Do you think the lenders and investors are stupid enough to give Californians several hundred billion dollars without getting paid back? I bet they won’t get fooled again.
Today’s featured property is another HELOC abuser that hopes she has some equity left.
Asking Price: $599,000
Address: 4292 Manzanita, Irvine, CA 92604
{book5}
Won’t Get Fooled Again — The Who
Just like yesterday
Then I’ll get on my knees and pray
We don’t get fooled again
Don’t get fooled again
No, no!
Will the lenders inflate another bubble? I have no doubt whatsoever that California homebuyers will work to inflate a bubble. The rewards of the last one were too great for too many people. Once prices start going up again, kool aid intoxication will take over. However, for prices to go up again, lenders have to provide credit; buyers blow bubbles, but lenders provide the air.
When I was studying real estate economics, it was just after the Savings and Loan disaster was unwinding. Many of the case studies in my classes revolved around what happened and why. There were two things I took away from those classes that apply to today: 1. Have cash in the aftermath of a financial catastrophe. 2. Unregulated lending that is insured by the government leads to wild risk taking and massive taxpayer losses.
After the Savings and Loan disaster, I never thought I would see reckless lender behavior again in my lifetime. But in fact, I did see the same behavior in The Great Housing Bubble. Lenders made these same mistakes in the late 1980s, and they learned nothing. The fact that lenders did this again is ominous. I can no longer say with any confidence that we will not see the lenders lose their minds again.
I have made no secret of my conversion from a free-market capitalist to a believer in regulated markets. I accepted the deregulation nonsense of the last 25 years. The Ponzi Scheme worked, or so I thought. It is apparent to everyone now that a lack of oversight and regulation lead to an unprecedented government bailout. Do you realize that we have already given more to AIG than we spent on the entire S&L fiasco?
If we put a stern regulatory framework in place within a bureaucracy
insulated from political pressure (don’t ask me how to do that), we may
be able to keep our lenders on a leash and prevent another financial
bubble. Absent regulatory reform, we will still have 20-25 years before lenders lose their minds again. Institutional memory is short, but the losses were so large that sane people will remember the perils and avoid this for a while. In either case, the typical knife catcher is betting we will re-inflate the bubble next year or perhaps the year after. I don’t know much, but I am quite certain that isn’t going to happen.
Asking Price: $599,000
Income Requirement: $149,750
Downpayment Needed: $199,800
Monthly Equity Burn: $4,991
Purchase Price: $252,000
Purchase Date: 5/31/1996
Address: 4292 Manzanita, Irvine, CA 92604
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,100 |
| $/Sq. Ft.: | $285 |
| Lot Size: | 5,623
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Other |
| Year Built: | 1974 |
| Stories: | 2 |
| Area: | El Camino Real |
| County: | Orange |
| MLS#: | P679609 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 2 days |
master bedroom with retreat upstairs and 4th bedroom. Close to
elementary school and quartly association dues include membership to
the swim club. Fenced yard for entertaining and eat-in kitchen, living
room and family room with two bedrooms and two bathrooms downstairs.
Greeen? quartly?
I love the clutter in this house. I bet they sit on the garbage can under the kitchen island by mistake occasionally.
- This property was purchased on 5/31/1996 for $252,000. The owner used a $200,000 first mortgage and a $52,000 downpayment.
- On 5/5/1999 she refinanced with a $225,000 first mortgage.
- On 6/31/2001 she refinanced with a $255,000 first mortgage.
- On 8/21/2002 she refinanced with a $258,000 first mortgage.
- On 9/3/2004 she opened a HELOC for $100,000.
- On 9/27/2006 she refinanced with an Option ARM for $495,300.
- Total mortgage debt is $495,300 plus negative amortization.
- Total morgage equity withdrawal is $295,300 including her downpayment.
Remember yesterday I was talking about the typical pattern: people take out spending money over time, and at the end, they want to take another pile of cash with them? This woman took out $295,300 over a 10-year period. Spare me the chronic illness crap; she spent it. Some of it might have gone into the upstairs improvements, but based on the pattern of withdrawals, that is not where most of it went.
Depending on the self-discipline of the owner, some took out a little, and some took out a lot; in any case, most took out something. This behavior explains much of the reason kool aid intoxication is so strong.
I’ll move myself and my family aside
If we happen to be left half alive
I’ll get all my papers and smile at the sky
For I know that the hypnotized never lie
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.
🙂
{book6}
I’ll move myself and my family aside
If we happen to be left half alive
I’ll get all my papers and smile at the sky
For I know that the hypnotized never lie
Do ya?
I’ll tip my hat to the new constitution
Take a bow for the new revolution
Smile and grin at the change all around me
Pick up my guitar and play
Just like yesterday
Then I’ll get on my knees and pray
We don’t get fooled again
Don’t get fooled again
No, no!
Won’t Get Fooled Again — The Who
For the life of me I can’t see in the house at least, where they spent their HELOC. One big screen tv? Upstairs improvements? Huh? She went on the cheap for her “improvements” that’s for sure.
$400k-$450k for me on this one.
Wow, if people are willing to pay $400-450K for this, then maybe things won’t go as low as I project!
The 1996 price is reasonable. It was somewhat reasonable then, and it’s reasonable now. Ok, I’ll factor in some adjustment for inflation and say $300K.
How about $340,000.
Using the inflation calculator (http://data.bls.gov/cgi-bin/cpicalc.pl) with a purchase price of $252,000 in ’96 that would be $340,000 today. Seeing as how this place hasn’t been updated, and it looks like it needs a lot of work (cracked patio cement, fence looks like it needs replacing, old 70s fireplace, needs lanscaping, etc) I’d say $340,000 is too much if you’re dot a DOIY buyer.
How about $225,000. The house was 22 years old back in 1996, and now it’s 34 years old. It should depreciated in value. My offer is $225K.
Houses, with proper upkeep and repair, last forever or nearly so. The average annual repair costs of a 34 year old home are no greater than those of a 22 year old home. Plus, a lot of the value of a property is in the land, not the house itself, especially in places like Irvine-and that goes up in value, not down, over the years, since there are more people and the same amount of land.
In any case, looking at the recently sold comps, she’ll get at least $550k for it, possibly the full asking price.
Only someone truly unserious about selling their house takes a picture like that of the kitchen (which is a make or break room in many cases). Seriously, turn on a light, pick up the toys on the floor, the crap on the fridge, clear the counters, and WTF with the garbage can being in the picture? (if only for the picture) – it is way distracting. And that is outside the price which seems a bit high considering the price paid and the current market conditions.
I believe Dr. Housing Bubble would call that the “garbage 2.0”, and it is a selling feature, not a distraction!
IR ask the million dollar question right here~
“Do you think the lenders and investors are stupid enough to give Californians several hundred billion dollars without getting paid back?”
This simple question is indeed THE most important issue facing the Orange County real estate market. It is the camel in the tent, yet most real estate PermaIdiots do not understand it, or just pretend it’s not relevant.
Ponzi scheme lending has left a massive scar on Wall Street, leaving many financial institutions bankrupt or insolvent, and the US taxpayer on the hook for no less than a trillion dollars.
So to answer IR’s question … HELL NO … Ponzi scheme lending ain’t coming back anytime soon, if ever in our lifetime. They might bring something back that is similar, but there will also be recourse involved, and Wall Street won’t be left holding the bag.
Orange County’s problems are very unique, in that most desirable single family homes south of Jamboree require a super jumbo mortgage, and Wall Street ain’t playing that game anymore. Anything outside of a conforming mortgage is almost out of the question right now.
This is the precise reason why I have said for a very long time; once you understand how and why we got to this place in OC home values, it’s very easy to retrace the dots right back to pre-bubble pricing. However, the one thing that can prevent pre Y2K pricing from coming back, is hyper inflation.
The last time mass defaults and foreclosures happened nationwide was in the depression. The result in CA was exactly the opposite of what you expect. Purchase money mortgages went to nonrecourse, in order to make it clear to the lenders that irresponsible lending was the lenders problem, and they couldn’t recover anything but the house.
I wouldn’t be opposed to extending that to refis.
One thing you are leaving out: while the boom is raging, Ponzi scheme lending is very profitable for wall street. As long as there are bankers that think they are smart enough to jump off the train before it crashes, we will see this again and again.
This is partially right. The reason things went much more wrong in the 2000s than the late 80s and early 90s was what is called an “agency problem”.
The S&L crisis in the 1980s and 90s was largely caused by federal guarantees of deposits with poor supervision and no risk weighting on the FSLIC fees.
In the 2000s, FDIC guarantees were only a mild contributor to the problems. A BIG contributor was being able to securitize most or all of the risk and give it to someone else. That means the people with the most knowledge of individual borrowers (mortgage brokers, poorly regulated in most states), were able to take their money and run. They didn’t have any risk beyond losing their job.
The rating agencies aggravated the problem with bad models of default rates. Bond guarantee firms and private mortgage insurers were examples of people dumb enough to blow their own money. A common theme was the people risking their own money were generally far removed from detailed knowledge of the borrowers. They seldom had any personal interaction with them.
“A BIG contributor was being able to securitize most or all of the risk and give it to someone else.”
This is what I considered “jumping off the train”. What they did not realize is that many of them were not good jumpers and got a shirt or pant leg caught on the train as they jumped. Now they are being dragged to their bloody deaths.
I tend to think it’s more like addictive drugs or gambling. Sure is nice in the begining, going to be a “recreational” user, but once you get used to it on a regular basis you cant give it up.
We have all seen people gambling that are up tremendous sums of money but cant walk away from the table. Usually they give all back all their winnings and hit the ATM to try and get their initial buy in back and lose that too.
I don’t think we’ll ever see “fog a mirror” type lending again in our lifetime. It just ain’t gonna happen … NOPE … no chance. It’s destroyed massive corporations, placed our country/economy in an ominous abyss that has yet to play out, and destroyed millions of lives with foreclosures, BKs, job losses, and divorces.
Hate to disagree with you, but it ain’t gonna happen … at least not to the same extent.
I agree the odds of seeing such extreme recklessness is exceedingly low.
But memories are short, and the erasing process is greatly aided by the watching of money being made in the early stages of the next bubble.
And if too many believe there is no chance of this happing again, the ones that should be on the lookout might not be paying attention. So we need to believe there is a small chance of seeing such extreme recklessness so we can lookout for it. If not to save the system, then to at least save ourselves and those we know.
I worked at New Century in IT. In 2005 I tried to warn people of impending doom. Some listened, many did not.
One more point regarding the jumbo mortgage market~
NEW YORK, March 19 (Reuters) – In a move reflecting widening stress in the U.S. housing market, Moody’s Investors Service on Thursday said it may downgrade $240.7 billion of securities backed by prime-quality “jumbo” U.S. residential mortgages because defaults will be higher than they expected.
So … despite the FED’s zero interest rate pumping $ efforts, it ain’t gonna work in the jumbo market. The FED can’t force investors to lose money.
Will the lenders inflate another bubble?
Yes, they will because of the moral hazard that our government has created. You can bet that right on schedule when the sting of the depression wears off; Laissez-faire will once again be in-fashion and sold to us by a fresh new motley crew of profiteers in nice suits.
I can no longer say with any confidence that we will not see the lenders lose their minds again.
Nobody lost anything. The big decision makers at the top of the food chains of these lending clubs are intelligent and extremely cunning and they are the ones who pay for the politicians that serve their whims.
We are just in cooling off period while the government attempts to prevent social unrest. Once things have calmed down, it will be back to business as usual for these guys.
If we put a stern regulatory framework in place within a bureaucracy insulated from political pressure
This will never happen. What they will implement is some kind of a “compromise” that is as effective as mammary glands on a bull. They will put up a nice facade that makes people think they are being protected, but there will be enough loopholes that can easily be exploited by the crooks (they are the ones who designed the system afterall).
the typical knife catcher is betting we will re-inflate the bubble next year or perhaps the year after
Yup. Our ignorant populace is doing its part to remain obedient and stupid.
While I don’t necessarily agree with every sentence, this is definitely how it feels sometimes. The legislatures are always fighting the previous war…
It seems that even Jim Jubak agrees, though!
http://articles.moneycentral.msn.com/Investing/JubaksJournal/fluke-credit-crisis-was-a-heist.aspx
DaveAZ, You forgot one thing about Wall Street gamers. In the past, Wall Street were banking and industrial families incorporated as LLP’s or corporations. They sold to the “assets and talent” to the public as stock (i.e., 401 and pensions). While public, the families still controlled the companies and took most of the profits as bonus and options. They then sold more of their personal stock and options to the public at further inflated prices. But this diluted their controlling interest in the company. The plan is for the govt to nationalize the banks, then resell (at rock bottom prices) the business back to private investors, i.e., original banking/industrial families, without the toxic assets and debt. The families in time will then sell the “assets and talent” back to the public and pensions as stock. The families make a killing will each cycle and govt assistance, i.e., taxpayers’ money.
“quartly association dues include membership to
the swim club.”
http://www.crackthecode.us/images/ComePlay.jpg
Haudy pawtna nice sawloon ya got upstares thare.
http://www.crackthecode.us/images/irvine_saloon.jpg
This is a riot. Thanks for the laugh.
Ha hahahahahahah! I love it. Thanks for the laugh.
That is pretty funny Dave.
Even funnier is that this house will probably get a decent offer due to its size and decent lot even though it’s in a generic part of Irvine. It also doesn’t back to any major streets…but the Metrolink is nearby…I don’t know if you can hear it from there.
The place is a wreck however. Kitchen needs a makeover. Actually most of the house.
So say the woman spent $100k on the addition…where did the other $200k go?
I was right. This place is showing on Redfin as taking backup offers…
Yes you can hear the train. I live one street closer to the tracks and you know when the trains are running.
Probably because it is one of the older neighborhoods, the streets are insanely wide compared to the new developments.
That truly made me laugh out loud!!
OMG! I was aghast over this photo in the mls and you totally summed up the effect of what the owner’s have done with this upstairs master.
Thanks for the laugh David!
Sure, that’s how it started but once values became so inflated nobody was immune. If you are a credit union and wanted to lend money as part of your business, you were taking huge risks, even if lending to people with good credit, because when the bubble pops you will end up with much cheaper assets on your book and inevitably a portion of borrowers will default. I could say the same thing about Fannie Mae. It all started with Wall Street’s easy money lending and the bubble it created. From the S&L crisis to this latest housing crisis it was less than 15 years. The impression I get sometimes is that a great many people still would rather live in a bubble than in reality even today.
You’re right about credit unions, and that’s why they weren’t making many mortgage loans for the past few years. If you’re going to portfolio the loan, you’re going to make sure the borrower will reasonably be able to pay you back. This is another reason why credit unions “should” perform reasonably well in this downturn.
I spoke with a credit union rep not long ago. The only mistake they made was getting involved with HELOCs. They did not do enough of them to put them under, but they will face some losses.
Geithner and crew are once again proving that the only thing worse than insufficient regulation is direct government involvement. The cavalcade of gov’t mistakes on AIG is beyond ridiculous. The government uses the shadowy doomsday threat of the never defined ‘systemic risk’ to justify any action, no matter how politically driven, unlawful, wasteful or destructive. The fact is that our system would work better if companies that make huge mistakes were allowed to fail and fall into the bankruptcy framework. This may have obviated this whole sublimely absurd AIG retention bonus fiasco. It inevitably ends up costing much more both in the short and long term to externally prop up failed enterprises.
True! In hindsight, with unlimited supply of dollars, the Fed could have easily and directly kept credit going and fulfilled the role of these failed and bailed-out private institutions while we see which banks played it right and could stand still.
Amen!
All that bail out crap was nothing more than an excuse to allow the elites to rob the people even more as if they had not done enough. Robbing a bank is a crime unless you are one of these privileged executives at AIG and other criminal institutions. There seem to be a few pawns used by these criminals to pitch for that bail out fiasco — the biggest bank robbery of the entire civilization. I wonder how much TonyE has received for offering his service to his masters.
WTF?
I wish I got a penny off this thing. I mean, most intelligent people could/can see this happening. It was train wreck all along.
I mean, the truth is that the Polity is killing the country while it enriches itself. Engorges even as it ships jobs overseas thereby lowering the cost of labor while greatly increasing profits.
And who will buy the products? Oh! Nevermind, the chinese will lend us back the money at low rates and so we’ll buy more things made in China while the Ruling Class takes its big cut from every turn of the spiral…
But given the chance.. say 20MIL or so after tax, which one of us would not jump at the occasion of kissing the royal A$$ of the Polity and make out like a bandit?
It’s all a Private Idaho kind of thing.
Besides, IR forgot the intervening bubble: The Dot Com Bubble. At least on that one I made pretty good money (even though I had to pay taxes that made me feel like the IRS gave me a looong digital prostate checkup.. ) >:-P
The govt was been regulating but in the wrong way. It was not free market, because in a free market wrong choice have consequence, i.e., losses, to the individual. The market sets the interest rate in a free market. Instead we had the govt setting an ultra low interest rate, demanding sub-prime lending and making conditions to make lenders make a short-term profit from sub-prime lending.
Past and Current: Let’s build a house of cards, sell off as much of CDO to pension plans and the PRC. But what we don’t sell off, the taxpayers be forced to pay the bill. Then we will repeat the cycle again.
Proper regulation: Establishing the required lending reserses. Those that make the bad loans can pay for the bad loans. AAA rating means AAA not sub-BBB. Have the borrowers and lenders personally liable for the bad loans.
Instead, the crooks are making the rules and running the store, making a “profit” and taking personal dollars home for years and then billing the taxpayers for their past and current loss’.
The PRC made some noises about its investments this week.
The scary thing is that WWII got us out of the Depression.
What will Walmart and its masters at PRC do with the devaluation of the dollar?
Funny you write that WWII got us out of the Depression instead of FDR. Some economist are now having the guts to write that FDR got us deeper into the depression. FDR was a very poor economist but a great war time president and PR man.
As long as the US pays it debt and does mess with PRC internal, I think nothing. PRC neither has a history of international trouble making nor the internal will for it. PRC also lacks the mean to project military interest, no aircraft carriers or naval battle groups. Just a few subs and small ships and very small bases to protect some business in the Middle East and Africa. Do you know if N. Korea has more subs than PCR?
If the US doesn’t pay, the international banking families and the Feds will make the US pay.