.com)

Apartments are a good investment for some (usatoday.com)

Demand Rising for Rentals Among the Ultrarich (nytimes.com)

Income Inequality Linked to Senate Standoffs (miller-mccune.com)

Health Care and the Campaign (nytimes.com)

Was Fraud the Business Model for the Entire Mortgage Industry? (washingtonsblog.com)

Inside Job (film) (en.wikipedia.org)

Banks defeat regulation (salon.com)

Mobile Homes from Cullman Liquidation (honesty in advertising) (biggeekdad.com)

Four gets you one hundred and fifty

If you manage to time the real estate cycle in California, the return on investment can be enormous. All the speculators who used 100% financing and either HELOCed or sold at the peak obtained an infinite return because their investment was zero. But even the FHA buyers who put 3% down obtained returns on their investment that in many cases is measured in triple digits. The owner of today's featured property invested $4,500 when he purchased, and when he refinanced at the peak, he sold it to the bank (in a nefarious way) and made $169,500. That is approximately 38 times what he invested. The bank is left holding a $262,500 mortgage on a tiny old condo worth about $200,000 in today's still-inflated market.

Irvine Home Address … 325 TANGELO 324 Irvine, CA 92618

Resale Home Price … $208,800

Home Purchase Price … $97,500

Home Purchase Date …. 3/10/1999

Net Gain (Loss) ………. $98,772

Percent Change ………. 101.3%

Annual Appreciation … 6.6%

Cost of Ownership

————————————————-

$208,800 ………. Asking Price

$7,308 ………. 3.5% Down FHA Financing

4.23% …………… Mortgage Interest Rate

$201,492 ………. 30-Year Mortgage

$39,525 ………. Income Requirement

$0,989 ………. Monthly Mortgage Payment

$181 ………. Property Tax

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

$17 ………. Homeowners Insurance

$250 ………. Homeowners Association Fees

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

$1,437 ………. Monthly Cash Outlays

-$89 ………. Tax Savings (% of Interest and Property Tax)

-$279 ………. Equity Hidden in Payment

$11 ………. Lost Income to Down Payment (net of taxes)

$26 ………. Maintenance and Replacement Reserves

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

$1,107 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,088 ………. Furnishing and Move In @1%

$2,088 ………. Closing Costs @1%

$2,015 ………… Interest Points @1% of Loan

$7,308 ………. Down Payment

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

$13,499 ………. Total Cash Costs

$16,900 ………… Emergency Cash Reserves

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

$30,399 ………. Total Savings Needed

Property Details for 325 TANGELO 324 Irvine, CA 92618

——————————————————————————

Beds: 1

Baths: 1 bath

Home size: 819 sq ft

($255 / sq ft)

Lot Size: n/a

Year Built: 1979

Days on Market: 218

Listing Updated: 40362

MLS Number: S611090

Property Type: Condominium, Residential

Community: Orangetree

Tract: Othr

——————————————————————————

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

Looking for Investor or solid owner occupant transaction to stay the course with the short sale process.

Good luck with that.

I find that the cumbersome nature of the short sale process makes is easier for flippers to sell houses. Buyers don't have the patience to wait forever for a short sale. There are many buyers who have offers on several short sales, and they sit and wait for one of them to pop. When a filpper puts a property on the market, it gets attention because a prospective buyer does not have to wait for a bank to make up its mind. Both short sales and REO are bank decisions. Third party trustee flips pair serious sellers and impatient buyers. If the property is priced right, it quickens the pace of sales significantly.

Would higher mortgage interest rates allow more people to qualify for loans and help absorb the foreclosures?

Irvine Home Address … 4471 WYNGATE Cir Irvine, CA 92604

Resale Home Price …… $788,000

I was listening to the radio

I heard a song reminded me of long ago

Back then I thought that things were never gonna change

It used to be that I never had to feel the pain

I know that things will never be the same now

I wanna go back

And do it all over again

But I can't go back I know

Eddie Money — I Wanna Go Back

Right now, I don't want to see mortgage interest rates go higher. I plan to borrow heavily to buy as many cashflow-positive properties as I can get, and as long as interest rates are low, I hope to take advantage of them. However, the best thing for the housing market is not sustained low mortgage rates because those rates only benefit the few who qualify. We need lower prices, higher interest rates, and more people to qualify for mortgages.

Non-Prime Mortgages: Time to Lend Again?

By Jeff Corbett Oct 26th 2010

often hear people wonder aloud why banks won't loosen underwriting standards on home mortgages. I'm beginning to wonder the same thing. That's because I think it is time for lenders to start issuing mortgages to non-prime borrowers again, though not on the same shaky terms that triggered the housing crisis of 2008, of course.

I wondered why we don't relax lending standards for investors in Should Government Mortgage Subsidies Be Offered to Cashflow Investors? There are many good borrowers being denied credit right now because lenders are so afraid of certain loan products that even the small number of borrowers who can properly utilize certain loan products are being denied. However, the main reason banks won't loosen underwriting standards is because they really don't know which ones they can loosen and still get their loans repaid.

First, the reason why lenders are hesitant to relax loan requirements: The heart of the matter is: Mortgage rates and their profitability margins are so low, it just isn't worth the risk to lend to anyone who is anything but a AAA+ credit-worthy consumer.

Furthermore, it takes an implicit guarantee from Fannie Mae or Freddie Mac, on top of that sterling rating, to make mortgage lending even semi-palatable for a bank or investor.

The real problem with mortgage lending is super low interest rates made possible by government loan guarantees. It started when the Federal Reserve began buying down interest rates through purchase of GSE insured loans. When the program terminated in early 2009, there was great concern that interest rates would rise. After the Fed quit purchasing GSE MBS, purchase applications and home sales plummeted. As purchase applications fell, so did interest rates as the supply of money available for home mortgages exceeded demand.

Mortgage interest rates are at historic lows for those with good credit who are borrowing less than the conforming limit; however, for those outside of these parameters, either the interest rate is significantly higher, or credit is simply not available. The market would ordinarily react by pushing interest rates higher. If the yield does not match the risk — and the risk is much higher for non-insured loans — the yield must go up to attract capital. Higher yields mean higher interest rates.

For better or worse, the housing market is fueled by Wall Street's appetite for mortgage-backed securities. As mortgage rates continue to set historical lows, so do their profitability margins — as well as the profitability margins of the securities they reside in (that investors typically buy, sell and otherwise trade on).

Being that investors have no appetite for high-risk, low-yield investments, there's simply no money in mortgages right now. As a result there is very limited credit available in the marketplace, especially to non-prime borrowers.

This is not a problem limited to subprime borrowers. Anyone looking for a jumbo loan can expect to pay a much higher interest rate and be subject to very high qualification standards. Even then, these loans don't make much sense given the likelihood of declines at the high end.

This is in stark contrast to what was a high-risk, high-yield, credit free-for-all environment that was in place from 2002 until the housing market crash in late 2008.

So, it's been two years since the crash and the prevailing thought has become that: Interest rates must be kept low to keep consumers "incentivized" and "transacting." Unsustainable consumer incentives have run their course. A tax credit has been tried and proved expensively ineffective while interest rates have been kept artificially low for too long. These are strategies that treat the illness but do little toward finding a cure.

Our current policy of market manipulation to sustain inflated prices is the problem. Fix the Housing Market: Let Home Prices Fall.

Current mortgage rates for the most qualified consumers and properties are hovering around 3.99 percent for a 30-year-fixed and as low as 2.875 percent for the 5-year-fixed variety. Yet while mortgage rates are jaw-droppingly low, the housing market is no closer to snapping out of the protracted downward spiral it's been in for a couple years now. You can drop rates to .399 percent, but if only a tiny consumer pool qualifies for such, there isn't enough benefit to impact the market in a meaningful way.

Money needs to be thoughtfully brought back to non-agency mortgage-backed securities, which would require higher interest rates and the yields they offer investors. Huh? Yes, increasing interest rates and the yields that accompany them are required if we want to see credit flow back into the non-agency — that includes portfolio, jumbo, Alt-A and subprime loans — mortgage-bond markets. We need more liquidity and credit in the non-prime, non-agency mortgage pools if we want to pull out of the housing quagmire, because there's a huge pool of non-prime borrowers who can afford mortgages.

If prices were allowed to fall, and if mortgage interest rates were allowed to find a natural equilibrium, credit would be made available to more people. The problem right now is not interest rates, it is the number of qualified borrowers who can take advantage of them. The market manipulation has made mortgage debt inexpensive and affordable, but only for a small number of people.

It isn't a matter of simply lowering qualification standards and allowing more people to borrow at low interest rates. We must find a natural market where risk is tied to yield, then we will have credit being made available to a larger number of people albeit at much higher rates.

Something that gets lost when discussing borrower defaults and foreclosures is that people who were prime borrowers are defaulting just as readily as non-prime borrowers. At the same time, there is an abundance of non-prime borrowers making their mortgage payments in a timely fashion.

I've had the opportunity to personally review residential mortgage-backed securities and can attest that FICO scores and loan-to-value ratios are not the leading factors behind mortgage defaults. That's why I think it's time to bring back the non-prime borrower into the mortgage market.

So, how high do rates need to be? Likely 300 to 400 basis points (3 percent to 4 percent) higher than they are today.

Therein lies the reason why this doesn't happen. If interest rates were 300 to 400 basis points higher, affordability would decline about 50%, and prices would crumble. A natural rate of interest after a catastrophe like the housing bubble would be much higher than it is today. The housing bubble was caused by a mispricing of risk, and we are still doing it. Before it was questionable credit default swaps that allowed the market to misprice risk, now it is the backing of the US government that is doing the same. AIG went under because of the credit default swaps they issued. The US taxpayer will likely absorb huge losses because we are currently underwriting the entire housing market.

Interest rates of 6 percent to 7 percent on a fixed-rate mortgage are still cheap money, and there is a very large pool of consumers who could afford mortgages with rates in this range but who qualify for nothing under today's agency-backed underwriting guidelines. Get back to mitigating risk with price, but in a more responsible way.

Non-prime borrowers will call for different underwriting standards. I'm not talking about going back to the days of no income, no asset, no job requirements; I suggest going back to more logical and flexible underwriting criteria. A heavy emphasis must still be kept on the substantive components of mortgage qualification: Credit, income and assets.

These suggestions will ultimately come to pass, but it will be years before we have anything resembling a natural market for interest rates or home prices. For now, propping up prices with artificial interest rates created by government backing is the official policy, and as long as our banks teeter on the edge of insolvency, this policy will continue.

Despite the robo-signing paperwork mess, there will continue to be abundance of foreclosed inventory flowing into the market — that desperately needs buyers who desperately need credit — or the property will continue to rot a hole into the housing market and U.S. economy for many years to come.

We learned a lot from the housing boom and subsequent bust. No one is suggesting that we go back to the period of 2003 to 2007. Increased awareness and transparency on many levels likely will prevent that.

Actually, many have suggested that we return to the bubble ways. Many of our efforts to prop up the market are similar to what we did in the bubble. For example, loan modification programs are essentially Option ARMs. No amount of awareness and transparency is going to prevent a housing bubble.

I recommend that lenders increase rates and yields to match the risk of the underlying borrower and security. A bold move like that will get investor liquidity and credit flowing back into a market that is choking itself out.

I agree that we need to match yield to risk to better serve the housing market, but it isn't going to happen any time soon because in order to do what he suggests, house prices would need to fall another 30% while interest rates doubled. The bank losses and chaos that would create make it unpalatable to policy makers and, of course, the banks — if you can actually tell the difference between the two.

What passes for responsible mortgage management in Irvine

Most loan owners I profile in Irvine have more than doubled their mortgage. Almost all borrowers I see looking through the property records have added to their mortgage. It is a very rare case to find a homeowner who paid it down. What should be the norm — paying down a mortgage on a 30-year amortization schedule — is a rarity.

In the HELOC Abuse Grading System, I wrote this about Grade C HELOC abusers:

I hate to give borrowers in this category a "passing" grade, but this is the reality for most Americans. Growing credit card or mortgage debt slowly generally can be compensated for through home price appreciation, and although I consider this a bad idea, I can't really call it HELOC abuse, just foolish HELOC use. Is there a distinction there? I will let you decide.

Financial planners will tell you that most people fail to budget properly for unexpected expenses (they don't save), so when they fall behind a little each month, they put the balance on a credit card and hope they can pay it back with a tax return — or during the bubble with a visit to the housing ATM.

People are still going to manage their bills this way going forward, and there will be pressures to "liberate" this equity to pay for these expenses. The money changers will continue to peddle this nonsense as sophisticated financial management. It is a stupid way to manage debt, and I give it a C.

• The owners of today's featured property paid $192,000 on 6/17/1988. I don't have their original mortgage data, but they likely put 20% down.
• On 4/6/1998 they refinanced with a $191,000 first mortgage. Ten years after buying this property, the mortgage nearly equaled their purchase price.
• On 7/17/2000 they obtained a $37,000 HELOC.
• On 12/10/2003 they got a $50,000 HELOC.
• On 10/21/2004 they refinanced with a $215,000 first mortgage.
• On 5/31/2007 they opened a $150,000 HELOC.
• On 8/31/2009 they refinanced again with a $264,500 first mortgage.

After owning the house for 22 years, they should have it nearly paid off, but instead, they extracted $100,000 in equity and they have enlarged their mortgage considerably. They will still sell this home and make a significant profit — thanks to the housing bubble.

So what do you think? Is this a reasonable way for people to manage their mortgage debt? Are these people acting wisely and responsibly?

Irvine Home Address … 4471 WYNGATE Cir Irvine, CA 92604

Resale Home Price … $788,000

Home Purchase Price … $192,000

Home Purchase Date …. 6/17/1988

Net Gain (Loss) ………. $548,720

Percent Change ………. 285.8%

Annual Appreciation … 6.3%

Cost of Ownership

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$788,000 ………. Asking Price

$157,600 ………. 20% Down Conventional

4.23% …………… Mortgage Interest Rate

$630,400 ………. 30-Year Mortgage

$149,166 ………. Income Requirement

$3,094 ………. Monthly Mortgage Payment

$683 ………. Property Tax

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

$66 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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$3,842 ………. Monthly Cash Outlays

-$726 ………. Tax Savings (% of Interest and Property Tax)

-$872 ………. Equity Hidden in Payment

$239 ………. Lost Income to Down Payment (net of taxes)

$99 ………. Maintenance and Replacement Reserves

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$2,582 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$7,880 ………. Furnishing and Move In @1%

$7,880 ………. Closing Costs @1%

$6,304 ………… Interest Points @1% of Loan

$157,600 ………. Down Payment

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

$179,664 ………. Total Cash Costs

$39,500 ………… Emergency Cash Reserves

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

$219,164 ………. Total Savings Needed

Property Details for 4471 WYNGATE Cir Irvine, CA 92604

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Beds: 5

Baths: 3 baths

Home size: 2,694 sq ft

($293 / sq ft)

Lot Size: 5,000 sq ft

Year Built: 1970

Days on Market: 5

Listing Updated: 40473

MLS Number: S636555

Property Type: Single Family, Residential

Community: El Camino Real

Tract: Wl

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This is a custom home with light large open spaces. Custom wood work and hardwood flooring give the home a warm, friendly feeling. The windows are large and include operable skylights. This creates excellent cross ventilation. The home is located within walking distance to all schools. Irvine High School, Heritage Park, and Irvine public library are very close by. The home has three bedrooms downstairs and two upstairs, along with a large bonus room. The bonus room has a built-in Murphy bed. The three full bathrooms have been remodelled, and the master bathroom features a Jacuzzi tub. The upstairs bathroom is a Jack and Jill, opening to both bedrooms. There are two fireplaces. One is used brick in the living room. The other is in the master bedroom. Mature trees and landscaping make the exterior of the home lovely and relaxing. The home includes a gazebo in the backyard, which is included in the sale.

remodelled?

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter