Irvine Renter will be speaking at the monthly meeting of the Green Party of Orange County on Sunday, December 7, 2008, at 2:00 at the offices of the Irvine Ranch Water District located at 15600 Sand Canyon Ave., Irvine, CA. Also speaking will be Dave Levy, a valued return Green Party visitor from Orange County Fair Housing Council. He will speak about public and private ways to protect the quality of life in Orange County by ensuring equal access to housing opportunities, an important way to foster diversity and preserve dignity and human rights. December’s GPOC meeting topic will cover the importance of housing in these uncertain times, and will focus on the Green Party’s Key Value of Social Justice. “Radical Housing for Radical Times” will concentrate on novel approaches to help reach the goal of affordable, stable, quality housing for all.
Everyone is invited, so if you are interested in hearing a discussion of this issue, please stop by.
Does anyone have any good news they would like to share? I have been reading all the headlines lately, and I can’t find anything even remotely positive going on in the economy or the housing.
I don’t care what topic it is on. You can make it personal if you like. Just give me some good news…
{book}
I’m the son of rage and love The Jesus of Suburbia From the bible of none of the above On a steady diet of soda pop and Ritalin No one ever died for my sins in hell As far as I can tell At least the ones I got away with
And there’s nothing wrong with me This is how I’m supposed to be In a land of make believe That don’t believe in me
Get my television fix sitting on my crucifix The living room or my private womb While the moms and brads are away To fall in love and fall in debt To alcohol and cigarettes and Mary Jane To keep me insane and doing someone else’s cocaine
And there’s nothing wrong with me This is how I’m supposed to be In a land of make believe That don’t believe in me
Washington D.C., Dec. 5, 2008 — Treasury Secretary, Hank Paulson, announced a moratorium on defaults today. “We have been considering a moratorium on foreclosures,” said Paulson, “but a moratorium on defaults will be much more effective.”
While other lawmakers are still considering foreclosure moratoriums, Paulson is convinced a default moratorium is a better approach. He hopes others in State and Local legistlatures will follow his lead. “We want to keep people in their homes,” said Paulson, “and we need to keep our lending institutions healthy.”
When asked how a default moratorium would help, Paulson had this to say, “Foreclosures are the result of defaults, and defaults are also causing lenders to take write-downs on mortgage loans. By putting a moratorium on defaults, we solve both problems.” Paulson provides clear guidance on how the program would work, “Homeowners need to keep making their payments. That will put an end to the housing crisis.”
Experts agree that falling home values are not the root of the problem. Paulson goes on, “But let me emphasize that we do not need a system-wide solution for the vast majority of loans where a homeowner temporarily has negative equity. Negative equity does not affect borrowers’ ability to pay their loans. Homeowners who can afford their mortgage payment should honor their obligations.”
When pressed for more details on how such a moratorium would be implemented when so many homeowners cannot afford their payments, Paulson responded, “We are still working on the details. We may provide direct government assistance. The American people are kind and generous. They certainly won’t mind helping out their fellow citizens with tax dollars as necessary.”
When confronted with the possibility of creating a moral hazard, Paulson scoffed at the notion, “Homeowners need this help to stay in their homes. It would be immoral to throw them out on the street.”
You’re gonna realize that Some of my lies are true
When our various politicians propose foreclosure moratoriums, do you think they are serious? I believe most of them are simply pandering to their constituents that want to believe they are doing something about the housing price crash. If you give the idea of a foreclosure moratorium even a moment’s thought, you realize it could never accomplish anything. We just had a defacto foreclosure moratorium here in California when we instituted a new 30-day waiting period for lenders to contact borrowers to try to work something out. Of course, this only delayed the inevitable, but perhaps it gained some homeowners in foreclosure an extra month of free rent from the bank. I suppose the idea isn’t any crazier than subsidising mortgage interest rates at 4.5%. Why not zero percent? Why not pay people to live in homes? That would probably reduce the inventory. Any thoughts on what half-baked idea they will come up with next week?
Today’s featured property is another HELOC abuser who won’t get bailed out.
EXCELLENT OPPORTUNITY TO LIVE IN UNIVERSITY PARK IN A SINGLE LEVEL
ATTACHED HOME WITH ONLY 1 COMMON WALL! END OF CUL DE SAC LOCATION AND
BACKING TO GREEN BELT. VOLUME CEILINGS, FIREPLACE, CERAMIC TILE AND
WOOD FLOORING, ONE OF THE LARGEST LOTS IN THE ENTIRE TRACT! OVERSIZED
FRONT AND REAR YARDS! NO MELLO ROOS, LOW HOA THAT INCLUDES POOLS, SPAS,
AND TENNIS! BANK OWNED!
Can anyone tell me what the second picture is showing me?
Backing to green belt? Yeah, and siding on to the 405.
Well, this person didn’t double their mortgage. they didn’t own it long enough. So what did they do?
The property was purchased on 8/29/2003 for $397,000. The owner used a $336,000 first mortgage, an $84,000 second mortgage, and a $0 downpayment.
On 10/29/2004 he opened a HELOC for $120,000.
On 9/21/2005 he refinanced with an Option ARM with a 1% teaser rate for $528,000.
On 4/26/2007 he opened a HELOC for $24,847.
Total property debt was $552,847.
Total mortgage equity withdrawal was $152,847.
Is it any wonder kool aid intoxication is so strong? This guy put no money down, and he managed to extract $152,847 in spending money over a 3 year period. Who wouldn’t want some of that?
If this property sells for its asking price, and if a 6% commission is paid, the IndyMac (now the US taxpayer) will lose $116,781.
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.
🙂
{book}
Say you wanna be a friend of mine See me all the time You don’t care what I do But it all sounds the same to me
Hey, can’t you see It’s just like I told you
I know you think that I’ve Been stringing you along And that I’ve told you a few, but
(Chorus) Sooner or later when you say I love you You’re gonna realize that Some of my lies are true
I never told you that I was the one Said it just for fun You know, you knew it too So why so much on the telephone I’m never home
It’s just like I told you
Because it’s real the way you used to make me feel It makes it so hard to say But nothing can change the way I feel today Don’t you see that
Sooner or later when you say I love you Your gonna Realize that some of my lies are true
When I first started researching the property records for my daily posts, I was astounded by all the mortgage equity withdrawal. I still am. At first I was surprised that borrowers would do it. It would have never occurred to me to actually increase my mortgage indebtedness (yes, I have had a mortgage before). I can understand taking out a loan for home improvements, but never for consumer spending. Then, the more I pondered the issue; I came to realize that borrowers are like drug addicts: if you make money available to them, they will take it. Combine that tendency with a drug as addictive as kool aid, and you get people who truly believe their house is providing them with free money, so it is OK to borrow this money. Once the fear of debt is gone, even fiscally conservative people get into the act.
Finally I came to realize it was the lenders who were the stupid ones. Rational lenders want to make sure they are going to get their money back with interest. They are supposed to be the experts at determining the creditworthiness of a borrower because they are the ones ultimately taking on all the risk. Lenders started drinking the kool aid and began giving out any amount of money to just about anyone. They also believed they had no risk because they believed house prices would always go up. Even if people defaulted, they would not experience any default losses. It is the stupidity of lenders and investors in mortgage-backed securities that is truly mind-boggling.
You never give me your money You only give me your funny paper
Most of the houses for sale today have some amount of mortgage equity withdrawal. The conservative ones only added a little, but the average Irvine homeowner who bought before 2001, and who is selling today, doubled their mortgage. That’s right, most of them doubled their mortgages. However, some people really got carried away. Some people borrowed every penny of equity as it accumulated and spent it.
Usually when people go on an irresponsible borrowing and spending spree, there are consequences for this action. People get burned, and they learn not to repeat their mistakes. However, those people who were the most egregious HELOC abusers, are the ones being punished the least. Borrowers who took out all their equity have transferred 100% of the loss in value to the lenders (remember Mortgages as Options?) What have these people learned? And what lesson is being taught to everyone else?
The worst HELOC abusers have learned there are few consequences for their behavior. Yes, they will lose their homes and face bad credit issues, but they still got to spend all the money. Perhaps they will suffer the loss of their lifestyles as the free money dries up, but I imagine they will be first in line to buy another home and start the process all over again when their credit clears up. The rest of us witnessing this behavior have to be asking ourselves, “Why won’t we max out or debt during the next cycle and pass the losses on to the lenders?” Based on what we are seeing, perhaps the fiscally conservative ones were the fools.
Out of college, money spent See no future, pay no rent All the money’s gone, nowhere to go Any jobber got the sack
Today’s featured property is a particularly bad case of HELOC abuse enabled by Stearns Lending Inc. (Bears Stearns?). The peak appraised value of this property based on the loans attached was $1,138,500. The asking price is 40% off this figure. I have profiled this property before, but since the discount is so large, it is worth revisiting.
Woodbridge home has been expanded by approx 1000 sq.ft. New Large
kitchen overlooks great room, cozy living room and down stairs bath.
Spacious master suite with new master bath. Three spacious secondary
bedrooms plus two and one half baths. Private location
So lets walk through the mortgage history of this property and see just how bad HELOC abuse can get…
7-20-2001 The house was purchased for $397,000 with a first mortgage of $317,600 and a downpayment of $79,400.
11-07-2001 HELOC for $48,000 taking out over half of downpayment.
8-26-2002 Refinance for $360,000.
11-26-2002 HELOC for $29,000
11-26-2002 HELOC for $71,000
6-18-2003 HELOC for $56,000
6-18-2003 HELOC for $100,000
6-1-2004 Refinance for 517,500 –probably paid off HELOCs at this point.
10-22-1004 HELOC for 89,900.
4-21-2005 Refinance first mortgage of $624,000
4-21-2005 Refinance second mortgage of $156,000. Total debt of $780,000 at this point.
9-12-2006 Refinance first mortgage of $948,750.
9-12-2006 Refinance second mortgage of $189,750. Total debt of $1,138,500. No HELOCs
So there you have it. This homeowner went to the housing ATM 8 times over a 5 year period and pulled out $820,900.
I first wrote about these people back in January of 2008, and I am still amazed. Can you imagine being the knife catcher who might have paid them their $1,195,000 asking price back then? Talk about major equity burn…
If this property sells for its current asking price, and if a 6% commission is paid, the total loss to the ABS pool stuck with this crappy loan will be $494,694.
I also want to note the timeline here. This property first showed up as a distressed sale in January of 2008. It is now December, and it is finally available as REO complete with is 45% reduction in asking price. What do you think December of 2009 will bring?
{book}
You never give me your money You only give me your funny paper and in the middle of negotiations you break down
I never give you my number I only give you my situation and in the middle of investigation I break down
Out of college, money spent See no future, pay no rent All the money’s gone, nowhere to go Any jobber got the sack Monday morning, turning back Yellow lorry slow, nowhere to go But oh, that magic feeling, nowhere to go Oh, that magic feeling Nowhere to go
One sweet dream Pick up the bags and get in the limousine Soon we’ll be away from here Step on the gas and wipe that tear away One sweet dream came true today Came true today Came true today (yes it did)
One two three four five six seven, All good children go to Heaven
Liar I have drunk the wine (or kool aid) Liar time after time
Not long ago, we had a realtor trolling the forums. He tried all the standard hooks, but he found those fish were not biting. One of the more ridiculous ideas he put out there was the notion, “You can’t predict which way the market will go, so you should buy.” WTF? Anyone with half a brain or any amount of investment experience would know the old truism, “When in doubt, stay out.” Beyond that the remark is stupid for another reason: it is pretty obvious that the market is going to go down. The decline has momentum, we are entering a recession, and prices are still greatly inflated.
Realtors thrive by creating fear in buyers. They will use lines like:
It is a good time to buy!
Hurry. This one won’t last.
Don’t throw away your money on rent.
If you are serious, you had better buy now or you might be priced out of the market.
They are not making land anymore.
If you see a property you love, you really need to make an offer.
The more earnest money you put down, the more seriously your offer is taken.
Things have been a bit slower than last year, but the last two weeks we have seen a lot more traffic.
Rates are at all time lows and buyers have more choice than ever!
Rates are creeping up, so you better get in now.
If you wait until the bottom, you will miss out on getting a property that you really like.
This property is priced at below market value.
Incentives this good won’t be available after…
Don’t worry about the asking price – just offer what you’re willing to pay.
Don’t worry. You can afford this house.
I will show my client the offer, but I just want to let you know that we have another offer for more coming in this afternoon.
Trust me.
It’s not just the commission. I really care about you.
In a buyer’s market these ploys are all lies (the truthfulness of these statements is questionable in all market conditions). Don’t believe them.
Liar liar liar liar Liar that’s what they keep calling me
Do not forget that when you are buying a house, the realtor is the agent of the seller. The primary responsibility of the realtor is to serve his client by obtaining the greatest possible purchase price. The realtor may be nice and disarming, and you might honestly believe they have your best interests at heart. They don’t. In a perfect world (for them) they would lead you to believe they are looking out for you while they are extracting as much money out of you as possible. That way, you will be inclined to use them again when it is your turn as a seller to get as much as possible from your buyer.
Realtors are paid to say the things that would make you cringe with a straight face and a smile. That is how they get that extra few percent out of buyers that justifies their existence. Sellers pay them to say all of the things in the list above for one simple reason: it works. Buyers fall for it, almost every time. Financial manias are not enabled by realtors presenting rational arguments and objective advice. Housing bubble psychology is exploited by realtors to sell homes. That is their job.
When I sold my home before moving to California, I used a realtor. When it is my turn to sell a home here in California, I may do the same. If I find someone who I believe will get me at least 4% more in a sales price than I could on my own, I will hire them. I just won’t be there when they go into their sales pitch. My facial expression would give me away…
Today’s featured property is in the Northwood II neighborhood. The stress of the low end is working its way up to this next tier of the housing market. This one is going for less than $300/SF.
Spacious upgraded home with one bedroom and full bath downstairs.
Hardwood flooring, granite countertops, private yard. Great interior
location. Four bedrooms and master retreat plus den. Over 2600 sq. ft.
of living space. Located in the gated community of Northwood II.
Assciation offers pool,spa,clubhouse. Just a short walking distance to
shopping and restaurants.
Assciatio? That description is 55 words, and they can’t spell them all correctly.
This property was purchased on 3/28/2005 for $898,500. The owners used a $718,562 first mortgage, a $137,500 HELOC, and a $42,438 downpayment (It is possible the HELOC wasn’t used to purchase and the downpayment was $179,938). On 6/7/2006, they refinanced with a $749,000 first mortgage, and opened a $111,000 HELOC. On 7/28/2006 they opened a $200,000 HELOC. If the final HELOC was used, the total debt on the property is $949,000. That would also be its peak appraised value.
If this property sells for its asking price, the total loss on the property will be $193,500 after a 6% commission. The actual loss to the lender would be $244,000 if the HELOC is maxed out.
This property is being offered for 16% off its 2005 purchase price, and 22% off its peak appraised value.
So can you think of any realtor ploys I have missed?
{book}
I have sinned dear Father Father I have sinned Try and help me Father Won’t you let me in? Liar Nobody believes me Liar Why don’t they leave me alone? Sire I have stolen stolen many times Raised my voice in anger When I know I never should Liar oh ev’rybody deceives me Liar why don’t you leave me alone
Liar I have sailed the seas Liar from Mars to Mercury Liar I have drunk the wine Liar time after time Liar you’re lying to me Liar you’re lying to me Father please forgive me You know you’ll never leave me Please will you direct me in the right way Liar liar liar liar Liar that’s what they keep calling me Liar liar liar
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…
THIS LARGE 5 BEDROOM 3 BATH HOME WITH TILE AND WOOD LAMINATE FLOORING
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…
New Listing (24 hours)
Maybe, someday