Joy to the World — Three Dog Night
If I were the king of the world; Tell you what I’d do… I’d throw away the loans and the moans and the unknowns; Make home sweet home for you…
When I started writing for this blog, part of my drive was emptying my Reservoir of Schadenfruede. It has grown beyond that, and I appreciate all the people who thank me for convincing them to wait and saving them a great deal of money. I am not a pessimistic or bearish person by nature, and I would rather everyone experience the joy of living rather than the pain and stress of the collapse of an epic financial bubble. However, I am a realist who is willing to face the truth come what may. The truth is prices have fallen, and they will continue to do so. The government may be able to ease the transition to lower prices and borrower solvency by keeping interest rates low for a time. However, sub-6% mortgage interest rates will not be available forever, and after a big push to restructure and refinance existing borrowers out of their bad loans (that may be mandated,) market pressures will cause a gradual rise in long-term rates.
Mortgage interest rates are a combination of the risk-free rate, the inflation premium, and the risk premium. Risk premiums during the bubble were artificially low. If they weren’t, our banking system would not be in trouble, and the bailout of the GSEs would not have been necessary. When the government took over the GSEs, they knowingly took on the investment risk in order to control the risk premium in the open market. This allows them to keep rates artificially low during the upcoming restructure period (I am of the opinion that the government took control of the GSEs to rid the market of toxic paper through a combination of low interest rate refinancing and foreclosure). Government ownership of the GSEs is not going to be a permanent condition, unless of course the government wants to be the defacto subsidized mortgage insurer of the country forever. At some point, the government will want to get out of the mortgage insurance business, particularly since it will not be profitable. Risk premiums will rise to market when the government moves to get out of the business. Three to five years from now, I would look for the government to spin off the GSEs once again (they did this first in the early 70s). I doubt it will take that long for mortgage interest rates to rise again, so if you ever thought about refinancing, now is the time.
Just in case you needed a reminder of what caused this problem, today’s featured property was purchased with an Option ARM with a 1.5% teaser rate. Restructuring this borrower into a mortgage they could afford would require a very low interest rate and likely some significant principal reduction. Since this is well outside of the parameters for a reasonable restructuring, and since this wasn’t a GSE insured loan, it is another foreclosure-in-waiting.
Asking Price: $549,000
Income Requirement: $137,250
Downpayment Needed: $109,800
Monthly Equity Burn: $4,575
Purchase Price: $660,000
Purchase Date: 7/19/2004
Address: 53 Del Cambria, Irvine, CA 92606
| Beds: | 3 |
| Baths: | 2.5 |
| Sq. Ft.: | 1,777 |
| $/Sq. Ft.: | $309 |
| Lot Size: | – |
| Property Type | Detached, Single Family Residence |
| Year Built: | 1994 |
| Stories: | 2 Level |
| County: | Orange |
| MLS#: | I08045684 |
| Source: | MRMLS |
| Status: | Active |
| On Redfin: | 174 days |
 Unsold in 90+ days
|
|
BACK ON THE MARKET. .. .COUNTRYWIDE SAID BRING THEM THE BEST OFFER. ..
.. SHORT SALE PACKAGE ALREADY SUBITTED TO LENDERS. LENDER ORDERED BPO
ALREADY. .SHORT ESCROW. .. .. SHORT SALE. .. SUBJECT TO LENDER
APPROVAL. .. .BEAUTIFUL HOME IN THE PRESTIGIOUS IRVINE. .. ..
CONVENIENTLY LOCATED NEAR FRWY, SCHOOL AND SHOPPING CENTER. .. .CUSTOM
TITLE FLOOR, GRANITE COUNTER TOP. .. .. THOUSANDS OF DOLLARS IN
UP-GRADES. .. .. .MUST SEE TO APPRECIATE
For any of you wondering why I chose Three Dog Night today…
ALL CAPS
An ellipsis is three consecutive periods. I have no idea what form of punctuation is displayed above.
This property was purchased on 7/19/2004 for $660,000. The owner utilized a $500,000 loan and a $160,000 downpayment. On 3/24/2006 he took out a $220,000 second mortgage and withdrew his equity downpayment plus an additional $60,000. On 7/14/2006, he refinanced with a $640,000 Option ARM with a 1.5% teaser rate, and opened a HELOC for $80,000. The total debt on the property is $720,000 plus any accumulated negative amortization, and the total mortgage equity withdrawal is $220,000 including his downpayment.
Is it fair to include his downpayment in the mortgage equity withdrawal? Well, unless he is going to give it back to the lender, he got his money without selling the property, so IMO it should count. If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $203,940. PMC Bancorp’s loan (now being administered by Countrywide) will see a significant loss. Perhaps that 100% cash-out refinancing was not such a good idea.
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great and joyous weekend.
🙂
.
Jeremiah was a bullfrog
Was a good friend of mine
I never understood a single word he said
But I helped him a-drink his wine
And he always had some mighty fine wine
Singin’…
Joy to the world
All the boys and girls now
Joy to the fishes in the deep blue sea
Joy to you and me
If I were the king of the world
Tell you what I’d do
I’d throw away the cars and the bars and the war
Make sweet love to you
Sing it now…
Joy to the world
All the boys and girls
Joy to the fishes in the deep blue sea
Joy to you and me
[electric piano]
You know I love the ladies
Love to have my fun
I’m a high life flyer and a rainbow rider
A straight shootin’ son-of-a-gun
I said a straight shootin’ son-of-a-gun
Joy to the world
All the boys and girls
Joy to the fishes in the deep blue sea
Joy to you and me
Joy to the World — Three Dog Night
Aw, c’mon….you are changing the rules for MEW now? Sorry, I just don’t agree. He got free housing for 4 years and an extra 80,000 in his pocket (minus his financing costs). Still a pretty good deal for him.
Hmmmm…
I guess you might be yanking this listing. Redfin is returning this message instead of listing and pictures:
The most recent listing for this property has gone off the market.
Just a coincidence?
Zillow has more info.
Thanks, I updated the link in the post. I hope Redfin doesn’t start pulling listings just because we feature them. We drive a lot of traffic to their site. If they start pulling listings, I will use Zillow or Trulia, and they will lose all that site traffic.
Yes,
BTW, those aren’t ellipses, those are morse code for :
“GET ME THE F!@# OUTTA THIS HOUSE. FO’ REELZ!”
In case you couldn’t translate it.
Chuck Ponzi
My inner spelling/grammar Nazi wants to send that realtard to Auschwitz.
Don’t be hatin’. I myself am very interested in this new “TITLE FLOOR”. I’m sure it’s like tile, but better, with inlays and bulldogs and ALL CAPS.
“I have no idea what form of punctuation is displayed above.”
It’s been a while since I got on the shortwave, but that sure looks like Morse code to me.
Is that Godwin’s Law? Or does it need to be a heated argument to count?
Needs a heated argument.
Mortgage lenders losing $100K, $200K or more on each and every shit mortgage they made? Pretty soon you’re talking real money (and in the end it’s going to come out of our pockets)
Hoocoodanode?
The fundamental concept behind the logic here has been totally disproven in the past 6 years. Crude quadrupled in that time, while rates consistently went down.
The concept of the ‘inflation premium’ is obviously archaic in terms of interest rates.
Oil is not the measure of interest rates, the CPI is. The CPI has been under control the last few years. This coupled with the lenders not charging a reasonable risk premium is what has caused low rates.
The ‘inflation premium’ is not archaic. We will see it again. It should have been used all along.
do you seriously think the CPI has effectively measured inflation in the past six years?
There are a number of shortcomings to the CPI. One of them is that it measures consumables, durables, and rent. Not home prices. One of the reasons they dumped home prices as a component was because home price changes would have swamped just about all other components in volatility. That’s why they went with owners’ equivalent rent.
There is also a shortcoming with respect to different types of people. A college student has a much different basket of thing he purchases than a retiree. Rich people tend to have a different mix of purchases than middle class people.
The cpi is just a bad joke all the way around.
Regardless of that obvious fact, treasury prices and the resultant rates are created by basic market forces – petroshieks and mercantile Asian govts want to stuff money in reserves, pensions and insurance companies need steady income, investors want to “fly to (perceived) safety” that means demand (even if the forces that create those reserves are obviously inflationary).
If inflationary expectations had even the slightest thing to do with it, rates would have followed crude, gold, copper, food, tuition, housing and everything else which has doubled or tripled in the past five years up. they didn’t. the ten year hit 3 even a few days ago.
Only those with a little bit of undergrad econ and a whole lot of gullibility are uniquely stupid enough to believe the old orthodoxy.
BTW Hormiguero, most of the “regular” posters here have their head so far up IrvineRenters arse that anyone with a differing opinion will bring their wrath down upon them. Fortunately the readership here is dying (according to feedburner). Also the number of ORIGINAL poster comments has almost all but gone away. What you will find are the same old stale regulars posting and re-posting until they are blue in the face. Ahh, this used to be such a unique blog. Not any more.
My advice to you, don’t get into it with anyone here. You would be better served gleaning housing information from a myriad of other (more unbiased) sites.
LOL! Thanks for stopping by and keeping our traffic stats up.
Please buy some properties and help keep foreclosure low, will ya?
“You would be better served gleaning housing information from a myriad of other (more unbiased) sites.”
The issue of bias is interesting. When the bubble was in full swing, it was quite difficult to find reports in the general media which were anything but biased towards saying that real estate prices would continue to go up. A few people who are now more or less famous spoke out: Shiller, Thornberg, Dean, Roubini. They got very little press. They were often portrayed as permabears or extremists. There were several factors that often turn up when the extremists are right: they had a lot of data; people who carefully looked at their research had to admit they were right; they had no direct commercial interest in supporting their views; and they were willing to modify their views when the data warranted.
“An ellipsis is three consecutive periods. I have no idea what form of punctuation is displayed above.”
It is actually Morse Code for E I E I O
You are close.
The “.” is E.
Two shorts “..” is I.
Needs the three dashes “—” for O.
I wonder if the listing agent is being held prisoner somewhere? That would be pretty sweet.
More like: “… — …”
Realtorspeak for “Save our *sses”
In the post I wrote, “(I am of the opinion that the government took control of the GSEs to rid the market of toxic paper through a combination of low interest rate refinancing and foreclosure)”
Here is confirmation from Hank Paulson via Calculated Risk:
“The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy.”
http://calculatedrisk.blogspot.com/2008/09/paulson.html
Devil’s in the details. With the program be an AIG type deal where getting rid fo the toxic junk costs perferred stock or will it be a giveaway.
The faster they put it together, I suspect the worse for us, the taxpayer.
Frankly, if we don’t do it, the financial industry has shown that they’ll just implode themselves.
So hopefully, Paulson has some extra brass and makes the greedy bastards wish they had struck an open market deal.
Our country is in uncharted territory. At this point no one really knows what is going to happen to interest rates, some say raise some say lower, who knows. I do know, however that price homes/interest rates work hand in hand. Example: When home prices fall really low rates must go up. When home prices go up rates must come down. It looks like prices of homes are going to fall really low, lower than the last housing bubble, When I first bought back in 1978/9 I purchased a 4Bd/2ba home 1500 sq ft. With a huge front and back yard, no mello, no HOA. The interest rate was 13%, but the house was $80,000. 10 years later the rates fell to 4%. High rates are only temp. Price of home is fixed.
Beinformed:
You missed your entry point with the linkage I sent your way a couple of days ago. Fuhgettabout the author/publisher: it would have put a few buckaroos in your wallet, pal.
No, not a broker nor a day trader – just a thirtysomething IT guy who’s in long with no load mutuals in a crappy IRA rollover account.
Sorry, but that’s not what you see from the data. The last LA real estate boom happened with rising interest rates, and then the bust of the early 1990s continued even though interest rates were dropping.
Interest rates tend to be close to uniform nationwide at any point in time, at least for homes below the conforming limit. However, home prices in different areas can move completely independently of each other if their economies are doing very differently. You can buy houses in Detroit for under $1000 at the same time that home prices are high and crashing in LA, slowly rising in Charlotte, and sitting rather flat in Dallas.
Sweet!
I rent a house about 1/2 block from this featured property in West Park. There is also another house near me (about 1400 square feet, some 300 square feet smaller than featured property) that has been languishing on the market at 629k. Another home in this tract (Positano) similar sized to featured property came on the market recently at 689k or so.
I still wouldn’t buy featured property even at current price. This tract is nice and quiet and conveniently located, but very dense and hardly anyone has a driveway to park your car in.
Looks like the the “homeowner” made off with a lot of money with the financing abuse. If all his punishment is a damaged credit score, then he’s the one laughing all the way to the bank. People like us who live financially responsible lives are the real LOSERS here.
I can see this house from the house I rent, and I can tell you that the owner drives a top of the line Mercedes. Stops by every week to pick his mail. I rent the same house for $2500/month, so you can see where this will be going eventually.
Its good to know that my hard earned tax dollars are going to good use! I’m sure Mr. homeowner deserves my money to buy him a fancy car more than I do, or for that matter, you do.
That bastard should be shot!
But you have to admit: 92606 is a pretty decent neighborhood. I’m hoping a 4bd/3bth SFH will hit below 1/2 million….probably in 2010.
Paulson Transcript: “Troubled Asset Relief Program” (TARP)
http://calculatedrisk.blogspot.com/2008/09/paulson-transcript-troubled-asset.html
Calculated Risk is dubbing this program TARP. I further speculate that we will have a new saying in this country. Previously, we had “sweeping it under the rug” to describe hiding problems from view without making them go away. I believe we will now have a new expression in the financial industry, “covering it under the tarp” to describe burying financial woes in some off-balance sheet entity to hide the real losses.
Anybody catch this update today? $269/psf in Northpark Square:
http://www.redfin.com/CA/Irvine/12-Capistrano-92602/home/5857397
Looks like it must be a short sale with a last sale price of $840k in 2004 — but this is a comp killer nonetheless. This looks like an IPO special….
IHB profiled that property last year when it was asking $870,000.
This ones in the Tustin school district, so much for the Irvine premium.
The TUSD schools serving Irvine are every bit as good as the IUSD schools.
I’m sure your right, what would scare me is a district implementing a social experiment and busing people around to different schools. In the IUSD you’d be safe.
Premium Irvine residence in the Holy Land doesn’t include Irvine schools ? LMAO 😆
Another alley-oriented condo for half a mil. This is getting tiresome.
They are acronyms for the full legal names of the companies:
http://en.wikipedia.org/wiki/Federal_Home_Loan_Mortgage_Corporation
If you really want to know, you could… er… look it up for yourself…
http://en.wikipedia.org/wiki/Fannie_Mae
http://en.wikipedia.org/wiki/Freddie_mac
http://en.wikipedia.org/wiki/Ginnie_mae
Dang – I should have hit reload before replying. Sorry to step on the other answer.
Someone stop me if I’m wrong, but this simply looks like a case of the government using the GSEs as the vehicle to extract trillions of dollars from the general public via artificially inflated home prices and deflated interest rates, only to turn around and bundle up all of the bad debt and charge it right back to the taxpayer through this bail out.
This all falls back on the GSEs, and there is a SERIOUS moral hazard precedent being set here… especially with the knowledge that financial institutions see that they can leverage their debt and risk to unseen levels as long as they are “too big to fail”. After this fiasco, GSEs should never see the light of day again. I see an even greater bubble forming out of this current bail out because perceived risk will decrease by a magnitude unless we tie CEOs pay to salary income and not stock options or golden parachutes. The taxpayer is now at the will of the government, and a slave to debt. Wall Street rules the land, and we will sit by and grind at the wheel all day while they party and play into the night with their well-connected political pals. People who did the right thing are being punished, and those who did the wrong thing are being rewarded handsomely. Did I ever think I would see a day like this in the United States?
So anyways, it was fun while it lasted kids. Seems like these homes weren’t making any income after all (but we already knew that thanks to sources like this blog, thanks IR). It was simply a glorified credit card, and now Uncle Sam is going to force everyone to pay back all of this debt through the tax system.
Just a quick note on equity burn can you please break it out. Mortgage, Tax, Ins., HOA and such. Thanks In Anvance
You are correct, of course. I did not want to burden the post with a large amount of what I thought to be superfluous detail. The details do matter, and I stand corrected.
Now that the gvmt runs the housing industry it will be fun to find out:
1. If you don’t pay your mortgage do they let you live rent free?
2. If toxic paper held by Chinese banks can be traded for cash.
3. If zero down will return.
4. If you get a discount for using AIG insurance.
Can someone please tell me where do you get the info on how much a second mortgage or a HELOC on a house is and when it was opened? is there a site i can see it on? can i check any house for that info?
Thanks in advance