Saved By Zero — The Fixx
Once 100% financing became widely available, it was enthusiastically embraced by all parties: the lenders suddenly had a huge source of new customers to generate high fees, the realtors and builders now had plenty of new customers to buy more homes, and many potential buyers who did not have savings were able to enter the market. It seemed like a panacea; for two or three years, it was. There was a problem with 100% financing (which was masked by the rampant appreciation brought about by its introduction): high default rates. The more money people had to put in to the transaction, the less likely they were to default. It was that simple. The borrowers probably intended to repay the loan when they got it, however they did not feel much of a sense of responsibility to the loan when the going got tough. High loan-to-value loans had high default rates causing 100% financing to all but disappear, and it made other high LTV loans much more expensive, so much so as to render them practically useless. It was all part of the credit tightening cycle.
Maybe I’ll win
Saved by zero
Besides stopping people from saving for downpayments, 100% financing harmed the market by depleting the buyer pool. In a normal real estate market, first-time buyers are saving their money waiting until they can make their first purchase. This usually results in a steady stream of first-time buyers that enter the market each year. When 100% financing eliminated the downpayment requirement, it also eliminated any need to wait. Those who ordinarily would have bought 2-5 years in the future were able to buy immediately. This emptied the queue. This type of financing appears periodically in the auto industry, especially in downturns when it is necessary to liquidate inventory. The term for this is “pulling demand forward,” because it reduces demand for new cars in the next few years. This might not have been a problem if 100% financing would have been made available to everyone forever; however, once downpayment requirements came back those who would have been saving were already homeowners, so there were few new buyers available, and any potential new buyers had to start over saving for the downpayment they thought would never be required. The situation was made worse because those late buyers who were “pulled forward” from the future buyer pool overpaid, and many lost their homes. This eliminated them from the buyer pool for several years due to poor credit and newly tightened credit underwriting standards. Thus, most who thought 100% financing was a dream come true found it to be a nightmare instead.
Today’s featured property is another 100% financing deal, and get this: the lender was Zero Down Mortgage! I wonder if they are still in business…
Asking Price: $829,900
Income Requirement: $209,975
Downpayment Needed: $167,990
Monthly Equity Burn: $7,000
Purchase Price: $1,150,000
Purchase Date: 6/21/2006
Address: 14 Arbusto, Irvine, CA 92606
| Beds: | 5 |
| Baths: | 3 |
| Sq. Ft.: | 2,420 |
| $/Sq. Ft.: | $347 |
| Lot Size: | 4,728
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Contemporary |
| Year Built: | 1997 |
| Stories: | 2 |
| Area: | Westpark |
| County: | Orange |
| MLS#: | P666558 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 2 days |
THROUGH-OUT, UPDATED KICHEN WITH TILE COUNTERS, OPEN FAMILY ROOM WITH
FIREPLACE, DOWNSTAIRS GUEST ROOM, INSIDE LAUNDRY, 3 CAR GARAGE IS
PARTIAL CONVERTED TO STORAGE AREA, GOOD FLOOR PLAN, CORPORATE OWNED.
Corporate owned? It this a new BS realtor ploy to disguise the fact this property is REO?
The Redfin listing is incorrect on the purchase price of this property. It was purchased on 6/21/2006 for $1,150,000. The owner used a $920,000 first mortgage, and a $230,000 HELOC to purchase the property. It was bought at auction by the loan servicer for $1,044,971. As I mentioned above, the loan originator was Zero Down Mortgage. The name tells you all you need to know about the housing bubble.
If this property sells for its asking price, the total loss on the property will be $360,494 after a 6% commission.
This asking price is 27% less than its peak purchase price.
{book}
Maybe, someday
Saved by zero
I’ll be more together
stretched by fewer
Thoughts that leave me
Chasing utter
My dreams disown me
Loaded with danger
Maybe I’ll win
Saved by Zero
Holding onto
Wends that teach me
I will conquer
Space around me
Maybe I’ll win
Saved by zero
Maybe I’ll win
Saved by zero
Saved By Zero — The Fixx
BTW, Toyota recently killed this song for me:
I wonder if 0% financing is working any better for the auto industry…
One other important part of all those who jumped in when there was 100% financing – the worry that if they did not jump in right then they would be forever priced out of the market. People were so convinced that the house values would rise in double digits ad infinitum that they really had no choice. Why save up for a year when you will have to pay another 20%?
For many buyers it seemed very rational to jump in when they could afford it. Even for people who knew there was a bubble did not know how high things would rise or how far everything would fall.
Let’s not forget one very important OTHER aspect to zero down financing … no money in the deal and a seemingly infinite pool of cash removed price from the discussion. No one gave a damn the actual price of something because it was all silly money to them so why care what the actual cost of something was?
Do you suppose price will be ignored in the future? Nope. Folks are about to care a great deal about what something costs and that’s not just the acquisition price either.
Just my two point two cents. 😀
I hate car ads that only state monthly payments. If they can’t state the total price straight up, they don’t want my business.
I knew it was a bubble when co-workers who make half my salary bought houses I couldn’t afford. I am hard pressed to think of anybody who doesn’t own a house at work. Now who is holding the bag?
Me, I knew it was a bubble when all of my in-laws started repeating the mantra of “there’s never been a better time to buy.” Back in the very early Nineties, when the baseball and trading card bubble was in full swing, a guy I knew who was cashing out told me “When your grandma calls you up and tells you about the current ‘chase’ cards and how much they’re worth, it’s time to get out.” I knew the same thing was happening in real estate when the little church at the end of my street was promising a “faith-based investment plan” that involved flipping houses.
“the little church at the end of my street was promising a “faith-based investment plan” that involved flipping houses.”
Real estate is a religion after all…
http://www.zillow.com/homedetails/Arbusto-Irvine-CA-92606/25475617_zpid
this house on zillow
There’s nothing better than risky investment plans except for holy risky investment plans.
Personally, I never want to hear the word “faith” in relation to any of my investments…
I can hear the investment preachers now:
“Just have [b]faith[/b], faith my brothers, faith my sisters, that thy WaMu stock shall rise up, soar like a righteous spirit, and ascend to gates of heaven, to speakuth with the lord, and He shall redeem stock to a mighty $800 per share. Can I get an [b]amen[/b]! Now who shall step forth first to and buy thy stock?”
hey.. they prayed that gas prices would come down. I guess it really does work!
And I had JUST gotten that tune out of my head. Thanks a lot. 😉
The auto business has been stealing forward customers for years.
The current situation for the big 3 isn’t just a failure of managment to get thier labor costs in check – it’s a failure of managment to eat consequences of falling sales since 2001.
There might be a bigger lesson for the housing market than we think.
For more than a decade, the auto industry hasn’t been selling vehicles for transportation; they’ve been selling them for aspirational status.
At first, this price struck me as WTF. But then I re-read the description and saw that the price includes “INSIDE LAUNDRY” and then it all made sense.
So, the Fed is buying U.S. Treasuries. Isn’t that simply printing money out of thin air?
They are attempting to restart the housing bubble.
Yes, when the FED buys US Treasuries, they are printing money out of thin air. I think their primary concern is restating the economy by adding money to the money supply. Right now, all the bank losses are causing money to evaporate even faster than they are printing it.
Indeed. What really galls me about this strategy is that, to me, it’s akin to giving a guy who’s down 10 large at the crap’s table another 10 grand to piss down the drain.
Am I alone here or does the idea of giving “investment banks” and “financial firms” yet more and more money after their track record of late make your head explode?
I really wish someone would explain to me how giving billions in my tax dollars to the reckless, greedy bastards on Wall St. makes this all better? I would rather our billions be used in a program similar to the WPA of the Depression era. Uncle Sam should be spending our tax dollars on rebuilding roads, bridges and investing in mass transit projects and other large, long term infrastructure projects that not only would provide jobs but show dividends over decades to come.
Can you imagine someone actually paid over a million for this place? On second thought it does have some lovely palm trees out front though!
Can you believe some wingnut actually wants $850,000 for this tract home?
Having been in the tract residential construction business, I know exactly how much houses like these cost to build and I will never get over the fact that someone paid over 7 figures for a crummy tract home with shitty rotary cut plywood recessed panel cabinets. Now I don’t know what the land and site development costs were but I could build these places all day long for under $65 a square foot or roughly $160k to build this house.
I’ve always wondered what tract houses actually cost to build — thanks for that.
Well .. we bought a house couple years back (not in Cali.) for 350 (larger lot, larger size and much nicer and better construction). Your comment on $65 per-sqft makes me feel a bit better about my purchase.
At the same time, when we bought we accepted the fact that housing market would eventually turn and we would loose part of our down payment (if we had to sell).
Ah-ha! I thought those cabinets looked like plywood. And on Redfin it still states that the floors are (presumably were, when built) linoleum. I guess it is indeed safe to imagine that the construction quality for everything else was not any higher. $1 million, or $830k, or anything remotely close to that is such a sad joke.
This place will be bought by the homeowner equivalent of those people who charged into Walmart last Friday and trampled a guy to death. Shop ’till you drop – it’s a fun recreation activity!
Wonder if this is the lender:
http://www.zerodownmortgagepro.com/
They have some cheesy graphics on the site some of our Photoshopers might have some fun with.
Walter – that’s so funny as I was looking for them as well.
There’s a mortgage shop on the east side of the 405 right across from the ill-fated CPW development (just north of Jamboree) that is called 10% Down Mortgage or something.
I thought maybe the Zero Down guys had to change their business model! Maybe next month it will be 20% down!
Here is a winning business model:
All Cash Mortgage!
They can just charge the fees and not worry about the nasty underwirting standards screwing everything up.
IR, don’t you think that there is another pool of buyers waiting to get in the market…the people who really did save and waited for the bubble to break and who are now renting? How can you assume that there are none of those buyers? The problem is, with our population, we have a nearly limitless supply of potential buyers (most people want to buy, right?) and we cannot assume that none of them have been saving and waiting. Maybe there are plenty of buyers out there.
I am one of those buyers. Been saving since 2000, I have a 6 figure job and a score in the 800s. I also work with a collection of co-workers in the same position.
Thing is, all we do is talk about how much further housing is going to fall over the next few years.
Also, for everyone I know that can buy, I know 2 that bought in the last 3 – 4 years and are screwed.
I am with IR on this one. Of course there are some buyers out there, but they are out numbered and scared to death to buy in the foreseeable future.
Maybe you meant to write: in the forecloseable future? 😉
I’m one who left the queue, and even though we had 10% saved, we took on an 80/20 mortgage because the rates were too attractive. The second mortgage is fixed for 30 at 8.5% (adjusted for tax consequences closer to 5%) and we’re paying it down early.
There are buyers out there but the prices are still way too high. This house is so similar to my old home in the Bay Area but mine was 3,000sq. feet with a 10k lot. And it was bought for $450k in 97′ and sold much less than this one wants.
This home is worth 700k or less–no new work, small lot, no pool–nothing for this price–No one would buy it here.
way over priced–
Given historical home ownership rates, I tend to buy IR’s argument. Home ownership is now something like 3% higher than it is normally (63% in 2008 in the West, compared to 59-60% in the 1980s and 1990s, and around 60-61% before then). It peaked at 64.9% in 2005Q1.
There ARE plenty of buyers out there. But, in the grand scheme of things, there are fewer of them relative to homes to be sold than there used to be.
LA Times ran this article today:
http://latimesblogs.latimes.com/laland/2008/12/orange-county-f.html
“Orange County: foreclosures 45% of inventory”
…which had already been covered here, but I thought this prediction was interesting:
“Thomas [Steven, broker in Aliso] is calling a market bottom for Orange County in June, 2009. Affordability is being helped by the foreclosure inventory as well as lower interest rates, he contends. Thomas said he expects ‘the doomsayers, a.k.a bloggers, will eat me alive’ for his bottom-calling.”
Houses will be affordable in 6-months, good news!
Doom sayers, you say? How about “people who have been right, while I (Steve Thomas) have been dead wrong for years.” Everyone needs to ask Steve Thomas: Why some many homes below $500K are selling and then ask what happens when nearly no homes are selling above $750K? I predict that Steve Thomas will say that December 2009 will be the bottom for OC in June of 2009.
I don’t know that I would waste the keystrokes on roasting him. He has been consistently wrong, and it is obvious to everyone he is cheerleading for his own self-serving purposes. If he had any credibility to go after, I might bother, but at this point it is like debating Gary Watts. What is the point?
IR nailed it. I found it funny how Thomas’ old blog posts – some talking about a rebound in 2007 – suddenly began to “disappear.”
Maybe Thomas uses the same ISP as the GOP?
There are some mighty useful computer service companies out there, if you ask me.
WARNING!!!
One of the linked YouTube Videos on this site is infected with Actns/Swif.T virus. If you see any pop-up for a “Antivirus 2009” program, you should decline it.
I would recommend that you remove all links to YouTube videos until this is sorted out.
Hmm, not really possible unless the virus were exploiting unpatched Flash Player vulnerabilities, and someone had figured out a way to craft (e.g. MPEG) video files in such a way that YouTube’s transcoders would create an SWF that would conduct the exploit. In other words, incredibly unlikely. Sounded to me like a false positive by anti-virus software, and sure enough:
http://www.crunchgear.com/2008/12/02/actnsswift-virus-affecting-embedded-youtube-vids/
If you try to play The Fixx’s video above, it says “We’re sorry, this video is no longer available.”, so I thought maybe YouTube or the owner had taken it down as a misguided precautionary measure, but I see, IR, that it’s just that Universal Music Group doesn’t allow embedding of that video.
A friend of mine got this virus and it is a nasty one. They claim they never go to sites that they are not familiar with and still got it. So it appears there is an exploit out there in Flash or the browser.
IR, the asking price is $839K not $829K. I passed up 6 or 8 Arbusto at $860K. Good to know this house is lower than the one I passed in Oct 2004.
i knew it was a bubble when my unemployed friend bought a house for $900K.
I love the street name – Arbusto, as in:
You ar bust-o if you buy this now.
This is a question and not snark…..
but why do people who have been foreclosed on take the refrigerator? Do they have another house they bought that doesn’t have one? Does their rental (which usually have one – right?) unit not come with one? Are they going to try and sell it? I don’t get this.
Many rentals, including mine, do not include a refrigerator. One less appliance the landlord has to worry about maintaining, I guess. I doubt they could get much trying to sell it. You can get one for free sometimes on Craigslist.
Yeah, I think it’s now standard for the IAC complexes to include a refrigerator, but my IAC complex did not before it was renovated a few years ago (and there are still a lot of complexes with no refrigerator in lower-rent areas). Had to sell my fairly new fridge when the renovations were done, and managed to get $300 for it on craigslist.
Actually, here in North County, I didn’t find a single apartment or home for rent with a fridge when I last looked 2 years ago.
And, sometimes, people get desperate and they don’t want to “give up” on something. My guess is that a lot of the folks who engaged in HELOC abuse bought actual items to fill their large houses with, and they are now renting storage units to store it all in. If you’re storing a bunch of stuff, what’s one more fridge in there?
Arbusto was also George W Bush’s first oil company, that he started with his trust fund money and ran into the ground. Again, a fitting name for a bankrupt endeavor…
Funny, I first read this as “absurdo”…..but I like u-r-busto better….
Yet another house that is being gang raped by the houses next to it. This is practically a townhome.
I knew the bubble was bad when people at night clubs were trying to sell me mortgages. “It will reset, but you’ll adjust. You’ll find a way to make more money.”
Maybe I’m just old school but my thought has always been that when you buy a home you do so with financing that results in you owning progressively more of your home over the course of the loan.
It seems like the bubble brought in a huge number of buyers that were very different from traditional home buyers. Old School meant you bought a home who’s payments didn’t exceed 3x income with 20% down and a 30 year fixed. Very simple and straight forward with no surprises awaiting you at some point in the future. Then the bubble buyers came along and purchased homes with exotic zero down loans with payments that they could barely “afford” prior to the eventual Arm reset\teaser rate expiration. To use the bubble years as a point of reference for where prices should be today seems silly at best. It was an abberation that was not sustainable.
Of course there will always be people who will purchase beyond their means. But I’m wondering if after the craziness of the bubble years that a majority of buyers will refuse to buy until prices allow 3x income purchases. I’m trying to understand how people can prepare for the future when your mortgate payments prevent you from saving and contributing to retirement accounts.
Yup. My understanding is that 4x income had been standard in California prior to the bubble, however. Would be great to go to 3x like most of the country, but not holding my breath.
I knew it was a bubble when stupid people–with abundant confidence but no education or knowledge–kept trying to sell me mortgages. When the salesperson needs to sell their product more than a buyer needs to have it, then it’s a sure sign of a bubble.
‘Arbusto’ hmmmm, wasn’t that the name of GW’s first oil company, the one that couldn’t find oil in Bahrain?
IR – your “Reply to this astute observation” link seems to be hosed
I knew it was a bubble when 2 years ago at the teaching hospital I work at Med Students would say it really does not matter how much your student loans are. Just buy a house zero down and in 2 years sell it using the proceeds to pay off entire loans.
That and last year when my Brother-in-law asked me
to borrow 70k, co-sign on a 15% down adjustable loan because the Mortgage Broker assured him he could pay me back in 2 years using a cash out refi when prices return. Said sorry to the Brother in Law. Next week he signs a lease 🙂
Robert