Loan owners who shed their debts are being targeted by marketers who recognize this group now has greater disposable income, and they remain committed to repaying consumer debt.

Irvine Home Address … 10 LEDA Irvine, CA 92604

Resale Home Price …… $449,900

My sister got lucky, married a yuppie

Took him for all he was worth

Now she's a swinger dating a singer

I can't decide which is worse

But not me baby, I've got you to save me

Oh yer so bad, best thing I ever had

In a world gone mad, yer so bad

Tom Petty and the Heartbreakers — Yer So Bad

Lenders want to portray strategic defaulters as unreliable deadbeats and frighten by claiming they will never get another loan. The truth is that strategic defaulters are tomorrow's new business. In the short term, these former borrowers will have more disposable income as their debt service payments are eliminated. In the long term, this group will be targets for lenders looking to grow their businesses again. The cycle will repeat.

I have long maintained the economy will not recover until the excess debt of the housing bubble is purged. I noted in Foreclosures are essential to the economic recovery:

As long as the debt on real estate is excessive and capital is tied up in non-performing assets, the economy will suffer. It's really that simple. The solution is equally simple: foreclose on delinquent borrowers wiping out the debt and extract the remaining capital value. With the excess debt removed, borrowers can use their wage income to buy goods and services rather than giving it to the bank. When the mis-allocated capital is returned to the market, new investment will be spurred in areas where capital is most needed. Right now, we don't need more real estate.

Lower debt service obligations create more disposable income. During the housing bubble, debt expansion created disposable income, but with that stimulus gone for the foreseeable future, people are going to have to buy goods and services with their wage income — the way it's supposed to be.

Strategic Defaulters: Your Strange and Growing New Market Segment

High-Income Earners Move From Owning to Renting. This Can't Be Good

[Why? Why is owning superior to renting? The HELOC booty?]

By: Matt Carmichael — Published: June 27, 2011

When Tracy Bremmer, director of decision sciences at Experian, talks about mortgage defaults, she has more than reams of data behind her. She has personal experience. She tell a story, embellished slightly but still representative, of a “neighbor” who bought their house near the height of the boom only to see it lose 40% of its value, plunging their mortgage so far underwater it would take years to surface. Then they noticed the house across the street from them for sale for roughly half of what they paid for theirs. So they bought it, and just stopped paying their original mortgage.

Yes, that story is fictitious. Buy-and-bail was common during the 90s, but lenders cracked down on the practice early in this bust by requiring the borrower to qualify to make payments on both properties. There has been very little buy-and-bail this time around.

This family is semi-fictitious but is not alone. Ethics, morality and possible straight-up savvy aside, we started thinking about these “strategic defaulters” as a newly trending consumer segment, as they tend to become a strange new class of renters:

Data being released later today from Experian will show that in the first half of 2010, an estimated 275,000 people just walked away from mortgages they could afford to keep paying because they had become such awful investments. That adds up to roughly 17% of defaulters. While that figure is down 35% from the first half of 2009, as evidence of a double-dip housing crash mounts, “we expect the incidence of strategic defaulting to go up,” said Ms. Bremmer.

The double-dip will almost certainly bring about more strategic default. Many people who will strategically default over the next few years delayed their defaults in 2009 and 2010 due to the bear rally. This group believed house prices were coming back, and their denial gave them false hope of future equity. As they realize their shortest path to home equity is through strategic default, many will opt to quit paying their mortgages.

Estimates of the number of mortgages under water in the U.S. hover just over 1 in 4 but that could jump to half in the coming years. Recent data from Corelogic suggests that almost 10% of mortgages originated just last year are already in the negative equity range. The Federal Reserve shows average homeowner equity at just 38% down from 61% a decade ago. We could go on, but you get the idea. A lot of home owners are hosed.

But back to those strategic defaulters. These are no deadbeats in a traditional sense. The Experian data show that they are more likely to have had a jumbo-sized mortgage, have had excellent credit scores, have had more than one house or investment property, and have a higher than average household income. They also stay current on all their other bills. If you look at the incidence in these charts, the proportion of strategic defaulters keeps going up.

Not just are these renting-former-owners a good target market for traditional marketers looking to sell product, lenders will also come to see them as a good target for new credit. Creditors want borrowers who pay their bills. By and large, this group will. They defaulted on their mortgages because lenders gave them bad mortgages and in the process inflated the bubble which burst and put these strategic defaulters so far underwater that default was their best option. For as much as lenders would like to punish this group, they won't. They are a source of profitable new business.

They should be owning and spending like home owners. But they're not, and for up to the next seven years they might have a hard time finding a mortgage while their credit recovers. “As many strategic defaulters as there are,” said Ms. Bremmer, “there are many more people who are short-selling. Those people are renting, too.”

The short-sellers are not necessarily in as strong a financial position as the strategic defaulters, but they're still joining this new own-to-rent class.

During the foreclosure process, which can take 6 to 18 months, they will live in their house essentially for free. So they'll save for a new down payment, eventually get kicked out and rent, and fundamentally behave differently than their demographic rightly should. The list of product categories impacted by this is lengthy.

Realistically, very few will save the money for a new down payment. Most will blow it and become accustomed to an unsustainable lifestyle without a housing payment. Those that do manage to save the money will be the rare success stories. And they will also become targets for lenders trying to recoup the lost mortgage debt.

How big of a deal is this for marketers?

Each year roughly 5% of homeowners move. That number has been down the past few years and is now closer to 4%. As the housing crisis drags on, more people are going to want to move for traditional “non-market” reasons such as new jobs, better schools, kids, divorce etc. They might have been stuck in their under-water house but eventually that pressure will build, and if they aren't able to sell or even short-sell, this will seem like a more and more attractive (or perhaps only) alternative.

Many people will strategically default because they feel they must move regardless of the mortgage debt on their home. At first they will try to reason with the bank and attempt a short sale, but when those fail, they will walk.

Experian's report is aimed at helping banks identify the strategic defaulters so they can head some of this off and either press them harder to make the payments they can afford or at least start the foreclosure process more quickly on those who have no interest in ever making another payment.

In the meantime, we think it's a fascinating new segment and we're going to keep an eye on this and the marketing implications of a potential shift in our fundamental notion of what it means to be a homeowner.

Our fundamental notions of what it means to be a homeowner changed once people began to regard their homes and investments and piggy banks. Rather than being a stable foundation for family security, a house became a commodity to be bought and sold, and an ATM machine to be tapped when money is needed. This perversion of home ownership will take years to correct. The only antidote to this kool aid is a long and painful decline in house prices where the perceived investment value falls to near zero.

$232 SF in Irvine

By Irvine standards, I consider this house a relative bargain. The cost of ownership at $2,517 for an FHA buyer is near rental parity. For a conventional buyer, this property is well below rental parity.

Communities like El Camino Real with no Mello Roos and low or no HOAs are the best values in Irvine. This property has a relatively high HOA for El Camino Real as it is located in the condo development between the shopping center on Culver and the high school. Foreclosures in this development are common, and low prices abound.

With 4.31% interest rates, the low cost of ownership near rental parity will find buyer interest. Prices here may still go lower, but buyers looking to save money versus renting will help put in the bottom.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 10 LEDA Irvine, CA 92604

Resale House Price …… $449,900

Beds: 3

Baths: 2

Sq. Ft.: 1943

$232/SF

Property Type: Residential, Single Family

Style: Two Level, Traditional

Year Built: 1977

Community: El Camino Real

County: Orange

MLS#: S668162

Source: SoCalMLS

Status: Active

On Redfin: 8 days

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* * * * The Most Popular, Spacious Family Home With Huge Family Room and Great Value For The SQ/Footage In Irvine. 3 Bedrooms & 2.5 Bathrooms, Catheral Ceilings, Wood Flooring Thru-out Downstairs, New Carpet, Fresh Paint. Large Living Rm with Fireplace, Formal Dining Rm, Kitchen with New Appliances. New Blinds and Ceiling Fans Tru-out, 2 Fireplaces NEWER ROOF, Large enclosed Backyard Facing the Greenbelt. 2 Car Attached Garage With Work Bench and Ample Storage Cabinets. * * * * Walk to 2Pool, 2Spa, 2Tennis Courts, School, Park, Library and Shopping * * * *

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Proprietary IHB commentary and analysis

Catheral Ceilings?

Resale Home Price …… $449,900

House Purchase Price … $135,000

House Purchase Date …. 12/29/1993

Net Gain (Loss) ………. $287,906

Percent Change ………. 213.3%

Annual Appreciation … 6.9%

Cost of Home Ownership

————————————————-

$449,900 ………. Asking Price

$15,747 ………. 3.5% Down FHA Financing

4.31% …………… Mortgage Interest Rate

$434,154 ………. 30-Year Mortgage

$129,638 ………. Income Requirement

$2,151 ………. Monthly Mortgage Payment

$390 ………. Property Tax (@1.04%)

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

$94 ………. Homeowners Insurance (@ 0.25%)

$499 ………. Private Mortgage Insurance

$215 ………. Homeowners Association Fees

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

$3,349 ………. Monthly Cash Outlays

-$341 ………. Tax Savings (% of Interest and Property Tax)

-$592 ………. Equity Hidden in Payment (Amortization)

$25 ………. Lost Income to Down Payment (net of taxes)

$76 ………. Maintenance and Replacement Reserves

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

$2,517 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,499 ………. Furnishing and Move In @1%

$4,499 ………. Closing Costs @1%

$4,342 ………… Interest Points @1% of Loan

$15,747 ………. Down Payment

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

$29,086 ………. Total Cash Costs

$38,500 ………… Emergency Cash Reserves

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

$67,586 ………. Total Savings Needed

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

Despite the downgrade of US government debt from AAA to AA+, US mortgage interest rates hit record lows. Is this the bottom of mortgage interest rates?

Irvine Home Address … 5 CROSSKEY Irvine, CA 92620

Resale Home Price …… $515,000

Our soul stew is the baddest in the land

But one dollar's worth was all that I could stand

But sometimes, sometimes bad is bad

Cool is a rule, but, sometimes, bad is bad.

The witches brew of toxic mortgages brought down the US economy, and now the copious amounts of debt the US government took on to help prop up the housing market and the economy is starting to have its own ill effects.

S&P Downgrades U.S. to AA+: So What?

Peter Cohan — Aug. 6 2011 – 9:21 am

Late Friday evening, S&P downgraded the U.S.’s long-term debt rating to AA+ with a negative outlook. If that downgrade has no economic impact, it will fade from the headlines. And that is the most likely scenario.

I agree with this author. Investors are obviously not sharing S&Ps concern over the United States's ability to meet its debt obligations. Worldwide investors are looking at their alternatives and deciding that the United States is as stable as it gets.

The downgrade should come as no surprise. On July 25, The Daily Beast quoted me as saying that a downgrade was “inevitable.” And since I am not on Wall Street, I am confident that I was among the last to come to that conclusion.

After all, S&P was telegraphing that it would downgrade the U.S. for weeks when it said it would do so unless it saw a plan to cut the deficit by $4 trillion. Late last month it became quite clear that there would be no plan that big. So investors’ only uncertainty regarding S&P was whether it would follow through on its threat — and it did so, albeit a week later than anticipated.

How much of this was the people in charge at the S&P trying to influence US politics? Investors obviously don't think S&P has much credibility, and after their less than stellar ratings on mortgage CDOs, who could blame them?

Behind S&P’s downgrade is an economic model of the U.S.’s fiscal state over the next decade. That S&P model uses a Congressional Budget Office projection of $2.1 trillion in budget reductions over 10 years from the recently passed debt ceiling deal to forecast a rise in the U.S.’s net general government debt-to-GDP ratio.

The U.S.’s ratio is forecast to rise above those of governments that are retaining their AAA rating. Specifically, S&P forecasts that the U.S.’s debt-to-GDP ratio will increase steadily from 74% (2011) to 79% in 2015 and 85% by 2021.

Interestingly, AAA-rated governments — including Canada, France, Germany, and the U.K. — do better than the U.S. in some cases and worse in others. For example, Canada is the world’s healthiest AAA-rated government with debt-to-GDP of 34% in 2011 and 30% in 2015. But the U.K. is worse off than the U.S. in 2011 (80%) and France, with 83% is worse off in 2015.

The difference in S&P’s view between the U.S. and the U.K. and France is that it forecasts that our debt-to-GDP ratio will keep going up by 2021 whereas their ratios will start to go down by 2021.

The S&P is not considering the effect a resurgent US economy would have on its tax revenues. Further, it also doesn't reflect the likelihood of further budget battles to close the deficit when the economy does improve. Most economists agree that austerity during a time of financial recession generally makes the problem worse. It may be necessary, but it is economically harmful.

Wall Street operates on the gap between expectations and reality. And S&P’s decision should come as no surprise. The only question is whether any institutions will be required by their charters to sell U.S. treasury securities now that S&P no longer rates them AAA.

Some public pension funds and mutual funds may be required to sell U.S. treasuries. My guess is that will amount to sales of 3% of their combined U.S. treasury holdings — assuming that those funds did not sell them in anticipation of S&P’s move.

This is the main impact a downgrade might have. Many funds have limited discretion when dealing with their holdings. They must hold only highly rated securities, and if a security is downgraded, they must sell it.

For most investors, an S&P rating is not the critical factor in their investment decisions.

Meanwhile, assuming S&P’s move had been anticipated by the markets, one would expect to see higher interest rates in the U.S. and lower interest rates in the AAA-rated countries. That’s because prudent investors would be dumping U.S. securities and buying securities in AAA-rated Canada, France, Germany, and the U.K.

If the S&P carried weight with investors, this is exactly what would occur.

As it turns out, that is not quite what happened. Instead, rates tumbled in the U.S. and in all the other countries and the U.S. ended last week with the third-lowest 10 year bond yield of its peers — just slightly higher than those of the world’s healthiest AAA-rated country, Canada.

Here are the sizes in trillions of dollars of the five countries’ marketable treasury securities markets along with changes to their 10-year treasury yields between July 1 and August 5:

• U.S. ($9.3 T) from 3.15% to 2.56%
• Canada ($0.6 T) from 3.08% to 2.50%
• France ($1.9 T) from 3.38% to 3.01%
• Germany ($1.6 T) from 3.01% to 2.34%
• U.K. ($1.8 T) from 3.33% to 2.78%

Not surprisingly, big investors who set these rates are coming to a different conclusion than S&P. The U.S. treasury market is over four times bigger than Germany’s. And for investors like China — that own $1.1 trillion in U.S. treasuries – that superior size offers a comforting level of liquidity.

For all the joy that some take in S&P’s decision to downgrade the U.S., global investors passed their verdict on the U.S. before S&P’s late night press release — by lending the U.S. money for 10 years at a 19% lower rate than they did a month ago.

It remains to be seen whether all the weekend huffing and puffing will change that.

Further evidence of the flight to quality embracing the US is in its mortgage interest rates. Since nearly all US mortgage finance is directly backed by the full faith and credit of the US government, GSE asset-backed securities are a proxy for US Treasuries. Most would speculate that if the US starts having credit problems, mortgage interest rates would invariably move higher.

It isn't working out that way.

Mortgage Rates Hit Record Lows Amid Signs of Weakening Economy

Aug. 4, 2011 /PRNewswire/ — Freddie Mac

MCLEAN, Va., Aug. 4, 2011 /PRNewswire/ — Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS^®), showing mortgage rates dropping sharply amid falling bond yields and signs of a weaker than expected economy. The 30-year fixed averaged 4.39 percent, its lowest level for 2011. The 15-year fixed and 5-year ARM set new historical record lows averaging 3.54 percent and 3.18 percent, respectively.

News Facts

• 30-year fixed-rate mortgage (FRM) averaged 4.39 percent with an average 0.8 point for the week ending August 4, 2011, down from last week when it averaged 4.55 percent. Last year at this time, the 30-year FRM averaged 4.49 percent.

• 15-year FRM this week averaged 3.54 percent with an average 0.7 point, down from last week when it also averaged 3.66 percent. A year ago at this time, the 15-year FRM averaged 3.95 percent.

• 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.18 percent this week, with an average 0.6 point, down from last week when it averaged 3.25 percent. A year ago, the 5-year ARM averaged 3.63 percent.

• 1-year Treasury-indexed ARM averaged 3.02 percent this week with an average 0.5 point, up from last week when it averaged 2.95 percent. At this time last year, the 1-year ARM averaged 3.55 percent.

Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage. Visit the following links for Regional and National Mortgage Rate Details and Definitions.

The stock market is tanking right now because investors believe the semi-austerity in the budget agreement will hurt economic output. Bond prices are moving higher (and yields are moving lower) because money is fleeing the stock market and seeking the safety of government-backed mortgage securities.

The downgrade of the US government should be having the opposite effect on bond markets. Instead, investors are more afraid of a weakening economy than they are of the US defaulting on it obligations.

Quotes

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

• “Treasury bond yields fell markedly after signs the economy was weaker than what markets had previously thought allowing fixed mortgage rates to follow this week with the 15-year fixed and 5-year ARM setting new historical lows. The economy grew 1.3 percent in the second quarter, which was below the market consensus forecast, and first quarter growth was cut to less than a quarter of what was originally reported. In fact, the first half of this year was the worst six-month period since the economic recovery began in June 2009. Moreover, consumer spending fell 0.2 percent in June, representing the first decline since September 2009.

If the economy is hurting, the housing market will remain in the doldrums. The only thing that is going to save the housing market is more demand from people going back to work and qualifying for mortgages.

• “On a positive note, there were indications that the housing market is firming. Real residential fixed investments added growth to the economy in the second quarter after subtracting from growth over the first three months of the year. The CoreLogic® National House Price Index rose for the third straight month in June (not seasonally adjusted) and was the first three-month gain since June 2010. Finally, pending existing home sales rose for a second consecutive month in June and was up nearly 20 percent from June 2010 when the housing tax credits expired.”

If strength in the housing market is being touted as the good news, we are in serious economic trouble. The good news in the housing market is an illusion. Without continued strong job growth, the housing market is going nowhere.

What does this mean for today's home buyers?

Anyone who was going to buy, lower interest rates are great news. The abundance of bank inventory in many markets is making for a buyer's market. Sellers are competing with each other, and asking prices are generally falling. Lower interest rates in a buyer's market makes for better deals for buyers. Anyone considering a property with a cost of ownership lower than rent should take advantage of the low rates and take on fixed-rate debt while the rates are still this low. When rates go up, and they will eventually move higher, resale prices will likely come down further, but for those with a long ownership horizon, locking in a low cost of ownership is a nice benefit.

A note on FHA financing costs

Since FHA is facing mounting losses, the cost of FHA insurance has been going up and up. It currently stands at 1.15% of the purchase price. The cost of FHA insurance is so high that it pushes effective interest rates up over 6%. When interest rates get very low like they are now, conventional buyers obtain a huge cost advantage over FHA buyers.

For instance, today's featured property would have an FHA insurance cost of $572 per month. That cost comes directly out of the buyers ability to finance a payment. Magnified by 4.31% interest rates, and the additional $572 creates a significant reduction in buying power. Looked at another way, to finance today's featured property, an FHA borrower would need to make $144,286. A conventional buyer needs only a $105,868 income.

The bottom line is that many properties in Irvine now trade at or below rental parity, but only for conventional borrowers putting 20% down. Those borrowers have the lowest opportunity cost (they are pulling money out of CDs paying less than 2%) and they have the lowest borrowing costs because they avoid private mortgage insurance.

Irvine has traditionally been a move-up market with relatively little FHA financing. The cost differential will make that phenomenon continue unless prices come down significantly. The question is, “How many conventional buyers are still out there?” The low sales volumes attest to the lack of conventional buyers. If distressed inventories remain low — which is doubtful — then prices may hold where they are. However, with the low demand, prices may need to fall to where FHA buyers can afford to help clean up the mess.

No Red Tape Mortgage

The former owners of today's featured property paid $450,000 on 1/15/2003 using a $360,000 first mortgage and a $90,000 down payment. On 11/26/2003 they refinanced with a $460,000 first mortgage from New Century and withdrew their down payment plus $10,000 of spending money.

On 9/1/2006 the now defunct No Red Tape Mortgage company gave them a $637,500 first mortgage. I think No Red Tape Mortgage was well named. It epitomized the complete lack of mortgage qualification standards rampant during the housing bubble. No red tape means no documentation and no qualification standards. Just ask you you shall receive.

The former owners received $277,500 in mortgage equity withdrawal before they quit paying.

Foreclosure Record

Recording Date: 04/06/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/04/2010

Document Type: Notice of Default

Domestic Cash Buyer

The property was sold to an all-cash buyer who lives in Irvine, probably as an investment. With limited opportunity for appreciation and an extremely poor cap rate, it isn't an investment I would chose.

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

This property is not available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 5 CROSSKEY Irvine, CA 92620

Resale House Price …… $515,000

Beds: 4

Baths: 2

Sq. Ft.: 1918

$269/SF

Property Type: Residential, Single Family

Style: One Level, Ground Level, Ranch

Year Built: 1977

Community: Northwood

County: Orange

MLS#: K11068939

Source: CRMLS

Status: Closed

——————————————————————————

CASH OFFERS ONLY AT THIS TIME. A great fixer for you investors. Nice property in Northwood area. Needs work but ready for the right buyer that wants to make this place their own. 3 bedrooms, 2 bath, 2 car garage with direct access to home. High ceilings. Property has great potential. This is not a short sale.

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

Proprietary IHB commentary and analysis

The previous owners who pulled over $250K out of the property obviously didn't put any back into it. Their seven years of ownership left it as a fixer.

Resale Home Price …… $515,000

House Purchase Price … $450,000

House Purchase Date …. 1/15/2003

Net Gain (Loss) ………. $34,100

Percent Change ………. 7.6%

Annual Appreciation … 1.5%

Cost of Home Ownership

————————————————-

$515,000 ………. Asking Price

$18,025 ………. 3.5% Down FHA Financing

4.31% …………… Mortgage Interest Rate

$496,975 ………. 30-Year Mortgage

$144,288 ………. Income Requirement

$2,462 ………. Monthly Mortgage Payment

$446 ………. Property Tax (@1.04%)

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

$107 ………. Homeowners Insurance (@ 0.25%)

$572 ………. Private Mortgage Insurance

$140 ………. Homeowners Association Fees

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

$3,727 ………. Monthly Cash Outlays

-$558 ………. Tax Savings (% of Interest and Property Tax)

-$677 ………. Equity Hidden in Payment (Amortization)

$28 ………. Lost Income to Down Payment (net of taxes)

$84 ………. Maintenance and Replacement Reserves

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

$2,605 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,150 ………. Furnishing and Move In @1%

$5,150 ………. Closing Costs @1%

$4,970 ………… Interest Points @1% of Loan

$18,025 ………. Down Payment

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

$33,295 ………. Total Cash Costs

$39,900 ………… Emergency Cash Reserves

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

$73,195 ………. Total Savings Needed

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

Today we have a loan owner's sobering tale of recovering from kool aid intoxication. The hangover is not pleasant.

Irvine Home Address … 46 OAKDALE Irvine, CA 92604

Resale Home Price …… $675,000

Somewhere, somehow, somebody must have kicked you around some

Tell me why you want to lay there, revel in your abandon

Honey, it don't make no difference to me baby

Everybody's had to fight to be free, you see

You don't have to live like a refugee

(Don't have to live like a refugee)

No baby you don't have to live like a refugee

(Dont have to live like a refugee)

Tom Petty and the Heartbreakers — Refugee

Foreclosure sob stories always seem to lack a few pertinent details explaining exactly how the unfortunate circumstances came to pass. Today's featured article is written by a renting former owner who works at the newspaper. She tries to portray herself as a victim, but in reality, she is only a victim of her own poor decisions.

No refuge from the mortgage crisis

A homeowner tries to work with bankers to hold on to her modest but beloved house, but her pleas mean little to the number crunchers.

By Kathy Gosnell Seiler — July 24, 2011

From the front door of the house to the back is a straight shot unbroken by walls, handy for pacing, 24 steps each way.

It is a small house on a small lot in Highland Park, a Los Angeles neighborhood that was on its way up until the recession. The house has not always been well tended: It's old and a bit shabby, but it stands pretty much foursquare.

I bought it in 2005 for $503,000, most of it borrowed,

When she pleaded with the number crunchers back in 2005, she was thrilled when they approved her loan. Now that they want her to make the payments and won't alter the terms to her favor, she considers them heartless. If she borrowed most of the money, the only thing she really invested in the house was her own emotions.

and lived there six years, longer than I'd lived anywhere since childhood. The house was meant to be my refuge, a place where I could plant perennials and know I'd see them flower year after year, an investment for my daughter and me after many years of renting.

The sellers had trashed the house before leaving for Colorado, and perhaps I should have walked away when I discovered the devastation. Instead, friends helped me clear away rotten food and broken furniture and repair gouged walls. I rescued a dog. I made improvements: bolting and bracing the foundation, removing one tree and planting others, installing a security system and attic insulation.

To help pay for the work, I refinanced in 2007 at $511,000 with a five-year fixed-interest first lien and a variable-rate equity loan.

She tried to emphasize her “investment” of sweat equity, but she went to the housing ATM to do the real heavy lifting.

With the real estate market continuing to rise, a Wells Fargo Bank loan officer assured me, it would be easy to refinance to a fixed-rate loan before my rate went up in 2012.

She's claiming her Wells Fargo representative assured her she could serial refinance? Doesn't anyone recognize serial refinancing as a Ponzi scheme? Did she not realize the assurances she was receiving mean nothing and that she was taking on a huge risk? She was buying a house she couldn't afford, but she thought everything would be okay. Foolish.

With little money for extras after fixing the foundation, I scaled back to projects I could do myself: painting and planting. I tore out the frontyard grass and filled the garden with roses, irises, bougainvillea, jasmine, trumpet vines, gardenias, callas and cannas, hibiscus. Springs were glorious.

If she were to keep making her payments, she could continue to enjoy her glorious springs. Since she was relying on Ponzi borrowing, she is going to lose her home. She and everyone else who relied on serial refinancing should lose their homes so they and others can learn the foolishness of that form of financial planning.

By mid-2008, some neighbors on my short hillside street had started defaulting on their loans. One eventually negotiated a short sale; two others went into foreclosure. Worried, I called Wells Fargo in March 2009 to see about refinancing in advance of my adjustable-rate mortgage payments rising significantly. The house was already underwater, the banker told me. My equity was gone, so there was no way I could refinance. He suggested that I wait it out and hope things improved before the rate rise in 2012.

How many other debt zombies are waiting and hoping for future events not to be?

By October 2009, it was clear that the real estate market was only getting worse. I sent Wells Fargo my first application for a mortgage modification, beginning a months-long slog through dead-end phone calls, faxes, lost documents and conflicting information from the bank.

Over a period of five months, Wells Fargo denied three mortgage modification applications.

Loan modifications are not an entitlement, banks don’t want to make them one. She was likely denied because she could afford her payments and didn't deserve the break.

The last denial was based on a bank error suggesting that I had a spending deficit of more than $1,600 a month, despite my having exemplary credit. When I wrote a detailed explanation, the banker with whom I next spoke said, unapologetically, “We read numbers, not words.”

Why should a bank care about her circumstances? The numbers say she could afford the payment, so she is obligated to make them if she wants to keep her home. She isn't the only person in America with a sob story, and quite honestly, hers isn't that compelling.

In November 2009, the Los Angeles County assessor's office informed me that the assessed valuation of my home had dropped $129,060 since the 2006-07 tax year. As I grew more anxious about money, my health declined. Problems that had been in abeyance for more than 20 years returned, and my medical bills began to climb as a result.

She should let go of her attachments which are causing her grief. Further she should probably strategically default on her loan because either the payments will wipe her out, or the stress will. If we can expect reduced housing costs due to stress, I want my landlord to give me a break as well.

In January 2010, one of the telephone bankers at Wells Fargo suggested a short sale. It felt like a gut blow. Sell my home? My refuge? My garden full of flowers and fruit trees?

Her reaction only underscores her need to let go of her attachments.

In February, Zillow.com said the house on which I owed $511,000 was worth $381,500. A comparable house a block away sold for $260,000. I clearly needed a bailout.

WTF? She clearly needed to bail on her mortgage and get out of her house. Perhaps she felt she needed a bailout, but who is supposed to pay for that? The bank? Me as a taxpayer? Screw her.

I made my last desperate bid for help from the bank, offering to pay the full mortgage at a lower interest rate if only I could keep my home. I also wrote to regulatory agencies and to my elected federal, state and local politicians to ask for ideas. Some responded; most didn't; none could offer an idea I hadn't tried.

I have an idea: strategically default on the mortgage and walk away from the house. Once it's over, she will be able to grieve the loss and get on with her life.

In April, I consulted a credit counselor; he said that I was doing all the right things and that my credit score was “fabulous.” His only suggestion was the one I'd already rejected: Consider a short sale.

In May, a senior vice president at Wells Fargo Home Mortgage suggested a short sale.

On June 1, 2010, I acknowledged defeat. I declined to make my mortgage payment and two weeks later hired a short-sale expert and listed the house.

She declined to make her mortgage payment? She means to say that she strategically defaulted. Have you ever noticed that people come up with unusual evasions when confronted with their own guilt? Bill Clinton said, “I did not have sexual relations with that woman.” Sexual relations? This woman's evasion is just as odd. Why doesn't she just admit she told the bank to take their loan and shove it?

That decision brought no relief. Instead, I endured months of daily dunning phone calls from Wells Fargo, which then rejected an offer from a buyer. The bank set a date for a foreclosure sale, then postponed it. Finally, in April, it agreed to an offer of $325,000 for the house. The sale closed less than 48 hours before the bank's scheduled foreclosure sale.

By that time I'd moved. My rental house is three times as far from work as the old one and about half its size.

If her rental is further from work and smaller than her old house, she must have drastically reduced her housing cost because the house she owned would have cost twice as much as a comparable rental. She is attempting to make is sound like she took a big step down in lifestyle, but I call bullshit on that notion.

The new neighborhood is quieter and less friendly, but the air is cleaner. Gardening, once a joy, is a chore I'd rather skip.

I noticed the same thing when I sold my house. The housing bubble and crash is causing great psychological harm. I get no joy out of maintaining plants in a rental. It's hard to feel rooted in a rental, and tending a garden is all about being rooted to your surroundings.

Once in a while I return to Highland Park, but I cannot drive past my house. I fear the changes I might see.

A couple of months before moving, I applied for a small credit union loan, just to see if I could get one. I could not. My credit, once exemplary, is shot. My lack of financial security is disconcerting, and I expect it will dog me for years.

No. It won't. Strategic default consequences minor and likely to decrease. She is succumbing to the lies perpetrated by the lending industry to deter strategic default. It just isn't true.

I can't find a life's lesson here;

Open your eyes: you were irresponsible with the debt you took on. Perhaps this will help:

Further, it is not wise to form such strong attachments to anything in life.

no insight into why this has happened to so many people.

This happened because many people stopped making their loan payments. Duh. Many were just as foolish as this author.

The banks could help us, but they don't.

I will recover, but it's unlikely I will ever own another house.

Kathy Gosnell Seiler is a copy editor at The Times.

If she saves some money, Fannie Mae will let her buy another one in two years.

Are there really no lessons to be learned here? Is this woman so vacuous that she does not see the mistakes she made? If she isn't bright enough to figure it out, I don't hold out much hope for the rest of the clueless masses.

My HELOC is bigger than yours

The owners of today's featured property paid $675,000 on 7/29/2003. They used a $463,920 first mortgage, a $57,990 second mortgage, a $57,990 HELOC, and a $0 down payment. It is possible they put 10% down and didn't use the HELOC, and it is possible they didn't use the $196,700 HELOC they got on 12/2/2004 and the $322,000 HELOC they got on 4/12/2007, but they obviously used some if it, or this wouldn't be a short sale.

If they maxed out their HELOCs, they obtained $264,010 in mortgage equity withdrawal. How much HELOC booty do you think they escaped with?

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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 … 46 OAKDALE Irvine, CA 92604

Resale House Price …… $675,000

Beds: 4

Baths: 2

Sq. Ft.: 2260

$299/SF

Property Type: Residential, Single Family

Style: Two Level, Contemporary

Year Built: 1977

Community: Woodbridge

County: Orange

MLS#: S665753

Source: SoCalMLS

Status: Active

On Redfin: 19 days

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This is a Great house! It is a fixer but it has good floor plan and is in a great location! This is one to see! Worth the short sale wait.

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Proprietary IHB commentary and analysis

If this house is a fixer, that rules out home improvement as the recipient of their HELOC spending.

Resale Home Price …… $675,000

House Purchase Price … $579,000

House Purchase Date …. 7/23/2003

Net Gain (Loss) ………. $55,500

Percent Change ………. 9.6%

Annual Appreciation … 1.9%

Cost of Home Ownership

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$675,000 ………. Asking Price

$135,000 ………. 20% Down Conventional

4.53% …………… Mortgage Interest Rate

$540,000 ………. 30-Year Mortgage

$137,549 ………. Income Requirement

$2,746 ………. Monthly Mortgage Payment

$585 ………. Property Tax (@1.04%)

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

$141 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$82 ………. Homeowners Association Fees

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

$3,553 ………. Monthly Cash Outlays

-$656 ………. Tax Savings (% of Interest and Property Tax)

-$707 ………. Equity Hidden in Payment (Amortization)

$227 ………. Lost Income to Down Payment (net of taxes)

$104 ………. Maintenance and Replacement Reserves

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

$2,522 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$6,750 ………. Furnishing and Move In @1%

$6,750 ………. Closing Costs @1%

$5,400 ………… Interest Points @1% of Loan

$135,000 ………. Down Payment

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$153,900 ………. Total Cash Costs

$38,600 ………… Emergency Cash Reserves

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

$192,500 ………. Total Savings Needed

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