Fun With HELOCs

Party — Boston

24 Tioga Place Theater

Not everyone who took out money on their HELOCs blew it. Some people remodeled their houses or took the money to purchase other assets. And yes, many people took that money and bought other real estate (Right now they wish they hadn’t.) When I first saw today’s featured property, I couldn’t help being drawn in to the fun the owners created. Look at that pool area. To me, it looks like a fun place. Check out the home theater. Another place for good times with family and friends. The thing that really impressed me was that these people did not break the bank creating this playground. Yes, they did add to their mortgage, but looking at the property, it becomes obvious where it went. There is no other history of serial refinancing, so even with the money they spent on improvements, they still have plenty of equity in their property. Which brings me to my last point, they also have seen the light on falling home prices and they have priced it to move in today’s market ($249/SF.) That is one of the luxuries you have when you haven’t spent all your equity.

Imagine yourself sitting on all that bubble equity. Your conservative enough not to HELOC yourself into oblivion, but you do have access to all this cash. What do you do with it? I could see me doing something like this if I were in their shoes. Maybe that’s why I find this property so interesting. Let’s party!

24 Tioga Place Front 24 Tioga Place Kitchen

Asking Price: $985,000

Income Requirement: $246,250

Downpayment Needed: $197,000

Monthly Equity Burn: $8,208

Purchase Price: $377,000

Purchase Date: 10/22/1998

Address: 24 Tioga Place, Irvine, CA 92602

Beds:	5
Baths:	4
Sq. Ft.:	3,950
$/Sq. Ft.:	$249
Lot Size:	7,549 Sq. Ft.
Property Type:	Single Family Residence
Style:	Mediterranean
Year Built:	1999
Stories:	2 Levels
View:	Pond
Area:	West Irvine
County:	Orange
MLS#:	P648693
Source:	SoCalMLS
Status:	Active
On Redfin:	11 days

This is the ULTIMATE PARTY HOUSE you’ve always dreamed of, like owning
your own resort! Fantastic rock pool with water slide, spa, outdoor
fireplace and a giant barbecue station with wine and soft drink
refrigerators and an ice maker. Sellers have added a custom media room
for movie nights and a small gym room as well as a pool-entry bath, and
upstairs there’s a HUGE bonus room with space for a pool table and even
an outside viewing deck! The big downstairs master suite offers maximum
privacy and comfort, and there’s a sense of richness with crown
moldings and heavy-guage baseboards and a stunning kitchen/family room
combo with topaz-fleck granite on the kitchen island and full
backsplash. This house was designed for maximum fun, with a rare 3-car
garage with custom doors to store all those extra toys! Sellers spared
no expense in creating this luxurious private world that now can be
yours.

Even with the discount from peak levels and the $120,000 they put into the place, if this house sells for its asking price, and if they pay a 6% commission, these owners stand to make $435,900 for living in a party house for 10 years. I could handle that…

Well you know I dont get off on workin day after day
I wanna have some fun while Im here
I play the game when its goin my way
And theres nothin like a party when its kickin into gear

Im gettin ready for a party tonight
Yes Im gettin ready to cruise
And if youve got somethin for me
Ive got somethin for you

Baby
Its a party and nobody cares
What were doin there
Baby, its a party as long as youre there
Its a party, party, party!

I cant believe it when some people say
That its a sin that way we live to die
You know, theres never been a more natural thing
Yea theres a brand new story, but its the same old lie

So come on
Get ready for the time of your life
cause Im gettin right in the groove
And if youve got somethin for me
Ive got somethin for you

Baby
Its a party and nobody cares
What were doin there
Baby, its a party as long as youre there
Its a party, party, party!

Party — Boston

Women in the Bubble

Stupid Girl — Pink

Yesterday’s post stirred up quite a controversy, and today’s probably will as well. It is politically incorrect and full of stereotypes that will make many cringe. There is a reason we have those politically incorrect stereotypes — they describe large groups of real people who exhibit stereotypical traits and behaviors. The Political Correctness crowd may not like it, and they may pressure people from expressing these stereotypes (at least to the degree that people fear the vengeful wrath of the PC police.) However, if people fit a profile, then there must be some validity to it.

One of the unique characteristics of the Great Housing Bubble was the large increase in market participation among women — sometimes single women and sometimes as married women buying property on their own. Some amount of this is to be expected as single women establish careers and put off marriage. In the past, most single women rented as did most men in their 20s. Men would often buy a house even if they were single. I suspect many viewed this as proof of their ability to be a provider and to attract a mate (I know I did.) Women more often would not buy a home when they were single. I suspect many did not because they knew they would have to deal with two houses when they got married, and the property would be a hindrance. Also, when you look at consumer demographics and personal savings, single women have not historically been big savers. Sure there are always some who are responsible from a young age, but many single women prefer to run up big credit card bills obtaining the latest fashion trends than worry about saving money (and yes, single men spend a lot on beer too.) The trend toward married women buying property as “her sole and separate property” was also a new phenomenon.

So what changed during the Great Housing Bubble? First, since saving was eliminated as a condition of ownership, many single women decided to buy and have a home of their own. Rather than a property being a hindrance, it became a great speculative asset that provided huge amounts of extra spending money. Several of the properties I have profiled with excessive HELOC abuse have been solely owned by women (not that men were any more responsible.) With the large number of women working as mortgage brokers and
realtors, it is likely that many of the purchases by married women as their sole and separate property were by those in
the business. It was all part of making a living.

Why did I pick the song Stupid Girl? Well, these purchases did not turn out to well for many. Was it stupid? I guess if you got to “live large” in your 20s from the HELOC on your house, perhaps not. The memories are great, and you still have time to recover financially. For the older singles and married women who speculated in the real estate market, there will be more serious ramifications. I don’t think anyone is going to label these purchases as a work of genius. Today’s featured property was purchased by a married woman as her sole and separate property, and now, after the foreclosure she has bad credit. Do you think this has impacted the family? It can’t be a plus.

33 Castillo Kitchen

Asking Price: $559,000

Income Requirement: $139,750

Downpayment Needed: $111,800

Monthly Equity Burn: $4,658

Purchase Price: $689,000

Purchase Date: 11/15/2006

Address: 33 Castillo, Irvine, CA 92620

Beds:	3
Baths:	3
Sq. Ft.:	1,896
$/Sq. Ft.:	$295
Lot Size:	3,420 Sq. Ft.
Property Type:	Single Family Residence
Style:	Other
Year Built:	1977
Stories:	3+ Levels
Area:	Northwood
County:	Orange
MLS#:	S525706
Source:	SoCalMLS
Status:	Active
On Redfin:	138 days
Unsold in 90+ days

French doors in living room & kitchen. Oak crown molding. Tile in
family room and kitchen. Great community & schools. Low
association.

The lender has been lowering price to move this one.

Listing Price History

Date	Price
Mar 19, 2008	$649,900
May 05, 2008	$609,900
Jun 02, 2008	$594,900
Jul 24, 2008	$559,000

This property was purchased on 11/15/2006 for $689,000. The buyer, a $551,200 first mortgage, a $137,800 second mortgage and a $0 downpayment. It went back to the bank for $560,000 on 11/14/2007, almost a year to the day. I usually smell fraud when I see them go back this quick. People will make the first two payments to get around being prosecuted for fraud, then stop payment and let it go back to the lender. The one-year timeline is just about right given the amount of time a foreclosure takes. If this had been purchased as a speculative flip (we should give the benefit of the doubt,) then this woman is really stupid. Or perhaps we should view her as a hapless victim of the unpredictable housing market? That might be an easier sell if there weren’t many people already predicting a crash by then.

If this property sells for its asking price, the total loss to the lender will be $163,540 after a 6% commission. Personally, I think this property is ugly inside and out, but then again I will not be buying for a couple more years, so my opinion doesn’t matter much right now. Perhaps someone will step up and pay that much, or perhaps they will keep renting and save their money. That wouldn’t be stupid…

Stupid girl, stupid girls, stupid girls
Maybe if I act like that, that guy will call me back
Porno Paparazzi girl, I don’t wanna be a stupid girl

Go to Fred Segal, you’ll find them there
Laughing loud so all the little people stare
Looking for a daddy to pay for the champagne
(Drop a name)
What happened to the dreams of a girl president
She’s dancing in the video next to 50 Cent
They travel in packs of two or three
With their itsy bitsy doggies and their teeny-weeny tees
Where, oh where, have the smart people gone?
Oh where, oh where could they be?

Maybe if I act like that, that guy will call me back
Porno Paparazzi girl, I don’t wanna be a stupid girl
Baby if I act like that, flipping my blond hair back
Push up my bra like that, I don’t wanna be a stupid girl

(Break it down now)
Disease’s growing, it’s epidemic
I’m scared that there ain’t a cure
The world believes it and I’m going crazy
I cannot take any more
I’m so glad that I’ll never fit in
That will never be me
Outcasts and girls with ambition
That’s what I wanna see
Disasters all around
World despaired
Their only concern
Will they **** up my hair

Maybe if I act like that, that guy will call me back
Porno Paparazzi girl, I don’t wanna be a stupid girl
Baby if I act like that, flipping my blond hair back
Push up my bra like that, I don’t wanna be a stupid girl

Stupid Girl — Pink

New Advice for Troubled Homeowners

Hold On — Wilson Phillips

Last Friday, I wrote a post titled Downpayments Are Back. After taking the weekend to contemplate what this really means for homeowners who are thinking about walking away from their obligations, I have changed my mind on what I believe they should do. If they can manage their payments, they should consider trying to hold on, even if the house value has dropped well below their purchase price. There are still a great many overextended homeowners and speculators who cannot possibly manage their payments, and trying to hold on until the market comes back is a foolish waste of time and resources. The market is not going to come back before they go under. However, for those who can make the payments, there emotional benefit of home ownership may be worth the financial hardship it entails. When downpayment requirements were eliminated during the bubble rally. Many people who are not in the habit of saving were suddenly able to purchase a home — albeit at a greatly inflated price. For people who do not have the habit of saving money, they will never come up with even a 3% downpayment to obtain an FHA loan much less a 20% downpayment like everyone else will need. The house they are in right now may be the only house they ever own in their lifetime. If they bail out, the new (and permanent) downpayment requirements will probably ensure they never own again. Under these circumstances, even if they are upside-down on their mortgage, and even if it might make more sense financially to go back to renting, there is a strong emotional desire to own a home, and this may be their only chance to satisfy this emotion. Many of our decisions in life are not based purely on a basis of economics. Having children is not a great economic decision, but the love of family makes the economic sacrifices worthwhile. If satisfying the emotional desire to own a house is worth the sacrifice in terms of elevated household expenses, perhaps it is the proper decision for those owners on the margin to stay put. It is not the right financial decision, but perhaps it is the right life choice.

I have another piece of advice for the homeowners who are facing an exploding Option ARM that will not save them from foreclosure, but it may provide a way for them to reenter the housing market at some future date. Freddie Mac recently changed their servicer guidelines and eliminated compensation to servicers who foreclose quickly. The effect of this change in incentives will be a longer foreclosure process once people stop making payments. This is where the advice comes in. When owners with an Option ARM face their loan recast, there is little hope of affording the payment, so they should not try. What they should do is immediately start saving the amount of the payment they used to make on their mortgage. If the foreclosure process drags out a year or more, they could easily save the 3% necessary for a downpayment on an FHA loan. They may have to wait a while for their FICO scores to improve to qualify for the FHA loan, but when they do, they will already have saved their downpayment. Will many people do this? Probably not. Many people will simply spend the money they should be saving and be no better off for not having a housing payment for an extended period of time, but for those that do, they have the opportunity to save and prepare for home ownership again.

So what do you think? Should they stay, or should they walk?

Today’s featured property is a short sale. It is owned by a speculator who already got what he could out of the property, and now he is walking away.

Asking Price: $250,000

Income Requirement: $62,500

Downpayment Needed: $50,000

Monthly Equity Burn: $2,083

Purchase Price: $330,000

Purchase Date: 5/27/2005

Address: 139 Briarwood, Irvine, CA 92604

Beds:	2
Baths:	1
Sq. Ft.:	921
$/Sq. Ft.:	$271
Lot Size:	–
Property Type:	Condominium
Style:	Other
Year Built:	1985
Stories:	1 Level
Area:	West Irvine
County:	Orange
MLS#:	R807405
Source:	SoCalMLS
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

Beautiful 2 bedroom 1 bath condo with amazing amenties. This condo is
located in the Briawood complex that is located close to parks,
shopping,and eateries which are all within walking distance. Enjoy long
relaxing walks or enjoy a day by the man made lake

The pictures in this listing are ridiculous. They show one ugly photo of the outside of this apartment condo, and 13 of nearby facilities. Most of the pictures are from Woodbridge, and this unit is not even in Woodbridge. I guess that is why you have to take a long walk around the lake.

For those of you tracking percentage declines, this one is a healthy 25% off. The owner used 100% financing when it was purchased, and then opened an HELOC that allowed him to extract another $34,000. It was if he sold at peak pricing. The total debt on the property is $354,000. If this property sells for its asking price, and if a 6% commission is paid, the total loss will be $119,000. Washington Mutual gave him the HELOC, and they will absorb the loss.

I know this pain
Why do lock yourself up in these chains?
No one can change your life except for you
Dont ever let anyone step all over you
Just open your heart and your mind
Is it really fair to feel this way inside?

Chorus:
Some day somebodys gonna make you want to
Turn around and say goodbye
Until then baby are you going to let them
Hold you down and make you cry
Dont you know?
Dont you know things can change
Thingsll go your way
If you hold on for one more day
Can you hold on for one more day
Thingsll go your way
Hold on for one more day

You could sustain
Or are you comfortable with the pain?
Youve got no one to blame for your unhappiness
You got yourself into your own mess
Lettin your worries pass you by
Dont you think its worth your time
To change your mind?

Hold On — Wilson Phillip

Open Thread 8-2-2008

Somethin’ Stupid — Frank and Nancy Sinatra

Do you think speculators who bought at the peak are feeling stupid right now?

36 Windchime Outside

36 Windchime Irvine, CA 92603

Price:
$589,999

Beds:	2
Baths:	3
Sq. Ft.:	1,031
$/Sq. Ft.:	$572
Lot Size:	–
Property Type:	Condominium
Style:	Mediterranean
Year Built:	2003
Stories:	2 Levels
Area:	Quail Hill
County:	Orange
MLS#:	S542118
Source:	SoCalMLS
Status:	Active
On Redfin:	3 days

Charming detached condo on a quiet street. Warm home with peaceful sun
soaked back landscaped courtyard. Wood flooring and custom paint.
Within walking distance to Alderwood elementary. Resort style pools,
spas, gym and parks all part of the association. Near the 405/5/133
FWYs. Close by entertainment includes the Irvine Spectrum and Laguna
Beach.

sun soaked? Look at the surrounding walls and buildings. That courtyard will feel more like a cave than an open patio.

{Adsense-ir}

Paid peak prices past the peak. Check…

Watched prices drop 20% since then. Check…

Asking for a profit despite market conditions. Check…

Praying for a greater fool to come along. Check…

Preparing for a short sale. Check…

Feeling stupid. Check…

I know I stand in line until you think
You have the time to spend an evening with me
And if we go someplace to dance
I know that there’s a chance you won’t be leaving with me
And afterwards we drop into a quiet little place
And have a drink or two……
And then I go and spoil it all by saying
Something stupid like I love you

I can see it in your eyes that you despise
The same old lines you heard the night before……
And though it’s just a line to you for me it’s true……
And never seemed so right before
I practice everyday to find some clever lines
To say to make the meaning come true……
But then I think I’ll wait until the evening gets late
And I’m alone with you
The time is right your perfume fills my head……
The stars get red and on the nights so blue……
And then I go and spoil it all by saying
Something stupid like I love you

Somethin’ Stupid — Frank and Nancy Sinatra

Downpayments Are Back

Home — Simple Minds

Perhaps the best illustration of the problem with the housing market is the simplest one. Speculators with access to 100% financing did not have to worry about losing money, so they went out and bought every property available and bid prices up to very high levels. Now that prices are falling, they are simply walking away and letting the lender absorb the loss. The big lesson lenders are learning is that 100% financing brings in more business, it just isn’t the kind of business you want. The new housing bailout bill passed by Congress and signed by the President has a provision in it eliminating downpayment assistance programs. From this day forward everyone will need a downpayment. With all the losses lenders are absorbing due to the defaults of 100% financing purchases and refinances, you will not see them bringing those programs back any time soon.

When I first started putting downpayment requirements on posts, people were incredulous. I was repeatedly told 20% downpayments will never be required again. Zero down financing was here to stay. Perhaps it will rise to 5% or maybe 10%, but 20% is from a bygone era. Well, go try to get a loan from anyone other than the FHA and see what they tell you. There will always be programs allowing you to put less than 20% down, but good luck qualifying for one of them. From this day forward — until we build the next bubble — a minimum of 3% down through the FHA will be the primary avenue of first-time buyers. Everyone else better have 20% down, or you will not be buying.

One of the overlooked features of the bottom of the market is the difficulty in qualifying for a loan. Prices drop because buyers cannot get loans. When prices look relatively cheap, very few people will qualify for loans to take advantage of the low prices. That is why prices are low. If everyone could qualify for a loan, they would bid prices up like we saw in the bubble rally. The future of Irvine’s housing market is going to be a lot of loans at the conforming limit — currently $417,000 — plus whatever downpayment people have saved. The median will probably be supported at around $430,000 because that is the conforming limit plus 3%. If you have saved 20% or more, you will be one of the few buyers who can bid higher, and you will likely find some outstanding deals at the bottom. Those $900,000 homes at the peak will be going for $500,000 for the conforming limit borrower with 20% down.

Save your money. Cash is king.

66 Stepping Stone Kitchen

Asking Price: $579,900

Income Requirement: $144,975

Downpayment Needed: $115,980

Monthly Equity Burn: $4,832

Purchase Price: $690,000

Purchase Date: 8/30/2006

Address: 66 Stepping Stone, Irvine, CA 92603

Beds:	3
Baths:	3
Sq. Ft.:	1,700
$/Sq. Ft.:	$341
Lot Size:	–
Property Type:	Condominium
Style:	Mediterranean
Year Built:	2004
Stories:	2 Levels
Area:	Quail Hill
County:	Orange
MLS#:	S542271
Source:	SoCalMLS
Status:	Active
On Redfin:	1 day
New Listing (24 hours)

Quiet end unit location that backs to greenbelt. Three bedrooms, 3
baths, 2 car attached garage. One bedroom and full bath down. Wood
laminate floors. Granite counters in kitchen.

66 Stepping Stone Garage 66 Stepping Stone Wall

Yes, there is a garage, and inside, there is a wall…

As I mentioned in the introduction, this is a simple transaction. The former owner bought this property at the peak with 100% financing. The first mortgage was $552,000. The owner made some payments, but then stopped. The total outstanding balance was $555,044 at the time of foreclosure, so that is what the lender bought it back for. The second mortgage was a complete loss (JP Morgan Chase Bank is hating life.) If this property sells for its asking price, and if they pay a 6% commission, the total loss on the property will be $144,894. The bank is trying to get a few bucks back but they are over market, and they will need to reduce price to find a knife catcher. Expect to see this same, simple story over and over again as this crash drags on.

I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.

🙂

God gave me travelling shoes, God gave me the wanderer’s eye,
God gave me a few gold coins to help me to the other side.
Looked around and said: be careful how small things grow,
God gave me travelling shoes and I knew that it was time to go.

Sent in the ship at night to take me to the hidden port.
Found me the key at last to open up the prison door.
Brought down the blackbird’s wings, gifted me with beggar’s eyes.
Sent in the jackals to tell me I should say bye, bye, bye.

I’m home, home,
Home, home, home
And I’m home, home,
home, home, home
But I’m miles and miles and miles and miles and miles away
Where can I hide?

God gave me one last chance, gave me one last reprieve.
Jah gave me hunger, gave me the air to breathe.
Gave me one suitcase, gave me one last goodbye
Gave me travelling shoes, without them I would surely die, die, die

Home, home
Home, home, home (2x)

Miles and miles and miles and miles and miles away
Where can i go?
Where can I hide?

Home — Simple Mind