Banks are in no hurry to sell their high end inventory. Unless we see significant capitulation, the overhang will persist for a decade at least.

Irvine Home Address … 25 RIDGEVIEW Irvine, CA 92603

Resale Home Price …… $3,694,800

I can wait, I can wait,

I can wait forever

I know it feels like forever,

I guess thats just the price I've got to pay…

Simple Plan — I Can Wait Forever

The high end market is a shambles. Sellers are slowly lowering their asking prices, but many act as if they can wait forever. The few transactions taking place are often at or above the peak which many have interpreted as strength. In reality, product is being withheld from the market to force the few buyers who can pay to come up with enormous down payments. Very little is selling.

The banks are responsible for this. Lenders inflated the housing bubble across all property classes by injecting excessive debt into the housing market. In particular, the Option ARM was widely used to underwrite huge mortgages to put people into houses they could not afford with debts they could never repay.

Today's featured property is a perfect example. It was financed with a $2,912,449 Option ARM. The owner quit paying shortly thereafter, and after a year or more of squatting, the lender took back the house for $3,206,666, the full amount on the note at the time.

No lenders are making such stupid loans today, and as a result, the buyer pool who can afford such a spendy house is dramatically depleted. The high-end market above $2,000,000 is returning to what it should be — the exclusive domain of the very rich who can pay cash.

Unfortunately, there are very few households with enough wealth to put $1,000,000 or more into a down payment or an all-cash purchase, and we have a plethora of properties priced for absorption by these buyers. Whenever you have a dramatic difference in supply and demand, prices are bound to move. In this case, we have a huge overhang of supply and nearly no demand, so prices will inevitably fall.

High-end supply

I mentioned a few weeks ago that Redfin now enables you to search for bank-owned homes both on and off the market. There are currently 144 in Irvine, 79 of which are not on the market. Many of the 79 are high-end properties the banks don't believe they can sell in today's market, so they are withholding them for better days… better days which are not forthcoming.

Lenders are making a classic mistake. They believe prices are depressed, and if they wait, strong demand will increase prices and allow them to sell at a better price. They are wrong. Prices are not depressed. Prices were elevated above reason, and they are now correcting back to affordable levels. Lenders are waiting for higher prices which will only be coming as wage inflation over time allows buyers to afford more. That will take a very long time. Further, the overhang of all this supply will prevent the appreciation lenders need to sell at a better price.

I am not alone in noticing the woes of high-end markets.

Higher-End Housing Hits a Wall

Published: Wednesday, 24 Aug 2011 — By: Diana Olick

Most of America won't shed a tear for those who own higher-priced homes, especially given that the median home price in the nation has now fallen to just $174,000, but investors and homeowners alike should take note: Higher priced homes are taking a hit and the outlook for them is worse than the overall market.

That will have ramifications for recovery.

Despite the fact that just eight percent of US loans are currently jumbo, according to Inside Mortgage Finance, and that share will rise to just 10-12 percent when the conforming loan limit is lowered October 1st, high-end housing is already being hit harder than the overall market, which isn't exactly doing so well itself. …

In order for the high end market to regain some semblance of strength, jumbo lenders will need to re-enter this space. Unfortunately, with default rates still being very high, lenders are not anxious to give away more free money to high-end squatters.

Recidivism rates on jumbo mortgage cures remain unchanged

by KERRI PANCHUK — Tuesday, September 13th, 2011, 11:06 am

Default recidivism rates on jumbo and alt-A mortgage loans tracked at similar levels when comparing the first quarter of 2010 to the second quarter of 2011, according to a new report from Bank of America Merrill Lynch.

According to the analysis, the highest levels of recidivism come from mortgages refinanced in 2008, especially in the second half of the year. For both the third and fourth quarter of the year, more than half of the loans redefault after a year. Merrill Lynch defines a mortgage as a redefault when payments are missed for more than 60 days.

Recidivism decreased for loans originated sooner, so the redefault rates will invariably rise as time progresses, though potentially to lesser degree. JP Morgan is also the mortgage servicer with the highest level of recidivism rate among jumbos….

However, any lack of improvement on jumbo loans in terms of recidivism rates on defaulted loans may create a disincentive for the private mortgage market to jump into the segment, especially as conforming loan limits are dropping. …

Yes, that is exactly what it does. Lenders are not going to jump in to jumbo space just because the GSEs are leaving it. There will undoubtedly be increased activity at the margin between $625,000 and $729,750, but the desire for mortgages over $1,000,000 will remain low until default rates drop. Unfortunately, default rates on jumbo mortgages will not decline any time soon. The loan balances are far too large relative the borrower's incomes.

This leaves us with a high end market floating in space. Lenders are unwilling to enter this space because borrowers keep defaulting because borrowers can't afford the payments. Unfortunately for lenders, they also own or control a huge number of properties they need to sell at these same price points. Each lender needs another lender to step forward and underwrite a loan they themselves are not willing to underwrite. It's a Mexican standoff resulting in a frozen housing market.

While lenders wait for one of their competitors to step forward to bail them out, they are stuck with large numbers of non-performing loans, delinquent mortgage squatters, and REO they can't get rid of without bank-busting losses. So what do they do? They cling to their wishing prices like any other seller in denial and hope for the best. Hope is their only viable plan.

1,267 days on the market and counting

I first profiled today's featured property back on September 26, 2007, nearly four years ago. I profiled it again back in March of 2011. It was purchased by a peak buyer who lost a tidy down payment, and now the lender is going to have to absorb the rest of the loss. Apparently, they are in no hurry.

Date	Event		Price
Sep 16, 2011	Price Changed		$3,694,800
Sep 16, 2011	Relisted (Active)		—
Sep 02, 2011	Delisted (Expired)		—
Jul 13, 2011	Price Changed		$3,748,000
Sep 07, 2010	Relisted (Active)		—
Sep 04, 2010	Delisted (Expired)		—
Jun 25, 2010	Price Changed		$3,999,000
Nov 12, 2009	Price Changed		$4,099,000
Sep 04, 2009	Price Changed		$4,199,000
Sep 04, 2009	Relisted (Active)		—
Sep 02, 2009	Delisted (Expired)		—
Jan 22, 2009	Sold (Public Records) This home was foreclosed Foreclosure and bank-owned REO (Real Estate Owned Home)		$3,206,666
Sep 04, 2008	Relisted		—
Sep 02, 2008	Delisted		—
Jun 05, 2008	Price Changed		$4,249,000
Mar 29, 2008	Listed		$4,299,000
Mar 27, 2008	– Delisted		—
Jan 27, 2008	– Listed		*
Jan 26, 2008	– Delisted		—
Jan 14, 2008	– Listed		*
Dec 22, 2006	Sold (Public Records)		$3,953,500

The bank has had this property on its books for two years now. They have made small price reductions, but they are still holding out for a wishing price they aren't going to get.

This is denial.

The listing and delisting with minor price reductions is simply foolish. They are hoping they hit the knife-catcher lottery, and so far, they haven't gotten lucky. They better hope they do so because if Bank of America starts foreclosing and liquidating in earnest, the extreme supply constriction they are relying on to force bids up isn't going to continue to work in their favor.

All it takes is for one or two of the major players to move from denial to capitulation, and the additional supply will severely weigh down prices at the fragile high end.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 25 RIDGEVIEW Irvine, CA 92603

Resale House Price …… $3,694,800

Beds: 5

Baths: 6

Sq. Ft.: 6055

$610/SF

Property Type: Residential, Single Family

Style: Two Level, Mediterranean

View: Bay, City Lights, City, Coastline, Mountain, Ocean, Panoramic

Year Built: 2006

Community: Turtle Ridge

MLS#: S526948

Source: SoCalMLS

Status: Active

On Redfin: 1267 days

——————————————————————————

At the very top of Turte Ridge, this is the ONLY Plan 3 that's hit the market and worth the wait. Highly sought after, this property is the largest of the LACima plan homes, with over 6,055 of living space on a huge lot at over 23,000 square feet at the end of a very quiet cul-de-sac. Absolutely no view obstructions. You can see all the way from the ocean to the Saddleback mountains with no roofs! Upgrades throughout the interior including faux wall painting, additional fireplaces and highly upgraded bathrooms. Wait till you see the view from the master bedroom!! This home is priced to sell.

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

Proprietary IHB commentary and analysis

Highly sought after? That's why it's been on the market for 1,267 days, right?

This home is priced to sell. Then why isn't it?

Resale Home Price …… $3,694,800

House Purchase Price … $3,206,666

House Purchase Date …. 1/22/2009

Net Gain (Loss) ………. $266,446

Percent Change ………. 8.3%

Annual Appreciation … 5.3%

Cost of Home Ownership

————————————————-

$3,694,800 ………. Asking Price

$738,960 ………. 20% Down Conventional

4.18% …………… Mortgage Interest Rate

$2,955,840 ………. 30-Year Mortgage

$753,755 ………. Income Requirement

$14,420 ………. Monthly Mortgage Payment

$3202 ………. Property Tax (@1.04%)

$585 ………. Special Taxes and Levies (Mello Roos)

$770 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$495 ………. Homeowners Association Fees

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

$19,472 ………. Monthly Cash Outlays

-$1872 ………. Tax Savings (% of Interest and Property Tax)

-$4124 ………. Equity Hidden in Payment (Amortization)

$1100 ………. Lost Income to Down Payment (net of taxes)

$482 ………. Maintenance and Replacement Reserves

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

$15,058 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$36,948 ………. Furnishing and Move In @1%

$36,948 ………. Closing Costs @1%

$29,558 ………… Interest Points @1% of Loan

$738,960 ………. Down Payment

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

$842,414 ………. Total Cash Costs

$230,800 ………… Emergency Cash Reserves

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

$1,073,214 ………. Total Savings Needed

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

Over the last year, I have purchased 36 houses in Las Vegas for my flipping fund. Many have been occupied which required me to facilitate the occupant's departure.

Irvine Home Address … 64 GRANT Irvine, CA 92620

Resale Home Price …… $640,000

There's a note on the door..

Eviction notice

“Listen, one of us is leaving,

and when I say US I mean YOU…

YOU'RE leaving.

(You're leaving… You're leaving.)”

I'm in the house y'all,

I'm in the house y'all

And ain't no little piece of paper gonna kick me out y'all!

Sage Francis — Eviction Notice

Some foreclosure and eviction cases can be heartbreaking. However, we live by rule of law in this country, and unless we want to start giving away real estate to those with the saddest story, these evictions must take place.

Elderly woman, 101, in tears as she's evicted from her home and her possessions are thrown into dumpster

• Texana Hollis's son failed to pay her property tax
• Detroit woman had lived at her home for 58 years
• Rushed to hospital after eviction over heart attack fears

By Paul Thompson

Last updated at 7:44 PM on 13th September 2011

A 101-year-old woman has been evicted from her home of the last six decades after her son failed to pay property taxes on time.

Texana Hollis's possessions were thrown into dumpsters after bailiffs moved to take her house in Detroit, Michigan.

The 101-year-old was left in tears and disorientated after she was ordered out of the property that has been her home for the past 58 years.

That is about as sad as it gets. The house was paid off, and the 101 year old woman lived there for 58 years, and now she is homeless.

Officials said her 65-year-old son Warren had failed to pay property taxes for up to seven years.

Although the home was owned outright by Ms Hollis he had ignored repeated warnings that they faced eviction.

Now we see what is really going on. The son wasn't paying the property taxes. My guess is he wagered nobody would foreclose on the home as long as his aging mother lived there, so he just stopped paying.

What was the taxing authority supposed to do? Let these people live there tax-free? What about the other taxpayers who aren't getting a free ride?

Perhaps if we pass a new law that says if you live past 95, you don't have to pay property taxes, then it might be okay. It might not be a bad law. But until that law is passed, regardless of age, people have to stay current on property taxes if they want to stay in their homes. This house was enjoying the benefits of police and fire protection without its owners paying a fair share of the bill.

Warren said: ‘I kept it from her because I did not want to worry her.’

He also admitted that he knew they faced eviction, but thought it would not happen.

Yep. He bet they wouldn't foreclose and lost. What a fool! Whatever bad circumstances befall this man, he richly deserves. It's his fault, not the foreclosing tax authority.

Ms Hollis wept as she told her local TV station that she only found out about the back taxes the night before she was evicted.

Hours after being evicted Ms Hollis was rushed to hospital over fears she might have had a heart attack.

Friends later said did not suffer a heart attack, but was stressed over the incident.

I can only imagine how awful that must have been for her.

With no place to stay a neighbour agreed to let Ms Hollis and her son stay at her home temporarily. But neighbours are questioning why the local authority would want to turn a 101-year-old woman out on to the streets.

‘This woman needs to be back in her home now,’ one angry neighbour said.

Local businessmen are looking to see if they can pay the back taxes to allow Ms Hollis to move back into her home.

I hope they raise the money to pay off the tax bill. They should keep a lien on the property, and the moment this lady passes on, they need to boot the son to the curb with no mercy.

My family's eviction story

My grandmother's blind sister was 82 years old when she was evicted from her paid-off family home for a highway construction project. True story.

Rather than wait a few more years for this ailing elderly blind woman to pass on in her lifelong home on the lake in Friendship, Wisconsin, the Department of Transportation decided it was time to straighten out a dangerous corner around the edge of the lake by wiping out my great-aunt's home.

This incident was very sad, and my great-aunt died in a nursing home shortly thereafter emotionally devastated by the event. Her son kept the bitterness alive for years thereafter.

My senior citizen eviction story

When I bought 19 Tierra Buena, Las Vegas, NV 89110, it was occupied by a widow whose husband had passed a few years earlier. Since they lived in Las Vegas, any stored savings they had in home equity was wiped out in the housing crash. She quit paying in 2008 and got about two and one half years of free housing before the bank finally foreclosed. Jacki and I were both saddened by her circumstances.

We offered her $500 to leave the property, and she agreed. We sent her a check to the address she gave us, and it was sent back to us. The post office couldn't find her at the address she gave us. After a couple of weeks, we still hadn't heard from her.

My conscious was bothering me, and one night I woke up at 3:00 AM thinking about this poor woman. It occurred to me to simply mail the check to the 19 Tierra Buena address to see if the post office would forward it to wherever she really was. Jacki resent the check, and a week later, it cleared our account.

I could have saved $500. She made no attempt to contact us after she left. I couldn't live with the idea of saving $500 at the expense of a widow.

My least favorite former property owners

These stories were so irritating for me they are worth recanting again here….

Squatters on my dime

I have one property I purchased in November, and the former owners are still squatting there. The former owners pulled an interesting legal move. They had the wife file for bankruptcy in her maiden name a few days after the foreclosure auction, and they put the property into the estate. Well, our search didn't pick up the bankruptcy because it wasn't in the owner's name, so we began foreclosure proceedings. Late in the process, the bankruptcy attorney accuses us of harassment, and we had no idea what he was talking about.

Once we discovered the suit, we had to initiate our own suit to have the property removed from the bankruptcy proceedings. They didn't own the property when they filed, so they can't obtain protection from the bankruptcy court to stay there. If they had filed before the foreclosure, they would have had other rights, but if they had filed before the foreclosure, it would have shown up in a title search, and I wouldn't have bid on the property.

The cost of all this legal maneuvering is expensive. The time to properly evict these people has been costly in two ways. First, the declining market means my resale price is declining while i wait. in addition, I have opportunity cost on money tied up in a non-performing asset. I am not a bank. I can't amend, extend, and pretend I am making money. I either sell quickly for a profit or I don't profit.

Ye ol' crack house

By far the most bizarre story I have is a property I purchased in October.

Back in 2005, a recent Salvadoran immigrant obtains his citizenship. With his workman's salary and a penchant for liar loans, he puts together an empire of 8 properties in Las Vegas from 2005 to 2007. The last of these properties was his crown jewel — the property I bought.

The property is in a older Las Vegas neighborhood called Spring Valley. The neighborhood is dominated by ranch style houses ranging from 1,400 SF to 1,800 SF. It has seen better days, but this is not a bad neighborhood. It is mostly median income middle-class families trying to get by.

My property is the large 5 bedroom home at the end of a cul-de-sac. It is the only one in the area with a large pie shaped lot with an outbuilding and RV parking. Back in 2007 when Vicente the Fox, our recent immigrant, bought this property with his liar loan, it was the finest property on the street.

Vicente the Fox began using his large property as a salvage yard. He put individual locks on all the bedroom doors and leased out the rooms to boarders and skimmed their rent. He tried to convince them to keep paying him even after I bought the house.

The boarders were united by their love for crystal meth. There is no evidence this place was used as a meth lab — thankfully — but when the constables came by to evict the last boarders, they confiscated a cigar box full of used pipes and other paraphernalia. In the two weeks after we took possession, the house was broken into three times.

The amount of junk on this lot is staggering. There are eight automobiles on this property, and none of those are in the garage because the garage was full of stuff. All eight cars are in the back and side yards. There were 4 working refrigerators on the property, a dirt bike, an air conditioner, anything and everything you can imagine, and lots of it.

I call our former owner Vicente the Fox because he carefully avoided us whenever we tried to serve him formal eviction papers. He didn't live at this house, and his former address is an apartment where he skipped out on the rent. However, since I was unable to serve him, I could not fully divest him from the property and the junk sitting on it.

He teams with a local attorney bandito to shake me down for wrongful foreclosure, stealing his property, and so on. Since I couldn't get him served, his weak case was strong enough to tie me up in court for a while. I settled.

Surprisingly enough, it turned out in my favor because when I let him back on the property to get his stuff, he cleared out much of the garbage along with the stuff of value. My worst fear was him picking over the good stuff and leaving me with a $5,000 mess to clean. He took a number of paint cans and other items that would have required me to bring in special disposal teams.

There is no good resolution for this property. I will lose money on the deal, and Vicente the Fox will have a roving pile of garbage scattered at friends and acquaintances houses all over town.

Eventually, this property will get sold. Hopefully, it will be to a good family that restores it as the jewel of the neighborhood. That's the outcome I want.

Flippers are maligned for bringing down the quality of life in neighborhoods. The reality is that the delinquent former owners are the ones who brought down the neighborhood. Flippers like me are the ones taking back the crack houses from rent-skimming former owners and putting families back into them.

I just rented Stober Court to a section 8 government assistance tenant. I had no idea such tenants could get $1,350 monthly rent allocations. She nearly broke down in tears when she saw the cleaned, painted, and repaired property. I felt good about that one.

Let's not forget, New families find the houses lost in foreclosure.

Merry Christmas and happy new foreclosure

I bought this house on December 7, 2010. The above was the actual picture of the property I used to evaluate it as a potential flip taken the morning of the auction.

Do you see the carefully groomed landscape and the Christmas reindeer in the front?

These people liked this house, and they didn't want to lose it. I was buying it eight days before December 15th when the local constables who handle evictions stop all activities for the holidays.

Was I going to be Grinch this year?

Cash-for-keys

I always prefer a negotiated settlement to eviction. It takes too much time to evict, and the occupants aren't too careful on their way out with their belongings.

These former owners have few tenant holdover rights. If i want them out, I can have them forcibly removed in short order. In Nevada, they get a 5-day notice to get out followed by a 3-day notice before the constable arrives to remove them by force if necessary. This is dangerous work, and they do carry weapons.

Technically, the former owners owe me rent from the day of the foreclosure sale. The typical negotiation is to offer free rent for three weeks with cash incentives if they move out quicker. The cost of money dictates that i can offer up to $500 per week if they are out early, and it improves overall revenues and profits.

I wasn't about to expedite an eviction to see if I could kick this family out two weeks before Christmas. We negotiated a deal where they could stay until January 10th if they agreed to leave certain appliances, be careful when moving furniture, leave the fixtures and fans, basically leave the place undamaged so we can do preparations for sale quickly and with limited expense.

Sue for unlawful foreclosure

We needed to exchange written documents, and they avoided meetings until it became apparent to us that these occupants did not intend to follow through on their agreement. Just before Christmas, we received a lawsuit notification, and with the justice system basically shut down the last two weeks of the year, we had no options, and the holdover owner got one last peaceful Christmas in their former dream home. I truly hope they enjoyed it. Denial has its rewards.

On the 3rd of January, we filed suit to get them removed, and after some legal finagling, we got a 30-day notice filed with a calendar set to expire in early March. These owners genuinely believed they were somehow going to keep this house. After more than two years with no payments, their house was called to auction, and now they are no longer on title. Only their bodies and their possessions remain.

As the eviction clock is winding down, we get a communication from the owners asking us if our original cash-for-keys offer was still on the table. They would get out that weekend if I gave them $1,500. Of course, my first thought is, screw you, you're willing to take my money after lying to me, suing me, and generally pissing me off. Go to hell! After a few moments to think rationally, I sent Jacki over with a big smile on her face to agree to their demands.

They got out in a weekend, I got the house in immaculate condition — I knew any loan owner in foreclosure who bothers to put out decorations and maintains their yard that well probably maintained the inside well. They did. We got the house on the market the next weekend (last weekend) with minimal fix up expense.

A bitter pill to swallow

These former owners loved this home. Jacki told me they were very bitter about the entire situation, the failed appreciation, the failed dodgy loan, the failed loan modification, the failed attorney savior. Despite the anger and bitterness, after telling their story, they were polite to Jacki when she inspected the property and paid them off.

When I think about borrowers like these, I do wish it had turned out differently for them. This particular family were peak buyers. They paid $399,991 for a property I bought 5 years later at auction for $170,000. The comps have weakened since I bought this property, and I will likely have to discount it to move it. These owners owed double what this property is worth today. What were they supposed to do?

The new family that buys here will enjoy a substantially lower cost of ownership. instead of the $2,500+ monthly cost the former owners had, the new buyer will spend less than $1,200 a month to live in this place. These people won't have HELOC riches any time soon, but they will have a cost-of-living that leaves them enough spending money that the HELOCs aren't necessary.

What is the best resolution for properties like this one? Do we give every existing loan owner principal reduction to keep them in place? Forgive the Ponzis their debts at my expense? I wouldn't feel very good about that one. Would you?

Do we allow them to squat forever and deny the new family their home? Perhaps foreclosure is a good solution after all.

The angry immigrant

When I bought 1915 Canterbury, the house looked unoccupied from the photographs. When Jacki went over and had the locks changed, she found an empty house. No furniture, no beds, not kitchenware, no obvious signs of habitation. However, she noticed the coffeemaker had recently been used. There were a few items of food in the refrigerator, and the bedroom floor had a bedroll sitting on the bare wood floor. She thought this was odd, but there were no other signs of occupancy.

About 30 minutes goes by when a little Russian guy pulls up, barges in the house and starts screaming at Jacki. Fortunately, she was there with the locksmith and the burly landscaper who weren't keen on the way this man was speaking to Jacki. It nearly came to blows.

The police came in and Jacki negotiated the deal of cash for keys with two law enforcement officers standing over them. He got $750 of the $3,000 he was asking for, and we got to keep some of his appliances. It turned out okay, but it was a harrowing experience.

The unemployed

Most of the occupied houses I have purchased have unemployed former owners squatting in them. From what I have observed, strategic defaulters tend to move out before the foreclosure date and get on with their lives. It's the people who have no other options that stay on in the property. I offered all these people the chance to stay on as renters, but none of them could afford it.

370 Manzanita was occupied by a musician who worked infrequently during the recession and didn't make his mortgage payments consistently. He also tried to get $3,000 cash-for-keys, but when we explained to him we could evict him for $500, he thought it wiser to take the money.

3225 Rose Valley was occupied by an unemployed construction worker. He had no money and no prospects. We gave him $500 and sent him on his way. I have no idea where he ended up, but it was undoubtedly not as comfortable as the place he left.

112 Rancho Vista was occupied by a construction worker who recently found work in Mexicali, Mexico. He was coming home on weekends to see his wife and kids. Rather than take the cash, we offered them to stay on for three weeks. They got their affairs in order and moved out by the agreed upon date. They were struggling, but the father was a hard worker doing what he could to support his family. I hope they make it.

I could go on, but this post is long enough.

Evictions may seem heartless, but we have these laws in place for a reason. If occupancy was the only requirement for ownership, our entire system of property ownership and finance would cease to function, and thuggery would determine who got to live where. Most often people who are being evicted have made poor choices. Remember, Responsible Homeowners are NOT Losing Their Homes.

This guy needs to be kicked to the curb

My parents have embraced the political Left for as long as I can remember. The housing bubble has caused them to disagree with the anti-foreclosure nonsense coming from the extreme Left. When I end up foreclosing on someone, they tell me they don't have much sympathy for someone who took hundreds of thousands of dollars of free money then got to squat for two or more years. Quite honestly, I don't feel much sympathy for that group either.

The property records on today's featured property are rather unusual. The last recorded sale was on 9/15/2000, but the owners at that time issued a Quit Claim deed to a different family on 12/18/2001. If it was an all-cash sale, no amount was recorded. The new owner waited about a year then took out a $397,500 first mortgage. Then the fun began.

• On 10/6/2003 he refinanced again with a $472,000 first mortgage.
• On 11/15/2004 he opened a $183,000 HELOC.
• On 9/20/2005 he refinanced with a $650,000 first mortgage.
• On 1/11/2006 he opened a $100,000 HELOC.
• On 3/1/2007 there is another loan for $409,000. It is difficult to tell if this was a first, second, or third mortgage. It doesn't seem likely the guy paid the mortgage down $350,000 to make the $409,000 a first mortgage, but it also doesn't seem likely this house once appraised at $1,050,000 to put this mortgage in second position either. Very strange.
• In any case, the guy stopped paying before July 2010 and was issued an NOD in October. He has been squatting ever since.

Foreclosure Record

Recording Date: 01/24/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/21/2010

Document Type: Notice of Default

So what do you think? Should this guy be allowed to continue to squat, or should he be kicked to the curb?

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 64 GRANT Irvine, CA 92620

Resale House Price …… $640,000

Beds: 4

Baths: 3

Sq. Ft.: 2675

$239/SF

Property Type: Residential, Single Family

Style: Two Level, Other

Year Built: 1978

Community: Northwood

County: Orange

MLS#: P788875

Source: SoCalMLS

Status: Active

On Redfin: 56 days

——————————————————————————

Prime Location in Northwood. Fabulous Floor Plan with Spacious Bedrooms. Bright and Airy Floor Plan with Great Layout. Open and Stunning Kitchen. Loverly Oversized Master Bedroom and Great 2nd Master Bedroom on Main Floor. Gorgeous Wood Flooring and Carpet. Beckyard Features Beautiful Pool and Hacuzzi that Perfect for Entertaining. Attend Irvine's Award winning Schools. Great Opportunity for a Great Neighborhood. 'No HOA and No Mello Roos'

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

Proprietary IHB commentary and analysis

Resale Home Price …… $640,000

House Purchase Price … $358,000

House Purchase Date …. 9/15/2000

Net Gain (Loss) ………. $243,600

Percent Change ………. 68.0%

Annual Appreciation … 5.3%

Cost of Home Ownership

————————————————-

$640,000 ………. Asking Price

$128,000 ………. 20% Down Conventional

4.20% …………… Mortgage Interest Rate

$512,000 ………. 30-Year Mortgage

$123,552 ………. Income Requirement

$2,504 ………. Monthly Mortgage Payment

$555 ………. Property Tax (@1.04%)

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

$133 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$0 ………. Homeowners Association Fees

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

$3,192 ………. Monthly Cash Outlays

-$411 ………. Tax Savings (% of Interest and Property Tax)

-$712 ………. Equity Hidden in Payment (Amortization)

$192 ………. Lost Income to Down Payment (net of taxes)

$180 ………. Maintenance and Replacement Reserves

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

$2,441 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$6,400 ………. Furnishing and Move In @1%

$6,400 ………. Closing Costs @1%

$5,120 ………… Interest Points @1% of Loan

$128,000 ………. Down Payment

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

$145,920 ………. Total Cash Costs

$37,400 ………… Emergency Cash Reserves

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

$183,320 ………. Total Savings Needed

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

Purging debt through default and foreclosure is the key to an economic recovery. This uncomfortable truth is leaking out to the general public.

Irvine Home Address … 226 ORANGE BLOSSOM Irvine, CA 92618

Resale Home Price …… $159,900

One step forward

never seems to get you nowhere

Sinking faster

In you go

You want to save they day

so you grab on the reins and run in circles

You're going to crash and drag the world down with you

Only one thing remains

Default — Only One Thing Remains

The economy is being dragged down by massive debts taken on by insolvent households. We have tried loan modifications, and they failed. Voluntary principal forgiveness is not forthcoming, so that leaves only one alternative to purging the excess debt: massive strategic default.

Massive default is best way to fix the economy

Commentary: Clearing away the debt is the only way forward

Brett Arends — Sept. 12, 2011, 12:00 a.m. EDT

NEW YORK (MarketWatch) — You want to fix this economic crisis? You want to put people back to work? You want to light a fire under the economy?

There’s a way to do it. Fast. And relatively simple.

But you’re not going to like it. You’re not going to like it at all.

Default. A national Chapter 11 bankruptcy.

The fastest way to fix this mess is to see tens of millions of homeowners default on their mortgages and other debts, and millions more file for bankruptcy.

I told you that you wouldn’t like it.

The apologetic tone of this article reflects the cluelessness of the masses. The ideas he puts forward are the same I have been stating for the last several years without the apologies or the sugar coating. Perhaps it takes this tone to break the bad news to the masses who still believe we can amend, forgive, or earn our way to prosperity.

I don’t like it much either. It sticks in the craw that people got to borrow all that money and won’t have to pay it back.

Yes, the quality of life HELOC abusers got to enjoy while others were prudently living within their means is irritating. However, I think most people are over that. The unceremonious fall from entitlement is poetic justice.

But you know what? The time to stop that was five or 10 years ago, when the money was being lent.

It’s gone.

And mass Chapter 11 is, by far, the least obnoxious solution to our problems.

The only solutions to bubbles and Ponzi schemes is not to inflate them in the first place. After the hard lessons of the Great Depression, society put safeguards in place to prevent recurrence of the nasty financial viruses. Unfortunately, we dismantled many of those safeguards in the name of deregulation, and in short order we unleashed a monster.

That’s because the real cause of our economic slump isn’t too much government or too little government. It isn’t red tape, high taxes, low taxes, the growing divide between the rich and the poor, too much government debt, too little government debt, corporations, poor people, “greed,” “socialism,” China, Greece, or the legalization of gay marriage. It isn’t, in short, any of the things all the various nitwits say it is.

It’s the debt, stupid.

I pointed that simple fact out in 2009: It's NOT the economy, stupid. “The problems with the economy of the early 90s were rooted in a loss of disposable income because homeowners were overextended on their mortgages, and the money they should have been spending in the local economy was instead going to debt service somewhere else. It is a problem we will face going forward as well–unless the foreclosures wipe out the debts of most homeowners.”

We’re hocked up to the eyeballs, and then some. We’re at the bottom of a lake of debt, lashed to an anchor. American households today owe $13.3 trillion. That has quadrupled in a generation. It has doubled just in the last 11 years. We owe more than any other nation, ever. And for all the yakking about how people are “repairing their balance sheets,” they’re not. From the peak, four years ago, they’ve cut their debts by a grand total of 4%.

And a lot of that was in write-offs.

More than a quarter of American mortgages are underwater. Many are deeply underwater. In states like Nevada and Florida the figures are astronomical.

The key thing to understand is that most of that money has gone to what a fund manager friend of mine calls “money heaven.” Most of these debts will never, ever be repaid in real money. Not gonna happen.

The reality of “money heaven” is not being reflected on lender's balance sheets. With the suspension of mark-to-market accounting rules, banks are pretending they are going to be repaid money they will never see.

Think how corporations handle this kind of situation.

It happens all the time. Banks and bondholders find they have lent, say, $1 billion to a company whose assets and earning capacity will only repay, say, $300 million. What happens? Does the company soldier on with $1 billion in debt it can never repay? Do the stockholders send back their dividend checks? Do they sell their homes to pay off the bonds?

Not a chance. The company goes through Chapter 11. The creditors ‘fess up to their blunder, they face up to their losses, and they fix it. They write down the loans and take the equity instead. The balance sheet is cleaned up, and the company starts again.

Why not homeowners?

Most of the objections to this idea are well-meant, but misinformed.

A fund manager I asked raised the issue of “moral hazard.” Why should anyone pay their mortgage if some people were getting a pass, he asked?

The answer: For the same reason GE and Verizon kept paying the coupon on their bonds while Lehman Brothers defaulted. You want to keep your credit standing. And you want to keep your equity.

The better question is “why would anyone who is underwater and paying more than a comparable rental keep paying their mortgage?” And the simple answer is “they shouldn't.” Many will be cajoled by the nonsense lenders put out about moral obligation, but by and large, unless a loan owner has equity or is saving money versus renting, they should quit paying. Many will.

If a company defaults, the stockholders get wiped out. If a homeowner defaults, the bank takes the home. I like keeping my home, as well as my savings, and my credit rating. Most people are the same.

The reality is most people don't have any equity or any savings, and their credit score is not worth the hundreds of thousands of dollars they are underwater.

Some will say the financial impact would be terrible. But the banks would just be facing up to reality. And a lot of these mortgages are already trading at distressed levels.

I like that part. Banks should be forced to accept the consequences of their mistakes. The idiots who caused this mess should lose their jobs and their huge bonuses. Unfortunately, that isn't what happened.

Some will say, “why should people get away with borrowing imprudently?” The response: Why should the banks get away with lending imprudently?

Yes, imprudent lending is the larger problem, and Strategic default is moral imperative to prevent future housing bubbles.

There’s no point telling people not to borrow money. They always will. I have yet to see a Wall Street executive turn down free money. I have yet to see a company in an IPO say, “Don’t give us so much money!” People like money. They will take as much as they are offered.

In a free economy, the people who are supposed to ration the loans are the lenders. Banks are supposed to lend carefully and responsibly.

I pointed out this fact in Lenders Are More Culpable than Borrowers.

What else are they paid for? Accepting deposits? You could hire people on minimum wage to do that.

Some will say, “it’s immoral” for borrowers to default. Alas, most of these people are being inconsistent. They are usually the first ones to defend a company when it closes down a factory and ships the jobs to China, or pays the CEO $50 million for doing a bad job, on the grounds that “this ain’t morality, pal, this is business!”

But when Main Street wants to do the same thing, they start screaming “Morality! Morality!”

We don’t live in an economy based on morals and fairness.

T Mobile doesn’t charge me what’s “fair” each month. They charge me what’s on the contract. Your employer doesn’t pay you more if you need more. He pays you your economic value. Did Dick Grasso give back his bonus? Bob Nardelli? Dick Fuld? We operate in an economy based very firmly on contracts, and nothing else. Companies, and the wealthy, live by the letter of the law.

American mortgage contracts allow for default. Half of the states in this country are “non-recourse,” which broadly speaking means you can send in the keys and walk away from a bad loan. The other half are sort of “semi-recourse.” The bank can come after you for any shortfall, but only in a limited way. Broadly speaking they can’t touch retirement accounts and basic assets. You can typically keep your car, personal effects, often things like life insurance.

Strategic Default Is Merely Collecting On Home Price Protection Insurance Sold By Lenders.

Most of the people who are deeply underwater don’t have that much anyway.

And the banks knew this. When they were lending $500,000 to a bus driver with $1,000 in his checking account, they knew that their loan was only guaranteed by the value of the home.

If they didn’t know it, they should have. Their incompetence is not our problem.

It’s tempting to say, “if someone borrows money, they should repay it.” Generally speaking, I agree. I pay all my debts. But while that makes sense when applied to any individual, it doesn’t work so well when it’s applied to everyone.

We have tens of millions who cannot repay their debts. But they are all trying to. That sucks huge amounts of money out of the economy. And that means these people cannot function properly as consumers or workers. That’s the reason people aren’t coming into your restaurant. It’s the reason people aren’t taking your yoga class. It’s the reason they haven’t hired you to redo the kitchen.

Note the after-crash disposable income slice on the far right. That's why the excess debt of the housing bubble is so economically debilitating.

And so tens or hundreds of millions of perfectly responsible business owners and employees are also suffering from this slump. That’s the reason we have a shortage of demand. That’s the reason no one is hiring.

Even worse: People who are underwater on their mortgage, but who do not want to default, cannot move to where the jobs are either. They are stuck with their home.

You want to break this logjam? Try Chapter 11 for the nation. Massive defaults. Clear the decks, clean the books.

Hallelujah! Foreclosures are essential to the economic recovery.

What are the alternatives?

Government cutbacks, higher taxes, and a balanced budget? In a normal economy, fine. But in this situation, when the private sector is also slashing its spending, that could lead to absolute catastrophe. That’s what happened in the Great Depression. And our debt levels are worse than in the Great Depression.

Government borrowing? That’s the Keynesian solution. “The consumer can no longer borrow like a crazy person,” says the Keynesian, “so Uncle Sam has to do so instead.” It’s just transferring private madness to public madness.

If you talk to a Keynesian like Paul Krugman, no amount of government spending is too large if it boosts the economy. Perhaps, just perhaps, the economy should experience a slowdown. The dumb ideas that survived in good times get purged in recessions. That's one of the reasons we have them. Unsustainable business plans which consume resources but provide little or no value get wiped out. The capital tied up in losing ventures is released to find a better home. Keynesian's try to avoid this necessary purging so nobody experiences any pain. It doesn't work. It only builds into larger problems in the future.

Inflation? That’s probably the least bad alternative. But it’s just default by another name. And instead of taking money from the imprudent banks that caused the problem, it robs grandma’s savings.

Once the deflationary headwinds subside, the federal reserve will most likely continue stimulatory policies for too long, and we will experience a bought of inflation. We won't hear any credible inflation talk until the economy picks up, but once it does, we will likely inflate away much of the excess debt by currency devaluation.

Twice before, advanced economies have gone through what we are going through now — namely a massive hangover after a massive debt binge.

The first was the U.S. in the 1930s, the second was Japan in the 1990s.

The U.S. didn’t get out of it until the 1940s unleashed inflation and reduced the debt’s value in real terms.

Japan still hasn’t gotten out of it. They have deflation, while government debt has skyrocketed.

The correct moral hazard is to punish the banks who lent imprudently by making them eat their own losses.

I told you that you wouldn’t like it. I don’t either. But the alternatives are worse.

He obviously didn't write this article for my consumption. I love the idea. No need to apologize to me.

$1,350 in; $132,000 out

The owner of today's featured property bought at the bottom of the last real estate recession. On 8/29/1997 she paid $72,000 for this property. She borrowed $70,650 which means she put a whopping $1,350 down.

She refinanced with a $72,000 first mortgage on 3/29/2001, and she obtained a $35,000 stand alone second on 12/20/2004 (Merry Christmas). She capped it off with a $132,000 HELOC on 11/2/2006. If she used the HELOC, this property is deeply underwater. Since it is advertized as a short sale, we can assume she at least took part of it.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 226 ORANGE BLOSSOM Irvine, CA 92618

Resale House Price …… $159,900

Beds: 1

Baths: 1

Sq. Ft.: 662

$242/SF

Property Type: Residential, Condominium

Style: One Level, Contemporary

View: Pond

Year Built: 1976

Community: Orangetree

County: Orange

MLS#: S672729

Source: SoCalMLS

On Redfin: 1 day

——————————————————————————

Nice ground floor single level property. Very clean! Large livingroom opens to patio along the stream. Great for BBQs or simple entertaining. Kitchen has breakfast counter and indoor laundry hook-ups. lots of association ammenites. Short distance to Irvine Valley College and Irvine Spectrum.

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

Proprietary IHB commentary and analysis

ammenites?

Resale Home Price …… $159,900

House Purchase Price … $72,500

House Purchase Date …. 8/29/1997

Net Gain (Loss) ………. $77,806

Percent Change ………. 107.3%

Annual Appreciation … 5.6%

Cost of Home Ownership

————————————————-

$159,900 ………. Asking Price

$5,597 ………. 3.5% Down FHA Financing

4.20% …………… Mortgage Interest Rate

$154,304 ………. 30-Year Mortgage

$52,410 ………. Income Requirement

$0,755 ………. Monthly Mortgage Payment

$139 ………. Property Tax (@1.04%)

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

$33 ………. Homeowners Insurance (@ 0.25%)

$177 ………. Private Mortgage Insurance

$250 ………. Homeowners Association Fees

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

$1,354 ………. Monthly Cash Outlays

-$68 ………. Tax Savings (% of Interest and Property Tax)

-$215 ………. Equity Hidden in Payment (Amortization)

$8 ………. Lost Income to Down Payment (net of taxes)

$40 ………. Maintenance and Replacement Reserves

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

$1,120 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$1,599 ………. Furnishing and Move In @1%

$1,599 ………. Closing Costs @1%

$1,543 ………… Interest Points @1% of Loan

$5,597 ………. Down Payment

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

$10,338 ………. Total Cash Costs

$17,100 ………… Emergency Cash Reserves

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

$27,438 ………. Total Savings Needed

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

In a desperate move to survive, Bank of America is cutting 30,000 jobs to reduce costs and has ramped up its foreclosure processing to obtain capital tied up in delinquent mortgages.

Irvine Home Address … 30 CIENEGA Irvine, CA 92618

Resale Home Price …… $423,800

You've got me desperate.

I know You hear me,

Would You give me a sign

Reel me in before I've fallen in line.

You've put me on a path I don't understand

I'm standing on a ledge waving my hands

Fireflight — Desperate

Who is more desperate, the lenders who aren't getting repaid, or the debtors trying to hang on to their houses? The stories in the mainstream media focus on the sensational stories of loan owners, but it looks like BofA is even more desperate than those who owe the bank money.

Today's post examines two apparently unrelated news events and postulates they are from the same cause: Bank of America has a cash problem. For those waiting for lenders to foreclose on homes and release inventory in California and Nevada (that would be me), this is good news. If Bank of America becomes more concerned with survival than it is with managing inventory and prices in the housing market, they may foreclose and sell larger numbers of homes to generate much needed cash. More foreclosures and sales means more inventory and lower prices.

Bank of America Confirms Plan to Cut 30,000 Positions

By NELSON D. SCHWARTZ

Published: September 12, 2011

Bank of America’s chief executive, Brian T. Moynihan, vowed on Monday to eliminate $5 billion in costs annually by 2014, including by cutting at least 30,000 jobs at the company.

In a widely anticipated speech at an investor conference in New York organized by Barclays, Mr. Moynihan outlined his plan to make Bank of America, the largest bank in the United States, more efficient and profitable — even if that meant sacrificing scale.

“We don’t have to be the biggest company out there,” he said. “We have to be the best.”

Five billion dollars a year is a huge amount to cut from payroll and operations. When those people were hired, the company must have felt a need for them. Money was invested in their training, and some valuable service must have been performed. You can't cut $5,000,000,000 in costs without sacrificing service. The only reason a company does this is because they have to, not because they want to.

While he did not specify how many jobs might be involved, the company announced shortly after his speech that 30,000 jobs were to be eliminated. The bank employs 288,000 people.

The job cuts are part of recommendations reviewed last Thursday and Friday by the company’s top management in Charlotte, N.C.

“The company expects that attrition and the elimination of appropriate unfilled roles will be a significant part of the anticipated decrease in jobs,” Bank of America said in a statement. …

Mr. Moynihan aims to cut at least $5 billion out of the bank’s $73 billion in annual expenses by shutting some of its 63 data centers, eliminating overlapping deposit systems and trimming layers of back-office staff that were accumulated during the acquisition binge undertaken by his predecessor Kenneth D. Lewis.

“It’s taking out work we don’t need to do any more, and getting it out of the company,” he said. “We’re a much simpler company than we were 24 months ago.” …

There about to be much smaller and simpler. Eliminating over 10% of a workforce is a huge cut. Perhaps the efficiencies of scale will permit them to eliminate many of the jobs for acquired companies.

During the question-and-answer part of the session, Mr. Moynihan was asked whether federal regulators had wanted the bank to raise more capital. Mr. Moynihan said they had not.

Or course he is going to say that. No official notifications may have taken place, but I wouldn't be surprised if private conversations have put BofA on notice.

A shareholder also asked about mounting losses at Countrywide Financial, the subprime lender. The losses are still plaguing Bank of America three years after it bought the company for $2.8 billion. Before the sale, Countrywide had nearly collapsed into bankruptcy when its financing dried up.

Mr. Moynihan answered that in dealing with Countrywide, the bank “looks at all our options on everything.”

When the shareholder followed up by asking Mr. Moynihan if he was saying that bankrupting Countrywide was a viable option, Mr. Moynihan again demurred. “There are options around all this stuff that we continue to work on,” he said.

Acquiring Countrywide has been a disaster for BofA. They did it primarily to obtain the servicing rights on the Countrywide portfolio. There is likely some back-room deal with the FDIC or the federal reserve to backstop at least part of the Countrywide losses, but the losses BofA must absorb are still weighing them down.

Angry investors who hold mortgage-backed securities are trying to force Bank of America and other large banks to buy back billions of dollars worth of mortgages that have defaulted. The investors argue that the home loans did not conform to the original underwriting standards or were originated with little evidence of adequate assets on the part of borrowers.

In other cases, investors including the federal government and the insurance giant A.I.G. want to recover tens of billions of dollars from the big banks for losses on securities they assembled from now-troubled subprime mortgages.

Then there is the investigation by state attorneys general into mortgage servicing abuses, which could cost the big banks more than $20 billion in a proposed settlement that so far they have been unable to complete. “The attorneys generals settlement is part of what can move us forward, but the settlement has to be reasonable for the company and reasonable for shareholders,” Mr. Moynihan said.

These lawsuits are a huge overhanging problem the banks face. If the settlement is too large, the banks will collapse. If a settlement cannot be reached, banks will die a death of a thousand attorneys. I'm all in favor or pushing banks to the edge of bankruptcy for their participation in the housing bubble, but we dare not push them over the edge unless we want financial turmoil.

Given the huge financial pressures Bank of America faces, the following headline shouldn't be a big surprise. I believe there is a direct cause and effect.

Huge Surge in Bank of America Foreclosures

Published: Tuesday, 13 Sep 2011 | 12:29 PM ET

By: Diana Olick

CNBC Real Estate Reporter

Bank of America is ramping up its foreclosure processing, sending out far more notices of default to borrowers in August than in previous months, well over 200 percent more month-to-month.

A notice of default is the first stage of the foreclosure process in non-judicial foreclosures states, that is, where foreclosures do not go before a judge.

The notice of default is usually sent when a borrower is 90 days or more overdue in payments, but that timeline has been extended significantly during this housing crisis, due to the so-called “robo-signing” processing scandal and the sheer volume of troubled loans.

Delays from Robo-signer only impacts judicial foreclosure states. Here in California, the delays have been purely due to lenders not wanting to take losses.

Mortgage and housing analyst and strategist Mark Hanson alerted me to unusually high legal default filing activity, and his research points to Bank of America as the primary driver. I contacted a Bank of America spokesman, who responded: “It appears the numbers you noted to me this afternoon generally track with our own numbers for key categories. It should be noted it’s driven more in key states like California and Nevada than overall, and certainly the progress we’re seeing is limited to non-judicial states. Judicial states continue to move very slowly, with key states like New Jersey only beginning to start processing foreclosures again this month.”

Why would BofA double their rate of foreclosure processing now? The economy is not doing well. They have no reason to believe an abundance of buyers will be ready to buy these homes. For the last three years, they have consistently accumulated shadow inventory to avoid recognizing losses. So why now? It has to be a desperate need for cash.

The foreclosure numbers are down very slightly year-over-year, but only because August 2010 was one of the highest foreclosure months on record, and of course was just before the “robo-signing” scandal was uncovered. Delays in processing have artificially lowered the foreclosure numbers over the past year, so this new surge is likely addressing loans that have been long delinquent, but unaddressed.

In other words, the foreclosure pipeline is filling again.

In other words, the foreclosure pipeline is filling again with delinquent mortgage squatters in shadow inventory.

If this assessment is accurate, we may be entering a new phase in the cleanup. I have long maintained the problems with housing will not be resolved until the shadow inventory is cleared out through foreclosure. If BofA is going to begin this process in earnest, the other banks will be forced to take notice and react.

RealtyTrac, a widely followed foreclosure sale and data site, is also confirming a surge in overall notices of default in its August numbers, to be released later this week. They do not cite Bank of America specifically, which bought Countrywide Financial, taking on millions of troubled loans.

“We've been seeing REO [bank-owned property] sales, and processing of loans through foreclosure. This increase may simply be the lenders and servicers starting the next cycle. August traditionally is a high month for foreclosure actions, so part of the increase might be seasonal,” says RealtyTrac's Rick Sharga. “Could be any number of reasons – but with 3.5 million delinquent loans, this had to happen sooner or later.“

I think many at the banks truly believed they would not have to foreclose on the delinquent mortgage squatters. Many held out hope that loan modifications would succeed, and many others hoped borrowers would make more money and make their debts current through making up the missed payments. Denial is preferable to recognizing losses — at least for a while.

The question of course is, is this a one month catch-up purge or will it continue at high levels for a while? And if the latter, will other banks follow suit quickly? Because if other banks see Bank of America pushing more loans to foreclosure, which will inevitably means more properties heading out for sale, they may want to get in before that glut of properties pushes prices down even further.

That is a great description of the collapse of the banking cartel.

“This proves once again that “credit” as measured by legal defaults and foreclosures is not necessarily about borrowers missing payments, rather about what the servicers chose to do about it,” notes Hanson.

Yes, the relationship between delinquencies and foreclosures broke down in 2008, and the two figures have been moving independently ever since. The foreclosure statistics no longer mean much because if foreclosures drop, its not because lenders have run out of people to foreclose on.

The collapse of the banking cartel?

Cartel arrangements work because each member of the cartel withholds supply from the market so the collective can enjoy higher prices. Cartel arrangements fail when the members of the cartel cheat in order to sell more inventory at higher prices.

In truth, the lending cartel is likely more of a happenstance caused by the limited write-downs banks can take each quarter. If lenders are limiting their supply because they can't afford to release any more, their behavior will have the cartel effect without a direct collusion among the members. This is most likely what is really going on.

Regardless of the reasons the cartel has been working, it has been working. Prices in many markets have not deflated due to lenders either withholding supply or failing to foreclose on delinquent mortgage squatters. If one of the biggest players in the cartel, Bank of America, has now decided they are going to dramatically ramp up their foreclosure processing, the cartel is going to collapse.

The other members of the cartel will be forced to react to BofA's actions. The last banks to liquidate will be the ones who obtain the lowest prices.

What may happen to many of the most capital-constrained banks is they will maintain their denial until the FDIC finally shuts them down. Several banks will pull back processing loans because they cannot afford the write downs yet. The longer they wait, the more painful the losses, so they will wait and wait until they are forced to act.

Regardless of what happens to the banks, increasing foreclosure processing and subsequent resale will weigh on prices. Lenders may still meter out their REO in order to prevent MLS saturation, or they risk a repeat of Las Vegas in every housing market in the country.

Foreclosure and resale is a two-step process. BofA and other banks may ramp up their foreclosures, but they may decide not to sell the REO. Perhaps they will rent some out. In all likelihood, the banks desperate for cash will sell on the MLS to get whatever they can. With so many banks being desperate for cash, the possibility of a price-crushing stampede is very real. We have already seen the results of this in Las Vegas.

2008 was a bad time to buy

Blog readers won't be shocked, but 2008 was not a good time to buy. Apparently, the owner of today's featured property was not a blog reader. He purchased on 4/3/2008 for the bargain price of $536,000. He used a $482,050 first mortgage and a $53,950 down payment. His down payment is lost, and his credit is ruined because he bought at the wrong time and paid too much.

That was an expensive three and one half years….

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 30 CIENEGA Irvine, CA 92618

Resale House Price …… $423,800

Beds: 3

Baths: 3

Sq. Ft.: 1617

$262/SF

Property Type: Residential, Condominium

Style: 3+ Levels, Mediterranean

Year Built: 2008

Community: Portola Springs

County: Orange

MLS#: S644951

Source: SoCalMLS

Status: Active

On Redfin: 230 days

——————————————————————————

Buyer cancelled -lucky you! Upgraded to the max! Like-new 3 story home in Portola Springs * Largest floorplan in tract has spacious great room w/ gorgeous dark wood floors * Large living area has fireplace & large media niche with added cabinet * Spacious dining area * Open gourmet kitchen has granite countertops & backsplash, extra-large island w/ bar seating, KitchenAid stainless steel appliances & sink, brushed nickel knobs * Lovely master bedroom w/ recessed lights, two walk-in closets & bath w/ tile countertop & large tub & separate shower w/ tile surrounds & decorative detail, double sinks * Secondary bedroom w/ French door, beautiful carpet * Bedroom & bath & laundry on first level * Features include dark wood cabinets, 2-tone paint, textured carpet, plantation shutters * 3 bedrooms, 3 baths, one on each level gives wonderful privacy & could be perfect for roommates * Enjoy association pool, tennis, bbqs, basketball * Best of all, children attend new Stonegate Elemenetary & award-winning Northwood High.

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Proprietary IHB commentary and analysis

Resale Home Price …… $423,800

House Purchase Price … $536,000

House Purchase Date …. 4/3/2008

Net Gain (Loss) ………. ($137,628)

Percent Change ………. -25.7%

Annual Appreciation … -6.7%

Cost of Home Ownership

————————————————-

$423,800 ………. Asking Price

$14,833 ………. 3.5% Down FHA Financing

4.20% …………… Mortgage Interest Rate

$408,967 ………. 30-Year Mortgage

$133,696 ………. Income Requirement

$2,000 ………. Monthly Mortgage Payment

$367 ………. Property Tax (@1.04%)

$210 ………. Special Taxes and Levies (Mello Roos)

$88 ………. Homeowners Insurance (@ 0.25%)

$470 ………. Private Mortgage Insurance

$318 ………. Homeowners Association Fees

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

$3,454 ………. Monthly Cash Outlays

-$315 ………. Tax Savings (% of Interest and Property Tax)

-$569 ………. Equity Hidden in Payment (Amortization)

$22 ………. Lost Income to Down Payment (net of taxes)

$73 ………. Maintenance and Replacement Reserves

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

$2,666 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,238 ………. Furnishing and Move In @1%

$4,238 ………. Closing Costs @1%

$4,090 ………… Interest Points @1% of Loan

$14,833 ………. Down Payment

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

$27,399 ………. Total Cash Costs

$40,800 ………… Emergency Cash Reserves

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

$68,199 ………. Total Savings Needed

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In a post-bubble world, housing markets and its participants must adjust to the new reality of prudent lending standards and less appreciation. The adjustment will be painful for many.

Irvine Home Address … 28 STREAMWOOD Irvine, CA 92620

Resale Home Price …… $145,000

Pain, I can't get enough

Pain, I like it rough

'Cause I'd rather feel pain than nothing at all

This life is filled with hurt


When happiness doesn't work

Pain — Three Days Grace

The pain from the housing bubble is a familiar topic at the IHB:

In case you haven't noticed, major economic disruptions are painful. It is mentally painful, emotionally painful, and sometimes physically painful. Mentally we all try to figure a way out of this mess. How can we make more money? What can we do about our current circumstances? We tie ourselves in knots trying to solve the enigma. It has no solution. These circumstances lead to emotional pain most often caused by the scarcity of money. We are unable to support our lifestyles, we have to cut back, and sometimes this is not enough. Sometimes the cutbacks are made for us. Creditors close financial lifelines, and lenders foreclose on homes. This can lead to destructive behaviors: divorces, alcoholism, smoking, and a whole host of other problems. This emotional pain leads to stress and physical pain. People start having health problems, and since they can't afford a doctor's visit, these problems often go unattended. In short, recessions really suck.

The pain is not over yet.

“New normal” means a lot more pain to come: Fed economist

by KERRY CURRY –Wednesday, September 7th, 2011, 5:13 pm

The United States needs to make it more attractive for capital to flow back into the housing market to get the residential real estate industry — and the economy — back on track, a Federal Reserve economist said Wednesday.

The nation is in a “new normal” marked by 2% to 3% growth rates, more frequent recessions, low interest rates and sluggish consumer spending, said William Emmons, assistant vice president and economist at the Federal Reserve Bank of St. Louis.

We may not be duplicating Japan of the 1990s, but the conditions he describes are very similar. The overhang of bad debt and mis-allocated capital will plague us until we decide to do something about it. Right now, we either lack the political will or the financial resources to do anything differently.

This new normal includes millions of foreclosures still in the pipeline. Households, he said, will continue to deleverage — both voluntarily by paying down debt and involuntarily via mortgage defaults — putting further constraints on the economy.

“My estimate is that we have in the U.S., somewhere between $3 trillion to $5 trillion too much mortgage debt,” he said. Emmons said the average household needs to deleverage by about $80,000 or about a third of its mortgage debt.

“Many millions of households have experienced great stress on their balance sheets,” he said. “There is tremendous pressure to reduce debt.” That is key in understanding why the economy is going to grow so slowly.

I am impressed with this economist. His analysis is right on. We are going to purge a great amount of debt through the foreclosure process over the next several years, and until it's done, our economy is going to suffer.

The new normal could last as long as seven to 10 years, he predicted, noting that was his own view not that of the Federal Reserve.

The fools at the federal reserve have to put a happy face on the cataclysm the banks unleashed on society. They may silence this loose cannon for being brave enough to tell the truth.

Emmons gave a decidedly pessimistic view of nation's growth prospects, saying he doesn't expect a bottom before 2015. He spoke as part of a webinar hosted by the American Legal & Financial Network, a national network of legal and residential mortgage banking professionals.

Signposts of the economic bottom will be recognizable

(1) when housing becomes a hated asset class,

(2) when homeownership is denounced by former housing advocates as a trick or a trap and

(3) significant consolidation in the housing and mortgage industries makes people feel that profitability in those industries is hopeless.

Yes. This guy truly understands the dynamics of market psychology. The conditions enumerated above are already coming to pass. The bear rally delayed the needed change in attitudes, but people are starting to realize the beliefs of 5 years ago are no longer operative.

As you can see from the chart above, when the market is in despair, prices are the lowest making for an excellent buying opportunity.

But that will be the time “to get in,” he said.

“We have to find that place where housing becomes exciting again and people want to buy houses,” Emmons said, noting that investors will be key to a “self healing” of the housing economy and pointed to “the capitalistic instinct to realize that any period of turmoil presents opportunities.”

Equity investors who view depressed housing prices as an opportunity could allow for large-scale conversion of for-sale properties into rental properties, helping to reduce the time it will take to re-balance the economy.

I know I am doing my part…

Emmons said he expected little, if anything, out of Washington with the existing cost-cutting mindset and lack of political will for grand-scale programs that would be large enough to make a difference. He also said the Federal Reserve has done what it can, saying the problem is one of solvency not liquidity.

Many people have pointed out from the beginning that the federal reserve could not solve this problem. If the problem were liquidity (availability of capital) the federal reserve can make more credit available. However, when the problem is solvency (too much debt), the federal reserve is shooting pool with a rope. You can't get people out of debt by loaning them more money.

President Obama is scheduled to address the nation on Thursday evening with a jobs speech for a beleagured nation dealing with an unemployment rate at 9.1%. On Friday, the Labor Department released a report showing zero employment growth in August. It's unclear whether Obama will address the country's housing woes in his speech.

He didn't.

But just waiting to grow out of the problem isn't feasible as it would take 20 to 30 years to grow into the mortgage debt the nation has now and the large debt overhang will continue to constrain markets, Emmons said.

I wonder if I can get this guy to go a guest post on the IHB? Everything he is stating has been sprinkled throughout my posts over the last few years. I fully agree with his assessment.

More likely, Emmons said, is a lost decade of deleveraging, much of that through mortgage defaults. While the adjustment will be more painful, the nation will hit bottom sooner and get back to normal sooner.

Deleveraging will increase disposable income and boost consumer spending. Money spent on interest is wasted to the economy. Debt is only an economic boost while it is getting larger.

With consumers on the sideline, the nation will need to figure out how to grow the economy without the help its gotten in the past from consumer spending, he said.

That means attention toward business growth and global competitiveness.

“We have to create climate for more business investment to take the place of consumer spending,” he said. In the short term, government spending will need to fill the void as the economy works to re-balance, he said.

It's difficult to get business investment when business owners don't believe there is consumer demand for their products. And, it is difficult to get more government spending in a time of huge deficits.

Back in December, Fed Chairman Ben Bernanke expressed concerns that the economy would not continue to be self-sustaining. It takes about 2.5% GDP growth to keep unemployment stable.

As growth slows below 2.5%, it may be more likely that the nation will slip into recession. Emmons suggested that may have already occurred as debt ceiling talks and the recent debt downgrade by Standard & Poor's further pummeled consumer confidence.

Ultimately, a stronger housing market will be key in getting the economy back on track. Five years ago, few would have thought the country would be in a situation with home prices down some 30%.

I did.

People seem incredulous that prices can drop further, but they can, he said.

“The scale of problems is so huge,” Emmons said. “Like a huge earthquake shook the entire nation, and knocked all the houses down.”

Write to Kerry Curry.

Follow her on Twitter @communicatorKLC.

Fantastic article. Few have the insight to see the truth in Mr. Emmons statements, and even fewer have the stomach for the truth it contains.

The low end is still searching for a bottom

The properties undesirable for owner-occupants are not being bid up to rental parity by conventional financing. In fact, they are not being bid up by FHA buyers either. The final line of support will be cashflow investors. With a $1,000 per month cost of ownership, someone will buy this before prices go too much lower.

Date	Event		Price	Appreciation
Aug 18, 2011	Price Changed		$145,000	—
Jul 18, 2011	Price Changed		$150,000	—
Jun 25, 2011	Price Changed		$160,000	—
Mar 18, 2011	Listed (Active)		$170,000	—
Oct 30, 2009	– Price Changed		*	—
Feb 01, 2007	– Delisted		—	—
May 30, 2006	– Listed		*	—
Jul 23, 2004	Sold (Public Records)		$288,000	25.7%/yr
Jun 21, 1999	Sold (Public Records)		$90,000	3.0%/yr

What looked like a teaser listing back in March is still going down. The lender would not be lowering price if a buyer were in place. How much lower will this one go?

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 28 STREAMWOOD Irvine, CA 92620

Resale House Price …… $145,000

Beds: 1

Baths: 1

Sq. Ft.: 639

$227/SF

Property Type: Residential, Condominium

Style: One Level, Other

View: Creek/Stream

Year Built: 1977

Community: Northwood

County: Orange

MLS#: S652046

Source: SoCalMLS

On Redfin: 173 days

——————————————————————————

Excellent Short Sale Opportunity!! This is a beautiful 1BR/1BA unit on the second floor. This home has laminate wood flooring through out the house and is a must see. Hurry! Wont last!

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Proprietary IHB commentary and analysis

Resale Home Price …… $145,000

House Purchase Price … $288,000

House Purchase Date …. 7/23/2004

Net Gain (Loss) ………. ($151,700)

Percent Change ………. -52.7%

Annual Appreciation … -9.4%

Cost of Home Ownership

————————————————-

$145,000 ………. Asking Price

$5,075 ………. 3.5% Down FHA Financing

4.20% …………… Mortgage Interest Rate

$139,925 ………. 30-Year Mortgage

$48,118 ………. Income Requirement

$684 ………. Monthly Mortgage Payment

$126 ………. Property Tax (@1.04%)

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

$30 ………. Homeowners Insurance (@ 0.25%)

$161 ………. Private Mortgage Insurance

$242 ………. Homeowners Association Fees

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

$1,243 ………. Monthly Cash Outlays

-$62 ………. Tax Savings (% of Interest and Property Tax)

-$195 ………. Equity Hidden in Payment (Amortization)

$8 ………. Lost Income to Down Payment (net of taxes)

$38 ………. Maintenance and Replacement Reserves

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

$1,033 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$1,450 ………. Furnishing and Move In @1%

$1,450 ………. Closing Costs @1%

$1,399 ………… Interest Points @1% of Loan

$5,075 ………. Down Payment

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

$9,374 ………. Total Cash Costs

$15,800 ………… Emergency Cash Reserves

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

$25,174 ………. Total Savings Needed

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