realtors are a whining chorus loudly proclaiming lenders are to blame for failing to inflate a replacement housing bubble.

Irvine Home Address … 12 VIENTO Dr Irvine, CA 92620

Resale Home Price …… $275,000

You've got a little worry,

I know it all too well,

I've got your number,

But so does every kiss-and-tell

Who dares to cross your threshold,

Or happens on your way,

Stop laying blame

You know that's not my thing

R.E.M. — Bang and Blame

Most often blaming others is a way to dodge taking personal responsibility. realtors are suffering right now. Transaction volumes are off and prices are well below what they were a few years ago. Since realtors have disavowed any responsibility for the role their amoral sales practices played in inflated the bubble, they are now blaming banks for failing to inflate a new one.

It's a low risk position for realtors to take. It isn't their money at risk. Lenders must put their money at risk to make loans which results in a real estate transaction and realtor commission. Since lenders don't want to lose any more money, they are being careful about who they loan it to. realtors don't understand that. Or worse yet, they probably do understand, but they just don't care. They just want another commission.

Realtors blame banks for slow recovery

November 11th, 2011, 9:30 am — posted by Jeff Collins

Banks.

That’s the top obstacle to the housing market recovery, Realtors gathered for an annual conference in Anaheim said.

Specifically, tight credit, which makes it hard for many homebuyers to get a loan;

Credit is tight by bubble standards, but it isn't tight by historical standards. Lenders don't want to lose more money, so they don't want to give loans to people who won't pay them back.

and inefficient practices, which make it hard to process loans and short sales on time.

It isn't inefficient practices which is slowing up short sales. It's the fact that lenders are trying to squeeze money out of their deadbeat borrowers who don't want to give them any.

If your a bank, and a borrower is asking you to accept a $150,000 loss, wouldn't you ask for some of the $50,000 they have in other assets? Borrowers are trying to keep their other assets and have the bank eat the entire loss on the short sale, and banks aren't willing to do it. This standoff continues until one party or the other gives up. The bank may decide to foreclose, or the borrower may walk away from the debt and dare the lender to sue them. It's not a process designed for expediency.

We caught up with a handful of Realtors at a 5K run that started this week’s activities at the National Association of Realtors meeting at the Anaheim Convention Center. We asked what they believe is the greatest impediment to recovery.

First, that isn't a good question. What is recovery? When prices stabilize at rental parity, I will consider the market “recovered.” I suspect most realtors and loan owners would define “recovery” as when prices regain their peak. The only thing that will make that happen is the passage of time and wage inflation or a new housing bubble. realtors want a new housing bubble.

Here’s a sampling of what they said:

Renee Holt, Keller Williams Realty, Oviedo, Fla.: “Banks. Banks don’t have the system to help homeowners recover, and they’re not hiring and/or training employees to make the process less painful for homeowners.”

What obligation to the banks have to make their losses less painful for loan owners? These people cost them billions of dollars, and the banks are supposed to be worried about the loan owner's pain?

Former California Association of Realtors President Ann Pettijohn, Oak Tree Realtors in Orange: “Banks,” she said, echoing Holt. “They’re making it tough to borrow.”

Yes, they only want to loan money to people who can pay them back. It's a good business practice they abandoned during the housing bubble.

Former New Jersey Association of Realtors President Chris Clemans: “Before, (lending standards) were too loose. Now they’ve gone to the other side.”

No, they haven't. In the 1980s, there was FHA and 20% down conventional financing. That's it. Today we still have 5% conventional financing, we allow low FICO scores (above 580 FHA can put 3.5% down), and many fringe qualifying standards we did not have 25 years ago. Credit is not tight by historical standards, and the loosening of credit standards over the last 25 years was not innovation, it was folly.

Cindy Wu, Keller Williams Realty, Encino: “It’s really confidence” that’s holding back the recovery. “People are just very pessimistic these days.”

Buyer sentiment does play a minor role, but the real problems are a depleted buyer pool, and the lack of a move-up market caused by a lack of equity.

Mark Gavin, director of administrative services for the Iowa Association of Realtors: “It’s more than one thing, but probably some of the contributing factors are the ability to get loans. They’ve tightened up some of the restrictions and limitations on getting loans. … We want responsible lending practices, but we don’t want it to be over-restrictive.”

Fair enough, but we should also let the people whose money is at risk determine what standards are not over-restrictive.

2011 National Association of Realtor President Ron Phipps: “Our number one strategic priority is a reliable flow of mortgage capital.

“We live (in an industry) that requires mortgage capital, and our biggest single priority and challenge this year was making sure that was reliable and that the credit standards and underwriting standards move more toward equilibrium, rather than the extremely vigorous dynamics that we have right now.”

Every quote I have read from Mr. Phipps has been complete and utter bullshit, and the above is no exception. What does this mean, “credit standards and underwriting standards move more toward equilibrium, rather than the extremely vigorous dynamics”? equilibrium? vigorous dynamics? To me it reads like a rectal extraction.

What he means to say is that he has been lobbying hard to get free money flowing again to inflate a new housing bubble, and he has failed.

We also asked what the mood of the industry is as we enter a seventh year since the housing slump started. Here are a few responses:

Art Carter, CEO of the California Regional Multiple Listing Service in San Dimas: “I’d say the mood of the industry is acceptance and realization that we’re not near the bottom yet.”

Wow! I don't see that attitude in the industry at all, despite the fact it is the truth.

Rob Arrietta, Corona associate broker and president of CRMLS: “Distressed properties are on everybody’s mind in the last couple of days. … (But if) you work hard in this business, and you’ll survive and you’ll thrive.”

Yes, hard work and perseverance will win in the end. realtors should stop looking for people or conditions to blame and work harder to serve their customers. That will contribute to their success.

Hunt Cooper, communications and education director for the Kentucky Association of Realtors: “In Kentucky, we didn’t see the spikes and the down side. So we’ve been pretty strong — strong and steady. Sales have picked up over the last quarter.”

The non-bubble markets of flyover country have not been suffering like we have. realtors in these markets probably wonder what everyone here is whining about.

44 months of squatting on a 2002 rollback

Today's featured property was purchased for $378,000 on 11/7/2003. The owners used a $302,300 first mortgage, a $75,550 second mortgage, and a $150 down payment.

On 8/3/3005 they refinanced with a $424,000 first mortgage, and on 3/1/2006 they obtained a $89,000 HELOC. They quit paying the mortgage at the latest in January of 2008.

Foreclosure Record

Recording Date: 12/08/2008

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 08/25/2008

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 05/16/2008

Document Type: Notice of Default

It looks as if the house was purchased by a third party on 9/27/2011 for $275,000. That makes this a closed sale on a 2002 rollback.

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

This property is not available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 12 VIENTO Dr Irvine, CA 92620

Resale House Price …… $275,000

Beds: 2

Baths: 2

Sq. Ft.: 1419

$194/SF

Property Type: Residential, Single Family

Style: Two Level, Cape Cod

Year Built: 1979

Community: Northwood

County: Orange

MLS#: S624194

Source: CRMLS

Status: Closed

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

Proprietary IHB commentary and analysis

Resale Home Price …… $275,000

House Purchase Price … $300,000

House Purchase Date …. 10/18/2002

Net Gain (Loss) ………. ($41,500)

Percent Change ………. -13.8%

Annual Appreciation … -0.9%

Cost of Home Ownership

————————————————-

$275,000 ………. Asking Price

$9,625 ………. 3.5% Down FHA Financing

4.06% …………… Mortgage Interest Rate

$265,375 ………. 30-Year Mortgage

$84,075 ………. Income Requirement

$1276 ………. Monthly Mortgage Payment

$238 ………. Property Tax (@1.04%)

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

$57 ………. Homeowners Insurance (@ 0.25%)

$305 ………. Private Mortgage Insurance

$295 ………. Homeowners Association Fees

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

$2172 ………. Monthly Cash Outlays

-$199 ………. Tax Savings (% of Interest and Property Tax)

-$378 ………. Equity Hidden in Payment (Amortization)

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

$54 ………. Maintenance and Replacement Reserves

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

$1,663 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,750 ………. Furnishing and Move In @1%

$2,750 ………. Closing Costs @1%

$2,654 ………. Interest Points

$9,625 ………. Down Payment

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

$17,779 ………. Total Cash Costs

$25,400 ………… Emergency Cash Reserves

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

$43,179 ………. Total Savings Needed

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

When factoring in second mortgage debt, seller closing costs, and sales commission, more than 50% of owners with a mortgage are unable to sell their homes and pay off their debts.

Irvine Home Address … 46 REUNION Irvine, CA 92603

Resale Home Price …… $485,000

I tried to grow a mermaids tale,

'caus here's a lot of danger.

The grey big sharks with long sharp teeth,

would love to catch a stranger.

Under the water, under the water,

uo, you left me drowning.

Under the water, under the water,

ou, you left me drowning.

Brother Brown — Under the Water

To be underwater with a cost of ownership exceeding a comparable rental is to be trapped in a debtor's prison. Loan owners in these circumstances have few good options.

• If they move and rent the house, they lose money each month until rents rise enough to allow them to break even. In a weak economy with stagnant wage growth, it may be a very long time before these owners get back to even on a payment basis.
• If they sell, it will be a short sale. They will endure a decline in their credit score, and they may have to arrange repayment with a lender as a condition of the sale.
• If they can't negotiate a short sale, and they decide to move, they will have to walk away from the debt and endure the consequences of that decision. Their credit score will decline, and they may face lender collection efforts.
• They can decide to stay and remain trapped in their debtor's prison.

None of the above options are particularly desirable. The worst part is, all of these problems could have been avoided. If prices are so high that a comparable rental doesn't cover the cost, then renting is a better choice than owning. Rental parity is a powerful price point. Above rental partly, owners face the situation described above. Below rental parity, and those problems go away.

Half of US Mortgages Are Effectively Underwater

Published: Tuesday, 8 Nov 2011 | 5:45 PM ET

By: Diana Olick

CNBC Real Estate Reporter

A new report on still-falling home prices today highlights the fact that the lower those prices go, the more American borrowers fall into an negative equity position; that is, they owe more on their mortgages than their homes are worth.

Most analysts will tell you that negative equity is the number one problem in the housing market today, even worse than foreclosures, because it causes foreclosures, stymies consumer spending and traps potential home buyers and sellers in place.

The fact that negative equity shuts of the housing ATM and stymies consumer spending is a good thing. That kind of consumer spending is a Ponzi scheme, and to the degree an economy depends on Ponzi borrowing is the degree to which the ensuring recession will cause pain. Ponzi borrowing always leads to a fall. Always.

Negative equity rose to 28.6 percent of single-family homes with mortgages in the third quarter of this year, according to Zillow. That's up from 26.8 percent in the second quarter. In real terms, that's 14.6 million borrowers.

Zillow's numbers are often quoted, but they are also all wrong. Zillow only looks at the Zillow Zestimate relative to the originally reported first mortgage amount. Their methodology misses all second mortgages and subsequent refinances of the first mortgage. Since the mortgages it misses are the real problem, the actual number of underwater homes is much, much higher. Plus, their methodology does not consider the hefty transaction costs required to sell a house.

Many of those borrowers are already behind on their mortgage payments, and some are likely already in the foreclosure process. The rest of them are in danger of defaulting, not because they can't pay their mortgages, but because they either won't want to (seeing as they will never see any real appreciation in their investment) or because any change in their economic or personal situation might force them into default (change of job, divorce).

In other words, negative equity provides significant incentive to strategically default. Most underwater borrowers also face payments in excess of comparable rents, so they are prime candidates to walk away. It's in their best interest to do so.

While 14.6 million might seem like a lot, it's not the real number when you consider negative equity in housing's recovery. That's because it doesn't factor in “effective” negative equity, which is borrowers who have so little equity in their homes that they cannot afford to move.

Consider the following from mortgage analyst Mark Hanson:

On US totals, if you figure average house prices use conforming loan balances, then a repeat buyer has to have roughly 10 percent down to buy in addition to the 6 percent Realtor fee to sell. Thus, the effective negative equity target would be 85%. You also have to factor in secondary financing, which most measures leave out.

Based on that, over 50 percent of all mortgaged households in the US are effectively underwater — unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time

As I recently pointed out, No equity, no move-up buyer; no move-up buyer, you get a slow market. The move-up market is paralyzed by the lack of equity, and this situation will not change any time soon.

It's as simple as buying and selling. Negative and effective negative equity are causing stagnation, which may in the end be far more detrimental than foreclosures. The argument to solve this problem is principal forgiveness, and it is gaining traction politically and somewhat less in the banking sector.

LOL! Principal forgiveness is not gaining traction in the banking sector? Perhaps because that's otherwise known as giving away money. Lenders make a living lending money which is to be repaid, not by giving away money they will never see again.

And of course its popular in political circles. Most politicians will pander to whatever large group whose votes are for sale. Loan owners are a very large group, and giving them free money would almost certainly buy a few votes.

Principal forgiveness, or lowering the balance of a large chunk of the nation's mortgages, would be costly at best but could be catastrophic at worst. “Those thinking principal reductions are a panacea have never originated a loan, done the street level research, and do not really know the borrowers behind their data,” argues Hanson. “More than likely it would create a far greater number of new strategic defaulters than the number it would legitimately save from Foreclosure.”

I wrote about the consequences of principal forgiveness in the post, Foreclosure is a superior form of principal forgiveness:

Lenders will lose money on their portfolios whether through principal reduction or through foreclosure. They will lose less if they go through foreclosure because fewer loans will go bad. If they forgive principal, they will need to forgive everyone in their entire portfolio. How could they selectively forgive principal and achieve fairness to all borrowers? Do we forgive principal for HELOC abusers? They really need it.

What message does principal forgiveness send to those who were foolishly prudent? Think about it: if you were prudent and paid down your mortgage, you will probably not see much if any principal reduction; however, if you were a wildly irresponsible HELOC abuser, you will see significant principal reduction which will merely enable more HELOC abuse later. Principal reductions will serve as a major incentive for reckless borrowing. Everyone knows if enough people take the money and behave stupidly that everyone will get bailed out.

Foreclosure balances the equation. There must be some consequences to borrowers for their behavior, not because it is immoral, but because what you don't punish, you encourage. We can't afford to privatize gains and collectivize losses or we will go broke as a country. We are not a banana republic, but principal reduction without consequence is certainly a path that leads us there.

Nothing has changed. The results of widespread principal forgiveness is easily predictable. The only question is whether or not politicians in their desire to pander for votes will do the wrong thing. Let's hope not.

Chick Fil A Inc. eats the loss

Today's featured property appears to be part of a corporate benefit package. The original buyer paid $575,000 on 7/27/2007. On 12/1/2010, Chick Fil A Inc. buys the property from him for $575,000. Why would they do that unless they were contractually obligated to do so?

Chick Fil A Inc. is hoping to cut its losses. With nearly a year on the market, they apparently are not very motivated to sell the property. Prices are coming back, right?

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 46 REUNION Irvine, CA 92603

Resale House Price …… $485,000

Beds: 2

Baths: 2

Sq. Ft.: 1145

$424/SF

Property Type: Residential, Condominium

Style: Two Level, Other

View: Mountain

Year Built: 2004

Community: Quail Hill

County: Orange

MLS#: S640271

Source: CRMLS

On Redfin: 345 days

——————————————————————————

Turnkey detached two story home with dual master bedrooms and beautiful curb appeal. Great location with easy access to the 405 & 133 freeways, the Irvine Spectrum, hiking trails and the beach. STANDARD SALE–no need to wait for bank approval.

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

Proprietary IHB commentary and analysis

Post Body

House Purchase Price … $575,000

House Purchase Date …. 12/1/2010

Net Gain (Loss) ………. ($119,100)

Percent Change ………. -20.7%

Annual Appreciation … -16.9%

Cost of Home Ownership

————————————————-

$485,000 ………. Asking Price

$16,975 ………. 3.5% Down FHA Financing

4.06% …………… Mortgage Interest Rate

$468,025 ………. 30-Year Mortgage

$143,210 ………. Income Requirement

$2251 ………. Monthly Mortgage Payment

$420 ………. Property Tax (@1.04%)

$183 ………. Special Taxes and Levies (Mello Roos)

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

$538 ………. Private Mortgage Insurance

$206 ………. Homeowners Association Fees

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

$3700 ………. Monthly Cash Outlays

-$501 ………. Tax Savings (% of Interest and Property Tax)

-$667 ………. Equity Hidden in Payment (Amortization)

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

$81 ………. Maintenance and Replacement Reserves

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

$2,636 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,850 ………. Furnishing and Move In @1%

$4,850 ………. Closing Costs @1%

$4,680 ………. Interest Points

$16,975 ………. Down Payment

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

$31,355 ………. Total Cash Costs

$40,400 ………… Emergency Cash Reserves

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

$71,755 ………. Total Savings Needed

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

The FHA is losing money faster than the insurance premiums are coming in. A bailout is on the way.

Irvine Home Address … 22 HEATHERGREEN #78 Irvine, CA 92614

Resale Home Price …… $444,900

You know that it's moving too fast

Your out of bounds

Your too late

To sound the alarm in your head

To break up, to break up

And turn this thing around

We can't go back

We've come too far

Young Heretics — Risk/Loss

Everyone is familiar with the billions we are spending to bail out the GSEs, but little is known about similar problems at the FHA. So far through a hefty increase in FHA insurance and a large dose of head-in-the-sand accounting, the troubles at the FHA have been largely obscured from view.

Despite the good job bureaucrats have done at hiding the problem, the FHA is facing major losses on its loan portfolio which has been expanding rapidly as the housing bubble began to deflate in 2007.

Risk Rises for Housing Agency

By NICK TIMIRAOS — November 11, 2011

Concerns are rising that the Federal Housing Administration could run out money if the economy doesn't recover soon, raising the risk the agency would seek a taxpayer bailout for the first time in its 77-year history.

Since the mortgage crisis erupted five years ago, the FHA has played a critical role in housing finance as private lenders retreated. It backs about a third of all new mortgages originated for home purchases, up from around 5% in 2006.

But, as the FHA prepares to release its annual financial report next week, a forthcoming study by Joseph Gyourko [see embedded document below], a real estate and finance professor at the University of Pennsylvania's Wharton School, estimates that the FHA faces around $50 billion in losses in the coming years.

The study says only a “quick and substantial economic and housing market recovery” can avoid “substantial losses for American taxpayers.” The paper was commissioned by the American Enterprise Institute, a conservative think tank.

Since we know a “quick and substantial economic and housing market recovery” is not forthcoming, it's safe to assume the American taxpayer will see substantial losses on the FHA portfolio.

The study says the losses will be spread over a period of many years and are unlikely to bankrupt the agency this year or next.

The study isn't the first to predict the FHA's insolvency. Last year, economists from New York University and the New York Federal Reserve issued a paper warning of the growing likelihood the agency would need to a taxpayer bailout. FHA officials disputed some of that report's findings.

Last month, Paul Miller, an analyst with FBR Capital Markets, warned that the largest U.S. banks could face billions in losses if the FHA tries to push back defaulted mortgages onto the lenders that originated them. “Unless home prices rebound, I don't understand how they're able to avoid a restructuring and a Treasury infusion,” he said.

I think we all know how that will turn out… The FHA will not make the banks buy back their toxic crap because then we would have to bail out the banks again. It's far easier to simply bail out the FHA. The government has to bail out the FHA, but it does not have to bail out the banks. It would be too politically unpopular to bail out the banks, so the losses will be kept in the FHA so the bailout can be contained there.

FHA officials said they couldn't comment on Mr. Gyourko's paper because they hadn't reviewed it. The FHA's independent audit is likely to show that while losses are rising, it will maintain positive reserves assuming the economy doesn't dip back into recession, say people familiar with the matter.

Still, the Gyourko study along with the FHA's own annual report could have political ramifications. Some Republicans have pushed for the FHA to begin raising its down payments. Higher forecasted losses could also force the agency to raise its insurance premiums paid by homeowners even higher.

Despite the fact that the FHA should raise its downpayment requirement and its insurance premium, neither one is going to happen because the effect it would have on the housing market would be too politically unpopular. We are already having difficulty finding wam bodies with jobs to clean up the foreclosure mess. If we make the qualified buyer pool even smaller, the market bottom and ultimate recovery would be even further off into the future.

The FHA has long served first-time buyers and borrowers with modest incomes. Its market share collapsed during the housing boom because it didn't abandon underwriting standards.

The one and only thing the government did right during the housing bubble was to leave the FHA standards alone. Since the FHA is a true government agency and not a quasi-governmental body like the GSEs, it has no pressure to loosen its standards to maintain market share during the bubble.

U.S. home prices inched 0.2% higher in August, according to a closely watched index released Tuesday. That prompted one economist to see a “modest glimmer of hope” for the downtrodden housing market. Mitra Kalita has details on The News Hub.

A lot of that business returned after the private mortgage market's implosion in 2007 and sharp tightening by Fannie Mae and Freddie Mac in 2008.

The FHA, which is funded through the mortgage-insurance premiums it collects, doesn't make loans but instead insures lenders against defaults. At the end of August, it guaranteed 7.2 million mortgages worth $1 trillion, a record sum. It held nearly $31.7 billion in reserve at the end of June, of which all but $2.8 billion was set aside to cover anticipated losses.

They are only expecting to lose $31 billion on its trillion dollar portfolio? Since the vast majority of these loans were underwritten with 3.5% down payments, most of this portfolio is underwater. There is no way they will only lose 3% on a trillion dollar portfolio of underwater loans.

The bulk of the FHA's anticipated losses stem from loans made in 2007 and 2008, when the financial crisis was at its peak. More recent loans have among the best credit characteristics the agency has guaranteed.

Still, the majority of homeowners taking out FHA-backed mortgages have very little equity—the minimum down payment is 3.5%.

In reality, these borrowers have no equity. If the transaction costs between closing costs and commissions is about 8%, they are 5% underwater the day they close on the loan.

WSJ Heard on the Street columnist David Reilly stops on Mean Street to discuss the merits of the government's plan to help some refinancing homeowners.

Because home prices have fallen sharply and continue to decline in many markets, many borrowers are underwater and at risk of default if they lose their jobs or experience other financial shocks. Losses also can occur when borrowers simply walk away from their homes.

“I don't think many of the borrowers truly understand what a risky position they're putting themselves in,” said Mr. Gyourko. He estimated that more than half of all homes with FHA loans are worth less than the outstanding debt.

To assume only half the the FHA portfolio is underwater is wishful thinking. These people were underwater from the day they bought, and prices have been going down steadily for the last five years. The real number of effectively underwater FHA loan owners is well over 90% from this era. Based on the dramatic expansion of the portfolio since 2007, it's more likely the percentage underwater on the total FHA portfolio is 75% or more.

If the FHA's reserve account were to run out of money, the agency has what is known as indefinite budget authority to draw on funds from the Treasury Department without a congressional appropriation.

In other words, the FHA has a blank check.

FHA officials have taken steps to shore up the agency's finances, including twice raising the insurance premiums that borrowers must pay in the past year. Last year, the agency raised down payment requirements to 10% for borrowers with credit scores below 580.

WSJ's Jon Hilsenrath reports on a Fed plan to revitalize the housing market by purchasing mortgage-backed securities.

David Stevens, who served as the agency's commissioner for two years until he became chief executive of the Mortgage Bankers Association in April, said the Obama administration had moved aggressively to shore up reserves without undermining housing markets.

“The FHA has faced a precarious financial position since the day the administration took office,” he said. “Is it at risk? Yes. Is it better off than virtually any other portfolio based on its ability to have reserved appropriately? Yes.“

It may be better off than any other portfolio, but that isn't saying much. The GSE portfolio is a disaster, and the private-label MBS pools from the bubble are not performing well either to say the least.

Mr. Gyourko says the agency is underestimating by billions of dollars the future losses related to borrowers who used an $8,000 federal tax credit to fund their down payment. The paper also says the FHA is underestimating default risk related to unemployment.

It's been pretty well documented that buyers paid $30,000 to $40,000 more to obtain the $8,000 FHA tax credit. Everyone who bought the bear rally is substantially underwater.

The study could also reignite debate over the government's role in stabilizing the housing market. Congress is now considering a proposal to restore higher FHA loan limits.

WSJ's Alan Zibel heads to Mean Street to discuss the White House's proposed program to draw private investment back into government-backed Freddie Mac and Fannie Mae mortgage programs.

“Without the FHA, the housing market would not be in a recession, it would be in a depression,” said Kenneth Rosen, chairman of the Fisher Center for Real Estate Research at the University of California at Berkeley. The most certain way to increase losses for Fannie, Freddie and the FHA would be “by making loans harder to get.“

Mr. Gyourko says he isn't advocating an “immediate withdrawal” by the FHA, which he said could create a “real risk” of future price declines.

But he said a gradual withdrawal is warranted and that policy makers “should all be clear about whether we understand the risks we're taking on, and whether the benefits justify the risks.”

Write to Nick Timiraos at nick.timiraos@wsj.com

Unfortunately, Kenneth Rosen is right: without the FHA, the housing market would crash even harder, and the losses to the GSEs and the FHA itself would be even larger. However, Mr Gyourko is right too: the benefits must be worth the risks taxpayers are taking on. Right now, these risks are far too high. Taxpayers are writing a blank check through the FHA to stabilize the housing market. We aren't accurately evaluating this cost today, and the losses are mounting.

Realistically, we won't do anything differently until the market puts in a durable natural bottom. At that point, we may raise the FHA minimum down payment and insurance premiums. realtors and mortgage brokers will whine about “killing the recovery,” but it's essential to protect the American taxpayer — to protect you.

fha1110

$116,000 down payment lost

The former owners of today's featured property paid $580,000 on 7/29/2005 using a $464,000 first mortgage and a $116,000 down payment. Apparently, they couldn't afford it.

The property went into foreclosure on 8/30/2011, and the bank paid $439,245 which was the outstanding balance on the loan. If they get their asking price, the bank won't lose much on this one; the former owners, however, have lost everything.

Sometimes, that's the way it works out.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 22 HEATHERGREEN #78 Irvine, CA 92614

Resale House Price …… $444,900

Beds: 3

Baths: 2

Sq. Ft.: 1600

$278/SF

Property Type: Residential, Condominium

Style: Two Level

Year Built: 1981

Community: Woodbridge

County: Orange

MLS#: S678873

Source: CRMLS

Status: Active

On Redfin: 7 days

——————————————————————————

FANTASTIC END UNIT TOWNHOME NESTLED IN A VERY PRIVATE LOCATION IN THE HIGHLY SOUGHT AFTER WOODBRIDGE PARKVIEW COMMUNITY. THIS WONDERFUL HOME HAS IT ALL. LOVELY FLOOR PLAN WITH 3 BEDROOMS, 2.5 BATH, COZY LIVINGROOM WITH FIREPLACE, CATHEDRAL CEILINGS, PLANTATION SHUTTERS, OPEN KITCHEN WITH DINING AREA AND GOOD SIZE PATIO. CLOSE TO SHOPPING, SCHOOLS, ENTERTAINMENT, FREEWAYS AND MUCH MUCH MORE!!

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

Proprietary IHB commentary and analysis

Post Body

House Purchase Price … $580,000

House Purchase Date …. 7/29/2005

Net Gain (Loss) ………. ($161,794)

Percent Change ………. -27.9%

Annual Appreciation … -4.1%

Cost of Home Ownership

————————————————-

$444,900 ………. Asking Price

$15,572 ………. 3.5% Down FHA Financing

4.06% …………… Mortgage Interest Rate

$429,328 ………. 30-Year Mortgage

$131,286 ………. Income Requirement

$2065 ………. Monthly Mortgage Payment

$386 ………. Property Tax (@1.04%)

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

$93 ………. Homeowners Insurance (@ 0.25%)

$494 ………. Private Mortgage Insurance

$355 ………. Homeowners Association Fees

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

$3392 ………. Monthly Cash Outlays

-$322 ………. Tax Savings (% of Interest and Property Tax)

-$612 ………. Equity Hidden in Payment (Amortization)

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

$76 ………. Maintenance and Replacement Reserves

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

$2,556 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,449 ………. Furnishing and Move In @1%

$4,449 ………. Closing Costs @1%

$4,293 ………. Interest Points

$15,572 ………. Down Payment

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

$28,763 ………. Total Cash Costs

$39,100 ………… Emergency Cash Reserves

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

$67,863 ………. Total Savings Needed

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

Most people who strategically default have one emotion in common: relief.

Irvine Home Address … 312 DEWDROP Irvine, CA 92603

Resale Home Price …… $360,000

When you try your best, but you don't succeed

When you get what you want, but not what you need

When you feel so tired, but you can't sleep

Stuck in reverse

And the tears come streaming down your face

When you lose something you can't replace

When you love someone, but it goes to waste

Could it be worse?

Lights will guide you home

And ignite your bones

And I will try to fix you

Coldplay — Fix You

Many loan owners are hoping the government or the bank will fix their problem by forgiving the principal on their debt. Banks are not charities, so they are not in the business of giving away money. The government is too broke and running a deficit in order to come to the rescue.

As loan owners come to accept a personal bailout is not forthcoming, many turn to their next best alternative: strategic default. After all, foreclosure is a superior form of principal reduction.

They Walked Away, and They’re Glad They Did

By TESS VIGELAND — Published: November 8, 2011

JON WITTENBERG and Bill Sawyer have never met. One lives in Walnut Creek, Calif., the other in Wilsonville, Ore. But if they did, the conversation might be littered with exclamations like, “That’s exactly what happened to me!”

Their stories start with a mid-decade home purchase and turn sharply as they simply walk away from those homes and the mortgages that accompany them. What was supposed to happen next was that their financial lives would crash and burn for years.

Or so the dire warnings went. In reality, both men said, walking away turned out to be the best financial decision they made.

It is essential for the banks to maintain the illusion that dire consequences await those who strategically default. As the moral arguments fall flat, fear becomes the only weapon they have left.

As people talk to the survivors of strategic default and realize the consequences are greatly exaggerated, the fear will slowly dissipate, and more and more loan owners will strategically default and move on with their lives.

In 2005, Mr. Wittenberg, 42, was working in the pharmaceutical industry in Boulder, Colo., when his employer told him he would be relocated to Southern California. It was two years to the day since he had bought a house, and he had no trouble selling it.

When he got to Agoura Hills, north of Los Angeles, Mr. Wittenberg said, he could not believe the pressure to buy another home. “Everybody was making tons of money,” he said. “My company had a relocation expert who said, ‘I’m going to have to insist that you buy property.’ My only hesitation was it seemed like prices were inflated. Little one-bedroom condos were half a million dollars.”

I wonder if the people who were giving out advice like that during the bubble have experienced any consequences for their advice? I imagine a few disgruntled buyers have wanted to look these people up and inflict a little pain in return.

Mr. Wittenberg bought a two-story, 1,300-square-foot condominium for $450,000 in April 2006, putting 20 percent down on a 30-year fixed mortgage with Wells Fargo. And the bank promptly offered him a line of credit, he said: “They were handing mortgages out like candy, and I was able to borrow from the house on Day 1 of signing the loan.” A Wells Fargo mortgage spokeswoman, Vickee Adams, confirmed last week that Mr. Wittenberg had been a customer but said that because of confidentiality laws, the bank could not release any additional information.

A year and a half after getting his mortgage, he was laid off, along with 3,300 co-workers. But he found a new job almost immediately, with a renewable-energy company. It meant yet another relocation, to San Francisco. So he turned the condo into a rental and headed north.

The need to relocate comes up far more often than buyers realize. One reason Shevy and I emphasize rental parity is to allow the rental plan B to work. People who pay less than rental parity can move to take other work without an enormous hole in their balance sheet. Those who don't heed our advice and have to move end up with an ongoing loser with no relief in sight.

But Mr. Wittenberg found himself agreeing to lower and lower rents, eventually resulting in a monthly shortfall of $1,200 between the rental income and his mortgage payment. By 2009, comparable homes in the area were selling for $210,000, and he still owed more than $300,000. He tried for a year and a half to get the bank to modify his loan, he said, to no avail. So with the help of YouWalkAway.com, he decided to stop paying. YouWalkAway.com is a company that sprang up in 2007 to help homeowners through the foreclosure process, specifically what is called a strategic default. In that instance, even if you can afford to make mortgage payments, you stop paying to force the bank into foreclosing.

The company charges clients an enrollment fee of $199 to $395, and monthly membership fees ranging from $29.95 to $99.95, depending on which assistance plan a homeowner chooses. Then it essentially coaches clients through the process of walking away from their mortgages, helps them figure out which threatening letters to pay attention to and which to ignore and provides access to lawyers versed in each state’s property laws.

As YouWalkAway.com points out in its materials, there is usually no paperwork or response required from homeowners: they should track what documents the bank sends, but other than that, the process is fairly simple. “We looked at how much my home was under water, how much I’d lost thus far and how much I would continue to lose until I started to break even,” he said. “And that could be 20 years away. It was a no-brainer.”

Anyone who is underwater and paying more than a comparable rental would likely benefit from strategic default. It largely depends on how far underwater and how much the rental savings would be. Underwater mortgages still have option value. Even though the property has no equity today, if a small increase in values would create equity, many owners may opt to hang on. Hope and delusion will prompt these owners to tell themselves everything will be okay soon.

YouWalkAway.com’s chief executive, Jon Maddux, said that was how it should be — a no-brainer — for hundreds of thousands of people who were underwater on their mortgages.

“I think as more and more people know someone that’s done it, they know that, O.K., these people have moved on, they kind of pushed the reset button, and they’re starting over,” he said.

Jon is exactly right. Right now fear is the only thing holding most people back. Once they realize these fears are unfounded, many will opt to walk away.

For many Americans, a mortgage is about more than money. It’s a contract that should not be broken, a debt that should under almost all circumstances be paid. In this context, walking away has been framed as an ethical or moral issue.

But many economists, and legal professionals, say it’s not and is simply a matter of contract law. “If your home is a financial asset, and it’s financially rational to walk away, that’s what you do,” said Nicolas Retsinas of the Joint Center for Housing Studies at Harvard.

Mr. Maddux of YouWalkAway.com said his site had helped more than 7,000 homeowners walk away and that, for most of them, a change in their all-important credit score was the biggest downside.

all-important? A credit score is not important to people who don't use credit. It's only those who are addicted to consumer credit who fuss over their credit scores.

Among the company’s clients, the average score drops 100 points, he said. Fair Isaac, which provides the industry-standard FICO credit score, released a study this year showing similar results.

But if someone’s original score is on the high end, say a 780, that person will take a bigger hit (150 points on average) in a foreclosure or short sale than someone who has a lower score of 680 or 720 to begin with.

The bigger surprise, according to YouWalkAway.com, is that many clients are finding their scores begin to recover within the first few months of a foreclosure’s becoming final. Mr. Wittenberg said he knew the decision to walk away could spell doom for his score, which was in the low-to-mid 700s, and he didn’t know what other financial complications might arise.

Banks would love to punish strategic defaulters, but in reality, this group is creditworthy and economically savvy. They are a low risk for future credit, and creditors will acknowledge that fact by extending them credit again as soon as the mess is cleaned up.

“Am I going to have to pay this back? What are these banks capable of doing to me? Buying a house again? Out of the question,” he said. “So here I am, upper middle class, I have two degrees, and I’m stuck. Just because I wanted to end the hemorrhaging.”

The impact so far? There hasn’t been any. At least for him.

Mr. Wittenberg lives in his girlfriend’s house in Walnut Creek, so he didn’t have to worry about a landlord checking his credit. He has a job he enjoys. And he said he was done with debt forever. He doesn’t have any credit cards. His car is paid off. “I live in a cash world, and I want to keep it that way,” he said.

Hallelujah! This man has escaped the bondage of debt, and he is not looking back. Kudos to him.

He hasn’t checked his FICO score and doesn’t want or intend to. He shredded every last piece of paperwork from his mortgage and foreclosure.

That’s not to say he has not paid a price, though. He lost his entire down payment and drained a significant portion of his savings account to make up for the monthly rental shortfall.

Mr. Wittenberg said he never planned to walk away from his debts and if the bank had lowered his interest rate by a percentage point or two, he could have continued to rent it out.

In the end, his financial stability, both short term and long term — it would take up to 20 years to break even on the home — trumped any ethical or moral questions he had about honoring his contract with the bank.

What saddens Mr. Wittenberg, he said, is the loss of a home. “I did a lot of work on it, did it all myself, and it was nice,” he said. “But it’s O.K. I’ve moved on.”

I admire how this man has abandoned his attachments along with his debt.

He did note that the lack of permanence in the job market made owning a home for any length of time more difficult.

“It’s not like our parents, where they worked at the same place for 40 years,” he said. “So when you own a house, it’s a huge burden. It’s almost like renting is peace of mind.”

It's not “almost like renting is peace of mind.” Renting is peace of mind when prices are falling and the job market is uncertain.

SIX hundred miles north, in the rural community of Wilsonville, Ore., Bill Sawyer, 50, sat at a desk just off the kitchen in his apartment in a multiunit complex near the I-5 freeway, about 17 miles south of Portland.

Mr. Sawyer, who works as an operations and policy analyst for a state government agency, said a couple of years ago, his credit score was in the low 700s. That’s about average on the Fair Isaac scale, which tops out at 850.

He knows his score has gone down, because he stopped paying the mortgage on his former residence, a small town house in nearby West Linn, more than a year ago. But he has no idea how much. He bought the town house in 2000 for $138,000, with a loan from the Federal Housing Administration and a small down payment. Mr. Sawyer was a single father to Vanessa, who was 12 at the time, and Daniel, who was 11.

Over the next few years, the town house’s appraised value grew to $256,000. The mortgage holder, Wells Fargo, approved two cash-out refinancings, and Mr. Sawyer said he used that money to pay down other debts.

He was living like many Ponzis of the housing bubble era. He racked up credit card debts living beyond his means, then he went to the housing ATM to pay them off. The foolishness of this style of financial management was not immediately apparent, so many others adopted this way of life. Few of those people are still living in the same houses.

“They just crunched the numbers like a car salesman might, and, you know, you sign the dotted line,” he said.

Then in 2007, his son, then 18, was killed, along with a friend, in a head-on collision with a truck.

Aside from the emotional and psychological devastation, the accident sent Mr. Sawyer into a financial tailspin. Insurance coverage was minimal, he said, and he was billed by the towing company and the volunteer fire department that responded to the accident.

“There were financial hardships as a result of funeral expenses and so forth,” he said in a low voice. “That started a chain reaction. A maxed-out credit card and line of credit. When you have a limited income, and you make minimum payments, well, that debt just keeps going.”

His story is very sad, but that doesn't change the fact he was living beyond his means. Having a personal tragedy does not mean lenders or taxpayers must give free money to the aggrieved. The man was living as a Ponzi, and the tragedy made matters worse.

Within a year, the housing market collapsed. Similar town houses started selling for $180,000, and with the equity he had taken out over the years, he owed more on the mortgage than his home was worth. He said he spent months trying to negotiate with the bank for a loan modification. When he was unsuccessful, he abandoned the property in March of this year, with the help of YouWalkAway.

Mr. Sawyer had not wanted to check what that had done to his credit scores, but he did. “Oh, boy,” he said, with a small, uncomfortable chuckle, as he waited for numbers to pop up on his laptop’s screen.

“Oh gosh. Never has it been that low. TransUnion 535. Equifax 520. Pretty much start over from the bottom of the barrel now.”

It’s not the bottom of the barrel, but it’s close, and it was made worse by a bankruptcy filing over the summer. The resulting damage to his credit history is what Mr. Sawyer worried about most.

The man is now totally free of debt, yet he is worried about his credit score. He should be celebrating his financial freedom and making plans for the future — a future without Ponzi borrowing and unsustainable living.

He has what he thinks is a stable job, he said, and he made sure to secure his current apartment before leaving his other property, in case a low score scared away potential landlords. But if something happened with his job, and he had to move, he said his decision to walk away could make everything more difficult.

A future landlord could decide not to rent to him. Insurance companies could decide to raise his rates.

One thing Mr. Sawyer and Mr. Wittenberg do not have to worry about is banks coming after them for the mortgage debt they left behind. California and Oregon are nonrecourse states, which means that lenders cannot take homeowners to court to get that money back. Many other states — including New York, New Jersey and Connecticut, as well as Nevada, a foreclosure hub — do allow recourse. In those cases, walking away can exact a much higher price.

For now, Mr. Sawyer said he felt relief. “We were happy in that home,” he said. “But I didn’t see any other way to resolve this matter without pretty much putting money down the drain for years to come.”

And the financial recovery appears to have started already. Mr. Sawyer was approved last month for a credit card through Capital One. It has a $300 limit and a 22 percent interest rate, but he said he planned to use it and pay it off each month. “I’m going to live within my means and kind of start from scratch,” he said.

Devin Maverick Robins contributed reporting.

The debt-aholic left rehab and went to the bar for another drink. I don't consider that a recovery, I think that is a big mistake.

The bottom line is that most people who strategically default feel a great sense of relief later. The soul-draining debts are gone, and they are free to start over and rebuild a better life.

750 Days on the market

The owner of today's featured property paid $345,000 on 11/19/2003. The purchase price may not be correct as the first mortgage was $344,674. On 11/22/2005 he obtained a $150,000 HELOC which he didn't fully use. On 6/26/2007 he refinanced with a $472,500 Option ARM first mortgage with a 1.72% teaser rate. This investment didn't turn out as planned.

The owner put this property for sale nearly 3 years ago. After 750 days on the market, it's still for sale.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Irvine House Address … 312 DEWDROP Irvine, CA 92603

Resale House Price …… $360,000

Beds: 2

Baths: 2

Sq. Ft.: 1155

$312/SF

Property Type: Residential, Condominium

Style: Two Level, Modern

Year Built: 2003

Community: Quail Hill

County: Orange

MLS#: P708690

Source: CRMLS

Status: Active

On Redfin: 744 days

——————————————————————————

Beautiful 2003 built condo in the Quail Hill neighborhood. Just minutes from Verizon Wireless and the Spectrum. Spacious 2 bedroom home with attached garage. Do not miss out on this great condo and value.

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

Proprietary IHB commentary and analysis

Resale Home Price …… $360,000

House Purchase Price … $345,000

House Purchase Date …. 11/19/2003

Net Gain (Loss) ………. ($6,600)

Percent Change ………. -1.9%

Annual Appreciation … 0.5%

Cost of Home Ownership

————————————————-

$360,000 ………. Asking Price

$12,600 ………. 3.5% Down FHA Financing

4.06% …………… Mortgage Interest Rate

$347,400 ………. 30-Year Mortgage

$111,423 ………. Income Requirement

$1671 ………. Monthly Mortgage Payment

$312 ………. Property Tax (@1.04%)

$133 ………. Special Taxes and Levies (Mello Roos)

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

$400 ………. Private Mortgage Insurance

$288 ………. Homeowners Association Fees

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

$2878 ………. Monthly Cash Outlays

-$260 ………. Tax Savings (% of Interest and Property Tax)

-$495 ………. Equity Hidden in Payment (Amortization)

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

$65 ………. Maintenance and Replacement Reserves

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

$2,206 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,600 ………. Furnishing and Move In @1%

$3,600 ………. Closing Costs @1%

$3,474 ………. Interest Points

$12,600 ………. Down Payment

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

$23,274 ………. Total Cash Costs

$33,800 ………… Emergency Cash Reserves

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

$57,074 ………. Total Savings Needed

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