A Harvard economist has recommended principal forgiveness to address the problem of falling house prices. It is the worst policy option being considered today.

Irvine Home Address … 415 East YALE Loop #13 Irvine, CA 92614

Resale Home Price …… $535,900

Yea, yea, yea, Dear Mrs. Bill Collector

I know ya just doing your job,

don't mean to disrespect ya

But we've been going through this thang since way back

I told ya when I get the dough I would pay back

But I got problems baby

¦yea, if you only knew

I got bigger problems baby

J. Cole — Problems

Lenders and loan owners have problems. Lenders made loans their borrowers can't repay, and now both parties to the deal are turning to the US taxpayer for a bailout. Somehow, these two groups have convinced themselves they deserve some of my money. I was not a participant in their transaction. I did not sign on to the risks and rewards of the deal they made, yet both groups feel I should be compelled to bail them out. Screw them both. Their problem is not my problem.

There is a problem here: excessive debt. There is also a solution in the system: foreclosure and bankruptcy. Both parties to this private financial transaction want to avoid the consequences of foreclosure and bankruptcy because it will cost banks their money and borrowers their houses and their credit. Moral hazard dictates both parties should endure the consequences of their actions or they will repeat their mistakes.

The most important step in solving any problem is to define the problem correctly. Failure to carefully identify the problem will inevitably lead to solutions which don't have the desired effect. In fact, many solutions implemented to solve a poorly defined problem actually make conditions worse.

Falling house prices is not the problem

Currently across the country, many people have identified falling house prices as a problem.

Bankers believe falling house prices are a problem because it erodes the value of the collateral backing up their loans. If they need to foreclose on a delinquent borrower, they don't obtain their original loan capital. To make matters worse, falling home prices actually motivate their borrowers to stop making loan payments which exacerbates the problem. For bankers, falling house prices are a problem.

Homeowners believe falling house prices are a problem because it erodes their wealth. Historically, houses have been a reservoir of equity and a vessel that retains wealth. For homeowners, falling house prices are a problem to the degree they depended upon the value of their house for savings, retirement or income supplementation.

Economists believe falling house prices are a problem because it inhibits consumer spending. The negative wealth effect causes people to save rather than spend, and the decreasing value of houses shuts off the home ATM machine. For economists who don't seem to care where demand comes from, falling house prices are a problem.

Each of the above groups views the world through their own prism, and each of them has a legitimate reason to believe falling house prices are a problem. However, they are all wrong. For the broader society, falling house prices are not a problem. Falling house prices mean buyers are less indebted when they purchase real estate. Lower debt levels means homeowners have more disposable income. Increased disposable income creates sustainable demand, unlike Ponzi borrowing which only creates demand as long as more credit is being extended to the borrower.

Debt is the problem

The real problem in our economy — the problem incorrectly identified by economists — is excessive debt. And the only way to solve that problem without major side effects of moral hazard is through foreclosure and bankruptcy.

With foreclosure and bankruptcy, both lenders and borrowers endure consequences for their behavior. The lender losses money, and given the loan practices of the housing bubble, they deserve to lose money. The borrower losses their house and endures restricted access to credit for a time — both of which are appropriate consequences for taking on a debt they could not repay. If neither party experiences these consequences, the mistakes of the past will be repeated. That's the essence of moral hazard.

Bankers and loan owners are the two groups who both agree falling house prices are a problem. However, this is only a problem for them. The problems between bankers and loan owners do not impact me as a renter except to the degree they reach into my pocket through government policy for bailout money. If both parties weren't seeking bailouts I am being asked to pay for, falling house prices would be akin to falling stock prices, a loss endured by private parties which might make the news but wouldn't impact my life.

Economists fail to identify the real problem

Some economists get lost in the abstractions of their own theories. They lose site of the impact their proposals have on behavior. For example, many economists believe stimulating demand through mortgage equity withdrawal is a good thing. They call it the “wealth effect.” They completely miss the fact this borrowing quickly degrades into a Ponzi scheme and debt dependency. Mortgage equity withdrawal is not a sustainable form of demand, and stimulating it merely creates the conditions for a larger crash and a more prolonged recession.

To exacerbate their mistake, economists fail to recognize the economic problems of the last four years are a direct result of the Ponzi borrower and wealth effect spending they advocate. Since they don't see the causes of our problems, they devise solutions which call for more Ponzi borrowing and spending. Debt does not create wealth.

Since economists have wrongly identified falling house prices as the root of our problems, they have wasted much brainpower to devising solutions with the wrong goal in mind. Some of these solutions — like lowering interest rates — create economic distortions and mis-allocations of capital. Other solutions — like government mandated loan modifications — are a threat to contract law and the stability of our mortgage lending system. The worst solutions — like today's suggestion that we forgive principal — create more widespread problems by altering borrower incentives and propagating moral hazard.

How to Stop the Drop in Home Values

By MARTIN S. FELDSTEIN

Published: October 12, 2011

HOMES are the primary form of wealth for most Americans. Since the housing bubble burst in 2006, the wealth of American homeowners has fallen by some $9 trillion, or nearly 40 percent. In the 12 months ending in June, house values fell by more than $1 trillion, or 8 percent. That sharp fall in wealth means less consumer spending, leading to less business production and fewer jobs.

Fallacy #1: the wealth effect. Lower house prices means the new buyer is less indebted than the old one. This new buyer will have more disposable income and thereby stimulate the economy. Only this time, the demand will be sustainable because it is income based rather than debt based.

But for political reasons, both the Obama administration and Republican leaders in Congress have resisted the only real solution: permanently reducing the mortgage debt hanging over America. The resistance is understandable. Voters don’t want their tax dollars used to help some homeowners who could afford to pay their mortgages but choose not to because they can default instead, and simply walk away. And voters don’t want to provide any more help to the banks that made loans that have gone sour.

He has missed the most obvious reasons voters like myself don't want to see principal reduction.

First, it isn't strategic defaulters I am concerned about. They left the house, and they may have lingering debt issues yet to be resolved. The real problem is the borrowers who took on too much debt but hope to dodge the consequences. This breaks down into two groups: late buyers and HELOC abusers.

The late buyers who overextended themselves made a choice. During the bubble, I chose not to buy more house than I could afford. Many people who made less money than I did chose to over-extend themselves and occupy the house which should have been affordable to me. It's a bit like cutting in line. In the process, they bid up home prices and priced me out of the housing market. Now I am being asked to pay for their imprudence with bailouts — after they have been living in my house for the last several years. I feel like I am being robbed twice.

The HELOC abusers obviously don't deserve principal forgiveness. Anyone who was prudent during those times should not be asked to pay the bills of the fools who spent like drunken sailors, yet that is what we are being asked to do with widespread principal reductions.

But failure to act means that further declines in home prices will continue, preventing the rise in consumer spending needed for recovery.

This contention is just wrong. Falling house prices will stimulate the recovery as it will put more money into the hands of consumers. We don't need another debt-fueled Ponzi scheme to save the economy. If we just let prices fall to their natural bottom and allow borrowers to borrow less, the extra disposable income will create the recovery we want to see.

As costly as it will be to permanently write down mortgages, it will be even costlier to do nothing and run the risk of another recession.

Bullshit.

House prices are falling because millions of homeowners are defaulting on their mortgages, and the sale of their foreclosed properties is driving down the prices of all homes. Nearly 15 million homeowners owe more than their homes are worth; in this group, about half the mortgages exceed the home value by more than 30 percent.

Most residential mortgages are effectively nonrecourse loans, meaning creditors can eventually take the house if the homeowner defaults, but cannot take other assets or earnings. Individuals with substantial excess mortgage debt therefore have a strong incentive to stop paying; they can often stay in their homes for a year or more before the property is foreclosed and they are forced to move.

The overhang of mortgage debt prevents homeowners from moving to areas where there are better job prospects and from using home equity to finance small business start-ups and expansions. And because their current mortgages exceed the value of their homes, they cannot free up cash by refinancing at low interest rates.

I give this man credit for accurately identifying the conditions in the market. What is shocking is how incorrectly he identifies the problem and thereby botches the solution.

The Obama administration has tried a variety of programs to reduce monthly interest payments. Those programs failed because they didn’t address the real problem: the size of the mortgage exceeds the value of the home.

Yes, and the solution — which is already outlined in the mortgage agreement — is for the borrower to vacate the property and the lender to recover what they can of their capital in a foreclosure auction.

The problem with loan modification programs is that they try to keep borrowers in homes they cannot afford. It can't be done fairly or without moral hazard. Would you borrow prudently if you knew the government would bail you out if you got in trouble?

To halt the fall in house prices, the government should reduce mortgage principal when it exceeds 110 percent of the home value. About 11 million of the nearly 15 million homes that are “underwater” are in this category. If everyone eligible participated, the one-time cost would be under $350 billion.

No, no, no! Not $350 billion. Not $350. Not one penny for principal reduction from my tax dollars.

Here’s how such a policy might work:

If the bank or other mortgage holder agrees, the value of the mortgage would be reduced to 110 percent of the home value, with the government absorbing half of the cost of the reduction and the bank absorbing the other half.

The government is going to absorb half the losses from the banks? How isn't that a massive government bailout of the banks? This is a bank bailout disguised as a loan owner bailout, and in my opinion, both should go down in flames.

For the millions of underwater mortgages that are held by Fannie Mae and Freddie Mac, the government would just be paying itself.

I can't believe an economist actually wrote that. [shakes head in disbelief] The government would not be paying itself. It would be paying the investors in mortgage-baacked securities insured by the GSEs, and the bondholders of the GSEs.

And in exchange for this reduction in principal, the borrower would have to accept that the new mortgage had full recourse — in other words, the government could go after the borrower’s other assets if he defaulted on the home. This would all be voluntary.

So every loan owner with no assets will immediately sign up for this program because they had nothing to lose anyway. Plus every borrower in a state like Nevada, where all loans are recourse anyway, would also sign up immediately. And would this agreement supersede state laws to the contrary? In Nevada recourse loans are extinguished after nine months if the lender doesn't try to collect. And does anyone believe the government would actually go after delinquent borrowers, or would they merely forgive the debt themselves in the end?

This plan is fair because both borrowers and creditors would make sacrifices. The bank would accept the cost of the principal write-down because the resulting loan — with its lower loan-to-value ratio and its full recourse feature — would be much less likely to result in default. The borrowers would accept full recourse to get the mortgage reduction.

Those are sacrifices? The bank is getting reimbursed for half its loss, and the borrower is getting to stay in their home. It appears to me as if both parties are escaping all consequences for their foolish behavior. Lenders will be given a green light to underwrite more dodgy loans, and borrwers will be encouraged to take on massive debts with the promise of principal forgiveness. It's the worst possible set of incentives, moral hazard in extreme.

Without a program to stop mortgage defaults, there is no way to know how much further house prices might fall.

Yes, there is. Prices will fall until they are affordable and new buyers come forward to absorb the inventory because owning is cheaper than renting. If the supply is excessive, like it is in Las Vegas, then cashflow investors will step in to supplement the demand when prices get low enough to attract their attention. The market has self-correcting mechanisms if they are allowed to work.

Although house prices in some areas are already very low, potential buyers continue to wait because they anticipate even lower prices in the future.

This effect is over stated. Buyers will react to affordability. If prices are low enough, people will buy to save money versus renting even in a declining market.

Before the housing bubble burst in 2006, the level of house prices had risen nearly 60 percent above the long-term price path. So there is no knowing how far prices may fall below the long-term path before they begin to recover.

I cannot agree with those who say we should just let house prices continue to fall until they stop by themselves. Although some forest fires are allowed to burn out naturally, no one lets those fires continue to burn when they threaten residential neighborhoods.

Is that the best analogy he could come up with? Let me counter with my own from What the Federal Reserve could learn from the US Forest Service:

For years the US Forest Service was dominated by timber production interests. It was a classic example of regulatory capture. The US Forest Service's primary objective, and thereby its land management policies, favored timber production. Forest Fires were seen as an obvious threat to timber production, so policies of fire suppression were absolute: put out all fires as quickly as possible, and do not let anything burn. This was forest service policy for several decades.

To its chagrin, the US Forest Service discovered its policy was flawed. By not allowing small fires to burn, leaf litter and other combustible natural growth accumulated. In unmanaged forests, periodic fires eliminate this source of fire fuel. In managed forests this accumulation of fuel fosters fires that get out of control (think Yellowstone).

To combat the accumulation of fire fuel, the US Forest Service changed its policies. Now, small fires in the understory are permitted to burn. By eliminating the excess fuel, the more dangerous and costly canopy fires are avoided. A few trees may get damaged in the small fires, but the forest survives.

We must allow the fire to wipe out the debts of residential home owners. Only then will the green shoots of the next forest have the sunlight to take root and prosper. So it is with the new homeowners who will be buying in at lower price points.

Back to the conclusion of the op-ed:

The fall in house prices is not just a decline in wealth but a decline that depresses consumer spending, making the economy weaker and the loss of jobs much greater. We all have a stake in preventing that.

Martin S. Feldstein, a professor of economics at Harvard, was the chairman of the Council of Economic Advisers from 1982 to 1984 under President Ronald Reagan.

He repeats his fallacious argument that the wealth effect is necessary to stimulate the economy. It's shocking that a man with such impressive credentials is so completely wrong about what should be done.

Whenever I read this kind of crap from an intelligent writer, the cynic in me wonders if the author is being paid off by powerful interests who endorse this policy. Did his banking buddies put him up to this? Or is he a loan owner hoping for a personal bailout? Or is it preferable to conclude he had no nefarious motives, and instead he is a fool?

Countrywide's Option ARM with a 1% teaser rate

Bank of America is desperate for cash. They bought the toxic waste from Countrywide, and now the stupid loans like the one on today's featured property are eating a hole in their balance sheet.

This property is typical of the kind of loan I don't want to see bailed out. The former owner of this property couldn't afford it. He used a $624,000 Option ARM with a 1% teaser rate because he obviously couldn't afford a fully amortized payment. If the banks who underwrote these loans and the borrowers who used them are bailed out, what will they learn? They will learn that no matter how stupid and irresponsible they are, the government will remove any negative consequences for their decisions.

The former owner of this property and the bank who loaned him money were part of the problem. Their actions together inflated the housing bubble. They priced the prudent borrowers out of properties and forced them to rent and wait. We are still waiting.

The former owner of this property did endure consequences. He was foreclosed on, and with the HELOC debt he added to the mortgage, he will likely need to declare bankruptcy to wipe the slate clean. Bank of America is only getting a fractioin of the value they believed they acquired when they obtained this asset in the Countrywide deal. Both parties are experiencing consequences for their actions. So what's wrong with that?

Why do we need to bail out the parties to this stupid loan? What societal benefit will we obtain? Continually inflated house prices and more Ponzi borrowing? That's a benefit we can all do without.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 415 East YALE Loop #13 Irvine, CA 92614

Resale House Price …… $535,900

Beds: 3

Baths: 2

Sq. Ft.: 2150

$249/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1985

Community: Woodbridge

County: Orange

MLS#: S676659

Source: SoCalMLS

Status: Active

On Redfin: 1 day

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REO BANK OWNED PROPERTY!!Beautiful condo close to lake! Has 3 bedrooms and 2.5 bathrooms. There is a half bath upstairs and all three bedrooms upstairs. Has an open floor plan with plenty of room. There is carpet through the bedrooms, stairs, and hallway. There is a fireplace in the family room. The backyard is set up great for entertaining. Association has a pool and spa for everyone to enjoy. Don't miss this opportunity to buy a bank owned home!

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Proprietary IHB commentary and analysis

Resale Home Price …… $535,900

House Purchase Price … $780,000

House Purchase Date …. 9/22/2005

Net Gain (Loss) ………. ($276,254)

Percent Change ………. -35.4%

Annual Appreciation … -6.0%

Cost of Home Ownership

————————————————-

$535,900 ………. Asking Price

$107,180 ………. 20% Down Conventional

4.20% …………… Mortgage Interest Rate

$428,720 ………. 30-Year Mortgage

$119,017 ………. Income Requirement

$2,097 ………. Monthly Mortgage Payment

$464 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$112 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$402 ………. Homeowners Association Fees

============================================

$3,075 ………. Monthly Cash Outlays

-$344 ………. Tax Savings (% of Interest and Property Tax)

-$596 ………. Equity Hidden in Payment (Amortization)

$161 ………. Lost Income to Down Payment (net of taxes)

$87 ………. Maintenance and Replacement Reserves

============================================

$2,383 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$5,359 ………. Furnishing and Move In @1%

$5,359 ………. Closing Costs @1%

$4,287 ………… Interest Points @1% of Loan

$107,180 ………. Down Payment

============================================

$122,185 ………. Total Cash Costs

$36,500 ………… Emergency Cash Reserves

============================================

$158,685 ………. Total Savings Needed

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Shevy Akason and Larry Roberts will host a short sale and REO workshop at 6:30 PM Wednesday, October 19, 2011, at the offices of Intercap Lending (9401 Jeronimo, Suite 200, Irvine, CA 92618). Register by clicking here or email us a sales@idealhomebrokers.com.

The Irvine Company has invested heavily to promote the Irvine school system to raise the value of local housing. Is it effective?

Irvine Home Address … 57 ASHBROOK #64 Irvine, CA 92604

Resale Home Price …… $419,900

Won't you believe it?

It's just my luck

No recess!

Nirvana — School

My parents both retired from school system work last year. I grew up in a household where education was a focus, and public school issues were a common topic of discussion.

Many people believe certain schools have good test scores because they have better teachers. That usually isn't the case. While it's true that good teachers prefer to teach in highly rated schools, the quality of teaching isn't what makes test scores better. Good schools are largely a product of involved parents and motivated students. It's rare to find a school where the parents are heavily involved and the test scores are poor. It's equally rare to find a school where the test scores are good and the parents have other priorities.

Good test scores are like gravity. A good school attracts the most involved parents who place an emphasis on education and get involved in the school and with their children. In other words, good test scores beget good test scores. This is one of the reasons poor school test performance problems are so intractable. The worst performing schools are populated by students whose parents don't value education, don't get involved with the school, and don't motivate their children to succeed.

Everyone is searching for an answer to bring the quality of education up. Unfortunately, the real problems with education cannot be addressed in the classroom. The problems start at home and resonate through the community.

Donald Bren On The Best Fix For K-12 Education

Kerry A. Dolan — 9/22/2011

Donald Bren built a $12 billion fortune as a Southern California real estate developer and has been focused on philanthropic giving to support education. That includes gifts at the university level to UC Irvine and UC Santa Barbara as well as to K-12 schools in the city of Irvine (in Orange County), which his Irvine Co. master-planned and developed, and after school program Think Together.

Bren shared his thoughts with Forbes via email.

Donald Bren, real estate developer and philanthropist

FORBES: What is your best single idea for reforming K-12 education?

BREN: In my opinion, education is the finest gift an individual can give a young person. And many of our public schools are falling short in successfully educating the youth of our country today.

Gone are the days when state governments are fully able to fund our public schools. Future public education will require involvement and collaboration among various local, civic, private and nonprofit entities, a concept I like to refer to as “community entrepreneurship. ”

Irvine schools have been successful because of the community involvement. Once these schools gained a reputation, they became a magnet for people who value education — which is exactly what Donald Bren had in mind.

Over the past 30 years, I have sought to implement community entrepreneurship to benefit our local kindergarten through twelfth grade schools, working in partnership with community leaders, local school districts and well-run nonprofit organizations.

For example, in master planning and master building the new City of Irvine, we have gone to great lengths to ensure our elementary schools and neighborhood parks are contiguous and a focal element creating the important activity center for each residential community.

When state funding for Irvine public schools began to diminish some time ago, my Irvine Company colleagues helped me to provide private funding support for continuation of basic science, art and music programs that had been eliminated by lack of state funding. Additionally, we have developed annual teacher recognition and reward programs that provide financial awards for teachers who demonstrate outstanding results in educating our students.

By making capital available for unfunded programs and providing a balanced curriculum and financial incentives to teachers based on results, Irvine Unified School District continues to rank among the finest educational systems in the nation.

Yes, they are.

My additional observations for K-12 schools are:

1) Return full governance and financial control to the local school district board and the parents – they know best.

2) Eliminate the large bureaucratic administrative overhead expenses that prevent necessary funding from reaching classrooms.

My school teacher parents used to complain about the huge bureaucracy that seemed to exist only to consume resources.

3) Maximize the existing investment in school buildings and equipment by operating the school campus on a four-quarter or year-round basis.

4) Compensate professional teachers on a year-round basis, similar to most businesses and government. By the way, education is big business and should be approached in a similar disciplined manner.

5) Making a difference requires focus. Academic administrators will tell you that the most important school years are kindergarten through sixth grade, when students develop confidence in their ability to learn and foundational study skills. Focus efforts on the early years before trying to fix high school programs that often provide too little too late.

6) Consider a higher level European-style baccalaureate program for certain schools, and as an example, reducing the need for rudimentary freshman English classes at our prestigious University of California.

7) And don’t forget, students are living in a digital world where computers and information technology are used at home, at school and in everyday life. They must learn the new methods of our “plugged-in” society.

The classrooms at my son's school are full of computers.

FORBES: Is there any person or any school who you think is doing a good job of improving/reforming k-12 education now?

BREN: In my opinion, the person doing the best job improving education in California is Randy Barth, President and CEO of THINK TOGETHER in Santa Ana, Calif. He is the most dedicated and innovative professional in K-12 tutoring and mentoring education in California.

THINK TOGETHER provides academic learning through specially designed after-school and summer programs throughout Southern California to more than 100,000 students. With special attention given to areas such as the Santa Ana Unified School District, with more than 50,000 underprivileged K-6 students, the majority of whom have little chance to get ahead without this unique program. Thus the results are encouraging – academic improvement scores have been off the charts, so to speak.

Fixing our K-12 education system requires a new solution to a growing national problem. Community entrepreneurship is my recommendation, as it will bring together the necessary resources to make a difference. Our children are worth the extra human effort and investment.

I’m proud to be among a group of dedicated community entrepreneurs focused on improving our community education programs.

I live in Irvine for the schools

For those of you who have attended my Las Vegas cashflow presentations, you have heard about my son. I am the parent of a special needs child.

My son is a slow learner, and he has limited language and social skills. He is labeled as autistic, for whatever that means. All my wife and I know is that we love him, and he is an endless source of joy and happiness.

I get to spend a great deal of time with him, particularly now that I work from home. I see him for each morning as he and I make breakfast together. Most evenings we get some time to play video games or just hang out. He likes when I read books to him, and his skills at Mario Kart or Super Mario Brothers are remarkable. On Sunday morning, you can most often find us at Disneyland. I can't count how many times I have been on Splash Mountain, Space Mountain, Indiana Jones, Pirates of the Caribbean, Big Thunder Mountain, and the Matterhorn Bobsleds. It's the most precious time of my week. I will never look back and feel I missed out on enjoying my son as he grew up.

My wife and I have thought about leaving Irvine on many occasions. We have considered San Clemente, Ladera Ranch, Las Vegas, and other areas, but when we really think about moving out of Irvine, we think about the education program we would leave behind, and we change our minds. The Irvine special needs programs are truly outstanding. When I factor in the cost of providing this education privately, the cost of renting in Irvine seems reasonable. It would be much more expensive to rent or own somewhere else and have to provide a comparable private education.

The Irvine Schools do add value to Irvine Homes

The bottom line is that people willingly pay the Irvine rental and ownership premium to be in the Irvine school system. We know several parents who moved here from other school districts and even from out of state to have their special needs child educated in Irvine. Parents of typical children come here for the same reason. The high test scores are a big draw. Parents will do whatever they must to give their child every advantage. If that means paying extra to live in the best school district, that's what parents will do.

The responsible bagholder

HELOC dependency and abuse is deeply embedded into the California psyche. The property records on today's featured property show a HELOC abuser who sold it to a responsible bagholder who simply couldn't afford the property. Perhaps unemployment or a loss of income was a factor, but the later buyer didn't add to their mortgage, and they still lost the home. It's now an REO.

The story begins on 11/10/1998 when the property was purchased for $260,000. The buyers used a $234,450 first mortgage and a $25,050 down payment. The refied twice for $290,000 and $322,700 respectively taking out a little less than $90,000 in the process. Based on the frequency and amount of these withdrawals, those owners were clearly using their HELOC money to supplement their incomes.

Despite the bad habits those owners formed, they were amply rewarded when the sold the property to the bagholder on 5/7/2004 for $542,500. The subsequent owner used a $406,875 first mortgage and a $135,625 down payment. They never refinanced or took out any HELOC money.

The bagholder was unable to sustain the payments on their first mortgage, and the property went to auction on 4/5/2011 for $414,265. If the bank gets their asking price, they are out the amount of commissions buy little more. The 2004 buyer is out their entire $135,625 down payment, and their credit is shot. If they knew they were going to suffer those consequences, they probably would have refinanced and maxed out some HELOCs.

Chase has the property now, and they are hoping to sell it and get most of their loan balance back. At this price, they probably will.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 57 ASHBROOK #64 Irvine, CA 92604

Resale House Price …… $419,900

Beds: 3

Baths: 2

Sq. Ft.: 1601

$262/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1978

Community: Woodbridge

County: Orange

MLS#: S675677

Source: SoCalMLS

Status: Active

On Redfin: 3 days

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This Chase Bank Owned property has been freshly painted and new carpet installed. This is the largest model in the Parkside Tract. Lots of room for a 3 bedroom, 2.5 bath home. Only one common wall for this townhouse style condo. Fireplace in the living room with 2 skylights. Formal dining, family room, new stove just installed in kitchen. Garage has direct access. Rare long driveway for Irvine. High vaulted ceilings. Secondary bedrooms are on opposite side of hall of Master Bedroom for more privacy. No neighbors behind property for increased privacy. Property is located in the Village of Woodbridge – one of the best communities to live in. Many pools, parks, Lakes with boating and Lagoons for Beachcombers, volleyball, basket ball courts, tennis clubs, too many HOA activities to list for adults, children, and families. Close to shopping, banks, houses of worship, schools, movie theaters – all in the heart of Irvine. Look at MLS MEDIA for disclosures.

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Proprietary IHB commentary and analysis

Resale Home Price …… $419,900

House Purchase Price … $542,500

House Purchase Date …. 5/7/2004

Net Gain (Loss) ………. ($147,794)

Percent Change ………. -27.2%

Annual Appreciation … -3.4%

Cost of Home Ownership

————————————————-

$419,900 ………. Asking Price

$14,697 ………. 3.5% Down FHA Financing

4.03% …………… Mortgage Interest Rate

$405,204 ………. 30-Year Mortgage

$122,783 ………. Income Requirement

$1,942 ………. Monthly Mortgage Payment

$364 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$87 ………. Homeowners Insurance (@ 0.25%)

$466 ………. Private Mortgage Insurance

$313 ………. Homeowners Association Fees

============================================

$3,172 ………. Monthly Cash Outlays

-$302 ………. Tax Savings (% of Interest and Property Tax)

-$581 ………. Equity Hidden in Payment (Amortization)

$21 ………. Lost Income to Down Payment (net of taxes)

$72 ………. Maintenance and Replacement Reserves

============================================

$2,383 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,199 ………. Furnishing and Move In @1%

$4,199 ………. Closing Costs @1%

$4,052 ………… Interest Points @1% of Loan

$14,697 ………. Down Payment

============================================

$27,147 ………. Total Cash Costs

$36,500 ………… Emergency Cash Reserves

============================================

$63,647 ………. Total Savings Needed

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In many circumstances debts from foreclosure survive. Lenders and zombie debt collectors are waiting for better days to start collection efforts.

Irvine Home Address … 68 DANBURY Ln Irvine, CA 92618

Resale Home Price …… $484,900

If you, if you could return,

don't let it burn,

don't let it fade.

It's tearing me apart,

It's ruining everything.

Do you have to let it linger?

Do you have to,

do you have to,

Do you have to let it linger?

Cranberries — Linger

Most people who leave their houses behind under duress believe they have no liability. Even the ones who suspect they might will generally duck their lender's calls and letters and hope the problem goes away on its own. It won't.

California recently passed legislation barring lenders from seeking collection on deficiencies after a short sale. Of course, this has merely contributed to the already slow pace of short sale approvals. California borrowers already had non-recourse protections on purchase-money mortgages, and there are statutory limits on collecting debts severed from the property in foreclosure.

I think these are good policies in California. Perhaps lenders will be more cautious next time when they want to extend stupid loans to California Ponzis. Although, as long as the government will bail stupid lenders out, they don't have much incentive to be wise with their lending.

The rest of the country is more of an issue with debt overhang, and zombie debt collection will be a thriving industry.

House Is Gone but Debt Lives On

By JESSICA SILVER-GREENBERG — October 1, 2011

LEHIGH ACRES, Fla.—Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it.

In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71.

It turned out that at a foreclosure sale, his former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest.

The result was a foreclosure hangover that homeowners rarely anticipate but increasingly face: a “deficiency judgment.“

It's human nature to avoid responsibility, particularly when the consequences are devastating. Who wouldn't rather bury their face in the sand than deal with a six-figure debt?

Forty-one states and the District of Columbia permit lenders to sue borrowers for mortgage debt still left after a foreclosure sale. The economics of today's battered housing market mean that lenders are doing so more and more.

Foreclosed homes seldom fetch enough to cover the outstanding loan amount, both because buyers financed so much of the purchase price—up to 100% of it during the housing boom—and because today's foreclosures take place following a four-year decline in values.

“Now there are foreclosures that leave banks holding the bag on more than $100,000 in debt,” says Michael Cramer, president and chief executive of Dyck O'Neal Inc., an Arlington, Texas, firm that invests in debt. “Before, it didn't make sense [for banks] to expend the resources to go after borrowers; now it doesn't make sense not to.”

Banks won't staff up to try to collect bad debt. They will sell this debt to some firm who operates under that business model. It didn't make sense for banks to try to collect this debt before because they still showed it on their balance sheets at full value. As they abandon their fantasies and adjust their accounting to reflect reality, they have to deal with the bad debt. The rise of the zombie debt collector should have happened years ago, but with mark-to-fantasy accounting, banks were able to delay the inevitable.

Indeed, $100,000 was roughly the average amount by which foreclosure sales fell short of loan balances in hundreds of foreclosures in seven states reviewed by The Wall Street Journal. And 64% of the 4.5 million foreclosures since the start of 2007 have taken place in states that allow deficiency judgments.

Lenders still sue for loan shortfalls in only a small minority of cases where they legally could. Public relations is a limiting factor, some debt-buyers believe. Banks are reluctant to discuss their strategies, but some lenders say they are more likely to seek a deficiency judgment if they perceive the borrower to be a “strategic defaulter” who chose to stop paying because the property lost so much value.

Lenders will certainly say they are more likely to go after strategic defaulters because they are frightened about how common and accepted the practice has become. The reality is that very few defaulters, strategic or otherwise, are currently being pursued.

In Lee County, Fla., where Mr. Reilly's vacation home was, court records show that 172 deficiency judgments were entered in the first seven months of 2011. That was up 34% from a year earlier. The increase was especially striking because total foreclosures were down sharply in the county, as banks continued to wrestle with paperwork problems that slowed the process.

One Florida lawyer who defends troubled homeowners, Matt Englett of Orlando, says his clients have faced 20 deficiency-judgment suits this year, up from seven during all of last year.

Until recently, “there was a false sense of calm” among borrowers who went through foreclosure, Mr. Englett says. “That's changing,” he adds, as borrowers learn they may be financially on the hook even after the house is gone.

In Mr. Reilly's case, “there's not a snowball's chance in hell that we can pay” the deficiency judgment, says the 39-year-old man, who remains unemployed. He says he is going to speak to a lawyer about declaring bankruptcy next week, in an effort to escape the debt. The lender that obtained the judgment against him, Great Western Bank Corp. of Sioux Falls, S.D., declined to comment.

First, bankruptcy doesn't “escape” debt, it extinguishes it. Banktruptcy is the likely river card most borrowers will have to play. Bankruptcy is a fresh start, and each borrower who goes through it gains the peace of mind of knowing the debts are eliminated for good.

It is surprising a bank would seek a judgement against an unemployed borrower with no assets — I assume he has no assets from the comments in the story. It's a waste of bank resources to attempt collection.

Some close observers of the housing scene are convinced this is just the beginning of a surge in deficiency judgments.

In states other than Califronia, this is likely true. Why wouldn't banks try to recoup their money? No lender has forgotten about a debt. If they haven't issued a 1099, they still have this debt on their books. At some point, either they will try to collect, or they will sell this debt to someone who will.

Sharon Bock, clerk and comptroller of Palm Beach County, Fla., expects “a massive wave of these cases as banks start selling the judgments to debt collectors.”

In a paradox of the battered housing industry, trying to squeeze more money out of distressed borrowers contrasts with other initiatives that aim instead to help struggling homeowners, including by reducing what they owe.

There are no initiatives from banks trying to reduce what anyone owes. There are political pandering noises being made to this end, but the people who control the debt are uniform in their desire to colllect the full amount due.

The increase in deficiency judgments has sparked a growing secondary market. Sophisticated investors are “ravenous for this debt and ramping up their purchases,” says Jeffrey Shachat, a managing director at Arca Capital Partners LLC, a Palo Alto, Calif., firm that finances distressed-debt deals. He says deficiency judgments will eventually be bundled into packages that resemble mortgage-backed securities.

Because most targets have scant savings, the judgments sell for only about two cents on the dollar, versus seven cents for credit-card debt, according to debt-industry brokers.

If buyers are only paying two cents on a dollar, they don't have to recover much from many people to recoup their investment. Most debt collectors can obtain that much through harrassing phone calls.

Silverleaf Advisors LLC, a Miami private-equity firm, is one investor in battered mortgage debt. Instead of buying ready-made deficiency judgments, it buys banks' soured mortgages and goes to court itself to get judgments for debt that remains after foreclosure sales.

Silverleaf says its collection efforts are limited. “We are waiting for the economy to somewhat heal so that it's a better time to go after people,” says Douglas Hannah, managing director of Silverleaf.

These debt collectors are biding their time until people are back on their feet before they knock them down again. This is why bankruptcy immediately following a foreclosure is a better course of action. Many borrowers who think they dodged taking responsibility for their bubble era debts will be rudely surprised by the collection efforts of these zombie debt collectors.

Investors know that most states allow up to 20 years to try to collect the debts, ample time for the borrowers to get back on their feet. Meanwhile, the debts grow at about an 8% interest rate, depending on the state.

That will push many people into bankruptcy years down the road. Those people will regret their failure to deal with the debt problem right after their foreclosure. Bankruptcy hurts less when they're already broke.

Mr. Hannah expects the market to expand as banks “aggressively unload” their distressed mortgages in the next year, driving up the number of deficiency judgments being sought.

They are pretty easy to get. “If the house sold for less than you owe, the lender wins, plain and simple,” says Roy Foxall, a real-estate lawyer in Fort Myers on Florida's west coast.

Mr. Foxall says five deficiency suits were filed against his clients this year, and he couldn't poke any holes in any of them. Lenders typically have five years following a foreclosure sale to sue for remaining mortgage debt.

Nevada recently passed a law reducing this time period to 9 months. In California, lenders can still try to collect after a foreclosure, but a first mortgage lien cannot file another lawsuit to compel repayment as the foreclosure itself was their one remedy.

Mr. Englett, the Orlando lawyer who has handled 27 such suits for homeowners in the past 21 months, says he didn't get the bank to waive the deficiency in any of the cases, but did reach six settlements in which the plaintiff accepted less.

Florida is among the biggest deficiency-judgment states. Since the start of 2007, it has had more foreclosures than any other state that allows deficiency judgments—more than 9% of the U.S. total, according to research firm Lender Processing Services Inc.

A loan-deficiency suit can yank borrowers back to a nightmare they thought was over.

Ray Falero, a truck driver whose Orlando home was foreclosed on and sold in August 2010, says he thought he was hallucinating when, months later, he opened the door and saw a sheriff's deputy. The visitor handed him a notice saying he was being sued for $78,500 by the lender on the home purchase, EverBank Financial Corp., of Jacksonville, Fla.

“I thought I was done with this whole mess,” he says.

Most borrowers make this mistake.

Mr. Falero, 37, says he was about nine months behind on his loan when the bank foreclosed. Before it did, he bought another home in Minneola, Fla., where he now lives and where he says he is up to date on mortgage payments. Like Mr. Reilly, Mr. Falero says he didn't swell the foreclosed-on loan through refinancing or home-equity borrowing.

EverBank won a deficiency judgment on Mr. Falero's Orlando loan. Mr. Falero and his lawyer are fighting to reduce the amount owed. EverBank declined to comment on his case.

Credit unions and smaller banks are the most aggressive pursuers of deficiency judgments, a review of court records in several states shows.

At Suncoast Schools Federal Credit Union in Tampa, Jim Simon, manager of loss and risk mitigation, says the institution has a responsibility to its members, and that means trying to recoup losses by going after loan deficiencies. He calls such legal action the credit union's “last arrow in the quiver.”

If the bank is not too big to fail, it must go after every penny just to survive.

The biggest banks appear to have stayed largely on the sidelines as they deal with the foreclosure-paperwork mess. One big bank, J.P. Morgan Chase & Co., “may obtain a deficiency” judgment in foreclosure cases but will “often waive” the leftover debt when a homeowner agrees to a so-called short sale of a house for less than is owed on it, a bank spokesman says. …

The hard-hit area reveals a sharp contrast in homeowners' attitudes toward deficiency judgments.

Julia Ingham invested in four Lehigh Acres properties in June 2005, hoping to “drum up some real money for retirement.”

All have since been foreclosed on by lenders, says the 62-year-old retired programmer for International Business Machines Corp.

A credit union, after selling one of the foreclosed houses for less than the debt on it, obtained a deficiency judgment against Ms. Ingham for $181,059.54. She worries she could face such judgments on the other properties, too.

Ms. Ingham says when she bought them, she misunderstood how much her investments put her on the hook for. Her builder, she says, promised she could invest $10,000 in four properties and then flip them for a profit. Ms. Ingham says deficiency judgments punish borrowers who were taken advantage of by lenders and builders.

Taken advantage of? Does she bear no responsibility for her own stupidity?

Catherine Ortega, who owns a Lehigh Acres home around the corner from one of Ms. Ingham's foreclosed homes, says banks should leave people like her former neighbor alone. “Those people have suffered enough,” she says.

If they have suffered enough, they should declaure bankruptcy. Borrowers shouldn't rely on the compassion of banks because the banks won't have any.

In July 2005, Mr. Reilly took out a $223,000 mortgage to build a vacation home here, about 160 miles from his primary home in Odessa, Fla. He was laid off just as construction was being completed.

Mr. Reilly says he is current on the loan on his primary residence but couldn't afford the vacation home's $1,200-a-month loan payment. Great Western Bank, which is owned by National Australia Bank Ltd., foreclosed on his house in Lehigh Acres in July 2010.

Mr. Reilly, who was a mortgage broker before his layoff, says he knew that deficiency judgments were possible after a foreclosure but didn't expect to face one because he doesn't have any financial assets, and you can't get “blood from a stone.”

I am surprised he is facing a deficiency judgment considering he has no income or assets.

Alfredo Callado, who lives next door to Mr. Reilly's former house, is unsympathetic. Like Ms. Ortega, Mr. Callado is troubled by the crime that a neighborhood full of empty houses attracts. He started watching over Mr. Reilly's former house to ward off thieves who steal air conditioners from vacant properties.

Mr. Callado, sitting on a lawn chair in his driveway, says lenders should use deficiency suits to punish defaulting homeowners for the damage they do to neighborhoods, including driving down property values.

“You have to make them pay for what they do to those of us left behind,” he says.

WTF? This guy is upset because people couldn't afford the debt used to drive up neighborhood property values, and now he has to accept the reality that his house was never worth what he thought it was. Too bad. Vindication will not soothe his soul. What circle of hell would he want defaulting homeowners to end up in?

They didn't get enough

The former owners of today's featured properties did lose this home due to excessive borrowing, but the clearly left money in the walls they could have extracted during the bubble. The bank might not lose money on this one.

• The property was purchased on 11/24/1999 for $258,000. The owners used a $206,350 first mortgage and a $51,650 down payment.
• On 4/4/2003 they refinanced with a $230,000 first mortgage, but they took out very little extra money.
• On 2/1/2007 they refinanced again with a $428,000 first mortgage which was likely only 80% of the value at the time. They could have obtained a second for over $100,000 and didn't. I wonder if they wished they had.
• The details aren't in my records, but they defaulted on the loan, and Wells Fargo took the property back on 4/1/2011 for $481,337.

Lenders are very selective in who they foreclose on. They selected these borrowers because they were near breakeven. Wells could foreclose on them without losing much money. It makes sense for banks to foreclose on non-performing loans when the losses are small to clean up their books. It's the severely underwater loans where they allow the owners to squat endlessly because they don't want to recognize the losses.

If these borrowers had been more irresponsible, they would likely still be living in this house making no payments. That doesn't create a good set of borrower incentives, does it?

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 68 DANBURY Ln Irvine, CA 92618

Resale House Price …… $484,900

Beds: 3

Baths: 2

Sq. Ft.: 1350

$359/SF

Property Type: Residential, Condominium

Style: Two Level, Traditional

Year Built: 1999

Community: Oak Creek

County: Orange

MLS#: P798732

Source: SoCalMLS

Status: Active

On Redfin: 2 days

——————————————————————————

FANTASTIC BUY ON THIS IMMACULATE 3 BD 2.5 BA DETACHED HOME VALUE PRICED FOR QUICK SALE! FRESH INTERIOR TWO-TONE PAINT AND NEW CARPET. FORMAL LIVING ROOM WITH FIREPLACE, BEAUTIFUL WOOD FLOORS, BRIGHT KITCHEN WITH TILED COUNTERTOPS, PRIVATE PATIO FOR ENTERTAINING, SPACIOUS MASTER SUITE WITH WALK-IN CLOSET, MASTER BATHROOM WITH DUAL SINK VANITY, BEDROOMS 2 & 3 (JACK-N-JILL) WITH SHARED BATHROOM AND DUAL SINK VANITY, FORCED AIR HEATING AND CENTRAL AIR CONDITIONING, 2 CAR ATTACHED GARAGE PLUS FULL DRIVEWAY FOR ADDITIONAL PARKING. SUPER MOTIVATED SELLER. SUBMIT!!!

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Proprietary IHB commentary and analysis

Resale Home Price …… $484,900

House Purchase Price … $258,000

House Purchase Date …. 11/24/1999

Net Gain (Loss) ………. $197,806

Percent Change ………. 76.7%

Annual Appreciation … 5.3%

Cost of Home Ownership

————————————————-

$484,900 ………. Asking Price

$16,972 ………. 3.5% Down FHA Financing

4.03% …………… Mortgage Interest Rate

$467,928 ………. 30-Year Mortgage

$133,179 ………. Income Requirement

$2,242 ………. Monthly Mortgage Payment

$420 ………. Property Tax (@1.04%)

$0 ………. Special Taxes and Levies (Mello Roos)

$101 ………. Homeowners Insurance (@ 0.25%)

$538 ………. Private Mortgage Insurance

$139 ………. Homeowners Association Fees

============================================

$3,440 ………. Monthly Cash Outlays

-$349 ………. Tax Savings (% of Interest and Property Tax)

-$671 ………. Equity Hidden in Payment (Amortization)

$24 ………. Lost Income to Down Payment (net of taxes)

$81 ………. Maintenance and Replacement Reserves

============================================

$2,526 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,849 ………. Furnishing and Move In @1%

$4,849 ………. Closing Costs @1%

$4,679 ………… Interest Points @1% of Loan

$16,972 ………. Down Payment

============================================

$31,349 ………. Total Cash Costs

$38,700 ………… Emergency Cash Reserves

============================================

$70,049 ………. Total Savings Needed

——————————————————————————————————————————————————-

Lenders are beginning to clear out the high end inventory lurking in the shadows.

Irvine Home Address … 29 ANTIQUE ROSE Irvine, CA 92620

Resale Home Price …… $1,014,000

I thought things had changed

I thought things looked plain

I thought I could see the light

But now, now I know

I saw the distant glow

I heard a distant whistle blow

Whitey — The Light at the End of the Tunnel Is a Train

Back in 2009 and 2010 when the combination of tax credits and federal reserve supports engineered a false rally, and many people believed the housing crash was over. They thought they could see the light at the end of the tunnel.

Of course, the housing crash was not over, and the crisis in the housing market still has not been resolved. The problem everyone wanted to ignore (besides valuation) was the huge inventory of delinquent borrowers squatting in shadow inventory. Without this overhanging supply, perhaps the market would have bottomed in 2009, but with an abundance of homes waiting for a spark of demand, prices are more likely to go down than go up, particularly at the high end.

High end shadow inventory coming to light

Observers of the high end market often see what they want to see. Most homeowners in these price ranges truly believe the reason their prices haven't decayed to date is because everyone is rich and there is little mortgage distress. Nothing could be further from the truth.

High end home prices have benefitted from a lack of inventory. Lenders have been unwilling to foreclose on high-end homes because the losses are too large for them to absorb. It's easier for lenders to go after the low hanging fruit and clear their files by foreclosing at the low end first.

The hopelessly overextended pretenders who often borrowed more than $1,000,000 to buy high end homes have been allowed to squat. Rather than being the safe haven of the rich, high end homes have higher delinquency rates than their more modest bretheren.

Banks have been extending the mortgage limbo for high end squatters to delay taking write downs and to manage MLS inventory. Banks can't let the squatting go on forever. Eventually, they will need to foreclose on these properties, throw the squatters out, and resell them to recoup what they can of their capital.

Think about it from a bank investors point of view. People invest in banks so banks can loan money and make a profit from the interest. If banks stop doing this and instead simply give away the investor's money, won't the investors revolt? Do you think the poor performance of banking stocks may reflect that fact? Imagine if I were to tell my fund investors I was simply going to allow squatters to stay in the properties I purchased at auction. Would they be happy? I don't think so.

Banks are also getting more desperate for capital. Bank of America is cutting costs and ramping up its foreclosure activities because it needs the money. They can no longer afford to subsidize the squatters living in the bank's houses.

Today's featured property is an example of the bank's desperation. They bought this house last October, and they held it off the MLS through the prime selling season, and they are only now listing it for sale — at the worst time of the year to find a buyer.

The sordid past

The orginal buyers were hopelessly overextended. They paid $1,434,000 on 11/3/2005 using a $1,145,000 first mortgage, and $145,000 HELOC, and a $144,000 down payment. Since you can't deduct the interest on a loan over $1,000,000, the only people who borrowed more than $1,000,000 did so because they had to.

They refinanced again on 1/4/2007 with a $1,293,750 Option ARM, a $86,250 stand-alone second, and a $250,000 HELOC. They quit paying sometime in mid 2009.

Foreclosure Record

Recording Date: 12/04/2009

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 09/02/2009

Document Type: Notice of Default

The got to squat in luxury for about a year and a half before the servicer, Wells Fargo, foreclosed on them on 10/12/2010. I can't be certain why Wells Fargo didn't immediate sell the house, but the most likely reason is MLS managment. They didn't feel there was a market for this property then. Of course, the market has continued to slide, and now the recovery on this bad loan is going to be even less. Perhaps the prospect of continuing declines is prompting them to sell now before things get even worse.

For whatever reason, this property is now for sale at the worst time of the year, and the loss is going to be enormous.

——————————————————————————————————————————————-

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 29 ANTIQUE ROSE Irvine, CA 92620

Resale House Price …… $1,014,000

Beds: 5

Baths: 6

Sq. Ft.: 3900

$260/SF

Property Type: Residential, Single Family

Style: 3+ Levels, Tuscan

View: Mountain

Year Built: 2005

Community: Northwood

County: Orange

MLS#: S675997

Source: SoCalMLS

On Redfin: 1 day

——————————————————————————

Must see with a great value. Upgraded home in desirable Northwood Arbors tract. Gated with incredible HOA amenities. 5 bedrooms – bonus room upstairs and 1 bedroom/bath plus powder room is downstairs, Gourmet Kitchen with Marble Countertops and center island. Very desirable floor plan. Upstairs balcony overlooking large front yard. Large backyard with professional landscape – firepit, custom water feature, outdoor kitchen/barbeque area, and gazebo type patio cover. There is a two car garage plus a one car garage (total of 3).

——————————————————————————————————————————————-

Proprietary IHB commentary and analysis

Resale Home Price …… $1,014,000

House Purchase Price … $1,651,495

House Purchase Date …. 10/12/2010

Net Gain (Loss) ………. ($698,335)

Percent Change ………. -42.3%

Annual Appreciation … -47.8%

Cost of Home Ownership

————————————————-

$1,014,000 ………. Asking Price

$202,800 ………. 20% Down Conventional

4.03% …………… Mortgage Interest Rate

$811,200 ………. 30-Year Mortgage

$210,847 ………. Income Requirement

$3,887 ………. Monthly Mortgage Payment

$879 ………. Property Tax (@1.04%)

$325 ………. Special Taxes and Levies (Mello Roos)

$211 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$145 ………. Homeowners Association Fees

============================================

$5,447 ………. Monthly Cash Outlays

-$1009 ………. Tax Savings (% of Interest and Property Tax)

-$1163 ………. Equity Hidden in Payment (Amortization)

$285 ………. Lost Income to Down Payment (net of taxes)

$147 ………. Maintenance and Replacement Reserves

============================================

$3,707 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$10,140 ………. Furnishing and Move In @1%

$10,140 ………. Closing Costs @1%

$8,112 ………… Interest Points @1% of Loan

$202,800 ………. Down Payment

============================================

$231,192 ………. Total Cash Costs

$56,800 ………… Emergency Cash Reserves

============================================

$287,992 ………. Total Savings Needed

——————————————————————————————————————————————————-

I hope to see you tinight at JT Schmid's Restaurant & Brewery, 2415 Park Avenue, Tustin, CA 92782, (714) 258-0333.IHB Presentation Night