Purple Kool Aid — Incubus

But then they’re not crazy they’re just high on kool-aid

Evidence of kool aid intoxication can be found in nearly every property I examine. Everyone in the ownership chain began extracting home equity starting in 2000-2001 and continuing up through 2007 when the lenders cut everyone off. Our society in California has become completely dependent upon ever-increasing home prices to permit mortgage equity withdrawal to fuel our economy. This borrowed money flowed into cars, boats, trips, home remodels, and many consumer goods, but it also flowed into business start ups, commercial rents, computers, phone systems, employee salaries and many beneficial uses as well. Unfortunately, none of it was sustainable. It was all built on a Ponzi scheme of debt structures and false insurance which has now come crashing down.

At this point, the residents of California are as addicted as any opium addict. In fact, OPM, or other people’s money, is the drug everyone craves. The conventional wisdom, if there is such a thing, in California right now is that house prices will go up again because demand is high, but people just can’t get loans. There is a certain truth to this as people proved during the bubble that they are kool aid intoxicated enough to take on any loan offered to them; however, the lenders are not going to make these loans available again. Making toxic loans at extreme property valuations is what caused them to lose so much money. The days of lenders enabling this behavior are over.

Today’s featured property shows the pattern of mortgage equity withdrawal and ever-increasing loan balances with previous owners of the property. The final owner was the bagholder who used 100% financing and passed the losses on to the lender (who incidentally is Fannie Mae/Freddie Mac which is now us).

Asking Price: $587,900

Income Requirement: $146,975

Downpayment Needed: $117,580

Monthly Equity Burn: $4,899

Purchase Price: $775,000

Purchase Date: 4/21/2006

Address: 15 Liliano, Irvine, CA 92614

The first owner my records show in the chain of ownership purchased on 3/20/1996 for $224,000. The owners used a $179,200 first mortgage and a $44,800 downpayment. This was typical at the time. In 1998, they refinanced for $182,000, and in 2001, they opened a $23,000 HELOC. When they sold the property, they had more debt than when they started.

The second owner purchased on 4/3/2002 for $395,000. She used a $315,500 first mortgage, a $40,000 second mortgage, a $40,000 HELOC, and a $10,000 downpayment. As you can see, downpayment requirements were already dropping by 2002. This owner sold in less than one year.

The third owner purchased on 1/29/2003 for $457,500. He used a $366,000 first mortgage, a $91,500 second mortgage, and a $0 downpayment. It is early 2003, and downpayments are already a thing of the past. About a year later, the owner refinanced for $445,000, and opened a HELOC for $35,000 taking out $22,500 in spending money.

The fourth owner purchased on 4/21/2006 for $775,000. She used a $620,000 first mortgage, a $155,000 second mortgage, and a $0 downpayment. Since this was the peak of the market, she let the property go into foreclosure, and it was auctioned for $634,800 on 9/9/2008.

Of the four owners shown in the property records going back to 1996, none of them paid down their mortgages by any amount. Two of the four added to the mortgage, one of the four didn’t own the property long enough to do so, and the final owner never had any equity to withdrawal. These patterns of behavior are very widespread, and deeply engrained into the society. As I have said before, mortgage equity withdrawal was the rule not the exception.

The lender who now owns the property is not even trying to get their money back. If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $222,374. The Fannie/Freddie second mortgage of $155,000 is already gone, and the holder of the first mortgage is going to lose the rest.

This property is being offered for 24% off its peak sale price.

{book}

The purple kool-aid cult is back, I’m paranoid again
Would someone please appease all the stress of my

I’m being…
I’m being chased by seven kids high on kool-aid
But then they’re not crazy cause they’re high on kool-aid
But then they’re not crazy they’re just high on kool-aid

Purple Kool Aid — Incubus

Privacy — Michael Jackson

The Irvine Housing Blog has an unwritten policy concerning privacy that needs to be stated.

1. We do not use names. We do not have an ax to grind with any particular homeowner. The stories we convey are representative of many faceless owners and borrowers in Irvine and around the country. We uncover the microeconomic factors that underpin the major macroeconomic problems facing the country and the world today. There is no need to reveal names, although since these names are in the public record, we could do so if we chose to.
2. We post information from the public record. All the sales and mortgage information is a matter of public record. There is no expectation of privacy concerning this information. If the owners of the properties we profile have a problem with that, I suggest they take it up with the state legislature. Of course, that will not go anywhere because our entire real property transaction system operates on the public nature of this information. Up until the real estate bubble, there weren’t any real stories found in these public records, so very few people bothered to write about it. Now there is, so now we do.
3. The information is accurate. There may be instances where the public record is in error, but not very often. I occasionally read about bloggers being threatened with libel lawsuits. This is crazy. First, for the printed word to be libelous, it must be inaccurate. What we post is not. Second, the inaccuracy of this information must be reasonably known to the person printing it. Since we post only what is in the public records it is either accurate, or there is no way we could have known it was inaccurate. Either way, we are not being libelous. If someone wants to bring suit anyway, I suggest they read California Civil Code Section 425.10-425.16: the anti-SLAPP legislation.

I can understand that some people find this information embarrassing. Of course, they should have thought of that before they did something that they might find embarrassing later on. Those who are obsessed with “keeping up with the Jones” and worried about what the neighbors think are the most prone to abuse their HELOCs and pretend they are rich. These are the people who feel the most embarrassment because they obsess on what they believe other people think about them. There is an old adage which says, “you wouldn’t worry about what other
people think about you if you realized how little they did.” I cannot control people’s reactions to these posts, nor do I want to. Quite honestly, I don’t give them a second thought after the post has had its day. I am certainly not going to stop blogging because someone might be embarrassed if their illusion of wealth and prosperity is exposed for what it is.

I am not trying to embarrass people. If these stories could be told in a way so nobody was embarrassed, I would do so. Unfortunately, there is no other way to tell these stories, and the lessons these stories teach to individuals and society are important. If these stories are not told, another generation might be tempted to abuse their HELOCs and refinance themselves out of their homes. If these stories are not told, another generation of lenders may repeat the mistakes of the bubble and risk a catastrophic implosion of our financial system. If we do not learn the lessons of history, we are doomed to repeat its mistakes.

Today’s featured property was purchased right at the peak with 100% financing. Of course the owners are walking away now, and the lender is absorbing the loss. For those keeping score, this on is being offered for 27.6% off its peak purchase price.

Asking Price: $445,000

Income Requirement: $153,750

Downpayment Needed: $123,000

Monthly Equity Burn: $5,125

Purchase Price: $615,000

Purchase Date: 11/21/2006

Address: 14212 Utrillo Drive, Irvine, CA 92606

If the kitchen has been upgraded, why now show a picture of it?

This property was purchased on 11/21/2006 for $615,000. The owners used a $492,000 first mortgage a $123,000 second mortgage, and a $0 downpayment. One very interesting thing about this property is that the bank did not bid up to the amount of the first mortgage. Instead they bid almost 15% less at $425,475, and they won the auction anyway. The bank was willing to take a loss of $189,525 at the courthouse steps.

{book}

Ain’t the pictures enough, why do you go through so much
To get the story you need, so you can bury me
You’ve got the people confused, you tell the stories you choose
You try to get me to lose the man I really am
You keep on stalking me, invading my privacy
Won’t you just let me be
‘Cause your cameras can’t control, the minds of those who know
That you’ll even sell your soul just to get a story sold

I need my privacy, I need my privacy
So paparazzi, get away from me

Privacy — Michael Jackson