The list price on 78 Sorenson is down t0 $549,000, and the property is in escrow.
That's life (that's life), that's what all the people say
You're ridin' high in April, shot down in May
But I know I'm gonna change that tune
When I'm back on top, back on top in June
I said that's life (that's life), and as funny as it may seem
Some people get their kicks stompin' on a dream
But I don't let it, let it get me down
'cause this fine old world, it keeps spinnin' around
I've been a puppet, a pauper, a pirate, a poet, a pawn and a king
I've been up and down and over and out and I know one thing
Each time I find myself flat on my face
I pick myself up and get back in the race
That's Life — Frank Sinatra
Link To Music Video
This song speaks to our market on many levels. The first stanza speaks to the denial in the market. This years selling season was a bust, but come next June it will come roaring back — Not. One a deeper level the message of this song is wonderful. A great many people are going to get kicked in the teeth by the market. They are just going to have to get back up and carry on because that's life.
A reader emailed me this property.
Asking Price: $600,000
Income Requirement: $150,000
Downpayment Needed: $120,000
Purchase Price: $715,000
Purchase Date: 10/13/2005
Address: 78 Sorenson, Irvine, CA 92602
1st Loan $572,000
2nd Mtg. $143,000
Downpayment $0
Beds: 3
Baths: 2.5
Sq. Ft.: 1,622
$/Sq. Ft.: $370
Lot Size: –
Type: Condominium
Style: Contemporary/Modern
Year Built: 2001
Stories: Two Levels
Area: West Irvine
County: Orange
MLS#: S503062
Status: Active
On Redfin: 64 days
Act Fast! This great home is priced for a quick sale! Fantastic interior private location. Office/Den downstairs, 3-large bedrooms upstairs with spacious closet. Light & bright and spacious, durimar wood floors, blinds, recessed lighting. Close to Tustin Market Place and schools.
Act Fast! After only 60 days on the market, the bidding war will soon begin.
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Can you imagine the conversations the couple selling this house must be having?
Honey, do you think the bank will come after us for the $151,000 they are going to lose on the mortgage?
I don't think they can in California.
Won't this hurt our credit?
So what? We could have made hundreds of thousands, and the worst we could lose is a temporary ding to our credit. I think it was worth it.
No stress, no big deal. They took a risk to their credit and passed the financial risk onto the bank. The bank is going to lose their entire second mortgage. In our forums someone told the story of their friend who was invested in a fund that provided second mortgages. How many loans like this does it take to wipe out a fund like that?
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A poster from yesterday tipped me off to this property.
Asking Price: $819,000
Income Requirement: $204,750
Downpayment Needed: $163,800
Purchase Price: $885,000
Purchase Date: 4/27/2006
Address: 7 Chenile, Irvine, CA 92614
1st Loan $708,000
2nd Mtg. $88,500
Downpayment $88,500
Beds: 4
Baths: 2.5
Sq. Ft.: 2,201
$/Sq. Ft.: $372
Lot Size: 4,750 sq. ft.
Type: Single Family Residence
Style: Traditional
Year Built: 1985
Stories: Two Levels
Area: Woodbridge
County: Orange
MLS#: S493874
Status: Active
On Redfin: 129 days
Unsold in 90+ days
* * * This is a Short Sale! Great Interior Location in Woodbridge! Remodeled kitchen with granite counter tops, cabinets and appliances. This plan offers a large family room with ceiling to floor brick fireplace. Open floor plan with vaulted ceilings in living room and master bedroom. Great size Front and Back yard. Enjoy the Lakes, Swimming Pools, Spas, Tennis Courts, and many wonderful Woodbridge Amenities with a very Low Assocciations Dues!
If they get their asking price, and there is a 6% commission, the total loss on the property would be $115,140. The sellers would lose their entire $88,500 downpayment, and the bank would lose $26,640 on the second mortgage.
Let's take another look at the real problem here…
In the most recent UCLA Forecast for housing, this little gem appeared:
A more dramatic decline in prices is not forecast because inventory levels have not climbed that high and the fall-out from the subprime mortgage crisis will be less severe in Orange County than other areas of the state.
Some people still don't get it. It is not subprime mortgages that are creating the problem. It is 100% financing and exotic loan terms — two items which are common in OC. We have documented case after case of 100% financing deals going bad. This is the primary driver of lower prices in Irvine right now. As the multitude of exotic loans reset over the next few years, this will cause the next major wave of foreclosures and short sales.
Also, when you think about the financing picture, it is going to get worse before it gets any better. Credit is not going to magically get looser. Look at the losses to second mortgages we have been documenting day after day here in Irvine. Extrapolate that to every city in California, and you get a sense for how big this problem is for second mortgage holders. This will stop the origination of second mortgages, or it will make them so expensive as to render them useless.
Without second mortgages people will be required to make 20% downpayments. Look at these prices and the downpayment requirements. Who has that kind of cash saved up? Who do you know who is saving money from their salaries to make a downpayment? Where will the first time buyers come from?
Sales volume will not suddenly return to the market when very few people have the required 20% downpayment. The chain of move-ups will be disrupted until the entry level buyers save 20% downpayments and the entry level market pricing drops down to meet them.
The bulls in denial seem to believe credit conditions similar to the bubble rally will be returning soon. Lenders are experiencing unprecedented losses. Who is going to through their money into that abyss? Credit will continue to tighten until the lenders are safe. This means 20% downpayments, 28% DTI ratios, and good credit. If you don't meet those three requirements, you will not be buying a house. If you are facing a mortgage reset, and you don't meet these requirements — which, of course, nobody does — you will not get refinanced, and you will lose your house.
While I am on a rant, I would like to point out the most widespread delusion about financing workouts the suddenly generous lenders are promising: borrowers will not be able to keep their house and their lifestyle. The reality is that the bank will demand a dramatic reduction in personal spending and a change in lifestyle to keep a home.
A great many borrowers who are facing a reset believe they can go to the bank, and the bank will work with them to reduce the payment. True to a point, but the bank will analyze your financial situation, determine your bare minimum financial needs, and take everything else — just like a bankruptcy. They will also ding your credit for your efforts. Borrowers can keep their houses in exchange for a decade or more of financial servitude to a lender. Enjoy the Ramen noodles.
Perhaps someday, the mainstream media and our academicians will fully comprehend the nature and scope of the problem. Until then, we will continue with our message and continue to document the results.
I guess that's life…
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Some closing words of advice and perspective from Frank Sinatra…
And now, the end is here
And so I face the final curtain
My friend, I'll say it clear
I'll state my case, of which I'm certain
I've lived a life that's full
I traveled each and ev'ry highway
And more, much more than this, I did it my way
Regrets, I've had a few
But then again, too few to mention
I did what I had to do and saw it through without exemption
I planned each charted course, each careful step along the byway
And more, much more than this, I did it my way
Yes, there were times, I'm sure you knew
When I bit off more than I could chew
But through it all, when there was doubt
I ate it up and spit it out
I faced it all and I stood tall and did it my way
My Way — Frank Sinatra
Link to Music Video
