In a couple of weeks, California goes broke. Our Ponzi Scheme economy has collapsed, and the State must adjust to a new budget.
Asking Price: $949,900
Address: 2 Flora Spgs Irvine, CA 92602
{book7}
California Rest In Peace
Simultaneous Release
California Show Your Teeth
She’s my Priestess, I’m your Priest
Dani California — Red Hot Chili Peppers
According to our State Controller, John Chaing, we are going broke. There are no more banks willing to extend us credit, and the Federal Government has told us to go pound sand. We are on our own.
So how did we get here?
We have a political system where the two parties have carved up the state into Gerrymandered districts that ensures the political parties maintain their numbers in our Legislature. Each party has learned to pander to special interest groups that turn out to keep their representatives in power. These legislators respond by paying off their special interests with state revenues making the special interest group even more powerful. Therefore, we have a deeply entrenched system of special interest payoffs from our State Government.
During times of economic expansion, money flows into state coffers at an increasing rate; however, the special interest competition for this money means it is spent even before it arrives. Since no special interest group is willing to accept a cut in its allocation, during times of economic distress when tax revenues fall, the entire State ceases to function, and politicians are faced with some very daunting decisions.
Right now, all over California, representatives are meeting with their special interest groups and explaining to them that they must accept a big cut to balance the budget. Nobody wants to hear it. However, since we cannot borrow our way out of this problem, the cuts are going to happen, it is just a matter of who gets cut and by how much. Some California legislators may lose their jobs over this.
Of course, none of this would be a problem if we had a stable housing market. The economic expansion we experienced since the millennium was caused almost entirely by HELOC spending. Since with was ephemeral, and since this spending is not coming back, we have to go back to a level of government services the populace can actually afford.
California legislators have an opportunity to stabilize house prices. I have outlined both A Free-Market Solution to Prevent Housing Bubbles and Regulatory Solutions to Prevent the Next Housing Bubble. However, since so many benefit from housing bubbles, and since the pain can be blamed on the wrong causes, we will probably not do anything to prevent this from happening again.
Asking Price: $949,900
Income Requirement: $237,475
Downpayment Needed: $189,980
Purchase Price: $716,500
Purchase Date: 3/19/2003
Address: 2 Flora Spgs Irvine, CA 92602
| Beds: | 3 |
| Baths: | 2 |
| Sq. Ft.: | 2,455 |
| $/Sq. Ft.: | $387 |
| Lot Size: | 10,500
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Mediterranean |
| Stories: | 1 |
| Year Built: | 2003 |
| Community: | Northpark |
| County: | Orange |
| MLS#: | P693911 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 7 days |
Exceptional home is Impeccable and highly customized home sits at the
end of a cul-de-sac on approx 10,500 flat entertainer s lot! Every
attention to detail and quality has been addressed by the owners.
Making your way through the unique custom lead glass door through the
impressive entry and Foyer with hand painted walls you will find plenty
of room to entertain your guests. Formal dining room with French doors
that lead to a waterfall. Gourmet oversized kitchen with a Butler’s
pantry and a large Granite countertop island. Tile imported from Italy,
6 burner stove, and stainless steel appliances. French doors lead to
private backyard with 2 Waterfalls, Built-in BBQ with refrigerator.
Lots of room for entertaining. Master Bedroom has French doors leading
to the backyard by the waterfalls. Watch TV from your sunken Jacuzzi
tub in the Master Bedroom, separate shower with Marble. Recessed
lighting and crown molding throughout.
Everyone in Irvine is an entertainer — at least when they are not working 80 hours a week to pay their oversized mortgages.
The owner of today’s featured property must have entertained a bit because she did manage to spend her home.
- The property was purchased for $716,500 on 3/19/2003. The owner used a $500,000 first mortgage, a $144,400 second mortgage, and a $72,100 downpayment.
- On 7/28/2004 she refinanced with a $750,000 first mortgage.
- On 7/11/2005 she refinanced with a $850,000 first mortgage.
- On 8/23/2006 she took out a stand-alone second for $91,000.
- On 11/16/2007 she refinanced with a $952,000 first mortgage.
- Total property debt is $952,000.
- Total mortgage equity withdrawal is $307,600.
If this property sells for its current asking price, the lender stands to lose $59,094 after a 6% commission. Not a big loss considering how stupid this loan was.
HELOC abuse is endlessly entertaining, isn’t it?
The California economy is enduring the loss of all the HELOC spending from spendthrifts like today’s featured property owner. This money is not coming back any time soon. No wonder our State is in such dire financial straits.
My initial thought was to laugh at the price, but Zillow seems to think this is a million dollar house, in a neighborhood of million dollar houses (not that we take Zillow seriously, but so does Eppraisal and that other valuation website). What’s so special about Northpark? It’s on the far side of I5 and consistently about 10 degrees hotter, during the summer, than most of the rest of Irvine. Is there are tsunami coming that I don’t know about (and I don’t mean the coming wave of AltA foreclosures)?
I acutally prefer it a little warmer than Irvine’s average temp. Its not like its Phoenix hot. High 80’s works for me perfectly.
Oh, and that was a good non-biased assessment of how California got to where it is. The Economist magazine would agree with you; what the state needs is a new constitutional convention. In the old days a crisis would bring people, including politicians, together to hammer out a solution; in today’s environment the political process has become a Kabuki dance of ritualized finger-pointing.
Agreed – very fair non-partisan assessment.
Texas already has a budget, and only had to make modest cuts. Why so easy?
1. Less cyclic revenues. Mostly sales tax, vehicle tax, gasoline tax, and natural gas taxes.
2. Expanding population
3. Lower unemployment
4. The governor can make unilateral cuts if revenues are coming in below forecast.
California state government mostly doesn’t realize it, but the big risk for the State is declining population. It may come as quite a surprise to people outside of CA, but most local governments aren’t seeing rapidly declining property tax roles. Merced and Riverside are contracting, but at nothing like the contraction in income tax payments at the State. LA and OC are so far almost level on property tax assessments. This is due partly to the delay between time of assessment and collecting the assessment. It’s also due to so many properties having been owned by the same owner so long that assessed value is still below market value and assessments are increases 2% annually for those properties.
As prices roll back from 2003 levels to 1996 levels, far fewer homes will be getting a 2% increase, and many more will get a market value decrease. If my estimate of 2 million homes with foreclosures or short sales in CA from 2007 to 2014 is correct, property taxes won’t be a growing source of revenue.
Also in Texas: No income tax (implied but not stated in your post) — I note this not because I’m an anti-income tax crusader, but because income tax as implemented in California is extremely cyclical as it is primarily based on the capital gains of upper income taxpayers — so guess what — no capital gains, no tax collection. That’s where we are now. Transactional taxes, on the other hand, while regressive are a more stable source of revenue – and you can offset the regressive nature of a sa sales tax with a refundable credit. It goes without saying of course, that the sales taxes in Texas are also much lower than in California. They spend less on schools per capita as well, and there results are no worse than ours (although nothing to write home about).
Income tax everywhere is cyclical. Look at individual & corporate income taxes at the federal level. That is a huge component to the budget deficit.
I think taxes overall need to be raised, but pull my hair out at the ‘tweak this up, tweak this down, add this deduction, take this one out’ method of taxation.
I agree with you wrt federal taxes, and I think in this exigency we have to increase Californhia tax revenue, but California taxes are pretty outrageous — we have, I think, the sixth largest government in the world — of any kind, and we are only a state. So, we must be spending too much money on something…
Rumour has it that, if we ever get out ot this particular recession, Obama is going to push for comprehensive tax reform, taking out exemptions, reducing rates, and instituting a national VAT. I hope I live to see it (I’m not old, but you know what I mean).
I keep trying to find any kind of summary of where exactly tax money is spent in California. Does anybody know any resources for that?
http://www.ebudget.ca.gov/pdf/BudgetSummary/SummaryCharts.pdf
nice line item summaries and pie charts.
So they originally projected $55B in income taxes for 2008-2009. It was revised down to $46B. But the projected for 2009-2010 is $47B. Even after all this, they are still expecting income tax revenue to INCREASE?
“…I think taxes overall need to be raised…”
Wow…
Amazing…
I’m guessing by your comment, that your household isn’t a high-earning one. Our marginal rate is 42%+ (Fed+CA)! And you think that should be raised?
Wow…
You may need to think in terms of 47.4%…
House health plan to boost taxes on rich
Plan would raise taxes by 5.4 percent on millionaires to pay for uninsured
As usual, people confuse marginal rates with actual rates. The actual rate that is paid is well below the marginal rate. Middle class homeowners are able to shield a fair amount of their income from taxes. And capital gain income is taxed far lower than income taxes. Marginal rates are a poor reference point as to someones overall tax payment.
It is entirely possible to pay a much lower “real” rate than your “marginal” rate bracket would indicate.
Um, I identified it as the “marginal” rate. And you’re right, that the effective income tax rate is lower than the marginal income tax rate, but the marginal income tax rate is usually a very good proxy for the total tax (as a percentage of income) a person/couple pays. This rule of thumb doesn’t work so well for lower income earners who pay no, or a negative, income tax rate.
You’re right that people get mixed up about marginal tax rates. You are wrong in that some people choose not to play games to shield their income from taxes… so they pay about 28% fed (amt), 10% state, and when they try to spend it – 10% sales tax – so there is 48% easily – but they also pay social security taxes – medicare taxes, self employment taxes, fica, and all those little goodies that come out of the w2.- and then there are the taxes that can be argued about like vehicle registration fees, and the annual smog fee/car tax registration fee. Oh yeah, and property taxes.
I met a lovely couple in Nevada who’d moved there from California. They loved California but they’d been very successful, and it was saving them tax on $20 million to be in Nevada rather than California. That’s a lot of incentive to be in NV.
Most people can do business from pretty much anywhere. It is a disaster for us to be driving people like these away.
For 2010 we’ll be in a 33% federal bracket, as they stand now, and 7.75% state.
I don’t know that anyone is confused here, but that is correct. The biggest culprit is the home mortgage interest deduction, which artifically inflates the price housing in giving preference to owning over renting. The trouble is, a high percentage of the owners these days get little or no HMID even if they pay a lot of mortgage interest — because they are in AMT. So, figuring out anyone’s effective tax rate is difficult. Let’s just agree that CALIFORNIA has a high tax rate and that something’s gotta give…neither the politians nor the people (via referendums) have shown any stomach for the compromises necessary to make the state work.
I think taxes overall need to be raised
I’m glad you’re not in charge.
The producers pay too much income tax … especially in California. And more than a third of wage earners don’t pay any income tax. As the number of workers come off the income tax line expands, they’re gonna demand that the producers pay an even higher share. We saw a taste of this yesterday, when the democrats released their healthcare plane, instituting a 5.4% surtax on income exceeding $1m. You might think this is good, but it just creates more animosity and division in our country. Everyone needs to pay, NOT just high income earners.
I have to call this BS out – sure, low income taxpayers pay very little in the way of INCOME tax.
They still pay social security, medicare, SSI taxes (payroll taxes). They add up to what – 10%? And captial gains never see this kind of a tax. And social security is capped at about $10k / year. This is a very regressive tax.
BUT – since these items aren’t counted as “income tax” we can say that low wage earners dont pay “income tax”. They still pay sales tax, gas tax, and property tax (through their rent if nothing else) – all that ignored to make believe that these people don’t actually pay taxes.
The tax system is so complicated, that unless you really spend time understanding it, you will be easily duped by others. Even you’re tweaking the facts calling the SSI tax “regressive.” That’s misleading, if not completely dishonest. SSI is a pension system and earners above $106,800 (2009) will receive benefits that are capped (and taxed in conjunction with other income).
Sean-
I’m not in the mood to get into a tax fight with you. I wish I wouldn’t have said anything about this.
I respectfully disagree with your argument.
Back in November, CA residents making > 200k/yr voted 58-40 for Obama. Obama was pretty clear about potential tax increases, and the people facing those increase made a pretty clear choice.
“SSI is a pension system and earners above $106,800 (2009) will receive benefits that are capped”
How wrong you are. SSI in no way operates as a pension system. But that belief is widespread and the root of much of the misunderstanding of SSI. Current workers are taxed in order to pay current benefits. This is a classic income transfer system. In fact, it resembles welfare more than it resembles a pension, as both are income transfer plans.
In addition, SSI is quite regressive. The tax is a flat tax (approx. 6.5%)without any deductions/exclusions, so it is levied on the first dollar of income. And the tax is capped at $106K, so the tax above that amount of income is a shrinking percentage of your income. Someone making $212K pays half the amount of tax as someone at $106K (as a percentage of income) Someone making 10 times $106K pays one tenth the tax. And capital gains pay no SSI tax whatsoever.
OK, so that 58% percent can pay more taxes. I’m in the 40% and I don’t want to pay more taxes.
Even in Social Security, there are all kinds of complexities. The group that gets the most money in comparison to its contributions, by far, is married women who didn’t work much, but outlived their husbands.
People who worked many years at low to median wages get a better deal than people who worked many years at high wages.
People who worked a few years at high wages get a pretty bad deal. That includes a lot of women who worked for a while then became stay at home moms without getting married, or whose husbands died before 65.
Be careful with the Producer talk, Lee – it has an Ayn Rand Atlas Shrugged tone to it and implies that people on lower incomes are basically on welfare jobs.
The guy working the window at Taco Bell works a lot harder than I do. I just happen to get paid more because he doesn’t have that specific skill. I don’t consider myself any more of a producer than he is.
Don’t get painted as a ditto-head.
Lee,
Sorry, I don’t want to argue either. I should have started with my opinion is that more taxes are NOT the best answer.
I just see that “they don’t pay income tax!” line all over the place and sometimes I need to vent a little and point out that this is just a semantic quibble.
Trust fund bums don’t pay income tax either! Those slackers! But they do pay a lot in capital gains…
Dave,
While you might be more correct in the future – since government promises mean nothing and will likely be taken away – it is Perspective that is correct here. SSI was specifically designed to NOT be a transfer system. The fact that current inputs are used to fund other spending is irrelevant. Again, this may change, but that is the existing contract.
Actually, Lee, you’re right here.
I think what Lee meant to say was that most taxpayers get a lot more in benefits from the State and federal governments than they actually pay for, and the high earners (he calls them, “producers” – probably referring to the value added nature of the job that allows higher incomes) have to subsidize the others. That is accurate as far as it goes. Absolutely, though, we need to be respectful of and appreciate the hard working folks who aren’t in that fortunate category.
Nobody needs to pay…at least not for this garbage.
Nearly 3.3M in loan origination. @3%, ~100k in fees generated. If the loans got securitized, or were through a broker and got sold to a bank, somebody is keeping their 100k, and somebody else is eating the loss.
With all the people refi’ing into 30y fixed at minimum possible rates, soon the business of writing mortgage refinances will be gone. No one will need to refi to lower their rate, and no one will refi to extract ‘hidden’ equity because prices aren’t increasing.
If you get an appraisal for a refi in CA, does that impact your property tax assessment?
We bought in So. California in 1992 and submitted a request for reappraisal in 1995 because property values had dropped another 15-20% during that time in our area. The application for a reappraisal relied on actual sales for comps in the neighborhood (not appraisals). The house next door – same builder, same size lot, same square footage, same quality materials, etc. – had sold for 20% less than ours so we had a good comp.
It was 2000 before our house was back to what it was worth when bought in 1992.
Florida is able to tackle its budget problems for similar reasons. Our governor can mandate to each branch that the branch cut its budget by X%, as an emergency measure to balance the budget. Then, its up to that branch to decide how to make the cuts. No sqwabbling between the three branches to try to keep their programs…each branch decides what to keep and what to cut.
Our county governments are the ones fueled by property taxes, so they are hurting as well. Of course we’ve shot ourselves in the foot by enacting measures to keep property taxes too low. Now we can’t make increases, and the public will bear the cost as a reduction in services.
The “save our homes” amendment passed by the Fla legislature (similar to prop 13 in California) only applies to primary residences (not second homes, etc) and only if the owner (and the owner’s spouse) does not claim a homestead exemption in another state. It is interesting that in Indian River County (Vero Beach area) the large majority of the property tax income is from second home owners who are not protected by “save our homes” and can see annual increases (limited to 10% but that’s not much of a limit if it occurs every year!). I suspect that the shortfall in property taxes is in counties where vacation homes donot predominate.
Texas’ population is growing as more Californians move in. California probably won’t have a net loss of population but a loss of middle-class and wealthy population. California will continue to increase its population because of increase of illegal immigration and their anchor babies.
I thought Texas state income mainly comes from high property taxes. Texas has pretty stable property values, so stable income for state.
“However, since so many benefit from housing bubbles, and since the pain can be blamed on the wrong causes, we will probably not do anything to prevent this from happening again.”
When this argument comes up, the old, ‘are you better off than before the bubble?’ question should be asked. The economic catastrophe has affected everyone. All businesses have laid off workers, frozen or cut back on hiring. Nearly every state has budget problems and is firing teachers & other state workers, at exactly the worst time to be doing so.
The housing bubble has helped some, but look at even a heloc abuser. So they got extra spending money at the cost of losing their home and credit. The bubble has hurt many, directly and indirectly.
It’s sad how a real supply/demand price increase in oil fuels speculation rumors and congressional hearings, but a purely debt fueled speculative housing market (what % of homes in 05-07 were not primary residence) is seen as a good thing. Gas is not a top budget item – < 5% of the median budget, but housing, specifically shelter is > 20%. Losing focus loses effectiveness.
The housing bubble benefited many people, but it hurt most people. Fiscal policy is set by the former (housing industry, WS and bankers) and not by the later group (regular workers).
CA has tons on vested interest on the doll to keep the system as is. Direct as employees and grant recipients and many more indirectly as suppliers. They essential have free lobbyists from the ones on the doll and free advertisement from Hollywood for benefit concerts, sound bits from the celbs and news media. Change will be coming from BK for local govt and insolvency from CA state govt., but will take a long time and lots of pain. Remember some CA hacks: living within one own’s means doesn’t mean anything, ie, doesn’t make any sense to them.
I see this house owner making a profit IF sold near the asking $949K selling – $716K purchase price = $229K profit less expenses (est $70K), net $159,000 for 6 years of hard or hardly work. That’s if she gets near asking. Wish I could get that return on my investments (72K investment for two years, then principle returned with 4x extra cash, so after the second year a negative investment, gets positive return). Cash in hand if the EW money was put into safe investments (t bill, CD). Only in America.
This place is totally over the top. You can tell that the owner amuses herself by watching HGTV and Celebrity Cribs as a guide to her interior design hobby.
Are these people’s lives just so empty that they have nothing better to do than think about the next piece of flare that can be stapled to their box?
WTF is with the straw cabana in the back yard? Did she drag that home from Spring Break 2005?
http://www.crackthecode.us/images/spring_break_irvine.jpg
I am totally amazed by the lengths that you see some of these people go to to tweak their houses and the widgets they strap to them.
“I am totally amazed by the lengths that you see some of these people go to to tweak their houses and the widgets they strap to them.”
http://media.cdn-redfin.com/photo/46/bigphoto/911/P693911_13_1.jpg
Does the dog think this is cool?
I couldn’t figure that photo out. It’s like some kind of optical illusion or something.
Why would you take a photo of that to help sell your house? Is someone supposed to see that thing and say “Hey! Does that come with the house? I want it! You have great taste! I will pay the closing costs if you leave that in the house for me!”
I don’t get it..
The dog probably is glad this is inside the house. Would you want to leave your home by the clown door? Yeesh.
I wondered why Michael’s needed to exist. Finally, I have an answer.
The realtor should have ordered the owner to dump all of the floral, artsy crap and hire a REAL decorator, if she expected to actually sell this place for $1M and change. Then again, who wants to bet that someone will think this actually makes the place look “elegant” and expensive?
This place needs some serious editing and wallpaper removal. Perhaps more HGTV is needed rather than less.
Isn’t ‘great for entertaining’ code for ‘this house has heaps of extra space well beyond what any reasonable four person family needs’
Heh. This is where the house is selling the lifestyle. It’s not the space so much as the tacky architectural details–the high ceilings, the arched doorways, the waterfalls, etc.–that suggest a spa, a new restaurant, or a boutique. I’ve noticed for some time that many McMansions seemed to take their designs from modern upscale stores and service providers.
(Or is the other way around? ::shrug:: Chicken and egg time . . .)
It looks as if also covers the BBQ.
I like the pet door picture.
Local and state govt. need to take a salary and rate reduction while keeping the same hours. No more unpaid holidays to claim a cut.
My proposal:
Salary and OT Reduction
$1 million plus 30%
700K-100K 25%
300K-700K 20%
200K-300K 17%
150K-200K 15% …
50K 3%
Government continues to throw good money after bad.
————————————————-
U.S. mulling mortgage aid for unemployed
Tue Jul 14, 2009 10:11am EDT
By Patrick Rucker and David Lawder
NEW YORK/WASHINGTON (Reuters) – President Barack Obama is mulling new ways to delay foreclosure for jobless fakehomeowners who are unable to keep up with monthly payments, an administration official said on Monday.
The official told Reuters it was reasonable for policymakers to consider options for loan forbearance — allowing borrowers to delay, defer or skip payments — that are more effective than those currently available in the private sector.
The number of failing home loans has been climbing for three years as risky borrowers have defaulted on their easy-to-get loans, property values have sunk and the unemployment rate has climbed.
But the official said the idea, which is still evolving, was difficult from a policy perspective and carries potential hazards. It could help more people struggling with economic difficulty, but it also could create perverse incentives that distort the housing market, said the official, who did not want to speak on the record about internal administration debates.
CONTINUED SLIDE
Officials have been frustrated as red-tape and rising mortgage rates have slowed a housing rescue plan announced in February that was meant to refinance 5 million borrowers and lower monthly payments for 4 million more.
“All these numbers keep going up. We are not anywhere near the bottom,” said Jay Brinkmann, chief economist for the Mortgage Bankers Association.
Traditionally, fakehomeowners have been tipped into default after a personal crisis, but the current downturn is worse as many borrowers have no home equity to soften the blow.
Recent data from bank regulators present a mixed picture for the industry in responding to the foreclosure crisis as more modifications are being offered while the number of tardy loans continues to grow.
The report also showed that seriously delinquent mortgages, defined as loans that are 60 or more days past due, increased by nearly 9 percent from the prior quarter to 5 percent of all mortgages in the portfolio.
————————————————-
What’s next? Lower the retirement age to 15?
Need to raise retirement to 85 or lower benefits, but not PC. The SSI Ponzi scheme is also collapsing.
PC and MBA solution: Bring in more foreign workers to solve the SSI scheme as if there’s not enough unemployment.
SSI is running roughly break even, while the rest of the budget is at a deficit of 50-75% of income. Which system seems more unsustainable?
Cut all of them and make them viable.
As someone whose job includes financial analysis and advice to governments, Social Security is fairly well funded. There are long term commitments in many other places being funded with pay as you go budgets.
If you want a Federal program to complain about long term solvency, it’s not Social Security, it’s Medicare.
If you want a local CA program to complain about long term completely unfunded commitments, look at the prison system.
Ah-yep!
I’d also add that raising the retirement age to 68 is pretty damned fair, since people are living longer. Don’t like it? Then quit smoking, join a gym, and eat your vegetables.
I agree with a lot of the attacks on the government, but Social Security is nowhere near being the worst government program. I guess it’s mostly that pundits are in the habit of beating it up.
You might like fed tax form 8854.
If you are a citizen or a long time resident alien and decide to escape the madness and go home or to a tax regime where you no longer have to report and pay taxes on your world wide assets to the IRS, well you get to fill out this beaut.
If you pay about 140K/yr in taxes or you have about $2M in assets welcome to tax hell.
How many rich foreigners are going to buy up McMansions if they know they are going to end up messing up their off-shore trusts? Or being mugged on the way out… and then mugged again when they try to give their money away? $2M might sound like a lot of money to you but you know the dollar keeps sinking and you own a couple of homes in tony locations and you likely fall into this one.
I don’t mind paying taxes but it seriously ticks me off that the revered one keeps pontificating about how people (including those in California cities) who earn 250K are ‘wealthy’
I totally get it that if you are making 50K then 250K sounds like a lot – it is a lot – its just not wealthy- because 250K is not enough to
be able to afford to go out and buy a decent home and pay 3x income -not when they’ve taken out all the taxes… Unless you’ve saved a deposit, it isn’t even enough to buy this home.
It is even more unaffordable if there are HOA fees or mello roos. So our revered leader thinks that if you can afford this home, you must be wealthy and if you are wealthy you can pay even more taxes – but the majority (about 53%) of Californian’s being ‘poor’ – don’t have to pay at all. Now that’s a screwed up system.
One nice thing about CA system is you get a renters credit if you are poorer and rent.
Oh and I’ve talked to many Americans abroad – most have no clue that they are supposed to be filing taxes in the USA reporting their abroad earnings. Imagine the surprise they’ll get when they try to come home and find out they should have been filing eg state of CA taxes as well as fed ones.
“As someone whose job includes financial analysis and advice to governments, Social Security is fairly well funded.”
Just don’t tell Goldman Sachs this, as I’m sure they would contrive a way to abscond with this last bastion of American “wealth”.
I like how these officials are all concerned about a possible “perverse distortion” of the housing market, long after the creation of Fannie Mae, Freddy Mac, Mortgage Interest Deduction, Mortgage Backed Securities, etc.
It’s like the damn horse that left the barn decades ago and someone standing around today worrying that leaving the barn door open might allow the horse to run off. Ridiculous.
I figure that the housing bubble began in 1945, or with the creation of the FHA in 1934.
Interestingly – and I just recently learned this – the mortgage-interest tax-deduction wasn’t specifically created to help homeowners. It was just a feature of the 1894 (and then the 1913) income-tax laws. Over the years, tax deductions for many other forms of interest were eliminated, but mortgage interest remains protected.
See http://www.nytimes.com/2006/03/05/magazine/305deduction.1.html?pagewanted=3&_r=2
“President Barack Obama is mulling new ways to delay foreclosure for jobless fakehomeowners who are unable to keep up with monthly payments, an administration official said on Monday.”
I think the politicians will make this happen. It has the socialist veneer of helping people when in reality it pumps a lot of money into the banks.
One question about Obama: Is it really class warfare when one is giving away tons of goodies to both the lower and upper classes? Both Goldman Sachs and the homedebtors are getting unwarranted amounts of love right now.
If the foreclosures were not causing problems for the banks then you can rest assured that the government would tell the fakehomeowners to F-off.
All they are doing is paying lip service to these stupid borrowers to try to persuade them to keep making their payments and keep the banks from taking another hit.
The government does not care one bit about homedebtors. It’s a huge self-serving lie to keep the little people working away and the corporate profits and politicians personal investments fat.
Remember keep the bubble going: Right is wrong. Good is evil. War is peace. Hype inflation on house is normal. Market correct on house is perverse distortion. Sr. Exec’s lose 3 billion dollars in a public company, why offer them retention and performance bonus’.
“http://finance.yahoo.com/real-estate/article/107340/the-nations-cushiest-prisons.html”
Bernie’s new digs look better than the featured property.
Obama to the “rescue”? (a bit off-topic, perhaps; but need to stick this on IrvineRenter’s plate)
From Monday, Meredith Whitney on loan the anticipated modification pipeline of Fed bucks to banks:
http://www.cnbc.com/id/15840232?video=1180792150&play=1
Thank you for that video. I think her comments will be taken as bullish when in fact she was really calling a trade in the financials due to short-term events. Her long-term outlook is still quite bearish. She does understand the issues out there.
Agreed. Whitney was making a short term call. In other segments on the same show, she out Roubini’ed Roubini. She expects 13% unemployment by the end of the year, he’s still at 11%.
Could be worse. I expect 35% if the Debtocraps use their supermajority to push through Waxman and their seizure of the health insurance industry. But my predictive time horizon is around 2012 or 13.
I’m now wondering if these loan mod programs explain the discrepancy (shadow inventory) between defaults and foreclosures in California. Maybe the banks are waiting for some big windfall from Washington.
edit err, move ‘loan’ past ‘the anticpated’ to read “…Whitney on the antipated loan modification pipeline….”
Is anyone well versed on the East Costa Mesa / Newport Beach area (92627 / 92663)? Specifically between 17th St and PCH. It’s an established neighborhood…probably lots of old money…not sure if prices will ever be affordable to an “normal” person…shame, as it’s a lovely lil area.
In my opinion, this is the best part of Newport. Good sized charming homes (not too small not too huge, not cookie cutter). The people don’t seem overly snobby like CDM or Newport Coast or even Irvine.. can you say turtle ridge or as I like to call it turtle head. Its has a bit of a beachy feel but not partyish like the pennisula. I am waiting for this area to correct, but I have a feeling I/we will be waiting for a long long time.
Join the forums. We have several CM items. And I have an ongoing analysis of sales in this area.
IR,
I love the “Entertaining” theme of this post, but you missed out on an opportunity to use “The Entertainer” by Scott Joplin as the day’s music.
As an alternative you could have just used a close-up video of Niagra Falls since these homeowners probably can’t hear much in their backyard over the roar of their multiple waterfalls anyway.
California needs a new Constitution. We have voted for tax cuts and spending increases. Many of these are “constitution amendments”. Therefore, we need to blow up the Constitution we have and start over.
You may not like what comes from that convention.
e.g. I’m willing to give-up the 2/3 requirement to pass a budget, but not the 2/3 requirement to raise taxes. The minority that pays the majority of taxes desperately needs that protection.
The 2/3 requirement for raising taxes should be accompanied by harsh restrictions on floating bonds. Otherwise the pain is merely postponed, and the people paying most of the taxes still get screwed in the long term.
One thing about being able to raise taxes in the present is that it makes it more difficult to hide the costs. Whatever the level of suffering that resulted in the passage of Proposition 13 in 1978, they had no problem generating enough outrage to get the simple majority to pass the thing. Too bad the campaign wasn’t for straight-up spending cuts instead.
And the referenda passed every year (like the most recent May 19 ballot measures of which, remarkably, only one passed) should, in the event they require additional spending, include offsetting savings, thereby remaining budget neutral. This shadow law making mechanism is as dysfunctional as the legislature.
BTW, That cartoon image that you found of the people falling off the cliff with their bubble catching nets is hilarious.
Recently I have noticed that almost anytime I see a house for sale, and then go on zillow.com to find past sales history, all/most of the past sales listings are asterisked listings (meaning something is odd about them). Has anybody else noticed a similar phenomenon? Is this a hint in some way that the only houses being listed right now are distressed sales?
On many of them, they even disable the ‘charts and data’ link so that you cannot tell what the house sold for in the past. If you email the listing agent asking them why the ‘Charts and Data’ link is disabled, they don’t respond.
Zillow can’t tell the difference between a real sale and a fake sale. They often have foreclosures listed as real sales (when they involved the bank “buying” the property from itself for a mostly arbitrary figure, usually (but not always) the amount outstanding on the primary loan), and they sometimes list real sales as suspicious. I purchased my house using a standard, MLS-listed, hands off REO transaction, yet Zillow has asterisked it. Zillow is very unreliabile in general.
I can’t believe people are obliviously chasing bubbles anymore. Its much worse. I would argue that the vast majority of our populace as well as state and federal leaders now clearly know what is going on and how bad things really are. The issue is how can they pass the bag to someone else and can they find a way to take care of themselves.
Its like the execs at the big financial/investment houses taking huge bonuses while taking TARP money. Just do it, get yours, and weather some bad publicity. So what? There will be other news soom to divert the masses, but most importantly, you got yours!!!
“Its like the execs at the big financial/investment houses taking huge bonuses while taking TARP money. Just do it, get yours, and weather some bad publicity. So what? There will be other news soom to divert the masses, but most importantly, you got yours!!!”
Yes, everyone in America has learned to think and act like a politician.
Sorry, didn’t read the whole thread, would have posted under here to support this thread. WOW/WTF again!
Yesterday’s Vanity Fair article that was posted here was extremely interesting as it seems to me that the whole current crisis can be followed, through Drexel, to the crisis in the 1980s. Astounding! From the article: “A.I.G. F.P. was created back in 1987 by refugees from Drexel Burnham” and “That Joe Cassano is the son of a police officer and was a political-science major at Brooklyn College seems, in retrospect, far less relevant than that he’d spent most of his career, both at Drexel and A.I.G. F.P., in the back office, doing operations”
WOW!
From Wikipedia on Joe Cassano (added emphasis is mine):
“In fact, Cassano remained on the payroll and kept collecting his monthly million through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his mistakes. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to “retain the 20-year knowledge that Mr. Cassano had.” (Cassano, who is apparently hiding out in his lavish town house near Harrods in London, could not be reached for comment.)”
WOW!!… Or as folks say here WTF!
Like I mentioned yesterday, it just seems like a never-ending supply of scams and bubbles. I used to believe that government should stay out of our lives and our businesses as much as possible. I still believe that for the most part. But I have really grown to see that government absolutely needs to be spending much more time examining large public companies like AIG, Enron, Worldcom, etc.
There should be inspectors that could have known way before the point of meltdown that these companies were making money by smoke and mirrors.
What’s most interesting to me is that these are essentially crimes, but they can’t be pinned on these people as such. The guys to do with Drexel (Milken, Boesky etc.) received criminal penalties for their guilty pleas. But Joe Cassano, even after being accused of the “downfall of Western civilization” is just living nicely in London (some who have read the page will say: he is under investigation, but still).
Yeah, I’m not sure if AIG actually did anything ILLEGAL. Just bad/high risk decisions.
The article kind of made it sound like it took a perfect storm to bring AIG down. As if insuring high risk loans was unlikely to fail. But I think just the opposite. There is a reason that credit ratings and interest rates exist – to put a value on risk. But the lenders chose to give loans that contradicted the associated risk.
I agree. To insure high risk loans is not necessarily likely to fail, but if you don’t charge enough for said insurance because you think you’ll never see a claim, then you are definitely going to fail.
Had interest rates accurately reflected the risk inherent in the loans, much of the housing bubble would never have inflated.
What – no pictures of the waterfalls? They are mentioned 3 times in the description and yet not one picture….
Producers?
Let me clarify … but remember, this is just my opinion.
Producers are typically productive individuals that work their asses off to make more money, to insure a better life for their family.
I would say that most wage earners are working their asses off as well.
Thanks for sharing your opinion.
🙂
For a visual of a lot of the producers, drive the freeways on the morning of Mt. Luther King’s Day.
If these people leave the state, California is toast. Or I should say “more toast”.
Never mind – saw them on the extended pictures….. not very impressive though….
I’m glad you started to talk about the CA budget debacle. State and Local government account for 15% of the economic activity in OC. What do you think a 20% cut is going to do to the wage base? can’t be good.
NPR is having a great series on CA. This morning they talked about CA $10 billion prison system. The interesting part was when they compared CA to Texas. CA has the harshest parole requirements in the country, sending people back to prision for only technical parole violations, e.g. failure to report address change. As a result CA releases 120,000/year and puts 70,000 back in prision for parole violations. Texas, which you would think would be a more law and order state, used to have a similar policy but abandoned it because it was too expensive and really didn’t effect public saftey. Interesting how liberal CA is more right wing than TX when it comes to crime.
California is neither liberal nor conservative: rather, it is nutjob.
Why do you want the prison guards and their families to go hungry? What’s the cost in harsh sentences for minor felonies? >$40K per prisoner per year? Maybe a low figure. Add health care. Prisons are big business with a very strong lobby, guards and law & order or liberal police state groups. It would be cheaper to pay them to renounce citizenship and move out of the country.
“It would be cheaper to pay them to renounce citizenship and move out of the country.”
That’s been tried before, by the Brits to get rid of/exile, the poor or the undersirable Irish. They called it being ‘transported upon the seas, beyond the seas’. We all know how that worked out, penal colonies in Australia.
I happened to call one of my friends that happens to be in the servicing side of the mortgage industry and he told me something that I did not expect to hear.
He said that they have recently started aggressively modding (interest rate reduction + principal reduction) almost everything coming through FC so they do not go to REO. They have removed almost all the past requirements (60+ days past due, etc.) and are modding if you at least have some income. He said the mods now being given to Option Arm homeowners are so sweet that that unless they lose their job and have no income, it would be hard for them to default. This is for them to reduce REO losses and prop up prices by keeping inventory from growing.
He gave me one example and I was completely floored by how sweet the mod terms were for the borrower. It was insane.
How come I keep reading about banks not playing ball with mods when I hear this from a friend in the industry? Maybe his bank is doing this where the rest of the industry is still not?
This is confusing for someone selling and buying in this market to determine what the right move is.
In VA, mods like that will show up in the tax records and be used as comps. How an appraiser chooses to discount such comps is another question. One hopes the same is true everywhere. In which case it’s only the ambiguity and lack of glutting the market that’s making this path more attractive.
But one would also think that most banks would need to be doing this in concert for it to work in supporting house prices.
This kind of thing makes me sick.
Well, ‘Eat That!’ you will be even more pissed when I tell you the mod is so sweet for that borrower that his monthly payment for the $700K loan will be less that if he had a loan balance of $315K. BTW, they switched his loan to a 30yr fixed so he has a fixed payment now.
I thought these loan mods were supposed to just do enough to keep people from losing their house but the way these mods are being written, the borrower will make out like a bandit and have a very cashflow positive rental when they buy another house to live in and rent the modded house out.
If this is true.
It really, really, f*ing pisses me off.
I would like to know what the average principal reduction is.
Nah…don’t be pissed.
1. By doing this, the banks are in essence admitting to upcoming deflation…not inflation.
2. I’ll bet that there is some “fine print” at the bottom and it will come back to haunt them in the future.
3. They have ruthlessly calculated it so that the homedebtors will most assuredly be debt slaves for life and have little to pass on to their heirs.
4. It will do nothing to “buoy” prices as people can’t get bullshit loans in order to purchase as so many seem to have done.
5. Propertyowner really just made a sweeping vague statement…similar to what we heard from the NAR over the last number of years. Until he names the bank, and it can be verified independently…I’d take his statements with a grain of salt.
6. Up here, where I’m spending the summer, not only are they NOT doing loan mods (I know a realtor desparately waiting for one), but they are persuing deficiency judgements also.
Unfortunately I have to be vague and cannot divulge the name of the bank since I do not want to get my friend in trouble or fired. Like I said, take it for what it is worth. I just wanted to share what I was told because it was not what I thought was going on.
It just seems like the loan mods now are more like a bonus payout than a bailout since you actually come out ahead rather than just made whole.
The big question is how much is the house worth today?
Frankly, out here in Cali, if they have a place that has been HELOC’d out in Riverside or Murreita or Moreno or Lake Elsinore and some fool bank gave them $700K in loans then frankly, if that fool bank got the owner to keep making payments for 30 years on $315K, then the BANK is the one that made out like a bandit.
For example
Sold in ’07 for $600K, for sale at $295K.
Sold in ’06 for $711K for sale at $349K.
Sold Jan ’06 for $495K, for sale at $225K
Sold ’05 for $527K, for sale at $175K
Sold Nov ’05 for $575K, for sale at $196K…
I don’t believe you.
Well, he did not give me exact numbers since that would be divulging internal company information but he hinted they put the borrower in a 30 yr fixed at around 3% for the life of the loan and forgave over $150K of his principal balance. I do not know what his exact balance was or the exact amount of the reduction was (he may have fudged some numbers to not get into trouble), but he did say the borrower’s new monthly payment is less than $1900 a month.
Apparently they based the payment on what the borrower’s true income could afford.
I have a feeling he fudged upward the principal balance so he would not give enough true detail but If you take this calculation into account, it makes sense to what he told me:
Initial principal balance: $600,000
Principal reduction: $150,000
New principal balance: $450,000
Old interest rate: 5.5% (I am setting to today’s general jumbo conforming rate. I do not know what his actual rate was.)
New interest rate for 30 years: 3%
Old monthly payment (5.5%): $3406.73
New monthly payment (3%): $1897.22
So they might ohave forgiven more or less and his loan balance may have been more or less.
take it for what it is. I am just relaying what I heard this morning which put me into shock.
If this is true, a lot of people are going to be very pissed off that their tax money is being used to subsidize other people’s mortgages who get to have their cake and eat it too.
Earlier I said that his payment is around what a 315K loan would be but I was basing that on an interest rate similar to what I have which is higher than today’s rate.
So do with the info what you want but it was interesting to hear they are doign principal balance reductions since all I see on the news is how banks will not reduce principal and would only adjust rates, duration or balloon the loan at the back end.
As a hopefully soon to be buyer this is not what I want to hear.
Here’s what we need to do. All of us need to take really expensive vacations, all charged to our credit cards and all of us declare bk. See, it’s like driving on the freeway, if everybody speeds then no one is really speeding.
Well, I asked him if this is a one off or if they are doing a lot of them and he said they are cranking these these types of mods out as fast as they can.
It upsets him as well because he has been financially responsible and now has to deal with giving people better monthly payments than he has for homes much, much nicer.
If this kind of thing is true then it is infuriating to me.
However, it makes sense from the bank side. I don’t understand why they didn’t start doing this kind of thing 10 months ago.
It sure seems like they are better off taking a $150k hit right now (I don’t know the accounting, but they can probably amortize the hit over the life of the loan), but keeping the monthly payments flowing in. As opposed to forcing the “owner” to quit paying altogether, and going through a 6-18 month foreclosure process, and then selling the house for $150k or more discount off the original loan.
Which I suppose would still be a decent thing for the housing market, because these refinanced owners would then be able to sell their house at a much lower price and still be able to break even or turn a small “profit”.
Not to mention the costs of foreclosing (attorney fees, 6% real estate commissions, back taxes, back HOA fees, repairs, utitlies, gardeners, locksmiths, etc., etc., etc.). Plus they will probably get less gross than a loan mod would give them. Factoring in all those costs, much less net. In many, perhaps most, cases, the bank loses less money by doing a loan mod than foreclosiing. Of course, many loan mods turn into foreclosures anyways, but it’s in the bank’s best interest to at least try.
I would guess the 3% is fixed for 5 years with 1% increases per year until a ceiling is hit.
http://www.ustreas.gov/press/releases/reports/modification_program_guidelines.pdf
Assume a 90% original loan, 670k sale. Could easily have a market value of $400k – 40% down. So they’re getting 50k more principal and get payments instead of maybe a year of nothing, plus associated fc costs, and the potential of further depreciation.
This could be our loan if it was originally IndyMac. So what would we want to do? I want to get the most I can from the loan. There should be some credit score hit, and a lot of the mods are only available if your current dti is above a certain level.
I know there are many readers who would want the opportunity to buy this at $400k as an REO, and that really needs to be weighed policy-wise against mods.
A 450k loan yields the same payment as a 360k loan at 5%. It’s not an easy decision as to whether to go through with a mod like this.
I deal with banks and loan mods everyday. I don’t see this as happening for more than 2% of the people asking for mods. Most banks, this is a big fat no.
So what bank is it?
It is not going to matter, as soon as interest rates go up — nobody will be able to afford a payment. Prices will go through the floor then.
There are only a few short weeks of the summer selling season left, otherwise the rest of this inventory better start decorating for Christmas.
People can say what they want, print what they want or color a pretty little picture — but it is going to get a hell of a lot worse before it gets better. All of this market manipulation is going to turn around and bite them in the ass.
BTW, where are the instructions for embedding links, italics, different fonts, and other goodies in the comments here? It seems that every forum software package has its own peculiarities.
I should do an instructions page….
To embed a link make it look like this:
TITLE
except remove the final space at the end.
Perhaps california should stop paying firefighters $150-250K (including overtime) a year not including their crazy retirement packages?
Pretty sure that your average firefighter is not being paid 150K+
I’m with you there. I have nothing against firefighters personally, but as a group they tend to be one of the most well-off groups. Probably THE most well-off group of public employees. That profession defies supply and demand. Tons of people are turned away from that job, yet the pay is very high (especially after factoring in overtime and the amount of days off that can be used to run a side business).
Firefighter pay needs to be taken a serious look at.
[citation needed]
Firefighters don’t make $150k.
If you don’t beleive the salaries and OT, look on OC Reg for OC Fire Dept pay. Or yahoo/google Valejo, Ca for police and fireman pay and now bk. It’s just not the pay, but the quick retirement benefits (20 or 25 years for full retirement). Many use the top pay or last year’s pay to set retirement benefits and they have COL adjustments. Many are making more than $200,000.
What a load of tshatshkes in that place. It’s easy to see what she spent her money on. And it wasn’t high-value additions to the home. That back yard is pathetic.
Get rid of Prop 13 and you’ll really see CA go for broke.
Only higher taxation would ruin something…unfortunately we’re not there yet.
I just about puke when I see a price like that on a home less than 2,500 square feet. This home will have a 50% hair cut within 2 years. The high end crash won’t be pretty.
And if you think 50% is extreme, study the 1991-1996 crashes of $500,000+ homes and the huge percentage drops that occurred on the high end, and we all know this bubble was much bigger.
At this asking price i don’t think anyone will be even thinking of buying it.
Burlingame homes for sale
Condo prices have been rising in Orange County in the past 6 months… Most of what you read in the press about home prices is lagged in time about 6 months, and is skewed by the high number of low price Condo sales, and the low volume of Million dollar home sales… See our blog article for more details at: http://www.ocrealestateblog.com/2009/07/16/condo-prices-rising-orange-county/
Where are the Decorator Police when you need them? I think somebody has overdosed.