Government Robs Working Renters to Subsidize Unemployed Homedebtors

The government has rolled out another program to give money to the banks by sending it through unemployed homedebtors.

Irvine Home Address … 304 ORANGE BLOSSOM 159 Irvine, CA 92618

Resale Home Price …… $297,700

Well I guess it ain't easy doing nothing at all oh yeah

But hey man free rides just don't come along every day

She sits on her ass

He works his hands to the bone

To give her money every payday

But she wants more dinero just to stay at home

Well my friend

You gotta say:

"I won't pay, I won't pay ya, no way

Na-na Why don't you get a job"

Say "no way", say "no way ya, no way

Na-na Why don't you get a job"

Offspring — Why Don't You Get a Job

With election season gearing up, politicians are seeing what voter groups they can buy off. Apparently, the unemployed homedebtors are a significant voter block this time around.

U.S. Plans More Aid for Jobless Homeowners

By DAVID STREITFELD

Published: August 11, 2010

In an acknowledgment that the foreclosure crisis is far from over, the Obama administration on Wednesday pumped $3 billion into programs intended to stop the unemployed from losing their homes.

So what has he done to provide aid to unemployed renters?

Unemployed loan owners already get to squat in relative comfort, eat three meals a day, and surround themselves with creature comforts whereas renters double up with friends or sleep in their cars. Yet, despite this obvious unfairness and disparity of benefits, the government sees fit to provide even more aid to homedebtors while unemployed renters get to sleep in shelters.

And how about you working renters who are continuing to subsidize these people squatting in homes that should be yours. As a working renter waiting for house prices to drop, you are paying the bills of the squatters living in what should be your home. How do you feel about that?

The housing market, which usually helps lead the country out of a recession, is this time helping hold the recovery back. Interest rates are at record lows, but too few can afford to buy or refinance. Unemployed homeowners who live in communities where values have fallen sharply are often unable to sell. Their foreclosures weaken neighborhoods and create a vicious circle by further undermining the market.

Did you notice the subtle emotional lie perpetrated in the sentence above? Foreclosures do not weaken neighborhoods. As written, the sentence conjures up images of slums and shantytowns. The truth is that foreclosures lower prices in neighborhoods, but then employed renters move in and buy these houses and strengthen the neighborhood. Lower prices makes existing homedebtors unhappy because their dreams of home equity wealth are revealed as sad fantasies. Loan owners who surrender their dreams of HELOC riches do not weaken neighborhoods. If anything, making people focus on adding value and working for a living will strengthen neighborhoods.

To try to break this pattern, the Treasury Department said it was adding $2 billion to its Hardest Hit Fund, roughly doubling its size. The fund, first announced by President Obama in February and expanded in March, goes to housing finance agencies in various states to create local aid programs.

Most of the state programs from the first two rounds are barely under way, but Treasury officials said it was clear that more funds were needed.

What they are really saying is that we have not been able to funnel this money to banks fast enough to repair their broken balance sheets. Nobody in the Treasury Department cares about homedebtors staying in their houses, their only concern is for the solvency and profits of lenders.

“In this very deep recession, people have tended to be out of work a little longer,” Herbert M. Allison Jr., assistant secretary for financial stability, said. “That’s why we think this additional relief for people searching for a job is so important.”

So do people submit paperwork and reports detailing their job search efforts in order to get this money? They make stealing from working renters and giving the money to the banks of unemployed loan owners sound noble.

The second program, announced by the Department of Housing and Urban Development, will draw on $1 billion authorized by the new financial overhaul law.

The agency said it would work with local aid groups to offer bridge loans of up to $50,000 to eligible borrowers to help them pay their mortgage principal, interest, insurance and taxes for up to 24 months. The loans will be interest-free.

Free money that can only be given to the banks. Unbelievable….

Somebody explain to me why this program is needed. With the HAMP program, borrowers can lower their interest rate to 2% and defer missed payments and interest by adding to principal like an Option ARM. Is this program intended to squeeze a few more payments out of those who are so hopeless that they can't make their payments under HAMP? If so, this is nothing more than a bridge for lenders to get 24 months worth of payments from the government from borrowers who have no chance of sustaining ownership. In short, it is theft by the banks.

Until now, the Hardest Hit Fund had been projected to help about 140,000 borrowers. Treasury officials said that number would grow with the new infusion of money, but offered no estimate. HUD also did not say how many homeowners would be eligible for its program.

If the new money is spent in the same way as the previous money, both programs would eventually aid about 400,000 borrowers — a large number, but not when set against the 14.6 million unemployed or three million contemplating foreclosure.

So there are 14.6 million unemployed and 3 million facing foreclosure. The government is flying the bird at the 11.6 million unemployed renters and homeowners not facing foreclosure.

Over the last two years, the government has deployed many programs to help housing. It pushed interest rates down, offered tax credits and set up an ambitious mortgage modification program. Yet housing remains feeble and seems poised after a brief respite this year to become weaker again.

“I think all these government programs are helpful, but I wouldn’t look for them to cure the recession or even what ails housing,” said the economist Karl E. Case. “At best, they’re preventing things from getting much worse.”

At best they are delaying the inevitable and finding new and innovative way to give tax dollars to banks.

The Hardest Hit Fund will draw on the $45.6 billion set aside for housing in the Troubled Asset Relief Program, the rescue measure begun at the height of the financial crisis in the fall of 2008. Initially, the fund gave $1.5 billion to five hard-hit states: Arizona, California, Florida, Michigan and Nevada. The second round in March of $600 million went to North Carolina, Ohio, Oregon, Rhode Island and South Carolina.

The expanded list of states eligible for the latest funding includes Alabama, Illinois, Kentucky, Mississippi and New Jersey, as well as the District of Columbia. Each state’s share of the money is based on its population.

Many of the programs involve direct assistance. Ohio, for instance, said it would use its $172 million to aid 15,356 homeowners by helping bring delinquent mortgages current for owners experiencing hardship because of a loss of income. The assistance will last up to 12 months.

The other housing money in the Troubled Asset Relief Program is earmarked for the modification programs ($30.6 billion) and a Federal Housing Administration refinancing program ($11 billion). The administration can shift money between the programs only until Oct. 3, the two-year anniversary of the program.

HUD said it was in the process of determining which communities would receive its money and how exactly the process would work. “We’re still in the design phase,” said Bill Apgar, HUD senior adviser for mortgage finance.

I am appalled by the way our government steals from us to pay for the mistakes of lenders and loan owners. Renters don't speak with a coherent political voice, and responsible homeowners are torn between wanting to see their illusory house prices maintained and not wanting to subsidize the bad behavior of irresponsible borrowers. The result is political inaction to stop the government theft.

Government officials dress up their theft with emotional bullshit about helping homeowners when in reality they are merely helping banks get a few more payments from the hopelessly overextended who are about to become renters again. This does nothing for neighborhoods nor for the borrowers themselves. This policy merely gives money to banks to encourage more bad behavior in the future.

Single women loved condos

Single women got involved in real estate in unprecedented numbers during the housing bubble. And why not? It was easier than applying for another credit card, there was more free money available, and most believed they would never have to pay it back. It really was the best of all possible worlds. Too bad reality doesn't work that way.

The buyer of today's featured property paid $243,000 on 8/15/2003. She used a $194,400 first mortgage and a $48,600 down payment. Not wanting to miss the gravy train leaving the station, she borrowed $360,000 on 8/24/2007 and withdrew her down payment plus $117,000 in spending money. Then she gave it back to the bank.

Foreclosure Record

Recording Date: 01/29/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/29/2009

Document Type: Notice of Default

Foreclosure Record

Recording Date: 05/28/2009

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 03/31/2009

Document Type: Notice of Default

She got to squat for about 18 months before it was purchased at auction for $243,000 on 6/3/2010. The flipper put down some pergraniteel and is trying for a 20% margin. With the recent softness in the market, I doubt they get it.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 304 ORANGE BLOSSOM 159 Irvine, CA 92618

Resale Home Price … $297,700

Home Purchase Price … $234,000

Home Purchase Date …. 6/3/2010

Net Gain (Loss) ………. $45,838

Percent Change ………. 19.6%

Annual Appreciation … 100.3%

Cost of Ownership

————————————————-

$297,700 ………. Asking Price

$10,420 ………. 3.5% Down FHA Financing

4.51% …………… Mortgage Interest Rate

$287,281 ………. 30-Year Mortgage

$58,249 ………. Income Requirement

$1,457 ………. Monthly Mortgage Payment

$258 ………. Property Tax

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

$25 ………. Homeowners Insurance

$250 ………. Homeowners Association Fees

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

$1,990 ………. Monthly Cash Outlays

-$134 ………. Tax Savings (% of Interest and Property Tax)

-$378 ………. Equity Hidden in Payment

$17 ………. Lost Income to Down Payment (net of taxes)

$37 ………. Maintenance and Replacement Reserves

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

$1,533 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,977 ………. Furnishing and Move In @1%

$2,977 ………. Closing Costs @1%

$2,873 ………… Interest Points @1% of Loan

$10,420 ………. Down Payment

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

$19,246 ………. Total Cash Costs

$23,500 ………… Emergency Cash Reserves

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

$42,746 ………. Total Savings Needed

Property Details for 304 ORANGE BLOSSOM 159 Irvine, CA 92618

——————————————————————————

Beds: 2

Baths: 1 bath

Home size: 864 sq ft

($345 / sq ft)

Lot Size: n/a

Year Built: 1977

Days on Market: 35

Listing Updated: 40387

MLS Number: P742736

Property Type: Condominium, Townhouse, Residential

Community: Orangetree

Tract: Cm

——————————————————————————

***PRICE JUST REDUCED!!!*** A True Turnkey Property with An Incredibly Open And Spacious Floor Plan Boasting High Ceilings, New Paint, New Carpet, CROWN MOLDING thoughout, HIGH END STAINLESS STEEL Kitchen Appliances, and GRANITE Countertops in Kitchen!!! Inside LAUNDRY & Updated BATHROOMS with GRANITE COUNTERS!!! Situated In A Quiet Location Of A Very Desireable Complex Located In The Heart Of Irvine. Close to Restaurants, Theater, Schools And Shopping. Enjoy the Pool, Basketball Court, Tennis Courts and Children's Play Areas on the Condominium Grounds!!! Perfect for First Time Home Buyers & Investors!!!

thoughout? Desireable?

The description is painful. It starts with asterisks and three exclamation points, then it lapses into Title Case with occasional ALL CAPS randomly thrown in for good measure.

A special thanks to Calculated Risk:

Foolish Bankers Surprised: Borrowers Never Intended to Repay Their Loans

Borrowers no longer view debt as something to be paid off. We have entered the Ponzi era where borrowers inflate asset prices with perpetually serviced debt.

Irvine Home Address … 19 HAZELNUT Irvine, CA 92614

Resale Home Price …… $695,500

Some people ain't no damn good

You can't trust 'em you can't love 'em

No good deed goes unpunished

And I don't mind bein' their whippin' boy

I've had that pleasure for years and years

No no I never was a sinner–tell me what else can I do

Second best is what you get 'til you learn to bend the rules

And time respects no person–what you lift up must fall

They're waiting outside to claim my tumblin' walls

John Mellencamp — Crumblin' Down

Some people ain't no damn good. You're going to meet some of them in today's post. For those of us who didn't participate in the housing bubble, no good deed goes unpunished. I have been the whippin' boy for kool aid intoxicated fools who can't deal with the inconvenient truths I display on a daily basis. I've had that pleasure for years and years. Second best is all we seem to get by playing by the rules. Irresponsible homedebtors get loan modifications, no-interest loans, and principal forgiveness, and we have to pay for it! And the irresponsible get to walk away from their debts with no repercussions, and many don't think they did anything wrong. They're victims of circumstance so they say. Everyone else did it, so it must be okay.

I say screw them. Get the lazy squatters the hell out of our houses! What the lenders lifted up must fall. We are all waiting outside to claim their tumblin' walls.

Debts Rise, and Go Unpaid, as Bust Erodes Home Equity

By DAVID STREITFELD

Published: August 11, 2010

PHOENIX — During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

There is a pathology at work here that lenders don't recognize: borrowers never intended to pay that money back.

Once people accepted that house prices would always go up, they didn't need to worry about increasing their mortgage. As long as house prices go up, if the payments become too much to handle, they could just sell the house and let someone else pay off the debt — either that, or they could just borrow more money to make the payments. In either case, the borrowers were running a Ponzi Scheme. Every serial refinancer was a mini Bernie Madoff.

The road to hell is paved with good intentions, and strictly speaking, the borrowers intended to repay. When they sold the house, borrowers accepted the idea that the lender would take a portion of their appreciation to satisfy the debt. Borrowers were okay with sharing the profits, but if prices depreciated and if the borrower might have to come out-of-pocket to pay back the loan, well… that was never part of the deal. Besides, they couldn't pay back such a large sum even if they tried. Banks should have known this.

People who borrow money they have no intention to repay or no ability to repay are stealing. Unfortunately, the morality of this isn't quite so black and white. We have had many discussions about the morality of strategic accelerated default and the relative culpability of lenders and borrowers. Whatever the moral and ethical implications, lenders must deal with borrowers who will not pay back loans if prices go down. This is a new fact of life for lenders they must adjust to. Perhaps it will make them pause before inflating the next housing bubble, but as long as the US taxpayer is liable for their loses, lenders really don't care.

The delinquency rate on home equity loans is higher than all other types of consumer loans, including auto loans, boat loans, personal loans and even bank cards like Visa and MasterCard, according to the American Bankers Association.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

This is not a paradox. This is the obvious and predictable result of the deflation of the housing bubble. When lenders provide borrowers with money they can't or won't pay back, the more lenders loan, the less likely they are to get paid back. The only apparent contradiction here is that lenders didn't realize that the people they were loaning money to would behave this way. And that merely emphasizes how incredibly stupid lenders are.

“When houses were doubling in value, mom and pop making $80,000 a year were taking out $300,000 home equity loans for new cars and boats,” said Christopher A. Combs, a real estate lawyer here, where the problem is especially pronounced. “Their chances are pretty good of walking away and not having the bank collect.”

Lenders wrote off as uncollectible $11.1 billion in home equity loans and $19.9 billion in home equity lines of credit in 2009, more than they wrote off on primary mortgages, government data shows. So far this year, the trend is the same, with combined write-offs of $7.88 billion in the first quarter.

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. “People got 90 cents for free,” Mr. Combs said. “It rewards immorality, to some extent.”

To some extent? LOL!

If banks give out free money, everyone will want it. This entire fiasco has made sure moral hazard is deeply embedded into the belief systems of every borrower in America. How many people buying real estate in California are doing so because they believe prices have bottomed and that lenders are going to be giving out free-money HELOCs soon? Realistically, it is more than half. Kool aid intoxication has not gone away, it has gotten worse.

Utah Loan Servicing is a debt collector that buys home equity loans from lenders. Clark Terry, the chief executive, says he does not pay more than $500 for a loan, regardless of how big it is.

“Anything over $15,000 to $20,000 is not collectible,” Mr. Terry said. “Americans seem to believe that anything they can get away with is O.K.”

It is zombie debt collectors like Mr. Terry that will make life hell for those attempting to walk away from HELOCs. Go get 'em Clark!

But the borrowers argue that they are simply rebuilding their ravaged lives. Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government.

Let's stop for a moment and shed a tear for the victims… You know, those HELOC abusers who pulled half a million bucks out of the wall and bought new cars and took fancy vacations while the prudent went to work and paid taxes to eventually bail them out.

Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.

They should declare bankruptcy. There is nothing wrong with that. The system was designed to provide a mechanism for those who need to wipe the slate clean and start over. Anyone who defaulted on their loans should declare bankruptcy and be done with it. Hoping the problem will go away on its own will hurt them more in the end.

“I am not going to be a slave to the bank,” said Shawn Schlegel, a real estate agent who is in default on a $94,873 home equity loan. His lender obtained a court order garnishing his wages, but that was 18 months ago. Mr. Schlegel, 38, has not heard from the lender since. “The case is sitting stagnant,” he said. “Maybe it will just go away.”

Mr. Schlegel’s tale is similar to many others who got caught up in the boom: He came to Arizona in 2003 and quickly accumulated three houses and some land. Each deal financed the next. “I was taught in real estate that you use your leverage to grow. I never dreamed the properties would go from $265,000 to $65,000.”

I guess my real estate education must have been a bit better than his. When I studied real estate economics, the professors always emphasized the prudent use of debt to maintain positive cashflow. Borrowing past the breakeven point is guaranteed to destroy your investment. At some point during the bubble, borrowers unlearned this simple truth about debt, and they sought to maximize their borrowing to acquire as many homes as possible even if the cashflow was negative. At that point, the entire market became a Ponzi Scheme waiting to implode.

Apparently neither did one of his lenders, the Desert Schools Federal Credit Union, which gave him a home equity loan secured by, the contract states, the “security interest in your dwelling or other real property.”

Look at this guys attitude. He clearly feels no responsibility whatsoever for the losses, and he really believes he is going to escape with no further damage. If he had any brains at all, he would declare bankruptcy now and start over. If he doesn't, the lender — or the zombie debt collector who buys his loans — is going to come take whatever he has. All these people who are walking away from recourse debt will be contacted by debt collectors once they start acquiring assets again.

Desert Schools, the largest credit union in Arizona, increased its allowance for loan losses of all types by 926 percent in the last two years. It declined to comment.

The amount of bad home equity loan business during the boom is incalculable and in retrospect inexplicable, housing experts say. Most of the debt is still on the books of the lenders, which include Bank of America, Citigroup and JPMorgan Chase.

The second mortgage debt and HELOCs are the root of all our housing woes.

The main reason lenders will fail to execute more short sales is due to these seconds and HELOCs. The holders of those worthless loans have the power to hold everyone hostage and try to extort whatever they can out of both buyers and sellers. In the end, the buyer and seller are better off in a foreclosure that wipes out the seconds, HELOCs and back HOA dues.

With the huge amount of second mortgage and HELOC debt still on the books of major banks, they are still insolvent. Despite the Federal Reserve stealing from savers and giving the money to banks — which is the net effect of zero percent interest rates — it will take many more years before banks have made enough money to fully write down the losses on this part of their portfolios. It also suggests that the Federal Reserve may maintain zero percent interest rates for a very long time. Welcome to Japan.

“No one had ever seen a national real estate bubble,” said Keith Leggett, a senior economist with the American Bankers Association. “We would love to change history so more conservative underwriting practices were put in place.”

OMG! I don't believe he said that. The reason we had never seen a national real estate bubble is precisely because we have never had such stupid underwriting practices in place. What did these idiots expect? If you give unlimited money to anyone who asks, you are going to have problems. The ignorance is truly remarkable.

The delinquency rate on home equity loans was 4.12 percent in the first quarter, down slightly from the fourth quarter of 2009, when it was the highest in 26 years of such record keeping. Borrowers who default can expect damage to their creditworthiness and in some cases tax consequences.

Nevertheless, Mr. Leggett said, “more than a sliver” of the debt will never be repaid.

You think? Not that the banks have written down the bad debt. Thanks to amend-extend-pretend, only a sliver has been written off so far.

Eric Hairston plans to be among this group. During the boom, he bought as an investment a three-apartment property in Hoboken, N.J. At the peak, when the building was worth as much as $1.5 million, he took out a $190,000 home equity loan.

Mr. Hairston, who worked in the technology department of the investment bank Lehman Brothers, invested in a Northern California pizza catering company. When real estate cratered, Mr. Hairston went into default.

The building was sold this spring for $750,000. Only a small slice went to the home equity lender, which reserved the right to come after Mr. Hairston for the rest of what it was owed.

Mr. Hairston, who now works for the pizza company, has not heard again from his lender.

Since the lender made a bad loan, Mr. Hairston argues, a 10 percent settlement would be reasonable. “It’s not the homeowner’s fault that the value of the collateral drops,” he said.

Isn't it funny that homedebtors have no problem keeping all the profits when prices go up, but when prices go down, it isn't their fault and the bank should absorb that loss. If the guy wanted an equity partner to take that risk, he should have sought one out. What he did was take out a loan, and lenders do not assume downside risk — well, at least they aren't supposed to.

I sincerely hope lenders are learning the lessons of this bubble collapse. Lenders and borrowers do not view the world the same way. Borrowers expect all the downside benefits of equity participation and all the upside benefits of debt in fixed amounts. This is the new world order.

Marc McCain, a Phoenix lawyer, has been retained by about 300 new clients in the last year, many of whom were planning to walk away from properties they could afford but wanted to be rid of — strategic defaulters. On top of their unpaid mortgage obligations, they had home equity loans of $50,000 to $150,000.

Fewer than 5 percent of these clients said they would continue paying their home equity loan no matter what. Ten percent intend to negotiate a short sale on their house, where the holders of the primary mortgage and the home equity loan agree to accept less than what they are owed. In such deals primary mortgage holders get paid first.

The other 85 percent said they would default and worry about the debt only if and when they were forced to, Mr. McCain said.

“People want to have some green pastures in front of them,” said Mr. McCain, who recently negotiated a couple’s $75,000 home equity debt into a $3,500 settlement. “It’s come to the point where morality is no longer an issue.”

Earlier this year, I wrote that by the end of 2010 the idea of a moral obligation to repay mortgage debt will carry no weight. It is August, and we are already there.

Darin Bolton, a software engineer, defaulted on the loans for his house in a Chicago suburb last year because “we felt we were just tossing our money into a hole.” This spring, he moved into a rental a few blocks away.

The only positive lenders have obtained by allowing widespread squatting is that they have convinced a few people prices might come back soon. This false and misguided hope is stopping them from lapsing into the malaise demonstrated by Mr. Bolton in the comment above. As prices roll over again in the inevitable double dip, more and more borrowers are going to embrace Mr. Boltons attitude and realize that continuing to pay an oversized mortgage on an underwater property is tossing their money into a hole.

“I’m kind of banking on there being too many of us for the lenders to pursue,” he said. “There is strength in numbers.”

Borrowers who took out enormous loans during the housing bubble never intended to repay these loans from their wage income, they always intended to pass this debt to some else. Somewhere along the way this subtle paradigm shift took place. It seems very reasonable that one could merely service debt for a while and resell the property to someone else and pay off the debt then. Like any Ponzi Scheme, it works until there is no greater fool to come along and assume the debt. Then the entire system comes crashing down and a spiral of debt deflation we are witnessing today. The worst part is that this thinking is still alive and well today.

The reason this problem won't simply go away is because incomes do not support the debt created. Even at 4.5% interest rates, as a society we cannot support the debt lenders made. Deflation will continue until prices are back in line with incomes. In markets like Las Vegas, we are already well below the price point needed, but in Orange County, our prices have not fallen enough to be supported by the local population. More pain lies ahead.

They shook down the walls

Did any of you have a piggy bank growing up. I had one that didn't have a hole to empty it. In theory, you were supposed to fill it, then break it with a hammer. It was a secure as home equity used to be before HELOCs. Of course, being an enterprising child, I knew that if I shook the piggy bank, I could get coins to fall out of the little slot. It took more effort, but you could raid the piggy bank, and with a little patience, you could get every last coin out of it.

Homeowners during the housing bubble were no different. A home was like a piggy bank that was difficult to make a withdrawal from, but with HELOCs prying open every home safe, lenders were helping homeowners shake down their own houses. Some homeowners, like the ones I am featuring today, shook their house often and made sure every available penny was stripped from the walls.

  • My records don't show when this house was purchased, but there was a $230,500 loan on 8/25/1997. From that we can surmise they bought the house in 1997 and paid $288,125 using an 80% loan.

  • On 1/22/2001 they refinanced with a $254,800 and began down the road leading to rampant HELOC abuse.

  • On 7/17/2002 they obtained a stand-alone second for $45,000.

  • On 3/3/2003 they refinanced the first mortgage for $350,000.

  • On 5/6/2004 they obtained a $126,000 stand-alone second.

  • On 3/27/2006 they borrowed $602,509 in a new first mortgage.

  • On 8/4/2006 they got a $27,000 HELOC.

  • On 1/16/2007 they refinanced with a $692,254 first mortgage. Note the odd amount. They left nothing in the walls.

  • Total mortgage equity withdrawal is $461,754.

  • Total squatting time was only 10 months. Beneficial California Inc moved quickly on this one.

Foreclosure Record

Recording Date: 03/26/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 11/09/2009

Document Type: Notice of Default

When you see HELOC abuse this bad, it is almost incomprehensible how a middle-class family could have pissed away nearly half a million dollars. If we weren't so numb to the large numbers, we would be outraged by $46,175 worth of HELOC abuse. When the number ballons to $461,754, its like trying to imagine infinity; the mind just can't grasp it.

The flipper bought this property at auction for $571,800. They will make a nice margin assuming it sells for near its asking price.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 19 HAZELNUT Irvine, CA 92614

Resale Home Price … $695,500

Home Purchase Price … $571,800

Home Purchase Date …. 6/16/2010

Net Gain (Loss) ………. $81,970

Percent Change ………. 14.3%

Annual Appreciation … 123.5%

Cost of Ownership

————————————————-

$695,500 ………. Asking Price

$139,100 ………. 20% Down Conventional

4.51% …………… Mortgage Interest Rate

$556,400 ………. 30-Year Mortgage

$136,085 ………. Income Requirement

$2,823 ………. Monthly Mortgage Payment

$603 ………. Property Tax

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

$58 ………. Homeowners Insurance

$80 ………. Homeowners Association Fees

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

$3,563 ………. Monthly Cash Outlays

-$471 ………. Tax Savings (% of Interest and Property Tax)

-$731 ………. Equity Hidden in Payment

$233 ………. Lost Income to Down Payment (net of taxes)

$87 ………. Maintenance and Replacement Reserves

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

$2,680 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,955 ………. Furnishing and Move In @1%

$6,955 ………. Closing Costs @1%

$5,564 ………… Interest Points @1% of Loan

$139,100 ………. Down Payment

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

$158,574 ………. Total Cash Costs

$41,000 ………… Emergency Cash Reserves

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

$199,574 ………. Total Savings Needed

Property Details for 19 HAZELNUT Irvine, CA 92614

——————————————————————————

Beds: 3

Baths: 1 full 2 part baths

Home size: 1,786 sq ft

($389 / sq ft)

Lot Size: 3,400 sq ft

Year Built: 1985

Days on Market: 7

Listing Updated: 40400

MLS Number: S628132

Property Type: Single Family, Residential

Community: Woodbridge

Tract: Bg

——————————————————————————

This turnkey, single family detached home is located in Woodbridge's terrific Briarglen Tract, which is inside of the Loop, and offers three spacious bedrooms,a dining room, new lighting fixtures, new a/c and many other upgrades for you to enjoy. Take advantage of all that Woodbridge has to offer. HOA's only $80/mo. Enjoy access to two lagoons, 20 pools and rec center. This charmer is move-in ready with freshly painted interior, new granite countertops and gorgeous travertine floors in the kitchen, family room and dining rooms! Master bath has large bathtub, dual sinks, natural lighting. New landscaping and spacious backyard with fruit trees is perfect for entertaining! A must see! No need to preview!

A must see! No need to preview! Please explain to me how that works. Is this a must see, or is there no need to see it?

IHB News 8-14-2010

We are having another IHB party on Sunday, August 22, 2010, at JT Schmids at the District.

Irvine Home Address … 6 PALOS #66 Irvine, CA 92612

Resale Home Price …… $530,000

The other day I got invited to a party,

but I stayed home instead

Just me and my pal Johnny Walker,

and his brothers Black and Red

And we drank alone, yeah,

with nobody else

Yeah, you know when I drink alone,

I prefer to be by myself

George Thorogood And The Destroyers — I Drink Alone

IHB News

We are having another IHB party on Sunday August 22, 2010. The party on August 1 was attended mostly by investors, and we anticipate many will attend the event on Sunday, but I want to make clear that it is open to everyone. If perhaps you are looking to buy in Orange County, and you want to meet an IHB agent. or if you simply want to hang out, have a drink, and talk real estate, we encourage you to attend.

For those of you who previously expressed an interest in the fund (this is not a solicitation), the fund will be closing to new investors on Friday, September 17. I know that seems like a long way off, but it often takes time to free up investment capital, and I don't want you to miss this opportunity. Also, the fund is only open to 35 "Sophisticated" investors, and these slots go in the order I receive the paperwork. If you are planning to invest under the sophisticated investor category, the fund may not have openings through September 17.

I now have over $1,000,000 in firm commitments to the fund, so it will definitely be going forward.

Housing Bubble News from Patrick.net

Fri Aug 13 2010

Debts Rise, and Go Unpaid, as Bust Erodes House Equity (nytimes.com)

Burbank still in housing bubble after 40% decline (doctorhousingbubble.com)

Housing market racking up bad grades (chicagotribune.com)

Metro Detroit house sales fall in July (freep.com)

Housing supply on the rise in South Florida (miamiherald.com)

Florida's largest REMAX real estate company franchise ceasing operations (sun-sentinel.com)

Builders Shrink Houses to Fit Buyers' Newly Modest Tastes (rismedia.com)

With housing oversupplied, deflation is a threat (kansascity.com)

Foreclosures up 6% from last year (finance.yahoo.com)

What's the best way to default on your mortgage? (chicagonow.com)

Fed can't do much more to avoid a double dip (marketwatch.com)

Shiller sees double-dip if jobs aren't created (marketwatch.com)

US Plans More Aid for Jobless Homedebtors; NOTHING for Responsible Renters (nytimes.com)

HUD Offers Interest-Free Loans to Homedebtors; NOTHING for Responsible Renters (businessweek.com)

Housing Summit May Yield Fannie and Freddie Clues (abcnews.go.com)

Assumability: A hidden potential value to FHA loans (old but interesting) (washingtonpost.com)

U.S. Is Bankrupt and We Don't Even Know It (bloomberg.com)

Taleb Says Government Bonds to Collapse, Avoid Stocks (bloomberg.com)

Let's do a WikiLeaks on the SEC (blogs.forbes.com)

No place like demolished home (mv-voice.com)

Thu Aug 12 2010

Good news for buyers, bad new for sellers (startribune.com)

Housing Price Rise Actually A Head Fake (blogs.forbes.com)

Californians' income falls for first time since WWII (sacbee.com)

Low mortgage rates fail to move market (msnbc.msn.com)

Squatting Becoming Way of Life for Delinquent Borrowers (irvinehousingblog.com)

Short sale gridlock is 'dizzying' (mortgage.ocregister.com)

Interview with Patrick (patrick.net)

House Prices: Demographics Giveth and Taketh Away (dmarron.com)

Commercial Landlords Worry As Barnes & Noble Contemplates Alternatives (retailtrafficmag.com)

America Is 'Bankrupt Mickey Mouse Economy': CIO (cnbc.com)

Tracy, CA pair charged in $4.5 million.real estate scam (contracostatimes.com)

Scammy Wells Fargo loses debit card suit (sfgate.com)

Banking failures and swindling wealth from working and middle class Americans (mybudget360.com)

Obama administration to provide $3B in banker, oops, housing aid (finance.yahoo.com)

Inept Repairs Leave Economy Stalling (dukenews.duke.edu)

The Fed is not your friend (theautomaticearth.blogspot.com)

Fed Insiders Can Make Infinite Profits (Mish)

Reagan insider: GOP destroyed economy (Republicans, skip this one) (marketwatch.com)

Australia: Did you remember to sell the house today? (prosper.org.au)

Man Who Fought FBI Spying Freed From "National Security Letter" After 6 Years (wired.com)

Wed Aug 11 2010

Cheaper in San Mateo, CA but still not cheap enough (patrick.net)

Foreclosures increase in affluent Park Ridge and northwest suburbs (chicagonow.com)

"Buy and Bail" Houseowners Get Past Loan Restrictions (bloomberg.com)

Personal income drops 7.1 percent in Naples, Florida (miamiherald.com)

Jobless alarms fall on deaf ears of investors (marketwatch.com)

Fed to resume buying Treasury bonds with newly printed cash (latimes.com)

Top Fed Official Warns Fed Risks Repeating Past Mistakes (huffingtonpost.com)

Quantitative Easing Take II; Uncharted Territory (Mish)

The Federal Reserve's Magma Chart (economix.blogs.nytimes.com)

James Bullard and the Fed's incredible threat (csmonitor.com)

Greenspan: A Charlatan Unmasked (bullionbullscanada.com)

Fannie and Freddie's Foreclosure Barons (motherjones.com)

The peril of false bottoms (atimes.com)

Afraid of deflation? Heres what to do: avoid debt! (bankrate.com)

The Rise and Fall of the Dollar (zerohedge.com)

Realtors got talent (for corrupting our laws with lobbyists) (PDF – sabor.com)

Tue Aug 10 2010

Northeast of Silicon Valley, recession's effects are magnified (latimes.com)

Far From the Poor, Real Estate Woes Nip at Lake Forest (nytimes.com)

Belvedere house up eightfold, but not any nicer than it was (patrick.net)

Unsold Housing Inventory Grows (blogs.wsj.com)

Foreclosed On — By the US (online.wsj.com)

Study Reveals Foreclosures Result of Excessive Debt (irvinehousingblog.com)

Worrying Numbers Behind Underwater Houseowners (dailyfinance.com)

Freddie Mac: $4.7 billion Loss, REO Inventory increases 79% YoY (calculatedriskblog.com)

FHA Insured Mortgages, a Disaster in the Making? (realestatechannel.com)

Housing Insanity: MORE debt, LOWER downpayments (theatlantic.com)

Our Economic Shell Game (taxhome.blogspot.com)

Inflation the Path to Future Deflation (greatdepression2006.blogspot.com)

Billionaire developer Paul Milstein dies (therealdeal.com)

Per Capita Income Falls In Wealthy Bridgeport Metro Area (courant.com)

United States Per Capita Personal Income (bber.unm.edu)

America goes dark (nytimes.com)

The hottest housing market: Information (washingtonpost.com)

The Best Fiscal Stimulus: Trust (miller-mccune.com)

Founding 3-person startup with no revenue better than working for Goldman (adgrok.com)

Mon Aug 9 2010

S.F. house prices drop as distressed sales rise (Case Shiller wrong) (sfgate.com)

Maui house sales show continuing decline in median price (staradvertiser.com)

NYC delinquency rate continues upward as distressed properties list grows (therealdeal.com)

Seller Beware: New "Ideal Buyer" Scam (9news.com)

Real estate called 'poor investment' (lansner.ocregister.com)

Stranguflation: Deflation and Inflation Where it Hurts America Most (huffingtonpost.com)

Deflation it is (theautomaticearth.blogspot.com)

Underemployment 18.4% in all Age Groups (Mish)

Jobless and Staying That Way (nytimes.com)

Are Fed-Up American Workers Getting Their Gumption Back? (newsweek.com)

Calif. deal put Senate candidate Jeff Greene on front line of mortgage mess (miamiherald.com)

Contra Costa's $100,000-plus public pension club grew 25% last year (contracostatimes.com)

Battle Looms Over Huge Costs of Public Pensions (nytimes.com)

Raise My Taxes, Mr. President! (newsweek.com)

A Gift the Wealthy Don't Need (nytimes.com)

Greenspan Calls for Repeal of All the Bush Tax Cuts (nytimes.com)

Housing Policy's Third Rail: Fannie and Freddie (nytimes.com)

Fannie and Freddie Now Part of Federal Budget (PDF – cbo.gov)

But Will It Make You Happy? (nytimes.com)

Are we in control of our own decisions? (ted.com)

Unemployment?

This delinquent owner may be having unemployment issues. The property was purchased on 4/27/2005 for $615,000. The owner used a $492,000 first mortgage and a $123,000 down payment. People generally won't walk away when they are just on the cusp of going underwater and they have such a large down payment. The NOD was filed in April.

Foreclosure Record

Recording Date: 04/16/2010

Document Type: Notice of Default

Irvine Home Address … 6 PALOS #66 Irvine, CA 92612

Resale Home Price … $530,000

Home Purchase Price … $615,000

Home Purchase Date …. 4/15/2005

Net Gain (Loss) ………. $(116,800)

Percent Change ………. -19.0%

Annual Appreciation … -2.7%

Cost of Ownership

————————————————-

$530,000 ………. Asking Price

$106,000 ………. 20% Down Conventional

4.57% …………… Mortgage Interest Rate

$424,000 ………. 30-Year Mortgage

$104,433 ………. Income Requirement

$2,166 ………. Monthly Mortgage Payment

$459 ………. Property Tax

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

$44 ………. Homeowners Insurance

$385 ………. Homeowners Association Fees

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

$3,055 ………. Monthly Cash Outlays

-$363 ………. Tax Savings (% of Interest and Property Tax)

-$551 ………. Equity Hidden in Payment

$181 ………. Lost Income to Down Payment (net of taxes)

$66 ………. Maintenance and Replacement Reserves

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

$2,387 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,300 ………. Furnishing and Move In @1%

$5,300 ………. Closing Costs @1%

$4,240 ………… Interest Points @1% of Loan

$106,000 ………. Down Payment

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

$120,840 ………. Total Cash Costs

$36,500 ………… Emergency Cash Reserves

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

$157,340 ………. Total Savings Needed

Property Details for 6 PALOS #66 Irvine, CA 92612

——————————————————————————

Beds: 3

Baths: 2 full 1 part baths

Home size: 1,800 sq ft

($294 / sq ft)

Lot Size: n/a

Year Built: 1975

Days on Market: 370

Listing Updated: 40340

MLS Number: W09083522

Property Type: Townhouse, Residential

Community: Rancho San Joaquin

Tract: Wl

——————————————————————————

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

Enjoy this stunning City light views from the tranquil private end unit . Close to award winning schools, shopping, churches and park. Very close to the golf course. 3 Bedrooms 2.5 Baths, Breakfast nook in kitchen, good size dressing area in master bth, Inside laundry room with direct garage access, Community pool and spa.

Home Ownership Rate Declining, May Hit 50-Year Low

The housing bust is forcing many homeowners to become renters, and in the process, the home ownership rate is projected to hit a 50-year low.

Irvine Home Address … 4602 ROXBURY Dr Irvine, CA 92604

Resale Home Price …… $423,800

What is love

Baby, don't hurt me

Don't hurt me no more

Baby don't hurt me

Don't hurt me no more

Haddaway — What is Love

Every homeowner loves their property. As the foreclosures pile up and homeowners are forced into a life of rentership, many will come to question their love affair with homeownership. Was it really about owning the home, or was it about having their own private ATM machine? Whatever the reason, these properties are a source of pain, and may just want the pain to end.

Apartment Rentals Hit Record Highs in 2010, as More Americans Shun Homeownership

by CHRISTINE RICCIARDI — Friday, August 6th, 2010

The National Multi Housing Council (NMHC) reported results of its latest Quarterly Survey of Apartment Market Conditions Friday, stating the industry is on the rise, improving in all four indices surveyed and setting an index average record for the second quarter in a row. The results show a shift in consumer mentality toward short-term rental agreements and away from long-term mortgage debt.

Currently one-third of Americans rent their housing, and over 14% live in a rental apartment. The NMHC represents the interests of rental property investors, such as Fannie Mae, Freddie Mac, Stewart Title and Starwood, to name a few.

NMHC chief economist Mark Obrinsky suggested other economic factors boosted the market for apartments.

“Demand for apartment residences has substantially increased thanks to modest improvements in the jobs market and the continuing decline in homeownership rates," he said.

It shouldn't be surprising that apartment rental rates are up as homeownership rates decline.

Homeownership rate continues to slide

By Haya El Nasser, USA TODAY, – ‎Aug 1, 2010‎

Millions of houses on the verge of foreclosure threaten to send homeownership to its lowest level in 50 years, according to new industry estimates.

Fresh projections say the rate could plummet to about 62% as early as 2012 and almost certainly by the end of the decade. Homeownership rates haven't been that low since they hit 61.9% in 1960.

The share of households that own their homes has been sliding since the housing bubble burst in 2006. The rate fell again in the second quarter of this year to 66.9% — the lowest since 1999 — from a peak of 69.4% in 2004, the Census Bureau says.

FORECLOSURE: More than 1M homes in danger in 2010

CENSUS: Moves because of evictions increase

"Anybody who knows anything about housing thought it would be flat in the second quarter," says John Burns, CEO of John Burns Real Estate Consulting, a national housing market analyst based in Irvine, Calif. "Homeownership fell during the quarter when government was offering a tax credit (to first-time homebuyers). What do you think is going to happen now that there's no tax credit?"

The continued decline — 0.5 points lower than the same time a year ago — points to a fast plunge, he says.

Burns estimates that 6 million of the 8 million homeowners who are behind on their mortgages will lose their homes to lenders in the next two years. This "shadow inventory" could push ownership rates down to 61.7% within two years, he says.

If John Burns is right — and I have the utmost respect for his forecasts — the conversion of such a large percentage of housing from ownership to rental property is going to crush prices.

It may seem like a small point, but if home ownership didn't rise in the second quarter with tax credit in place, and if it dropped so quickly thereafter, the trend is unmistakable. And since most of these foreclosed owners will not be buying a house any time soon, it is very likely that Mr. Burns's forecasts will prove true. Even though Fannie Mae has reduced its waiting time to only two years, these borrowers still have to come up with 20% down, and with our still bloated house prices, that is a difficult task that few will accomplish.

Arthur C. Nelson, director of the University of Utah's Metropolitan Research Center, says the rate may not plunge that quickly because many foreclosed homes will be purchased by others.

Others who? The others are mostly investors who are renting these properties to former owners. Investors pay less than owner-occupants — considerably less. That is why a conversion from owner occupancy to investor ownership lowers prices. There simply are not enough first-time buyers and others with good credit to clean up this mess.

Homeownership has been a cornerstone of the American dream because it has generally built personal assets and stable neighborhoods.

That is until we allowed every homeowner to raid the equity piggy bank with cash-out refinancing and HELOCs.

Federal policy has long encouraged homeownership through the mortgage tax deduction and government-backed mortgages.

The push to own rather than rent now is being questioned. "A large percentage of households are not responsible enough to handle a mortgage payment," Burns says. "Growing homeownership is a great goal but you have to grow the percentage of households that are responsible."

John Burns is right, although nobody wants to hear the truth. We pushed home ownership rates up to 70% by giving loans to people who were not up to the task.

More stringent financing requirements may prevent some from buying.

"We've seen low-income homeowner rates declining by twice as much as higher-income groups," says Daniel McCue, senior research analyst at Harvard University's Joint Center for Housing Studies.

The decline in home ownership at the low end is because lenders foreclosed on subprime borrowers while their alt-A and prime brethren have been allowed to squat. The higher income groups will also see a decline in home ownership rates as lenders finally get around to foreclosing on these people.

"Everyone is looking harder at the benefits and potential risks of homeownership. Is it the right option for you?"

Demographics also affect home buying. The children of Baby Boomers are coming of age but young adults typically rent and financial pressures are further delaying home buying decisions. More 20-somethings have returned home to live with their parents. The 2010 Fannie Mae National Housing Survey shows that two-thirds of Americans still prefer owning a home because it's a good investment in the long run.

The housing bust is providing bargains for home buyers willing to take the plunge.

"Affordability is very much in favor of homeownership right now," Burns says. "If the economy turns around quickly, you would hope that responsible renters would become homeowners."

With the super low interest rates, affordability is good. It is even improving in Irvine as today's featured property demonstrates. Personally, I would prefer higher interest rates and lower prices because if you buy today, you will never get the chance to refinance into a lower rate loan. However, rental parity will soon be upon us, and for those who plan to stay for the long haul, they will be able to ride out the declining prices that will occur as interest rates go up and shadow inventory comes to market. There is no urgency to buy, but when prices are below rental parity, there are fewer reasons to rent.

Peak buyer accelerates their default

I have profiled hundreds of peak buyers who have lost their properties to foreclosure. The official statistics say that only 20% of defaults are strategic. Do you believe that? Do you really believe that all the people I have profiled on this blog — just in Irvine — are casualties of unemployment? Couldn't these people afford to keep these homes if they obtained a loan modification? Isn't everyone in Irvine rich and should be able to afford a half a million dollar house?

Strategic default — or accelerated default as I have more accurately described it — is far more widespread than lenders would like to believe. The buyers of the houses I profile each day could never afford the property, and most don't see the point of continuing to fake it with a loan modification, so they simply quit paying. It's difficult to tell if a default is accelerated by choice or compelled by unemployment, but since nearly every property I profiled was also deeply underwater, what would you guess it is?

  • This property was purchased on 2/23/2006 for $565,000. The owners used a $452,000 first mortgage, a $56,500 HELOC, and a $56,500 down payment.

  • They stopped paying early last year and managed to squat for about a year.

Foreclosure Record

Recording Date: 04/01/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 08/14/2009

Document Type: Notice of Default

The bank took this property back on 5/11/2010 for $436,500.

Irvine Home Address … 4602 ROXBURY Dr Irvine, CA 92604

Resale Home Price … $423,800

Home Purchase Price … $436,500

Home Purchase Date …. 4/30/2010

Net Gain (Loss) ………. $(38,128)

Percent Change ………. -8.7%

Annual Appreciation … -8.8%

Cost of Ownership

————————————————-

$423,800 ………. Asking Price

$14,833 ………. 3.5% Down FHA Financing

4.57% …………… Mortgage Interest Rate

$408,967 ………. 30-Year Mortgage

$83,507 ………. Income Requirement

$2,089 ………. Monthly Mortgage Payment

$367 ………. Property Tax

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

$35 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$2,492 ………. Monthly Cash Outlays

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

-$532 ………. Equity Hidden in Payment

$25 ………. Lost Income to Down Payment (net of taxes)

$53 ………. Maintenance and Replacement Reserves

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

$1,702 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,238 ………. Furnishing and Move In @1%

$4,238 ………. Closing Costs @1%

$4,090 ………… Interest Points @1% of Loan

$14,833 ………. Down Payment

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

$27,399 ………. Total Cash Costs

$26,000 ………… Emergency Cash Reserves

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

$53,399 ………. Total Savings Needed

Property Details for 4602 ROXBURY Dr Irvine, CA 92604

——————————————————————————

Beds: 3

Baths: 2 baths

Home size: 1,112 sq ft

($381 / sq ft)

Lot Size: 4,992 sq ft

Year Built: 1971

Days on Market: 12

Listing Updated: 40393

MLS Number: S626665

Property Type: Single Family, Residential

Community: El Camino Real

Tract: Wl

——————————————————————————

According to the listing agent, this listing is a bank owned (foreclosed) property.

BANK OWNED!!! NICE SINGLE STORY IN THE WILLOWS. NICE FLOOR PLAN COMPRISING THREE BEDROOMS, TWO BATHROOMS. LIVING ROOM WITH FIREPLACE. 2 CAR GARAGE WITH INSIDE ACCESS. KITCHEN HAS BEEN UPDATED. THE BANK HAS APPROVED REHAB AND IS IN PROCESS OF NEW FLOORING, NEW INTERIOR PAINT AND OTHER MISC REPAIRS (CALL FOR LIST). ROOM ADDITION AT REAR OF PROPERTY IS NOT PERMITTED (AS IS), NO CONTRIBUTORY VALUE ADDED TO PRICE. CONVENIENTLY CLOSE TO GREAT SCHOOLS, PARKS, SHOPPING, FREEWAY ACCESS AND MUCH MORE! A GREAT OPPORTUNITY FOR YOUR PRIMARY RESIDENCE BUYER OR INVESTOR BUYER! NO HOA FEES AND LOW TAX RATE (NO MELLO ROOS). Free appraisal and credit report if buyer finances through Bank of America Home Loans.

Payment affordability is excellent

Each week as I prepare these posts and input an even lower interest rate, I have been watching the cost of ownership drop lower and lower. The resale prices are still quite high, but the payment affordability is excellent. An FHA buyer would have a cost of ownership of only $1,700 a month for this detached 3 bedroom 2 bath home in Irvine. Yes, this property has some serious negatives, but it would likely rent for more than $1,700. You can find a few cheap condos renting for that price, but I can't find anything detached. If any of you can find a link to an detached 3/2 renting for less than $1,700 in Irvine, please post the link in the comments.

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

Low Interest Rates Are Not Clearing the Market Inventory

Despite the lowest interest rates in over 50 years, buyer demand is still low, and increasing inventory is just sitting there waiting for sellers to lower their asking prices.

Irvine Home Address … 1102 TIMBERWOOD Irvine, CA 92620

Resale Home Price …… $419,000

And the seasons they go 'round and 'round

And the painted ponies go up and down

We're captive on the carousel of time

We can't return we can only look behind

From where we came

And go round and round and round

In the circle game

Joni Mitchell — Circle Game

The housing cycle is like a giant carousel. Prices move up and down tethered to an underlying fundamental value. Whenever we look back the cycle is rather obvious, but when we are caught up with kool aid intoxication, each rise looks different than the last. We are trapped in this endless circle game; trapped by our own greed and foolish pride; trapped by are desires for appreciation income and the consumption it brings; trapped by our denial of the obvious; trapped by wishful thinking as we cling to a real estate fantasy that doesn't really exist.

During the down cycle, we try to resurrect the market with artificial stimulants. Like a addict coming off a heroin high, the crash is as painful as the euphoria that preceded. We try to deaden the pain with more stimulants until finally the corpse of the market remains moribund and nature takes its course.

Record-low mortgage rates fail to move market

Housing recovery stymied by nervousness about jobs, economy

By Bill Briggs — August 11, 2010

What’s the magic number? Three? Two? One?

Zero?

How about less than zero? With deflation, even a zero percent interest rate is high in real terms. Perhaps if they took interest rates negative and started paying people to borrow money, demand might increase.

Of course, the real problem in our market isn't payment affordability — low interest rates are making that less of a problem — the real problem is that prices are still too high and must come down.

How far must long-term mortgage rates tumble before the summer silence filling many residential real estate markets is broken by whispers of a real rebound?

Benjamin Clark has pondered the question. Despite a steady decline this summer that has trimmed the average rate on a 30-year fixed loan to about 4.49 percent – a historic low – home sales and mortgage refinancing activity remain mired in the muck of job uncertainty and underwater loans.

So Clark, head of the National Association of Exclusive Buyer Agents, told his 500 members to name a number. Given the current economic conditions, he asked, what 30-year fixed mortgage rate would “spur significant additional real estate sales?”

Many agents flashed their desperation: About one-third believe the 30-year rate must slink into the 3 percent range to fuel healthy action while about one in 10 agents feels the rate must touch the twos. But most respondents — 42 percent of the agents — said that there is no bargain-basement threshold where the rate “becomes relevant enough” to overcome larger economic worries and entice a fresh tide of transactions.

That is despair. When 42% believe that no matter how low the rates go that nothing will increase sales, people have lost hope. Is that a sign of a bottom? Perhaps for interest rates, but not for prices.

Has the almighty mortgage rate – at least for now – lost its power and luster? Does the rate matter anymore?

“Rates alone are not the magic factor” they once were, Clark acknowledged. Based in Salt Lake City, Utah, Clark said he has remained busy this summer with buyers, although his clients are on the hunt not due to shrinking rates: This simply was the right time for them to purchase. Still, he said that if long-term mortgage rates were to trickle into the 3.75, 3.5 or 3.0 percent range, “that would help.”

“But,” Clark added, “I’m all about the zero percent!

No. He is all about the 6%. If zero percent interest rates allow him to generate a 6% commission, then he is happy.

“The rates definitely do something. If they were a little higher, the market would be even slower. If they were a little lower, things would be a little better,” Clark said.

To Clark’s point, the volume of mortgage loan applications edged higher in the first week of August, according to the Mortgage Bankers Association’s weekly survey, released Wednesday.

The buying landscape is similarly bleak despite the dwindling rates. During July, monthly purchase applications lapsed by 3 percent from June, according to the MBA. And in June, buyers’ applications declined 15 percent from May. Industry experts pin the current lack of buyer interest on unemployment or lingering worries about losing a paycheck. In Clark’s survey of buyer agents, he asked “What are (the) reasons buyers may put off buying … in spite of very low interest rates?” The top answer, at 77 percent: “lack of job security.”

The fact that such a high percentage of potential buyers fear losing their income reveals much about the current state of our economy. People should be cautious about buying a home when they don't know if they can make the payments, particularly now that they actually have to put their own money into the deal. When 100% financing was available, there was no risk other than a credit score, but when people have to put their own money down, they are wisely more risk averse.

Refinancing activity also is sluggish.

"We are not seeing a huge impact from the lower rates in terms of refinancing and this is likely due to borrower burnout," said MBA spokeswoman Carolyn Kemp. "As rates have been historically low for some time now, the pool of borrowers who were eligible to refinance have likely already done so."

The refinance market has been over stimulated. We have pulled all the demand forward we possibly can. As interest rates go back up, refinancing activity will decline to historically low levels and stay there for a very long time.

“It’s unprecedented” that such a historically low rate has failed to incite buying or refinancing stampedes, said Greg McBride, senior financial analyst for Bankrate.com. “But at the same time it’s not a big surprise. … I don’t view it as an oddity … It’s the job market."

“Suffice it to say that you could reduce interest rates to zero – if somebody doesn’t have a job or is nervous about income, they’re not going to plunge into ownership,” McBride said. “It just goes to show you that mortgage rates alone are not going to revive the housing market."

The fact that interest rates alone will not revive the housing market is very bad news for lenders with a huge number of delinquent borrowers. This inventory must be pushed through the system. Lenders were hoping they could clear the inventory at high prices through low interest rates. That isn't going to happen. It will require a combination of low interest rates, low prices and increasing employment to clear the market. Unfortunately, the low interest rates are likely a temporary phenomenon. Safe-haven investors buying mortgage debt insured by the US government through the GSEs has pushed rates to very low levels. As these investors find opportunities with higher yields in an improving economy, interest rates will move higher.

“I wouldn’t go so far to say (they) don’t matter. It’s just one variable. If you combine that one variable with a better outlook in the job market, people will start buying housing.”

At 4.49 percent, the current 30-year fixed rate is the lowest since Freddie Mac began tracking rates in 1971. To find a lower benchmark you would have to go back to the World War II era, when borrowers could obtain shorter-term home loans for about 3 percent.

Real estate blogger and economist Ted C. Jones contends the probability is “moderate to high” that mortgage rates will climb by 1 percent over the next 12 months as the economy improves.

That prediction is probably correct, not that this particular forecaster has any credibility….

Jones, senior vice president of Houston-based Stewart Title Guaranty Co., said U.S. workers already are “crawling off the bottom” of the unemployment floor. And he sees, within the murkiness of the larger economy, “a light at the end of the tunnel – and it’s not another train.”

Go stand out on the tracks and let us know what happens, Mr. Jones. After we scrape you off the front of the train, you can tell us about the light.

“I’m not a feel-good economist either," he said.

That's a credibility builder. So how have his prognostications been to date?

In 2007 Jones told agents at a real estate seminar: "You’re not going to believe the hurricane that’s going to hit us," he said. “But I am seeing some stable recoveries … What is the probability of a 10 percent home-price decline over the next year? Low.”

So in 2007 he was telling people the probability of a 10% decline was low. Well, he was wrong. Prices fell more than 10% in 2007 and another 10% in 2008.

He says federal tax incentives that sparked the spring buying binge reduced some of the overstock of housing inventory. And looking ahead, he cites a predicted U.S. population growth spurt (some 100 million people over the next 40 years) as the engine that will help revive new-home construction.

“So I don’t see rates getting to the three, two or one percent level,” Jones said.

“We have to look at these rates today as the best buying opportunity in some people’s lifetime,” Jones added. “What bothers me, though, is we’re scaring people away (with gloomy economic outlooks) – people who can lock in housing costs for the rest of their lives at rates we may never see again.”

No, you don't have to look at these low rates as the best buying opportunity in some people's lifetime, unless you live in a depressed market like Las Vegas. In an inflated market like ours, the low interest rates are merely delaying the inevitable decline.

Higher interest rates will cause prices to drop

Many have suggested that prices may move higher in the face of rising interest rates because prices did go up during rising interest rates of the 1970s. In fact, we inflated a housing bubble in the face of rising interest rates, so the theory goes that it might happen again. Let's review a little financial history and see if you think prices will rally in the face of rising interest rates.

First, it is critical to understand exactly how and why lenders inflated the first housing bubble of the 1970s. There was a deep recession in 1973-1974. The housing recession it spawned did not end until 1975 where the chart above picks up. House prices were depressed relative to incomes in 1975, and the improving economy prompted a great deal of buying and homebuilding activity.

The Federal Reserve in the late 1970s was trying to stimulate the economy to recover from the oil shock of the OPEC embargo, and they vacillated between raising and lowing interest rates unable to find a balance between economic growth and price stability. As a result, inflation grew out of control, and coupled with the power of labor unions to negotiate higher wages, the country fell into a wage-price inflationary cycle. We do not have those powerful labor unions today (except in California government), and we are facing high unemployment. There is no upward pressure on wages, and there won't be for quite some time.

But even if we had rising wages, it wasn't rising wages that inflated the 1970s housing bubble. It was the anticipation of rising wages and the willingness of lenders to loan at debt-to-income ratios over 32% that inflated the housing bubble. Lenders inflated the 1970s housing bubble by loaning money at unstable debt-to-income ratios (see chart above).

Federal Reserve Chairman Paul Volcker saw this occurring and decided to put a stop to it. When he raised interest rates to 20% in the early 1980s and removed all the liquidity from the system, he did it for one basic reason: he needed to stop banks from loaning money based on the anticipation of inflation. Inflation expectation is just like appreciation expectation; both cause people to overpay for assets, and both cause lenders to throw caution to the wind and allow borrowers to inflate asset bubbles.

A common misconception about inflation expectation is that it was a consumer phenomenon. It was primarily a banking problem. As we witnessed during our most recent housing bubble, consumers will borrow all the money they are offered even if it kills them. Lenders are the adults in the transaction, and it was their behavior that was the target of the interest rate increases of the 1980s.

As the anticipation of inflation was curbed, lenders quickly began to realize that borrowers were not able to sustain debt-to-income ratios in excess of 32%, so they stopped underwriting these loans — for a while at least — then they got stupid again in the late 80s and inflated another housing bubble.

Applying the lessons of the 70s

So let's apply the lesson of the late 70s to today. When mortgage interest rates begin to rise — and they will go back up — affordability will drop if prices remain where they are today. Lenders will be forced to make a choice: (1) allow borrowers to take out loans at debt-to-income ratios exceeding 32% or (2) deny borrower requests for loans at those amounts and allow house prices to fall. Which choice do you think they will make?

I don't see them as having a choice. If a mortgage is not insured by the GSEs or FHA, there is currently no secondary market for this loan. The government is not going to permit DTIs to go back up above 32% because they just spent billions in loan modification programs to bring DTIs down. Borrowers default when DTIs go over 32%. That has been proven over and over again. Only when lenders are inflating a bubble is this fact masked as troubled borrowers sell into a market rally. Once aggregate DTIs get high enough, the system becomes unstable, and prices crash back down to levels where real incomes (not liar loan incomes) are applied to a 32% DTI. That is the real estate cycle.

For those who believe prices will rise in the face of rising interest rates, you must believe lenders will underwrite loans at debt-to-income ratios exceeding 32%. That is not going to happen in the foreseeable future because the losses on these loans in default are too high, and the government controls the market. For as stupid and as corrupt as our government appears at times, they are not going to pay the losses of lenders indefinitely. DTIs at 32% or less are here for the foreseeable future.

So if we accept that market prices are going to be determined by real incomes applied to a 32% DTI, then market prices are going to be very sensitive to interest rates. If we had a market condition where supply was limited (as we have witnessed since early 2009), people may be forced to substitute downward to prop up prices, but with the shadow inventory yet to be purged, there will be no shortage of properties over the next several years.

Since we have a huge amount of inventory to push through the system, you can expect prices to be set by real incomes, current interest rates, and a 32% DTI for quite some time. That is why prices will fall as interest rates to up over the next several years.

Peak buyer walks away

The previous owner of this property purchased it for $539,000 on 8/2/2005. She used a $431,200 first mortgage, a $53,900 second mortgage, and a $53,900 down payment — which she has now lost.

She didn't get to squat as long as many others did, but she still got over 1 year without making any payments.

Foreclosure Record

Recording Date: 04/01/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 08/19/2009

Document Type: Notice of Default

A flipper bought this property at auction for $372,000 on 5/25/2010. Like two of the flips I profiled last week, this flipper did nothing to renovate the property and hoped merely to put it back on the market and sell it as-is. Irvine buyers just don't go for that.

Date Event Price
Aug 05, 2010 Price Changed $419,000
Aug 02, 2010 Price Changed $427,500
Jul 15, 2010 Listed $440,000

He has lowered the price 5%, and he only has another 5% to go before taking a loss. Without some cosmetic improvements, this property will likely just sit there.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 1102 TIMBERWOOD Irvine, CA 92620

Resale Home Price … $419,000

Home Purchase Price … $372,000

Home Purchase Date …. 5/25/2010

Net Gain (Loss) ………. $21,860

Percent Change ………. 5.9%

Annual Appreciation … 48.5%

Cost of Ownership

————————————————-

$419,000 ………. Asking Price

$14,665 ………. 3.5% Down FHA Financing

4.57% …………… Mortgage Interest Rate

$404,335 ………. 30-Year Mortgage

$82,561 ………. Income Requirement

$2,066 ………. Monthly Mortgage Payment

$363 ………. Property Tax

$100 ………. Special Taxes and Levies (Mello Roos)

$35 ………. Homeowners Insurance

$277 ………. Homeowners Association Fees

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

$2,841 ………. Monthly Cash Outlays

-$333 ………. Tax Savings (% of Interest and Property Tax)

-$526 ………. Equity Hidden in Payment

$25 ………. Lost Income to Down Payment (net of taxes)

$52 ………. Maintenance and Replacement Reserves

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

$2,059 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,190 ………. Furnishing and Move In @1%

$4,190 ………. Closing Costs @1%

$4,043 ………… Interest Points @1% of Loan

$14,665 ………. Down Payment

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

$27,088 ………. Total Cash Costs

$31,500 ………… Emergency Cash Reserves

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

$58,588 ………. Total Savings Needed

Property Details for 1102 TIMBERWOOD Irvine, CA 92620

——————————————————————————

Beds: 2

Baths: 2 full 1 part baths

Home size: 1,267 sq ft

($331 / sq ft)

Lot Size: n/a

Year Built: 2000

Days on Market: 25

Listing Updated: 40395

MLS Number: P743479

Property Type: Condominium, Townhouse, Residential

Community: Northwood

Tract: Coll

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Cute Townhouse in Northwood. 2 Beds 2.5 Baths with New carpet flooring, New paint, New microwave, and New Disposal. Must See!