Washington D.C., Dec. 5, 2008 — Treasury Secretary, Hank Paulson, announced a moratorium on defaults today. “We have been considering a moratorium on foreclosures,” said Paulson, “but a moratorium on defaults will be much more effective.”
While other lawmakers are still considering foreclosure moratoriums, Paulson is convinced a default moratorium is a better approach. He hopes others in State and Local legistlatures will follow his lead. “We want to keep people in their homes,” said Paulson, “and we need to keep our lending institutions healthy.”
When asked how a default moratorium would help, Paulson had this to say, “Foreclosures are the result of defaults, and defaults are also causing lenders to take write-downs on mortgage loans. By putting a moratorium on defaults, we solve both problems.” Paulson provides clear guidance on how the program would work, “Homeowners need to keep making their payments. That will put an end to the housing crisis.”
Experts agree that falling home values are not the root of the problem. Paulson goes on, “But let me emphasize that we do not need a system-wide solution for the vast majority of loans where a homeowner temporarily has negative equity. Negative equity does not affect borrowers’ ability to pay their loans. Homeowners who can afford their mortgage payment should honor their obligations.”
When pressed for more details on how such a moratorium would be implemented when so many homeowners cannot afford their payments, Paulson responded, “We are still working on the details. We may provide direct government assistance. The American people are kind and generous. They certainly won’t mind helping out their fellow citizens with tax dollars as necessary.”
When confronted with the possibility of creating a moral hazard, Paulson scoffed at the notion, “Homeowners need this help to stay in their homes. It would be immoral to throw them out on the street.”
You’re gonna realize that
Some of my lies are true
Some of My Lies Are True — Huey Lewis and the News
I have been getting some practice writing press releases lately.
When our various politicians propose foreclosure moratoriums, do you think they are serious? I believe most of them are simply pandering to their constituents that want to believe they are doing something about the housing price crash. If you give the idea of a foreclosure moratorium even a moment’s thought, you realize it could never accomplish anything. We just had a defacto foreclosure moratorium here in California when we instituted a new 30-day waiting period for lenders to contact borrowers to try to work something out. Of course, this only delayed the inevitable, but perhaps it gained some homeowners in foreclosure an extra month of free rent from the bank. I suppose the idea isn’t any crazier than subsidising mortgage interest rates at 4.5%. Why not zero percent? Why not pay people to live in homes? That would probably reduce the inventory. Any thoughts on what half-baked idea they will come up with next week?
Today’s featured property is another HELOC abuser who won’t get bailed out.
WTF? 
Asking Price: $463,900
Income Requirement: $115,975
Downpayment Needed: $92,780
Monthly Equity Burn: $3,865
Purchase Price: $420,000
Purchase Date: 8/29/2003
Address: 24 Rockrose Way, Irvine, CA 92612
| Beds: | 3 |
| Baths: | 2 |
| Sq. Ft.: | 1,660 |
| $/Sq. Ft.: | $279 |
| Lot Size: | 4,928
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Cottage |
| Year Built: | 1966 |
| Stories: | 1 |
| Area: | University Park |
| County: | Orange |
| MLS#: | P667046 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
|
|
ATTACHED HOME WITH ONLY 1 COMMON WALL! END OF CUL DE SAC LOCATION AND
BACKING TO GREEN BELT. VOLUME CEILINGS, FIREPLACE, CERAMIC TILE AND
WOOD FLOORING, ONE OF THE LARGEST LOTS IN THE ENTIRE TRACT! OVERSIZED
FRONT AND REAR YARDS! NO MELLO ROOS, LOW HOA THAT INCLUDES POOLS, SPAS,
AND TENNIS! BANK OWNED!
Can anyone tell me what the second picture is showing me?
Backing to green belt? Yeah, and siding on to the 405.
Well, this person didn’t double their mortgage. they didn’t own it long enough. So what did they do?
- The property was purchased on 8/29/2003 for $397,000. The owner used a $336,000 first mortgage, an $84,000 second mortgage, and a $0 downpayment.
- On 10/29/2004 he opened a HELOC for $120,000.
- On 9/21/2005 he refinanced with an Option ARM with a 1% teaser rate for $528,000.
- On 4/26/2007 he opened a HELOC for $24,847.
- Total property debt was $552,847.
- Total mortgage equity withdrawal was $152,847.
Is it any wonder kool aid intoxication is so strong? This guy put no money down, and he managed to extract $152,847 in spending money over a 3 year period. Who wouldn’t want some of that?
If this property sells for its asking price, and if a 6% commission is paid, the IndyMac (now the US taxpayer) will lose $116,781.
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
🙂
{book}
Say you wanna be a friend of mine
See me all the time
You don’t care what I do
But it all sounds the same to me
Hey, can’t you see
It’s just like I told you
I know you think that I’ve
Been stringing you along
And that I’ve told you a few, but
(Chorus)
Sooner or later when you say I love you
You’re gonna realize that
Some of my lies are true
I never told you that I was the one
Said it just for fun
You know, you knew it too
So why so much on the telephone
I’m never home
It’s just like I told you
Because it’s real the way you used to make me feel
It makes it so hard to say
But nothing can change the way I feel today
Don’t you see that
Sooner or later when you say I love you
Your gonna
Realize that some of my lies are true
Some of My Lies Are True — Huey Lewis and the New
Extracted from Paulson’s address:
“Subtracting the speculators and those who took on more than they could handle leaves us with our target population of subprime borrowers for whom we are seeking a solution – those who want to keep their homes, have the financial wherewithal, but are facing challenges making their monthly payments.”
This approach sounds reasonable, what are the chances they could actually implement it though?
I remember when Paulson made that statement. It showed how little he understands the housing bubble, particularly here in California.
The supposition he is making is that the number of speculators is very small, and the population of ordinary homeowners who could be saved is very large. The reality is exactly reversed. There is a real difficulty in separating the wheat from the chaff. Who is a speculator? and who is not?
IMO, today’s featured property owner was a speculator. I imagine it is his opinion that he is an ordinary homeowner who deserves a break.
Here in California, ordinary homeowners behaved like speculators. They bought houses for appreciation without regard to whether or not they could afford it. What criteria could the government come up with that would separate these two groups? I don’t believe it can be done.
It’s the serial refinancing that needs a moritorium. Start making these people actually pay off some of their debt.
The government needs to start putting out the public service announcements that make “debt” uncool. “This is your brain – this is your brain in debt” types of propaganda.
Do some of those anti-smoking types of ads where they spoofed the tobacco execs who were coming up with marketing strategies with laughter dubbed in over the top. We could have a spoof where a bunch of suits are sitting around a table and one guy says “I have an idea! Let the borrower choose what they want to pay and call it ‘Pick-A-Pay'” followed by some canned laughter dubbed in on top. Followed by some words on the screen that say “If only it weren’t true”.
It’s too late for those who already drank the kool aid. Have to start with the younger crowd who is being taught by their parents that the way to grow rich is to buy real-estate and chase bubbles.
I came to the conclusion that refinancing should be allowed. However, you shouldn’t be able to deduct the interest in any additional principal on your taxes. HELOC interest should not be deductible at all, unless it is really for home improvement. In that case, it’s a construction loan which turns into a part of a larger mortgage. Of course, the bank will need actual receipts, verify that construction is taking place, just like if a home was being built from scratch.
Some refis are responsible. When interest rates drop and someone wants to go to a lower rate loan with the same principal, I’m all for it. If the effects of cashing out some value and lower fixed interest rates net out to the same payment, I am not so supportive, but not heavily opposed.
For cashout refis that raise payments and principal, I think the tax code should not enable this behavior. Bank regulation might also be able to reduce the offering of such loans.
Not only should interest paid toward the HELOC not be tax deductable, all the Proposition 13 benefits should be suspended as well. Property tax should increase the moment any equity is extracted (via HELOC or a cash-out refi); equity extractions reaffirm a home’s current value, and if owners want to touch that money they should be liable for the tax bill on the current value of their home as determined by the outstanding debt.
I’m a big Prop 13 supporter, but I like this idea.
This would essentially add 1-1.5% annual interest to equity extraction in CA. It wouldn’t kill off the process, but it would reduce it.
Prop 13 is hard to change, but I like the general direction of your suggestion.
There might be a way to do something similar in the income tax code. Alternatively, there could be a cashout refi tax. Or, you might be able to exclude heloc and cashout refi interest from the mortgage interest deduction.
The purpose of Prop 13 has never been to avoid making the tax man guess at property value. It’s to force the state to discriminate against new homeowners in favor of existing homeowners (who are typically older and wealthier).
I like the idea, but I’m in favor of anything that chips away at the ridiculousness of Prop 13.
When home prices are at reasonable levels within 2-4 years, any you buy, you’ll become a big Prop 13 supporter. It doesn’t unfairly discriminate against anyone. It protects every homebuyer by capping the amount of tax they’ll be forced to pay, regardless of ridiculous bubbles that appear every decade or so.
There is no discrimination. It protects homeowners from being taxed out of their homes. Think of the fixed income folks that could have been forced out. Your statement “typically older and wealthier” is not true. Many people that stay in their homes for long periods of time can’t afford to move. Locking in the taxes allow someone to make an informed decision on whether they can afford the house in the long-term. That is only fair when you would have to pay thousands in real estate fees to get out of an ballooning tax situation.
Have to start with the younger crowd who is being taught by their parents that the way to grow rich is to buy real-estate and chase bubbles.
No, the REAL way to get rich is to SUE!
For Everything They’ve Got!
Paulson understands the the problem very well. He’s lying.
Indeed. They will say whatever needs to be said in order to keep those payments coming in from their debt-slaving minions.
Must make banker happy.
Must keep payment coming.
Must keep slave working.
Yes he’s just counting the days until he can dump the whole mess into Geithner’s lap and get the heck out of there.
I got in a friendly argument with a realtor who was showing me houses for lease. I asked him what would happen to the price of houses if rates went over 8%. His response? “The government won’t let that happen.”
For now, he is right. It’s looking more like a Japanese style recession where government meddling stretches out the whole mess over years and years.
Yup. Perhaps 0% interest rates are right around the corner.
I think I turning Japanese!
Experts agree that falling home values are not the root of the problem.
OH but they are the root of the problem.
This is a pathetic attempt to maintain inflated house prices. They think if they can keep the foreclosures off the market then prices will stabilize. All it’s going to do is make sellers lower their prices at a slower rate.
Seriously, how can they call these ppl “experts.” Isn’t the highest correlation with default, negative equity? Yea, falling home values has nothing to do with negative equity… f’n unbelievable.
Yes… The “experts”
You! You have done fairly well for yourself chasing bubbles and ripping off shareholders, come join our panel of experts.
The highest correlation of homes which go into default making it to actual foreclosure and REO is negative equity.
The most likely causes of having a default are: unemployment, divorce, death, loan payments resetting, and (in recent years) fraud. A large downpayment doesn’t insulate you from default if you have no other savings and become unemployed. However, in most real estate markets a 20% downpayment would have given you a good chance of selling a house you could no longer make payments on. In the current environment, that is not the case.
Affordability is the problem. If virtually all homeowners could afford their current houses and loans, prices dropping would mean renters moving to ownership, and people buying second homes.
That situation probably wounldn’t last long. Either new homes would be built or prices would go up.
Falling home values are NOT the root of the problem; THEY’RE THE SOLUTION!
Isn’t it insulting to hear politicians talking about falling home prices being a problem? These are the same people who said rising home prices were a problem because average people couldn’t afford homes.
Now home prices are becoming more affordable by the day, and this is our main “problem”?
Falling home prices are only a problem when their business partners are losing money.
Politicians must identify “problems” so they can justify their existence and gain power by pledging to solve those “problems”.
“These are the same people who said rising home prices were a problem because average people couldn’t afford homes.”
I don’t recall too many politicians raising a stink about high home prices. Everyone just played along and enjoyed the ride. How do you like being ridden?
Me, not much.
Unemployment and under-employment are the problem, not falling home values. If Americans had more confidence in their jobs, they would be more willing to take out mortgages, spend money frivolously, and become consumers again. Falling home values are a symptom of the underlying problem of unemployment. Gee, all this outsourcing has a cost doesn’t it? Suddenly Americas can’t afford to buy the widgets that these companies have outsourced in order to improve their bottom line and not pay Americans. They’re too stupid to see that it’s all a circle.
AMEN!!
We are finally seeing rollbacks to rent parity, at least on lower-end properties. Higher-priced properties have to follow, especially since developers saturated the upper-middle and upper bracket markets with stuff that sits unsold.
Foreclosures on luxury properties here in Chicago are rampant.
Rollbacks to affordability will help bring back moderate income buyers, and will make housing more affordable for everyone in every price bracket.
Hopefully, this debacle will put an end to the idea that housing inflation constitutes a solid basis on which to found the economy, so we can return to those activities that always were the true founts of wealth and that made United States the most powerful economy in the world: manufacturing and commercial.
No population ever benefited from overpriced housing relative to rents and incomes, and no economy was ever successfully based on asset inflation, monetary manipulation, and the accumulation of debt.
We all need to calm down and remember that houses will appreciate 10 to 15% a year (forever) and everything will get back to normal. Can’t we all just get along?
When I started to read this blog entry I thought that it was april 1. This must be a joke…….if you want to really screw up our banks, don’t make borrowers accountable.
It is a joke, but I threw in some real comments Paulson made to underscore the absurdity of it all.
Me too!
I’ve never posted before, but been reading daily for a long time.
IrvineRenter: you’re not capturing to total loss here with Option Arm loans. Presumably the borrower took an option arm to get the artificially low “minimum” (negatively amortizing) payment, in which case he added to his loan balance every month because he didn’t even cover the actual interest due. Therefore, with the size of his loan, the balance is now probably well over 600k.
By the way… NOTHING I’ve seen offered by ANY lender or gov’t entity addresses fixing option arm loans. There is currently no help for them, and it’s impossible to make them more “affordable” to those homeowners in trouble.
The second picture is a combo shot. You can see the garage door on the right hand side and the greenbelt in the background.
You know, the “greenbelt” that is otherwise known as the 405.
When the property preservation crew hired by the banks come around to do the re-key, trashout, yardwork, etc. they are required to provide before and after photos. Most of the mls pics I see for REO properties are from the cleanup crew, not the sales agent. In most cases, the realtard is too lazy to visit or walk the property personally. They just get the crappy preservation pics from lender and toss them up on mls and pray for a sale with little or no effort on their part.
Wow, that really explains a lot! Thank you for that factoid.
http://www.crackthecode.us/images/paulson-mind-trick-neg-equity-temp.jpg
lol
How about “All your negative equity are belong to us” as the caption?
Yes, or
“Don’t worry – your down payment is safe with us”
How about:
“These are not the Mortgage Rates your looking for..”
Dejnov
LOL…staying with the star wars theme (though this was Princess’ Leia’s line) “This is some rescue. When you came in here, didn’t you have a plan for getting out?”
LoL. Good one.
Ok, help is on the way
Wonderful chop.
“This is not the return to sanity you were looking for.”
Paulson is no idiot, he’s a liar. He’s no genius either but so many look to him as one of the ‘Masters-of-the-Universe’.
When is someone in the press going to call him on some of the absurdity he spews?
I’m calling for a New Revolution.
Is that a chastened Hank Paulson on the cover of your book? If not, maybe AZ Dave can make us one? Whose face should we put on the left side of the cover?
I wish Suzanne wasn’t a faceless voice on the telephone. She would be perfect.
She isn’t. I believe at the end of the commercial they show her business card w/mug shot.
You mean with “smug” shot.
https://www.irvinehousingblog.com/images/uploads/dec2008early/bubble paulson.jpg
Paulson is a liar, they are all liars. The Sh**t will hit the fan when Bush is no longer president, they are going to let all this fall onto Obama, everyone wanted change, well we are going to get it soon, lets just hope that our currency will not dissapear or be worthless, like it was in Germany before the war, history is repeating itself, read up on it. The gilded age of the roaring 2000’s is over.
IR, congrats on having a post included in Michael Lewis’ new book “Panic.”
FWIW, this is from the Wikipedia on the subprime mortgage crisis
Speculation
Speculation in residential real estate has been a contributing factor. During 2006, 22% of homes purchased (1.65 million units) were for investment purposes, with an additional 14% (1.07 million units) purchased as vacation homes. During 2005, these figures were 28% and 12%, respectively. In other words, a record level of nearly 40% of homes purchases were not intended as primary residences. David Lereah, NAR’s chief economist at the time, stated that the 2006 decline in investment buying was expected: “Speculators left the market in 2006, which caused investment sales to fall much faster than the primary market.”[49]
The second picture is a nice view of the sound wall on the 405, right? I’ve only seen it from the other side…
Hank sez….”The American people are kind and generous. They certainly won’t mind helping out their fellow citizens with tax dollars as necessary.“
WTF ?! Uh, yeah…I MIND !
How can you be against helping your fellow banker-I-mean-neighbor?
Have you no decency?!
# 1% teaser rate for $528,000.
# On 4/26/2007 he opened a HELOC for $24,847.
So this person was paying $5,280 in interest, zero principal, and $4500 in tax, plus $1200/yr HOA.
[B]That adds up to less than $1000/month.[/B] Of course, the subsequent HELOC covered that payment for two years, then they stop paying.
Free rent!
And yet they still blame it on the subprime buyer—the immigrant–the ignorant person–
those who stole from all of us is just about everyone involved and yet we all will pay for this huge fraud.
The best part they still feel these homes are worth their value–LOL—
my taxes will only go up and up—
Last week while being shown another overpriced house the realtor actually concluded his canned, predictable, cliche’d speach by saying ” house prices double every 7 years”
After I picked myself up from the floor I could not get outta there fast enough. Can someone in this industry please tell me when these people will get the memo. Or do they just think any potential buyer is a total moron!!
Realtards are too dumb to “get the memo.” They’re salespeople who have abundant self-confidence but not much else going for them.
Maybe we should send another memo — “House prices are cut in half every 7 years!”
7 months
This is the first post that has made me angry in awhile. WTF?!
Paulson: The American people are kind and generous. They certainly won’t mind helping out their fellow citizens with tax dollars as necessary.
Why would I want to pay more taxes to bail out liars, thieves, and morons who got themselves into mortgages they could not afford????? Why???
Something seems to be screwed up with the stylesheet(s) on the site. This article shows up as dark orange text on a dark blue background. This occurs on both Firefox and Safari on Mac OS. Looks okay in IE on Windows.
Also, IR, “moratorium” is misspelled in the article title.
I take it back — the page is messed up on IE too, just in a less severe way.
Here comes Santa Claus,
Here comes Santa Claus,
Right down Bailout Lane;
Fannie Mae & Freddy Mac
A-pullin’ on the reins;
Gummint Gravy pouring in,
All is Happy and Bright;
Dream of condos to flip flip flip
‘Cause Santa Claus Comes Tonight!
Don’t you wish you were a Mooch instead of a Sucker?