Inmates learn new skills as part of their rehabilitation. It is a wise societal investment to give thieves training in something other than thievery so they can have an opportunity to begin a new productive life — if they choose to live differently after prison. Unfortunately, many skills taught in prison give criminals new skills to be even better criminals.
While I was in Edgefield Federal Prison Camp, many of us white-collar felons taught classes to the other inmates. Most of the classes involved helping inmates get their high school diploma (GED). Like other inmates who had the opportunity to teach, I felt good to find a way to give back.
Other classes helped inmates prepare for a career after prison. Hair cutting was a popular skill to learn, though many states prohibit felons from cutting hair….must have something to do with scissors. Tattoo art was also popular but the shortage of clean needles kept the enrollment for that particular class to a minimum.
So what was the most popular class during my time in Edgefield during 2001-2002, “How to be a Mortgage Broker”. The class was taught by an inmate, Eric, who was doing 3 years for mortgage fraud. So I guess that made him an expert. Each semester (a 2-hour class met 3 days a week for a month) the enrollment prompted a waiting list for the class. The waiting list resulted because the prison would only allow 25 copies to be made of the various forms that were a part of the curriculum (about 20+ pages of forms, work sheets and exemplar credit reports). Those with more time left on their sentence were pushed off to another semester to make room for those that would hit the streets in a few months. If you were doing 5+ years, you didn’t have a chance. Even prison classes are selective in their enrollment.
Mortgage Brokering was a great career because institutions did not care whether you were a felon or not, as long as you had a legitimate deal. And in 2002-2006 they were all legitimate. There was no licensing requirement and the inmate would return home with dreams of home-ownership to a host of friends and family. Testimonials to the success of the program flowed back to the instructor and he shared these with the next class.
Professor Eric probably meant well. The would-be brokers that he fed into the market were just trying to make a living in a business that seemed more lucrative and easier than selling the drugs that had put them in prison to begin with. Professor Eric did not do too bad either. He received $30 in commissary goods per inmate ($750 per session). Not bad for a place where the legitimate wage is about $0.15/hour for a prison job. Granted, there were only 4 sessions a year, but Eric also offered private lessons not sanctioned by the prison.
When I left prison, Professor Eric had turned his energy toward his own career once he secured his release, and it wasn’t Mortgage Brokering. He had created a business plan for a mutual fund that bet on NBA games with a guaranteed return of 12%. I told him that it sounded like a Ponzi Scheme, and I’ll never forget his reply, “What’s that?”
The entire housing market in California is a Ponzi Scheme. The newly released felons will be completely comfortable originating loans here in California. The question is, will you be comfortable having a convicted felon get a loan for you?
A private Ponzi prison
Perhaps we should make all the Ponzis who stripped the equity from small condos live in them until they pay the money back…. Actually, that is occurring to those who continue to make their payments. I wonder if they feel like they are in prison?
Today's featured property was purchased on 3/17/2003 for $279,000. The owner used a $223,200 first mortgage, a $41,850 second mortgage, a $13,950 third mortgage, and a $0 down payment.
On 11/10/2004 he refinanced with a $336,000 first mortgage.
On 12/27/2005 he refinanced again with a $360,000 first mortgage and a $40,000 second mortgage.
Total property debt is $400,000.
Total mortgage equity withdrawal is $121,000. Not bad for a small condo.
Investors are suing banks to get some of their money back from the bad loans banks originated and investors purchased. IMO, the only real beneficiaries will be the attorneys.
Investors in Pool of Securities Seek to Force Lenders to Buy Back or Modify Problem Mortgages
By CARRICK MOLLENKAMP — September 23, 2010
Big U.S. banks are facing legal pressure to make up for losses tied to pools of soured low-end mortgage loans.
In the latest effort, a group of investors in 2,300 mortgage securities worth roughly $500 billion is seeking to force several banks that originated or are now servicing faulty subprime-mortgage loans to repurchase or modify them.
I wonder who they are filing suit against. One of the brilliant aspects of subprime was that the major commercial banks and investment banks kept these operations at arms length as separate corporations. Once these corporations imploded, there was nowhere for investors to turn to get their money back. New Century Financial has guranteed billions on loans, but kept almost no capital in the company to cover them. This was common among subprime lenders. Their guarantee didn't mean much if they didn't have any capital to back it.
The move follows other similar efforts. Bond and mortgage insurers, hard hit in the housing crisis, have filed lawsuits accusing lenders and banks of sticking them with flawed loans marred by poor underwriting and faulty appraisals.
Federal Home Loan Banks in Pittsburgh, Seattle and San Francisco have sued Wall Street banks, seeking to force them to buy back mortgage-backed bonds. In July, the Federal Housing Finance Agency issued 64 subpoenas to obtain information about loans underpinning securities sold to mortgage giants Fannie Mae and Freddie Mac.
The banks and lenders are fighting these efforts, saying they aren't responsible for the housing crash.
And the outcome is far from certain and could depend on potentially contentious negotiations and litigation that could drag out for years.
Let the attorney feeding frenzy begin. The main parties who will be enriched by all this activity are the attorneys. Investors won't see much of their money, but the attorneys for both sides of these suits will make fortunes.
In any case, analysts say the efforts could force banks to disclose difficult-to-obtain information about the loans, such as how poorly they might have been originated or are being managed.
That data could be used to force banks to repurchase as much as $133 billion in souring home loans, according to Compass Point Research & Trading, a Washington, D.C., boutique investment bank.
The legal efforts focus on the contractual duties of lenders known as "representations and warranties," which can at times require them to repurchase loans or modify them so borrowers can keep paying monthly mortgage bills, which maintains value for mortgage securities tied to the loans.
One of the reasons loan modification programs have been difficult to implement is due to the huge number of loans placed into asset-backed securities and sold into collateralized debt obligations. The terms of these CDOs vary considerably, and many of them have no mechanism to modify loans because nobody anticipated the need.
The Trustees' Roles
At issue are the roles of trustees and loan servicers. Trustees are little-known administrators inside banks responsible for overseeing loan pools, or securitizations, on behalf of investors. Loan servicers handle day-to-day management of loans, including deciding how and whether to modify the terms of a loan. Both are charged with oversight of pools that hold thousands of loans.
If a trustee, for example, discovers that a borrower lied when getting a loan, the trustee or loan servicer is responsible for forcing the originating bank to repurchase the loan on behalf of mortgage investors. Trustees enforce warranties made by loan originators when they sell loans to a trust, and oversee loan-servicing firms.
But some loan-servicing units reside inside the same banks that originated or underwrote the loans or securities. This sets up a potential conflict of interest because a loan-servicing arm would have to force another department or affiliate inside a bank to take back a problem loan.
I recently reported on the GSEs efforts to force servicers to process loans. The large commercial banks in particular have billions of dollars in second mortgages on their books, so they are delaying foreclosure as long as possible to try to obtain some value from their worthless second mortgages. This glaring conflict of interest has not gone unnoticed.
In a letter to the trust departments of several large banks, Talcott Franklin, a Dallas lawyer representing the investors holding 2,300 mortgage bonds, claims the loan-servicing units too infrequently modify poor-performing home loans underpinning mortgage securities or replace them with better loans.
"This is of great concern to the pension funds, bank and credit-union depositors, mutual fund holders, 401(k) holders, endowments, state and local governments and taxpayers who depend on the performance of these investments," the letter says.
U.S. Bancorp, Bank of America Corp., Bank of New York Mellon Corp., and Wells Fargo & Co. received the letter from Mr. Franklin, while Deutsche Bank AG didn't, according to people familiar with the situation. The banks either declined to comment or didn't return requests for comment on the letter.
In a statement, a spokeswoman for Wells Fargo said the bank has "an established track record of responding to all legitimate verified bondholder inquiries in a timely manner."
All the major banks are delaying foreclosure for their own selfish needs. The holders of the first mortgages are still in denial, and the servicers who hold the second mortgage are in no hurry to bring reality to the situation.
A key first step in the legal fights is obtaining the loan files that will detail how the loans were originated and what is being done now to salvage investors' money.
If the investor maneuver is successful in getting the loan information, "this will lead to similar actions taken by a larger set of bondholders," said Chris Gamaitoni, a Compass Point senior analyst. "We believe that once loan files are acquired, that the breaches of reps and warranties will be relatively clear."
In an Aug. 17 report, Compass Point said the litigation makes common claims: "A significant portion of the underlying loans failed to comply with the underwriting guidelines or other reps and warranties, and thus misrepresentations and material omissions were made in connection with the sale of" residential mortgage-bond securities.
Actually, I don't think they will find many of the underlying loans failed to meet the guidelines. There were no guidelines. Often the guidelines that were in place were so ridiculous that the investors deserved to lose money. Many of these CDOs stated on the first page the kind of crap that was inside them.
In recent weeks, some of the banks have begun early-stage talks with Mr. Franklin to provide data about the loans underpinning the securities, such as loan documents and how the loan has been serviced. Separately, Mr. Franklin hopes to persuade the trustees to take increased steps to deal with souring loans, such as forcing loan sellers to repurchase the loans or requiring loan servicers to improve loan servicing.
In the past, complaints by mortgage-security investors went unheeded. But because Mr. Franklin now represents enough investors to meet certain legal thresholds—he, for example, represents 50% or more of the voting rights of 900 mortgage securities—his clients could fire a trustee, demand changes in the way a mortgage bond is managed or ultimately file a suit on behalf of a huge group of bondholders.
In the letter, Mr. Franklin said that in some trusts where the lender and servicer sit inside the same bank, the number of recent repurchases by the lender is zero, even though the default rate for the loan pool is 25%.
Do you think the conflict of interest is causing problems? I think it is obvious.
'That's Just Not Right'
Some investors "had no idea that their money was being invested in mortgage-backed securities," said Mr. Franklin. "And yet somehow these people are now the ones being punished, and that's just not right."
If the investors had no idea their money was being invested in MBS pools, then those investors were idiots. Accredited and institutional investors don't have many rights of recourse against a properly administered investment that goes bad. Big investors are supposed to know what they are buying, and ignorance to the nature of the investment that has been properly disclosed does not give them cause of action.
To keep track of the securities his clients own and protect his clients' confidential holdings, Mr. Franklin uses a software system he designed with a college friend, who consults on how to design large databases. Mr. Franklin calls it the "Tranche" program, a reference to the French word for slice or layer. Mortgage securities are chopped into tranches based on risk and return.
His clients' information is coded and Mr. Franklin keeps a secret code book as a reference. Mr. Franklin said the system is important because it lets him know when his clients in a specific deal have amassed enough voting power.
In the other cases, bond insurer MBIA Inc. sued Credit Suisse Group in New York state court in December over a $900 million loan pool, a large portion of which MBIA agreed to cover. MBIA said it had relied on Credit Suisse to vet the quality of the loans.
In January, Ambac Assurance Corp., the bond-insurance unit of Ambac Financial Group Inc., sued a Credit Suisse unit in New York state court, alleging that it made "false and misleading" representations about home-equity lines of credit backing bonds that the insurer guaranteed in 2007.
A Credit Suisse spokesman said the claims are without merit and the bank will defend itself against the claims.
Since Credit Suisse had people like Ivy Zelman consulting for them (she originated the ARM reset chart), it seems likely that Credit Suisse properly disclosed the risks.
Separately, American International Group Inc. is analyzing mortgage deals it insured before it imploded in 2008. Chief Executive Robert Benmosche told investors in May that the company will take "appropriate action" if it finds it was harmed by the transactions.
When a property is sitting empty in a nice neighborhood, the banks have been in no hurry to foreclose. Today's featured property might as well be an REO. I don't know how they plan on getting the owners to negotiate a short sale when they aren't there anymore, but title is still in the name of the former residents, and this property is listed as a short sale. Realistically, this listing exists to get bids so the banks can determine market value so they can make a determination on a bid at auction. This property will almost certainly go to auction.
The property was purchased for $487,000 on 3/4/1999. The owners used a $389,300 first mortgage and a $97,700 down payment.
On 5/18/1999, they obtained a $41,000 second mortgage.
On 2/13/2001 they opened a $100,000 HELOC.
On 3/1/2002 they refinanced the first mortgage for $525,000.
On 11/1/2002 they obtained a stand-alone second for $50,000.
On 4/25/2003 they refinanced with a $535,000 first mortgage.
On 5/28/2004 they refinanced again with a $652,000 first mortgage.
On 4/29/2005 they obtained a $100,000 HELOC.
On 1/2/2007 they refinanced the first mortgage for $900,000.
Total mortgage equity withdrawal is $510,700. They are part of the elite equity-stripping HELOC abusers: the half million dollar club.
Total squatting time is about 198 months.
Foreclosure Record
Recording Date: 03/16/2010
Foreclosure Record
Recording Date: 08/31/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 05/26/2009
Document Type: Notice of Default
Will this happen again?
What do you think? Will people get the chance to strip $500,000 out of their walls again in the future?
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Beautiful 2 story home with 4 bedrooms and 3 baths.Corian counters in spacious Kitchen, Master Bath, and 1/2 bath. Custom closet in Master Bath. Wired for surround sound in Dining rm, Family room, outside and Master Bedroom. Wood Flooring downstairs and tile in upstairs bathrooms, laundry rm too. Epoxy garage floors. Schools, Oak Creek Elementary, Lakeside Middle School, Woodbridge High.This won't last, make an offer!
Dean Baker of the Center for Economic and Policy Research was one of the early public voices who called the housing bubble. He accurately noted the disparity between rent and payments and concluded housing prices were not sustainable. Like me, he was a renter looking to buy as prices were ramping up, and like me, he noted that since it didn't make sense for him personally to buy, it didn't make sense for anyone else either. Being an economist at an influential think tank, he was in a position to research and write about the issue and be heard.
I really like Mr. Baker's proposal, but I have been afraid to write about it because I don't think lawmakers fully understand what passing his legislation would do to the housing market. I would very much like to see it become law, but if it does, every inflated housing market in the country would crash very hard as loan owners accelerate their defaults. If lawmakers are educated to this fact by me or the banking lobby, they will not pass this good legislation. But I am only a blogger, so perhaps they will ignore me. Let's hope so.
by CHRISTINE RICCIARDI — Wednesday, September 22nd, 2010
In the wake of reform enacted to promote homeownership, analysts at the Center for Economic and Policy Research are saying that ownership may not be the smartest option. In a report released today, The Gains from Right to Rent in 2010, the CEPR suggests that giving homeowners the right to rent their house at a fair market price could be a game changer in the nation's foreclosure crisis.
The report dissects the benefits of a drafted bill, H.R. 5028, also known as The Right to Rent. Under the legislation, homeowners entering the foreclosure process would be able to occupy their homes for up to five years, while paying rent to a lender. Rent would be based on fair market price as determined by an independent appraiser and adjusted annually.
Think about the effect of this law from the perspective of an underwater homeowner making a payment that exceeds a comparable rental. Why would anyone in that position keep paying their mortgage if they knew they could default and stay in their home for five years? Further, wouldn't these owners also believe that they would be given a chance to repurchase the house after 5 years when their credit is improved? If this law is passed, every market inflated above rental parity would crash to that price level because of a rush of accelerated default.
"This would give homeowners an important degree of security, since they could not simply be thrown out on the streets," wrote Dean Baker and Hye Jin Rho, co-director of and research assistant at CEPR. "This policy should also benefit neighborhoods in the most hard-hit areas, since they would not have large numbers of vacant homes following foreclosures."
This policy probably would benefit the hardest hit areas because there would be less turnover of the housing stock. Riverside County would benefit greatly while Orange County would be crushed.
The CEPR report, which compares the costs of owning a home and renting in 16 major metropolitan statistical areas around the U.S., found that homeowners would see substantial reductions in costs by becoming renters if they rented in a bubble-inflated market. Savings are much less, however, if the market was not affected by the housing bubble.
For example, in the Los Angeles MSA, homeowners would save $1,586 per month by becoming a tenant. The median home price in 2006 and 2007 was $608,600. Based on that number, CEPR found the monthly cost of ownership as $3,128 versus $1,420 to rent.
New York/New Jersey, Sacramento, San Diego and San Francisco savings are all over $1,000.
The tremendous savings being touted here are real, and they represent a loan owner's incentive to accelerate their default. Most loan owners believe house prices will go back up and they will get appreciation and HELOC riches: they are making a strategic repayment. Once the incentives change, fewer will make the oversized payments. Instead of continuing to make a strategic repayment, most will opt to strategically default. It's only the false belief that their investment will yield results that keeps most of these people paying now.
In Detroit, however, the marginal saving is only $89 between owning and renting home. MSAs including Baltimore, Chicago, Cleveland, Minneapolis, Philadelphia, Phoenix, and Tucson had a difference of less than $500.
“With roughly one-in four mortgages underwater, the loan modification plans put forth so far have done little to help homeowners facing foreclosure,” said Baker. “Right to Rent, on the other hand, would benefit millions, provide families with real housing security, and could go into effect immediately.”
And it would lower house prices to rental parity.
And it could fill adequate demand. According to a survey done recently by Apartments.com, 60% of respondents said they prefer renting to buying a home. Almost 30% said they had never rented before but are currently looking for an apartment.
The CEPR report includes an appendix with cost analysis for 100 MSAs around the country. Amounts for houses are based on costs for a house that sells at 75% of the median house price. The basis for rental costs is the Department of Housing and Urban Development's Fair Market Rent for a two-bedroom apartment. The calculations used assume the homeowner faces a marginal tax rate of 15%. View the full report here.
Permanent Rental Parity
Despite the problems created with implementation of a right-to-rent law, the impact would be long lasting and very positive because most first mortgages would be limited to rental parity. Right now, the excess mortgage payment going to the bank represents money not being spent in the local economy. When a loan owner in California is paying a 50% DTI, very little is left over to stimulate the economy — and have a life. Without appreciation and HELOC abuse, high DTIs are detrimental to California, and a HELOC based economy is an unsustainable Ponzi Scheme.
Since the incentive to default exists for mortgage payments above rental parity, lenders will stop underwriting those loans. If you were a lender, and if you knew the borrower could default at any time and stay in the property for 5 years and only have to pay you rent, wouldn't you keep the payment at or below rental parity? A right to rent law would stabilize the housing market in a way no other government program has succeeded in doing. Unfortunately for lenders, the implementation of this law will take the remaining air out of the housing bubble.
I strongly support the idea of keeping house prices at rental parity because it discourages Ponzi living and puts the economy on a sustainable footing. I proposed a similar idea in The Great Housing Bubble:
There is one potential market-based solution that would require no government regulation or intervention that would prevent future bubbles from being created with borrowed capital: change the method of appraisal for residential real estate from valuations based exclusively on the comparative-sales approach to a valuation derived from the lesser of the income approach and the comparative-sales approach. Both approaches are already part of a standard appraisal, so little additional work is necessary–other than appraisers will have to focus on doing the income approach properly. In the current lending system, the income approach is widely ignored. … When the fallout from the Great Housing Bubble is evaluated, it is clear that the comparative-sales approach simply enables irrational exuberance because the past foolish behavior of buyers becomes the basis for future valuations allowing other buyers to continue bidding up prices with lender and investor money. Prices collapsed in the Great Housing Bubble because prices became greatly detached from their fundamental valuation of income and rent. This occurred because the comparative-sales approach enables prices to rise based on the irrational exuberance of buyers. If lenders would have limited their lending based on the income approach, and if they would not have loaned money beyond what the rental cashflow from the property could have produced, any price bubble would have to have been built with buyer equity, and lender and investor funds would not have been put at risk. There is no way to prevent future bubbles, and the commensurate imperilment of our financial system, as long as the comparative-sales approach is the exclusive basis of appraisals for residential real estate.
My approach was to change the appraisal system to limit loans to rental parity, but Dean Baker's idea of right to rent would have the same effect. If loans are limited to rental parity, so will house prices — unless we suddenly become a nation of savers and manage to inflate a bubble with equity…. not going to happen.
Sold to Countrywide at the peak
This wasn't really sold to Countrywide, but borrowing the full value had the same effect. The owners extracted every penny of equity, and Countrywide (B of A) will end up with another REO. In effect, they bought the property in mid 2007 but didn't know it.
This property was purchased on 10/23/1998 for $88,000. The owners used a $66,000 first mortgage, and a $22,000 down payment.
On 3/5/2003 they refinanced with a $150,000 first mortgage.
On 7/30/2007 they refinanced with a $296,000 first mortgage. These owners were not regular HELOC abusers, but they did manage to double their mortgage on two occasions.
Total mortgage equity withdrawal is $230,000. That is great for a 1 bedroom condo.
Foreclosure Record
Recording Date: 07/19/2010
Document Type: Notice of Default
Some might disagree with my giving them a "D" for mortgage management. With only two refinances, I think these people really believed they were living within their means and only spending part of their appreciation. It doesn't appear thoughtless or reckless — stupid, but not reckless.
According to the listing agent, this listing may be a pre-foreclosure or short sale.
Located in a desirable community. Just down the road from Irvine Spectrum, to UC Irvine and walking distance to Irvine Valley College. It is a one bedroom/one bath downstairs and a big loft upstairs. Kitchen have new granite countertop and tile floors. Bathroom have new tile floors as well. And have wood floors in other rooms. Amenities such as tennis courts, basketball court, swimming pool, childrens playground.
The realtor needs to work on subject-verb agreement and basic grammar.
I have profiled this property before, and the HELOC abuse is extraordinary. I wonder if the owners were buying their own stairway to heaven.
Bought at the bottom, abused HELOCs, gamed the system, and squatted for 18 months
The owners of today's featured property are representative of all that is wrong with home owners in Irvine. They did everything wrong, and they are being strongly rewarded for their bad behavior.
The property was purchased on 8/20/1997 for $349,000. The owners used a $279,100 first mortgage and a $69,900 down payment.
On 1/3/2000, the owners celebrated the millennium by opening a $150,000 HELOC.
On 4/28/2003 they opened a $200,000 HELOC.
On 1/5/2004 they obtained a $353,500 HELOC.
On 4/22/2004 they got another $145,000 HELOC.
On 2/25/2005 they refinanced with a $661,000 first mortgage.
On 2/23/2006 they obtained a $344,000 HELOC.
On 9/18/2006 they obtained a stand-alone second for $390,000.
Total property debt is $1,051,000
Total mortgage equity withdrawal is $771,900.
Total squatting time is at least 18 months.
Foreclosure Record
Recording Date: 06/03/2010
Document Type: Notice of Default
Foreclosure Record
Recording Date: 03/26/2010
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 12/21/2009
Document Type: Notice of Default
Foreclosure Record
Recording Date: 06/25/2009
Document Type: Notice of Rescission
Foreclosure Record
Recording Date: 04/20/2009
Document Type: Notice of Default
These owners extracted about $100,000 per year for the 7 years they were stripping the property. When the ATM machine was finally turned off, they managed to game the system for 18 months… so far. Since they are still back at the NOD stage, they will be in the property until at least October, and since this one is in jumbo loan territory, they will likely be allowed to squat for much longer.
What would you do with $771,900?
What would you do with two years or more without a housing payment?
According to the listing agent, this listing may be a pre-foreclosure or short sale.
This property is in backup or contingent offer status.
Fabulous opportunity in the guard gated community of Northwood Pointe. 4 spacious bedrooms plus extra large bonus room/office. Formal living room and dining room. Kitchen with double oven, cooking island and breakfast nook. Super sized family room with fireplace and built in entertainment center. Corner lot with great curb appeal. A short walk to award winning Canyonview Elementary and Northwood High. Enjoy community pool, parks and trails. Close to shopping, dining, entertainment, 5 fwy and toll roads.
With the restricted inventory condition engineered by the banks, our market is not going to clear any time soon. They may be successful at holding up prices to some degree, but it will take a very long time to work off the overhanging inventory of distressed properties. As this process drags on, more Ponzis will flame out, and the distressed inventory will continue to grow. The housing bust is not over.
Only 650 on the MLS
About 650 homes are for sale on the MLS, and there very few properties in the foreclosure process currently for sale. Many of the short sales are in pre-foreclosure, but most of those in the foreclosure pipeline have already given up. They are squatting and waiting. The number of properties tied up in the foreclosure process exceeds our steadily increasing MLS inventory.
Pre-Foreclosure and Auction inventory continues to rise
According to ForeclosureRadar.com, visible inventory is as follows:
342 Pre-Foreclosure (NOD has been filed)
484 Auction (NOT has been filed)
826 Total Pre-foreclosure and Auction Properties.
Is 826 a big number?
In the last 30 days, the postponements have far exceeded the number of sales. There were 36 properties sold back to the bank, and 9 properties that were sold to third parties. That is 45 properties sold in one month out of an inventory of 826. At that rate of sales, it will take 18 months to clear the inventory.
Foreclosure inventory isn't like MLS inventory that needs three to six months supply available to make a market. Foreclosure inventory should be near zero. The total months to clear foreclosure inventory is usually less than one. The fact that we have over 800 properties in this visible inventory is troubling.
The homebuilders like the Irvine Company are taking advantage of the restricted inventory to sell new homes. As someone whose livelihood depends on the homebuilding industry, I think its great that sales are doing so well. As a consumer, I find it irritating that the reason homebuilding is coming back is because the inventory that should be available on the MLS is tied up by lenders who are allowing everyone to squat. It's really bad in Las Vegas where more than 1,000 new homes were built in a city with 9,000 empty ones.
At least 2,700 in Irvine shadow inventory
Bear in mind that none of these numbers capture the shadow inventory of those who are not paying their mortgage but the banks have not begun the foreclosure process. The latest report is that 8.4% of Orange County mortgage holders are delinquent on their payments. There are about 75,000 homes in Irvine and about 45,000 mortgages. If only 6% of those are delinquent, that amounts to 2,700 homes. If Irvine matches the 8.4% rate of Orange County, then 3,780 homeowners are delinquent The ratio of three to four houses in shadow inventory for each house in pre-foreclosure is about the same as national figures.
At the rate of distressed inventory sales of 45 per month, it will take 60 months to work off this inventory — and that is if we stopped adding to it today.
Eighteen months for visible inventory and sixty months for shadow inventory doesn't sound as bad as it really is because more properties will become distressed as this inventory is worked off. Many more borrowers that currently are not delinquent simply can't afford their homes. Large numbers of Ponzi borrowers are continuing to build their Ponzi debts. Most are resorting to credit cards right now waiting for the HELOC money to come back. It isn't going to. The long term ramifications of shutting down the home ATM is going to be more distressed properties and foreclosures as the Ponzis implode.
In the interim, we sit and wait.
Washington Mutual's Garbage
Below is a sample of one defunct lender's toxic waste. The first two properties account for over $10,000,000 in bad loans. Do you see why they are in no hurry to foreclose?
89 CANYON CRK
5/26/2010
$ 5,200,000
WASHINGTON MUTUAL BK FA
41 GOLDEN EAGLE
6/7/2010
$ 4,860,000
WASHINGTON MUTUAL BK FA
27 STARVIEW
7/7/2010
$ 2,240,000
WASHINGTON MUTUAL BK FA
8144 SCHOLARSHIP
6/2/2010
$ 1,674,282
WASHINGTON MUTUAL BK FA
11 GAVIOTA
5/27/2010
$ 1,260,000
WASHINGTON MUTUAL BK FA
3131 MICHELSON DR 1702
6/3/2010
$ 1,226,600
WASHINGTON MUTUAL BK FA
3141 MICHELSON DR 1402
5/27/2010
$ 1,000,000
WASHINGTON MUTUAL BK FA
28 CRIMSON ROSE
5/27/2010
$ 1,000,000
WASHINGTON MUTUAL BK FA
10 FIGARO
6/2/2010
$ 880,000
WASHINGTON MUTUAL BK FA
55 MIDNIGHT SKY
6/21/2010
$ 867,000
WASHINGTON MUTUAL BK FA
78 DOVECREST
5/28/2010
$ 815,000
WASHINGTON MUTUAL BK FA
61 DOVECREEK
6/28/2010
$ 760,000
WASHINGTON MUTUAL BK FA
26 DINUBA
6/10/2010
$ 744,000
WASHINGTON MUTUAL BK FA
89 LAMPLIGHTER
7/7/2010
$ 737,112
WASHINGTON MUTUAL BK FA
37 LAKEVIEW 54
5/21/2010
$ 682,500
WASHINGTON MUTUAL BK FA
6 CEDARSPRING
7/2/2010
$ 650,000
WASHINGTON MUTUAL BK FA
16 ARBORSIDE
5/25/2010
$ 643,700
WASHINGTON MUTUAL BK FA
2251 WATERMARKE PL
5/26/2010
$ 639,000
WASHINGTON MUTUAL BK FA
4911 KAREN ANN LN
6/2/2010
$ 638,250
WASHINGTON MUTUAL BK FA
196 WILD LILAC
6/14/2010
$ 608,000
WASHINGTON MUTUAL BK FA
4082 GERMAINDER WAY
6/18/2010
$ 594,000
WASHINGTON MUTUAL BK FA
14 SHENANDOAH
6/3/2010
$ 560,000
WASHINGTON MUTUAL BK FA
4056 WILLIWAW DR
6/3/2010
$ 550,000
WASHINGTON MUTUAL BK FA
17 MONTE CARLO
5/26/2010
$ 548,000
WASHINGTON MUTUAL BK FA
62 FRINGE TREE
6/17/2010
$ 536,750
WASHINGTON MUTUAL BK FA
35 WONDERLAND
5/26/2010
$ 534,000
WASHINGTON MUTUAL BK FA
4092 ESCUDERO DR
5/28/2010
$ 487,500
WASHINGTON MUTUAL BK FA
14 BLUEBELL
6/10/2010
$ 486,500
WASHINGTON MUTUAL BK FA
5 FASANO
6/7/2010
$ 420,000
WASHINGTON MUTUAL BK FA
4391 BERMUDA CIR
5/27/2010
$ 417,000
WASHINGTON MUTUAL BK FA
42 GILLMAN ST
6/7/2010
$ 416,500
WASHINGTON MUTUAL BK FA
14601 LOFTY ST
5/24/2010
$ 398,000
WASHINGTON MUTUAL BK FA
212 GREENMOOR 94
6/14/2010
$ 397,500
WASHINGTON MUTUAL BK FA
396 MONROE 190
5/24/2010
$ 390,000
WASHINGTON MUTUAL BK FA
132 OVAL RD 2
6/11/2010
$ 384,000
WASHINGTON MUTUAL BK FA
17 LAKEPINES
5/24/2010
$ 365,600
WASHINGTON MUTUAL BK FA
437 RIDGEWAY
5/24/2010
$ 315,000
WASHINGTON MUTUAL BK FA
10 LAKEPINES
5/20/2010
$ 286,780
WASHINGTON MUTUAL BK FA
87 ROCKWOOD 47
6/29/2010
$ 272,000
WASHINGTON MUTUAL BK FA
4 MAGELLAN AISLE
5/25/2010
$ 260,000
WASHINGTON MUTUAL BK FA
147 STREAMWOOD
6/21/2010
$ 200,240
WASHINGTON MUTUAL BK FA
406 ORANGE BLOSSOM 121
6/10/2010
$ 182,500
WASHINGTON MUTUAL BK FA
If any of you thought Irvine was immune, think again. All the households in the list above are squatters. Are any of your neighbors in there?
WASHINGTON — Aftershocks from the nation's financial crisis continue rumbling through the housing sector as fixed-rate mortgages held by the safest borrowers accounted for nearly 37 percent of new foreclosures during the first three months of this year, the Mortgage Bankers Association reported Wednesday.
Additionally, more than one in 10 homeowners were behind on their mortgage payments in the first quarter – a record, the association said. That's up from 9.47 percent in the last three months of 2009.
Prime loans, those made to the safest borrowers with the highest credit scores, account for almost 66 percent of outstanding U.S. mortgages, so their rising foreclosure numbers are troubling.
"People with higher scores are defaulting at rates we have not seen in the past," said Jay Brinkmann, the chief economist for the trade group.
I always get a kick out of industry insiders that act surprised. We have all known this problem was going to wipe out the alt-a and prime borrowers. It is only a matter of time.
If you have been paying attention to the news on delinquencies, for the last 3 years, this number has gotten worse month after month, and it shows no signs of peaking. Yet while the delinquency rates continues to climb, we get reports about declining default notices or declining foreclosure rates. Those rates become rather meaningless as long as the delinquency rate keeps climbing. The differential just adds to shadow inventory.
It is becoming obvious that shadow inventory is the only answer lenders have to the problem. They screw around with foreclosure statistics, and they allow a great deal of squatting. The result of their amend-pretend-extend is a restricted inventory condition supporting current pricing. I believe this is a cartel arrangement doomed to collapse. We will see.
The slide into foreclosure of the strongest borrowers is partly a function of the nation's unemployment rate, which is now 9.9 percent. The Great Recession has mowed down white-collar and blue-collar workers alike.
I would like to caution people against making a strong correlation between unemployment and delinquency. Unemployment is certainly making matters worse, but most of these people would have defaulted anyway in time. Unemployment simply accelerates the process.
The danger in this correlation is the false belief that an improvement in employment will bring about an improvement in the delinquency rate. It won't. Most delinquent borrowers couldn't afford their mortgages when they were fully employed. If they go back to full employment, they still won't be able to afford the mortgage.
In the first quarter, almost 21 percent of foreclosure starts were for adjustable-rate mortgages held by credit-worthy borrowers. Fixed and adjustable-rate prime mortgages combined accounted for more than 57 percent of all new foreclosures.
The MBA's data also showed that more than 6 percent of fixed-rated prime mortgages were delinquent from January to March and more than 13 percent of all homeowners with adjustable-rate prime mortgages were behind on payments.
California – the most populous state, which accounts for more than 13 percent of all U.S. mortgages – seems to have turned a corner in housing problems. It held 21 percent of all foreclosure starts during the first quarter of 2009 but only 14.5 percent in the first quarter of 2010.
Before we celebrate the improvement, consider what this statistic measures: the delinquency market share. California delinquencies are still rising, but other states are rising even faster. Our loss of delinquency market share isn't because borrowers here stopped going delinquent.
…One potentially troubling trend emerged: foreclosure starts rising in states that aren't commonly viewed as housing-bubble states. Washington state posted the largest increase in foreclosure starts overall in 2010's first quarter versus a year earlier, followed by Maryland, Oregon and Georgia. Washington state also posted the largest rise in foreclosure starts that involved prime and subprime adjustable-rate mortgages.
In another troubling trend, 42 states and the District of Colombia saw increased foreclosure starts for homes that were carrying FHA loans, which are considered among the safest. Only nine states, including Alaska and Idaho, saw foreclosure starts for FHA loans fall.
The rise in prime-mortgage foreclosures is important in the context of the sweeping revamp of financial regulation that's moving through Congress. Big financial institutions are trying to defeat a provision that would require them to retain 5 percent of the mortgages that they underwrite or sell into a secondary market to be packaged into mortgage bonds. They argue that they shouldn't have to do this for prime fixed-rate loans, but the latest data show that these loans aren't immune to delinquency and foreclosure.
Why would lenders resist a regulation to keep 5% of their mortgages in their portfolio unless they wanted to underwrite bad loans? The whole point of having a secondary market was to allow free movement of capital, not to allow banks to become origination machines with no responsibility, which seems to be what they want.
The data also suggest that the Obama administration's efforts to reverse the rate of delinquencies and foreclosures haven't been effective. The Treasury Department reported Monday that lenders or loan servicers had permanently modified only 68,000 mortgages in April, while more than 277,000 modification offers were canceled and presumed to be back on foreclosure tracks.
"It is jolting to see the persistence of the foreclosure epidemic," Michael Calhoun, the president of the Durham, N.C.-based Center for Responsible Lending, said in a statement.
It's only jolting to those who didn't expect this to go on so long. I have consistently maintained that loan modification programs have no chance of success other than to give borrowers false hope and get them to make a few more payments. The amend-pretend-extend policy has caused this crisis to drag on much longer than it should have.
HELOCs are a girl's best friend
Sometimes, I really wish I would have lied and levered myself into a $1,000,000+ home. The banks are not foreclosing on anyone over the conforming limit. Of the 36 properties that went back to the bank in Irvine over the last 30 days, only one of them was over $800,000 (it was a penthouse in the North Korea Towers). Of the nine properties that were sold to third parties, the most expensive was $700,000. The banks know there is no market outside of the GSEs and the FHA, so everyone who has defaulted on a jumbo loan is being allowed to squat.
The owner of today's featured property is like many other high-end Ponzis. She has taken enough money out of the walls to support an opulent lifestyle, and now she is squatting.
This property was purchased on 12/16/2004 for $1,293,000. The owner used a $969,650 first mortgage and a $323,350 down payment.
On 1/19/2005 she got a $129,000 HELOC.
On 7/19/2005 she refinanced with a $1,200,000 first mortgage.
On 9/28/2005 she opened a $195,000 HELOC.
On 5/1/2006 she obtained a $282,800 stand-alone second.
Then on 7/14/2006 she refinanced with a $1,499,900 Option ARM with a 1.85% teaser rate and a $189,000 HELOC.
Total property debt is $1,688,900.
Total mortgage equity withdrawal is $719,250.
Total squatting is at least 15 months.
Foreclosure Record
Recording Date: 08/31/2009
Document Type: Notice of Sale (aka Notice of Trustee's Sale)
Click here to get Foreclosure Report.
Foreclosure Record
Recording Date: 05/21/2009
Document Type: Notice of Default
You have to admire the thinking of these Ponzis. After extracting nearly three-quarters of a million dollars and squatting for more than a year, she lists the house at a WTF asking price hoping someone will step up and pay off her debts.
This home features a unique Casita with it's own entrance and it's own full bathroom. Custom Goumet kitchen along with custom hardscape and salt water pool.
The realtor couldn't spell gourmet properly….
I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.
![[Franklin]](https://sg.wsj.net/public/resources/images/MI-BG083_Frankl_NS_20100922180049.gif)
.jpg)
It's only jolting to those who didn't expect this to go on so long. I have consistently maintained that loan modification programs have no chance of success other than to give borrowers false hope and get them to make a few more payments. The amend-pretend-extend policy has caused this crisis to drag on much longer than it should have. 
