We Will Rock You — Queen
As far as HELOC abusers go, today’s sellers are just like boys playing in the street. They made a big noise, tried to take on the world, and ended up a big disgrace. The market put them back in their place.
HELOC abuse crosses all socioeconomic lines. We have profiled high end, middle class, and now small-time condo owners freebasing the kool aid and spending themselves out of house and home. Everyone has ambitions to better themselves and their station in life. However, some people hatch plans to accomplish this goal that are not completely successful. Sometimes it is just fate or bad luck that causes some people to win or lose in life. Sometimes it is bad execution, and sometimes it is just bad planning. HELOC abuse would fall in the “bad planning” category.
How was this supposed to work? Even if the kool aid dreams were true and you could perpetually borrow against your house as it increased in value. What is the end game? Is there no limit to the amount of debt you can support? What happens when you sell and the house is no longer providing income? Does the house ever retire? Or does it provide endless free money forever? In reality, there was not plan. Everyone just took the free money and spent it without regard to future consequences, and now that there are consequences, everyone is avoiding responsibility and letting the lenders deal with the fallout.
The owners of today’s featured property managed to find a lender who thought their sub $200K condo was worth over $580K and loaned them money accordingly. These owners may set the record for the greatest return on their initial investment. They put down $5,500 in 1999 and took out more than $400,000 over the 8 years that followed.
Asking Price: $450,000
Income Requirement: $112,500
Downpayment Needed: $90,000
Monthly Equity Burn: $3,750
Purchase Price: $182,000
Purchase Date: 7/29/1999
Address: 18 Queens Wreath Way, Irvine, CA 92612
| Beds: | 2 |
| Baths: | 2 |
| Sq. Ft.: | 1,320 |
| $/Sq. Ft.: | $341 |
| Lot Size: | 3,648
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Rambler |
| Year Built: | 1965 |
| Stories: | 1 Level |
| Area: | University Park |
| County: | Orange |
| MLS#: | S531320 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 14 days |
3rd bedroom. Home features great room living concept complete w/corian
counters, recessed ighting, all new windows and brand new roof!!
Covered patio invites you into the back living area! Excellent
location, excellent schools!
What is the “3rd room currently set up as a
3rd bedroom?” Is this an illegal conversion, or just realtor BS trying to make a 2/2 sound like a 3/2?
At least some of the HELOC money went toward pergraniteel.
Excellent
location? If you like being about 100 feet from the 405. This place has to be very noisy.
.
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To look at the listing, you would think these people are going to make $268,000, but when you see the short sale notice, you know they got crazy with their HELOCs. Let me give you the bullet point summary:
- The property was purchased for $182,000 in July of 1999. There was a $176,500 first mortgage and a $5,500 downpayment. 3% down was probably an FHA loan.
- On 7/31/2001 the property was refinanced with a $200,000 first and a $50,000 second. They took out their $5,500 plus an additional $62,500.
- On 4/10/2003 they refinanced with a $266,500 first mortgage taking out another $16,500.
- On 2/20/2004 they opened a $100,000 HELOC.
- On 5/23/2005 they refinanced with a first mortgage for $412,000. It was a negative amortization loan with a 1% teaser rate. The HELOC was likely paid off. Total MEW of $230,000.
- On 10/6/2005 they took out a second mortgage for $50,000.
- On 6/30/2006 they took out a $121,500 HELOC. Total MEW of $341,500.
- On 4/13/2007 they refinanced their first mortgage with a $564,000 first mortgage and a $21,150 second mortgage. The total property debt totals $585,150, and total MEW equals $408,650.
If the seller gets their short-sale asking price, JP Morgan Chase stands to lose $162,150 after a 6% commission. Of course, getting this asking price may prove difficult. They are trying to get $341/SF for a 1965 condo located 100′ from the 405. There are other sellers who have consumed even more kool aid.
Do you think this is going to happen again? Will people be able to do what these borrowers did? Will prices bottom out and quickly rebound so we can all borrow and spend ourselves to prosperity at the expense of our lenders? Somehow, I don’t think we will see this again in our generation, but you never know. If the peak of the next bubble would happen to correspond to when I want to retire, that would be great…
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Buddy youre a boy make a big noise
Playin in the street gonna be a big man some day
You got mud on yo face
You big disgrace
Kickin your can all over the place
We will we will rock you
We will we will rock you
Buddy youre a young man hard man
Shoutin in the street gonna take on the world some day
You got blood on yo face
You big disgrace
Wavin your banner all over the place
We will we will rock you
We will we will rock you
Buddy youre an old man poor man
Pleadin with your eyes gonna make you some peace some day
You got mud on your face
You big disgrace
Somebody better put you back in your place
We will we will rock you
We will we will rock you
We Will Rock You — Queen
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P.S. A special bonus for all Queen fans:
I think I have Rick Ruben’s remix of this in Itunes. A little different from the original.
How is this going to change the situation?
http://www.cnbc.com/id/24713984
CNBC just reported core PPI at 0.4%, double expectation. Interesting times.
Over $400k withdraw in less than 8 years, and most of it will be forgiven. And the government wants all of us to pick up the tap? Hell. no, no, no.
5%/year increase compounded from 1999 purchase makes it $282,342 (62.7% of asking). At $282k GRM will be 160 if this place can rent for $1,765/month.
$450k is still a WTF price. This short sale will end up in the “sit and rot”, and then “foreclosure” pile.
The 160 multiplier is handing for computing approximate mortgage to rent breakeven at current interest rates. It in no means indicates a lasting support level.
Look at the property itself, or any other profile here. In 1999, well off the bottom, it sold for $182,000. At a GRM of 160, it means rent was $1150. Anybody remember what a 2/2+ in 1999/2000 was renting for in Irvine? I’m remembering $1400+/-. I know we have landlords from then on here, chime in please.
In 1999, here’s the following GRMs to applicable rents:
160 – $1135
150 – $1200
140 – $1300
130 – $1400
120 – $1500
In 1999, purchase prices, rents and rent stability was already recovering for a couple years.
Also remember by 1999, prices had already recovered 10-20% from the bottom in the 1994-1997 period. A $1300/month rent and 10% lower bottom would put the GRM at 120.
Wiki on the housing bubble:
http://en.wikipedia.org/wiki/Real_estate_bubble
Maybe some day we’ll see IHB listed on that page, too 😉
Do these “walk aways” result in cancellation of indebtedness income under IRC Sec. 61(a)(12), at least where the house is not the debtor’s principal residence (IRC Sec. 108(a)(1)(E))? Perhaps IvineRenter could perform a public service (and reap some bounty money) by turning some of these jokers in to the IRS.
Congress has suspended considering mtg debt cancellation as income til 2010 in an effort to cause less pain for people “losing” their homes, but this effectively encourages walk aways.
I think you are mistaken about what was enacted. The law was designed for those that get a mortgage work out, and stay in their home, from having to pay taxes on the amount of the loan forgiven. You never had to pay taxes on a short sale if the loan was a recourse purchase money loan. Go check out the IRS website. Even then it wasn’t completely forgiven. The basis of the purchase price would be adjusted.
Here’s some info from the IRS:
“The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).
The debt must have been used to buy, build or substantially improve the taxpayer’s principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.”
http://www.irs.gov/irs/article/0,,id=179073,00.html
That last phrase conveniently disqualifies cash-out refi’s for any bubble equity as far as I can tell.
Ouch! I’m perfectly happy with that, but ouch!
So basically this only bails out (of the tax obligation) those who bought foolishly believing the mantra of buy now or forever be priced out, and the knife catchers.
And, for California where all purchase loans are non-recourse, it only changed the law for loan restructuring that results in the reduction of principal. The idea was to make sure that work-outs would not subject the homeowner to a tax liability.
There are going to be a lot of people with an unexpected tax liability.
Collect your 10% bounty by filling out the form and filing with the IRS Criminal Investigation Division (understatement of income is a crime).
Did California conform to this law, or do they still have to claim all of the income for California purposes?
Has anyone seen a single article in the media about a serial refi’er? I have not. I want to hear their answers to IR’s questions: “What was your longterm plan? Even if the value of your home never decreased, your loan balance would keep growing ’til you were forced-out of the home. What part of that did you not understand???”
Not recently, but there were some about 2 years ago in the NYTimes. Basically all published instances were ones where people had already wracked up the debt on credit cards or in hospital bills and viewed the refi as consolidation to lower rate loans, such that their cash-flow actually would improve. Essentially they’d do it once, it would work out well, and then they do it again because it helped the last time, and somewhere along the way someone would clue in that they could stick them with tons of fees without them noticing or pre-payment penalties and they’d sign the next one without realizing that they were no longer consolidating but rather adding on unnecessary new debt. But it would take until the mortgage payment was actually unmanageable before they’d realize that they needed to cut back on spending. There was no plan, there was just some form of hard times leading to debt and the house was a temporary lifeboat because of rising home prices. But it only succeeded in delaying the inevitable.
Or so went the stories.
The NYTimes has an interesting article today about a guy whose job is repossessing boats! He’s busy as a beaver. Apparently boats were a favorite purchase of HELOC abusers — and I can’t help but noting that today’s property is on the beach side of the 405. Here’s the link:
http://www.nytimes.com/2008/05/20/business/20repo.html?_r=1&ref=business&oref=slogin
And I also noticed that this property has those really obnoxious 1960s low ceilings that would be a serious turnoff for most buyers.
In many cases this is exactly how mortgage brokers would sell an option arm. They would compile a list of all of the monthly debt a borrower had, lets say total of $3,000 in monthly payments on mortgage, car payments, credit cards, timeshares. They would say, lets pay all of this off and get you another 100k out and your total monthly payment will be only $2,000. That will allow you to save $1,000 month and you’ll have 100k to do whatever you want with it……sounds great, where do I sign! The borrower would be so happy about this that they wouldn’t even pay attention to fees or the kind of loan they were getting. Jump forward a couple years and they find out it was too good to be true.
I can see how that sales pitch would have been hard for many to resist, particularly those who were not financially sophisticated enough to understand what was happening to their loan balance.
[b]My Offer[/b]
After giving this property a thorough look, my offer today is [b]$167,000.00[/b]. I believe this is what this property is worth.
I was thinking at a maximum of 200-220k. I may pay a little more than most, but things would be ok. Its in a good area (not the most desirable lot though), top schools and good location.
Good luck
-bix
Only a deranged knifecatcher would pay $167k for this place.
After giving this property a thorough look, my offer today is $20,000.00. I believe this is what this property is worth.
$20K? Only in Puyallup perhaps….
$150k GTFO.
Yeah, but somebody is fool enough to think they are getting a steal at around 400,000. Therefore furthering the delay to normalcy.
I’d like someone to pay me to live in it… lets be serious. With a little work, this place would rent for a minimum of 2K per month. Giving it a reasonable value of 280-300K.
$341 sq/ft asking price. This should sink to just below the $200 level before all is said and done. It is just amazing how some lenders, realtors and owners are so hung over from the kool aide buzz they can’t come to terms with the reality of current prices.
I love it! An d so many homeowners cry– but I should get some money I bought the home for x and now it is worth xx! You already took your money and a lot of other people’s money too!
IrvineRenter,
So a “Walker” just moved into the apartment next door to me….
I went to get the mail at my Irvine company “resort style” apartment complex last night and got a piece of my new neighbor’s mail in my box. This happens sometimes in our complex. The first thing I noticed was a “HUD” symbol on the postcard. Yes it was a postcard. It stated the standard stuff about how we have tried to contact you many times and you are never available and don’t return our notices. We would like to talk with you and see if you qualify for any assistance so you don’t go into foreclosure. The postcard had the little yellow change of address correction on it. Obviously it was sent to the now empty home that my new neighbors abandoned.
The schadenfruede in me wanted to just toss the notice into the trash and say “Not my problem”, but I put it back into the outgoing mailbox so they will end up getting it.
I guess that postcard explains why they were moving enough furniture, etc. to fill a four bedroom house into a two bedroom apartment three weeks ago.
Did they just decide it was better for them to find an apartment before their credit was wrecked?
No worries – massive mortgage bailout bill smoothly working its way through the Senate. Should pass and most likely Bush will sign. (Reported in the WSJ this morning.)
There ain’t a hill of beans difference between the Dems & Repubs. I’m truly disgusted.
You know, the more I look at the bailout, the less offended I am. The homedebtors are being played. If they’re underwater, they should walk (ok, good financial advice, let’s not get into the morality).
While it is good for the LENDER to keep you paying on an overpriced property, is it any good for the homedebtor? And after the “mortgage reduction,” the lender has a priority lien for the forgiven debt should the homedebtor ever sell.
So, bottom line: You are still paying too much for the house. You are still responsible for taxes, insurance, maintenence, etc. So you are still paying far more than comparable RENT. And, the kicker, you will never, ever, ever build any equity that you can keep because of the lien for the mortgage reduction. If you never build equity, you are a RENTER. But a renter that pays far more than any other renter for the exact same property. Thus, taking this deal makes you not just a renter who is responsible for all the ancillary stuff. It makes you a complete idiot and fool.
LOL! That is true, and when this new renter class wakes up to the reality of their situation, they will wonder why they didn’t walk away.
The best lies are wrapped in some truth.
Politicains and lendors are doing everything they can to “keep people in their homes” becuase they (lenders) need the cash flow. Short sales are great for them, the longer they take the better, as long as they can keep the sap paying them ANYTHING on their depreciating asset.
The truth is they could all care less about the “homeowners” staying in their house, they just dont want the homeowners to walk away and leave them with the bill.
Who is dumber, the moron who borrows money he cant pay back, or the person that lent it to them on their word and created the vehicle (exotic loans) to make it possible?
I say efem all, let the banks fail……
Great points buster. The latest generation of home buyers and refi-ers just extended their retirement 10 years.
Of course, the fools that stay in their home and do manage to pay off their principle will feel ripped off by the banks when they try to downsize in 30 years. Mark my words they will be bitching again to the government to bail them out. Just more people on SSI…
Republicrats, huh?
Maybe we should all contact our “conservative” representatives and tell them that since they are acting like democrats, we will all go ahead and vote for democrats this year and make them all go find real jobs til next election year.
That might wake them up!!
Tyranny of the majority. I’m guessing, but I wouldn’t be surprised if homeowners went to the polls more than renters. Gots to keep them voters happy.
[url=http://www.redfin.com/CA/GRANADA-HILLS/12122-RAHN-Ave-91344/home/5567752/claw-08-264511]12122 RAHN Ave GRANADA HILLS, CA 91344 Price: $599,000[/url]
For the property listed above, what does this mean:
Sale History
04/20/2005: $610,000
Does this mean the seller is now upside down and trying to sell?
Yes, that is exactly what it means. Lately, these have not been too hard to find.
[b]My Offer[/b]
After giving this property a thorough look, my offer today is [b]$293,100.00[/b]. I believe this is what this property is worth.
It is a 1962 property.
With a purchase price of 610 and a listing price of 599, it means the owner is selling for a loss if the seller sells for anything less than 610 plus sales costs, but it does not mean the seller is upside down. Upside down means the seller owes more than the house is worth. I did not see anything in the listing indicating how much the seller owes on the house. Do you know how much the owner owes? Or is a “short sale” mentioned in the listing?
Hello Queen fans!
I particularly remember the cover art of this album, it can be unfolded and the image inside appropriately looks like the final day for credit abusers and a reminder of the consequences for those that stay conservative:
[img]http://www.vinylrecords.ch/Q/Queen/News/IMG_2432.jpg[/img]
Dataquick said homes prices are down based on data released yesterday.
Well in Irvine, decent homes (2400-3000 sf. nice location homes) – in my opinion just haven’t dropped like they should have.
A house that was, for ex. 450k in 2001, went to a million (2006), is still at 850-900k (2008)I keep waiting for homes like these to be 550-650k. 200k appreciation in 5 years is still pretty damn good.
It hasn’t happened yet. All my friends say it won’t happen, so stop renting and just buy. After waiting out the last year, it looks like it might take another 2 years for it to drop, if it even happens.
I keep saying people can’t afford million dollar mortgages, but somehow they keep making payments and good neighbourhoods are still holding high.
I think these home are worth 550-650k, but the market say otherwise.
Who’s right? Do you wait 2 more years to be proven wrong.
IR keeps profiling condos (apartments) and small old homes on the market, but when are the nice homes really coming down.
The nicer homes with larger mortgages were likely Alt-A or prime borrowers. This group has not faced their resets yet. When they do, the foreclosures will wipe out these neighborhoods. We have already had a price decline in the last year that was greater than anything seen in the 90s. Be patient.
It will take time (years not months) for the market to correct. Whether or not the Irvine homes you’re interested in (now selling for $800k+) will drop to $500k+ is possible, but who knows? The market’s not going up, so time is on your side now.
If you can afford $800k+ and you find a home you love and can live in for 10+ years, then buying now isn’t the worst decision. The question is affordability. Is $800k 2.5x your household income, or do you have hundreds of thousands to put down? Will your housing cost be less than 28% of your income?
If the answers are no, then you’re waiting like you should be.
Its exactly those requirements that (2.5x your income = max. house price) makes me believe that home prices will have to fall, my point is – it just hasn’t happened.
I don’t believe for a second that every family in irvine is making 250k+ to buy 900k homes – but somehow home prices maintain their high levels.
That is my main question, I don’t beleive they are worth 800-900k today, but what is beleive is not reality.
You are right, life is not on hold because of rent, but I do believe that – there is nothing like owning your own home (a small sip of the kool-aid)
I don’t have the fear of it going back up again, but 800k today at 6% interest or do I wait to buy two years from now at 750k with possibly higher interest.
It does look like 2010 will be the true test of these homes.
I agree with you that most Irvine buyers of the last few years did not stick to conservative traditional metrics of homeownership. As IR stated, that’s just more reason to believe prices will drop further as these people are “shaken out” of homes and into rentals.
But how the market plays out is beyond your control. You can control how much you spend on housing, and if the house you need/want exceeds affordability, your only reasonable and prudent option is to wait.
And don’t worry too much about interest rates. As IR’s illustrated many times, there’s elasticity between rates and prices (i.e. if the 30 year “jumbo conforming” fixed rate jumps from 6% today to 9% next year, purchasing power is severely impacted and therefore prices decline further/faster).
Try standing in a recent homeowner’s shoes. How would it make you feel today if you bought that million dollar Irvine home in 2005? Even if you could afford it, you see no end to its depreciation in sight. You know it could drop to $500k, which would means that you’d be underwater for 15-20 years. Imagine the new neighbors moving in next door in a year or two with a mortgage half what you’re paying.
It would be painful – much more painful than renting and waiting for years for price declines.
as always, when I hear people talking like this I get the feeling I am watching a cheap horror flick, in which the teens who were just making out decide to investigate the noise coming from that creepy old abandoned home. don’t go in, dude! some areas and price ranges are holding on longer than you might want (such as the SF area which still seems insane) but no one can repeal the law of gravity. the prices do have to come down eventually.
“Who’s right? Do you wait 2 more years to be proven wrong.”
And try not to worry about being proved right or wrong on predicting where any market is heading. Remind your friends of how much money you’re saving by renting as opposed to owning over the last couple years and into the next couple years.
Your life’s not “on hold” while you’re renting. Your freedom is being preserved. Your freedom to maximize your savings, live wherever you want, and to eventually purchase a very nice home at an “affordable” price.