Problem Child – AC/DC
Do you get the impression from the behavior of speculators and HELOC abusers that it isn’t their problem? I do. Today’s featured property was bought in 2005, the equity was quickly extracted right up to the peak, and now that prices are dropping, the speculator is simply walking away. It isn’t his problem anymore, it is the problem of Residential Mortgage and Investment, Inc. or whatever CDO the loan was packaged into.
Day after day, we document lenders taking huge losses. It is not the kind of thing that promotes a loosening of credit and increasing prices. Yet there are still people trying to flip houses (a post for another day, perhaps.) WTF? Do people have so little understanding of credit markets that they believe lenders are suddenly going to go back to the practices of the bubble? Faced with daily huge losses causing unprecedented price declines, lenders will become more restrictive of credit — much more. Either that or they will go bankrupt (I am still waiting on Countrywide, IndyMac, Downey and WAMU.) Prices will fall to the point where people can afford to buy houses with a conservative percentage of their income because lenders will require it. The days of DTIs in excess of 28% may return again someday, but not until that becomes the standard for quite a while. Lenders will retreat to this level because they know people can really afford that. That will become the standard until people stop defaulting. People are going to continue to default until prices stop declining and they stabilize at affordable levels. That is just the way credit markets work.
Asking Price: $575,000
Income Requirement: $143,750
Downpayment Needed: $115,000
Monthly Equity Burn: $4,791
Purchase Price: $680,000
Purchase Date: 6/28/2005
Address: 13 Pebblewood, Irvine, CA 92604
| Beds: | 3 |
| Baths: | 3 |
| Sq. Ft.: | 1,853 |
| $/Sq. Ft.: | $310 |
| Lot Size: | 2,645
Sq. Ft. |
| Property Type: | Condominium |
| Style: | Colonial |
| Year Built: | 1976 |
| Stories: | 2 Levels |
| Area: | Woodbridge |
| County: | Orange |
| MLS#: | S538513 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
|
|
granite counters upgrades spacious kitchen. Perfect patio for
entertaining.
Even the description says, “I don’t care anymore.”
This owner did not own the property long enough to seriously abuse HELOCs, but he did what he could.
- The property was purchased on 6/28/2005 for $680,000. There was a $600,000 mortgage and a $80,000 downpayment.
- On 11/28/2005 he owner withdrew his downpayment with a $80,000 stand-alone second.
- On 5/18/2006 he refinanced with a $607,240 first and a $114,000 stand-alone second.
- Total mortgage equity withdrawal of $121,240 including his downpament.
- The total debt on the property is $721,240
If this property sells for its asking price, Residential Mortgage and Investment, Inc. stands to lose $180,740. The loan is barely two years old.
.
Cop this
I’m hot, and when I’m not
I’m cold as ice
Get out of my way
Just Step aside
Or pay the price
What I want I take
What I don’t I break
And I don’t want you
With a flick of my knife
I can change your life
There’s nothing you can do
I’m a problem child
I’m a problem child, yes I am
I’m a problem child
And I’m wild
Make my stand
No man’s land
On my own
Man in blue
It’s up to you
The seed is sown
What I want I stash
What I don’t I smash
And you’re on my list
Dead or alive
I got a .45
And I never miss
I’m a problem child, hey
I’m a problem child
I’m a problem child
Just runnin’ wild
Problem Child – AC/DC
presumably you will agree that one is right to beautify the landscape by ripping out ads stuck into grass and pulling down bills pasted on post-no-bills poles.
i did the former yesterday. they were stuck into grassy spots (not home lawns) by desperate landscapers trying to stay afloat now that there are no houses to work on. they offer various roofing, landscaping, remodeling services. i will help these bubble-seeking parasites slide into bankruptcy by disappearing their ads as soon as i see them. i urge the rest of you to do likewise.
There is a gate at the entrance to the property I live in. Every realtor, landscaper, house painter, and the like will leave their flyers at my gate. It is litter. They are littering in my yard. I find it very annoying. Personally, I keep those flyers to remember who not to use…
I also have been getting an escalating number of those flyers, typically all clustered on the same day. I saw they guy who was delivering them walking around with a big backpack, delivering trash to the doors of everyone on our street.
We get two or so per day stuck to the gate of our courtyard. We actually called and used one of them to rip out some landscaping. I guess I shouldn’t encourage them, but they were cheap and, let’s face it, how can you screw up ripping out bushes?
Always wondered if people who live in gated communities have this problem. If not, that’s enough reason to live there.
What is worse is that this is more or less what the mailman does now. Once one gets their bills electronically, the mail is almost nothing but advertising.
The advertising gets favorable rates and the post office loses money. It sure is great to have a federally subsidized advertising service that you can’t opt out of.
you CAN opt out of all junk mail. it takes a few months but you can do it.
I’d love to know how to do that.
In an earlier post, you alluded to the process of using second mortgages, HELOCs, and re-fis to set up a “call option.” Whenever you cite a property where the lender is heavily underwater and the “homeowner” is out nothing, I am reminded of that earlier post. I think it’s a topic worthy of further exploration.
In this instance, the investor achieved a ROI of ~55%. The real story here isn’t how badly the “homeowner” did, it’s the greater fool nature of the lender and whoever bought the CDO.
Yes, the lenders and investors set up a system where individuals could profit at their expense. This speculator got a free “call” option on the property with 100% financing while getting a free “put” option from the lender locking in any profits along the way. The only pain he will experience will be through his credit report.
I’m a total newbie on this site, and am also new to the whole issue of the large losses being incurred in real estate, but have been trying to learn more on this topic.
I have one question, the answer to which may be obvious as day to the real estate experts on this site, but not so intuitive to someone new.
Briefly in a case like this (or the many others on this site) doesn’t the lender have recourse to the borrower’s other assets for the ultimate loss? I’ve had friends/family harranged mercilessly by debt collectors for amounts far, far less than the potential losses on these loans. So I’m not sure why only downside is a black mark on credit report. Of course, the borrower is unlikely to have put the equity withdrawal in treasuries/Certificates of Deposits, so may be little to recover, but seems you may want some undertake some reasonable further collection efforts rather than just give up.
If someone can clarify or direct me to a site that has more information I’d be grateful.
I’m interested as well Newbie.
In California I understand that HELOCs are generally recourse loans. As well as most refinanced home loans.
So I suppose the lender or his successor-in-interest would file a lien and otherwise try to collect?
Are there people speculating on this debt? Buying it for pennies on the dollar and trying to collect?
Debt secured by real estate can be either recourse or non-recourse debt. Purchase money mortgages are non-recourse, so there is nothing that can be done to get this money back. All refinances are recourse debt, so the lender could go after the assets of the borrower if they have any, and if they go get a deficiency judgment. Few if any of the lenders have been obtaining deficiency judgments. Despite the lack of a deficiency judgment, I believe we will see a cottage industry spring up around collection of these debts. It just hasn’t happened yet.
It’s not that simple.
To be able to pursue you after the debt is wiped out, they would need to get a claim against you in court for breach of contract.
Here’s a good site with a lot of information:
http://www.mortgagereliefformula.com/03/10/can-second-mortgages-foreclosure/
It also give a lot of background to foreclosure legal action.
Chuck Ponzi
Thanks for replies.
Is the purchase money mortgage as non recourse a California thing (I am in New Jersey and don’t see any reference in my mortgage to being recourse only to the property)?
It is a California thing but it may also be a NJ thing. You probably wont see any reference to it in your mortgage. The re-course/non-recourse issues are a function of California statutory and case law. To see if it applies in NJ you either need to consult an attorney or read the NJ code/case law yourself.
Until yesterday I was looking to buy a home in Irvine. I am one of the people who saw the insanity of the bubble blowers and decided to save my pennies and wait it out. I can tell you the bubble is over (there are not as many buyers) but there are still people out there bidding up houses and realtors who think the market (unrealistic prices) is coming back. I saw properties that are total and complete dumps and the sellers are still asking for the high $500’s. I understand the sellers paid too much and are now trying to reduce their debt but I would be a fool and an enabler if I used my hard earned money to deprive them of a head bump they so rightly deserve. I, on the other hand, do not understand why some of my fellow buyers are bidding up properties? Are they completely nuts? The agents say the “comps determine the price and when something is under priced people want it.” Since when is a 1700sq SFR @ $595k under priced? I wanted to offer $450k for it ? that outraged the agents. I do not claim to be a real estate expert but if the banks are buying back their inflated mistakes are those sales considered in the comp?
That’s why we call them “realtards.”
The sellers and realtors are in denial. They still do not want to believe that their beloved stucco boxes are not worth what they once were. You just have to wait it out. Any of us that have bought property under the logical lending rules of the past knows what it takes financially to sustain that kind of commitment. And all of us know that as long as sellers are listing at the inflated levels of the past, the properties will sit and sit until over time the prices will drop to affordable levels. Tick. Tick. tick………
Fine with me. Just let the WTF priced sit and rot.
Yet another stupid realtor trick. When a property is foreclosed and there is no third party bid (95% or more of the time in this market), a “sale” is recorded for the loan value. It’s not really a sale or a comp. That foreclosure is typically followed by an actual sale to a third party for less than the foreclosure sale price.
I’ve seen this exact same thing in Huntington Beach. We just recieved a flyer in the mail from a realtor and it showed all of these recent sales and pending sales. It’s all smoke and mirrors and in fact these properties are just going back to the lenders and the prices shown are the loan values not the real worth. So I guess they think that if they paint a picture that all of these properties are selling then everyone will jump in. Of course they fail to admit to themselves that it doesn’t matter what picture they paint. No one can afford to float a loan at these prices.
Yes, the brand new condos in HB down the street are now at the price of this Irvine mansion. Reality sets in, yet I don’t think anybody is living in those units. Is “colonial” Irvine worth more than brand new HB?
It is quite obvious that most people are incapable of determining value on homes; thats why its all about “comparables”, as if some other fool being willing to pay a price makes it worth that.
But: people do understand a “SALE! Buy now, 20% off!” So every time the price drops a little, all those who were looking at the old prices see a bargain and buy. Then these folks are out of the market, and the new folks see the sale prices as normal; now they need a SALE…
Then there are the WTF sellers; the Realtors should pay those folks to be there, it establishes a high price in weak minds. Basic strategy: take the buyer to a WTF place, then to a place somewhere near the market. Wow, what a deal, eh?
All this makes for such a bumpy ride down, and requires a lot of patience if you have been waiting… gee, that place looks cheap?
The real estate agent is not your friend. He/she has a much greater interest in keeping prices high than in securing you a good deal. You are, at best, a distant second.
I disagree, Iblis. The RE agent’s interest goes something like this:
1) Closing a deal
2) Commission $
3) His/her ego
4) Other stuff
5) Seller/buyer represented
I’m exaggerating somewhat on #4, but 1-3 are locked solid.
RE agents don’t want something to drag out, they want their cash – you’ll notice with all this inventory, the “good” agents will cherry pick their sellers – as in those realistic with pricing. The WTF agents are simply checked out, won’t return calls, are out of their league, etc.
No, I’m not an RE agent – furthest thing from it. But having gone through 6 transactions over the past 4 years, it becomes obvious.
I have some fun stories on the RE agent ego front (complete with e-mail evidence) that I will share some day. Utterly freaking hysterical.
I work in the construction/development business, we build for a living. I watch the markets very close. There is no new home construction in Orange County at this time. The number of new homes built in Orange County this year will match the year 1949. The county has 3m population and we will build less than 1000 new SFH this year. When building starts up again in Irvine we will need to get every bit of that $595k for that 1700 sq SFR home. The 3800sq lot that home will sit on costs $250k with land development costs. Next add in $50k for school, county fees and $200 to build
I think that you skipped the two giant condo towers going up in Santa Ana, as well as many mega condo projects in nearby cities.
There hasn’t been any usable land for major development in OC for years. Even during the boom they did not build thst many SFR, in order to keep the prices high.
Certainly normal building rules of thumb don’t apply to Irvine, where all of the land is owned by the Irvine Company. Finally, 1949 was a post-war boom year — not exactly scary news here.
I think the population of the state and the county’s dropping.
I say throw in your lo-ball bids and have the realtors become enraged. It would be hilarious watching how red in the face and eye-buggy they get. Just wish you could watch them tell the homeowners!
Eventually, all of this will pass and things will revert to normal, albeit at much lower prices. I personally think the crisis has a few years yet to go. I’m looking forward to the day I’m throwing lo-ball of lo-ball bids in.
Kelja I must admit I did enjoy submitting low ball bids…I would have liked to have been a fly on the wall when the agents submitted them to the listing agents but I do not believe most of them were submitted.
Real estate agents are pretty high-right below bubble heads- on my list of people who deserve a head bump.
Correct me if I’m wrong, but absent instructions from the owner not to show bids below a certain dollar amount, the agent is required to submit your offer, however outrageous. It’s not the agent’s discretion to dismiss offers they consider inadequate.
About 2 years ago, when I was believing the hype that “there is no more land to add houses” and “everybody wants to live in So Cal”, etc. but still under the impression that the housing market was not sustainable, because it was going to drive out any households earning less than $100k/year. I had a silly plan to make lowball offers on every house for sale in an effort to singlehandedly drive the market down.
Remember: When buying a house in the OC, it’s YOUR JOB to INSULT the seller with a low ball offer.
Take it, or leave it.
Sort of makes sense since the sellers started it with an insulting wishing price.
So what kind of lowball offer did you throw at these people? $100K? $150K? I am really curious.
RE: WHat kind of low ball offers?
Sorry if you are one of the sellers who got one of my low ball offers but I guess I had too much time on my hands.
I once went over to the Columbus Square $1.2 to $1.5 million models and offered $450k. That is what a home that size would go for in the Chicago burbs. I saw a $840k townhouse I liked and offered $300k because it was joined at the hip to another $840k townhouse. I feel they saved on that wall so they should pass along the savings.
“I once went over to the Columbus Square $1.2 to $1.5 million models and offered $450k. That is what a home that size would go for in the Chicago burbs. I saw a $840k townhouse I liked and offered $300k because it was joined at the hip to another $840k townhouse. I feel they saved on that wall so they should pass along the savings. ”
Ill be doing the same thing as you are doing now!
And Ill be offering CASH straight UP. It’s amazing how desperate people’s attitude changes once they see cash in hand. 😉
re: real estate agents.
like kicking people when they’re done huh?
now that’s an OC trait.
Was “done” a Freudian slip?
Re: Kicking people
Nope, I just take my substantial pre-approval(that I only plan to use 50% of) and my 30% down and walk away.
That should be painful enough.
😉
[b]My Offer[/b]
This property is not worth more than [b]$295K[/b], this is my offer.
Strange as it may seem, people are *still* trying to flip houses. I am shopping for a place in Petaluma – prices have taken a nose-dive in Sonoma County, and they are close to parity with rentals – and I saw a house that was purchased in March of this year for $330,000 and is now back in the market for $440,000. The seller claims it has been extensively remodeled. Seriously, WTF? And who does he think he’s kidding?
Tell the seller that you’re willing to offer $250k and that if he gets no seller, call you 🙂
Wait it out my friend. Patience is virtue 🙂
Unfortunately, in my zip code (92603), things are selling like hotcakes! I don’t get it? On realtor.com so many of the listings are showing “back-up offers” or “pending sale”.
The prices here have not dropped at all it seems, yet people are buying. Is it because of the huge Asian population in this zip code? Will they ever drop here or am I dreaming?
You can’t push the river… water does flow downhill, but it takes its own sweet time.
Obviously, there are places nearby that have dropped enormously; why haven’t you bought there?
Streets lined with foreclosures, maybe? Don’t want to live there, eh?
Seems that applies to the folks who are buying. Eventually, many who are waiting will get tired and decide the benefits of the lower price outweigh the disadvantages and buy elsewhere, and then the better places get cheaper, too. But it may take four or five years to do that.
It’s a ploy, the properties are going back to the bank and they are showing them as sales. Read my comement regaring Huntington Beach above.
Anybody know for sure if sales (at auction or otherwise) of property back to the bank show up as blue dots on Redfin or not? I use the 3 months/6 months etc previous sales compared to the number of green dots to gauge the average months of supply by eye.
Yes, I’ve found some examples where Redfin “sales” are actually properties going back to the ank at auction.
Here’s one.
Red is right, it will take time for the nicer zips like 92603 to come down as people there generally have the means to ride out a downturn (i.e. taking places off the market) and there has been less speculation in this area compared to other parts of Irvine. This is where my family is looking to move, but IMO, hasn’t come down enough yet.
I do believe that people really don’t have an understanding of credit markets or any of the crazy stuff that will keep driving this market down. I didn’t have that understanding – for years when I was living outside CA I kept asking anyone who would listen ‘how are people affording these homes in CA’ – and I never got a good answer. Now, after reading this site for a year, I understand what was going on – and I understand much more how things work.
The information presented by the media is so horribly one sided. I don’t believe that the media has a responsibility to educate us – obviously we have to be responsible for our own decisions. However, it is horrible how they refuse to present any real economic news. Then again, denial is strong and some people refuse to listen.
Speaking of all this – is there still a tip jar somewhere – I never did show my appreciation for saving me a bunch of money…..
Whaddya mean one sided? The media is now heavily promoting the demise of RE. That’s from one light end to the other dark end in an instance.
The promotions are only (and still) coming from the realtards.
please – the media gives the demise of RE lipservice – because they would look like complete fools if they didn’t. The rest of the time they spend talking about hitting the bottom, why we aren’t in a recession, and attempting to persuade people to invest in stocks despite all the bad news. A lot of the bias comes from the guests they choose to have on thier shows.
During the boom who paid for all the ads? Who fed the media?
They only answer to the money calls!
They are not in the business to educate, to help people.
They kept on siding with where the money was until they could not avoid the obvious!
It’s always easier to sell your soul than to keep it and die starving!
First off, many many many thanks to IR and this blog for cutting through the noise of this hysteria and painting the true picture of things going on. This blog is opening the eyes of people, many of who were on the verge of stepping right in front of a tsunami.
The government-backed, corporate brain-washing machine is only reporting the slant on this to do one thing: build up a public mindset that a government bailout needs to take place.
Only problem is that the government doesn’t have any of its own money. It can only get money by taxing its citizens.
The media’s job is to guide the sheep. A few who are outside the loop will get pegged as the scapegoats and go off to prison (as is already happening). These are the “bad guys”. This will make it look like something is being done.
The politicians will rescue the “victims” (sheep voters) from these awful predators (wolves) by passing this bill to show that they are heros and the government is here to save the day. The only problem is they won’t tell you that they will tax the hell out of everyone to cover for the abuses and greed of a select few intoxicated on the kool aid.
I think this house would likely rent for 2700$ min.
Yard is small, it is close to culver, but woodbridge is very nice and lots of people like it.
So with a ~170 GRM, it is ~460k$.
Which is ~250$ range
Which is another 20% drop
We are getting there !
I’d be very curious to see for how much this house is going to sale for. I believe all the deal right now are done with 10% off the original selling price, when accepted.
So we are looking at 517k$.
For someone who is actually renting at 2700$/months a similar house, and has 20% down, then the monthly mordgage would be ~2348$ (30y, 5.5% interest for ~415k$).
For someone who will NOT carry on the exact ‘cost of ownership’ that IR is doing, this is actually attractive.
What do you think ?
$250,000 – $300,000.
and when rents get softer, lower still.
This is outside the loop in Woodbridge, that tends to get very dense.
It has $310/month in HOA.
It was built in 1976 which means the floorplan is dated and likely cramped.
Given a choice between $2700 for this or $2800 for a new IAC townhouse, I’d probably opt for IAC.
It’s a 3bd townhome, a median income family should be able to afford it easily with 28% DTI and frankly lower.
Working backwards at $250K, PITI = $1330 (PMT@7%-20% down) + $310 (HOA) + 260 (TAX) = 1900/month = $22,800
At 28% DTI = $81K which is basically median household income in Irvine. Add in a $500/month car payment and the backend DTI is 33%.
Look at a GRM of 100-120 and a likely rent of $2000-$2500 and you get roughly $250K.
Look at 3X income, you get $250K.
Does everybody see the pattern?
to CCR :
Assuming the guy who’s renting for 2700$ gets this house for 517k$…
Now, borrowing 410k$ (he has 20% down) will cost him an average of 1200$ per month interest (more at first, but average over 30years)
Assuming the house drop another 10% to reach 250$/sqf (let’s say in 3 years, at bottom?!)
Then he has spent an average of 36×1200=43200$ in interest
But a 36×2700 = 97200 in rent
The equity loss is 517-10% = 52k (which is 20% off today’s price), but with a gain of 97-43=54k$ between rent and interest …
Breakeven !!
I think this may explain why there are real deals arround. Also if inflation gets to 6% or more, the rent increase will make this even more attractive for some people at least …
As stated in an earlier post, these “Sale Prices” are only “Sale Prices” based on the reduction from the prior sales price.
This is so freakishly similar to the dot com bubble.
What many GRM advocates are not realizing is that rent will also change based on supply, demand. Just as sellers will dream of a good buyer, landlords will similarly be pining for quality rentors.
Remember “Real” place to start is land acquistion price plus cost of construction.
IMHO
“What many GRM advocates are not realizing is that rent will also change based on supply,”
IMO, that’s right! And rents will be going DOWN over the next 2 or so years at least.
Left out taxes, HOA, insurance, maintenance and transaction costs. Then doesn’t include any return from investing the down payment somewhere else while renting.
Go ahead and go for it…it’s a real deal 😉
I received this link in an email:
http://consumerist.com/tag/jpmorgan-chase/?i=5021117&t=jpmorgan-chase-accidentally-breaks-into-your-house-and-steals-everything-you-own
Can you imagine buying an REO and then the old lender takes all your stuff and gives it away?
Someone did that to me once. Broke into my house and took my Heisman trophy…
When I went to get my stuff back, they arrested me and threw me in jail.
You would have to be a fool to try and mess with OJ because he doesn’t hesitate about giving payback! ’nuff said.
Thanks for posting about this IR. I ran across a link to this story from another blog and felt horrible for this poor family. What an injustice! It’s unbelievable that something like this could happen.
“Thanks for posting about this IR. I ran across a link to this story from another blog and felt horrible for this poor family. What an injustice! It’s unbelievable that something like this could happen.”
It’s called collateral damage.
Better get use to it.
“I believe we will see a cottage industry spring up around collection of these debts. It just hasn’t happened yet.”
True. What’s the statue of limitations on something like this? Seven years? Plenty of time to develop and perfect an efficient cottage industry. Probably one that employs off-shore telephone centers to harrass targets at all hours of the day. Picture the phone ringing at dinner time and Queen’s English accent saying “Good evening Mr./Mrs. So & so. I’m calling on behalf of your outstanding loan balance…blah…blah… blah.”
A new component of this industry will be a special department (again, off-shore for a couple bucks/hour) with the focus of just tracking down the avenues by which the client can be reached: cell phone numbers, email addresses, PO Boxes, land lines. It will be incessant.
Where there is an easy pot of gold, you will always find someone willing to work real hard to get it.
Ok, this listing certainly proves how low prices will go in Irvine. This is #310 sq/ft, pretty cheap for Irvine. But look — it is a condo, and it is way over half a mil. Crazy, crazy pricing for a “colonial” crapbox that is 32 years old. $310 assoc dues plus $598 tax == stuck for $908 every month if you pay off you 30 year mortgage and retire to live in a 62 year old condo! Your condo will be eliglble for social security in a few years!