David A. Benson, a citizen of Sacramento, California, has proposed an amendment to the California Constitution that would outlaw foreclosures. The proposal has been cleared by the Secretary of State.

Irvine Home Address … 2372 SCHOLARSHIP Irvine, CA 92612

Resale Home Price …… $300,000

I tear my brain out endlessly,

searching for something that will never be.

No rest, never to expect something of this world,

'cause this world owes me nothing.

Submission.

What you deserve is what you will get in the end

No handouts.

Vision of Disorder — Adelaide

The culture of housing entitlement in California has reached its ultimate extreme. People have come to believe they are entitled to free money from free housing and that everyone else should pay for it. The beliefs that spawn mental manure like this proposal warrant closer examination. The cultural pathology infecting California homeowners is truly remarkable. An exorcism is badly needed — and the market itself is working to banish those demons — perhaps proposals such as this are the demon's last gasp before the kool aid drains from its veins.

This is no joke, someone has actually proposed the outlaw of foreclosures, mandated principal forgiveness, and other borrower perks and cloaked it as the birthright of all Californians. Let's carefully examine what this amendment says, and what would happen if it became law.

Foreclosure Modification Act

To the Honorable Kamala D. Harris Attorney General of the State of California

California Homeowners and I, the undersigned David A. Benson, a citizen of the State of California and located at PO Box 292452 Sacramento, CA 95829

916-247-4743

Temporary Numbers Fax 916-685-0385

e-mail: protect.our.home.now@gmail.com

Do hereby request a Title and Summary for the attached proposed initiative constitutional amendment.

JUN 07, 2011

INITIATIVE COORDINATOR ATTORNEY GENERAL'S OFFICE

This initiative measure is submitted to the people in accordance with the provisions of Section 8 of Article II of the California Constitution.

This initiative measure expressly amends the California Constitution by amending a article and by adding sections thereto of the Article 1 dealing with Declaration Of Rights.

PROPOSED AMENDMENT

FORECLOSURE MODIFICATION ACT

SECTION 1. Title

This act shall be known as the “Foreclosure Modification Act”.

SECTION 2. Findings and Declarations

The People of the State of California hereby find and declare that:

(a) Real estate lending institutions have failed to provide a simple method of loan modification and foreclosure prevention.

Loan modifications are not an entitlement and banks don’t want to make them one. Loan modifications should not become an entitlement, and foreclosures should not be prevented. Foreclosures are essential to the economic recovery. Just because someone declares something to be a problem doesn't mean that it really is.

(b) That lending institutions, loan servicers, mortgagees, trustees and beneficiaries of home loans are not taking into account the devalue that has occurred in property values and adjusted loans accordingly in loan modifications.

Lenders should not care about the value of the borrower's collateral except to the degree their collateral is protected. If lenders were forced to write down principal if values declined, how do you think lenders would react? The first thing that would happen is that down payment requirements would go sky high. If 50% declines are possible, and if lenders had to reduce principal to match, no lender would ever loan more that 50% of the value of the loan.

Of course, we could always look to the US government to continue to provide those 96.5% FHA loans and expect taxpayers to eat the losses when the inevitable write downs came. If you think the 1.15% FHA insurance premium is high now, wait until the actuaries factor in the cost of California principal reductions.

Basically, if principal reductions were mandated, all home loan lending in California would cease. No private lender wants to give away their money, and the government can't afford to.

This act should be retitled as the “Loan Owner Giveaway Act.”

(c) That borrowers would continue to make payments on notes held by these lending institutions, loan servicers, mortgagees, trustees and beneficiaries, if given the opportunity.

If the above statement were true, why do 25% of loan owners walk away through strategic default? If given the opportunity borrowers will take free money and reduced payments, and if not given that, they will simply walk away.

(d) That foreclosure has become a method of increasing a lending institution, loan servicer, mortgagee, trustee and beneficiary's bottom line and profits by turning borrowers out of their homes.

I profit from foreclosures, I do so at the expense of lenders. No lender is making money from the auction site. That is where their huge losses are finally realized. The above statement is complete nonsense. Further, so what if people are making money from foreclosure auctions. The auctions would not be occurring if borrowers continued making their loan payments.

(e) That currently it is a time consuming and sometimes costly process that is required by lending institutions, loan servicers, mortgagees, trustees and beneficiaries for refinancing

of a home loan in order that a borrower may take advantage of lower interest rates.

Lenders don't want borrowers to take advantage of lower interest rates. Lenders want to make money by charging higher interest rates. So now low interest rate refinancing is an entitlement?

I suppose the free-money cash-out refinances at ever-decreasing interest rates are an entitlement too, right?

How are the statements above identified as problems? Why don't we give everyone free houses and free money for life? That's basically what this amendment would accomplish.

SECTION 3. Purposes and Intent

The People of the State of California do hereby enact this measure to:

(a) Assist all citizens of this great State of California in the purchase and ownership of a home or property and that associated therewith.

This is not assistance of the citizens of a great state. What he is describing is theft, and it will not make our citizens great, it will make them entitled whiners.

(b) Make available principal reduction as well as but not limited to interest rate reduction a method of aiding borrowers in retaining their home or properly.

If this were to come to pass, any borrower who behaved in any prudent way is a fool. Everyone would be strongly encouraged to borrow as much money as possible against their homes, then when prices crash petition for their mandated principal forgiveness. At that point, anyone who isn't gaming the system is a fool.

(c) Prevent the lost of one's personal home property by foreclosure or other means due to hardship or illness or other calamity.

So when the calamity is self inflicted — which the vast majority in California are — the intent is to eliminate the consequences for unwise behavior and give foolish borrowers a pass. Moral hazard will be enshrined into the California constitution.

(e) Make refinance for a lower interest rate and payment simple, easy and available to all homeowners.

Who exactly is going to provide this money? Given the terms dictated by this amendment, no private lender will be stupid enough to extend these loans. Will the government do it? Or will the government be asked to provide loan guarantees and take the risk?

SECTION 4. Article 1 of the California Constitution is amended, with the addition of SEC. 31 to read:

It is a fundamental right for every Californian to purchase and own a home and real property. As such no township, city, county, municipality, corporate entity, the Legislature or agents thereof shall infringe on this given right of the State of California to its citizens. In that this right is granted to the citizens of California, the State and its agents (townships, cities, counties, legislature and departments thereof) shall endeavor to assist and encourage the ownership of a personal home or property and such as related to same.

Home ownership as a fundamental right? An entitlement? If it is, I want a beachfront home in Laguna. It's my right as a California citizen, right? All I have to do is get a loan to get through the door, then it's mine.

No citizen of the State of California shall lose or have that deemed as their personal home or property taken by foreclosure or any instrument thereof or similar to.

No citizen of the State of California will ever be given a home loan. Why would any lender fund a loan they knew they could only get back if the borrower decided to pay them back? What happens when borrowers strategically default and decide to squat forever? Fear of foreclosure is essential to the operation of our real property system. Without it, borrowers have no incentive to borrow responsibly, and lenders have every reason not to loan at all.

In the event of non payment in the time defined by standard loan contracts, due to financial hardship or illness by the home or property borrower, then the lending institution, loan servicers, mortgagees, trustees and beneficiaries shall make every effort to assist California borrowers and in the event of a reduction of local property values of more then 10%, a reduction of principal to reflect the new value shall be used, as well as to reschedule payments and or reduce interest rates and or refinance without credit review of the loan in order to bring said loan current.

There are two positions you can take in finance: equity or debt. Equity gets to participate in the upside and the downside of the change in asset value. Debt is fixed, and debt positions do not participate in either the upside or the downside. This provision gives borrowers the best of both worlds and makes lenders eat a shit sandwich.

In addition any such loan issued for and secured by a home or property by any lending institutions, loan servicers, mortgagees, trustees and beneficiaries doing business in the State of California, shall be able to be refinanced without credit review or penalty at minimum cost, within 45 days of being requested, by the original loan borrower or home owner, provided said owner or borrower has maintained said loan for a period of no less than 3 years.

This provision shifts all interest rate risk onto the lender. If rates go up, the borrower gets the advantage of their mortgage being fixed at a low rate, but if rates go down, the borrower automatically gets the benefit of the lower rate even if they no longer qualify. Again the borrower is getting the best of both sets of terms, and the lender is being forced to endure the worst.

If lenders have to face both depreciation risk and interest rate risk, they will dramatically increase down payment requirements, and interest rates will go sky high — assuming lenders are willing to lend at all. The follow-up amendment to this one is to force lenders to loan money in California because otherwise they won't under the new terms.

All borrowers shall have the right and the ability to meet in person if desired, with an agent of the lending institutions, loan servicers, mortgagees, trustees and beneficiaries in order to facilitate any required review with said agent who will be authorized to make any changes in loan terms at that time.

To top it off, lenders must absorb some unnecessary servicing fees. I get the impression the guy who wrote this amendment wanted to see how bad he could make the deal for lenders. He succeeded.

This shall apply also to property taxes, fees and levies collected on a citizen's home by any township, city, county, municipality, political subdivision or agents thereof.

There goes the last time any home owner paid their HOA dues or property taxes. Why pay when they can't foreclose? To be nice?

These groups shall make every effort possible to assist the home owner in the payment of current or back property taxes or assessments, even to the extent of allowing payments on a weekly or monthly schedule at no additional cost or interest thereof, in order that the citizen may retain their personal home or properly. This does not prohibit those laws dealing with mechanics liens and lien laws, but is in addition to same.

This amendment is foolish on many levels, but it does reveal how pervasive the housing entitlement has become in California. If I were going to write an amendment as satire, I couldn't do it as well. This encompasses every bad idea of loan owner bailouts into one tome. Kudos for the satire. Condemnation for the serious attempt at expanding homeowner entitlements.

California Citizen Proposes Amendment Outlawing Foreclosures

08/02/2011 — By: Krista Franks

A Sacramento, California citizen has proposed an amendment to the California Constitution that would outlaw foreclosures.

Declaring that “real estate lending institutions have failed to provide a simple method of loan modification and foreclosure prevention,” David A. Benson’s Foreclosure Modification Act would require lenders to provide principal reductions and interest rate reductions to help borrowers keep their homes.

Benson asserts that loan servicers are “not taking into account the devalue that has occurred in property values,” and thus, his amendment would require lenders and servicers to offer refinancing options with lower interest rates to all homeowners. According to the amendment, any home loan “shall be able to be refinanced without credit review or penalty at minimum cost, within 45 days of being requested by the original loan borrower or home owner” given the borrower has maintained the loan for at least three years.

“It is a fundamental right for every Californian to purchase and own a home and real property,” the proposed amendment states. “As such no township, city, county, municipality, corporate entity, the Legislature or agents thereof shall infringe on this given right of the State of California to its citizens.”

The proposal, already cleared by the Secretary of State, now requires 807,615 signatures — 8 percent of the total votes cast in California’s 2010 gubernatorial election — in order to be listed on the ballot for California voters to consider.

Benson has until December 27 to collect the signatures.

A nonpartisan legislative analyst and the California governor’s director of finance say the amendment might conflict with the U.S. and California Constitutions and other federal laws, according to an article in the Central Valley Business Times.

It probably won't be too difficult to find 807,615 loan owners to sign up to get free money. I wouldn't be surprised to see this initiative get on the ballot. If it passes, hopefully the judges will write a scathing rebuke when they throw it out in court.

The school of hard knocks

Whenever I see a property with an address on Scholarship, I think about how the buyers were schooled by the market. Today's featured property is a huge loss on a Jamboree corridor condo.

The original buyers put 20% down on this condo, so both they and the bank shared the pain equally. It must suck to lose $107,400 of your own money and have your credit trashed.

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This property is not available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 2372 SCHOLARSHIP Irvine, CA 92612

Resale House Price …… $300,000

Beds: 2

Baths: 2

Sq. Ft.: 1037

$289/SF

Property Type: Residential, Condominium

Style: One Level, Other

Year Built: 2006

Community: Airport Area

County: Orange

MLS#: U11000507

Source: SoCalMLS

Status: Closed

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Upgraded home offers 2 master bedrooms, 2 baths located on the third floor with open views. Home includes natural granite slab countertops & designer European-style cabinetry in kitchen and bathrooms, black Whirlpool appliances, hardwood flooring in kitchen and entry, and dual glazed energy efficient windows. Separate inside laundry room includes a full size washer & dryer. Two side by side assigned parking spaces in gated covered garage. The home is desirably located near the amenities which include pool, spa, fitness center, indoor basketball court, putting green, billiard room, tot lot, club house, business center, conference room, and more.

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Proprietary IHB commentary and analysis

The North Korea towers are not the only condo complex to see massive losses. This unit sold for more than 40% off its peak purchase price. With transaction costs, the loss was nearly half of what was paid.

Resale Home Price …… $300,000

House Purchase Price … $535,000

House Purchase Date …. 2/24/2006

Net Gain (Loss) ………. ($253,000)

Percent Change ………. -47.3%

Annual Appreciation … -10.4%

Cost of Home Ownership

————————————————-

$300,000 ………. Asking Price

$10,500 ………. 3.5% Down FHA Financing

4.53% …………… Mortgage Interest Rate

$289,500 ………. 30-Year Mortgage

$63,087 ………. Income Requirement

$1,472 ………. Monthly Mortgage Payment

$260 ………. Property Tax (@1.04%)

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

$62 ………. Homeowners Insurance (@ 0.25%)

$333 ………. Private Mortgage Insurance

$390 ………. Homeowners Association Fees

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

$2,517 ………. Monthly Cash Outlays

-$135 ………. Tax Savings (% of Interest and Property Tax)

-$379 ………. Equity Hidden in Payment (Amortization)

$18 ………. Lost Income to Down Payment (net of taxes)

$58 ………. Maintenance and Replacement Reserves

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

$2,078 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$3,000 ………. Furnishing and Move In @1%

$3,000 ………. Closing Costs @1%

$2,895 ………… Interest Points @1% of Loan

$10,500 ………. Down Payment

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

$19,395 ………. Total Cash Costs

$31,800 ………… Emergency Cash Reserves

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

$51,195 ………. Total Savings Needed

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I would like to thank the Newport Harbor Rotary Club for inviting me to speak last night. It was fun.

Irvine condos are showing the same price weakness as homes in other areas. If Irvine is different and immune to price declines, why aren't it's condos behaving differently as well?

Irvine Home Address … 203 BRIARWOOD Irvine, CA 92604

Resale Home Price …… $229,000

I'm Hunting High and Low

Sometimes I may win sometimes I'll lose

It's just a game that I play

Stratovarius — Hunting High and Low

Many people are hunting for houses. Some are looking at the high end, and some are lookiing low. Which is the better way to go?

Over the last several weeks, the IHB has been proud to present a series of hedonic house price analyses by Jaysen Gillespie of Global Decision:

An accurate view of the Irvine housing market by Global Decision and IHB

A detailed look at Irvine Village premiums by Global Decision and IHB

The market value of Irvine home features by Global Decision and IHB, and

OC Housewife, Ponzi borrower, failed land baron.

This week Jaysen has taken on a comparison of the single family market with the condo market in Irvine to see the similarities and differences. Some of the conclusions may be surprising. Below is Jaysen's writing. My comments pick up afterward.

A presentation by Jaysen Gillespie of Global Decision

info@globaldecision.com

Global Decision is an analytics consulting firm. While our methods are not industry-specific, our engagements are skewed towards specific industries in Southern California, such as real estate (along with online gaming and restaurant chains). We specialize in applying both foundational and advanced analytics to better understand business and economic issues.

Today continues our series on using the Global Decision Hedonic Price Model to determine how homes values are trending and the underlying factors that create such value.

Up to this point, we’ve focused on single-family homes (SFRs). In some parts of the country, SFRs represent the vast majority of the market. Irvine is not one of them. In fact, in the Irvine sales data from 2000-2011Q2, condos represent over 50% of all sales by quantity. As a result, no understanding of the Irvine market is complete without an equally in-depth review of how condos sales are trending. In expensive coastal California, condos serve as an entry-level market for those moving from rentership to ownership. More importantly, condos *had* served as a source of equity for those wishing to move up the ownership ladder – into a single-family home.

In the above chart, we compare Irvine SFRs to Irvine condos over the last 11 years. Not surprisingly, the lower-cost condos rose a bit higher (as a percentage of their Year-2000 starting point) than houses. Said condos have also fallen farther from their peak.

Because Irvine condo values rose at a faster rate than the values of Irvine single family homes while the housing bubble was inflating, the above chart’s ratio of home-to-condo values initially shows a “negative premium” for single family residences. However, as the bubble deflates the home-to-condo value ratio quickly reverts to 1:1 and then rises further as condo prices decline more rapidly than SFR prices.

An interesting chart results when we start the x-axis from peak pricing (2006) for both homes and condos. Both series peaked in 2006 and have declined 18% (SFRs) and 30% (condos) in the last 5 years. The magnitude of the decline is important to understand because it directly impacts the probability that a given homeowner is underwater. At this point, a sizable percentage of 2006 Irvine condo buyers are likely underwater. Those who purchased in 2006 are especially likely to be underwater as a down payment of 30% would have been required to keep that cohort in a positive equity position after an assumed 5% “get out” cost.

Irvine condo buyers who carefully saved a 20% down payment to buy a condo in 2006 (or even 2007) now find themselves with a paper loss of 100% of invested equity. At peak median condo prices of around $580,000, such buyers have paper losses of $116,000. Such losses do not have to be realized until a sale and some owners may not find the loss of said amounts to be particularly problematic. However, the losses do have a few serious impacts in the market. First, 2006-2007 condo buyers have no equity to fuel the purchase of more-costly SFRs. This fact is reflected in the data showing that higher-end homes in Orange County take much longer to sell than lower-end homes. Second, once buyers are underwater, each additional drop in home values makes them more likely to consider walking away from the debt.

http://faculty.chicagobooth.edu/luigi.zingales/papers/Determinants_of_Attitudes_towards_Strategic_Default_on_Mortgages.pdf

Page 30 of the linked .pdf file, shows that a shortfall of $100k induces 2.5X the propensity to strategically default vs a shortfall of $50k. Page 49 shows that knowing someone who strategically defaulted also increases reported propensity to strategically default. For a full read on attitudes regarding strategic default, please see the March 2011 paper at the University of Chicago’s Booth School of Business linked above.

Somewhat perversely, the 2006-2007 Irvine condo buyer who put down the bare minimum (0-3%) has a much smaller paper loss and has preserved the option of “walking away” with a smaller financial hit. Using a zero-down program to purchase a home is essentially obtaining a free call option: if home values rise, you pocket the gain. If home values fall, you have the option of walking away from the debt (in exchange for a lowered credit rating). Low-down payment programs thus create a feedback loop that exacerbates swings in the direction of the housing market. When home values are rising, they induce people to over-invest in residential real estate. When home values are falling, they exacerbate the drop by adding to inventory (shadow and real) and sap buyer demand for move-up housing. It’s hard to argue that low down payment programs make sense from a stability standpoint.

With the Irvine condo dataset, we find that a large chunk (21%) of all condo sales occur in the Irvine village of Woodbridge. As a result, we can also construct a valid hedonic price index for Woodbridge Condos. Doing so allows us to not only see trends in an established high-quality area (see our previous analysis of Irvine neighborhood values to see why “high-quality” is not our opinion, but based on market valuations), but also allows us to remove the “area” as a variable in the underlying regression.

In the chart above, you can see that the value trend for Woodbridge condos (light blue) and the value trend for Irvine condos (light green) are similar. Such results provide evidence that having an “area” variable in our underlying Irvine condo model is not skewing price trends and serve as a good gut check for each other.

Looking again at the post-bubble behavior of price trends in Irvine, Coto, and the region (as proxied by the Case-Shiller LAOC high tier index), we find that most indexes have fallen between 29% and 33% in value. Irvine’s condos (in both Woodbridge and city-wide) have dropped 30-31% in value while the LAOC Case Shiller High-Tier is also down just under 30%. Coto SFRs have slightly underperformed with a drop of 33%.

The Future: Irvine SFRs vs. Irvine Condos

Interestingly, Irvine SFRs have declined only about 18% from peak pricing. Even more interesting, it appears that temporary incentives (such as an $8,000 tax credit) lifted Irvine SFR prices more, as compared to a 2009-Q1 floor, than condo prices. Irvine SFRs have retained some of their gains since the 2009-Q1 recent bottom, while Irvine condos have now reached new post-bubble lows. Logic would have dictated an opposite result – a fixed $8,000 “incentive” should have more greatly swayed lower-priced markets.

A common theme in housing analysis is the (in)famous substitution effect. We’ve discussed this effect when looking at Coto vs. Irvine, and now we can consider the Irvine-vs-Irvine substitution effect of SFRs vs Condos. A frequently mentioned benefit of living in Irvine is access to excellent schools and proximity to employment. Unless the Irvine Unified School District utilizes some highly gerrymandered attendance zones, owners of Irvine condos are entitled to receive and same quality of schools as Irvine SFR owners. Rumor also has it that the IUSD allows children from SFRs, condos, and even apartments to sit in the same classrooms as each other. We do indeed hope that SFR parents have that difficult talk with their children about what a “middle unit” is before kids learn the hard way. Oh, the horror!

All Irvine residents enjoy the same overall crime rate, proximity to jobs, microclimate and so forth. As a result, Irvine condos are a close substitute for Irvine SFRs, especially given that Irvine contains many larger 3-bedroom condos. A long-term equilibrium will likely either have condo prices rebound, relative to SFR prices – or will have SFR prices decline, relative to condo prices.

IrvineRenter's Commentary

Falling condo prices mean the move-up market is broken. It isn't until condo prices bottom then come up a bit that buyers have equity to put 20% down on a different property. The move up market doesn't happen by magic. People still need a raise in pay to afford better accommodations because houses all rise in price together in a healthy market. If the low end of the market is moving down, it is robbing the equity of prospective buyers looking to move upward.

Condo prices are more volatile than SFR prices because not all the equity from a condo sale is used to push up the next rung on the property ladder. There is always some diffusion as people endure transaction costs, and during the housing bubble, extracted and spent their equity. This makes condo prices rise quicker in a good market; however, since condos are less desirable than SFRs, they also tend to fall faster in a bad market.

Jaysen's commentary on the effects of 100% financing are right on. Mortgages take on the characteristics of options, and what started as an affordability program, 100% financing ended up making houses very unaffordable as prices were driven up to the stratosphere.

Jaysen's conclusion is a point I want to reitereate; “A long-term equilibrium will likely either have condo prices rebound, relative to SFR prices – or will have SFR prices decline, relative to condo prices.“

Regardless of which path the market takes, if you are buying as an investment, it makes little sense to buy an Irvine SFR. If you believe in the Gospel of Irvine, and you want to make money purchasing Irvine real estate, you should be buying condos. When the equilibrium is restored — up or down — condos will move positively more than SFRs.

What capitulation looks like

If you are interested in Irvine condos as an investment, today's featured property is an opportunity to make money from a desperate seller capitulating to the market. If you want to see what capitulation looks like, examine the price history of this previously featured condo.

Date	Event		Price	Source
Jul 27, 2011	Price Changed		$229,000	SoCalMLS #P776605
Jul 14, 2011	Price Changed		$239,000	SoCalMLS #P776605
Jun 29, 2011	Price Changed		$244,900	SoCalMLS #P776605
Jun 04, 2011	Price Changed		$247,000	SoCalMLS #P776605
May 27, 2011	Price Changed		$248,000	SoCalMLS #P776605
May 19, 2011	Price Changed		$249,000	SoCalMLS #P776605
May 13, 2011	Price Changed		$254,900	SoCalMLS #P776605
Apr 28, 2011	Price Changed		$259,000	SoCalMLS #P776605
Apr 06, 2011	Listed (Active)		$269,000	SoCalMLS #P776605
Apr 04, 2011	– Delisted (Cancelled)		—	Inactive SoCalMLS #2
Apr 02, 2011	– Price Changed		*	Inactive SoCalMLS #2
Mar 26, 2011	– Price Changed		*	Inactive SoCalMLS #2
Mar 24, 2011	– Price Changed		*	Inactive SoCalMLS #2
Mar 18, 2011	– Price Changed		*	Inactive SoCalMLS #2
Mar 05, 2011	– Price Changed		*	Inactive SoCalMLS #2
Feb 24, 2011	– Price Changed		*	Inactive SoCalMLS #2
Feb 09, 2011	– Price Changed		*	Inactive SoCalMLS #2
Jan 15, 2011	– Price Changed		*	Inactive SoCalMLS #2
Dec 14, 2010	– Price Changed		*	Inactive SoCalMLS #2
Nov 23, 2010	– Price Changed		*	Inactive SoCalMLS #2
Nov 18, 2010	– Price Changed		*	Inactive SoCalMLS #2
Sep 07, 2010	– Price Changed		*	Inactive SoCalMLS #2
Jul 23, 2010	– Price Changed		*	Inactive SoCalMLS #2
Jun 30, 2010	– Price Changed		*	Inactive SoCalMLS #2
Jun 22, 2010	– Price Changed		*	Inactive SoCalMLS #2
Jun 07, 2010	– Price Changed		*	Inactive SoCalMLS #2
May 20, 2010	– Listed (Active)		*	Inactive SoCalMLS #2
May 19, 2010	– Delisted (Cancelled)		—	Inactive SoCalMLS #1
May 01, 2010	– Relisted (Active)		—	Inactive SoCalMLS #1
May 01, 2010	– Pending (Backup Offers Accepted)		—	Inactive SoCalMLS #1
Mar 20, 2010	– Price Changed		*	Inactive SoCalMLS #1
Mar 15, 2010	– Price Changed		*	Inactive SoCalMLS #1
Feb 23, 2010	– Price Changed		*	Inactive SoCalMLS #1
Feb 22, 2010	– Price Changed		*	Inactive SoCalMLS #1
Feb 12, 2010	– Price Changed		*	Inactive SoCalMLS #1
Feb 03, 2010	– Listed (Active)		*	Inactive SoCalMLS #1
Jan 27, 2010	Sold (Public Records) This home was sold at a foreclosure auction.		$258,000	Public Records

This property was purchased at auction on 1/27/2010 for $258,000. As all auction purchases are, this one was all cash.

It looks as if they had the property in escrow just as the tax credit was expiring in May of 2010, and the property fell out of escrow. As we all know, prices have gone straight down ever since.

They relisted the property and chased the double-dip for a full year finally terminating their listing in April. After 16 months of ownership paying the $385 per month association fee, property taxes, insurance, and utilities, the carrying costs finally forced these sellers to give up their denial and lower their price to sell the property.

The emotional decision to sell a loser is tough, but once it's made, only then does a seller really get to assess the damage their denial caused. They have lowered their price $40,000 since April 4. That is over 15% of the purchase price, and they still haven't found a buyer.

That is a motivated seller. If you're interested, give them a lowball offer. They might surprise you and take it.

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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 … 203 BRIARWOOD Irvine, CA 92604

Resale House Price …… $229,000

Beds: 2

Baths: 1

Sq. Ft.: 941

$243/SF

Property Type: Residential, Condominium

Style: One Level, Other

Year Built: 1978

Community: Woodbridge

County: Orange

MLS#: P776605

Source: SoCalMLS

Status: Active

On Redfin: 113 days

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===== PRICE REDUCED FOR QUICK SALE AND BEST PRICE IN THIS COMMUNITY ===== Private end unit overlooking greenbelt in beautiful, peaceful neighborhood of Irvine. This unit has been renovated with new paint throughout, new carpet, new baseboards around all rooms and brand new kitchen appliances. Tile entry opens to spacious living room. There is also a separate room for laundry. Walking distance to parks, North Lake, schools and association pool. === CLOSE TO UCI & IVC ===

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Proprietary IHB commentary and analysis

Their description should read ===== PRICE REDUCED OVER AND OVER AGAIN FOR QUICK SALE AND BETTER PRICING IN THIS COMMUNITY =====

Resale Home Price …… $229,000

House Purchase Price … $258,000

House Purchase Date …. 1/27/2010

Net Gain (Loss) ………. ($42,740)

Percent Change ………. -16.6%

Annual Appreciation … -7.5%

Cost of Home Ownership

————————————————-

$229,000 ………. Asking Price

$8,015 ………. 3.5% Down FHA Financing

4.53% …………… Mortgage Interest Rate

$220,985 ………. 30-Year Mortgage

$48,156 ………. Income Requirement

$1,124 ………. Monthly Mortgage Payment

$198 ………. Property Tax (@1.04%)

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

$48 ………. Homeowners Insurance (@ 0.25%)

$254 ………. Private Mortgage Insurance

$385 ………. Homeowners Association Fees

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

$2,009 ………. Monthly Cash Outlays

-$103 ………. Tax Savings (% of Interest and Property Tax)

-$289 ………. Equity Hidden in Payment (Amortization)

$13 ………. Lost Income to Down Payment (net of taxes)

$49 ………. Maintenance and Replacement Reserves

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

$1,678 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,290 ………. Furnishing and Move In @1%

$2,290 ………. Closing Costs @1%

$2,210 ………… Interest Points @1% of Loan

$8,015 ………. Down Payment

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

$14,805 ………. Total Cash Costs

$25,700 ………… Emergency Cash Reserves

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

$40,505 ………. Total Savings Needed

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Despite the drop in foreclosure notices and sales, lenders have increased their REO inventory holdings 42% since last July, and shadow inventory continues to grow as well.

Irvine Home Address … 90 OVAL Rd #1 Irvine, CA 92604

Resale Home Price …… $326,900

You say you haven't been the same since you had your little crash

But you might feel better if I gave you some cash

You don't want to work, you want to live like a king

But the big, bad world doesn't owe you a thing

Get over it

Get over it

The Eagles — Get Over It

The market hasn't been the same since it had its little crash. There's too much debt and too little cash. Too many people didn't want to work, but they wanted to live like a King. For a while their houses made it real, but those days are long gone, and now everyone just has to get over it.

Understanding the dynamics of our market crash

There are a number of key relationships that control the dynamic of the ongoing market crash. Current and future market prices are impacted by delinquency, foreclosure, shadow inventory, cure rates, and MLS saturation.

Delinquency, foreclosure, and shadow inventory

When borrowers quit making their payments, they are classified as delinquent. Prior to the housing bubble, lenders typically gave borrowers 90 days to catch up on their payments, then they would issue a notice of default. Ninety days later, lenders would issue a notice of trustee sale, and three weeks after that, the foreclosure auction would take place. Those timelines have not been adhered to since 2006 or perhaps even earlier.

Once borrowers are delinquent, but before they are issued a notice of default, they exist in a strange limbo known as shadow inventory. It's called shadow inventory because there are no official statistics on the number of homes trapped here, and this inventory will ultimately be pushed through the system and become visible inventory picked up by vendors who track the public records. Most properties in visible inventory end up as foreclosures.

Shadow inventory was not discussed much in the past because houses were not allowed to accumulate there. Lenders didn't used to fool around with delinquent borrowers. The time between delinquency and notice of default was short, and shadow inventory was merely a conduit along the processing timeline. Now shadow inventory is a significant portion of the market (see red area below).

Delinquency rates, cure rates, and foreclosure

Shadow inventory is like a room with only two doors. Door number one is a cure. The borrower can cure the delinquency through a loan modification (most of which ultimately fail) or the borrower can come up with the cash to make up the missed payments. Door number one is everyone's favorite, but few have been able to pry it open.

Door number two exiting shadow inventory is through a sale. In an appreciating market, buyers can merely sell their house to pay off the loan from equity stored in the property, but after a crash like ours, many loan owners are underwater and unable to sell and pay off the loan. Many sell anyway through a short sale. Another method of selling and clearing shadow inventory is through foreclosure. Most homes in shadow inventory will ultimately face this fate.

Delinquency rates have been very high since 2007. In Orange County it peaked near 9%. With cure rates being very low, short sale and foreclosure has been the most widely used method of clearing out this mortgage debris.

Shadow inventory, foreclosure, and MLS saturation

Lenders build shadow inventory for two reasons: (1) many lenders lack the financial stability to write down the bad debts from their balance sheets and remain solvent, and (2) the faster lenders clear this inventory, the quicker it hits the MLS and builds up as REO inventory. There is only so much inventory the market can absorb at one time, so lenders must manage this inventory to prevent prices from falling further.

Think of shadow inventory and visible inventory as being like a pool and spa with a small drain. The spa is like shadow inventory spilling over into the pool which is visible inventory. The small drain is the final sale on the MLS. Whether the water is in shadow inventory or visible inventory, it will ultimately have to pass through the drain to empty the pool. If this water is released too quickly, the flood of properties ruins the market. if the water is drained too slowly, lenders have non-performing assets on their books inhibiting lending and the overall economy.

The balance sheet constraints have largely determined what lenders have foreclosed on so far; low-priced homes. Look at the problem from a lender's point of view. Let's say you are Wells Fargo, and you plan to write down $1B per quarter of your bad residential loans. Do you write down a large number of loans in a low-cost area, or do you write off a small number of loans in a high cost area? If you want to look like you are making progress, you would choose to write off loans from the bottom up. That's exactly what lenders are doing.

[below: house foreclosure timelines of high priced (red) and low priced (blue).]

In effect, what looks like cartel behavior is merely each lender taking the balance sheet write downs they can afford each quarter. Since they all still face similar constraints, they all act in a similar manner and resemble a cartel. However, this behavior will not continue indefinitely. At some point, the stronger banks will begin to work their way up the housing ladder and begin foreclosing on higher priced homes. The lender that does this first will be rewarded with the best recovery prices. The strong get stronger, and the weak are left as insolvent take-over targets.

How is the situation remedied?

There is no magic cure. Increased employment and more buyer demand will clean up the mess quicker, but lenders only make a certain amount each quarter, and they can only write off so much of their bad debt. Delinquency rates must fall down below 2% and stay there signifying shadow inventory has been purged. Foreclosure activity must also slow to its historically low levels to signify the visible inventory has been purged. And finally, the REO inventory available for sale must be sold and the percentage of distressed sales must fall from its clearance levels of 30% to 40% of the market to well under 10%. Until all three of those conditions are met, the crash is not over.

Toward the end of the cycle, house prices may start to rise, but appreciation will be tepid as long as the inventory clearance process is going forward. Lenders are working feverishly to manage inventories to prevent prices from going lower and causing more strategic default. No realistic seller is anticipating appreciation, they are merely hoping to stop more depreciation. Right now, their efforts to restrict supply are failing, and prices are still going down.

O.C. late-mortgage rate tumbles 20%

July 28th, 2011, 8:06 am · 1 Comment · posted by Jon Lansner

According to CoreLogic’s latest late-mortgage report, 6.24% of Orange County home-loan borrowers as of May are 90 days-plus late with their house payments.

This 90-day delinquency number is seen as a key indicator of future mortgages woes as it captures patterns of property owners skipping house payments before the formal foreclosure process begins. This most recent reading for Orange County is down 1.57 percentage points — or 20% – compared to a year earlier.

That is good news. A declining delinquency rate is a sign the landers are starting to process their REO faster than new mortgage defaults are being added to the system. Of course, falling prices may cause many still in denial to capitulate in which case strategic default will cause the delinquency rate to go up again.

As a comparison, California’s 90-day delinquency rate was down 24% in the same period while the nation’s rate fell 10% in a year.

Also in this report …

May	OC	CA	US
90+ day delinquency (This year)	6.24%	8.17%	7.29%
90+ day delinquency (Last year)	7.81%	10.70%	8.13%
Percentage pt. chg. in delinquency	-1.57	-2.53	-0.84
Foreclosure rate (This year)	2.09%	2.71%	3.45%
Foreclosure rate (Last year)	2.24%	2.98%	3.10%
Percentage pt. chg. in foreclosure	-0.15	-0.27	+0.35
REO rate (This year)	0.51%	0.92%	0.67%
REO rate (Last Year)	0.36%	0.82%	0.57%
Percentage pt. chg. in REO	+0.15	+0.10	+0.10

• Orange County’s foreclosure rate — owners losing homes — fell 7% in a year vs. California’s foreclosure rate falling 9% and a increase of 11% nationally.
• Lender portfolios of homes they’ve repossessed is rising. The share of Orange County homes that are bank-owned after foreclosure rose 42% in a year vs. California’s REO rate rising 12% and a increase of 18% nationally.
• Orange County’s 90-day delinquency rate is 1.93 percentage points lower than the state’s slow-pay rate and 1.05 percentage points lower vs. national pace.
• 2.09% of Orange County homes in May were in the foreclosure process; -0.15 percentage points vs. a year earlier.
• 0.51% of Orange County homes in May were repossessed by banks as REO (real estate owned); +0.15 percentage points vs. a year earlier.
• At right is a table showing how Orange County mortgage troubles compare to state and national payment woes.

At the rate lenders are chipping away at the delinquency rate — assuming strategic default doesn't make it go back up — in another three or four years, the delinquency rate will be back within historic norms.

Unfortunately, since lenders have been accumulating REO and are unable to dispose of it on the MLS, they have been dialing back on their foreclosure rates. The lower foreclosure rates are not a sign that there are not plenty of delinquent mortgages for lenders to foreclose on. The mistake most casual observers make when they hear foreclosure rates are declining is to assume that decline is from lack of mortgage delinquencies for lenders to foreclose on. The recent slowdown is pure REO and MLS inventory management. A slower foreclosure rate means the foreclosure pool is draining slowly and will take much longer to clear.

Irvine REO

When preparing for today's post, I noticed Redfin provides the ability to quantify REO inventory not available for sale. When I ran the results last night, 70 homes showed up. I can't say that is a big or small number, but it does make me wonder why there are any at all. This one in Shady Canyon (21 Needle Grass Irvine, CA 92603) was purchased by the bank on September 9, 2009, nearly two years ago. If they are waiting for the high end to recover, they are making a very big mistake.

There are some interesting HELOC abuse cases in the REO debris. 78 Dovecrest, Irvine, CA 92620 was purchased on 4/3/1998 for $381,500. It went to the bank for $856,029 on 12/8/2008. That's almost half a million dollars in HELOC abuse plus a lender aging its inventory for two and a half years.

There must be a reason lenders are sitting on this inventory, and it isn't because they don't need the money back.

Today's featured property is part of the REO inventory lenders are willing to liquidate. To no surprise, it is at the low end. The previous owners did very well buying for $178,500 on 9/16/2000 and selling for $429,000 on 5/31/2007. They made a huge profit while the bagholder turned out to the the California Housing Finance Agency who provided the second and third mortgages to make this zero-down transaction happen. Apparently, the buyer for whom they opened the door stopped paying for a house they had nothing invested in. What a shock.

Foreclosure Record

Recording Date: 02/07/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 11/03/2010

Document Type: Notice of Default

At least they didn't mess around when it came time to foreclose. This property when from the first notice of default to foreclosure in near record time.

It's been stated by many in the MSM that lenders are behind on their foreclosures due to robo-signer and other made-up delays. That may be true in some judicial foreclosure states, but here in California, the only lender delays are the ones they create themselves.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 90 OVAL Rd #1 Irvine, CA 92604

Resale House Price …… $326,900

Beds: 2

Baths: 2

Sq. Ft.: 1059

$309/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1972

Community: El Camino Real

County: Orange

MLS#: P783612

Source: SoCalMLS

Status: Active

On Redfin: 61 days

——————————————————————————

* * * * BANK OWNED * * * * * WELL MAINTAINED 2 BEDROOM – 2 BATH CONDO – SELLER HAS COMPLETED RECENT REPAIRS – END UNIT – INSIDE LAUNDRY – CENTRAL A/C – GRANITE COUNTER – SMALL PRIVATE YARD. .

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Proprietary IHB commentary and analysis

The cost of FHA insurance drives the cost of ownership on these low-end properties much higher. Anyone who saves their 20% down is going to be enjoying a much lower cost of ownership. This property is still priced above rental parity signifying these properties still have room to fall more in price.

Resale Home Price …… $326,900

House Purchase Price … $442,034

House Purchase Date …. 3/16/2011

Net Gain (Loss) ………. ($134,748)

Percent Change ………. -30.5%

Annual Appreciation … -70.3%

Cost of Home Ownership

————————————————-

$326,900 ………. Asking Price

$11,442 ………. 3.5% Down FHA Financing

4.53% …………… Mortgage Interest Rate

$315,458 ………. 30-Year Mortgage

$68,743 ………. Income Requirement

$1,604 ………. Monthly Mortgage Payment

$283 ………. Property Tax (@1.04%)

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

$68 ………. Homeowners Insurance (@ 0.25%)

$363 ………. Private Mortgage Insurance

$270 ………. Homeowners Association Fees

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

$2,588 ………. Monthly Cash Outlays

-$258 ………. Tax Savings (% of Interest and Property Tax)

-$413 ………. Equity Hidden in Payment (Amortization)

$19 ………. Lost Income to Down Payment (net of taxes)

$61 ………. Maintenance and Replacement Reserves

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

$1,997 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,269 ………. Furnishing and Move In @1%

$3,269 ………. Closing Costs @1%

$3,155 ………… Interest Points @1% of Loan

$11,442 ………. Down Payment

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

$21,134 ………. Total Cash Costs

$30,600 ………… Emergency Cash Reserves

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

$51,734 ………. Total Savings Needed

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

Attorneys in Nevada are being criticized for telling people to act like their neighbors and walk away from their mortgage to obtain free housing.

Irvine Home Address … 62 CONCIERTO Irvine, CA 92620

Resale Home Price …… $438,000

Way over yonder, off in the distance

Towards the mountains there in the west

These longhorn cattle, are gettin' restless

God help us all, if they stampede

Chris LeDoux — Stampede

The greatest fear lenders have concerning the herd of underwater borrowers is that loan owners may stampede to the exit. If the masses come to believe they will get years of free housing — which they will — or if loan owners believe the consequences of default are minor — which they are — or if underwater borrowers believe prices aren't coming back soon — which they aren't — then collectively the masses may all default and totally crush the banks and our banking system.

Lenders have tried everything to prevent borrowers from defaulting. First it was an appeal to morality. This strategy has failed so miserably, that I have concluded the moral issue is really on the side of borrowers. In fact, strategic default is moral imperative to prevent future housing bubbles. Lately, lenders have been resorting to terrorist tactics to prevent default. Despite its limited success, lenders will continue using these tactics as it's the only defense they have left.

Strategic default is gaining momentum, and in places like Las Vegas where most of the housing stock is inhabited by loan owners who would greatly benefit from strategic default, efforts to get the heard to stampede resonate loudly. Show the herd how they benefit financially, and you can get them to move.

Lawyers say public has misconstrued mortgage default ads

By VALERIE MILLER

LAS VEGAS BUSINESS PRESS

Posted: Jul. 29, 2011 | 2:01 a.m.

Updated: Jul. 29, 2011 | 9:48 a.m.

Their television commercials about mortgage defaults ignited a debate about ethics and financial responsibility. Now, the two Las Vegas lawyers behind the ad campaign say people are misunderstanding their message.

The Haines & Krieger TV spots advise homeowners that their friends and family are staying in their homes without paying on their mortgages, and offer to show clients how to do the same.

But George Haines and David Krieger, the lawyers who appear in those ads, say the message is not that those homeowners with the means to pay should skip out on their mortgages.

Actually, yes, the ads do tell loan owners they should skip out on their mortgages. In Las Vegas, with many loan owners 30% to 50% underwater facing payments double a comparable rental, they should strategically default.

These attorneys are being wimps and offering lawyerly evasions. If they really wanted to tell people the truth, they should stand behind their words and the implications. Most of Nevada is so far underwater they should default. It's in the best interest of their families to do so.

Rather, the commercials are offering a lifeline to people who might otherwise lose their homes through foreclosure.

“The ad campaign is geared toward empowering consumers with information they did not have,” Krieger said.

The ad wants to empower people with the information to strategically default. More power to them.

The commercials have brought business to Haines & Krieger, a law firm offering mortgage modifications, bankruptcies and short sales. But that increased business is not just from those people looking to bail on their financial responsibilities, Haines said.

“These are people who are undergoing dire circumstances and need some time in their homes to get their lives together,” he said.

They need some time in their homes? Is there some reason they couldn't spend that time in a rental? These guys should at least make their bullshit pass the giggle test.

Lenders, real estate professionals and consumer advocates have criticized the TV spots. Nasser Daneshvary, the director of the Lied Institute for Real Estate Studies at the University of Nevada, Las Vegas, worries about the devastating ripple effect of people bailing on their mortgages.

“When you dump your house, you increase the odds that your neighborhood will become blighted, or a rental community,” he said. “You are in turn damaging Clark County and the greater community.“

Egad! A rental community! The horror of it.

The blight argument is nonsense. Mr. Daneshvary is wrong on many levels. First, his contention that rental communities are blight is ridiculous. Blighted areas often are inhabited by renters paying low rents because they are undesirable and nobody wants to live there. The blight comes first, and the habitation by renters paying very little comes second. It's not the other way around.

The extension of his argument that renters lead to blight which damages the greater community is insulting to all renters. Based on his statements, I conclude he is a loan owner who probably should strategically default but doesn't have the courage to pull the trigger. If he owns in Las Vegas, he is almost certainly under water. Nearly 90% of owners are.

But the Haines & Krieger partners say their ads are simply letting distressed homeowners know they have options, and need not just sit and wait for eviction after receiving a foreclosure notice.

That is not accurate. Their ad is aimed at people who are currently paying their mortgages but considering default. The target market for this ad has not received a foreclosure notice.

“Most of our clients really can't afford their mortgages and need a modification,” Haines said. “You have people who can't afford their mortgages and can't get the lenders to negotiate with them.”

Krieger says many clients work out loan modifications and avoid foreclosure.

“We don't advocate foreclosure,” Krieger said. “It will ruin their credit.”

Short sale or foreclosure will ruin their credit, and the missed payments required to get a loan modification hurts a borrower's credit too. And the truth is strategic default consequences minor and likely to decrease.

Daneshvary is skeptical of the lawyers' explanation. Viewers, he says, are smart enough to get the point of the TV spots.

“As for the ad itself, as consumers, we know what the message is, 'Follow your neighbor by getting out of monthly payments,' ” he said.

Yes, that is exactly the point of the ad. It's unfortunate the attorneys felt they couldn't simply admit it.

Michele Johnson, president and CEO of Consumer Credit Counseling Service of Nevada and Utah, said she believes the Haines & Krieger spots are encouraging people to strategically default on their mortgages.

Yes, the ads are encouraging strategic default.

“I find it irresponsible advertising,” she said. “I think it certainly attempts to legitimize defaults.”

I'm sorry to inform Ms. Johnson, but defaults have already been legitimized. Strategic mortgage default has become common and accepted in 2011.

The number of people still living in their homes with delinquent mortgages is hard to calculate, Daneshvary adds. Because out-of-state investors bought multiple houses in Southern Nevada during the real estate boom, many foreclosed homes were never occupied full time.

However, Daneshvary estimates about 30 percent of Las Vegas Valley homes are now in some stage of loan delinquency.

A 30% delinquency rate is astonishingly high. It is reasonable given the circumstances. If a 30% delinquency rate is maintained long enough, 90% of the housing stock will turn over as the 30% in delinquency is turned over three times.

The option of strategically defaulting on your mortgage has been gaining in popularity over the last few years.

A Nevada Association of Realtors report released in January found that 23 percent of those surveyed “walked away” as part of a strategic default.

And another 77% failed to admit it… I made that up, but it is not far from the truth.

Johnson points to the damage a mortgage default does to a person's credit: About a 100-point drop in the credit score as a result of the first missed house payment, and another approximately 100 points off when the second mortgage payment is missed.

As I pointed out above, strategic default consequences minor and likely to decrease. The scare tactic on hurting a FICO score doesn't work anymore, just like the morality issue not longer holds sway.

Nonprofit services, including Consumer Credit Counseling, will help people get loan modifications for free, she said.

In response to all the criticism, Haines notes that plenty of Southern Nevadans are already staying in their homes without making payments, regardless of Haines & Krieger's commercials.

ForeclosureRadar.com, a Discovery Bay, Calif.-based tracker of distressed real estate, said recently the average number of days it takes to foreclose on a home in Nevada rose to 319 days, up from 239 days a year ago.

“Why are banks taking so long to foreclose? They don't have their ducks in a row,” Haines said. “It is a product of the banks.”

Contact reporter Valerie Miller at vmiller@lvbusinesspress.com or 702-387-5286.

The banks have their ducks in a row, they simply lack the balance sheet strength to write down all the bad debt, and if they did foreclose on everyone and put the houses for sale, they would so saturate the MLS with product the prices would get pushed back to 1970s levels while the market cleared out.

Bad luck compounded

Every house has a story. The HELOC abuse cases are interesting, but the property records reveal other stories. Today's is very sad. The peak buyers of today's featured property paid $592,000 on 5/31/2006. They couldn't have timed the peak any worse. They borrowed $422,000 and put $170,000 down. The asking price will completely wipe out the down payment. Every penny is gone.

The remaining owner of this property is a widow according to the property records. The stress of losing $170,000 and the family home is bad enough, but this woman also lost her spouse. Very sad. Unfortunately, the market does not care about this widow's problems. I hope someone pays enough for her to get out without damaging her credit as well. The $2,200 monthly cost of ownership is at or below rental parity, and even an FHA buyer's cost of ownership is only $2,800. Somebody will likely pay this price.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 62 CONCIERTO Irvine, CA 92620

Resale House Price …… $438,000

Beds: 2

Baths: 2

Sq. Ft.: 1562

$280/SF

Property Type: Residential, Condominium

Style: Two Level, Spanish

Year Built: 2006

Community: Woodbury

County: Orange

MLS#: S663108

Source: SoCalMLS

Status: Active

On Redfin: 42 days

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Model Perfect very affordable light and bright home located in the fabulous and highly sought after Woodbury Community in Irvine just blocks from the coveted Woodbury Elementary school, community pool, and Woodbury shopping center. 2 balconies including one off the master suite which features a private full bath, great kitchen with lots of cabinets, cozy gas fireplace in the living room, 2 car garage, and much much more!

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Proprietary IHB commentary and analysis

Resale Home Price …… $438,000

House Purchase Price … $592,000

House Purchase Date …. 5/31/2006

Net Gain (Loss) ………. ($180,280)

Percent Change ………. -30.5%

Annual Appreciation … -5.7%

Cost of Home Ownership

————————————————-

$438,000 ………. Asking Price

$87,600 ………. 20% Down Conventional

4.53% …………… Mortgage Interest Rate

$350,400 ………. 30-Year Mortgage

$76,358 ………. Income Requirement

$1,782 ………. Monthly Mortgage Payment

$380 ………. Property Tax (@1.04%)

$200 ………. Special Taxes and Levies (Mello Roos)

$91 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$290 ………. Homeowners Association Fees

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

$2,743 ………. Monthly Cash Outlays

-$298 ………. Tax Savings (% of Interest and Property Tax)

-$459 ………. Equity Hidden in Payment (Amortization)

$147 ………. Lost Income to Down Payment (net of taxes)

$75 ………. Maintenance and Replacement Reserves

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

$2,208 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,380 ………. Furnishing and Move In @1%

$4,380 ………. Closing Costs @1%

$3,504 ………… Interest Points @1% of Loan

$87,600 ………. Down Payment

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

$99,864 ………. Total Cash Costs

$33,800 ………… Emergency Cash Reserves

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

$133,664 ………. Total Savings Needed

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Real estate sellers that can't get their asking price often consider renting the property and waiting for better days. Now even the federal government is considering holding some if its property purchased as REO through the GSEs. Is that a good idea?

Irvine Home Address … 1 West FORTUNA Irvine, CA 92620

Resale Home Price …… $669,000

I've had choices

Since the day that I was born

There were voices

That told me right from wrong

If I had listened

No I wouldn't be here today

Living and dying

With the choices I made

George Jones — Choices

The government has choice to make with its REO. Based on past choices we have seen coming out of Washington, I suspect they will make the wrong choice, but with so much pressure to do the wrong thing, making the right choice is nearly impossible for most politicians.

Government Weighs Turning Foreclosures Into Rentals

By Nick Timiraos — July 22, 2011, 11:28 AM ET

There’s an 800-pound gorilla in the nation’s hardest-hit housing markets: hundreds of thousands of foreclosed properties are selling, and there’s four times as many potential foreclosures behind them.

The Journal writes today that one idea gaining support in Washington is an effort to pull some of those properties off the market and rent them out, either on homes owned by federal agencies or loan giants Fannie Mae and Freddie Mac.

Ordinarily, I would be appalled by this idea. Keeping houses off the market in order to keep prices too high for families to afford is abominable, particularly for the government which is supposed to help facilitate affordable housing. However, in many markets, prices are not too high for families to afford. In Las Vegas, two minimum wage workers can combine incomes to purchase a single-family detached house. Affordability is not a barrier to anyone in Las Vegas. Prices do not need to be lower there to attract families or investors.

In markets like Las Vegas, withholding inventory from the for-sale market and renting them out makes sense. In fact, in any housing market where the cost of ownership is 30% or more less than the cost of rental, these houses should be rented rather than sold. Whenever the cost of ownership and the cost of rental gets out of balance, the market is sending a signal. When owning is significantly less expensive than renting, the market is telling participants to buy. However, in Las Vegas, most of the potential buyer pool just went through foreclosure and can't buy. Therefore the imbalance between the cost of owning and the cost of renting gets worse. Under those conditions, the market is demanding more rentals.

These firms and U.S. banks currently own more than 500,000 foreclosed homes, and there’s another 2 million loans in some stage of foreclosure. The high share of distressed sales in many struggling markets is contributing to continued declines in home prices.

“Can we find a way to try and reduce that overhang or to try to provide incentives for investors to covert them?” said Federal Reserve Chairman Ben Bernanke in testimony to Congress last week.

Ben Bernanke is suggesting providing incentives for investors? I suggested the same thing last year in the post Should Government Mortgage Subsidies Be Offered to Cashflow Investors?, and I was lambasted. My argument was simple: “In housing markets where a significant number of properties are being converted from owner-occupied to rental status, there is no government program or help for this transition to occur. Without government help, prices fall far below fundamental valuations as the imbalance of supply and demand becomes extreme. The only solution is to reduce supply and increase demand. To accomplish this, I propose that the GSEs promote investor programs that reduce the cost of ownership to small investors and encourage them to keep the supply off the resale market.“

Nine months later, and Washington has finally caught up with my ideas.

Critics worry about the risk of the government as landlord. One solution: sell federally backed foreclosures to investors who would have to agree to rent them out for a to-be-determined period of time. Investors would rehab the properties, fill them with tenants, and hire a national property management firm to oversee the day-to-day landlord needs.

Supporters say while the government isn’t set up to be a landlord, neither is it any better prepared to sell thousands of foreclosed properties — something it’s already doing anyway. “Putting these homes in the hands of people who can take care of them and rent them out” would save taxpayer money, says John Burns, who runs a home-building consulting firm in Irvine, Calif.

John Burns is right. We really don't need the government to be involved in this. Real estate cashflow investors will stabilize the housing market all on their own. As I noted in that post: “The best solution does not require a subsidy. Merely eliminate the limit on the number of mortgages a cashflow investor may have, and count 75% of the rental income toward the payment. Eliminating the limit on the number of mortgages costs no money, and it allows those investors with expertise in obtaining and managing properties the ability to acquire more. By counting a portion of the rental income toward qualification, wherever the prices are low enough for cashflow investors to make a profit will quickly get bid up to the limit of available financing.

None of this costs the government anything, and the demand it creates is not artificial based on a financial subsidy that inflates prices. The GSEs are merely eliminating an artificial barrier they created. This demand would seek out the most downtrodden markets and put a floor beneath prices in those areas. Very little of that money would flow into inflated markets like Orange County because so few properties meet the criteria.”

So far, the Fannie and Freddie have disappointed institutional investors by resisting selling homes in bulk at deep discounts. Instead, foreclosures are either sold through regular retail listings or in public auctions, known as trustee or sheriff sales. Those auctions have attracted primarily mom-and-pop investors but also include hedge fund-backed debt buyers.

I hope the GSEs continue to resist giving away properties to institutional investors. Selling to small investors will increase their recovery significantly, and I don't want the competition.

Two years ago, investors increasingly scooped up cheap properties at auctions in the hopes of rehabbing and quickly reselling them for a profit. But declining home values — and increased competition from investors — has made that much harder.

The margins at auction are in decline. In fact, over the last month or so, there has been far too much money chasing too few properties. Lenders have been pushing fewer properties through the auction sites because they are oversaturating the MLS, but the lure of easy money has drawn dumb money to the auction site where prices are being bid up to near retail levels on some properties. Auction markets have ebbs and flows, but the increasing competition has reached a point where many will overpay and lose money never to return.

Meanwhile, the discounts for foreclosed properties in some markets are so attractive “that it looks like the cash flow investors are getting [on rentals] is awfully good,” says Thomas Lawler, an independent housing economist in Leesburg, Va.

One sign that investor demand has picked up for cheap properties that can be rented: in Phoenix, the number of homes selling below $100,000 was up 41% from one year ago in May, while all other sales were down 11.3%, according to DataQuick, a real-estate data firm.

“It doesn’t take too long as an investor to recognize the opportunity: home prices are less, but rents are more,” says Eric Peterson, a former homebuilder and co-founder of Praxis Capital, which has launched a $10 million fund focused on renting out foreclosures. Once prices stabilize and begin rising in a few years, “we’ll be holding a fair amount of inventory, and we’ll be ready to sell.”

The idea has won backing from a number of influential private sector minds. Rental programs could “solve a couple of policy problems with one solution” by also extending qualified tenants an option to one day purchase the homes, said mortgage-bond pioneer Lewis Ranieri in a recent paper with Kenneth Rosen, a housing economist at the University of California at Berkeley.

So where should smart investors look for these rental home deals?

Best cities to invest in rental homes

In Las Vegas, investors willing to take a gamble could win big

Amy Hoak — July 11, 2011, 5:53 p.m. EDT

HomeVestors of America and Local Market Monitor released its list of best markets to invest in rental property, and Las Vegas came out on top. HomeVestors is a real-estate investment company; Local Market Monitor is a forecaster of real-estate markets. Read more: Why investing in rentals could be a good move.

In Las Vegas, home prices are down 45% since their peak in 2006, according to the news release from the companies. Even better for investors: Many people who work in the casino industry are renters.

That means investors can buy homes at low prices and have a sizable pool of renters from which to choose.

Unemployment is a problem in Las Vegas, and rental vacancies are also a problem. Personally, I won't buy any properties with less than a $950 monthly rent, and I won't buy condos. Lower priced condos compete with the apartment complexes which offer better amenities. If and investor has a $1,100 a month single-family detached home, she can always lower the rent $50 to $100 and find a suitable renter. If an investor has a $700 per month condo, lowering the rent will not guarantee finding a renter. For that reason, I only consider detached homes with rents over $950 per month.

“What we’re looking for is how do you rank, based on the return that you get on the rentals, counterbalanced with the risk and what the price is,” said David Hicks, the co-president of HomeVestors, the company whose slogan has long been, “We buy ugly houses.”

The return could be short-term (the cash flow attained by renting out the property), long-term (the appreciation of the property over time) or both, he said. The risks include future potential home-price drops in the market.

What makes Las Vegas a unique market is its potential for both immediate cashflow and long-term appreciation. The current cashflow is obvious, but the long-term appreciation potential is based on the idea that prices are far below their long-term trendline, and once the problems with both supply and demand caused by the housing bubble have worked through the system, prices will spring back up to their long-term trendline.

Affordability is like water in a pool, and lender supply is like pushing a basketball below the waterline. Once the pressure abates, the ball pops back up to the surface. In neighborhoods where prices are still inflated above the waterline, prices don't pop back up.

The report looked particularly at single-family home rentals; about 14% of single-family homes in the country are maintained as rental properties, according to the news release. Renting a single-family home can be especially attractive to families who have lost their homes to foreclosure, Hicks said. Once parents have had a backyard for their children to play in, they often don’t want to live in an apartment home, he said.

That is another reason I like single-family detached homes over condos.

Traditionally, HomeVestors franchisees buy only about 12% of houses with the intention of fixing them for rental. A greater percentage of homes are bought to renovate and sell right away, Hicks said.

But that’s changing, and more are looking for income properties, he said.

“We see a lot of investors stung by the stock market over the past few years,” and now they’re turning to real estate, Hicks said. “Even counting the past few years, if you take long-term investing in properties and land, the return on that is some of the best investments people have ever had.”

The calculations in the report assumed markets’ three-year home-price forecasts and gross rents to assign them a risk-return premium. Las Vegas had a 4.7% risk-return premium, relative to the national average; San Francisco, which ranks 100 on the list, had a -2.4% risk-return premium, according to the report. …

Orange County would probably perform similarly to San Francisco as prices remain elevated in both markets. Orange County has poor cashflow and poor long-term potential for appreciation based on its current valuation. One can argue Orange County will experience superior income growth and thereby it will have superior appreciation. That is possible. California kool aid certainly is tasty. I am in no hurry to deploy my money here.

Rental property fund

In the next few months, I will be forming a fund to buy-and-hold cashflow properties in Las Vegas. Now that I know the market and have the team in place to handle the workload, I am prepared to deliver properties. For those willing to take a gamble on Las Vegas, stay tuned.

Put to the bank at the peak

The owners of today's featured property owned it for longer than my records go back. Based on their property taxes, I have inferred they paid about $200,000 about 25 years ago. You would think the house would be paid off by now, but this is Irvine not Indianapolis.

In a perfectly timed refinance, this couple took out a $600,000 loan on 9/16/2006, and followed it with a $227,000 HELOC on 3/27/2007. If they maxed out the HELOC, they obtained full resale value without having to sell or leave their house.

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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 … 1 West FORTUNA Irvine, CA 92620

Resale House Price …… $669,000

Beds: 5

Baths: 4

Sq. Ft.: 2750

$243/SF

Property Type: Residential, Single Family

Style: Two Level, Other

Year Built: 1977

Community: Northwood

County: Orange

MLS#: S664891

Source: SoCalMLS

Status: Active

On Redfin: 21 days

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End of Cul De Sac, 5 bedrooms, boasting 2 master suites w/ Own Full Bath. This is a Great area for a large Family. Side to a Large Green Belt, has Extra Long Driveway, Custom Built-ins, Custom Oak Balusters & Handrails, Custom Molding, Ceiling Fans, Tile Floors, Spacious Kitchen w/ Newer Appliances & Pantry, Large Family Room w/ Entertainment Unit, Remodeled Fireplace & Custom Windows, Indoor Laundry, Private Backyard, Newer Title Roof, Walk to Award Winning Schools Including Northwood High, Walk to Great Association Amenities-Pools, Spa, Tennis courts, Clubhouse, Tot Lots, BBQ's. Close to Hicks Canyon Trail, Parks & shopping. Low Tax Rate, NO MELLO ROOS, LOW Association.

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Proprietary IHB commentary and analysis

Since this property is in a neighborhood with no Mello Roos and a low association fee, the current price makes this property at or below rental parity. I challenge anyone to find a comparable rental for less than $2,700.

Resale Home Price …… $669,000

House Purchase Price … $200,000

House Purchase Date …. 1/1/1986

Net Gain (Loss) ………. $428,860

Percent Change ………. 214.4%

Annual Appreciation … 4.8%

Cost of Home Ownership

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$669,000 ………. Asking Price

$133,800 ………. 20% Down Conventional

4.48% …………… Mortgage Interest Rate

$535,200 ………. 30-Year Mortgage

$115,947 ………. Income Requirement

$2,705 ………. Monthly Mortgage Payment

$580 ………. Property Tax (@1.04%)

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

$139 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$83 ………. Homeowners Association Fees

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$3,508 ………. Monthly Cash Outlays

-$451 ………. Tax Savings (% of Interest and Property Tax)

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

$222 ………. Lost Income to Down Payment (net of taxes)

$104 ………. Maintenance and Replacement Reserves

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$2,674 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$6,690 ………. Furnishing and Move In @1%

$6,690 ………. Closing Costs @1%

$5,352 ………… Interest Points @1% of Loan

$133,800 ………. Down Payment

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$152,532 ………. Total Cash Costs

$40,900 ………… Emergency Cash Reserves

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$193,432 ………. Total Savings Needed

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