The spring-summer selling season of 2006 marked the peak of the housing bubble. Fannie Mae just lowered its projections and signaled the bust will drag on.

Irvine Home Address … 10 FIGARO Irvine, CA 92606

Resale Home Price …… $825,000

Grandmas sit in chairs and reminisce

Boys keep chasing girls to get a kiss

The cars keep going faster all the time

Bums still cry “hey buddy, have you got a dime”

The beat goes on, the beat goes on

Drums keep pounding a rhythm to the brain

Sonny & Cher — The Beat Goes On

Despite the minor bear rallies, the housing crash continues. The beat does on. Prices peaked about 5 years ago with some markets peaking earlier and some later. With problems of shadow inventory looming over the markets, the bottom is not in place, and recovery is a distant fantasy.

Not a happy anniversary: Real estate bust turns 5

By SHANNON BEHNKEN — The Tampa Tribune Published: June 24, 2011

TAMPA — It's an inauspicious anniversary. Five long years ago this month, the Tampa Bay area's supercharged housing prices finally ran out of steam, and the housing bust officially began.

Prices have been free-falling ever since.

The dips have slowed, even reversed at times, but every month new data shows median home prices are far below what they were the previous year. Sales, too, have struggled to regain forward momentum.

We've become painfully aware of the drumbeat of dour housing market reports. And yet, the question we all keep coming back to is this: How far will prices fall and how long will it take for them to bounce back?

If the history of deflating bubbles holds true, the bottom will be lower and later than anyone expects, and the time to bounce back will take much longer. How many people are holding out for 5,200 on the NASDAQ?

Area prices have already plummeted 46 percent. More than any time since World War II. More even than during the Great Depression, when the national average home price tumbled 31 percent.

Back then, it took 19 years for prices to recover. And get this: even though our economy hasn't been hit nearly as severely as in the 1930s, it will likely take the same amount of time for Tampa metro prices to recover from the latest downturn.

Not all economists think the turnaround will take decades, but Moody's Economy.com predicts it will be 2025 before median sales prices in the Tampa-St. Petersburg-Clearwater metro recover to the June 2006 median of $239,600. Compare that to the current median of $120,200 and consider that Moody's also expects local prices to fall 7 percent more before they begin to rise sustainably.

“It will be a long time because prices have fallen so much,” said Chris LaFakis, a Moody's economist who covers Tampa Bay.

The asymmetric nature of losses is a real problem. If prices fall 50%, it takes a 100% increase in price to regain the peak. Also, since historic appreciation rates include an unsustainable bubble, people who are anticipating 6% appreciation once prices bottom will be disappointed when 3% appreciation is the norm. Typically it takes 16 years for prices to double. In those markets where prices have dropped more than 50%, it will take 25 years or more to reach the bubble peaks.

Still, the area is in better shape than others. Florida as a whole could see prices fall 10.7 percent further, much more than the national average of 4.2 percent. And prices in Detroit, which has been hit much harder than Florida, won't likely hit its peak price again until 2035.

If you think that's gloomy, just listen to Stan Gerberer, an economist with Orlando-based Fishkind & Associates Inc. He said homeowners need to quit asking when prices will return to peak levels.

“The value was never there in the first place,” he said. “It's not reasonable to think prices will ever get back to those bubble prices.”

There is a truthful statement that won't help those in denial. Prices from the bubble were not real. We are not recovering. At best we will resume a normal rate of appreciation after prices have reached a fundamental value based on rental cashflows.

Consider this example Gerberer gave. If a home was worth $150,000 in 1995 and rose to $400,000 during the boom years, it's likely worth only around $250,000 now, he said.

“It's hard to imagine a scenario where the true value of that house would ever reach $400,000 again,” he said.

Prices will hit $400,000 again eventually, the current owner's grandchildren will consider that price reasonable.

That's bad news for homeowners who purchased during the boom years. Foreclosures are still ticking up in some areas and economists expect it to take years to work off the inventory.

But Mark Dotzour, chief economist with the real estate center at Texas A&M, doesn't like to compare today's housing slump with the Great Depression. It shouldn't take as long for the overall economy to recover as it did 70 years ago because unemployment isn't nearly as high, he said.

Unemployment was as high as 25 percent back then and is now hovering around 9.1 percent. Tampa Bay's unemployment rate is 10.5 percent.

“The magnitude of the situation isn't even comparable,” Dotzour said. “But the housing market is certainly in distress because of the massive job loss we have had.”

His assessment is partially true. Unemployment is not as bad as the Great Depression, but it is far worse than government statistic show. Since the Great Depression the government has revised its methodology to underreport unemployment. They no longer count discouraged workers, nor do they classify the underemployed as a problem.

However, Dotzour is more optimistic than Moody's.

“I think people are way oversold on the notion that housing isn't coming back,” he said. “Americans get carried away. We think whatever has happened in the past 24 month will go on forever.”

The real estate market's problems are largely attributable to the way the government has handled the downturn, Dotzour said. He points to bailouts and the home buyer's tax credit, which he says just prolonged the recovery.

“It can't possibly take 19 years for prices to recover,” he said. “I have faith that our government will figure it out before then.”

Being an Aggie, I want to support Mr. Dotzour; however, those comments are pure nonsense. Based on the bear rally of the last 24 months, Americans sustained denial of the problem and are likely more optimistic than they should be. Further, it can easily take 19 years or longer for prices to reach the peak because it was the peak of a housing bubble, not some appropriate price level from which we have temporarily declined. And worst of all, anyone who has faith that our government will figure it out should simply hide his head in shame.

As painful as it is for people to lose home, Dotzour said the market won't improve until foreclosure homes are resold.

“All these people who lost their homes will have to rent somewhere,” he said. “There's nothing wrong with that. That's the way America has always worked.”

I agree with those statements. Foreclosures are essential to the economic recovery. Renters move in and out of properties with changes in their income and employment status, and nobody gets worked up about it. Why are loan owners any different?

Fannie Mae Revises Down Growth,Home Prices,30Y Rate Outlook

By Yali N'Diaye — Monday, June 20, 2011

WASHINGTON (MNI) – Fannie Mae Monday revised down its estimates for both home prices and growth in the United States this year, noting that the key to the housing recovery remains the labor market.

“Weakness in economic activities spanning manufacturing, consumer spending, jobs, and housing has resulted in the group downgrading projected growth for the current quarter, as well as for the second half of they year,” Fannie Mae's Economics & Mortgage Market Analysis Group said in its June Economic Outlook.

Without job creation, there will be no new household formation. The unemployed don't buy houses.

The mortgage giant also revised down it projections for the 30-year fixed mortgage rate, which it now expects to remain below 5% through the second half of 2012.

The housing forecasts show the 30-year mortgage at 4.8% at the end of this year, compared with the May estimate of 5.2%. In fact, Fannie Mae said it is likely to remain under 5% until the second quarter of 2012, when it is projected to reach 5.0%.

Interest rates will eventually go back up, but it won't happen until the economy improves and lenders write off more of their bad debts. Low interest rates may be with us for a while.

“Prospects for accelerating growth have grown dimmer recently due to downward revisions of first-quarter economic activity and slowdowns across a broad set of indicators during May,” Fannie Mae said. As a result, it now forecasts 2.5% GDP growth this year, compared with a projection of 2.9% last month.

The 2.5% growth estimate is “more than a full percentage point lower than the forecast at the beginning of the year,” the report said.

Going forward, “Ultimately, the labor market holds the key to a housing recovery, but job growth is needed in order to activate housing demand,” said Fannie Mae's Chief Economist Doug Duncan. “Hiring delays will continue to push out timing for the housing rebound.”

Fannie Mae now sees the unemployment rate at 8.8% at the end of 2011, up from it's 8.5% estimate in May. The improvement in the jobs situation through the end of 2012 is also expected to be slower, with the unemployment rate now expected to be 8.6% at the end of 2012, compared with 8.0% in May.

Against this backdrop, home prices are not only expected to decline more than had been anticipated in May, but next year's rebound — while still expected to happen — is projected to be weaker.

The FHFA index is seen down 3.3% in 2011, compared with a 2.0% decline initially expected in May. In 2012, prices are seen recovering by 1.8%, compared with a 2.5% estimate in May.

The economy is not improving, partly because the homebuilding industry, which is usually a strong economic force in a recovery, is not growing. Until the plethora of the unemployed in real estate related industries go back to work, the economy is going to suffer.

Housing slump to last 3 or 4 more years

June 29th, 2011 — posted by Jeff Collins

The housing slump has been going on for nearly six years.

But it’s going to take another three or four years before the backlog of foreclosures that’s dragging the market down can be cleared, an Irvine housing consultant told Orange County business leaders Wednesday.

The housing market took a couple years to muddle back to normal after hitting bottom in 1995, consultant John Burns told the Orange County Forum’s luncheon on housing’s outlook. This time around, “the muddling will be a couple years more (than in the 1990′s) because the problems are more severe.”

John Burns is right. We have not dealt with the excesses of the housing bubble, and until we do, the housing crash will grind on.

Burns was one of three speakers at the forum. But the other speakers, both homebuilders, weren’t much more optimistic.

“We were really hopeful a year ago. … Today, it’s much more sobering for us,” said Standard Pacific Homes President Scott Stowell. “We’re still somewhat bearish.”

Emile Haddad, CEO of developer FivePoint Communities, said that a backlog of vacant homes in Orange County needs to be cleared up before homebuying demand can get back to normal.

May I take this opportunity to say “I told you so?” In my dealings with colleagues in the homebuilding industry (I've never met Stowell or Haddad), I have been consistently telling people what the two above are finally acknowledging. Nobody wants to hear from Cassandra.

That said, the speakers believe that Orange County is a bright spot in the housing market and will revive more quickly than other, harder-hit areas.

Highlights of their comments include:

Burns: “If you look around the country, nationally, there’s 3.1 million more vacant home than there are supposed to be. The good news is there’s only 19,000 of those in Orange County, and we’ll have all those cleared out sometime next year. Orange County and San Antonio will be the first two markets to clear up all of their vacant housing in the entire country.”

Haddad: Five Point Communities, which is managing housing and commercial development surrounding the Orange County Great Park at the former El Toro marine base, said his firm is on track to start building homes by 2013.

“That’s our story for the Great Park,” he said. “It’s a good story.”

Stowell: There’s a huge difference in sales in Standard Pacific projects in north and south Orange County. The company is selling five to eight homes a month in its two Blackstone projects in Brea, but in the Talega project in San Clemente, “We struggle to sell houses.” One reason, he said, is builder competition is stiff in in South County, but hardly exists in north Orange County.

Haddad: Immigrant and Generation Y buyers make up a significant amount of housing demand going forward. Both are looking for a more ubran lifestyle and want to reconnect to the larger community.

Two of the three above want to sell product in Orange County, so their comments should be taken with some skepticism. Further, despite having less vacant housing stock, Orange County has more unresolved mortgages in shadow inventory. In the beaten down markets, many more bad loans have been processed, and pricing is much closer to the bottom than to the top. There is little reason to believe OCs mortgage woes will be resolved quickly.

Fannie Mae and Freddie Mac: All three speakers expressed concerns about congressional proposals to eliminate the mortgage giants created to spur homebuying. Burns noted that the two entities are responsible for the bulk of liquidity in today’s housing market.

Added Haddad: “If the government makes the mistake and gets out of subsidizing housing, you could collapse the housing market.”

We can only hope so. The government will not exit the housing market all at once, but they will exit the over $471,000 market sooner rather than later. Building and selling at price points requiring jumbo financing is going to be a persistent drag on Orange County house prices making the bottom elusive and the recovery tepid.

2.5% annual appreciation since 2000

Today's featured property is a closed sale that was part of shadow inventory. The former owners put 20% down, and during the housing bubble, they didn't raid the housing ATM. Unfortunately, on 1/12/2007 they thought it was a good idea to take out a $880,000 Option ARM and a $109,995 HELOC. That $500,000 in mortgage equity withdrawal cost them their house.

Foreclosure Record

Recording Date: 05/10/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 02/08/2010

Document Type: Notice of Default

Perhaps they didn't care. They got more out of the property by refinancing near the peak rather than selling four years later.

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Blog Note: I have reorganized the presentation of property information to make a clearer distinction between MLS derived information and that which is proprietary to Irvine Housing Blog. Any comments or suggestions are appreciated.

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MLS information

Irvine House Address … 10 FIGARO Irvine, CA 92606

Resale House Price …… $825,000

Property Details for 10 FIGARO Irvine, CA 92606

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Beds: 4

Baths: 3

Sq. Ft.: 2750

$300/SF

Property Type: Residential, Single Family

Style: Two Level

Year Built: 1996

Community: 0

County: Orange

MLS#: F11043464

Source: CRISNet

Status: Closed

——————————————————————————

APPROVED SHORT SALE!!!! Wonderful home in wonderful West Park Neighborhood. This elegant Vintage Plan home has a great layout with huge windows that give true illumination to this house. It further offers high ceilings, hardwood floors, plantation shutters, a gorgeous spiral staircase, one bed and bath on main level, separate family room with fireplace, large kitchen with island, a private back yard with cabana and built in BBQ. Separate laundry room with sink and storage, a good size loft/den that's perfect for a home office or play room. The bathrooms are very clean and well maintained that have tile flooring and double vanities. A huge master bedroom with stand up shower and tub. The community offer tennis courts, large playground, and gorgeous pool and spa.

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

This property is no longer for sale.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

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Public record and proprietary Irvine Housing Blog analysis

Resale Home Price …… $825,000

House Purchase Price … $625,000

House Purchase Date …. 9/12/2000

Net Gain (Loss) ………. $150,500

Percent Change ………. 24.1%

Annual Appreciation … 2.5%

Cost of Home Ownership

————————————————-

$825,000 ………. Asking Price

$165,000 ………. 20% Down Conventional

4.49% …………… Mortgage Interest Rate

$660,000 ………. 30-Year Mortgage

$143,152 ………. Income Requirement

$3,340 ………. Monthly Mortgage Payment

$715 ………. Property Tax (@1.04%)

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

$172 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$40 ………. Homeowners Association Fees

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

$4,267 ………. Monthly Cash Outlays

-$796 ………. Tax Savings (% of Interest and Property Tax)

-$871 ………. Equity Hidden in Payment (Amortization)

$274 ………. Lost Income to Down Payment (net of taxes)

$123 ………. Maintenance and Replacement Reserves

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

$2,997 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,250 ………. Furnishing and Move In @1%

$8,250 ………. Closing Costs @1%

$6,600 ………… Interest Points @1% of Loan

$165,000 ………. Down Payment

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

$188,100 ………. Total Cash Costs

$45,900 ………… Emergency Cash Reserves

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

$234,000 ………. Total Savings Needed

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Have a great weekend,

Irvine Renter

Bank of America as part of a settlement deal will speed up the foreclosure process on the loans it services for investors.

Irvine Home Address … 10 SILKGRASS Irvine, CA 92614

Resale Home Price …… $585,000

I know baby it's hard to be strong

Just take the good with the bad

And don't think you're alone

Frankie and the Knockouts — Sweetheart

In January I asked, Did BofA get a sweetheart deal at the expense of the US Taxpayer? When B of A purchased Countrywide, the government agreed to backstop their losses after certain thresholds were met. This limitation on downside risk is the only reason B of A was willing to buy the steaming pile of mortgages on Countrywide's balance sheet. I don't know if we are on the hook for the losses recently announced, but B of A is getting serious about resolving the issues pertaining to the crap on its balance sheet and the liabilities it took on when it bought Countrywide.

BofA to pay $8.5B housing crash settlement

Payment to investors for mortgage meltdown reportedly the largest ever

msnbc.com staff and news service reports — June 29, 2011

NEW YORK — Bank of America Corp said on Wednesday that it will pay $8.5 billion to settle claims from investors that lost money on mortgage-backed securities, in a landmark pact that could influence other major banks to settle mortgage claims.

This will establish a precedent other major banks will be forced to deal with. Expect to see more such announcements in the coming months.

The sum would be big banks' largest single settlement thus far related to the financial crisis that helped spark the Great Recession. The settlement, which Bank of America said would lead to a second-quarter loss, is subject to court approval.

“This is another important step we are taking in the interest of our shareholders to minimize the impact of future economic uncertainty and put legacy issues behind us,” said Bank of America Chief Executive Officer Brian Moynihan in a statement. “We will continue to act aggressively, and in the best interest of our shareholders, to clean up the mortgage issues largely stemming from our purchase of Countrywide.”

Notice the bullshit implication that B of A was largely responsible with its lending. B of A has huge problems with its own portfolio, but since B of A was less stupid than Countrywide, B of A can look relatively responsible in comparison.

Bank of America said the charges would include an additional $5.5 billion to cover expected payments to other mortgage bond investors.

As a result of the settlement, Bank of America said in a statement that it expects to report a net loss in the range of $8.6 billion to $9.1 billion in the second quarter of 2011, or $0.88 to $0.93 per diluted share.

As banks earn more money, they can write off more bad debt. This will ultimately help them stop the amend-pretend-extend dance and clean up their balance sheets. This is an important, albeit painful, step forward.

The $8.5 billion settlement covers claims from 22 institutional investors, including BlackRock Financial Management, Pacific Investment Management Co and Western Asset Management. The bank said the settlement is linked to mortgages made by Countrywide Financial Corp, once the nation's largest mortgage lender, which it bought in 2008. …

For several months, Bank of America battled claims based on estimates “that were much different from ours,” Moynihan said. But at this point, it made more sense to settle than to keep fighting, he said.

“We have said consistently if people are reasonable and can get to a reasonable assessment of their claims and it's in the best interest of shareholders, we will settle,” Moynihan told Wall Street analysts in a conference call.

Citi analyst Keith Horowitz said the settlement, which amounts to only 2 percent of the original principal balance, removes one of the largest investor risks for Bank of America.

“We think this could prove to be a step forward” for Bank of America, Horowitz said. It would show investors that the bank can manage through crisis without raising additional capital.

B of A settled for 2% of the original loan balances, and that is a reasonable assessment of the claims against them? Reasonable by B of A standards perhaps. There is no way that is reasonable by the standards of the investors, nor does it scratch the surface on the losses those investors incurred by buying the Countrywide trash.

The real story here isn't the settlement losses, it is what B of A has agreed to relative to its servicing operations.

Bank of America settlement could speed foreclosures

Investor settlement includes promise to outsource 'high risk' mortgages

By John W. Schoen — June 29, 2011

Investors who bought bonds backed by shaky loans scored a major victory Wednesday with the announcement that Bank of America will pay more than $8 billion to make up for some of their losses.

Homeowners on the other end of those shaky mortgages — especially those most at risk of foreclosure — may have less to cheer about.

In the largest settlement to date related to the rogue mortgage lending wave, Bank of America said Wednesday it would pay $8.5 billion to settle claims with investors holding about $100 billion worth of mortgage-related securities sold by its Countrywide unit. The winners include 22 large investors such as Pimco, Metropolitan Life and BlackRock, as well as the Federal Reserve Bank of New York.

Aside from their claims that Countrywide sold them bonds backed by faulty loans, the investors argued that by continuing to service bad loans rather than speeding up foreclosures, the Bank of America unit ran up servicing fees, profiting at the expense of investors.

B of A and other major banks who service investor loans have two incentives not to foreclose. The first is as mentioned above; they make more money on the service fees than they make if they foreclose and terminate the mortgage. Second, the major banks have huge second mortgage and HELOC portfolios that are subordinate to the first mortgages they service for others. Each foreclosure causes them to lose everything on these underwater seconds.

The choice for the major banks is to keep obtaining their large service fees and keep their seconds alive or foreclose and recognize large losses. It shouldn't be a surprise they chose not to foreclose on loans they service for outside investors.

In Higher loss severities will force lenders to resolve bad loans and liquidate REO, I noted that “Each month a loan is delinquent it costs 1.5% of the loan balance in carrying costs. That is a troubling rate of financial decay. Time is the actually the bank's enemy when it comes to loan loss severities. Banks are providing squatters time in hopes they will get current and keep the zombie debt alive. Eventually, the carrying costs are going to make the loss severities so large that banks will either liquidate or implode, after which they will be liquidated anyway.”

As a result the settlement includes a promise to hire additional “subservicers” to speed up the foreclosure process for high-risk loans. That means Bank of America borrowers whose foreclosure have been on hold may now see the process accelerated.

“Living with the uncertainty of foreclosure can’t be a pleasant experience,” said Bank of America spokesman Jerry Dubrowski. “The sooner we can deal with that overhang the better for the economy.”

Did B of A start reading the IHB? Last November I argued that Foreclosures are essential to the economic recovery. I have also argued that keeping people in shadow inventory isn't good for the lender or the delinquent borrower. Until I read the statement above, I didn't think either group agreed with me.

Bank of America also faces considerable uncertainty as it continues to try put its mortgage woes behind it.

While the bank said its settlement would resolve “nearly all” its exposure related to mortgages issued by Countrywide, only holders of about a quarter of the securities have agreed to support the deal. Hundreds of investors holding an additional $300 billion worth of securities have yet to agree to the settlement, which also is subject to court approval. There are no guarantees that the remaining investors will go along.

Holdouts won't likely get a better deal, and they will merely waste attorney's fees trying.

“It is not possible to predict whether and to what extent challenges will be made to the settlement or the timing or ultimate outcome of the court approval process,” Bank of America said in its press release announcing the settlement.

Story: BofA to pay $8.5B housing crash settlement

At the height of the boom, rising home prices allowed mortgage originators to replace failed loans with freshly written performing mortgages. Lenders, investors and borrowers all assumed that there was little risk in churning out new mortgages — even if they were based on flawed information — because even if a loan defaulted, the rising value of the home securing it would minimize any potential losses.

But when home prices began falling, many of those bad loans came back to haunt the companies that had underwritten them. With demand for new mortgages drying up, there weren’t enough new loans to replace the ones that were going bad.

In the Great Housing Bubble, I pointed out that the entire subprime lending model masked its poor performance by an appreciating market — an appreciation induced by subprime lending itself. That was the Ponzi scheme embedded within the failed business model. Once prices collapsed, the high default rates translated into large default losses, and the risk became untenable. Hence, we have no subprime lending today, except perhaps for the FHA.

Now investors holding bad mortgages are demanding that lenders buy them back. Those investors include government-controlled lending giants Fannie Mae and Freddie Mac. In January, Bank of America paid $2.8 billion to Freddie and Fannie to buy back mortgages.

Bank of American concede in its press release Wednesday that that it “is not currently able to reasonably estimate” how much more it may have to pay to the two entities for losses on mortgage investments.

It’s also still not clear just how big the mounting losses on mortgage investments will be. With home prices still falling and mortgage defaults rates high, losses on foreclosed homes are hitting even those investors holding top-rated bonds. The ultimate cost of the claims will depend on how many more homes are lost to foreclosure and how much further home prices fall.

Bank of America also faces a potentially large payout to all or some of the 50 state attorneys general, who have been investigating abuses by the biggest mortgage servicers. The state officials are pressing the largest banks, including Bank of America, to pay up to $30 billion in fines and penalties. If a unified settlement can’t be reached, Bank of America could face multiple legal challenges from states that decide to pursue claims on their own.

Our banking system is still in jeopardy. It faces mounting losses, devalued REO, a huge shadow inventory, and falling house prices — which won't rebound because of the inventory they must liquidate. Fortunately for them, the federal reserve is loaning them money for nothing, and they can at least buy government treasuries earning 3%. Over time, a very long time, they will earn their way out of this hole. In the meantime, our economy will struggle.

A rare good deal?

The owner of today's featured property has owned it for a long time. My records go back to 1995, and it doesn't pick up the original purchase. This property is owned free-and-clear, so no lender approval is required to sell it. The asking price is at or below recent comps, and the cost of ownership is comparable to rental with today's 4.5% interest rate.

Even in today's weak real estate market, I don't expect this $244/SF property to last long.

	$565,900 463 East YALE Loop #29 Sold on Jan 28, 2011		0.57 miles 4 bd / 3.75 ba 2,300 Sq. Ft.
	$599,000 400 East YALE Loop Sold on May 25, 2011		0.73 miles 4 bd / 3 ba 2,370 Sq. Ft.
	$585,000 382 East YALE Loop #4 Sold on Apr 22, 2011		0.85 miles 3 bd / 2.25 ba 2,187 Sq. Ft.
	$528,000 364 East YALE Loop #13 Sold on Jun 09, 2011		0.85 miles 3 bd / 2.5 ba 2,187 Sq. Ft.

If we see more pricing like this, I will become more bullish. The price is still too high, but the 4.5% interest rate is making it payment affordable relative to a rental. In high demand markets like Irvine, those circumstances will prompt people to buy despite the likelihood of lower prices.

Irvine House Address … 10 SILKGRASS Irvine, CA 92614

Resale House Price …… $585,000

Cost of House Ownership

————————————————-

$585,000 ………. Asking Price

$117,000 ………. 20% Down Conventional

4.49% …………… Mortgage Interest Rate

$468,000 ………. 30-Year Mortgage

$101,507 ………. Income Requirement

$2,369 ………. Monthly Mortgage Payment

$507 ………. Property Tax (@1.04%)

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

$122 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$395 ………. Homeowners Association Fees

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

$3,392 ………. Monthly Cash Outlays

-$395 ………. Tax Savings (% of Interest and Property Tax)

-$617 ………. Equity Hidden in Payment (Amortization)

$194 ………. Lost Income to Down Payment (net of taxes)

$93 ………. Maintenance and Replacement Reserves

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

$2,667 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,850 ………. Furnishing and Move In @1%

$5,850 ………. Closing Costs @1%

$4,680 ………… Interest Points @1% of Loan

$117,000 ………. Down Payment

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

$133,380 ………. Total Cash Costs

$40,800 ………… Emergency Cash Reserves

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

$174,180 ………. Total Savings Needed

Property Details for 10 SILKGRASS Irvine, CA 92614

——————————————————————————

Beds: 4

Baths: 2

Sq. Ft.: 2400

$244/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1984

Community: 0

County: Orange

MLS#: S664501

Source: SoCalMLS

Status: Active

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Gorgeous remodel property with added/permite DEN . Light hardwood floors through the main level. New cabinets with granite countertops built-in refrigerator. All new appliances. all of the bathroom have been redone huge master shower and more and more. Den is added.

Loan owners have come to believe they are entitled to loan modifications. They aren't, and banks don't want to change the terms of the loan, so they make the process as difficult as possible.

Irvine Home Address … 314 STREAMWOOD Irvine, CA 92620

Resale Home Price …… $232,900

Absolutely no one that knows me better

How did we stay so long together?

When everybody, everybody said we never would

Sugarland — Stuck Like Glue

Lenders and borrowers are stuck with each other. Lenders know everything about their borrowers, and most lenders believe their borrowers are capable to making their mortgage payments. Unfortunately, when they are severely underwater and paying more than a comparable rental, borrowers don't want to make their payments. A poor compromise is a loan modification. They haven't worked out very well.

Why is housing market stuck? This family offers one answer

By Bob Sullivan — June 27. 2011

CHICAGO — Ron and Cheryl Schmalz think they know one reason the U.S. housing market is stuck. They just spent more than two years and created about 50 pounds' worth of paper trying to get a $300-per-month modification to their mortgage.

Whoa! Wait a minute. What is the connection between the housing market being “stuck” and people having difficulty getting a loan modification? If everyone who wanted one were given a loan modification would the market suddenly get unstuck? Of course not. The banks are still in denial that they gave out a bunch of free money. If they have to write off the debt in loan modifications, they truly would be giving out free money. They won't do that.

Nearly every month for the past two years, the Schmalzes received a warning from their mortgage holder, JP Morgan Chase, that the bank was about to foreclose on their home and that late fees were mercilessly piling up. Nearly every two months, the couple would dutifully fax in a pile of paperwork reminding the firm that they were participating in its loan modification program and making trial payments prescribed by the bank.

“We had 17 different relationship managers,” said Ron Schmalz. “They just make you file the same papers again and again and again. And each time you get a new manager, you have to start over. The last time we thought we had a permanent modification, we got another call that said, 'Hi, I'm your new representative.' It makes you crazy.”

At some point, perhaps after the 10th different “relationship manager” doesn't it dawn on people that their lender doesn't want to give them a loan modification?

It reminds me of the Publishers Clearinghouse Sweepstakes. You can enter the contest without buying their magazines, but they will resend you the paperwork with another query to buy a magazine. After about a dozen mail ins, if you still haven't bought a magazine, they will begrudgingly enter you in the sweepstakes. They make people fill out endless paperwork over and over again because they don't want to enter people into the sweepstakes who don't buy magazines.

The same is true for loan modifications. They make people fill out endless paperwork because banks don't want to give the loan modification. Why would they? Particularly if they can get borrowers to keep making partial payments, they will shine those people on as long as possible. As far as the bank is concerned, these borrowers are the living dead, so squeezing a few extra payments out of debt zombies is gravy to them.

Further, if lenders did start giving out loan modifications, everyone would want one. Who wants to pay back their full mortgage balance under onerous terms when banks are giving borrowers better deals?

There are many troubling clogs in the mortgage pipeline that are keeping the housing market stuck — lenders aren't lending; there are too many homes for sale; there's a lack of buyers because of poor employment prospects.

I have read the statement that lenders aren't lending many times. It isn't true. This is a sensationalist claim that implies lenders are capriciously hurting the economy and the housing market.

It is true that lenders are no longer giving unlimited amounts of free money to anyone with a pulse. Hopefully, we will never return to the complete lack of standards and accountability of the housing bubble. However, lenders stand ready to loan money to anyone who meets appropriate lending guidelines. There just aren't that many of those people available.

But one critical clog is the limbo faced by homeowners who can't afford their full mortgage payments any longer but who could survive if their loans were refinanced or modified. In 2009, the Obama administration launched its Home Affordable Modification Program (HAMP), estimating it would help keep 5 million families in their home — and keep 4 million empty houses off the market, critical to the health of the housing market.

Did anyone who wasn't engaging in wishful thinking really believe the government would be able to execute 5 million loan modifications? The announcement had all the features of symbolic politics, with perhaps the exception of the appointment of a foreclosure czar.

Also, I dislike the pandering in this article when he says the program would keep “families in their home.” It isn't their home, it never was. They borrowed a huge amount of money, often with nothing down, to occupy real estate. Underwater loan owners have the same claim to real estate a renter does: none. They have no equity. The only thing they own is their loan.

At the same time, banks committed to continuing their similar, parallel proprietary modification processes.

The Schmalzes' odyssey is a window into the challenges faced by homeowners looking for help, by government regulators trying to prop up the failing market and by banks trying to pick the right bets among mortgage holders who might be able to pay some, but not all, of their monthly payments.

The Schmalz family has a happy ending. After two years of effort, the monthly payment on their Chicago-area home was reduced from about $1,175 a month to $861. It's not a free ride: Their original $90,000 mortgage is now a $98,000 mortgage, and the couple will make up for the lowered payments with additional payments on the end of the loan.

In other words, these borrowers converted their fixed-rate mortgage to an Option ARM. Do you remember the terms on Option ARMs? Temporary payments less than the fully-amortized amount with the principal being added on to the mortgage balance, and increasing payments in the future: those terms are a proven disaster, but they make up the core of loan modifications.

Still, the break the couple got in April represents the end of a nightmare that began in September 2008, when Ron lost his job in telecommunications and the couple told the bank it needed help. It's a Red Tape wrestling match that Ron Schmalz says can break the spirit of homeowners who might otherwise be able to ride out the rough employment market.

“You keep going and you keep giving and you keep doing and you keep faxing and you keep calling to no avail. And you just feel like you're a gerbil,” said Ron. “You're sitting in a wheel going nowhere.”

That's because they are gerbils, or sheeple if you prefer. If they were trying to give lenders more money or new business, do you think the process would have been so difficult?

Right after losing his job, Ron Schmalz began working with Washington Mutual, the original mortgage holder, on the modification paperwork. By early 2009, it was clear the application was in trouble, as Chase's acquisition of Washington Mutual had thrown things into disarray. After a few rounds of resubmitting required tax forms, income statements and monthly budgets, the Schmalzes were denied.

Ron Schmalz had found a new job by then, albeit at a lower salary, and for a few months in 2009, the couple tried to keep up with their $1,100 payments. But then Cheryl lost her job, they missed a payment, and they resubmitted their application. Working with Chase's proprietary modification program, rather than the government's HAMP program, they were given a temporary modified payment around $800 per month. The couple says they dutifully made the new payments beginning in January 2010 and were told that within three months that Chase would decide whether the adjustment would be made permanent or rescinded, so either way, they could move on with their lives.

Then, 14 months passed.

What is the bank's urgency to do anything? The took a loan in default and got the people to make $800 per month payments, and they didn't have to agree to anything. The bank is going to allow that situation to go on indefinitely. They have bigger problems with other loans to deal with.

Letters saying “We are prepared to start foreclosure proceedings” arrived every month. Ironically, they all included instructions on how to enter a loan modification program.

Almost as frequently, the Schmalz family says, they were told they'd forgotten to submit a tax form or an income form, or that their file was incomplete, so no decision could be made. With nearly every conversation, there was a new “relationship manager.”

“It's about obstacles. It's about what they placed in front of us to make this modification a reality. It made things very difficult,” Ron said.

Of course they did. They don't want to make the process easy because they don't want to give out loan modifications. This isn't a story about a bad program that needs to be streamlined. The banks have no desire to streamline this process or make it any easier. They want to get whatever they can out of borrowers, and if providing a dangling carrot leads borrowers to make at least partial payments, banks will do that.

There's no way to know who's to blame for paperwork mishaps, but the Schmalzes brought quite an organized pile of documents and file folders with them to show a reporter.

“Things got so tense that we were at each other's throat, saying: 'Did you file this? Didn't you file that?' You know, sometimes blaming each other,” said Cheryl. By that point, they'd fallen behind by $10,000, and “the tune of our conversations with Chase got nasty.”

They were $10,000 behind on their mortgage payments. What did they expect, invitations to the Chase Christmas party?

In the middle of 2010, the couple turned to Illinois Attorney General Lisa Madigan looking for help.

After a flurry of complaints dogged the various loan modification programs, Madigan's office had created a special division to deal with consumers facing the Schmalzes' plight. The agency gets about 200 calls per week to its mortgage help hotline, said Christine Nielsen, who heads the division. It brought on two full-time housing counselors to help homeowners submit loan modification requests to banks; still, she's seen the difficulty consumers have when working with banks. Despite a flurry of complaints about modification applications in late 2010, homeowners are still being left in the lurch.

Loan modifications are not an entitlement. As I noted last year, Loan Modifications Succeed by Increasing Borrower Entitlements. “If people are not forced to cut back discretionary spending before they obtain a government bailout, taxpayers are subsidizing their discretionary spending. The standards of what constitutes discretionary spending from essential spending depends greatly on the the spender's sense of entitlement.”

How many of the people calling the hotline looking for the loan modification they deserved were unwilling to cut back on their lifestyle extravagances? Remember Calculated Risk's post HAMP applicants tanned and juiced?

“Consumers are still having a fair amount of difficulty getting answers from banks about their loan modification applications,” she said. She said the Schmalz case was typical of the problems consumers are encountering, but some are much worse. One recent applicant was turned down for a modification by another bank (not Chase) because of a difference of $20 per month, she said.

Banks have to draw a line somewhere, and no matter where that line is drawn, someone will just miss it.

Chase wouldn't discuss the specifics of the Schmalz case, other than to say the firm provided the family with a “special forbearance” in 2010 and a modification in 2011.

“In general, we need complete and current information from a customer to make a modification decision,” a Chase spokesman said.

Timely processing of modification applications is essential to the housing market recovery, said Madigan.

Why? Loan modifications are not essential to a housing market recovery, so timeliness is certainly not necessary. The timely processing of foreclosures is essential to the housing market recovery, but nobody wants to deal with that reality.

“Our nation continues to be in the grips of a home foreclosure crisis of unprecedented proportions. Meaningful loan modifications — ones that truly reduce a homeowner's payments to affordable levels — can save homes, yet people often face serious obstacles attempting to navigate the loan modification process on their own,” Madigan said. “Resources provided by my office and other HUD-certified housing counselors can help people received a modification by ensuring banks comply with federal modification guidelines.”

Reducing payments to affordable levels after the fact does not save homes. By converting these loans to Option ARMs, they merely delay the inevitable foreclosure. These homes should never have been imperiled in the first place through foolish lending. Making sure lending does not get stupid again is the only thing that can save homes and sustain ownership.

As the modification process drags out over months, or even years, it's easy to understand the problem facing both banks and consumers. Generally, banks are working off an affordability formula based on income. Financial circumstances change; applicants can and do lose or recover income after they submit an application, which requires a recalculation. That explains part of the delay faced by the Schmalz family.

In the real world when someone gets laid off or can no longer afford their house — they have to sell it and move. Now, once you have obtained a certain level of housing entitlement, apparently you get to keep it forever even if you can't afford it any more.

Here's my new retirement plan. In my late 50s, I will borrow the maximum I can at the peak of my salary. Then a couple of years later, I will retire and demand a loan modification based on my social security income. Since I am entitled to a loan modification, they should reduce my payments to what I can now afford. That way I get to keep a McMansion on a retiree's income.

Excessive delays, however, lead inevitably to such changes. A family that applies for help because of a loss of income will be working immediately to replace that income. That places them squarely in a catch-22 — success finding a job could lead to failure in a loan modification application or, more specifically, in the conversion of a temporary to a permanent modification.

Duh! If someone finds a better paying job, they no longer need the loan modification, do they?

The delays leave the family in a perpetual state of uncertainty, with a pile of threatening bank letters rising. It also leaves the housing market in uncertainty — no one knows how many trial modifications will ultimately be rejected, with the likely outcome that the owners will lose their home and the house will be thrust onto the already-saturated housing market.

I'll give you a hint. Over time, they all will fail. Even in the early stages, the failure rate is 75%. Why would that number improve?

The most recent data on the administration's HAMP modifications show that only about one-third of 2 million modifications have been made permanent. Millions of other homeowners are engaged in proprietary bank modifications.

Even as the bills and foreclosure notices piled up last year, Nielsen's office told the Schmalzes to keep making their trial modification payment in order to demonstrate their ability to satisfy the lowered obligation. Finally, in April, the Schmalzes got the good news they'd been dreaming about.

“Essentially, we got a refinance,” Ron Schmalz said. “But they could have done this at Day 1 for us. We're not upset with the result; we're happy with it. We're just upset with the process. We just don't understand why it took this long.”

That's the question nearly every observer of the housing market is asking about a potential recovery.

Yes, the lender could have given these borrowers and the millions of others loan modifications on day 1, but that would cost them billions more than they are already losing. Once the word gets out that loan modifications are easy to get, everyone will want one. Foreclosure Is a Superior Form of Principal Reduction.

MetLife eats a reverse mortgage

As you may recall, I really don't like reverse mortgages. MetLife recently began pushing reverse mortgages as Wells Fargo and B of A exited the industry.

“They must know something that I don’t know,” said David Lykken, president of Mortgage Banking Solutions, an Austin, Texas-based consulting firm. “They’re too smart to be heading into an area that’s disastrous.”

A lender that is too smart to make a bad loan? LOL!

I don't know what MetLife is up to, but the reverse mortgage industry is theirs for the taking. Based on loans like the big loser they made on this property, they can have it.

Today's featured property was purchased for $125,000 on 8/24/1990. There is a $112,921 first mortgage recorded in 1999, but no other refinance or HELOC activity. In other words, this was a responsible borrower.

Then on 1/28/2010, MetLife gave her a $367,500 reverse mortgage. Apparently, she took the money and ran.

Foreclosure Record

Recording Date: 03/03/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 11/30/2010

Document Type: Notice of Default

MetLife bought the property for $184,759. Perhaps that is all they gave her of the $367,500 they approved her for. Either way, this doesn't look like the kind of business a “too smart” lender would want to engage in.

Irvine House Address … 314 STREAMWOOD Irvine, CA 92620

Resale House Price …… $232,900

House Purchase Price … $125,000

House Purchase Date …. 8/24/1990

Net Gain (Loss) ………. $93,926

Percent Change ………. 75.1%

Annual Appreciation … 3.0%

Cost of House Ownership

————————————————-

$232,900 ………. Asking Price

$8,152 ………. 3.5% Down FHA Financing

4.49% …………… Mortgage Interest Rate

$224,748 ………. 30-Year Mortgage

$48,747 ………. Income Requirement

$1,137 ………. Monthly Mortgage Payment

$202 ………. Property Tax (@1.04%)

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

$49 ………. Homeowners Insurance (@ 0.25%)

$258 ………. Private Mortgage Insurance

$242 ………. Homeowners Association Fees

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

$1,888 ………. Monthly Cash Outlays

-$104 ………. Tax Savings (% of Interest and Property Tax)

-$296 ………. Equity Hidden in Payment (Amortization)

$14 ………. Lost Income to Down Payment (net of taxes)

$49 ………. Maintenance and Replacement Reserves

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

$1,550 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,329 ………. Furnishing and Move In @1%

$2,329 ………. Closing Costs @1%

$2,247 ………… Interest Points @1% of Loan

$8,152 ………. Down Payment

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

$15,057 ………. Total Cash Costs

$23,700 ………… Emergency Cash Reserves

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

$38,757 ………. Total Savings Needed

Property Details for 314 STREAMWOOD Irvine, CA 92620

——————————————————————————

Beds: 2

Baths: 1

Sq. Ft.: 889

$262/SF

Property Type: Residential, Condominium

Style: One Level, Traditional

View: Ocean

Year Built: 1977

Community: Northwood

County: Orange

MLS#: S664087

Source: SoCalMLS

Status: Active

——————————————————————————

Welcome to the wonderful Springs area in Irvine. This lovely lower level condo features 2 beds and 1 bath, kitchen with dining area and open livingroom. Super clean and ready to move in. A must see!!!

BTW, rumor has it that OCAr is meeting today to discuss a settlement offer. I will update everyone soon.

The GSEs are picking up the pace of liquidations by offering incentives and lowering prices. The banking cartel who is still withholding inventory will be left with devalued REO.

Irvine Home Address … 30 SPARROWHAWK Irvine, CA 92604

Resale Home Price …… $361,900

Just take me as I am,

or have nothing at all.

Mary J. Blige — Take Me As I Am

Last September I noted the GSEs were expediting their foreclosures and REO sales and this behavior was going to threaten the banking cartel. The GSEs are still at it, and they are undercutting bank REO pricing to sell their inventory. Take the property as is, or take nothing at all.

Foreclosures for sale, all homes sold as is

By Kenneth R. Harney, Friday, June 24, 8:21 AM

From what I have observed pulling comps on closed sales, the GSEs are making deep-discount giveaways. Anyone looking to be an owner-occupant on a lower cost property should look at the GSE portfolio. These must-sell properties are the best deals in the market today. And given the huge shadow inventory the GSEs have not begun to process, the deals will only get better.

Federal shadow housing inventory is getting bigger

Posted by Tracy Alloway on Jun 21 12:20.

A housing milestone, of sorts.

Federally-backed loans already make up a majority of the mortgages classified as ‘seriously delinquent’ in the US financial system. In other words, there are more soured loans held or backed by the US’s giant GSEs — Fannie Mae and Freddie Mac — plus the Federal Housing Administration (FHA), than those held by banks and in private-label securitisations.

But when it comes to Real Estate Owned (REO) property, some reckon the federal share of so-called shadow housing inventory (foreclosed properties) looks set to surpass the private sector’s too.

Here’s Goldman Sachs, including economists Alec Phillips and Jan Hatzius:

The federal share of REO property is also rising. For 1Q, RealtyTrac estimates that total REO property held by lenders totaled 872,000. Of this, we know from monthly or quarterly financial statements that Fannie Mae, Freddie Mac, and the FHA hold roughly 300,000 of these properties on their books, and that this inventory has been rising by more than total REO inventories over the last year. Over the next few quarters, the federally backed entities are likely to see their inventories of REO property become a larger share of the total. The chart below shows the accumulation of REO property by the GSEs and FHA, which was on a trend to overtake private sector activity until it declined in 4Q, most likely due to legal irregularities in foreclosure processing (the chart relies on filings from the federal entities and assuming that the difference between this number and total REO filings reported by RealtyTrac are related to private label securities or bank portfolios).

Now, Goldman reckons the government could use its newly-acquired shadow inventory in a couple ways — one of which, notably, is to help prop up house prices by not doing anything with it, really.

So far, the GSEs are not withholding inventory from the market. If prices continue to crater, they may change their minds, but for now, REO is being cleared out as fast as it comes in.

Here’s Goldman again:

As the GSEs and FHA begin to take on a larger and larger share of seriously delinquent loans and, ultimately, foreclosed properties, how policymakers approach the operations of these entities could become an important factor for home prices, since these entities could in theory be used to hold supply off of the market in an effort to support prices. As shown in the chart below, distressed property sales appear to be weighing on home prices, with solid gains over the last couple of months in the CoreLogic HPI that excludes distressed sales, compared with weakness in the index that includes them.

However, the federally backed entities have not shown much sign of trying to hold properties back from the market. The FHA may be particularly constrained by costs, since it has been trying to raise its capital level after concerns last year that it would fall below required minimums. But the Treasury is providing temporarily open-ended financial support to the GSEs, so they do not have the same constraint. (though the administration would probably prefer to avoid further losses at the GSEs if possible). Despite federal support, the GSEs have not made any significant new attempts to hold supply off the market.

Indeed, Goldman says the first quarter of this year was the first since 2009 that the GSEs and FHA acted as a combined net supplier of foreclosed properties to the market. They expect the agencies to assume ownership of as many as 180,000 properties per quarter, or 700,000 over the next year.

Which would mean — if the federal entities decide to keep selling as they’ve been doing so far — there would be a whopping 30 per cent increase in the number of properties feeding into the market.

We’ll say it again – the supply! The supply!

Here comes the REO

Ever since the housing bust became headline news, housing bears have been predicting a flood of inventory that would push prices lower. Lenders successfully withheld product from many markets, and the GSEs were not foreclosing in earnest for several years as they attempted various loan modification programs. With the complete and utter failure of all loan modification programs, the GSEs are now shifting toward foreclosure processing. The lenders who are attempting to withhold product are going to sit and watch as the GSEs devalue the holdings of lenders and make them wish they hadn't waited.

Irvine is an unusual market. Relatively little of our inventory was financed by the GSEs because our price points were generally above the conforming limit during the bubble. Some will take that to mean that Irvine will escape the problems of GSE liquidation. Not true. As the GSEs liquidate their properties in nearby communities and lower prices there, the substitution effect will steal buyers away from Irvine. That will lower sales rates even more, and the few must-sell properties that come to market will push prices lower. In other words, the GSEs will cut the Irvine market down at the knees. The price correction will take longer, but it will still occur, just as we are seeing now.

Conservative revisionist history

One of the more annoying lies to come from the housing bubble is the revisionist history the conservatives in the Republican party have been peddling concerning the role of the GSEs. The GSEs did not inflate the housing bubble:

The worst junk mortgages that inflated the housing bubble to extraordinary levels were not bought and securitized by Fannie and Freddie, they were securitized by Citigroup, Merrill Lynch, Goldman Sachs, Lehman and the other private investment banks. These investment banks gobbled up the worst subprime and Alt-A garbage that sleaze operations like Ameriquest and Countrywide pushed on homebuyers.

The trillions of dollars that the geniuses at the private investment banks funneled into the housing market were the force that inflated the bubble to its 2006 peaks. Fannie and Freddie were followers in this story, jumping into the subprime and Alt-A market in 2005 to try to maintain market share. They were not the leaders.

Conservatives are peddling the lie about the GSEs because they want to see them dismantled. I agree with their policy ideas. The GSEs should be dismantled, but not because they inflated the housing bubble. The GSEs are no longer necessary. We have a robust secondary market for securitized loans without the GSEs. At this point, the GSEs are being used to keep mortgage interest rates low through their explicit government guarantee. The government has no place assuming the risk of private enterprise — and pay the billions in losses — and for that reason, the GSEs should be eliminated.

The folly of the GSEs is apparent in properties like today's featured property. The GSEs came in at the end of a long series of Ponzi borrowing and bought an Option ARM the former owners took out. As Dean Baker noted in the quote above, they were followers in the story, and they bought loans like this one in 2005 to maintain market share. In other words, they gambled with money they didn't have and now you and I are paying for it.

Regular housing ATM users (HELOC addicts)

• The owner of today's featured property paid $171,500 on 2/4/2000. They used a $162,925 first mortgage and a $8,575 down payment.
• On 12/5/2000, less than a year after buying the property, they pulled out their first $35,000+ in mortgage equity withdrawal with a new $199,138 first mortgage. They went Ponzi.
• On 10/15/2001, less than a year after their first big payday, they pulled out another $15,000+ with a $215,847 first mortgage.
• On 6/7/2002, less than 9 months later, they refinanced with a $209,600 first mortgage and a $52,400 second mortgage which gave them another $35,000+ cash infusion.
• On 7/10/2003 they were back for $25,000+ more obtaining a $275,500 first mortgage.
• On 6/18/20004 they refinanced with a $290,500 first mortgage. They only got $15,000+ on that year's trip to the housing ATM. I imagine they were disappointed.
• On 7/27/2005 they obtained an Option ARM with a 1.37% teaser rate for $337,500. The $45,000+ they got in 2005 must have made them feel better after the poor take from 2004. This was the loan Fannie Mae bought.
• On 12/6/2007 they went back for one final trip to the ATM and obtained a $37,187 HELOC.
• Total property debt was $374,687 plus negative amortization.
• Total mortgage equity withdrawal was $211,762.

We joke about the housing ATM, but it was very real for loan owners during the housing bubble. These people went back for income supplementation every year. They would still be doing it today if it weren't for the collapse of the housing bubble.

How many people in California want to buy a house because they think they will be able to do what these people did? With the government now insuring nearly the entire housing market, if we allow this behavior to resurface, all taxpayers will be subsidizing this theft.

Irvine House Address … 30 SPARROWHAWK Irvine, CA 92604

Resale House Price …… $361,900

House Purchase Price … $171,500

House Purchase Date …. 2/4/2000

Net Gain (Loss) ………. $168,686

Percent Change ………. 98.4%

Annual Appreciation … 6.5%

Cost of House Ownership

————————————————-

$361,900 ………. Asking Price

$12,667 ………. 3.5% Down FHA Financing

4.49% …………… Mortgage Interest Rate

$349,234 ………. 30-Year Mortgage

$75,747 ………. Income Requirement

$1,767 ………. Monthly Mortgage Payment

$314 ………. Property Tax (@1.04%)

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

$75 ………. Homeowners Insurance (@ 0.25%)

$402 ………. Private Mortgage Insurance

$310 ………. Homeowners Association Fees

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

$2,868 ………. Monthly Cash Outlays

-$284 ………. Tax Savings (% of Interest and Property Tax)

-$461 ………. Equity Hidden in Payment (Amortization)

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

$65 ………. Maintenance and Replacement Reserves

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

$2,210 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,619 ………. Furnishing and Move In @1%

$3,619 ………. Closing Costs @1%

$3,492 ………… Interest Points @1% of Loan

$12,667 ………. Down Payment

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

$23,397 ………. Total Cash Costs

$33,800 ………… Emergency Cash Reserves

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

$57,197 ………. Total Savings Needed

Property Details for 30 SPARROWHAWK Irvine, CA 92604

——————————————————————————

Beds: 3

Baths: 2

Sq. Ft.: 1240

$292/SF

Property Type: Residential, Condominium

Style: Two Level

Year Built: 1900

Community: 0

County: Orange

MLS#: F11061161

Source: CRISNet

Status: Active

——————————————————————————

End unit condo in excellent community. This 3 bedroom + 1.5 bathroom home occupies approx. 1220 sq. ft. and includes kitchen with appliances. Outside brick patio with cover. Tile downstairs with carpet upstairs. Upstairs bedrooms include mirrored closets. Community includes tennis court, green belts with pool/spa and playground for kids.

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