Do you want to pay the losses from jumbo loans — big loans to rich people — with your taxes?
Irvine Home Address … 7 PEPPERCORN Irvine, CA 92603
Resale Home Price …… $767,000
We be fallin up (up)
Never fallin down (down)
We keep it at a higher level elevating now,
(put it in your) in your area,
(city or your) town,
Black Eyed Peas — Fallin' Up
In our modern mortgage era, nearly all loans are backed by the US government. At one time we had something resembling a free market, but the quasi-governmental entities Freddie Mac and Fannie Mae crowded out much of the mortgage market, and when they were taken over by the Treasury department, they basically took over the mortgage market together with the FHA.
The GSEs and the FHA were originally intended to provide mortgages to lower and middle income Americans who where not being served by the free market. Rich people can get loans because they have assets and often high incomes.
There hasn't been much need to subsidize rich people, and there isn't much support among the electorate for such subsidies. That is why we have a conforming limit to GSE and FHA loans. Raising this conforming limit would offer a government subsidy to wealthy or high-income borrowers. It would also give opportunity for lenders to refinance many of their toxic jumbo loans into government-backed toxic loans and shift losses to the US taxpayer.
Total Mortgage founder: Increase jumbo loan limit nationwide to spur the market 
John Walsh is founder and president of Total Mortgage Services, a direct mortgage lender and broker based in Milford, Conn. For this edition of In This Corner, Walsh gives his take on the jumbo loan market and the limit restrictions imposed across the country.
HousingWire recently spoke with an analyst who said jumbo loans are now performing similarly to the subprime market during the housing bubble. The delinquency rate for this type of mortgage is becoming abnormally high. How does this compare to your experience in the marketplace?
There's been a large loss in value in the jumbo market that has to do with a number of factors: the loss of liquidity on the jumbo side and the fact that there are fewer jumbo outlets has put further pressure on the jumbo housing market. I think that's the reason why there are troubles in that sector.
Let's put the horse back in front of the cart. The reason there is less liquidity and fewer jumbo outlets is because 10% of the borrowers are delinquent, and there is no government agency stepping up to take these losses. The lack of liquidity is the symptom of the market's real trouble: delinquent borrowers. 
As far as a percentage decline in value, the jumbo market seems to have been hit extremely hard which has contributed to the performance on those loans — a lot of those jumbo loans are underwater.
That being said, prices have gotten to somewhere near a low.
What tea leaves did he read to come to that conclusion?
With the mortgages that we're giving out today, the loan-to-value requirements are a lot steeper, the credit score requirements are a lot steeper, the debt-to-income requirements are a lot more stringent. So I think the jumbo loans being written today as opposed to the ones written even as little as six months ago or a year ago, are going to perform significantly better. That's why you're beginning to see an ease on the jumbo side of loans.
The tightening of requirements he is talking about has also reduced the number of borrowers in the jumbo loan pool considerably. Think about how many homes are priced over $1,000,000 in Orange County, and pair that with the number of borrowers who can actually qualify for and make the payments on a jumbo loan — not factoring in mortgage equity withdrawal to make Ponzi payments. The supply of these homes greatly exceeds the potential demand.
There's also a lot of legacy jumbo problems which I think is just a function of the value of homes.
The legacy problems are a function fo the value of homes? I thought the problems were because lenders were insanely stupid and gave out huge loans to anyone with a pulse. And in fact, it was giving out those stupid loans with inflated the housing bubble and a created the problem with home values we have today.
There was a lot of no income (documentation) loans that were done on jumbo borrowers — that seemed to be the way a lot of the jumbo loans were done. A lot of places did no income option ARMs. So a lot of those problems, that's what you're seeing now from a legacy side of things.
Legacy loans: a feel-good euphemism for everything stupid in the housing bubble. The word legacy almost makes it sound regal, just, and important, like something meant for the aristocracy. I say we let the aristocracy eat the legacy loan cake they baked.
Going forward, the loans that are being written today are significantly better credit risks. That's why you're beginning to see some liquidity in the jumbo market.
As far as the demand for jumbo loans, where do you see most of the demand coming from? What kind of loans are these?
We don't really do commercial lending, so it's all residential lending on the jumbo side. The jumbo side is not really regional, there's just more people calling about them these days. I would say demand is up at least 25% over the past couple of months. We're beginning to refinance some of our customers from two, three, four years ago that got really good jumbo mortgage rates, but because the rates have come down so much, they're beginning to come into that area where a refinance makes sense. We have seen a fairly significant uptick in the jumbo refinances recently.
Phone calls asking about jumbo loans is not demand. I can imagine the calls he must be getting…
Qualified borrowers is real demand, and that kind of jumbo loan demand is not increasing with near 10% unemployment.
You mentioned in a statement that you believe conforming loan limits should be raised across the country, not just in "high-cost areas." What do you mean high-cost areas? How would this change affect the market?
There's a conforming jumbo now, so in certain areas of the country you can go and get virtually the same prices as a conforming loan and get the loan to go to either Fannie Mae or Freddie Mac. Normally the conforming loan limit is $417,000, but in certain areas you can go up to $729,750 as a mortgage amount. That's only in 20 metropolitan areas. So even though you're in one town, where you may only be able to go up to $650,000, in another town the limit is $729,000. So it varies from ZIP code to ZIP code. My thought is you should expand that increased conforming loan limit countrywide because a lot of people fall between $417,000 and $729,750.
Do the taxpayers want to subsidize loans between $417,000 and $729,750 everywhere? I think it is a ripoff for the taxpayer that those loans are insured here, but to do that everywhere would simply expose the taxpayer to more risk.
It would put a lot more people in the purchase market that wouldn't necessarily qualify under the jumbo program, but may qualify under this particular program. You also bring FHA into the possibility, which is 3.5% down up to $729,750. I think it would expand a ton of potential, not only buyers and a lot more purchases in the range $417,00 to $729,750, but also allow a lot of people to refinance and take advantage of these unbelievably, historically low rates.
We may be able to re-inflate the housing bubble nationally if we allowed 3.5% down loans up to $729,750. I don't think that would be a good thing, particularly since the taxpayer would be absorbing all the losses when the echo bubble burst.
A lot of people just don't qualify based on their loan-to-value; a lot of people have lost so much equity they can't capitalize on these low rates. And if all these people have the ability to refinance, you're looking at a lot of people saving money, a lot more money being pumped into the economy from a refinancing perspective. From a purchasing perspective, obviously when people buy a home they hire more contractors and go to Home Depot more. The good things that happen when people buy houses will happen and spur the purchase market even more all across the country; not in just these defined areas.
I am always amazed that people think you can borrow your way out of debt. Excessive debt is the problem. Adding to that debt is not a viable solution, and neither is refinancing excessive debt at a lower interest rate.
I think that could be a great thing on top of all the things the government is trying to do.
I think it is a terrible thing to do just as the other failed things the government is trying to do.
It's not like the short sale refinance program where they're actually going to subsidize the write down or the mortgages. This is just you're taking on a larger loan size.
Great idea: take on more debt because you can't afford the debt you already have. Brilliant!
I think it's a great time because the underwriting standards have gotten so much more stringent these days you're getting a lot more qualified borrowers.
Why hasn't the government already put in place some policy to deal with jumbo loans?
I'm sure there's a rationale as to why they only did it in pocket areas. I think they did it upon median income in particular areas. I sort of understand why they did it, but my philosophy in that area is this: just because you live in Fairfield, Conn., you have the ability to take advantage of this program. But if you live in Omaha, Neb., and you have a loan amount that meets the value of the home and you still have to meet the same underwriting guidelines, why can't you, in Nebraska, take advantage of that particular program? Again to spur more purchase activity and also to take advantage of lower rates for the ability to refinance and put more money back into the economy.
This idea is dumb for many reasons, but as the jumbo loans losses continue to mount, expect to see this dumb idea resurface. Personally, I don't want to become liable for the extravagant borrowing of fools with huge losses on their jumbo loans. As you read about today's featured borrower, ask yourself if you want to pay his bill.
Buy, refi, and bye-bye
Most of the foreclosure properties I see today have this familiar pattern: fools overpays during the bubble, and as prices go up, they add to their bloated mortgages until finally they implode and lose their property. Many of these people borrow enough to recoup their down payment and get some extra money out of the bank, and some do not. The owner of today's featured property had access to his entire down payment, but unless he used the HELOC, he may have left the down payment in the bank.
- This property was purchased for $720,000 on 7/16/2004. The owner used a $575,200 first mortgage, and a $144,800 down payment.
-
On 8/8/2005 he refinanced for $584,600 and recovered some of his down payment.
- On 10/14/2005 he opened a $180,000 HELOC.
- He quit paying in late 2008, and he squatted for about 21 months before the auction.
Foreclosure Record
Recording Date: 07/08/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 05/11/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 02/05/2009
Document Type: Notice of Default
The flipper that purchased the property at auction is playing games with the listing price. This is the slow grinding loss of imaginary equity.
| Date | Event | Price | ||
|---|---|---|---|---|
| Nov 04, 2010 | Price Changed | $767,000 | ||
| Oct 23, 2010 | Price Changed | $772,000 | ||
| Oct 15, 2010 | Price Changed | $775,000 | ||
| Oct 01, 2010 | Price Changed | $779,000 | ||
| Sep 23, 2010 | Price Changed | $785,000 | ||
| Sep 17, 2010 | Price Changed | $789,000 | ||
| Sep 01, 2010 | Listed | $795,000 | ||
Irvine Home Address … 7 PEPPERCORN Irvine, CA 92603 
Resale Home Price … $767,000
Home Purchase Price … $661,500
Home Purchase Date …. 8/23/2010
Net Gain (Loss) ………. $59,480
Percent Change ………. 9.0%
Annual Appreciation … 60.7%
Cost of Ownership
————————————————-
$767,000 ………. Asking Price
$153,400 ………. 20% Down Conventional
4.21% …………… Mortgage Interest Rate
$613,600 ………. 30-Year Mortgage
$144,845 ………. Income Requirement
$3,004 ………. Monthly Mortgage Payment
$665 ………. Property Tax
$225 ………. Special Taxes and Levies (Mello Roos)
$128 ………. Homeowners Insurance
$222 ………. Homeowners Association Fees
============================================
$4,244 ………. Monthly Cash Outlays
-$704 ………. Tax Savings (% of Interest and Property Tax)
-$851 ………. Equity Hidden in Payment
$231 ………. Lost Income to Down Payment (net of taxes)
$96 ………. Maintenance and Replacement Reserves
============================================
$3,015 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,670 ………. Furnishing and Move In @1%
$7,670 ………. Closing Costs @1%
$6,136 ………… Interest Points @1% of Loan
$153,400 ………. Down Payment
============================================
$174,876 ………. Total Cash Costs
$46,200 ………… Emergency Cash Reserves
============================================
$221,076 ………. Total Savings Needed
Property Details for 7 PEPPERCORN Irvine, CA 92603
——————————————————————————
Beds: 3
Baths: 2 full 1 part baths
Home size: 2,046 sq ft
($375 / sq ft)
Lot Size: n/a
Year Built: 2004
Days on Market: 66
Listing Updated: 40486
MLS Number: P750630
Property Type: Condominium, Residential
Community: Quail Hill
Tract: Laur
——————————————————————————
A True Turnkey Property with An Incredibly Open And Spacious Floor Plan Boasting High Ceilings, Plantation Shutters, Hardwood Flooring, New Paint, and Stainless Steel Appliances!!! Along with the Bedrooms there is any Extra DEN downstairs & LIVING AREA upstairs!!! Customized Tiles and Kitchen with Granite Countertops and Stainless Steel Appliances with a Brand New Wine Cooler! Boasts a TRUE Master Bedroom Features Walk-In Closet, Private Balcony, Dual Sinks, Roman Tub & Separate Shower. Inside Separate Laundry Rooom And Plenty Of Storage. This Fantastic End Unit Share Only 1 Wall. Situated In A Quiet Location Of A Very Desireable Complex Located In The Heart Of Irvine. Close to Restaurants, Theater And Shopping. Close To The Toll Road And It Is One Of Irvine's Newest complexes.
Why is this in Title Case?
Do you feel the excitement with the exclamation points!!!
Any explanation for why almost everyhome in the Port Streets priced at under $2 million is under contract?
Because the houses in the Port Streets are nice and are on bigger lots than you would typically find in Irvine.
Even though it’s Newport Beach, it’s a welcoming, established family neighborhood with less pretentiousness than you might encounter in the newer Irvine developments.
The schools are good without being uber-competitive, so if your child is smart but not brilliant he still has a chance to do well and not feel like a stupid cast off if he went to an Irvine school.
Compared to the rest of Orange County, the area is safe and virtually crime-fee.
Despite all of the negativity you read hear and other bear blogs, there are still plenty of people with money and good jobs. Not everyone is a HELOC abuser who has to have five new BMWs and Lexus SUVs
Not everyone is a HELOC abuser who has to have five new BMWs and Lexus SUVs, but enough are that I have been able to profile a new one every weekday for the last three years just in Irvine.
It’s easy to find 1000 people with debt problems in a city of over 200,000?
You don’t say, is that shocking?
What portion of that prolific 1000 didn’t even HELOC more than current equity? Half?
“.” post today is a good one, very accurate assessment of Newport / Irvine.
“.” had an even better post on the weekend thread.
What about some updates on current median down payment in Irvine and TIC new home building. Large down payments were supposed to run out by now. Isn’t that right?
Nice sloppy arithmetic PR; assuming that 1000 “households” equals 1000 “people”. Next time you think about forming an analogy please get your units straight.
There’s that word again. As if families are better than the rest of us. Some are, I’m sure, but I have lived near families who should have learned the basics of birth control.
Renters and childless couples are still regarded as shifty losers with a bent for crime, it seems.
I think you have it backwards. While childless couples can certainly fit into a “family neighborhood”, there are definitely neighborhoods where raising a child would be less than ideal. Although, I don’t know why a childless couple would want to live in a house greater than 2,500 sqft.
If anything, there should be no exception to the $417k limit for ‘high-priced’ areas. Why should buyers in ‘lower-priced’ areas subsidize those in ‘higher-priced’ areas? The $417k limit should also be reduced to the national median home price, or very close to it. You could do this in a phased manner of maybe 10% of the move every year for 10 years.
Why should any non-buyer subsidize any buyer? Why single out the “high-priced” areas?
You can argue the merits of whether we should have the GSE’s or not, but you aren’t going to get far. They’re underwriting 90% of all new loans. Republicans in DC can talk about winding them down, but their voters buy and sell houses too. Think about what the market would be like if in 2008/9, the GSE’s stopped buying loans the way the other securitizers did.
‘High-priced’ areas get singled out because they want to be, because they’ve requested higher GSE loan limits.
Using only the national median house price? How then are Californians going to be able to overpay for their houses and crown themselves land barons of their mini feudal societies in the neighboring states? You can’t be serious. Every market is local!
Nevada To See Rare Population Drop
Article here
Highest unemployment rate in the country.
“Our economy is very depressed”
Seems to me that all signs continue to point to declining rents. Also seems risky to be looking for reliable renters in such an environment.
Not to mention that there is more sales volume now than there was during the bubble. Just like the bubble most of those LV transactions are non owner occupied. Last time I checked LV unemployment was as bad as Detorit. Population decline is the most difficult deflationary force to deal with. Detroit’s decline started in similar fashion.
The current market does seem to be heavily gamed by investors playing around. IrvineRenter even came out last week and closed a blog post after 1 day due to fear that it would tip off more investors. Strikes me as the same mania type of mentality that we saw during the bubble.
I am not seeing where all of these new buyers and well-to-do renters are going to come from. Perhaps the media is just overly cynical?
This article is so funny, and the people who make their funny comments. Let’s face it. Greed is human nature and these greedy people are getting what they deserve. See, there is a God.
But which god…
The Judeo-Christian God would let them get foreclosed, BK, confess their sins and be forgiven.
The Muslim God would cut off one or both of their hands for stealing and have them publicly flogged. Bankers would be executed.
Some days I would rather be a Muslim, although I don’t think I could get on the ground an pray several times a day.
My facts are real, you are the one who is assuming an interpretation. What’s your point, finding 1000 should be difficult?
You are comparing 1000 HELOC abusing house debtors to 200,000 individuals who may or may not even have a mortgage. You have to distill that 200,000 down to the total number of Irvine house debtors if you want a real comparison.
What you said is no different than saying it’s easy to find 1000 women in a men’s prison because there are 200,000 inmates. Once you distill that 200,000 to the 50 gals who work for the prison, finding 1000 suddenly doesn’t seem so easy.
If you are going to present facts, please keep them intellectually honest. Thanks.
I’m not comparing anything, I’m stating the facts. You are projecting something I never said.
Some of those HELOC abusers are single occupants, some are families, and some are non owner occupants. What’s more is a good portion of what has been profiled didn’t even HELOC over current value so no matter how you look at it 1000 is a number that is not difficult or impressive given the total landscape.
Las Vegas you’d be profiling a lot of empty houses, not even people.
In the mean time building continues in Irvine and the median down payment is over 20%.
Hey, if the Government wants to keep eating losses each time an Irvine house debtor misses a check well then have at it.
I do find your 20% downpayment cheerleading comical. Do you assume that 20% was the result of some kind of disciplined savings plan? Likely, it is the result of a ’90’s buyer who sold his prior house at 2003 prices to a sucker buyer at the lower end in the current market. How many of these buyers do you think are first timers? That’s all you need to know in order to realize that it is not sustainable. Unless the Fed manages to get the inflation bomb they keep trying to blow up.
20% down payment for many people living in Irvine is easily doable. There are thousands of residents in Irvine that make over $100,000 a year, combine that with 2 incomes in the same household, and saving money isn’t very hard.
What you fail to see is that there is a huge chasm of those who can afford to buy and live, and those who cannot…namely, people living in scorching deserts making far less than they need to in order to buy and own a home while also having a family. The elite that can afford, and will be able to continue to afford high priced homes, will not move to uninhabitable desert. That type of living is for us “po’ folks”.
At the end, you also disparage anyone who has previously bought. You need to include all the people who sold and made stupid profits…but but that would be bad and against your free market capitalism mindset. You can’t have it both ways.
The system was scammed from the top, the losers were the U.S. taxpayers, the winners were the international banking cartels that have manipulated the U.S. from the beginning, now get out there and blame your neighbor, those scumbags are in your house that you deserve to own at $50,000!
Dear Planet Reality:
This blog started out, and continues to serve, as a warning to people considering purchasing a home in adverse market conditions. If you were to ready the early posts, before the housing crash even occurred, IrvineReader states his assumptions, his calculations, and what his predictions for the housing market.
For me, his calculations put a mathematical context on the “hinky” feeling that I was having about the market. This is why I continue to read this blog.
If think the contents of this blog are laugable, then fine. I would suggest that you start flipping houses immediately and make your fortune.
Actually the blog has been quite bullish on house flipping for about a year now. So bullish that it even organized a fund to flip houses with in Las Vegas. PR actually looks like the bear on here now, which I might add feels very strange to say.