Bank of America made headlines with its principal forgiveness program. The real news is that they are preparing to blast debtors out of their bunkers of entitlement.
Today's featured property is another epic HELOC abuser. Should these people qualify for principal reduction?
Irvine Home Address … 17 CARRIAGE Dr Irvine, CA 92602
Resale Home Price …… $715,000
{book1}
The more I know, the less I understand
All the things I thought I knew, I'm learning again
I've been tryin' to get down
to the heart of the matter
But my will gets weak
and my thoughts seem to scatter
But I think it's about…forgiveness
Forgiveness
Even if, even if you don't PAY me anymore
Don Henley — The Heart of the Matter
Lenders are trying to figure out how their massive Ponzi Scheme collapsed. They are relearning lending again because everything they thought they knew was wrong. When you get down to the heart of the matter, borrowers are carrying too much debt which is killing them financially and emotionally. It is about forgiveness. Even if it means debtors don't pay anymore.
Forgiveness never comes easy, and in lending it never comes cheap. These debts will be forgiven, and the toxic loans that spawned them will be cleansed from the system — mostly through foreclosure. Home debtors are hoping for principal forgiveness without consequence. That isn't going to happen. Lenders only forgive as a last resort, and there are consequences for the borrower. When it's done, lenders turn to the US taxpayer to make them whole again. 
A 600% increase in foreclosures
I attended a local Building Industry Association conference on Friday 26 March 2010. The west coast manager of real estate owned, Senior Vice President Ken Gaitan, stated that Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 homes per month by December of 2010.
After his surprising statement, two questioners from the audience asked questions to verify the numbers.
Bank of America is projecting a 600% increase in its already large number of monthly foreclosures.
This isn't unsubstantiated rumor; this comes straight from one of the most powerful men in Bank of America's OREO department (yes, that really is what they call it). It appears they have too many properties already.
Perhaps this is a good time to start a Trustee Sale service…. One of the panelists who works for a building company said he was flipping houses with his personal money. He noted that in some markets, he can buy a house at auction for less money than builders are paying for finished lots. That is a bit crazy.
There was encouraging news from some in the reality-based community at the conference. Builders are buying up projects in Southern California, so the land market has found a bottom. Prices are still speculative, but the builders are buying to have buildable inventory, so in select markets real demand exists for finished lots and properties with partial improvements.
There was a certain amount of positive spin at the event, which is natural given the beleaguered stated of the Southern California building industry. Jeff Collins at the OC Register covered the more bullish opinions.
It is still not enough
Last week I noted that Lenders Start More Foreclosures to Catch Up with Delinquencies. Consider the size of the problem: 1.2 million Bank of America homeowners are in default. Even if they forclosed on 45,000 a month for a full year, that is only 540,000 foreclosures. What about the other 660,000 people in default? I think their number — large as it may seem — is actually wishful thinking. It is worse than that. (thanks jules)
Principal reductions are a public relations diversion
Everyone is abuzz with the news that Bank of America is forgiving principal. As you might imagine, many will apply and few will be helped. Moral hazard dictates that irresponsible borrowing that results in free money will cause more irresponsible borrowing; after all, it isn't borrowing, it's a gift. If banks start giving away money, everyone will do whatever is necessary to obtain it.
I contend the principal reduction program is a public relations diversion. Let's look at the numbers. By Bank of America's own admission, the program will assist 45,000 customers — a sum equal to the monthly foreclosure rates they are anticipating by the end of the year. If they are foreclosing on more people each month than would be helped by the principal reduction program, then the program is merely a pleasant facade intended to divert attention from the huge volume of foreclosures they will push through.
Bank of America to Reduce Mortgage Balances
Bank of America said on Wednesday that it would begin forgiving some mortgage debt in an effort to keep distressed borrowers from losing their homes.
The program, while limited in scope and available by invitation only, signals a significant shift in efforts to deal with the millions of homeowners who are facing foreclosure. It comes as banks are being urged by the White House, members of Congress and community groups to do more to stem the tide.
The Obama administration is also studying whether to provide more help to people who owe more on their mortgages than their homes are worth.
Bank of America’s program may increase the pressure on other big banks to offer more help for delinquent borrowers, while potentially angering homeowners who have kept up their payments and are not getting such aid.
You think? Responsible borrowers should be pissed. The more irresponsible and foolish borrowers were, the greater their principal forgiveness.
As the housing market shows signs of possibly entering another downturn, worries about foreclosure are growing. With the volume of sales falling, prices are sliding again. When the gap increases between the size of a mortgage and the value that the home could fetch in a sale, owners tend to give up.
Cutting the size of the debt over a period of years, however, might encourage people to stick around. That could save homes from foreclosure and stabilize neighborhoods.
“Banks are willing to take some losses now to avoid much greater losses later if the housing market continues to spiral, and that’s a sea change from where they were a year ago,” said Howard Glaser, a housing consultant in Washington and former government regulator.
The threat of a stick may be helping banks to realize that principal write-downs are in their ultimate self-interest. The Bank of America program was announced simultaneously with the news that the lender had reached a settlement with the state of Massachusetts over claims of predatory lending.
The program is aimed at borrowers who received subprime or other high-risk loans from Countrywide Financial, the biggest and one of the most aggressive lenders during the housing boom. Bank of America bought Countrywide in 2008.
Bank of America is trying this principal reduction program with Option ARM holders because they know these people are all going to default. Anything they can do to minimize the losses on these properties, including delaying foreclosure and hoping for appreciation, is preferred to absorbing these losses when prices are very low. Of course, it will not work, but it it worth a shot. They have little to lose by trying.
Borrowers have nothing to lose either. The Bank of America program is an attempt to stop the hopelessly underwater from strategically defaulting. It is their only hope.
The devil is in the details
Bank of America officials said the maximum reduction would be 30 percent of the value of the loan.
Those people who are more than 30% underwater are considered the walking dead. They should default. If you don't qualify for this program because you are too far underwater, what hope do you have?
I heard recently that Hemet, California, has a significant number of borrowers more than 50% underwater. Back in 2006-2007, I was involved with the Valley Economic Development Corporation working to bring business to Hemet and San Jacinto. I remember a brochure we created touting the relative affordability of local housing. At the time, the median income was $45,000 per year, and the median home price was $405,000.
Most who paid $405,000 for a house back then used Option ARMs because they could leverage nine-times their income to obtain a property. Now that the median home price is around $175,000 — which is close to four-times income — many residents owe more than double what their house is worth.
They said the program would work this way: A borrower might owe, say, $250,000 on a house whose value has fallen to $200,000. Fifty thousand dollars of that balance would be moved into a special interest-free account.
As long as the owner continued to make payments on the $200,000, $10,000 in the special account would be forgiven each year until either the balance was zero or the housing market had recovered and the borrower once again had positive equity.
Let's see how a Southern California borrower would be effected by this program. Let's assume a $500,000 house price and a $400,000 first mortgage with a $100,000 second. The second is not subject to this agreement, so we already have our first major hurdle to overcome. When Bank of America lowers the value of its first mortgage, are they taking into account the indebtedness of the second? If they don't, payments are still not affordable.
Assume the borrower received $200,000 in potential principal reduction. Now they are paying on a $200,000 first and a $100,000 second which brings their combined loan-to-value under 100%. The $200,000 of deferred principal gets reduced by $10,000 a year until values increase. Absent appreciation, it will take 20 years to dig out. That is a long time to rent their home from the bank with zero equity.
Here is where it gets fuzzy — on purpose I'm sure — Let's say the borrower stays with the program for ten years. The deferred principal is now $100,000, and the total indebtedness is $400,000 minus amortization. Let's further assume that prices have appreciated, and the property is now worth $400,000. What happens?
- Does the principal forgiveness end and the account with the principal deferment is permanently fixed at the point of crossover? How do we know when this occurs? Is Bank of America going to order yearly appraisals just prior to forgiving the debt to make sure the owner is still underwater?
- Once Bank of America discovers the borrower is no longer underwater, can they recapture forgiven principal if the borrower continues to live in the property? In short, does the bank get the appreciation to recover the forgiven debt, or does the borrower get to keep it?
- How is this deferred principal paid off? Is this a permanent zero-interest loan paid off when the property is sold? Does the deferred principal get added back to the original mortgage once the borrower is no longer underwater? What happens to the borrower's payment?
If those questions are resolved in favor of borrowers, I would be surprised. To the degree that the borrower benefits is the degree to which moral hazard is encouraged.
Too little too late
Bank of America said its new program would initially help about 45,000 Countrywide borrowers — a fraction of the 1.2 million Bank of America homeowners who are in default. The total amount of principal reduced, it estimated, would be $3 billion.
The bank said it would reach out to delinquent borrowers whose mortgage balance was at least 20 percent greater than the value of the house. These people would then have to demonstrate a hardship like a loss of income.
These requirements will, the bank hopes, restrain any notion that it is offering easy bailouts to those who might otherwise be able to pay. “The customers who will get this offer really can’t afford their mortgage,” Mr. Schakett said.
LOL! Every borrower in Bank of America's books is going to seek a bailout. That is moral hazard! That is why you don't bail people out. The only way to discourage this is to create a program nobody qualifies for… I guess they did that, didn't they?
But Steve Walsh, a mortgage broker [LOL!] in Scottsdale, Ariz., who said he had just abandoned his house and several rental properties, called the program “another Band-Aid. It probably would not have prevented me from walking away.”
That is the other problem Bank of America must contend with. Many of the people who took out these loans were speculators who are going to walk no matter the terms because their speculative venture did not turn out as planned.
… Reducing principal is widely endorsed, in theory, as a cure for foreclosures. The trouble is, no one wants to absorb the costs. [No kidding?]
When the administration announced a housing assistance program in the five hardest-hit states last month, officials explicitly opened the door to principal forgiveness. Despite reservations expressed by the Treasury, the White House and Housing and Urban Development officials have continued to study debt forgiveness in areas with lots of so-called underwater homes, according to two people with knowledge of the matter.
"Continued study" is code for "we are not going to do anything, but we want you to think that we might." It is part of the dangling-carrot policy designed only to keep debtors paying.
On a national scale, such a program risks a political firestorm if the banks are unable to finance all the losses themselves. Regulators like the comptroller of the currency and the Federal Reserve have been focused on maintaining the banks’ capital levels, which could be hurt by large-scale debt forgiveness.
“You have to be very careful not to design a program that would change people’s fundamental behavior across the country in a destabilizing way or would be widely perceived as unfair to people who are continuing to pay,” Michael S. Barr, an assistant secretary of the Treasury, said early this year.
Moral Hazard can't be avoided
No program exists, nor can one be designed, that does not create moral hazard and gross unfairness. That is why this issue is so difficult.
This process must be allowed to run its course. Bank of America will manage its public relations and try to look like they are working to prevent foreclosures.
In reality, Bank of America is gearing up to remove the loan owners and squatters. Expect to see a steady increase in foreclosures all year continuing for the foreseeable future.
Should we give HELOC abusers principal reductions?
The owner of today's featured property would likely qualify under the terms of the Bank of America agreement. Let's take a careful look at the behavior of these borrowers and see if this is something we should encourage with bailouts and handouts.
- This property was purchased on 7/30/199 for $348,500. The owners used a $313,350 first mortgage and a $35,150 down payment.
- On 10/14/1999 they obtained a HELOC for $30,000 which allowed them to withdraw their down payment.
- On 3/7/2002 they opened a HELOC for $50,000.
- On 3/28/2003 they refinanced their first mortgage for $322,000.
- On 3/17/2004 they obtained a HELOC for $120,000.
- On 10/26/2004 they refinanced their first mortgage for $462,750.
- On 10/12/2006 they refinanced their first mortgage for $625,000.
- On 11/14/2006 they obtained a HELOC for $100,000.
- Total property debt is $725,000.
- Total mortgage equity withdrawal is $436,650 including their down payment.
It is obvious from the photos these people did not spend this money on property improvements. Where did it all go?
We all know this money went to conspicuous consumption and keeping up with the Joneses just like it did for everyone else. Do you want to see them get a principal reduction to pay for it?
I don't.
Irvine Home Address … 17 CARRIAGE Dr Irvine, CA 92602 
Resale Home Price … $715,000
Home Purchase Price … $348,500
Home Purchase Date …. 6/30/1999
Net Gain (Loss) ………. $323,600
Percent Change ………. 105.2%
Annual Appreciation … 6.8%
Cost of Ownership
————————————————-
$715,000 ………. Asking Price
$143,000 ………. 20% Down Conventional
5.11% …………… Mortgage Interest Rate
$572,000 ………. 30-Year Mortgage
$149,907 ………. Income Requirement
$3,109 ………. Monthly Mortgage Payment
$620 ………. Property Tax
$50 ………. Special Taxes and Levies (Mello Roos)
$60 ………. Homeowners Insurance
$0 ………. Homeowners Association Fees
============================================
$3,838 ………. Monthly Cash Outlays
-$764 ………. Tax Savings (% of Interest and Property Tax)
-$673 ………. Equity Hidden in Payment
$287 ………. Lost Income to Down Payment (net of taxes)
$89 ………. Maintenance and Replacement Reserves
============================================
$2,777 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,150 ………. Furnishing and Move In @1%
$7,150 ………. Closing Costs @1%
$5,720 ………… Interest Points @1% of Loan
$143,000 ………. Down Payment
============================================
$163,020 ………. Total Cash Costs
$42,500 ………… Emergency Cash Reserves
============================================
$205,520 ………. Total Savings Needed
Property Details for 17 CARRIAGE Dr Irvine, CA 92602
——————————————————————————
Beds: 4
Baths: 2 full 1 part baths
Home size: 2,250 sq ft
($318 / sq ft)
Lot Size: 4,912 sq ft
Year Built: 1999
Days on Market: 4
MLS Number: P727630
Property Type: Single Family, Residential
Community: West Irvine
Tract: Ambw
——————————————————————————
According to the listing agent, this listing may be a pre-foreclosure or short sale.
This beautiful Fieldstone home, tucked nicely away at the end of a long driveway, has a really functional floorplan with a big living room, a great family room with built-in bookcases that opens directly into the kitchen with center island, and a private, peaceful backyard. Upstairs bedrooms are roomy, and the vast master bedroom has a bathroom with double sinks, separate tub & shower, and a HUGE walk-in closet. One of the upstairs bedrooms has a giant alcove perfect as a retreat or home office. Even the walk-in pantry located off the kitchen is really big! Located in an award-winning school district, and with NO association dues, this happy home will be the site of many great neighborhood parties for years to come!
I get the impression that the man of the house was not responsible for its decoration….
I want to thank my wife for not making me sleep in a room like that one.
BTW, I highly recommend reading Squatting Newport Coast Style, the post from Saturday. It will make your blood boil:
- $2,500,000+ in HELOC abuse.
- Delusional seller who has chased the market down more than 50%.
- Gaming the system to squat in luxury for a year and a half.
But Steve Walsh, a mortgage broker in Scottsdale, Ariz., who said he had just abandoned his house and several rental properties, called the program “another Band-Aid. It probably would not have prevented me from walking away.”
“and several rental properties”
This is the big game all over the place. Everybody thinks it is the easiest thing in the world to buy a place and “just rent it out”. Easy money. Magical thinking I mean optimism.
I am glad that this dirtbag is finally returning his house collection to the bank. We don’t need all these Land Barons turning our neighborhoods into mini Feudalistic Kingdoms.
Maybe now we can actually get a worthy buyer in there.
We’re just exchanging one baron for another.
When property is appreciating 20%/yr, you don’t even need to rent to make a profit! If you do have renters, they don’t need to cover the full payment because it’s the appreciation that’s important.
I had remembered this nugget from CalculatedRisk:
http://www.angrybearblog.com/2005/04/housing-speculation-is-key.html
but rediscovered it when angrybear or CR reposted it.
1/3 of all home sales nationwide non owner-occupied. What does that translate to in CA/AZ/NV/FL? 85%, 85% of condos in Miami bought as investments???
For most of these ‘investors’ finding a renter was never part of the plan.
all through college (during the housing boom), i never lived in an IAC apartment, i always rented from some owner banking on appreciation. our rent was consistently below market rate for the reason you just stated.
A guy across the street from a friend sold his house to an ‘investor’, only to rent it back from him. Banked (as opposed to booked, not just an entry in a ledger, but cash in the bank) 300k profit on a 390k home. 5 years owning, 60k/yr…nice side job.
Less than 1 yr from selling, Investor foreclosed. Looking now, might sound fishy, but I think when he sold, the market was still frothy with buyers. This was when the market was just starting to turn down.
Investor: 100% financing from Countrywide. No 2nd home rider.
I have a Question; would it be possable for BoA to sell the note they are servicing for Fanney Mae back to me at a discount ad avoid the short sale. I am trying to stay in the property. I can’t past the call center and i am looking to get a contact to make this offer to ay BoA
In other words, you want to get a principal reduction paid for by Fannie Mae and the US taxpayer? By washing your note through the system, that is what you would accomplish. If you find someone to do this for you, please let me know on the board. It would be a great story for me to cover. It looks like a direct government subsidy to me.
The neighborhood that I have been looking at has been seeing quite a bit of Land Baron activity in the past several months. One place was bought Oct 09 and a “For Rent” sign went up into the front yard a week later where it sat for months. The sign went away several weeks ago but the place still looks ampty. Another place up the street sold Dec 09 and was immediately put up as FSBO or lease. And another one down the street is now being advertised for rent – records show it was bought in early 90’s. A boomer looking to rent out his winter house I suppose.
I’m ready for the boomers to start returning their second and third vacation houses to the banks….
“I’m ready for the boomers to start returning their second and third vacation houses to the banks…”
Oddly, there is total media silence on second-home foreclosures. It could be too much work to find such people – you can’t just knock on the door, because they’re living in another state. And they’re not easily photographed at their kitchen table in support of a good sob story, since, again, they’re usually not there.
I wonder if most underwater 2nd-homeowners are going quietly. If they’re not making payments and not being foreclosed, then they’re not necessarily living rent-free. It just doesn’t make a glamorous story.
Still, I find the silence on second homes peculiar.
I think that it more doesn’t fit with the narrative of reducing the number of foreclosures being a positive, or that people got swept up in something they couldn’t see coming. The 2nd home foreclosed upon knew what they were doing, knew the risks, didn’t disclose the 2nd home when applying for the loan, taking the 100% financing that is only remotely justifiable for owner-occupied homes.
It also points to the (I am at a loss for the correct adjective) completely absent underwriting standards. They weren’t just bad, and to a degree it wasn’t that they weren’t there, they were actively manipulated to make what might be there less effective.
That there never was reporting in the vein of the CR post I linked, and that there still really isn’t is a sign that there is not a lot of business acumen in financial journalism. You could take the analysis on the Lehman post-mortem by nakedcapitalism.com, as compared to the NYT and see where the knowledge base really is.
Wow! I think you scooped everybody on this one. Sending them your way today, and my guess is that quite a few others will also.
It’s refreshing to see some legitimate reporting, and from prominent bank of America executives, not some random middle manager type excercising a little self improtance.
I hate the usual one sentence blurbs that are taking for fact in the news today. You know what I’m talking about. Finally some real news.
I’ll believe this big increase in REOs when I see it.
If one was going to flood the market, right now would be the best time, since people can double dip the Federal and State tax credits (for a short period of time) for a total of $18,000 free money. But that will dry up really quickly.
As for Hemet, a house this size (older, but one story on a bigger lot) would now cost the same price as this one-if you replace the seven with a one.
http://www.redfin.com/CA/Hemet/25411-Rockford-St-92544/home/5751328
Geotpf,
After reading all the stories about people holding on to the past, I realized there are no stories being written about people like yourself who bought after the crash and are enjoying ownership at a cost lower than rent.
If you are willing, I would like to write a story about you, complete with pictures. A picture of your old, one-bedroom apartment and a few of your new SFD 4/2 that you got for less than the rent on your tiny apartment.
Email me if you are willing to participate. You can have 15 minutes of fame….
Let me think about it. I kind of like being pseduo-anonymous. 😎
No problem. It took me a year and a half to come out of the shadows. Contact me when you are ready.
I find your story very compelling. I would like to even show a simplified version of your budget showing the before and after costs of housing so people can see just how large a step up you took and saved money. Pictures will make the story very engaging. I will ask you questions about how your life has changed and how you feel now that you own at such a low basis. You will be an inspiration to all those who buy when it is much cheaper to own than to rent.
You will be the poster child for the “home run” of the housing recovery. I will email all the reporters I have been linking to plus Patrick.net and Reddit.com.
Wouldn’t you like to go down in lore as the home run of the housing recovery?
I think that would be cool.
My story is not as compelling as what you’re looking for yet. I could tell you how I’m saving $2000 per month by having waited until 2009 to purchase a home. We moved to Irvine in 2007 for work and knew it was not a good time to buy, so we rented a house in Woodbury for two years at $2800/mo because we wanted to see if we liked the neighborhood enough to buy there when prices finally did plummet.
We ended up not buying in Woodbury, or even Irvine for that matter, and are now living in what will one day be our first rental property in Laguna Hills for $930/mo. At this rate I can afford two more of these condos. I’ll buy a real house in 2011/2012 when prices really hit bottom.
Didn’t they also say that 95% of the foreclosures would be in Riverside?
They left that part out.
If only the tax payer was smart enough to operate as a single super organism.
The tax payer could respond back to the one sentece hype:
WE DO NOT NEGOTIATE WITH TERRORIST
There are many foreclosures in Riverside, but it’s difficult to compete against cash rich investors. To sum it up, investors with $300k complain about competing against women with $3 million, and women with $3 milllion complain about guy with $30 million that she can’t out-bid.
It’s a crazy feeding frenzy on desirable investment properties right now.
Since Geotpf brought up the tax credits, it reminded me of doing my taxes over the weekend. Just to illustrate the perverted tax system that we have:
I was informed that I would not be eligible to apply my thousands of dollars out of pocket graduate school tuition expenses to reduce my taxes because I made too much money last year. I owe the Feds now an additional thousand bucks that would have otherwise been negated had my educational expenses been allowed in.
But if I had bought an overpriced house last year instead of an education well then I would have been sent back a big fat check.
If you live within your means, stay out of debt, earn a fair living, and spend money on things like education then we make you pay but if you are looking to go into massive debt and buy an overpriced house well then my dear sir how can we help let AZDavidPhx issue you a check to help you out. I sure am glad that I got to spend a thousand dollars on someone elses house out there. I haven’t been invited to any house warming parties as of yet however.
The west coast manager of real estate owned, Senior Vice President Ken Gaitan, stated that Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 homes per month by December of 2010.
Reading this just made my day. Massive shadow inventory exists…right out of the horse’s mouth. Anybody considering buying now should think about the potential impacts to RE prices if this proves to be true. I’m waiting until the dust settles!
Sorry to disappoint, but that shadow inventory will further depress prices only in Riverside, Hemet, Yucaipa, Stockton, and other subprime areas. It will not affect the better class of homeowners in places such as Irvine, Newport, and Rolling Hills Estates. On the contrary, the release of shadow inventory to the market will enhance the appeal of gracious, stately homes owned by individuals of high bloodlines and sound moral character.
Once people get a load of the next wave of foreclosures, they’ll sell a kidney to pay any price an Irvine owner cares to came.
I have no idea if prices will decline in Irvine, everybody is into flipping these days.
If you have access to good data you will be surprised by the number of “individuals of high bloodlines and sound moral character” who are underwater, working two jobs trying to feed the beast they purchased with 20-50% down.
They spent most of their savings to buy the house now they spend the rest of their days zillowing the homes in their area and trying to find an honest handyman who can fix the ‘minor’ problems that crop up with home ownership.
I think the banks could release more properties even in subprime areas without significant price drops. Non-short sale inventory on the lower end here in Riverside is about one quarter what it was when I was shopping about a year ago (I still keep track). If inventory doubled, I doubt prices would decrease much, if at all. But if it went back to what it was a year ago, or more, price probably would fall further.
That’s why I don’t understand the continued delays in foreclosing on people. A lack of inventory has scared off quite a few willing buyers, possibly for good. If there really, really is a flood upcoming, as today’s post suggests, then prices will fall a lot more than if they had merely release them at a more steady stream, as opposed to the microscopic trickle the last year.
I agree. Most of Riverside County has properties selling for 30% or more under rental parity. Cashflow valuations rule the market. It will probably stay that way for quite some time while we work off the inventory, but the bargains are real for those buying to save money versus renting.
Stately homes owned by individuals of high bloodlines and sound moral character? Don’t kid yourself…..don’t think there are foreclosures howevering and waiting to happen in those “high bloodline and sound moral character” areas…..ya just don’t hear about them in the media but they are there. The difference is when they abandon the home and steal everything they just tell the bank to “talk to their lawyer”.
Since it takes 3 months + 21 days at CA state minimum to foreclose, this means we should start seeing the ramp up occur between now and September 1st of NOD’s filed with counties (easily tracked).
Realistically, you’ll see this properties hit the market late 2010/early 2011, who knows where we’ll be at that point. hmmm
Yes, this should all be observable in the data. Foreclosure Radar will pick up on this immediately.
Are those regular or double stuff OREOS :question:
The ones with a second mortgage are double-stuff OREOs.
We used to make triple and quadruple stuff oreos as kids. Those properties exist too.
So if you run the numbers (percentage of troubled borrowers in the fab 5 – AZ, CA, FL, MI, NV) that’s around 6000 foreclosures per month in Cali alone. Yowza!
My .02c
Soylent Green Is People.
All those properties. One wonders, will the loan-owners leave them intact, or smash the windows, grab the fixtures, and tear up the floors?
The amount forgiven is earned over a five year period, not 20 years as you show. The $10,000 a year was only an example.
And a 600% increase in foreclosures? I’m still waiting for evidence that any of this will affect prices. You point out in today’s post that homes can be bought for less than the cost of land and also that Irvine is at rental parity. What, other than spite and self-interest, would make you want to see more damage?
Improved affordability is a pretty good guess as the root of IrvineRenter’s self-serving spiteful agenda. As a renter, lower house prices and foreclosures are the solution to the problem with these kinds of irrational people. Just ignore his blog – it’s not like he has been right about anything over the past years of spewing hatred upon us.
What, other than spite and self-interest, would make you want to see more damage?
Yummy, I don’t wish financial ruin on anybody…I want to see the housing market return to normal, and that means lower prices plain and simple.
I don’t think anybody who bought 10+ years ago shed one tear for us “lowly” renters who were priced out during the insane run up of home prices. The shoe is on the other foot now and I won’t feel sorry for those people if some of their equity evaporates. I think everybody agrees that bubble prices should have never existed in the first place and now we are seeing many places in Irvine list and sell for near bubble prices…makes you wonder.
Let the floodgates open and just get it over with. The sooner this happens, the quicker the recovery.
It is neither spite nor self-interest. The damage has already been created but held at bay, kinda like kinetic energy, and Irvine Renter is simply trying to wade through the BS and understand it.
House prices will fall regardless of what IR says or any other doom and gloom, conspiracy nut, whacko blogger (in the kind words of the mainstream) thinks.
Damage for the people who already bought (at inflated prices), opportunity for renters to finally afford a home. What do you project any negativity to this correction? A lot of people are very happy that houses are finally becoming more affordable again.
Econ 101: more supply, same demand, falling prices. If you have any indication that demand would also increase by 600% please post it here.
The 600% increase is in B of A foreclosures only.
If BofA starts foreclosing at a realistic rate, pretend and extend is over. What advantage do the other banks have if they hold these properties when the market is changing?
If the banksters allow “home owners” in default to stay for a few years and then flips to free rent cost and other bank fees (late payment, FC, legal fees, etc) to the new owners via FHA loans and bailouts, the house price can remain high. They are very inventive and innovative with resources beyond your imagination — Federal Reserve, Congress, President and the Courts using international treaties to void the US constitution.
The party is over. Wild party goers (banks and borrowers) are trying with great success to stick the uninvited with the bill again. First time, the uninvited were indirectly billed by increased house cost (rents for increased property taxes, interest cost and other to maintain the ROI expectations) and now for making the banks whole, damaged economy and free rent and default cash for the party goers.
Some spite and self interest is justified.
It’s in my self interest to be treated decently for living within my means. So it’s in my self interest that the market return to sane valuations.
The spite I feel toward the majority, who borrows up to their eyeballs, saving nothing, while driving up the cost of purchasing for everyone and creating instability in the economy, is, I think, thoroughly justified.
I don’t support debtors’ prisons, but there should be a smackdown for multi-BMW households with no retirement savings and a mortgage they have no hope of paying.
How about financial reform that prevents them from visiting the trough again, or punishing the lenders that profited from writing those loans and then selling them off?
I wonder if lenders will regard a foreclosure on your record in the future they way they did a couple years ago. Would that have prevented someone from getting a loan in 2005??? Will lenders avoid people with FCs on their record? Don’t normal mortgage apps ask if you’ve ever defaulted on a property?
winstongator,
What do you mean by finaancial reform that prevents them from visition ght trough again? With the new almost nothing down loans, the banks are at it again, but directly skipping liabilities with FHA and GSE lending. Of course, the banks fees are paid upfront. Do I hear another round of over priced house loans leaving the station and defaults/bailouts arriving?
“I don’t support debtors’ prisons, but there should be a smackdown for multi-BMW households with no retirement savings and a mortgage they have no hope of paying.”
We think much alike.
Third that opinion…..a smackdown is sometimes the only thing that gets through to teach a lesson….the old adage…..best learned lessons…….
Moving into this area in 2005 I was surprised to see all the spending and fancy cars. I wondered what did all these people do for a living. I looked at my pocket knew it would be stretched too thin (two kids in college at that time) to buy so I have been renting for 5 years now.
The problem I see being a renter is of course the neighbors not really trusting you. After all one house down the street was rented out to a doctor and his lawyer wife and they trashed the house. The neighbors near by asked me would I like to buy that house. After being in this home now three years they realize I am an ok person. LOL
I told them no I am loving the pool with my rental and really can’t find anything else I like more.
How could I possible tell them one of the main reasons why I did not buy was not that I could not afford to but the reality of what the market was.
This market was the herd mentality where everyone bought a home or two. Everyone was trying to buy the same “stock” causing a huge over priced environment.
So the real question is when will supply meet demand and when will costs correct.
Along with who can really afford these multi-million dollar homes with their high tax base?
I tried to find what the average OC resident brings in. I will say after tax and we are in that terrible tax bracket it’s still not enough to buy a multi-million dollar home. Not one we can retire in.
So where does all the money come from?
The more I read the more I loathe living here after all it’s a fantasy world and when you realize how many were in this world of fraud and deception you realize you are an outsider.
I can totally understand how all you feel those of us who are honest never took out a heloc, never got something for nothing and pay high taxes.
We have received nothing for our honesty except interest rate at .1% or less.
So how do we move ahead? When will we want to buy here, have real neighbors and be able afford it.
When houses became investment vehicles this is when people lost their minds. I remember so many telling me my house is worth this much I am rich. I used to smile at them at the time and laugh to myself.
Now who is really laughing now?
Insightful …
Over the last couple of weekends of hanging out with friends and neighbors, I’ve picked up a bit of a vibe that people are starting to realize the truth in the housing situation in OC. I’ve heard a few couples recognize that they over-paid. Others have acknowledged that they won’t see prices back up to 2007 or 2008 levels any time soon. Some now see the number of foreclosures coming down the line. None have said that they expect to default but I think that the rose-colored glasses are off.
I’d say that we’re near a tipping point. If the BOA really starts jamming the foreclosures, the man behind the curtain will finally be exposed to the good folks of OC.
FH
I’ve been reading the IHB today trying to figure out what housing is going to do in the future and I have come to the conclusion until we get investors/wallstreet out of housing and allow it to fall to real market values this pump game is going to continue on.
AS investors I mean all of wallstreet has abused housing- MBS–
The government has back stopped the bottom in housing with remods/allow people to stay in foreclosures
Flippers have kept the prices high by constantly selling homes either to themselves or the banks
They need to get new laws in housing supporting buyers not investors because why would anyone who really wants a home would buy now when the chance of getting a loan could result in being underwater.
The only people making a profit are the cash buyers who continue to buy foreclosure homes and flip them. Thus keeping the prices inflated.
Buyers who really want a home would be stupid to buy until the rules change in the game.
The sad part in all of this is WE allowed investors to control yet anothe basic need for Americans and that is their homes–
And yes many took advantage and gamed the system for themselves with the Massive HELOC abuse—
The entire system is corrupt—-
I wouldn’t get too worked up about the flippers. They have to sell to someone at a higher price than they buy it at in order to justify the investment. If the end buyer wasn’t willing to pay the higher amount, the flipper can’t do much about it other than pay less on the next go around (and eat the loss). So in the end, the flippers don’t control the prices as you’ve laid out.
They are merely middlemen that have cash and take on risk to sell to the end buyer. I actually think they help more than hurt by greasing the downward trend. Flippers are motivated to sell as quickly as possible vs. banks which seem to hold their inventory in many cases. The more transactions occurring at lower prices, the quicker the overall market drops which is good for those waiting to buy at lower prices.
You want to know who is laughing? For one, the banksters and Wall St. are laughing…they fueled the bubble, fed it carefully, and made sure any obstacles in the law were dismantled and removed.
You know who else is laughing? All the baby boomers who rode the crest and sold making hundreds of thousands of dollars. They are retired in Idaho, making enough money off their “investments” to live without performing any labor. There are also all the police officers, firefighters, and politicians that retired at age 50 with 75-100% of their base salary pay for LIFE.
Well, with a little common sense, California can legalize marijuana and that will stop the police state unions from dragging our economy even more underwater. It will also restore some semblance of freedom as provided in our Constitution…you know, pursuit of happiness. Remember all the violence when alcohol was prohibited? History doth repeat itself, yet people are still guided by the fear mongerers.
I don’t understand what BOA’s game plan is.
Are they stopping the extend and pretend?
Do those extra foreclosures make it onto the open market? If so, doesn’t that hurt sale prices and BOA profits?
If BOA sits on the foreclosures and doesn’t make them available for sale, then why suddenly ramp up foreclosures by such a huge amount?
There’s a lot of information missing and needs to be filled in before this makes any sense.
They are too big to fail and can do what they want. Just put it on the Government’s tab when money starts running out.
They are ramping up the foreclosures because they still are not keeping up with the defaults. This doesn’t mean they will necessarily flood the market with REOs. They may choose to hold them and sell them off slowly. They may hope flippers buy them at auction and solve the problem for them. All they know for sure is that they have hundreds of thousands of defaulting borrowers they are going to push out of their homes.
Or they could issue the NODs and go with HAFA and try to get a few bucks on some short sales. From what I can tell, short sales are a much better deal for the lenders.
BOA will not forclose. The plan,to force another banking crisis. The home loan problem has been ignored, while governmeent has focused on credit swap losses and other scams. Boa and other banks only solution has the Gov paying their loses. They need millions of underwater borrowers crying for help. Under water borrowers will have their homees, the money from the seconds, and all the gloating “I din’t buy into the bubble”, paying the bill. If you are under water, ur gold. Your crdit rating will be higher than than the non players.
It maybe a smart move on the part of BoA to move their inventory and beat other lenders out the door – before prices fall any further! Could they be thinking that?
Bank of America is projecting a 600% increase in its already large number of monthly foreclosures.
any credible sources?
Read the post…it is straight from their senior VP of west coast, real estate owned division. I don’t think you can get more credible than that.
yes I did read it.
so boa owns reo.com ? any sources on that?
Ken Gaitan (the man who made the statements) works for Bank of America. He is their sr. VP for real estate owned (aka foreclosures).
Unless he is blowing smoke our way, I would think this man has a pretty good pulse on future foreclosures.
B of A is a publicly traded company. You are nuts if you think this middle manager can provide forward looking information without repercussion unless it is in their best interest for the shareholders.
Take a minute to think why providing this information would be beneficial to the shareholders and you may make the next logical step and have an ah-ha moment.
That was my initial instinct. someone from boa or subdivisions won’t make a statement like that. then the secondary instinct naturally questions the source of the info.
Not saying this guy literally didn’t make the statement. Without knowing the full context of the conference, “foreclosure going up 6x” is just a shock and awe tactics by irvinehousingblog
Am I missing something here? BofA is plans to increase foreclosures to 45,000 per month by Dec but they currently have 1.2 million homeowners in default? 45K*12=540K. Seems like the 45K/month may be too low, unless over half of those default are cured and there’s no additional defaults.
Your observation is right on. In fact, I am going to update the post to make this point more forcefully. Thank you.
It does not seem too low to me. They plan on 540k foreclosures, some loan mods, some homes will sell, and they will pretend and extend on the rest. Sounds about right.
IMO, the dollar amount of property they plan to foreclose on is directly attributable to the amount of reserves they have to cover losses. Any more than that and the FDIC declares them insolvent, so the obvious thing to do is write down only what they have to or can afford to.
IrvineRenter,
I found one of your cartoons distrubing and an indication what the average Joe thinks. The BoA, BoO cartoon has only people of color in line for a hand-out.
I will venture to say that the person of color is much less likely to get a hand-out or years of free rent than your Newport Beach bailout queen (your Mar 27 Saturday’s post). BTW: What color is she?
Your “Just So We’re Clear” cartoon hits the nail on the head. A cartoon is need for the multi-million cash equity withdrawing king and queens, who are getting years of free rent and walking away with millions in cash.
The coastal bailouts are raping middle America and the next 2 generations and rewarding the ilresponsible/gamers.
How do you tell then a bankster is lying?
inland,
I found the cartoon compelling because of the zombie-like way the people were drawn to the door with the free money. I didn’t notice the characters were one race or another. I wasn’t making any racial statement.
Perhaps I should repaint them green? That would make the point and offend nobody.
IMO, one looks like he could be African-American and the others look generic.
Did you draw the comic? If not, there’s no need to PC every thing. It is what it is — a little bit of the artists perceptions.
What is the race of Saturday’s NB welfare queen?
IMO:
I though the comics were really funny.
For the race of the 3 comic characters, looks like a black, Indian and Asian mix to me by the yellow skin tone.
Was the BoA new headlines of lowering principal just a ruse to pacify the people and then introduce increasing the FC rate?
BoA doesn’t need to remove all the defaults by Dec. BoA just needs to have the FC rate above the default rate to reduce the number in default.
A lot of mid-westerners seem to have bought 2nd and/or retirement homes in Arizona and Florida, maybe Nevada was also popular that way. They may have been prudent and careful with their first house, but got greedy or over-estimated themselves later on.
I stared at that cartoon very closely and I don’t see it. They all look they were shaded with a yellow pencil. The guy in the center looks like Colonel Sanders from of KFC.
I think BofA can see if they continue to pretend and extend no one who is underwater will be paying their mortgage.
Free rent for 18 months is an incredible incentive. If they actually start foreclosing we might just see a change in the market.
I’d suggest HELOC abusers be moved to the front of the line.
To all gentlepeople in this blog:
All of us need to make a concerted effort to get the stories of HELOC abuse and home sqatters like the ones yesterday and today that IR posted, out to the public, headlines, make thousands of copies and send it to your Congressman/Senators, send it by viral emails, Youtube, as much as possible. Not only this information must be known to people in CA, but more importantly IT MUST BE KNOWN ACROSS THE US.
I believe this is very doable and the more average joe the taxpayer knows about this disease going on in CA, the sooner it’s going to be stopped.
We MUST end the hemorrhage of our hard-working tax money to pay for assholes gaming the system.
John what do you think the common idiot cares more about? That? or this:
http://www.crackthecode.us/images/YellowJournalism.jpg
This is what the people want to hear about!
AZDavid,
I am amused but sadly also 100% agreed with you. BTW, I did not know about Ricky Martin’s news. Thanks.
HOWEVER, people are selfish by nature and they WILL care if all the sudden they find out that it is their very own money that funds the lifestyles of these home squatters.
Dude Ricky Martin is GAY!!!
dude…did u know?
Lets talk about Ricky Martin!…
Didn’t he use to date that hot tennis player?..hm….faghag?..hm.
Who’s Ricky Martin, and why should I care? WGARA
Americans don’t want to hear or learn about how their taxes are spend for bank bailout and squaters…we want to know who won Dancing with the Stars, who’s going cheating on who, who’s Tiger’s latest bimbo…. The news media “are” certainly not going to tell them (“is” is more appropiate verb cause they act monolitically) .
AzDavePhx, Sorry to hear that you didn’t get your tax deduction for your education expenses. You should have realized that the govt doesn’t want to encourage people to be able to think or become educated. Tax deductions are used to reward certain actions, getting educated is not one of them. But gaming the house Ponzi scheme that’s another story.
This is the sort of melt down we can expect for having decades of government policies using a ponzi banking model. It won’t end until responsible policies from the top down are enacted.
There I go, forgetting an important comma. 45,000!
http://effectivedemand.blogspot.com/2010/03/on-that-bofa-increasing-foreclosures.html
I’ve been keeping track of Recontrust NTS & trustee sales for CA and select counties since June of last year. Recently NTS started making new highs as have sales. Additional data points that this process has in fact started.
FYI….Bank of America only controls about 5% of the REO and soon to be REO properties that are considered “B of A” REO’s. 95% are owned by investors (pension funds etc). So, these owners have yet to take a loss…B of A has been fronting the money to them. They do not realize the loss until the property actually goes to auction and is taken back by the bank. So, making an announcement like the one Gaitin made doesn’t necessarily have the impact on shareholders you would think…..once the home becomes an REO B of A recoups what they have fronted to the investor owners. Also, SB 1137 added time to foreclose in California so that adds to the length of time to complete a foreclosure….at this point in time, about 70% of foreclosures that are scheduled to go to the courthouse steps are consistently postponed a month at a time. Some of these properties are on the market in contract on a short sale, some probably are somewhere in the loan mod process and who knows about the rest. It’s simply a matter of the banks allowing the properties to conclude at an auction and become an REO…..but nobody seems to be the one to pull the trigger on any “real” inventory release so the extend and pretend continues…..
Hi,
I’m curious as to why you have a very recognizable photo of Gordon Gee with green dollar signs over his eyes, apparently representing a greedy banker. He’s currently the president of Ohio State University and has spent his entire career in academia. He is also not a greedy person, as far as I know.
Could you find someone else to represent rapaciousness?
Never trust anybody with a bow-tie
“a very recognizable photo of Gordon Gee”
I never heard of the man, and until I read your comment, I had no idea who he was. I thought he looked like a greedy nerd which is how I pictured the mortgage broker.
Actually, I think it is unfortunate that you recognized who he was because it brought baggage to the image I didn’t know was there.
Just thought he should not be pilloried for something with which he has no connection. Given how well known he is in the academic community, it seems likely that I will not be the only one of your readers who will know who he is. My apologies if I seemed to be getting in your face. Not my intention.
As for trusting anyone with a bow tie, let me suggest to the dude, above, always to trust people who wear bow ties — as long as they are also wearing short-sleeved shirts with pocket protectors. 🙂
I’m not sure I buy the numbers you are quoting there.
1.2 million current BOA borrowers in default? Even if the average loan size is only 100k (which I doubt)that’s 100 BILLION dollars in loans currently in default just at BOA?
Scary numbers indeed, if they are correct
Bank of America is the devil.
I hate em.
If it walks like a piggy, talks like a piggy, by golly it’s a PIGGY!
BofA and it’s CEO Brian Moynihan reminds me of that song by John Lennon and George Harrison titled “Piggies” I invite you to listen to this song on youtube and see if it appropriately fits. https://www.youtube.com/watch?v=MIopI2isIKc&feature=relatedhttp://news.yahoo.com/s/prweb/20100323/bs_prweb/prweb3766544_1
When I filed my lawsuit against Bank of America, myself and United Law Group thought of the many others out there in the same situation. It was then that we decided to educate the public on what these piggy banks are doing, as well as unite us all together as one voice. Please help me turn this David vs. Goliath modification process, into a Goliath vs. Goliath.
Please stand with me and United Law Group and send an email to Bank of America that states that we will no longer tolerate their potentially illegal, fraudulent, irregular and abusive business methods.
Divided we might have fell America, but united we must stand!
Please send your email directly to Bank of America and include the following:
1. Your name
2. Your complaint concerning your experience with Bank of America.
3. Please end your email “I support John Wright vs. BofA Lawsuit!”
4. Please send a copy of your email to johns-wright@hotmail.com
5. Please send your email to both BofA link below and the CEO email
BofA Linked Email:
https://www3.bankofamerica.com/contact/?lob=general&contact;_returnto=&state=VA
CEO Brian Moynihan:
brian.t.moynihan@bankofamerica.com
Well, this pathetic home owner who is currently unemployed is screwed. The rear view mirror isn’t helping me because well, we f’d up. Our house is about $180,000 underwater. We could afford it, bought it in late 2006. I was laid off early 2009 and I’m still unemployed.
Bank of America just won’t budge with us, won’t negotiate, nothing. We have two mortgages, we didn’t put anything down but started with some equity. Yes, we’re dumb.
But of course, now what? We still pay our mortgage, still can’t find work and won’t anywhere near what I was making at this rate. Health issues, other debt, spouse is getting pay cut. It’s just a nightmare. We don’t want to give up the house but when BofA won’t even talk to you because you don’t QUALIFY FOR HOPE.
Between the property taxes and the two mortgages it’s 47% of my husband’s gross pay because after being laid off we lost 40% of our income. And yet, they still won’t deal with us.
So frustrating. And sure, we’re idiots but there are lots of idiots like us out there. We had no intention of taking anything out for equity. Even as our heating and air died, things falling apart (garage door, you name it, the electrical is a mess, thank you Realtor and shoddy inspector).
Oh, and my school district is a mess too. Thank you crazy right wing Republicans.
I need to stop before my head explodes.