Banks Forced to Repurchase Bad Bubble Loans

Banks are being forced to buy back the bad loans they originated and packaged into securities.

Irvine Home Address … 7 FOXCHASE Irvine, CA 92618

Resale Home Price …… $800,000

You took my money, you got my honey

Don't want me to see what you doing to me

I can get back, I gotta deal with you

hey! Gotta gotta pay back

Revenge!

I'm mad!

Got to get back!

Need some get back

Pay Back!

There it tis

Payback!

Revenge!

James Brown — Payback

Investors are suing banks to get some of their money back from the bad loans banks originated and investors purchased. IMO, the only real beneficiaries will be the attorneys.

Banks Pressed on Sour Home Loans

Investors in Pool of Securities Seek to Force Lenders to Buy Back or Modify Problem Mortgages

By CARRICK MOLLENKAMP — September 23, 2010

Big U.S. banks are facing legal pressure to make up for losses tied to pools of soured low-end mortgage loans.

In the latest effort, a group of investors in 2,300 mortgage securities worth roughly $500 billion is seeking to force several banks that originated or are now servicing faulty subprime-mortgage loans to repurchase or modify them.

I wonder who they are filing suit against. One of the brilliant aspects of subprime was that the major commercial banks and investment banks kept these operations at arms length as separate corporations. Once these corporations imploded, there was nowhere for investors to turn to get their money back. New Century Financial has guranteed billions on loans, but kept almost no capital in the company to cover them. This was common among subprime lenders. Their guarantee didn't mean much if they didn't have any capital to back it.

The move follows other similar efforts. Bond and mortgage insurers, hard hit in the housing crisis, have filed lawsuits accusing lenders and banks of sticking them with flawed loans marred by poor underwriting and faulty appraisals.

Federal Home Loan Banks in Pittsburgh, Seattle and San Francisco have sued Wall Street banks, seeking to force them to buy back mortgage-backed bonds. In July, the Federal Housing Finance Agency issued 64 subpoenas to obtain information about loans underpinning securities sold to mortgage giants Fannie Mae and Freddie Mac.

The banks and lenders are fighting these efforts, saying they aren't responsible for the housing crash.

And the outcome is far from certain and could depend on potentially contentious negotiations and litigation that could drag out for years.

Let the attorney feeding frenzy begin. The main parties who will be enriched by all this activity are the attorneys. Investors won't see much of their money, but the attorneys for both sides of these suits will make fortunes.

In any case, analysts say the efforts could force banks to disclose difficult-to-obtain information about the loans, such as how poorly they might have been originated or are being managed.

That data could be used to force banks to repurchase as much as $133 billion in souring home loans, according to Compass Point Research & Trading, a Washington, D.C., boutique investment bank.

The legal efforts focus on the contractual duties of lenders known as "representations and warranties," which can at times require them to repurchase loans or modify them so borrowers can keep paying monthly mortgage bills, which maintains value for mortgage securities tied to the loans.

One of the reasons loan modification programs have been difficult to implement is due to the huge number of loans placed into asset-backed securities and sold into collateralized debt obligations. The terms of these CDOs vary considerably, and many of them have no mechanism to modify loans because nobody anticipated the need.

The Trustees' Roles

At issue are the roles of trustees and loan servicers. Trustees are little-known administrators inside banks responsible for overseeing loan pools, or securitizations, on behalf of investors. Loan servicers handle day-to-day management of loans, including deciding how and whether to modify the terms of a loan. Both are charged with oversight of pools that hold thousands of loans.

If a trustee, for example, discovers that a borrower lied when getting a loan, the trustee or loan servicer is responsible for forcing the originating bank to repurchase the loan on behalf of mortgage investors. Trustees enforce warranties made by loan originators when they sell loans to a trust, and oversee loan-servicing firms.

[Franklin]

But some loan-servicing units reside inside the same banks that originated or underwrote the loans or securities. This sets up a potential conflict of interest because a loan-servicing arm would have to force another department or affiliate inside a bank to take back a problem loan.

I recently reported on the GSEs efforts to force servicers to process loans. The large commercial banks in particular have billions of dollars in second mortgages on their books, so they are delaying foreclosure as long as possible to try to obtain some value from their worthless second mortgages. This glaring conflict of interest has not gone unnoticed.

In a letter to the trust departments of several large banks, Talcott Franklin, a Dallas lawyer representing the investors holding 2,300 mortgage bonds, claims the loan-servicing units too infrequently modify poor-performing home loans underpinning mortgage securities or replace them with better loans.

"This is of great concern to the pension funds, bank and credit-union depositors, mutual fund holders, 401(k) holders, endowments, state and local governments and taxpayers who depend on the performance of these investments," the letter says.

U.S. Bancorp, Bank of America Corp., Bank of New York Mellon Corp., and Wells Fargo & Co. received the letter from Mr. Franklin, while Deutsche Bank AG didn't, according to people familiar with the situation. The banks either declined to comment or didn't return requests for comment on the letter.

In a statement, a spokeswoman for Wells Fargo said the bank has "an established track record of responding to all legitimate verified bondholder inquiries in a timely manner."

All the major banks are delaying foreclosure for their own selfish needs. The holders of the first mortgages are still in denial, and the servicers who hold the second mortgage are in no hurry to bring reality to the situation.

A key first step in the legal fights is obtaining the loan files that will detail how the loans were originated and what is being done now to salvage investors' money.

If the investor maneuver is successful in getting the loan information, "this will lead to similar actions taken by a larger set of bondholders," said Chris Gamaitoni, a Compass Point senior analyst. "We believe that once loan files are acquired, that the breaches of reps and warranties will be relatively clear."

In an Aug. 17 report, Compass Point said the litigation makes common claims: "A significant portion of the underlying loans failed to comply with the underwriting guidelines or other reps and warranties, and thus misrepresentations and material omissions were made in connection with the sale of" residential mortgage-bond securities.

Actually, I don't think they will find many of the underlying loans failed to meet the guidelines. There were no guidelines. Often the guidelines that were in place were so ridiculous that the investors deserved to lose money. Many of these CDOs stated on the first page the kind of crap that was inside them.

In recent weeks, some of the banks have begun early-stage talks with Mr. Franklin to provide data about the loans underpinning the securities, such as loan documents and how the loan has been serviced. Separately, Mr. Franklin hopes to persuade the trustees to take increased steps to deal with souring loans, such as forcing loan sellers to repurchase the loans or requiring loan servicers to improve loan servicing.

In the past, complaints by mortgage-security investors went unheeded. But because Mr. Franklin now represents enough investors to meet certain legal thresholds—he, for example, represents 50% or more of the voting rights of 900 mortgage securities—his clients could fire a trustee, demand changes in the way a mortgage bond is managed or ultimately file a suit on behalf of a huge group of bondholders.

In the letter, Mr. Franklin said that in some trusts where the lender and servicer sit inside the same bank, the number of recent repurchases by the lender is zero, even though the default rate for the loan pool is 25%.

Do you think the conflict of interest is causing problems? I think it is obvious.

'That's Just Not Right'

Some investors "had no idea that their money was being invested in mortgage-backed securities," said Mr. Franklin. "And yet somehow these people are now the ones being punished, and that's just not right."

If the investors had no idea their money was being invested in MBS pools, then those investors were idiots. Accredited and institutional investors don't have many rights of recourse against a properly administered investment that goes bad. Big investors are supposed to know what they are buying, and ignorance to the nature of the investment that has been properly disclosed does not give them cause of action.

To keep track of the securities his clients own and protect his clients' confidential holdings, Mr. Franklin uses a software system he designed with a college friend, who consults on how to design large databases. Mr. Franklin calls it the "Tranche" program, a reference to the French word for slice or layer. Mortgage securities are chopped into tranches based on risk and return.

His clients' information is coded and Mr. Franklin keeps a secret code book as a reference. Mr. Franklin said the system is important because it lets him know when his clients in a specific deal have amassed enough voting power.

In the other cases, bond insurer MBIA Inc. sued Credit Suisse Group in New York state court in December over a $900 million loan pool, a large portion of which MBIA agreed to cover. MBIA said it had relied on Credit Suisse to vet the quality of the loans.

In January, Ambac Assurance Corp., the bond-insurance unit of Ambac Financial Group Inc., sued a Credit Suisse unit in New York state court, alleging that it made "false and misleading" representations about home-equity lines of credit backing bonds that the insurer guaranteed in 2007.

A Credit Suisse spokesman said the claims are without merit and the bank will defend itself against the claims.

Since Credit Suisse had people like Ivy Zelman consulting for them (she originated the ARM reset chart), it seems likely that Credit Suisse properly disclosed the risks.

Separately, American International Group Inc. is analyzing mortgage deals it insured before it imploded in 2008. Chief Executive Robert Benmosche told investors in May that the company will take "appropriate action" if it finds it was harmed by the transactions.

Write to Carrick Mollenkamp at carrick.mollenkamp@wsj.com

No hurry. It's empty

When a property is sitting empty in a nice neighborhood, the banks have been in no hurry to foreclose. Today's featured property might as well be an REO. I don't know how they plan on getting the owners to negotiate a short sale when they aren't there anymore, but title is still in the name of the former residents, and this property is listed as a short sale. Realistically, this listing exists to get bids so the banks can determine market value so they can make a determination on a bid at auction. This property will almost certainly go to auction.

  • The property was purchased for $487,000 on 3/4/1999. The owners used a $389,300 first mortgage and a $97,700 down payment.

  • On 5/18/1999, they obtained a $41,000 second mortgage.

  • On 2/13/2001 they opened a $100,000 HELOC.

  • On 3/1/2002 they refinanced the first mortgage for $525,000.

  • On 11/1/2002 they obtained a stand-alone second for $50,000.

  • On 4/25/2003 they refinanced with a $535,000 first mortgage.

  • On 5/28/2004 they refinanced again with a $652,000 first mortgage.

  • On 4/29/2005 they obtained a $100,000 HELOC.

  • On 1/2/2007 they refinanced the first mortgage for $900,000.

  • Total mortgage equity withdrawal is $510,700. They are part of the elite equity-stripping HELOC abusers: the half million dollar club.

  • Total squatting time is about 198 months.

Foreclosure Record

Recording Date: 03/16/2010

Foreclosure Record

Recording Date: 08/31/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 05/26/2009

Document Type: Notice of Default

Will this happen again?

What do you think? Will people get the chance to strip $500,000 out of their walls again in the future?

Irvine Home Address … 7 FOXCHASE Irvine, CA 92618

Resale Home Price … $800,000

Home Purchase Price … $487,000

Home Purchase Date …. 3/4/1999

Net Gain (Loss) ………. $265,000

Percent Change ………. 54.4%

Annual Appreciation … 4.2%

Cost of Ownership

————————————————-

$800,000 ………. Asking Price

$160,000 ………. 20% Down Conventional

4.31% …………… Mortgage Interest Rate

$640,000 ………. 30-Year Mortgage

$152,884 ………. Income Requirement

$3,171 ………. Monthly Mortgage Payment

$693 ………. Property Tax

$250 ………. Special Taxes and Levies (Mello Roos)

$67 ………. Homeowners Insurance

$113 ………. Homeowners Association Fees

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

$4,294 ………. Monthly Cash Outlays

-$748 ………. Tax Savings (% of Interest and Property Tax)

-$872 ………. Equity Hidden in Payment

$250 ………. Lost Income to Down Payment (net of taxes)

$100 ………. Maintenance and Replacement Reserves

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

$3,023 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,000 ………. Furnishing and Move In @1%

$8,000 ………. Closing Costs @1%

$6,400 ………… Interest Points @1% of Loan

$160,000 ………. Down Payment

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

$182,400 ………. Total Cash Costs

$46,300 ………… Emergency Cash Reserves

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

$228,700 ………. Total Savings Needed

Property Details for 7 FOXCHASE Irvine, CA 92618

——————————————————————————

Beds: 4

Baths: 2 full 1 part baths

Home size: 3,238 sq ft

($247 / sq ft)

Lot Size: 4,431 sq ft

Year Built: 1998

Days on Market: 17

Listing Updated: 40431

MLS Number: L34073

Property Type: Single Family, Residential

Community: Oak Creek

Tract: Ashp

——————————————————————————

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

Beautiful 2 story home with 4 bedrooms and 3 baths.Corian counters in spacious Kitchen, Master Bath, and 1/2 bath. Custom closet in Master Bath. Wired for surround sound in Dining rm, Family room, outside and Master Bedroom. Wood Flooring downstairs and tile in upstairs bathrooms, laundry rm too. Epoxy garage floors. Schools, Oak Creek Elementary, Lakeside Middle School, Woodbridge High.This won't last, make an offer!

The Right to Rent Would Flatten the California Housing Market

A new bill circulating in Congress would encourage accelerated default on a grand scale and crush California's housing market.

Irvine Home Address … 247 ORANGE BLOSSOM Irvine, CA 92618

Resale Home Price …… $217,900

I haven't ever really found a place that I call home

I never stick around quite long enough to make it

It's just a thought, only a thought

But if my life is for rent and I don't learn to buy

Well I deserve nothing more than I get

Cos nothing I have is truly mine

Dido — Life For Rent

Dean Baker of the Center for Economic and Policy Research was one of the early public voices who called the housing bubble. He accurately noted the disparity between rent and payments and concluded housing prices were not sustainable. Like me, he was a renter looking to buy as prices were ramping up, and like me, he noted that since it didn't make sense for him personally to buy, it didn't make sense for anyone else either. Being an economist at an influential think tank, he was in a position to research and write about the issue and be heard.

I really like Mr. Baker's proposal, but I have been afraid to write about it because I don't think lawmakers fully understand what passing his legislation would do to the housing market. I would very much like to see it become law, but if it does, every inflated housing market in the country would crash very hard as loan owners accelerate their defaults. If lawmakers are educated to this fact by me or the banking lobby, they will not pass this good legislation. But I am only a blogger, so perhaps they will ignore me. Let's hope so.

Right to Rent could change the nation's foreclosure crisis: CEPR

by CHRISTINE RICCIARDI — Wednesday, September 22nd, 2010

In the wake of reform enacted to promote homeownership, analysts at the Center for Economic and Policy Research are saying that ownership may not be the smartest option. In a report released today, The Gains from Right to Rent in 2010, the CEPR suggests that giving homeowners the right to rent their house at a fair market price could be a game changer in the nation's foreclosure crisis.

The report dissects the benefits of a drafted bill, H.R. 5028, also known as The Right to Rent. Under the legislation, homeowners entering the foreclosure process would be able to occupy their homes for up to five years, while paying rent to a lender. Rent would be based on fair market price as determined by an independent appraiser and adjusted annually.

Think about the effect of this law from the perspective of an underwater homeowner making a payment that exceeds a comparable rental. Why would anyone in that position keep paying their mortgage if they knew they could default and stay in their home for five years? Further, wouldn't these owners also believe that they would be given a chance to repurchase the house after 5 years when their credit is improved? If this law is passed, every market inflated above rental parity would crash to that price level because of a rush of accelerated default.

"This would give homeowners an important degree of security, since they could not simply be thrown out on the streets," wrote Dean Baker and Hye Jin Rho, co-director of and research assistant at CEPR. "This policy should also benefit neighborhoods in the most hard-hit areas, since they would not have large numbers of vacant homes following foreclosures."

This policy probably would benefit the hardest hit areas because there would be less turnover of the housing stock. Riverside County would benefit greatly while Orange County would be crushed.

The CEPR report, which compares the costs of owning a home and renting in 16 major metropolitan statistical areas around the U.S., found that homeowners would see substantial reductions in costs by becoming renters if they rented in a bubble-inflated market. Savings are much less, however, if the market was not affected by the housing bubble.

For example, in the Los Angeles MSA, homeowners would save $1,586 per month by becoming a tenant. The median home price in 2006 and 2007 was $608,600. Based on that number, CEPR found the monthly cost of ownership as $3,128 versus $1,420 to rent.

New York/New Jersey, Sacramento, San Diego and San Francisco savings are all over $1,000.

The tremendous savings being touted here are real, and they represent a loan owner's incentive to accelerate their default. Most loan owners believe house prices will go back up and they will get appreciation and HELOC riches: they are making a strategic repayment. Once the incentives change, fewer will make the oversized payments. Instead of continuing to make a strategic repayment, most will opt to strategically default. It's only the false belief that their investment will yield results that keeps most of these people paying now.

In Detroit, however, the marginal saving is only $89 between owning and renting home. MSAs including Baltimore, Chicago, Cleveland, Minneapolis, Philadelphia, Phoenix, and Tucson had a difference of less than $500.

“With roughly one-in four mortgages underwater, the loan modification plans put forth so far have done little to help homeowners facing foreclosure,” said Baker. “Right to Rent, on the other hand, would benefit millions, provide families with real housing security, and could go into effect immediately.”

And it would lower house prices to rental parity.

And it could fill adequate demand. According to a survey done recently by Apartments.com, 60% of respondents said they prefer renting to buying a home. Almost 30% said they had never rented before but are currently looking for an apartment.

The CEPR report includes an appendix with cost analysis for 100 MSAs around the country. Amounts for houses are based on costs for a house that sells at 75% of the median house price. The basis for rental costs is the Department of Housing and Urban Development's Fair Market Rent for a two-bedroom apartment. The calculations used assume the homeowner faces a marginal tax rate of 15%. View the full report here.

Permanent Rental Parity

Despite the problems created with implementation of a right-to-rent law, the impact would be long lasting and very positive because most first mortgages would be limited to rental parity. Right now, the excess mortgage payment going to the bank represents money not being spent in the local economy. When a loan owner in California is paying a 50% DTI, very little is left over to stimulate the economy — and have a life. Without appreciation and HELOC abuse, high DTIs are detrimental to California, and a HELOC based economy is an unsustainable Ponzi Scheme.

Since the incentive to default exists for mortgage payments above rental parity, lenders will stop underwriting those loans. If you were a lender, and if you knew the borrower could default at any time and stay in the property for 5 years and only have to pay you rent, wouldn't you keep the payment at or below rental parity? A right to rent law would stabilize the housing market in a way no other government program has succeeded in doing. Unfortunately for lenders, the implementation of this law will take the remaining air out of the housing bubble.

I strongly support the idea of keeping house prices at rental parity because it discourages Ponzi living and puts the economy on a sustainable footing. I proposed a similar idea in The Great Housing Bubble:

There is one potential market-based solution that would require no government regulation or intervention that would prevent future bubbles from being created with borrowed capital: change the method of appraisal for residential real estate from valuations based exclusively on the comparative-sales approach to a valuation derived from the lesser of the income approach and the comparative-sales approach. Both approaches are already part of a standard appraisal, so little additional work is necessary–other than appraisers will have to focus on doing the income approach properly. In the current lending system, the income approach is widely ignored. … When the fallout from the Great Housing Bubble is evaluated, it is clear that the comparative-sales approach simply enables irrational exuberance because the past foolish behavior of buyers becomes the basis for future valuations allowing other buyers to continue bidding up prices with lender and investor money. Prices collapsed in the Great Housing Bubble because prices became greatly detached from their fundamental valuation of income and rent. This occurred because the comparative-sales approach enables prices to rise based on the irrational exuberance of buyers. If lenders would have limited their lending based on the income approach, and if they would not have loaned money beyond what the rental cashflow from the property could have produced, any price bubble would have to have been built with buyer equity, and lender and investor funds would not have been put at risk. There is no way to prevent future bubbles, and the commensurate imperilment of our financial system, as long as the comparative-sales approach is the exclusive basis of appraisals for residential real estate.

My approach was to change the appraisal system to limit loans to rental parity, but Dean Baker's idea of right to rent would have the same effect. If loans are limited to rental parity, so will house prices — unless we suddenly become a nation of savers and manage to inflate a bubble with equity…. not going to happen.

Sold to Countrywide at the peak

This wasn't really sold to Countrywide, but borrowing the full value had the same effect. The owners extracted every penny of equity, and Countrywide (B of A) will end up with another REO. In effect, they bought the property in mid 2007 but didn't know it.

  • This property was purchased on 10/23/1998 for $88,000. The owners used a $66,000 first mortgage, and a $22,000 down payment.

  • On 3/5/2003 they refinanced with a $150,000 first mortgage.

  • On 7/30/2007 they refinanced with a $296,000 first mortgage. These owners were not regular HELOC abusers, but they did manage to double their mortgage on two occasions.

  • Total mortgage equity withdrawal is $230,000. That is great for a 1 bedroom condo.

Foreclosure Record

Recording Date: 07/19/2010

Document Type: Notice of Default

Some might disagree with my giving them a "D" for mortgage management. With only two refinances, I think these people really believed they were living within their means and only spending part of their appreciation. It doesn't appear thoughtless or reckless — stupid, but not reckless.

Irvine Home Address … 247 ORANGE BLOSSOM Irvine, CA 92618

Resale Home Price … $217,900

Home Purchase Price … $88,000

Home Purchase Date …. 10/23/1998

Net Gain (Loss) ………. $116,826

Percent Change ………. 132.8%

Annual Appreciation … 7.8%

Cost of Ownership

————————————————-

$217,900 ………. Asking Price

$7,627 ………. 3.5% Down FHA Financing

4.31% …………… Mortgage Interest Rate

$210,274 ………. 30-Year Mortgage

$41,642 ………. Income Requirement

$1,042 ………. Monthly Mortgage Payment

$189 ………. Property Tax

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

$18 ………. Homeowners Insurance

$230 ………. Homeowners Association Fees

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

$1,479 ………. Monthly Cash Outlays

-$94 ………. Tax Savings (% of Interest and Property Tax)

-$287 ………. Equity Hidden in Payment

$12 ………. Lost Income to Down Payment (net of taxes)

$27 ………. Maintenance and Replacement Reserves

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

$1,137 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,179 ………. Furnishing and Move In @1%

$2,179 ………. Closing Costs @1%

$2,103 ………… Interest Points @1% of Loan

$7,627 ………. Down Payment

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

$14,087 ………. Total Cash Costs

$17,400 ………… Emergency Cash Reserves

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

$31,487 ………. Total Savings Needed

Property Details for 247 ORANGE BLOSSOM Irvine, CA 92618

——————————————————————————

Beds: 1

Baths: 1 bath

Home size: 814 sq ft

($268 / sq ft)

Lot Size: n/a

Year Built: 1976

Days on Market: 62

Listing Updated: 40419

MLS Number: I10079989

Property Type: Condominium, Residential

Community: Orangetree

Tract: Cpwas

———————————————————

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

Located in a desirable community. Just down the road from Irvine Spectrum, to UC Irvine and walking distance to Irvine Valley College. It is a one bedroom/one bath downstairs and a big loft upstairs. Kitchen have new granite countertop and tile floors. Bathroom have new tile floors as well. And have wood floors in other rooms. Amenities such as tennis courts, basketball court, swimming pool, childrens playground.

The realtor needs to work on subject-verb agreement and basic grammar.

Where the local renters are

IHB News 9-25-2010

Do you have a lot of money and no sense of cost? Today's featured property is for you….

Irvine Home Address … 44 BLUE HERON Irvine, CA 92603

Resale Home Price …… $18,950,000

We winnin, I push it very hard

We winnin, I climb a lot of mountains

We winnin, I ran a million yards

We winnin, but man who's counting

We winnin, it ain't about to slow down

We winnin, you're gonna have to catch me

Day 26 — Just Getting Started

IHB News

On my trip to Las Vegas last week, I put in a ridiculously low offer on an auction property and got it. It's always nice to start with a home run. I will devote a post to it as soon as I have it cleaned up and photographed.

For those considering investing in the fund or processing your paperwork, this does put an increased urgency on your part. When this house closes escrow (which will likely be at least 45 days from now if not weeks longer), the fund will permanently close to new investors.

Housing Bubble News from Patrick.net

Fri Sep 24 2010

Housing recovery a mirage, short housebuilders (finance.yahoo.com)

Housing market remains stagnant (concordmonitor.com)

15 Signs That Part Two Of Double Dip Has Begun (endoftheamericandream.com)

Squatters move into upscale neighborhoods (msnbc.msn.com)

Tighter Credit Has Upside: Fewer Bankruptcies (nytimes.com)

Comerica bank delaying deposits to generate fines? (slycapital.wordpress.com)

Janet Tavakoli on the "Myth of the Immoral Debtor"; Email from Charlie Munger student (Mish)

$160 billion in option ARM loans outstanding (doctorhousingbubble.com)

Warren Buffett: It's 'Common Sense,' 'We're Still In A Recession' (huffingtonpost.com)

Warren Buffett: Raise Taxes On The Rich, Already! (tpmdc.talkingpointsmemo.com)

Americans Vastly Underestimate Wealth Inequality (huffingtonpost.com)

Sue The Bailout-Sucking, Bonus-Paying Bastards! (dailybail.com)

Investors cheer indictment of L.A. real estate mogul (latimes.com)

Mortgage interest deduction has broad support among ignorant voters (thehill.com)

Volcker, smarter, Says Fixing Broken' Mortgage Market Should Be Priority (bloomberg.com)

Retirees Duped by Derivatives With Structured Notes Sale Surge (bloomberg.com)

Actuaries Insist We've Got to Retire Later (miller-mccune.com)

For Many, Health Care Relief Begins Today (nytimes.com)

Amid mountain of paperwork, shortcuts and forgeries mar foreclosure process (washingtonpost.com)

Fort Lauderdale man's paid-off house sold in foreclosure mistake (sun-sentinel.com)

Find cashflow-positive property easily. Free Trial

Thu Sep 23 2010

Housing isnt even close to stabilizing (marketwatch.com)

Foreclosures nearly 50% of Phoenix existing-house activity (nationalmortgageprofessional.com)

Foreclosure, REO sales account for 67% of Phoenix house buying (housingwire.com)

Houses Lost To Foreclosure Jump 25% (collectionscreditrisk.com)

County foreclosures increase (coloradoan.com)

Foreclosure – Top Ten Things NOT To Do (staugustine.com)

Shadow Inventory Signals Three Years of Falling Prices (irvinehousingblog.com)

Government tries to prevent falling prices, but prevents true price and growth (online.wsj.com)

Federal Reserve Destroying Your Savings For Your Own Good (finance.yahoo.com)

On the GMAC Foreclosure Stories (calculatedriskblog.com)

GMAC Spotlight on 'Robo-Signer' (online.wsj.com)

Ally Financial Robo-Signer may affect other mortgage companies (washingtonpost.com)

No. There's no life at MERS (stopforeclosurefraud.com)

Housing Kills Stock Rally (bloggingstocks.com)

More cracks in Toronto housing market (business.financialpost.com)

Reserve Bank of Australia plays down obvious housing bubble (businessspectator.com.au)

Housing bubble in Malaysia (mysinchew.com)

Third world America (macleans.ca)

The Most Affordable and Most Expensive Housing Markets (blogs.wsj.com)

Find cashflow-positive property easily. Free Trial

Wed Sep 22 2010

A Cool Summer for Housing (nytimes.com)

Foreclosures, repossessed houses still flood market (savannahnow.com)

Prices coming down faster in prime California cities (doctorhousingbubble.com)

Fannie and Freddie: guilty? (economist.com)

Wall Street's greatest heist: the Tarp (guardian.co.uk)

Berkshire Hathaway's Munger approves of bailouts for the rich, but not for you (Mish)

The Bush tax cuts: an entrepreneur's perspective (latimes.com)

IMF fears 'social explosion' from world jobs crisis (telegraph.co.uk)

Beijing will burst its own bubble (businessspectator.com.au)

Recession's over, economists say to a skeptical public (latimes.com)

Recession's end means relapse (marketwatch.com)

GMAC Mortgage Mishandled Affidavits on Foreclosures (bloomberg.com)

GMAC Halts Foreclosures in 23 States for Review (nytimes.com)

How Serious is the GMAC Problem? Pretty Serious and Not Just GMAC (nakedcapitalism.com)

What Obamacare Delivers, This Week (dvorak.org)

Patient Protection and Affordable Care Act (en.wikipedia.org)

New Features On Patrick.net (patrick.net)

Find cashflow-positive property easily. Free Trial

Tue Sep 21 2010

SF Bay Area House Sales Hit 18 Year Low (sfappeal.com)

More than half of Reno-area mortgages underwater (sfgate.com)

More foreclosures reason for fewer upside-down houses in Reno (rgj.com)

Good News: The Great Recession is Over; Bad News: It Doesn't Feel Like It (Mish)

Recession is over? Not for the housing market (money.cnn.com)

Latest prices, sales figures show that US real estate market stagnating (propertywire.com)

U.S. house prices will resume decline (mybudget360.com)

House Equity Lines of Credit, the Next Looming Disaster? (realestatechannel.com)

GMAC denies reports of foreclosure moratorium (marketwatch.com)

GMAC's Full Letter To Agents… Something Does Not Add Up (zerohedge.com)

GMAC and Foreclosure Fraud Mess: Shit Hitting Fan (nakedcapitalism.com)

Consumer debt decline because banks give up on collecting (contracostatimes.com)

US Government hiding true amount of debt (news.com.au)

Of Course We're Not Going To Pay Back The Chinese (dailybail.com)

How Will Foreclosures Play Out in Midterms Elections? (pbs.org)

House Bill Would Force Lenders to Decide on Short Sales in 45 Days (dsnews.com)

Walking away from mortgage gets easier when neighbors do it (tbo.com)

Their house was sold by mistake (mortgage.ocregister.com)

Now scavengers have started stealing bricks from houses (nytimes.com)

Wall Street Bankers and the Reptiles They Resemble (dailyfinance.com)

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Mon Sep 20 2010

The Bottom Is Still Years Away (dailyfinance.com)

Housing data not expected to sparkle (marketwatch.com)

Where's the Foreclosure Flood? (blogs.wsj.com)

More Delinquent Mortgages Entering Foreclosure Pipeline (realestatechannel.com)

Wells Fargo Dumping Title Risk of Forclosures on Hapless Buyers (nakedcapitalism.com)

Wells will dump soon (piggington.com)

Lowered price from $3.15 million to $2.6 million, to no avail (baycitizen.org)

Household Net Worth off $12.3 Trillion from Peak (calculatedriskblog.com)

State, Bay Area lose more jobs in August (contracostatimes.com)

Middle class bailed out banks, got nothing in return (Mish)

Middle class running as fast as it can (marketwatch.com)

The Tax-Cut Racket: Socialism For The Very Rich (nytimes.com)

The Secret Election (nytimes.com)

Some in China ready to drop US debt and pour money into own nation (dallasnews.com)

The American economy: The great debt drag (economist.com)

Defaults Account for Most of Pared Down Debt (blogs.wsj.com)

Wants government out of way to let housing market recover (newstimes.com)

Banks win delay over bid to raze abandoned condo complex (sun-sentinel.com)

Psychology of a housing market (thirdwavegroup.com.au)

Why housing bubbles aren't good for you (yourhome.ca)

Thank You Michael A. ($40) and SandF.net ($5) for your kind donations.

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Irvine Home Address … 44 BLUE HERON Irvine, CA 92603

Resale Home Price … $18,950,000

Home Purchase Price … $9,754,800

Home Purchase Date …. 4/8/2008

Net Gain (Loss) ………. $8,058,200

Percent Change ………. 82.6%

Annual Appreciation … 26.9%

Cost of Ownership

————————————————-

$18,950,000 ………. Asking Price

$3,790,000 ………. 20% Down Conventional

4.31% …………… Mortgage Interest Rate

$15,160,000 ………. 30-Year Mortgage

$3,621,450 ………. Income Requirement

$75,112 ………. Monthly Mortgage Payment

$16423 ………. Property Tax

$750 ………. Special Taxes and Levies (Mello Roos)

$1579 ………. Homeowners Insurance

$550 ………. Homeowners Association Fees

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

$94,414 ………. Monthly Cash Outlays

-$5604 ………. Tax Savings (% of Interest and Property Tax)

-$20662 ………. Equity Hidden in Payment

$5917 ………. Lost Income to Down Payment (net of taxes)

$2369 ………. Maintenance and Replacement Reserves

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

$76,433 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$189,500 ………. Furnishing and Move In @1%

$189,500 ………. Closing Costs @1%

$151,600 ………… Interest Points @1% of Loan

$3,790,000 ………. Down Payment

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

$4,320,600 ………. Total Cash Costs

$1,171,600 ………… Emergency Cash Reserves

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

$5,492,200 ………. Total Savings Needed

Property Details for 44 BLUE HERON Irvine, CA 92603

——————————————————————————

Beds: 5

Baths: 6 full 3 part baths

Home size: 13,500 sq ft

($1,404 / sq ft)

Lot Size: 40,208 sq ft

Year Built: 2006

Days on Market: 12

Listing Updated: 40444

MLS Number: U10004314

Property Type: Single Family, Residential

Community: Turtle Rock

Tract: Shdc

——————————————————————————

VILLA TRANQUILLO – Behind the gates of Shady Canyon, perched on a one acre site, sits this spectacular Tuscan inspired villa. As you enjoy the reflection of one's passion you will see work of the finest craftsmen teamed to turn design dreams into reality. The setting is exceptional. The eighty foot infinity pool, so married to the space that you would never know it is also a lap pool, presents a backdrop for tranquil vistas of rolling hills and open space which will never be developed. At night the majestic fifty foot cedar trees silhouette the sky as you enjoy the twinkle of distant lights and the quiet of low density living. The latest technology, teamed with a tasteful sense of design, brings old world charm to a new level – creating a feel throughout the home of utter comfort. From furnishings to artwork(included in the sale) a level of taste and sophistication rarely matched.

That is a very good description. There are just enough emotive words to make it interesting, but not so many as to be over the top and cheezy.

Squatting Among the Rich and Famous

The surprise news story of the housing bubble has been the resurgence of squatting. Banks allow it, so people begin to take advantage.

Irvine Home Address … 46 WHEELER Irvine, CA 92620

Resale Home Price …… $499,000

The way you hold your knife (do-do-do-do do-do).

The way we danced until three.

The way you've changed my life.

No, no – they can't take that away from me.

No, they can't take that away from me.

Frank Sinatra & Natalie Cole — They Can't Take That Away From Me

I recently wrote that squatting is becoming a way of life for many delinquent borrowers.

Of course, this doesn't meet the technical definition of squatting which is possession of real estate without the owner's permission. In this instance, the squatters are technically still the owners of property, so there is nothing illegal going on, but these owners are generally hopelessly underwater and failing to make their mortgage payments. They are in possession of real estate that can be called to auction at the discretion of their lender at any time. Ultimately, they will lose their homes.

Today, we are going to look at other forms of squatting from the traditional adverse possession to the return of former owners who couldn't leave their entitlements behind.

Squatters moving into upscale neighborhoods

With thousands of mansions vacant, some see easy pickings

By Bill Briggs

msnbc.com contributor

updated 9/23/2010

On the big screen, actor Randy Quaid may be best known for his mooching, move-in-and-never-leave character “Cousin Eddie” from National Lampoon's "Vacation” films. Last weekend, he allegedly followed his own Hollywood script.

Quaid and his wife, Evi, were arrested Saturday after they were found living in a guest house on a million-dollar, Montecito, Calif., property Quaid once owned. While Quaid claims his name remains on the deed, the actor and his wife were jailed until they were able to post $10,000 bail.

For those of you who don't read the gossip on TMZ, here is a recap of this bizarre story:

Randy Quaid and Wife Arrested for Burglary

The Quaids — Fifty Percent Punished

Randy & Evi Quaid — Pretty in Pink Handcuffs

Quaids Show Up to Court, Plead Not Guilty

Quaid is hardly alone in his distinctly post-bubble legal trouble. Such high-end "mansion squatting" has becoming an increasingly visible irritant in or near Seattle, St. Louis, Chicago and Los Angeles and probably elsewhere, industry experts say.

And the trend appears to be growing, as the housing bust means thousands of mansions around the country are languishing on the market, often under the control of banks that have foreclosed on them.

“It’s immoral but I do understand, logically, how people get this idea in their heads,” said Tara-Nicholle Nelson, a former Bay Area broker agent and now a consumer educator for the real estate website Trulia.com. “I also think this happens a lot more than we know.”

Yes, it is very easy to understand how this idea gets into everyone's mind: it's because they all see their neighbors doing it. Ask yourself, in your circle of friends and acquaintances, how many people do you know that are not paying a mortgage and living in a property that has no equity? How is that different from squatting? It is because their name is on title? What is title without equity? A lease… except that even a lease requires payment.

Luxury homes that are for sale or foreclosed are often unoccupied and under the care of asset managers who typically may be responsible for a lengthy list of idle properties. Many mansions are isolated, walled, cloaked by trees or otherwise hard for passersby to see.

“Squatters realize these places may not get showing for months at a time,” said Nelson. “That’s what makes these properties more of a target.”

Better the squatter you know than the one you don't? That seems to be the reasoning of banks these days.

Before the recession, squatters were known to slip into average- or bargain-priced homes for short, secret stays. In Oakland, Nelson recalls escorting clients to available, empty properties during which “you walk in and there’s like a shaving kit and mattress on the floor, and you go in the next room and find somebody there.

“Traditionally, this has been something you see more in low-end neighborhoods where there are more people around, where more people need a place, and perhaps where police have higher priorities than checking on a pushed-in door or broken window," said Nelson, who has written about the trend for WalletPop.com, a personal finance news site.

The sad truth is that squatters like that often live in squalor and are frequently the victims of crime.

But squatters have moved into nicer neighborhoods now. Realtor Adam Kruse discovered last February that his company-hired house cleaner was living it up – and sleeping over – at a $2 million, 10,000-square-foot home he had listed in St. Louis. The mansion, owned by an out-of-town seller, was nestled near a golf course and boasted large swaths of open space, a media room and “a gorgeous kitchen (with) really just bedrooms, bathrooms galore,” said Kruse, who works with the Hermann London Group.

I guess local realtors aren't the only ones stuck on the word "gorgeous."

You have to admire a squatter who has the nerve to squat in a multi-million dollar mansion.

After tidying up the place, the house cleaner “started having friends over, too, and drinking and partying and staying there … for days at a time,” Kruse said. The squatting went on for about three months until the cleaner – or one of her “guests” – accidently got locked out.

“We found a broken window by the front door and are to believe that at some point the squatters … needed to break in to get back in,” Kruse said. “We just saw party scenes – remnants that looked very similar to beer pong games.”

The cleaner was fired and no criminal charges were brought against her. The house is no longer on the market.

Upscale squatters have been nabbed in at least three other cities:

  • In Sugar Grove, Ill., a suburb west of Chicago, cops arrested 42-year-old Steven Hawthorne in April 2009 after he moved his furniture and big-screen TV into a vacant, $700,000 foreclosed home. He introduced himself to neighbors as the new owner and stayed for about eight months. Hawthorne, who also managed to have the power, gas and water turned on at the dwelling, was eventually charged by authorities with two felonies, including theft of government property (the utilities).

  • In Malibu, Calif., Wells Fargo executive Cheronda Guyton occasionally occupied a $14.9 million beach house to host swanky social gatherings, according to newspaper reports. One catch: the property’s former owners had lost the home to foreclosure after they were victimized by Bernie Madoff – and the estate was claimed by their bank – that’s right, Wells Fargo. When residents within the gated community glimpsed the parties, they got Guyton’s name from security guards and turned her in. Wells Fargo fired Guyton in September 2009.

  • In the Seattle suburbs, a small group – nicknamed the “Mansion Squatters” – has taken a more creative approach. In June, one of its members, Jill E. Lane, 30, moved into a foreclosed and vacant 8,000-square-foot-home in Kirkland, Wash. valued at $3.3 million. She posted a note on the front door that read: “Privately owned property. Not for sale."

The home takeover attempt also involved James McClung, a former real-estate agent and owner of a business called NW Note Elimination. He reportedly runs that business with Lane. Police soon arrested Lane on a criminal trespass charge.

Lane told the Seattle Times that her squatting was part of a protest movement: “Banks do whatever they want and nobody holds them accountable. It makes me ill to see what the banks are doing. They aren't using their bailout money to help anyone. So I'm standing up for the people who are being brutalized by banks every day."

Ordinarily, I would cheer her on for having such a great attitude. Unfortunately, everything she said is complete and utter bullshit.

In August, McLung apparently tried to stake claims to three more Seattle-area mansions, including a $2.2 million home in Bellevue. He posted similar notes on the doors of all three homes, according to the Seattle Times. Mark von der Burg, real estate agent for both the $3.3 million Kirkland property and for the Bellevue luxury home, did not return several phone messages seeking an interview.

I'll bet he didn't return the phone call. What would he say? He was either complicit in the scheme, or so totally disengaged from his job that he should hide his face in shame.

According to media reports, Lane’s short stay in Kirkland cost von der Burg’s client, a bank, $35,000 in legal fees and locksmith bills as well as increased security and cleaning.

Nelson said the targeted homes in the Seattle area were all owned by failed banks.

The squatters apparently believe "they’re going to come into this gap between ownerships and somehow trick someone into believing they now own this place for real — which is absurd," Nelson said. "Even if the (original) bank fails, somebody owns those assets.”

In St. Louis, Kruse can see why desperate people in some cities are making a bid for a taste of the good life – albeit a temporary one.

“People are seeing all the negative news (about the housing market) and just deciding to be more gutsy and stay in riskier places,” Kruse said. “With all the vacant homes, (they figure) their chances aren’t that bad.”

Isn't squatting just another manifestation of entitlement? The people living in houses they are not paying for are doing so because they believe life owes them something. It doesn't matter to these people that others who actually pay their bills live with less as long as they get what they deserve. The housing bubble has changed both the rich and famous and the ordinary and anonymous and made them into something less.

Squatting among the not so rich and famous

Thanks to the IHB, Irvine has become known as a HELOC abuser's and squatter's paradise. The residents here are generally not as well known, but their ongoing occupation of property they do not own and do not pay for is just as infamous. The owner of today's featured property got a great free ride.

  • This property was purchased on 8/21/1998 for $341,000. The owners used a $272,800 first mortgage, a $34,100 second mortgage, and a $34,100 down payment.

  • On 3/4/2003 they refinanced the first mortgage for $280,500.

  • On 11/10/2003 they opened a $200,000 HELOC.

  • On 9/15/2006 they went Ponzi and refinanced the first mortgage for $637,500.

  • Total mortgage equity withdrawal is $330,600

  • Total squatting time is about 16 months so far.

Foreclosure Record

Recording Date: 06/10/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 03/05/2010

Document Type: Notice of Default

Foreclosure Record

Recording Date: 07/29/2009

Document Type: Notice of Default

When you see the asking price history, you sense a bit of panic at the bank. Perhaps they were not getting the short sale offers they wanted.

Date Event Price
Sep 20, 2010 Price Changed $499,000
Sep 13, 2010 Price Changed $654,900
Aug 31, 2010 Price Changed $670,000
Aug 27, 2010 Price Changed $679,900
Aug 22, 2010 Relisted —
Aug 03, 2010 Relisted —
Jul 27, 2010 Delisted —
Jul 02, 2010 Price Changed $690,000
Jul 02, 2010 Relisted —
Jun 08, 2010 Delisted —
May 14, 2010 Listed $680,000
Aug 21, 1998 Sold (Public Records) $341,000

The extremes realtors go to attract attention is getting ridiculous. This house will not transact at $499,000. The realtor is playing a game to try to get some bidders into the process with hopes of duping them into bidding higher.

Irvine Home Address … 46 WHEELER Irvine, CA 92620

Resale Home Price … $499,000

Home Purchase Price … $341,000

Home Purchase Date …. 8/21/1998

Net Gain (Loss) ………. $128,060

Percent Change ………. 37.6%

Annual Appreciation … 3.0%

Cost of Ownership

————————————————-

$499,000 ………. Asking Price

$17,465 ………. 3.5% Down FHA Financing

4.31% …………… Mortgage Interest Rate

$481,535 ………. 30-Year Mortgage

$95,362 ………. Income Requirement

$2,386 ………. Monthly Mortgage Payment

$432 ………. Property Tax

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

$42 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$2,860 ………. Monthly Cash Outlays

-$378 ………. Tax Savings (% of Interest and Property Tax)

-$656 ………. Equity Hidden in Payment

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

$62 ………. Maintenance and Replacement Reserves

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

$1,915 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,990 ………. Furnishing and Move In @1%

$4,990 ………. Closing Costs @1%

$4,815 ………… Interest Points @1% of Loan

$17,465 ………. Down Payment

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

$32,260 ………. Total Cash Costs

$29,300 ………… Emergency Cash Reserves

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

$61,560 ………. Total Savings Needed

Property Details for 46 WHEELER Irvine, CA 92620

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 2,211 sq ft

($226 / sq ft)

Lot Size: 5,000 sq ft

Year Built: 1985

Days on Market: 136

Listing Updated: 40441

MLS Number: S617205

Property Type: Single Family, Residential

Community: Northwood

Tract: Gr

——————————————————————————

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

Beautiful Lite and Bright 3 Bedroom Home. Breakfast nook in kitchen, formal dining room, large master suite with walk in closet, inside laundry, new flooring. Close To Award Winning Irvine Schools. No Mello-roos, No Association Dues. Offers will be accepted at OPEN HOUSE ONLY Sat. Sept. 25 from 12-3 Home will be sold to the highest & best offer on Saturday.

Do any of you believe this home will be sold to the highest and best offer on Saturday? I hope none of you are that gullible.

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