The Long and Winding Road — The Beatles
The course of a financial market, particularly the real estate market, is a long and winding road full of twists and turns and unexpected outcomes. It was certainly foreseeable that banks and builders might fail and the GSEs might need to be bailed out, but the how and when of these occurrences are always unpredictable and newsworthy.
We have all seen this road before. This is the third real estate bubble in California since the 1970s. Each one seems to reverberate causing the next one to be even larger and more painful than the last. The drop in prices always leads to the market entry door of affordability. It is possible that history may not repeat itself for a third time, but this seems unlikely. There was good reason for prices to retreat to this level: it doesn’t make much sense to overpay for a depreciating asset. There doesn’t seem to be any reason this will not happen again (wishful thinking by those who do not want it to happen is not a reason).
You would think that million dollar REOs would be very rare. Aren’t $1,000,000 homes the exclusive enclaves of the rich and famous. The many pretenders who paid more than $1,000,000 for tract homes in Irvine would undoubtedly like you to think so, but most of these houses were purchased by high-income (or high stated-income) individuals and families utilizing exotic financing. Irvine may have been the center of the subprime lending universe, but it was the also the center of the Alt-A borrowing universe. Very few of the loans issued in Irvine were conforming loans because during the bubble rally, the cap was far too low to be a viable financing alternative (good thing for the GSEs and taxpayers who do not have much exposure here). Also, since people in Irvine do not make the money necessary to support home prices — particularly peak prices — many, if not most, of the loans were stated-income, liar loans. In order to get the monthly cost down to manageable levels, many borrowers used Option ARM loans and have only been making the teaser-rate payment. In short, most of the loans issued in Irvine were Alt-A and jumbo loans. It is not a matter of if these loans will blow up, it is only a matter of when.
Asking Price: $1,175,000
Income Requirement: $293,750
Downpayment Needed: $235,000
Monthly Equity Burn: $9,791
Purchase Price: $1,360,000
Purchase Date: 6/23/2006
Address: 50 Winding Way, Irvine, CA 92620
| Beds: | 5 |
| Baths: | 4 |
| Sq. Ft.: | 3,500 |
| $/Sq. Ft.: | $336 |
| Lot Size: | 5,968
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Other |
| Year Built: | 2006 |
| Stories: | 2 Levels |
| Area: | Woodbury |
| County: | Orange |
| MLS#: | S547214 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 3 days |
bedrooms, 4 bathrooms, a kitchen with granite counter tops and an
island, a living room with a fireplace, a formal dining room,
individual laundry room, wood flooring, an enclosed patio, and corner
location. Home has access to the wonderful association amenities. Truly
a MUST SEE!!
Here is today’s challenge. Identify the objects in the picture of the kitchen and speculate on how each of these objects ended up there…
Today’s property was purchased by the Bank of America through Wells Fargo for $1,076,882. I don’t know why both banks are involved. The original first mortgage balance was $1,000,000 but with the skipped payments added on, the balance due on the date of the auction was the amount paid. There were two HELOCs for $223,600 and $100,000 respectively. It is unclear whether or not either one of these HELOCs was used. If not, the original owners lost $360,000, so it is likely that these two HELOCs were used to extract their equity. If this property sells for its asking wishing price, and if a 6% commission is paid, the total loss on the property will be $255,500. It looks as if the lenders will absorb most of this, and the actual loss will probably be quite a bit larger as they discount this property to sell it.
.
The long and winding road
That leads to your door
Will never disappear
Ive seen that road before
It always leads me her
Lead me to you door
The wild and windy night
That the rain washed away
Has left a pool of tears
Crying for the day
Why leave me standing here
Let me know the way
Many times Ive been alone
And many times Ive cried
Any way youll never know
The many ways Ive tried
But still they lead me back
To the long winding road
You left me standing here
A long long time ago
Dont leave me waiting here
Lead me to your door
But still they lead me back
To the long winding road
You left me standing here
A long long time ago
Dont leave me waiting here
Lead me to your door
Yeah, yeah, yeah, yeah
The Long and Winding Road — The Beatle
Oh man – I am just speechless on this one. It is like they were alternating plain options with funky attributes to make something never seen before. I cannot believe someone would pay 600k for this thing, Irvine or not!
Final offer 500K – Take it or leave it.
Liar loans being popular among the rich? Surely you jest. Between the liar loans to get properties such as this in order to show off to the neighbors, and HELOC loans to keep up that necessary lifestyle, it’s not like any of these darlings have to risk any of their own money. Houses, businesses, relationships: it’s all built-to-flip, isn’t it?
A bit more seriously, I don’t think this is going to be the last million-dollar REO any time soon. When things are good and a character like this gets caught playing these sorts of financing games, his buddies feel sympathy and try to bail him out. I’ve heard of all sorts of stunts and scams, including buying the house and letting the weasel move in as a “renter”, or just handing over no-interest loans to a fellow frat member. Now, though, the support network is fraying, and a lot of potential benefactors are worrying about their own bankruptcies, foreclosures, indictments, and Congressional investigations. For those of us on the bottom, it’s going to be grand fun if we don’t stop to laugh and point so much that we don’t dodge the falling debris.
It’s hard to tell whether it’s a George Foreman grill or a sandwich crafter on the counter. The sandwich crafter really spruces up the kitchen. Nothing speaks more to college apartment living than a toasted sandwich. The Foreman grill though, really shows how to live in a house but not even use the fancy stainless steel appliances…
I say, waffle iron, not foreman grill or sandwich toaster. And I think that’s an actual can of kool-aid mix right behind it. Truly!!
Breakfast for the kids, right there.
What’s with the terrible 3-tone stripes in the bathrooms and hall-ways?? Is there a local high-school or college with those colors?
I believe that’s an ICEE cup, not Koolaid. Bank has consumed it and is searching for someone else who is also.
Chuck Ponzi
50% off from 2006 purchase is $680k. Be patient potential buyers out there, this is going to be the price at the bottom in 2012.
Is that a yellow Iguana/Gecko on the kitchen island? Off on the right-hand side?
If so…I’m SOOOO buying this POS!
There sure are a lot of baths and beds that have no pictures. There is also something funky in the bathroom window – what is that? I enlarged it a bit and it looks like pictures of cars???
I liked the aesthetics of the hallway – too bad that is not an actual living space. I suspect the yard looks all burnt up and dusty – no pics.
Sad picture of the kitchen. It makes the whole thing look like someone is moving out of an apartment and is finishing up the spackle job to cover the holes in the wall from the picture nails. Just removing the last minute clutter. I remember those days – you bring your friends over for pizza and they help you move the big stuff out. Trouble is, that this place is trying to get a million bucks, yet it looks like a rental that no one has any personal investment in. It cheapens the whole thing.
I agree with the half price, being the real price when things settle out.
Is this thing in the middle of a ghost town of similar abandoned-looking “apartments”? The high price of this thing is really prohibitive for people looking for that kind of square footage ( have kids).
Ouch!! This one will be very painful for the lender. Just look at the news stories about the financial market this morning and then take a look at the financial situation regarding this property and it shows how this market will be in the toilet for a long long time. Face it, the banks own paper totaling $1.3M and I doubt if you could find someone to cough up the $700K it is probably worth. Most of my neighbors think the worst is over. Silly silly people.
Lehman and Merrill done. It was about time for the toxic derivitives implosion. This is really getting scary now. Pray for the innocents, for the collateral damage will be enormous.
Received this one in my inbox today. Seems relevant to today’s post.
1 Whitney, Irvine, CA 92620-3386
new:$999,000 original:$1,789,000
Looks like a new build. Here’s the original Redfin:
http://www.redfin.com/CA/Irvine/1-Whitney-92620/home/4795228
Here’s the current Redfin on 1 Whitney
http://www.redfin.com/CA/Irvine/Undisclosed-address-92620/home/12463383
Skeptical at first, but the listing price seems real
Wow,that would be quite a steal!
Looks like a large condo from the front. $250/square still sounds a bit rich for Northwood.
Built out so close to the sidewalk it might be encroaching. At least there is no grass to water or mow.
How the HELL was that a million dollar house???????
I wasn’t a million dollar house, it was a million dollar finance job. Funny how real estate finance affects real estate more then real estate itself.
Acutally, the Mille Fleurs plans were $1.43 million…
https://www.irvinehousingblog.com/forums/viewthread/58/
r€nato – “How the HELL was that a million dollar house???????”
It wasn’t.
IR’s graph and todays events only convince me that there will be serious overshoot on the downside when the economy tanks. It will be really interesting to see just how low the bottom is in 2010.
It also tells me the only way we will have any appreciation before 2012 is if there is so much overshoot that there is an oversold bounce.
It will overshoot downward because no one will be able to buy unless they are liquid. And face it, not many people are liquid. So the prices will spiral downward until the banks have recovered from the impending hangover. Since this party is still at about 1AM, the hangover is still a ways off!
While that maybe true down the road.
I don’t think that’s the case right now.
I’m liquid yet can’t seem to get sellers to discount much off their asking price.
It is on a major road with no place for the guests to park when you host your soirées. Isn’t that what you do when you live in a million dollar house? …another example of the planning detail that goes into most of Irvine.
People — this is a housing project built by corporations instead of the local housing authority. The only difference is the number of zeros after the price, and the income qualification is in a different tax bracket.
The art of photography has not been lost on this one, young padawan:
“I wonder what would happen if I set my Donald Duck s digital camera on flash mode and snap a shot 2 feet away from this high-gloss bird-poo-colored wall…
[super troopers]enhance…enhance…enhance…
This house seems so “tight” and compact- it doesn’t seem like 3500 sq feet.
This one is simultaneously sad and terrifying. Sad because of the absolutely rock-bottom presentation where it is clear that whoever is supposed to be selling the property has gone off their lithium and collapsed; I almost expect to see the realtor sprawled in one corner of the living room with a whiskey bottle tossed off to the side. Terrifying because of what this wtf pricing tells us about how far the market has to go. Exactly how, Californians, is Bank of America supposed to pay double the stock price for Countrywide and Merrill Lynch and still be in business in a year with this kind of property jamming up the markets? And infuriating because the a**h***s who got us into this are floating gently down on their golden parachutes as we speak.
You said ALMOST all there is to say.
I can add that I won’t be happy until the golden parachutes land atop a toxic slag heap, which is where all the golden Wall Street $140MM Bonus Babies should be condemned to live out the remainder of their lives.
We’re at the final unwinding, which is going to play out explosively over the next few months.
The Righteous will die like the Guilty. All of us will suffer, no matter how prudently we have managed our money, no matter how we’ve sacrificed to save and stay out of debt, no matter what we’ve done in the way of starting our own businesses.
Vanguard and Pimpo will suffer catostrophic losses in the pensions and mutual funds they managed. Those of you who have diligently paid into your 401Ks- get ready to eak out old age on Social Security benefits. That is, if, and that’s a big IF, we can still fund SS in any form after we’ve bailed out GNMA, FNMA, and every major financial holding company, as well as supplied more funding to the steeply-underfunded FDIC to handle all the bank liquidations of coming months.
What will we use to pay for the oil wars we will surely spend the next 50 years fighting? How will we fund our basic national and local services, such as essential infrastructure repairs, and basic services such as police and fire protection? Here in Chicago, we just got handed a very nasty lesson in the importance of making sure your officials are allocating public money properly, for ours clearly haven’t been- we were hit with incredible flooding in the city that has never occured before, because of neglect of our infrastructure. Every other major city area in the country has similar, or worse problems, and we will NOT have money to toss at them all going forward from this point. From where will come the money to pay for all of this after we’ve completely collapsed the U.S. Treasury in bailing out and patching up the mess in our financial system.
This worst credit debacle in world history is the sinkhole that will suck up the entire country. Get ready to start boiling your water and growing tomatoes on your balcony and buying your clothes at thrift shops as our paper “wealth” completely collapses, millions more jobs disappear, and every asset that can possibly bring even 10 cents on the dollar is put up for sale.
Forget about getting money to start your business, or expand it, and start looking for ways to shrink your payroll. Go into the scrap business and learn how to sew.
What bloody fun my oncoming old age is going to be.
Who was responsible for making sure Laura took her pill this morning? They should be punished.
Hey Laura, get your facts straight. GNMA has always been a government entity similar to Treasury (unlike FNM and FRE which are GSEs).
I know because I’m currently investing in GNMA mutual funds.
Until Moody, S&P and Fitch downgrades USA from AAA/Aaa to God knows what rating (damn how many times do I have to say this in various blogs people….go freaking read a book or something), don’t count on yours and my Benjamins to become worthless. Last I checked, our paychecks are still being paid in USD and not real gold.
Come on guys, Laura has her place here too.
IR, I’m a bear too in RE market but to extend this to this government is overreaching, IMO.
Do you expect USA rating to drop from its current AAA/Aaa rating? I don’t see it and unless all 3 rating agencies have the balls to do so, I would refrain from calling USA totally history as implied by Laura.
Perhaps the rest of the world could create a whole new different rating agency and give this govt the B+ rating (junk) it so richly deserve…….
I am not endorsing what she wrote as much as making sure she has an environment to write it.
Ok, I’ll leave at that IR since I respect you.
However, I still hold my comment wrt GNMA true. Govt doesn’t need to bail out GNMA because Ginnie Mae is already a govt entity similar to Treasury. It’s like saying USA needs to bail out Treasury.
Hence I gave the “reading a book” comment.
Laura is totally wrong. The unwinding of trillions of unregulated hedge funds, private equity and derivatives has not even come close to seeing the light of day yet.
That’s what I’ve been wondering. How the hell can BofA survive this? Is there some backroom deal with the government that we don’t know about? Cuz, to me it would seem that Countrywide and Merrill will suck BofA dry.
Call me crazy but the exterior of this house looks like a cyclops. Can you see it? The garage door is the mouth and the over-the-top window and shutters above it is the singular eyeball.
Who cares about what’s on the kitchen counter. What I’d really like to know is where the competition-hemi-orange racing stripe in the bathroom came from. How could you not contemplate skid marks and burnouts while on the throne in that room.
Has all the activity in the financial markets factored in the ALT-A graph above? That is, are the institutions looking at this portion and is the reason for the turmoil or is this just based on the subprime portion?
If not, then I can only quote my Nana and say “Good night!” and, of course, “Heavenly day!”
RIP Nana!
I was talking to the realestate agent that handles our new rental. According to her the banks (Wells Fargo I think) are making plans to put REO’s on the rental market. It will be interesting to see if this happens. But I can’t see it making much of a difference in the long run. If they put REO’s on the rental market, then that will drive down rents and indirectly housing. Then when they give up renting, they’ll end up driving housing prices even further down.
The banks cannot rent out their REO’s because it would be akin to real estate speculation, which they cannot do, they are regulated by the federal government. They must sell their REOs, which is a problem for them right now. But according to ipop, everything is rosy, all manner of escrows and all at the list price.
I don’t think they can get around government regulators and hold these properties. Of course, so much is outside the norm right now that perhaps the regulators will allow this for some time.
Lehman Brothers survived the American Civil War, two world wars and the Great Depression, but today, Monday, the firm that set the standard in fixed income markets will be liquidated. Potential losses are so toxic that none of the major financial institutions was willing to acquire it.
But, this company wasn’t tough enough to survive the strong economy of Bush/Gramm/McCain? Must have been run by a bunch of whiners.
Don’t worry it was all in their head… remember we’re in an mental recession…
Dejnov.
Hiya —- I just posted this over at ml-implode.com, but I would really like to put this out to you guys here on this forum even more.
————————————–
Friends here in Orange County / Irvine area who are actually going ahead and buying NOW – how do I make them see the light?!?!?!
I find that I am continually “at a loss” to try and describe to many of my friends (who don’t continually read these blogs) why the bottom is nowhere near. The movie “Babel” comes to mind.
I have friends that are actually closing on houses in the next few weeks. Condos, even. Here in the Orange County / Irvine area.
“Rates are fantastic. And the market’s picking up. The last 5 properties we bid on turned into bidding wars with investors! And I’m getting a super deal!”
A few are even convinced that they will see significant appreciation in these properties within a year or two!
Like you said, they’re not looking at the real, underlying fundamentals…..just on the immediate-term stuff that realtors will use to sell the idea of a bottomed-out market. I know they’re delusional, but how do you get someone to see the light???
I remember the phrase, something along the lines of “A man can’t be made to hear the truth, if his conviction that he will make a lot of money hinges upon him not hearing it.” JP Morgan?
Seriously —- this thing is SO BIG, requiring such a fundamental “paradigm shift” in people’s perceptions, that it simply may be more than most are capable of grasping. Or want to grasp. The mass media does not help the case, that’s for sure!
And so I try to warn them, but end up instead, sitting and watching my friends happily board and sail on the Titanic into the next group of icebergs…….!
What do you do?
Take care of yourselves!!!!
There will be a book you can give them soon…
Think And Grow Rich is a classic read IR
Can’t wait!!!! 🙂
Hey, seriously —- am I being overly cautious in my outlook? Like, is it possible that perhaps SOME of the bank-owned REO properties really HAVE been fire-sale-slashed in price low enough to make buying them a prudent option now, in some of these areas? Could some of them be priced at levels, on an individual case-by-case basis, that are on-par with what the larger market will see, as a whole, once we DO actually bottom?
The impression has certainly been that any kind of townhouse or condo, in california’s richest bubble zones, was poised for even more blood-letting. But maybe they got stuck with an even sharper, deeper-cutting knife than single-family dwellings, and “bled out” faster?
Curious.
Let the dead bury the dead.
It’s like trench warfare. Another million dead credit ratings for a couple of percent down.
Dejnov.
This might be the saddest thing I’ve seen ina long time. From the color of the house, to the money owed, this home brings tears to
eyes.
Congratulations IR. Looks like you win!
It is a very, very sad home. Why there are so many pictures of toilets, I have no idea. But what’s sad is that some one was really trying on this one to make a great home–but failed miserably. Good God, they tried groin vaulting in the upstairs hallway. Did it work? No. Was it supposed to work? I have no idea. Truly awful–and sad.
This house looks like a pizza box on its side
Dear IrvineRenter,
You said:
“Irvine may have been the center of the subprime lending universe, but it was the also the center of the Alt-A borrowing universe.”
Do you have information about, say, the percentage of Alt-A loans in Irvine? If so, would you be willing to share?
By the way, another great post. Thanks for finding these.
Oh, the kitchen? Grilling machine, Blue oven mits, a pair of latex gloves, a toaster and a large Diet Coke from Taco Bell. How did they get there? What realtors do in their private love life is none of my business (unless it’s MY kitchen) ;^)