Category Archives: HELOC Abuse

Squatting Laguna Beach Style

Squatting is usually a problem we associate with the indigent; however, many pretenders are hold up in opulent properties. Today we look at one such property in Laguna Beach, California.

Irvine Home Address … 150 Cress St Laguna Beach, CA 92651

Resale Home Price …… $5,990,000

{book1}

Love, Love, Love

Love, American Style,

Truer than the Red, White and Blue.

Love, American Style,

That's me and you.

And on a star spangled night my love, (My love come to me).

You can rest you head on my shoulder.

Out by the dawn's early light, my love

I will defend your right to try.

Love, American Style,

That's me and you.

Charles Fox & Arnold Margolin — Love, American Style

I hear that jingle in my head whenever I profile the lifestyles of the pretending-to-be rich and famous. We Americans have a unique style, and Californians and their debt pathologies are fascinating. Last weekend we looked at Squatting Newport Coast Style, and today will drive down the coast a few miles and look at a beautiful ocean-view property in the heart of the action.

I love this property. If I thought I could squat there for a year and a half, I would do it. It is an oversized lot in a prime location. Have you ever been to K'ya? If you are standing on the rooftop deck, you are looking down on this property.

The property boasts unobstructed ocean views:

It has a great office for writing blog posts:

The master bedroom is beautiful, and even the crappers are nice:

You don't need the K'ya party deck when you have your own:

Delusional to the end

You can buy this property for a little over double what the owner paid in 2005. Did prices double since 2005? Can prices really go from $750,000 to $5,990,000 in 14 years?

I am astonished that people come to believe this is possible. This guy should be hiding his face in shame.

I can imagine the conversations between this freeloader and the lender:

Freeloader: "I will pay you as soon as I sell the property. The market is a bit soft right now, as you know."

Lender: "Our comps show this property would resale for about $2,500,000. Isn't your $5,990,000 asking price unrealistic?"

Freeloader: "Laguna Beach is different. Prices only go up here. Look how much it went up between 1997 and 2005."

Lender: "That was a housing bubble, and you are the bagholder. Your loans are recourse, and we will go after your assets if you don't pay us back."

Freeloader: "Give me some time and prices will recover."

Lender: "How much time do you need?"

Freeloader: "As long as it takes for prices to come back. Besides, if you foreclose now, I am insolvent, and it would be your fault. When I filled out the loan documents, I stated my income based on anticipated home-price appreciation. You are removing my income."

Lender: "Appreciation is not income. Besides, we can foreclose and make that income. We want your wage income."

Freeloader: "That was never part of the deal."

Property History for 150 Cress St

Date	Event	Price	Appreciation
Nov 13, 2009	Listed	$5,990,000	—
Jun 02, 2005	Sold (Public Records)	$2,900,000	14.9%/yr
Oct 22, 1999	Sold (Public Records)	$1,333,000	36.3%/yr
Dec 12, 1997	Sold (Public Records)	$750,000	—

HELOC abuse

As you may have guessed, even with the near-peak purchase, this owner still managed to milk a few hundred thousand dollars out of the property before he resorted to squatting.

The property was purchased on 6/2/2005 for $2,900,000. The owner used a $1,885,000 first mortgage, a $145,000 HELOC, and a $870,000 down payment.

On 6/15/2006 he opened a HELOC for $910,743.

On 8/28/2006 he refinanced with a $2,870,000 Option ARM courtesy of Washington Mutual.

On 9/27/2006 WAMU gave him a $500,000 HELOC.

Total property debt is $3,370,000.

Total mortgage equity withdrawal is $1,340,000 including his substantial down payment.

He still extracted $470,000 of the bank's money.

When Chase bought WAMU, their losses on the WAMU portfolio were subject to a backstop agreement. If the losses are large enough on the portfolio, the US taxpayer — you — will pick up the tab.

If you knew you were paying for it, you might have stopped in and had a drink on yourself rather than go to K'ya and pay for it. That is for the little people.

Squatting

If it isn't bad enough that this guy walked away with hundreds of thousands of dollars in money you will end up paying for, he is still there! He has been squatting without a payment since late 2008!

Foreclosure Record

Recording Date: 08/03/2009

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Foreclosure Record

Recording Date: 04/30/2009

Document Type: Notice of Default

He may have paid through January of 2009, but with has slow as lenders are to foreclose, what makes you think they were timely when filing their NOD?

This owner has been squatting for well over a year, and the dance continues. The sale is scheduled for May 7. Will they postpone again to dance more? If so, you should be invited to the party; you are paying for it.

What do we usually associate with squatting?

Most squatters don't do quite as well as our Laguna Beach squatter.

Historically, squatting has been looked down upon, and squatters do not live in relative luxury.

Only in America would we permit squatters to live in luxury beachfront mansions.

Irvine Home Address … 150 Cress St Laguna Beach, CA 92651

Resale Home Price … $5,990,000

Home Purchase Price … $2,900,000

Home Purchase Date …. 6/2/2005

Net Gain (Loss) ………. $2,730,600

Percent Change ………. 106.6%

Annual Appreciation … 14.8%

Cost of Ownership

————————————————-

$5,990,000 ………. Asking Price

$1,198,000 ………. 20% Down Conventional

5.11% …………… Mortgage Interest Rate

$4,792,000 ………. 30-Year Mortgage

$1,255,867 ………. Income Requirement

$26,048 ………. Monthly Mortgage Payment

$5191 ………. Property Tax

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

$499 ………. Homeowners Insurance

$0 ………. Homeowners Association Fees

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

$31,738 ………. Monthly Cash Outlays

-$2646 ………. Tax Savings (% of Interest and Property Tax)

-$5642 ………. Equity Hidden in Payment

$2403 ………. Lost Income to Down Payment (net of taxes)

$749 ………. Maintenance and Replacement Reserves

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

$26,602 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$59,900 ………. Furnishing and Move In @1%

$59,900 ………. Closing Costs @1%

$47,920 ………… Interest Points @1% of Loan

$1,198,000 ………. Down Payment

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

$1,365,720 ………. Total Cash Costs

$407,700 ………… Emergency Cash Reserves

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

$1,773,420 ………. Total Savings Needed

Property Details for 150 Cress St Laguna Beach, CA 92651

——————————————————————————

Beds:: 8

Baths:: 0006

Sq. Ft.:: 3300

$1,815

Lot Size:: 7,200 Acres

Year Built:: 2007

Days on Market: 106

MLS#:: 20932446

Property Type:: Residential, Detached, Single Family

Community: Laguna Beach

——————————————————————————

Dazzling, best in class, posh family compound consisting of 3 villas nestled on prime, oceanfront location in world-famous Laguna Beach. Luxuriously appointed, featuring exotic and imported fixtures, marble, granite & rich woods. High-tech touches include individual HVAC systems, high-speed internet & flat screen tv's. Each kitchen is designed for gourmet cooking. Outdoor spaces include 4 fire pits, terraces & a bar/dining counter.

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.

Have a great weekend,

Irvine Renter

Lenders Start More Foreclosures to Catch Up with Delinquencies

What are we going to do with all the delinquent borrowers? Should we forgive their debts? Should we forgive $476,500 in HELOC abuse?

Irvine Home Address … 14 Foxglove, Irvine, CA 92612

Resale Home Price …… $586,550

{book1}

I am my own parasite

I don't need a host to live

We feed off of each other

We can share our endorphins

Protector of the kennel

Ecto-plasma, Ecto-skeletal

Obituary birthday

Your scent is still here in my place of recovery!

Nirvana — Milk It

Everyone is milking the system. I can't blame them. If I were a loan owner, and if I knew the end were coming, and if the lender were encouraging me to squat to protect their asset, I would squat indefinitely. If given the choice between paying rent or living for nothing, few are going to move out of a free house — a house they still feel like they own — to move into a rental. I don't know that entitlement dependency is good for the spirit long term, but short term, no housing cost is certainly good for the pocketbook so many people squat until the sheriff comes.

What are we going to do with all the borrowers in default?

Shadow inventory is a huge issue worth revisiting periodically. I wrote Shadow Inventory Orange County and Shadow Inventory Revisited and most recently I noted the S&P Reports Three Years to Clear Shadow Inventory and the Market Slices First Wave of Knife Catchers. When you look at the options for dealing with delinquencies, none of them look plausible.

Loan Modifications have proven to be a dismal failure, and these programs will continue to fail; therefore, it is not reasonable to assume we will amend-pretend-extend our way out of this mess. And dancing until rising prices save the market isn't going to happen either.

Rising prices do not absorb inventory. Rising prices can occur as a result of a lack of inventory, but buyers will not push through a massive overhead supply and make prices go up. That is fantasy thinking. Without rising incomes and a robust economy, absorbing shadow inventory will be difficult even at lower prices.

Cash buyers do not take over. Cash buyers can buoy prices in small neighborhoods, but the supply of cash buyers is limited, and few homeowners have cash equity to move up because the market collapse eliminated equity from lower rungs on the property ladder. Those who have defaulted are eliminated from the buyer pool, and the calvary of cash-heavy first-time buyers is not going to ride over the hill and save us.

Inflation will not save the market. Does anyone really think they will be seeing 10% YOY raises any time soon? If we do see inflation, it will come in the form of rising prices, which lower our standard of living, and in the form of currency devaluation which robs everyone of their wealth. If house prices are maintained by reducing the buying power of currency by 50%, I don't see how that is a benefit.

Foreclosing on all the homes that should go through foreclosure will crush prices to the stone ages and keep them there for eternity. The people foreclosed will not be able to buy, so investors will need to convert them to rentals to shelter the recently foreclosed. This scenario is already taking place in Las Vegas, Phoenix, and Riverside County.

I really don't see the end game here. A quick recovery to peak prices followed by double-digit appreciation is not going to happen. Stabilization of prices is tenuous if millions of properties must go through the meat grinder. The areas least impacted by foreclosures will still face the substitution effect as beaten down neighborhoods attract bargain hunters.

If we push every defaulting borrower out and remove them from the potential buyer pool for five years, we will not have enough buyers to absorb the supply. If we don't push defaulting borrowers out, we encourage moral hazard on a grand scale. Once all sanity is lost, the taxpayer funded bailouts will continue to grow as we bail out every form of borrower foolishness. We don't have many good options.

For now, lenders are beginning to foreclose in earnest, but they are still falling behind the defaults and creating more shadow inventory.

Foreclosure starts up nearly 20 percent in California

DISCOVERY BAY

March 15, 2010 4:33am

But despite foreclosure inventories, foreclosure sales drop

‘The disconnect between delinquencies and foreclosure sales continues to widen’

After reaching the lowest level in a year in January, Notice of Defaults, the start of the foreclosure process, increased by 19.7 percent in February, according to a report Monday from ForeclosureRadar Inc., a Discovery Bay-based foreclosure information company that says it tracks every California foreclosure.

The number of properties scheduled for foreclosure sale remained near record levels in February, yet foreclosure sales, either “Back to Bank” or “Sold to Third Parties,” dropped by 11.9 percent total.

“The disconnect between delinquencies and foreclosure sales continues to widen,” says Sean O’Toole, founder and CEO of ForeclosureRadar.

In short, we are building shadow inventory.

“While efforts to slow foreclosures are clearly working, it remains unclear that anything has yet addressed the core problem of excess household mortgage debt,” he says.

Nothing is being done because lenders see excessive household debt as a virtue to be preserved and policymakers don't care.

After four consecutive months of decline, Notice of Default filings bounced up by 19.7 percent to 31,004 statewide. Filings of Notices of Trustee Sale, which sets the date and time of the foreclosure auction, increased slightly as well, rising 3.6 percent to 28,195 filings, according to ForeclosureRadar.

Foreclosure sales are the last step in the foreclosure process and result in the property being transferred from the homeowner either back to the bank, or to a third party, typically an investor.

Foreclosure sales decreased 11.9 percent in February, with the portion going “Back to Bank” dropping by 14.3 percent and the portion to third parties dropping by 2.7 percent.

“Despite our prediction that we may see a wave of cancellations as the [Obama] Administration pushed to make trial loan modification permanent, cancellations remained flat, likely indicating that the Home Affordable Modification Program conversion drive is failing,” says Mr. O’Toole.

I am surprised Mr. O'Toole predicted a government bailout program had a chance at success. He must not watch the workings of government very closely. His observation is correct: the program is failing.

Despite the increase in Notice of Default filings in February, ForeclosureRadar’s estimated number of properties in Preforeclosure dropped 8.0 percent due to the relatively high number of Notice of Trustee Sale filings, it says.

Properties exiting the foreclosure process nearly matched the number of new Notice of Trustee Sale filings, leaving the number of properties scheduled for sale in February flat compared to January. Year-over-year, the increase in properties scheduled for sale “is a dramatic 126.3 percent, as more and more homeowners have found themselves on the brink of foreclosure,” the report says.

Banks continue to resell their bank owned (REO) property in “a timely manner,” with their inventories also flat from January to February, says ForeclosureRadar.

The courthouse steps remain highly competitive with discounts to market value dropping from 17.5 percent in January to 15.2 percent in February, the report says. “Despite fewer foreclosure sales overall in February, as well as smaller discounts due to competitive bidding, third party investors purchased more foreclosures, at 23.2 percent, than at any other time since we began tracking trustee sales in September 2006,” it says

Trustee sales are the action. Increased liquidity in this market is a dream for lenders. Once they begin catching up on their shadow inventory backlog, investors will be there to mop up the mess.

HELOC Abuse

You do have to wonder how a property that has doubled in value ends up as a short sale.

This property was purchased on 4/24/1998 for $293,000. The owners used a $263,500 first mortgage and a 29,500 downpayment.

On 10/9/2001 they opened a HELOC for $96,000.

On 8/6/2002 they opened a HELOC for 93,500.

On 8/25/2003 they refinanced the first mortgage for $322,700.

On 11/24/2003 they opened a HELOC for $70,000.

On 6/14/2004 they opened a HELOC for $125,000.

On 2/18/2005 they opened a HELOC for $282,500.

On 5/23/2007 they refinanced the first mortgage for $592,000.

On 6/8/2007 they opened a HELOC for $148,000.

Total property debt is $740,000.

Total mortgage equity withdrawal is $476,500.

Foreclosure Record

Recording Date: 06/11/2009

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Foreclosure Record

Recording Date: 03/04/2009

Document Type: Notice of Default

JP Morgan/Chase wrote that last HELOC. WTF were they thinking?

Given the pattern of HELOC abuse, why would you loan these people money? Oh yeah, real estate prices always go up.

Even with all we have seen, the ignorance and sheer stupidity of lenders still amazes me.

Irvine Home Address … 14 Foxglove, Irvine, CA 92612

T-Sale Home Price … $586,850

Home Purchase Price … $293,000

Home Purchase Date …. 4/24/1998

Net Gain (Loss) ………. $258,639

Percent Change ………. 100.3%

Annual Appreciation … 6.0%

Cost of Ownership

————————————————-

$586,850 ………. Asking Price

$117,370 ………. 20% Down Conventional

5.05% …………… Mortgage Interest Rate

$469,480 ………. 30-Year Mortgage

$122,206 ………. Income Requirement

$2,535 ………. Monthly Mortgage Payment

$509 ………. Property Tax

$122 ………. Special Taxes and Levies (Mello Roos)

$49 ………. Homeowners Insurance

$133 ………. Homeowners Association Fees

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

$3,347 ………. Monthly Cash Outlays

-$435 ………. Tax Savings (% of Interest and Property Tax)

-$559 ………. Equity Hidden in Payment

$231 ………. Lost Income to Down Payment (net of taxes)

$98 ………. Maintenance and Replacement Reserves

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

$2,683 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————–

$5,869 ………. Furnishing and Move In @1%

$5,869 ………. Closing Costs @1%

$4,695 ………… Interest Points

$117,370 ………. Down Payment

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

$133,802 ………. Total Cash Costs

$41,100 ………… Emergency Cash Reserves

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

$174,902 ………. Total Savings Needed

Property Details for 14 Foxglove, Irvine, CA 92612

——————————————————————————–

Beds: 4

Baths: 2 full 1 part baths

Home size: 2,092 sq ft

($282 / sq ft)

Lot Size: 3,040 sq ft

Year Built: 1967

Days on Market: 77

MLS Number: P716613

Property Type: Single Family, Residential

Community: University Park

Tract: Cc

——————————————————————————–

According to the listing agent, this listing may be a pre-foreclosure or short sale.

4 Bedrooms,2.5 Bath,convenient floor plan,now shown by appointment only,Masterbedroom with two balconies,seperatedfamily kitchen area,gated side& backyard provide privacy,highly ratedtop schools,convenient location to shop,school & market,inside laundry

Trustee sale opportunity

Today's featured property is scheduled for auction on April 1, 2010. The short sale listing is for $590,000, but if we obtain the property at auction, we would sell it at $586,850. The comps suggest the resale value is above $600,000. The outlier, 20 Queens Wreath Way, is directly on the 5. The other 4 comps are better with 32 Foxglove being closest.

20 Queens Wreath Way — A 4 bed 1,896 SF SFR — 1965	5/05/2009	$ 455,000
18 Bayberry Way — A 4 bed 2,700 SF SFR — 1967	9/29/2009	$ 650,000
10 Wintersweet Way — A 4 bed 2,231 SF SFR — 1966	9/03/2009	$ 658,000
32 Foxglove Way — A 4 bed 2,000 SF SFR — 1967	8/04/2009	$ 650,000
26 Wintersweet Way — A 4 bed 2,145 SF SFR — 1966	1/28/2010	$ 658,000

This would be a reasonable deal by current market standards.

One Defaulting Owner's Free Ride: Three Years and Counting

Freeloaders enjoying the entitled life are not confined to subprime areas. Today's featured property may be the worst case of housing entitlement in the country, and it is right here in Irvine.

Irvine Home Address … 14 BLUEBELL Irvine, CA 92618

Resale Home Price …… $469,900

{book1}

The mountain is high, the valley is low

And you're confused 'bout which way to go

So I flew here to give you a hand

And lead you into the promised land

So, come on and take a free ride (free ride)

Come on and take it by my side

Come on and take a free ride

All over the country, I'm seeing the same

Nobody's winning, at this kind of game

The Edgar Winter Group — Free Ride

If people get to have free rides, don't you want to be one of them? Looks like great fun to me. I can see why everyone wants to own a house in California; you get a nice entitlement during the rough times, and you get free money during the good times. Where do I sign up?

Recently, I exposed The Face of Housing Entitlement Today.

… from the LA Times article Many borrowers in default live for free as lenders delay evictions:

Despite being months behind, many strapped residents are hanging on to their homes, essentially living rent-free. Pressure on banks to modify loans and a glut of inventory are driving the trend.

[Patricia and Eugene Harrison, who bought their Perris home seven years ago, have lived there since October 2008 without making any payments on their mortgage. (Irfan Khan / Los Angeles Times / February 19, 2010)]

Do you think any unemployed renters who are failing to pay rent are living that well? Full dinner plates, a solid roof, mementos and permanent storage, comfortable surroundings; we endow these entitlements on those who own. …

If you can sign your name to a mortgage, you no longer have to fear homelessness, and your level of entitlement increases significantly. …

[Pictured above: Unemployed renter and family who failed to sign loan documents and squat in a house]

Many people astutely observed that squatting is more common in Riverside County, mostly due to higher levels of unemployment, but Irvine is not immune to its effect. In fact, people squat in Irvine houses just as they do in the valle y of the dirt people, and in the case of today's featured property, it is much, much worse.

Irvine's Housing Entitlement

I first profiled today's featured property back in September of 2009 in the post Bluebell, a shocking example of gaming the system here in Irvine.

The owner of today's featured property paid $465,000 on 10/23/2003. She used a $372,000 first mortgage, a $93,000 second mortgage, and a $0 down payment.

On 12/30/2004 she refinanced into an Option ARM for $486,500.

Two months later on 2/3/2005 she opened a HELOC for $67,000.

Total property debt is $553,500 plus 3 years of missed payments, negative amortization, and fees.

Total mortgage equity withdrawal is $88,500.

Consider what this woman accomplished:

She put no money into the transaction. None.

She extracted $88,500 in just over one year. That is nearly the median income in Irvine, and that money came to her without tax withholding.

She has lived in the property since 2003, and in the full term of ownership, she has not made payments totaling what she pulled from the property.

I admit to feeling foolish. I looked at property in late 2003, and I deemed it too expensive. It never occurred to me that anyone could accomplish what this woman has done, or I might have followed in her footsteps. I feel like an idiot struggling to actually pay for my housing costs when I could have obtained a free ride for the last seven years. I hope lenders know that California borrowers are learning their lessons well.

Foreclosure Record

Recording Date: 02/08/2010

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Foreclosure Record

Recording Date: 12/03/2008

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Foreclosure Record

Recording Date: 08/28/2008

Document Type: Notice of Default

Foreclosure Record

Recording Date: 08/08/2007

Document Type: Notice of Rescission

Foreclosure Record

Recording Date: 05/25/2007

Document Type: Notice of Sale (aka Notice of Trustee's Sale)

Foreclosure Record

Recording Date: 01/24/2007

Document Type: Notice of Default

As I noted six months ago:

The owner of this property stopped making payments sometime in late 2006. It has been over two and one-half years [now three years] since this owner stopped paying, and she is still listed as the property owner, so one can assume she still occupies the property. That is two and one-half years without a housing payment—a bill we will all pick up as taxpayers at some point. How does that make you feel? Did you pay for your housing since 2006? I did.

The place looks very lived-in. Despite not paying a mortgage or rent, the owner looks in no hurry to leave.

It is a mess but not a packing mess…

How many of you who have been paying for your housing are living this well?

Irvine Home Address … 14 BLUEBELL Irvine, CA 92618

Resale Home Price … $469,900

Home Purchase Price … $465,000

Home Purchase Date …. 10/23/2003

Net Gain (Loss) ………. $(23,294)

Percent Change ………. 1.1%

Annual Appreciation … 0.1%

Cost of Ownership

————————————————-

$469,900 ………. Asking Price

$16,447 ………. 3.5% Down FHA Financing

5.00% …………… Mortgage Interest Rate

$453,454 ………. 30-Year Mortgage

$97,297 ………. Income Requirement

$2,434 ………. Monthly Mortgage Payment

$407 ………. Property Tax

$150 ………. Special Taxes and Levies (Mello Roos)

$39 ………. Homeowners Insurance

$114 ………. Homeowners Association Fees

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

$3,145 ………. Monthly Cash Outlays

-$402 ………. Tax Savings (% of Interest and Property Tax)

-$545 ………. Equity Hidden in Payment

$32 ………. Lost Income to Down Payment (net of taxes)

$59 ………. Maintenance and Replacement Reserves

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

$2,289 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,699 ………. Furnishing and Move In @1%

$4,699 ………. Closing Costs @1%

$4,535 ………… Interest Points @1% of Loan

$16,447 ………. Down Payment

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

$30,379 ………. Total Cash Costs

$35,000 ………… Emergency Cash Reserves

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

$65,379 ………. Total Savings Needed

Property Details for 14 BLUEBELL Irvine, CA 92618

——————————————————————————

2 Beds

1 full 1 part baths Baths

1,508 sq ft Home size

($312 / sq ft)

2,000 sq ft Lot Size

Year Built 2000

4 Days on Market

MLS Number S608286

Condominium, Residential Property Type

Oak Creek Community

Tract Acac

——————————————————————————

LIVE THE DREAM IN THIS MAGNIFICENT 2 BEDROOM PLUS LOFT/OFFICE, 2.5 BATHROOM OAK CREEK HOME. SOME OF THE MANY FEATURES INCLUDE RICH, STRESSED HARDWOOD FLOORS THRU-OUT MAIN LEVEL, 2 MASTER SUITES, CUSTOMIZED WINDOW TREATMENTS, STAINLESS STEEL APPLIANCES, LARGE CENTER ISLAND WITH BAR TOP, TILE COUNTERS, PLUS A PRIVATE BACKYARD, WALKING PAVERS AND LUSH, MATURE SOFTSCAPE. DON'T MISS OUT ON THIS BEAUTIFUL HOME!

Live the dream? Yes, my dream is to live in this house for several years at no cost. Can you do that for me?

BTW, what is this picture supposed to show me? And are you tilting your head to the left?

Option ARM Losses Surpass Subprime

Congratulations to Option ARM borrowers for costing lenders more in losses than subprime borrowers! Today's featured property is one of a number of two-bedroom condos sporting a wide range in asking prices.

14 WILDFLOWER Irvine, CA 92604 kitchen

Irvine Home Address … 14 WILDFLOWER Irvine, CA 92604

Resale Home Price …… $295,000

{book1}

You're getting closer

To pushing me off of life's little edge

'Cause I'm a loser

And sooner or later you know I'll be dead

You're getting closer

You're holding the rope and I'm taking the fall

'Cause I'm a loser, I'm a loser, yeah.

This is getting old.

I can't break these chains that I hold

My body's growing cold

There's nothing left of this mind or my soul.

Addiction needs a pacifier, the buzz of this poison is taking me higher.

This will fall away, this will fall away.

Loser – 3 Doors Down

A particular borrower or loan category will be the biggest loser of the housing bubble. Subprime was an early front-runner, but loan amounts were small, so despite astronomical default rates and severe losses on a percentage basis, in absolute terms, subprime did not have the potential of Alt-A, and Prime borrowers nor the potential of Interest-Only and Option ARM loans to lay waste to lender balance sheets. Subprime is officially old news as we are all subprime now.

Option ARMs Surpass Subprime Mortgages in Loss Severity

Moody’s does not expect a bottoming of house prices before Q310, with another 11% national decline likely before the worst is over. These price declines, taken with rising unemployment, housing inventory oversupply and weak demand, are pressuring performance.

I also agree that we are not at a housing market bottom (also see: Deutsche Sees House Prices Falling Another 10 Percent).

On the heels of longer foreclosure and liquidation time lines “exacerbated by unsuccessful modification efforts” in 2009, loan loss severities worsened across all sectors, according to Moody’s.

Despite the fact that loan modifications make payments affordable people are defaulting in large numbers, particularly those with negative equity.

Option ARMs have surpassed subprime as the sector with the steepest loss projections for securities issued from 2005 to 2007, according to Moody’s. The rating agency now expects a 20% cumulative loss on ‘05 option ARM RMBS (from 11.7% in Q109), 41% on ‘06 securitizations (from 26.7%) and 51% on ‘07 securitizations (from 29.7%).

The loss severities are very high, but not unexpected. Option ARMs were loans about twice as large as they should have been if qualifying payments were applied to 30-year fixed-rate financing. IMO, before this is over, Option ARM loss severities will approach 70% and defaults will exceed 90%.

Delinquencies of 60 or more days, assets in foreclosure or held-for-sale rose “markedly” since the last Moody’s revision to option ARM RMBS projections in Q109. Serious delinquencies rose to 40.4% from 33.3% for ‘05 securities, to 47.3% from 38.6% for ‘06 securities and to 41.3% from 30.4% for ‘07 securities.

Forty-plus percent delinquency rates? That is remarkable! Nearly half of all Option ARM borrowers are living in a house rent and payment free, any many of these people have not faced their recasts yet!

Subprime soured, now Option ARMs fall out-of-the-money, so what is next? Loan poison creeps up the equity tree tainting higher branches: Alt-A Losses Outstripping Expectations, Moody’s Says, Prime Jumbo RMBS Delinquencies Swell to 9.2%: Fitch. No market segment is immune, and any borrower without fixed-rate financing at an affordable payment level is in peril.

Two-Bedroom Two-Bath Pricing

Today's featured property is one of the least expensive condos on the market at $295,000… which is rather disheartening when you think about it….

Other small condos for sale:

$350,000 — 241 HUNTINGTON Irvine, CA 92620

$395,000 — 209 ALICANTE AISLE #219 Irvine, CA 92614

$439,900 — 42 FABRIANO Irvine, CA 92620

I doubt any of the three sellers above are happy with an REO undercutting them by 20% or more.

Is being detached a premium worth $144,400 or $140/SF? Sharing dated interiors, the main difference between today's featured property and the last one on the list above is the degree of detachment. I think that premium is excessive, but the market will be the final arbiter.

14 WILDFLOWER Irvine, CA 92604 kitchen

Irvine Home Address … 14 WILDFLOWER Irvine, CA 92604

Resale Home Price … $295,000

Income Requirement ……. $61,990

Downpayment Needed … $10,325

3.5% Down FHA Financing

Home Purchase Price … $147,500

Home Purchase Date …. 4/29/1996

Net Gain (Loss) ………. $129,800

Percent Change ………. 100.0%

Annual Appreciation … 5.1%

Mortgage Interest Rate ………. 5.13%

Monthly Mortgage Payment … $1,551

Monthly Cash Outlays ………… $2,180

Monthly Cost of Ownership … $1,750

Property Details for 14 WILDFLOWER Irvine, CA 92604

Beds 2

Baths 1 full 2 part baths

Home Size 1,050 sq ft

($281 / sq ft)

Lot Size n/a

Year Built 1974

Days on Market 2

Listing Updated 1/28/2010

MLS Number P719435

Property Type Condominium, Residential

Community El Camino Real

Tract Db

According to the listing agent, this listing is a bank owned (foreclosed) property.

Charming two bedroom condo with detached two car garage. Spacious living room with fireplace and access to private patio; galley style kitchen; separate dining area; bedrooms have mirrored closet doors and private baths; street parking for guests. Perfect for small family or investor. Sold 'As Is'.

So how does a property double in value and become REO? You guessed it, HELOC abuse.

This property was originally purchased by a single man. The current owner appears on title later and ownership of this condo may have been transferred in a divorce.

The man purchased the property on 12/26/2002 for $270,000 using a $216,000 first mortgage, a $54,000 second mortgage, and a $0 downpayment.

On 6/18/2004 the now couple's first mortgage was refinanced for $315,000.

On 8/26/2004 they added a stand-alone second for $11,000.

on 10/26/2004 they refinanced the second for $29,000.

On 5/5/2005 they refinanced the second again for $36,000.

On 6/7/2005 they refinanced the first mortgage for $340,000.

On 6/14/2005 they added a stand-alone second for $36,000.

On 7/20/2005 they added a third mortgage for $11,000.

On 8/24/2005 they opened a HELOC for $75,000.

On 8/31/2005 they expanded the HELOC to $87,500.

Finally, on 4/12/2006 they refinanced the first mortgage for $472,500

Total cash investment by owners is $0.

Total property debt was $472,500 plus fees.

Total mortgage equity withdrawal is $202,500.

This owner invested nothing and managed to pull out $202,500.

May I have one of those?

Will Government Exit the Mortgage Market on Schedule?

The Government and Federal Reserve are scheduled to remove their market props soon. Do you think it will happen on schedule?

5054 ALDER Irvine, CA 92612 kitchen

Irvine Home Address … 5054 ALDER Irvine, CA 92612

Resale Home Price …… $420,000

{book1}

Forever, got a feelin' that forever

Together, we are gonna stay together

For better, for me there's nothin' better

You're the biggest part of me

Well, make a wish baby

Well and I will make it come true

Make a list baby

Of the things I'll do for you

Ain't no risk now

In lettin' my love rain down on you

So we can wash away the past

So that we may start anew

Biggest Part of Me — Ambrosia

The US Government and the Federal Reserve control the biggest part of the mortgage finance market. They are making a wish that house prices will stabilize through printing money to subsidize borrowers. Can they wash away the past and start anew?

Most financing for our housing market is coming directly from the Federal Reserve through the purchase of agency debt at inflated prices. This unique method for printing money (it has never been done before) is a reaction to the remarkable deflation of debt caused by bank write-downs. Reprinting lost money is not without risks, particularly when this free money has gone to inflate prices in the mortgage market to artificially lower interest rates. At some point, the presses turn off, and the market must adjust to the loss of demand. What happens next is a guess, but it certainly looks as if mortgage interest rates are going to go up.

Government versus private mortgage borrowings

Stakes are high as government plans exit from mortgage markets:

For more than a year, the government pulled out the stops to revive home buying by driving down mortgage rates.

Now, whether the housing market is ready or not, the government is pulling out.

The wind-down of federal support for mortgage rates, set to end in two months, is a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market and ensuring it can hold its own. The stakes for the economy are massive: If the market again falls into a tailspin, homeowners could face another wave of trouble, and it would deal a body blow to President Obama's efforts to get the economy on track.

Keeping the mortgage rates at historic lows, which required a commitment of more than $1 trillion, was viewed within the administration as a central plank of the economic strategy last year, senior officials said. Though the policy did not attract as much attention as rescue efforts to bail out banks, it helped revitalize home buying in some parts of the country and put money in the pockets of millions of homeowners who were able to refinance into lower monthly payments, the officials added.

This is the real stimulus of the mortgage refinance boom from the Fed's money-printing. The real beneficiaries of mortgage interest rate relief are conservative debtors who lock in low rates and pay off existing debts earlier. Any uptick in consumer spending coming out of this recession will be lead by the under-leveraged who now enjoy greater disposable income. Back to the article:

"We did what we thought was necessary to stabilize the market, but we don't think the government should continue special efforts forever," said Michael S. Barr, an assistant secretary at the Treasury Department. "As you bring stability, private participants come back in. We do expect this now that the market has stabilized. I'm not going to say there will be no effect on rates, but we do think you are seeing market signs and market signals that there should be an orderly transition."

It is laughably stupid to suggest there will be no effect on rates; the real debate is over how fast rates will go up and how high they will go — and whether or not the powers-that-be will intervene again if necessary.

A few federal officials and many industry advocates disagree, saying the government is exiting too soon. They offer dire warnings of higher rates and a slowdown in home sales. Fed leaders say they will end a marquee program supporting the mortgage markets in March. Obama's economic team, led by Treasury Secretary Timothy F. Geithner, has decided not to replace it and has been shutting down its own related initiatives.

Over the past year, these programs have enabled prospective home buyers to get cheap loans, helping those buying and selling property as well as those eager to refinance existing mortgages. If the end of the initiative drives up interest rates, say from 5 percent to 5.5 percent, homeowners could be deterred from refinancing, industry officials say. A sharper increase in rates could make homes too expensive for many buyers, forcing them from the market and causing the recent pickup in home sales to stall.

Notice the fear is not any rise in interest rates, but a sharp increase. I agree with this assessment. If rates went to 7% in 2010, the housing market would collapse.

"Mortgage rates are the lifeblood of the housing market, and we have cautioned the Fed about the sudden stoppage of this program," said Lawrence Yun, chief economist of the National Association of Realtors.

But senior government officials said it could be hard to reverse course without damaging the credibility of the Fed and the administration. If the government loses the trust of the financial markets, preparing them for policy changes could be tougher, possibly resulting in economic disruptions. The officials said they also worry that the mortgage market is becoming overly dependent on federal support, inserting the government too deeply into private enterprise.

The Government is concerned about inserting itself too deeply into private enterprise? Porn-stars show more restraint!

Only a new crisis would be able to persuade the administration and the Fed to change their minds, officials said."

Pulling out of the mortgage market? Government will stop subsidizing mortgages until prices start going down, at which point, Government will declare a National Banking Emergency and reinsert their members into private enterprise.

Have Government supports reached climax?

So what do you think? Is the Government really out of the housing market, or are they committed to writing a blank check to support home prices?

5054 ALDER Irvine, CA 92612 kitchen

Irvine Home Address … 5054 ALDER Irvine, CA 92612

Resale Home Price … $420,000

Income Requirement ……. $88,257

Downpayment Needed … $14,700

3.5% Down FHA Financing

Home Purchase Price … $148,000

Home Purchase Date …. 8/23/1996

Net Gain (Loss) ………. $246,800

Percent Change ………. 183.8%

Annual Appreciation … 7.7%

Mortgage Interest Rate ………. 5.13%

Monthly Mortgage Payment … $2,208

Monthly Cash Outlays ………… $2,960

Monthly Cost of Ownership … $2,200

Property Details for 5054 ALDER Irvine, CA 92612

Beds 2

Baths 1 full 1 part baths

Home Size 1,189 sq ft

($353 / sq ft)

Lot Size 3,136 sq ft

Year Built 1973

Days on Market 4

Listing Updated 1/26/2010

MLS Number P719210

Property Type Single Family, Residential

Community University Park

Tract Tr

WOW! NOT A SHORTSALE – GREAT PRICE. Vaulted Ceilings, Warm Fireplace, Enormous Kitchen, and Attached Garage make this home an unbelievable value. Attractive Patio Entry and Patio Backyard have generous planters for the greenthumb who wants a private oasis. Only 1/4 mile from walking bridge that leads you to the Lakes in Woodbrige. You are also a short walk to Strawberry Farms – a haven for golfers and agriculturalists alike. This home is in one of the highest nationally ranked school districts – University High, and central to the best Irvine has to offer. Community is full of greenbelts and has a fantastic community center, pool and spa. HOA is very low, but nothing is sacrificed. Owner wants this sold – bring in your offer before it is gone! Older roof has 1 year warranty – Seller to offer $4000.00 credit to buyer for use towards new roof of their choice.

If this is not a short sale, the borrowers have not maxed-out their HELOC because the total indebtedness on the property includes a $351,000 first mortgage and a $80,000 HELOC.

This property was purchased on 8/23/1996 near the last market bottom for $148,000.

The owners used a $140,600 first mortgage and a $7,400 downpayment.

The refinanced in 1997 for $138,200, so they were diligently paying down the loan for at least 18 months.

On 11/18/2003 they liberated their equity with a $247,100 first mortgage.

On 10/19/2006 they refinanced again with a $231,393 first mortgage — three years of relative frugality.

On 2/22/2007 they refinanced on last time with a $351,000 first mortgage and a $81,000 HELOC

The $81,000 HELOC was replaced with an $80,000 HELOC a few months later.

Total debt is between $351,000 and $432,000.

Mortgage equity withdrawal is between $210,400 and $290,400.

I wasn't sure how to classify this kind of HELOC abuse. These owners invested less than $8,000 and extracted over $210,000; quite a bountiful cash harvest. I can see why people want one of those.

These borrowers more than doubled their original $140,600 mortgage, so I think they earn an "E," but based on the not-a-short-sale come on, the borrowers at least believe they borrowed below the level of appreciation on the unit, so they might argue for a "D" instead. In either case, while we are debating the subtleties of irresponsibility; the owners are losing their prize steed.