12/10 NOTE: Had to do a DB restore to yesterday morning so we've lost all comments since then. -zovall

The Mortgage Bankers Association released a report comparing strategic default to a virus that is spreading across the land.

Home Address … 16 FAITH Irvine, CA 92612

Asking Price ……. $1,599,000

Virus alert!

Delete immediately before someone gets hurt!

Forward this message on to everybody

Soon, very soon, it will make all the paint peel off your walls

WEIRD AL YANKOVIC – VIRUS ALERT

One of the great advances which has come from the internet is the quick dissemination of useful information. In short, secrets don't remain secret very long.

Lenders don't want borrowers to know that their friends and neighbors have stopped paying their mortgages, and their lives have improved. Lenders want borrowers to remain in the dark and fall victim to old beliefs and habits which prompt them to keep paying even when it is not in their best interest to do so.

Unfortunately, the quick spread of information on the internet is getting out the word, and “mavens” like myself are not helping lenders out. Too bad for lenders.

What disease and strategic default on mortgages have in common

November 17, 2011 — Jamie Smith Hopkins

A new report conducted for a mortgage-industry trade group likens “strategic default” — walking away from a mortgage you can afford to pay because you owe more than your house is worth — to a contagious disease.

It's an interesting analogy I imagine lenders embrace. To them it is disease, but to borrowers it is medicine for their debt disease. It depends on your point of view, doesn't it?

It's not just the idea that strategic defaulters spawn more strategic defaulters. The report's authors focus much of their attention on real estate experts — “mavens” — who advocate such a move and sway underwater homeowners to their way of thinking.

“Much the same way as a disease spreads throughout a population, so too do decisions to 'strategically' default,” the report concludes, adding: “Mavens are more contagious than non-Mavens because people place greater trust in their opinions. … In fragile markets, advice by influential Mavens can result in a flood of strategic defaults, causing a contagious downward spiral of home prices and potentially a market collapse.”

I had no idea I was so powerful. I have certainly been advocating strategic default for many reasons, not the least of which is that it's very often the best thing for the families. The fact that it punishes the banks who created this mess is a bonus.

I have a hard time believing any voice, no matter how influential could really impact a housing market. People are going to do what they are going to do irrespective of what supposed experts say.

The report was sponsored for the Mortgage Bankers Association's Research Institute for Housing America. Last year, the bankers association's then-CEO said would-be strategic defaulters should think about the damage they would do to their neighbors' property values and their own reputations. “What about the message they will send to their family and their kids and their friends?” John Courson told The Wall Street Journal at the end of 2009.

Let't think about that one. What message does strategic default send to a family, kids and friends? It says I am strong enough to admit I made a mistake and change course. It says I value my families financial future more than the profits of a lender.

That just before the Mortgage Bankers Association sold its headquarters building for millions less than its 2007 purchase price — and millions less than its financing, too. The WSJ reported at the time that the association would not disclose the terms it negotiated with its lenders, but sources thought the group would be paying back only part of the $30 million that the sale price hadn't covered. Irony lovers had a field day.

Yes, the mortgage bankers themselves strategically defaulted while simultaneously decrying their borrowers from doing the same. I guess when it is a business decision, the agreements signed in the past go out the window. What message does that say to the families, children and friends of the bankers?

People have debated the ethics and bottom-line considerations of walking away for several years now. The ethics argument boils down to whether paying your debts is a moral obligation or a contractual one (i.e. “I pay the mortgage or I give you back the house, so here's the house, buddy”). On the financial side, there's the chance to get out from under a house that might never be worth what you paid for it vs. the effect on credit scores, the ability to get security clearances and the possibility of future dunning attempts.

Some states are non-recourse, meaning that mortgage holders can't come after you for the difference between what you owe and what they can sell the house for. Others — including Maryland — allow the debt collectors to come calling.

Last year I wrote about a strategic defaulter who was planning to file for bankruptcy protection after he walked away from his Baltimore home.

So, folks: What do you think of strategic default nowadays? Do you think the “disease” theory is apt?

My views on strategic default are clear:

Has Turtle Rock continued to appreciate?

Turtle Rock is a special community. It is probably my favorite in Irvine. It has large lots, nice homes, a great trail system, and many homes have nice views. There is much to like about the community. But is it immune to the effects of the collapsing housing bubble?

As prices crumble all around Turtle Rock, the substitution effect starts to kick in. Yes, people may prefer Turtle Rock, but if a similar property can be found for much less nearby, many people will not pay an exaggerated premium. The Turtle Rock owners will either have to lower price or simply not sell their homes.

Today's featured property is a nice home, but it's not as nice as this one:

$1,650,000 15 SKYCREST Sold on Nov 29, 2011

0.96 miles 4 bd / 3 ba 3,235 Sq. Ft.

And is it $500,000 better than this one?

$1,062,625 31 JASPER

0.06 miles 4 bd / 4 ba 3,109 Sq. Ft.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 16 FAITH Irvine, CA 92612

Asking Price ……. $1,599,000

Beds: 5

Baths: 3

Sq. Ft.: 3200

$500/SF

Property Type: Residential, Single Family

Style: Two Level, Other

View: Hills, Mountain

Year Built: 1995

Community: Turtle Rock

County: Orange

MLS#: S681346

Source: CRMLS

On Redfin: 1 day

——————————————————————————

Magnificent, highly upgraded executive home located in the exclusive gated community of Concordia. A professionally designed lush front yard welcomes you to gorgeous interior. Spiral staircase greets you as you enter the foyer. Vaulted ceiling. Two Greek Columns lead you into the formal dining room. Breakfast area overlooks a beautiful landscaped backyard with built-in BBQ and fountain. Family room comes with fireplace and built-in cabinets. Fully upgraded Gourmet Kitchen with granite countertops and center island. Walk in pantry, new stainless steel appliances. Other upgrades include crown molding, recess lights, plantation shutters and new gorgeous slates at front & backyard. 5 bedrooms up & 1 office/bath down. Master suite includes a large retreat with a two sided fireplace. NO MELLO ROOS, LOW TAX. Walking distance to the famous Uni High School, Turtle Rock Elementary, Preschool and Concordia University. Minutes away from UCI, OC Airport and Newport Beach. This home is a must see to appreciate!

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Proprietary commentary and analysis

Asking Price ……. $1,599,000

Purchase Price … $825,000

Purchase Date …. 12/22/2000

Net Gain (Loss) ………. $678,060

Percent Change ………. 82.2%

Annual Appreciation … 6.1%

Cost of Home Ownership

————————————————-

$1,599,000 ………. Asking Price

$319,800 ………. 20% Down Conventional

4.02% …………… Mortgage Interest Rate

$1,279,200 ………. 30-Year Mortgage

$312,030 ………. Income Requirement

$6,122 ………. Monthly Mortgage Payment

$1386 ………. Property Tax (@1.04%)

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

$333 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$220 ………. Homeowners Association Fees

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

$8,061 ………. Monthly Cash Outlays

-$1326 ………. Tax Savings (% of Interest and Property Tax)

-$1837 ………. Equity Hidden in Payment (Amortization)

$448 ………. Lost Income to Down Payment (net of taxes)

$220 ………. Maintenance and Replacement Reserves

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

$5,566 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$15,990 ………. Furnishing and Move In @1%

$15,990 ………. Closing Costs @1%

$12,792 ………. Interest Points

$319,800 ………. Down Payment

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

$364,572 ………. Total Cash Costs

$85,300 ………… Emergency Cash Reserves

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

$449,872 ………. Total Savings Needed

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

Some lenders may be increasing the rate of foreclosures, but overall, the time it's taking banks to foreclose is increasing. The foreclosure time now stands at a record 631 days.

Home Address … 1114 SCHOLARSHIP Irvine, CA 92612

Asking Price ……. $243,000

It's forever, this time I know

and there's no doubt in my mind

Forever, until my life is thru,

house I'll be livin' in you forever

Kiss — Forever

Foreclosures don't take forever, but they certainly do take a very long time. Foreclosure used to be a deterrent to prevent borrowers from becoming delinquent on their loans. Now that the process takes so long, the prospect of two years of free housing is actually becoming an inducement for strategic default.

Average Foreclosure Time Sets New Record

Published: Thursday, 1 Dec 2011 — 9:30 AM ET

By: Diana Olick

CNBC Real Estate Reporter

Foreclosures are setting new records again, this time not in their overall numbers, but in the time it is taking for all of these properties to be processed through the legal system. The average loan in foreclosure has now been delinquent a record 631 days, according to a new report from Florida-based Lender Processing Services.

631 days. That is quickly approaching two years. The process is supposed to take about six months, not two years. How many people have been induced to strategically default because the know they can get two years of free housing? Why would anyone struggle if they know the rewards for not paying?

The after effects of the so-called “robo-signing” foreclosure paperwork scandal, now more than a year old, continue to plague states which require these cases to go before a judge.

The differences in processing times are blatant when you compare judicial versus non-judicial states. Non-judicial state foreclosures inventories are less than half those of judicial states, and foreclosure sale rates in non-judicial states are four to five times that of judicial states.

Judges are starting to ramp up the process.

That's good to hear. If the paperwork is in order, the process should go forward unimpeded.

Bank repossessions actually surged in October in many judicial states, up 48 percent in New Jersey and up 73 percent in Indiana month-to-month, according to RealtyTrac. Still the backlog is still enormous. Overall foreclosure inventory is at an all-time high, 4.29 percent of all active loans, according to LPS.

“The discrepancy will go on in perpetuity, as there always has been a difference between judicial and non-judicial timelines,” said Kyle Lundstedt, managing director of LPS Applied Analytics. “Even prior to the worst of the crisis, loans were 4-5 months more delinquent in judicial states at time of foreclosure sale. The number today is more like 8 months, but will return to the 4-5 month difference depending on when and how fast foreclosure sales occur.

A record-high inventory of foreclosures in process does not bode well for the near future of the housing recovery. All those distressed properties will sell at a deep discount, likely bringing down the prices of surrounding homes.

Remember how real estate bulls used to claim the shadow inventory predictions were doom and gloom? Well, we are about to find out because this inventory is working its way out of the shadows and on to the MLS. All the predictions of the housing bears will come true.

They will also add to already historically high existing home inventories, while demand is still weak. While there is considerable investor demand for distressed properties, new foreclosures are still outnumbering foreclosure sales by over 3:1. In addition to the “robo-signing” delays, we are now beginning to see the effects of ineffective loan modifications.

Loan modifications were always a delaying tactic. Banks kicked the can down the road, but now we are back at the can again. Will banks try to kick it again and permit more squatting?

Repeat foreclosures made up nearly 45 percent of new foreclosures in October. Of the 2.1 million modifications since the start of 2008 more than 10 percent were in foreclosure with another 27.4 percent delinquent 30 or more days, as of the end of the third quarter of this year, according to the Office of the Comptroller of the Currency.

I don't see how loan modification programs can be viewed as anything other than a complete and total failure.

Lundstedt said foreclosure moratoria, process/documentation reviews, evaluation for loss mitigation and bankruptcies make up the rest of the repeat foreclosures.

As the mortgage market continues to work through the backlog of troubled loans, looking forward, loans originated in 2010 and 2011 are now the best performers on record, thanks to tighter credit requirements.

Of course that begs the question: Did the pendulum swing farther than necessary to the conservative side? Is underwriting now unnecessarily restrictive?

No, it hasn't. Loan standards haven't gotten strict enough until new loans stop going bad. Loan standards are designed to weed out those people who will default and fail to pay back their loans. Until loan standards accomplish their primary function, they have not become strict enough.

45% off the peak and more to go

Sometimes when I see what people paid at the peak, it really takes my breath away. This tiny one bedroom one bath condo sold for $417,000 at a time of 6.5% interest rates. The cost of ownership would have been nearly $3,500 per month for a shoebox.

Even at today's prices, this unit still isn't a bargain. The $1,480 cost of ownership is still above rental parity, and condos like this one should carry a significant discount to rental parity to attract an owner. Why else would you live here if not to save significantly over rent? To capture that rapid appreciation, right? Well, we all know that isn't going to happen.

I expect prices on these units to fall further. Perhaps in the sub $200,000 range, they may find some willing owners, assuming interest rates stay near 4%.

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

This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 1114 SCHOLARSHIP Irvine, CA 92612

Asking Price ……. $243,000

Beds: 1

Baths: 1

Sq. Ft.: 725

$335/SF

Property Type: Residential, Condominium

Style: One Level, Other

Year Built: 2006

Community: Airport Area

County: Orange

MLS#: P804669

Source: CRMLS

Status: Active

On Redfin: 2 days

——————————————————————————

Subject is a lower unit condominium featuring new interior paint, new carpet, granite counters and a private patio. HOA offers a community pool, spa, fitness center, meeting rooms, clubhouse and media room. Located near the 405 Freeway and John Wayne Airport.

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Proprietary commentary and analysis

Asking Price ……. $243,000

Purchase Price … $417,000

Purchase Date …. 7/17/2006

Net Gain (Loss) ………. ($188,580)

Percent Change ………. -45.2%

Annual Appreciation … -9.7%

Cost of Home Ownership

————————————————-

$243,000 ………. Asking Price

$8,505 ………. 3.5% Down FHA Financing

4.02% …………… Mortgage Interest Rate

$234,495 ………. 30-Year Mortgage

$74,675 ………. Income Requirement

$1,122 ………. Monthly Mortgage Payment

$211 ………. Property Tax (@1.04%)

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

$51 ………. Homeowners Insurance (@ 0.25%)

$270 ………. Private Mortgage Insurance

$276 ………. Homeowners Association Fees

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

$1,929 ………. Monthly Cash Outlays

-$174 ………. Tax Savings (% of Interest and Property Tax)

-$337 ………. Equity Hidden in Payment (Amortization)

$12 ………. Lost Income to Down Payment (net of taxes)

$50 ………. Maintenance and Replacement Reserves

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

$1,480 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,430 ………. Furnishing and Move In @1%

$2,430 ………. Closing Costs @1%

$2,345 ………. Interest Points

$8,505 ………. Down Payment

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

$15,710 ………. Total Cash Costs

$22,600 ………… Emergency Cash Reserves

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

$38,310 ………. Total Savings Needed

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

Proving they are pawns of the extreme left, the Occupy LA movement disrupts foreclosure auctions and gets on the wrong side of the foreclosure issue.

Home Address … 110 DANBURY Ln Irvine, CA 92618

Asking Price ……. $499,000

I don't have any political ax to grind with the left. In fact, on many issues, I lean more left than right, but on the issue of giving away free houses, I think the extreme left has it wrong. In their interest in pandering for votes, they are calling up the troops in the Occupy wherever movement and sending them to foreclosure auctions to disrupt the activities. Perhaps we should just stop all foreclosures and let everyone who occupies a house to keep it, right?

Occupy L.A. takes its fight to foreclosure auction

Protesters disrupt bidding outside Norwalk courthouse on homes owned by banks and title companies with chants of 'Shame on you' and 'Banks got bailed out / We got sold out.'

By Kate Linthicum, Los Angeles Times — December 3, 2011

Several times a week, a group of investors gathers in Norwalk to bid on homes that have been foreclosed.

The midmorning auction outside the Los Angeles County Superior Court building is a high-stakes, but usually low-key affair. On Friday, bidders sat in the sun in lawn chairs, and the auctioneer looked relaxed in a pair of baggy sweat pants.

But just as the auction was getting started, a commotion erupted from across the lawn. It was a group of protesters, marching with posters and howling an angry chant. “Banks got bailed out / We got sold out!”

The protesters are right, the banks did get bailed out, and the people doing the bailing got not much in return. However, it's quite a stretch to think that means we should be giving away free houses.

Some wore T-shirts identifying themselves as members of local labor unions. Others wore arm bands printed with “99%” — a now-famous reference that revealed a different allegiance.

Occupy L.A. may have lost its home outside City Hall this week, but protesters plan to continue the acts of civil disobedience that helped the movement capture national attention.

So that's what this is. They were looking for some other cause to gain attention. There are other causes they could go after.

Why don't they walk down to the unemployment office and demand higher unemployment benefits for a longer period of time?

Why not swarm an emergency room and demand free hospital stays for everyone?

Why not just go to the bank and demand free money from the the tellers? Why go through the hassles of signing loan papers and defaulting?

Demonstrations against the foreclosure process may be key among them, said one protester who spent nearly two months living on the City Hall lawn at Occupy L.A., and who hitched a ride to Norwalk to take part in Friday's action.

The protester, Abe, wouldn't give his last name, but said anger at the foreclosure crisis, and at banks that he believes haven't done enough to help homeowners get more favorable loans, helped draw him to Occupy in the first place.

Why would banks want to give homeowners more favorable loans? Loan modifications are not an entiltlement, and banks don't want to make them one.

Friday's protest was organized in conjunction with Good Jobs L.A., a coalition of labor unions and other community organizations. Although some within the Occupy movement have expressed fears that their protest may be co-opted by other groups — including unions — Abe said he isn't worried about that.

Abe should be very worried about that. The Occupy movement is a group of sheep waiting to be shepherded around at the whim of whatever interest group knows how to appeal to them.

“I don't think we should align with any power structure,” he said. “But anyone who wants to stand in solidarity with us, we're happy to have them.”

As the protesters circled the auction, the bidders drew closer so they could hear over chants of “Shame on you!”

On the auction block this day were properties from throughout the county — from Torrance to Van Nuys. Next up was a home on West 59th Place in South L.A.

The protesters booed. The bidding started. “Do I have $113,300?” the auctioneer asked. He is hired to sell the properties by the banks and title companies that own the homes.

“$115,000” said one man.

“$116,000,” said

another.

The price climbed and climbed. When it hit $130,000, protester Carlos Marroquin started shouting.

“Whose home is that? Whose home are you buying?” he yelled. “Do you know that families are breaking apart? People fought for those homes, and you guys are just taking them away.”

Whose home is that? Well, if the delinquent mortgage squatter who occupies the house doesn't have any equity, then the occupant certainly doesn't own it. See Money Rentership: Housing and the New American Dream.

Whose home are you buying? The bank's, that's who.

Do you know that families are breaking apart? Do you know that families are staying together and moving into comfortable rentals?

People fought for those homes, and you guys are just taking them away. Perhaps instead of fighting for those homes, the borrowers should have paid for them instead. It would have been far more effective at keeping the property.

Marroquin, who lost his own home to foreclosure, said he speaks from experience. “It destroyed my marriage and hurt my kids,” he said.

A member of Occupy L.A. since its Oct. 1 beginning, he set up a tent there and said he helped counsel 300 families facing foreclosure.

At first, bidders seemed amused by the hubbub — and the news reporters and photographers it had attracted.

“I kind of like it,” one said to another. “I like crazy, though.“

But as the morning wore on, and one protester held a microphone up to an amplification system, producing a deafening squeal, the bidder's patience wore down. “They're getting annoying,” he said.

I imagine it was annoying. People are bidding hundreds of thousands of dollars for houses, and they want to hear the auctioneer and other bidders. Foreclosures are a serious business.

Another bidder, Mike Lalani, told protesters that the buyers were the wrong target. “Your protest is good, it's great, but it's misguided,” he said. “You need to be saddened that these homes are being lost in the first place.”

The auctioneer agreed: “You guys need to go higher on the food chain.”

Exactly. Foreclosure is the end of the road. It is the cure to the problem of excessive debt. The borrowers should never have been given such large debt loads to begin with. The problem is at the front end of the process, not at the back end.

They have, of course. Last month, police arrested dozens of protesters in demonstrations in downtown's financial district, including one at Bank of America plaza.

At that protest and elsewhere, protesters have deployed tents — a symbol of the Occupy L.A. encampment — in their demonstrations.

A tent made an appearance Friday, when protesters offered to sell it to the bidders. A vigorous bidding war broke out. The final price: $20. kate.linthicum@latimes.com

A foreclosure tent. Now that's funny.

The Occupy movement means well, and there is certainly good reason to be angry at the bankers and the privileged class living under a different set of rules. The Occupy movement may become a real political force if it doesn't degrade into a ridiculous farce.

Rental parity hits Oak Creek's Cobblestone community

I used to live in Oak Creek near this community. I looked into renting properties in there a number of times. A few years ago, rents were between $2,500 and $2,700. Today, the cost of ownership for our featured property is $2,591.

With falling prices, some buyers will need bigger savings over renting to induce them to buy, but for others, owning a home at the cost of a comparable rental will be good enough. What's amazing to me is that someone paid $675,000 back when interest rates were about 6.5%. Their cost of ownership was closer to $4,500 a month instead of the $2,591 today's buyer will face. Timing does matter. That peak buyer experienced a 6.3% annual depreciation loss. Ouch!

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 110 DANBURY Ln Irvine, CA 92618

Asking Price ……. $499,000

Beds: 3

Baths: 2

Sq. Ft.: 1500

$333/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1999

Community: Oak Creek

County: Orange

MLS#: P804859

Source: CRMLS

Status: Active

On Redfin: 1 day

——————————————————————————

Beautiful and Very Bright 3Bedroom Detached Home in Oak Creek. Largest Floor Plan in Cobblestone. Spacious Master Bedroom with Walk-in Closet, Over Sized Tub in Master Bathroom, Granite Counter and Sink Top in Kitchen and Bathrooms. Recessed Lighting Throughout. 2Car Attached Garage with Direct Access. Large Private Backyard for Relaxing and Entertaining. Low HOA Dues and Mello Roos ($622 per Year). Easy Access to 405 FWY & UCI. Walking Distance to Asso. Amenities, Restaurants and Shops. ''MOVE-IN CONDITION''

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Proprietary commentary and analysis

Asking Price ……. $499,000

Purchase Price … $675,000

Purchase Date …. 3/8/2007

Net Gain (Loss) ………. ($205,940)

Percent Change ………. -30.5%

Annual Appreciation … -6.3%

Cost of Home Ownership

————————————————-

$499,000 ………. Asking Price

$17,465 ………. 3.5% Down FHA Financing

4.02% …………… Mortgage Interest Rate

$481,535 ………. 30-Year Mortgage

$136,787 ………. Income Requirement

$2,304 ………. Monthly Mortgage Payment

$432 ………. Property Tax (@1.04%)

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

$104 ………. Homeowners Insurance (@ 0.25%)

$554 ………. Private Mortgage Insurance

$139 ………. Homeowners Association Fees

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

$3,534 ………. Monthly Cash Outlays

-$358 ………. Tax Savings (% of Interest and Property Tax)

-$691 ………. Equity Hidden in Payment (Amortization)

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

$82 ………. Maintenance and Replacement Reserves

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

$2,591 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,990 ………. Furnishing and Move In @1%

$4,990 ………. Closing Costs @1%

$4,815 ………. Interest Points

$17,465 ………. Down Payment

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

$32,260 ………. Total Cash Costs

$39,700 ………… Emergency Cash Reserves

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

$71,960 ………. Total Savings Needed

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Tonight is the night

Larry Roberts is hosting a Las Vegas cashflow properties presentation at the offices of Intercap Lending (9401 Jeronimo, Suite 200, Irvine, CA 92618) on December 7, 2011, at 6:30. Please RSVP at sales@idealhomebrokers.com.

Blair Applegate of Peter Schiff's Euro Pacific Capital, Inc. will be presentating at the offices of Intercap Lending (9401 Jeronimo, Suite 200, Irvine, CA 92618) at 7:30 on December 7, 2011. Please RSVP at sales@idealhomebrokers.com.

The markets which crashed first and hardest are now in the final phase of the bubble cycle: despair.

Home Address … 160 STREAMWOOD Irvine, CA 92620

Asking Price ……. $159,900

How did it come to this?

I'm trapped behind these walls

I got no air to breathe

It's like I'm under water

Can you hear me?

My silent scream

Lunatica — How Did It Come To This?

So many buyers were so certain prices would rise 10% or more per year forever. Those same kool aid intoxicated fools are now underwater, trapped behind their over-improved walls, eating off their priceless granite tops, wondering how did it come to this? The hope of a recovery is dissipating with the double dip in home prices, and pessimism about the future is pervading the land. Those are exactly the sentiments one finds at the bottom of the real estate cycle.

Housing is in last phase of 'bubble,' expert says

Dec. 2, 2011 05:25 PM

Nishu Sood, director of Wall Street's Deutsche Bank Securities, used the term “revulsion” to describe the current phase of metro Phoenix's housing market.

“Revulsion,” as in many people are averse to the very product that got the nation in trouble in the first place.

Revulsion is another way to describe the conditions of despair. Everyone who owns an underwater house wishes they didn't, and all hope of attaining riches is lost.

The despair stage is actually the best time to buy real estate, but it requires the most patience. First, part of the reason for despair is because nearly everyone knows prices are not going up any time soon. That perception of the market is not wrong. Prices don't rise quickly when the despair stage passes. In fact, prices may languish there for years or even decades. What makes the despair stage an enticing buying opportunity is the current cashflow or savings over renting.

Sood was the lead speaker at the Scottsdale-based Land Advisors' third annual housing forecast for the Phoenix area, presented to a group of the region's top real-estate executives.

He was quick to point out that revulsion was the last phase in the “bubble” cycle before recovery for the region's housing market.

The bottom occurs in the despair stage, but the “recovery” is rarely a robust increase in prices, particularly with the overhang of supply.

He said if Land Advisors would have asked him to speak about Phoenix's housing market in the years between 2006-10, everyone attending would have needed a shot of bourbon to make it through his negative evaluations and projections.

This week, Sood said he felt more positive about Phoenix's housing market and its oncoming recovery than he did about many other parts of the country.

Yes, both Phoenix and Las Vegas are much closer to the bottom than Orange County. We have not reached capitulation here, although recent price drops are showing those signs. The coastal areas are still in denial.

That's something that made the executive sitting next to me smile with relief. This is the same man who brought in a Corona at the start of the 3 p.m conference because he thought he would need it to get through another negative forecast.

Sood's evolution of the housing bubble includes these cycles:

A change in the mortgage business and upgrades in technology during the 1990s made it easier to make and obtain loans.

Upgrades in technology? LOL! Financial innovation, right?

In 2002, home prices started to climb, though most people were more concerned about dot.com stocks.

By 2004, housing euphoria had begun, and home prices were soaring.

Then, in 2005-06, came the explosion of the housing market. One later speaker said that's when “anyone who could fog a mirror with their breath could get a mortgage to buy a home.”

In 2007-08, the painful market reversal hit. Some had expected it, but few were prepared for its carnage.

The financial crisis followed in 2008-09. It continues to shake the

world.

And the current situation: revulsion. Sood said many people now are distrustful and averse to housing.

But, he said, the next and, one hopes, the last phase of housing bubble will be the

recovery.

Speakers also included Land Advisors CEO Greg Vogel, Avatar Properties President Carl Mulac, Cromford Report founder and analyst Mike Orr, and the CEO of homebuilder Taylor Morrison, Sheryl Palmer.

None of them believes full recovery will come in 2012. But most agree it could start next year and be in full swing by 2014.

Reach the reporter at catherine.reagor@arizonarepublic.com.

I think the markets which have been totally crushed including Phoenix, Las Vegas, Riverside County, and other fringe markets will begin to recover in 2014, and the pace of new construction should pick up considerably by 2015. Many of the developers I know are making plans for that end. We have been only building homes at the rate of replacement for the last 4 years. By 2014, we should have absorbed the housing stock from 2003-2007 through foreclosure and resale. It's always darkest before the dawn.

Larry Roberts is hosting a Las Vegas cashflow properties presentation at the offices of Intercap Lending (9401 Jeronimo, Suite 200, Irvine, CA 92618) on December 7, 2011, at 6:30. Please RSVP at sales@idealhomebrokers.com.

Blair Applegate of Peter Schiff's Euro Pacific Capital, Inc. will be presentating at the offices of Intercap Lending (9401 Jeronimo, Suite 200, Irvine, CA 92618) at 7:30 on December 7, 2011. Please RSVP at sales@idealhomebrokers.com.

There is no bottom until these units bottom

The housing market stabilizes from below. Until the bottom of the housing ladder finds firm support, the rest of the market will drift lower. It's people buying properties like this one who will in many years have enough equity from the sale to make a 20% down payment on a property higher up the housing ladder. It will take a very long time to create any substantial move up equity, but without this equity, the higher rungs on the property ladder must reach lower and lower to find qualified buyers. The result is a slow downward drift in prices.

Check out this comp buster: 204 Springview which just sold for $119,000. Or the record low for Irvine set back in April on 122 Streamwood which sold for $110,000.

For the record, this owner did not HELOC himself into oblivion. There is a large HELOC on the property, but based on his lack of history with cash-out refinancing, it's likely he did not use this HELOC. It really is a standard sale.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 160 STREAMWOOD Irvine, CA 92620

Asking Price ……. $159,900

Beds: 1

Baths: 1

Sq. Ft.: 639

$250/SF

Property Type: Residential, Condominium

Style: One Level, Contemporary

Year Built: 1977

Community: Northwood

County: Orange

MLS#: S681308

Source: CRMLS

Status: Active

On Redfin: 1 day

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Upper Unit * * Standard Sale * * Take a walk through the garden to enter this upgraded Home. Remodeled Kitchen and master bathroom, Vaulted ceiling makes it open and spacious. Newer AC in the living room, ready to move in.

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Proprietary commentary and analysis

Asking Price ……. $159,900

Purchase Price … $92,000

Purchase Date …. 4/12/2000

Net Gain (Loss) ………. $58,306

Percent Change ………. 63.4%

Annual Appreciation … 4.7%

Cost of Home Ownership

————————————————-

$159,900 ………. Asking Price

$5,597 ………. 3.5% Down FHA Financing

4.02% …………… Mortgage Interest Rate

$154,304 ………. 30-Year Mortgage

$51,476 ………. Income Requirement

$0,738 ………. Monthly Mortgage Payment

$139 ………. Property Tax (@1.04%)

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

$33 ………. Homeowners Insurance (@ 0.25%)

$177 ………. Private Mortgage Insurance

$242 ………. Homeowners Association Fees

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

$1,330 ………. Monthly Cash Outlays

-$66 ………. Tax Savings (% of Interest and Property Tax)

-$222 ………. Equity Hidden in Payment (Amortization)

$8 ………. Lost Income to Down Payment (net of taxes)

$40 ………. Maintenance and Replacement Reserves

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

$1,091 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$1,599 ………. Furnishing and Move In @1%

$1,599 ………. Closing Costs @1%

$1,543 ………. Interest Points

$5,597 ………. Down Payment

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

$10,338 ………. Total Cash Costs

$16,700 ………… Emergency Cash Reserves

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

$27,038 ………. Total Savings Needed

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Borrowers with jumbo loans — most of Irvine — are most likely to strategically default a recent study shows.

Home Address … 23 TIOGA Irvine, CA 92602

Asking Price ……. $850,000

Play no games he'd say to me when the light is gone

He is right he'd say to me, we know who is wrong

So please don't make no hesitation

There will be no recreation

Jumbo said to say goodnight, he's a friend of yours

Bee Gees — Jumbo

Say goodnight to jumbo loans. The borrowers are going to default. Many jumbo loan holders have been hanging on despite the oversized payments because values have not fallen a great deal on higher priced properties. With the support from below being removed, the absence of a move-up market is causing higher priced properties to drift ever lower. This slow descent will continue, and as it does, more and more jumbo loan owners will see the futility in making huge payments and strategically default. Look out Irvine, this impacts you.

Jumbo mortgage holders pose highest risk of strategic default

A high number of jumbo mortgage owners — many located in high-cost markets hit by real estate deflation over the last several years — are stuck with persistent negative equity, a study shows.

November 13, 2011 — By Kenneth R. Harney

Reporting from Washington — Do you have a big mortgage and good credit scores but not much equity — maybe you're even underwater? Do you see little chance that your home's market value will improve a lot during the coming three to seven years?

If you answered yes to both questions — and thousands of homeowners across the country could do so — new research suggests that you are in a category that lenders need to worry about most: prime jumbo borrowers who once were thought to be among the safest bets, but who now are the most likely to opt for a strategic default and walk away from their homes.

Yes, the futility of paying will cause many to strategically default.

Remember, strategic default requires two parts, (1) the payment must exceed the cost of a comparable rental, and (2) the hope of future equity must be fleeting. If it were costing loan owners less to own than to rent, most would stay where they are. After all, they are saving money versus renting even with the lack of equity. If prices were going up, loan owners would feel their mortgage had option value as they would soon be back in-the-money as the appreciation fairies would bestow free money on them again soon.

If loan owners have neither saving versus renting, or the fantasy of future equity, they have little to keep them strategically defaulting. In those circumstances, it is in their best interest financially to do so.

In a study released Oct. 31, ratings firm Moody's said that based on its analysis of mortgage-backed bond portfolios, homeowners with jumbo mortgages now constitute “greater strategic default risk” than any other type of borrowers, including subprime.

That's because an exceptionally high number of jumbo loan owners — many located in high-cost markets hit by real estate deflation over the last several years — are stuck with persistent negative equity. More than half of the jumbos analyzed by Moody's in which owners are still making payments are underwater, or have home market values lower than their outstanding loan balances.

In addition, since most of these people grossly overpaid, they have a cost of ownership exceeding the cost of a comparable rental.

Jumbo loans are those that exceed the conventional limits of Fannie Mae and Freddie Mac. Nationally, that ceiling is $417,000, but in high-cost areas between 2008 and Oct. 1 of this year, conventional limits ranged as high as $729,750. The maximum in those high-cost areas is now $625,500.

Meanwhile, Fair Isaac Corp., developer of the FICO credit score, says strategic defaults — in which owners can afford to keep paying their loans but see no economic rationale for doing so — continue to be a growing problem. More than 12 million mortgages are estimated to be underwater, and 30% of defaults on loans are strategic, according to Joanne M. Gaskin, FICO's predictive analytics director.

Is this really a problem? A problem for who? It's certainly a problem for banks, and it's a problem for those who don't strategically default who would benefit by it, but it's a solution for underwater loan owners, and it benefits everyone who wants more affordable housing.

Fair Isaac recently created a new type of score designed solely to spot potential strategic defaulters before they hand back the house keys. At least four of the top 10 largest lenders and servicers already are using it, contacting high-risk borrowers, offering financial solutions plus information about the costs associated with strategic walkaways.

Providing “information” on the costs of strategic default? In other words, they are bullshitting people with nonsense scare tactics to try to convince them it's not in their best interest to strategically default when in reality, it is.

The company says that its score can spot the riskiest homeowners, some of whom show telltale characteristics that make them as much as 110 times more likely to walk away than the least-risky borrowers.

Though FICO has not disclosed the specific risk combinations in the mathematical models supporting its proprietary score, the company confirms that among them are homeowners' good credit scores and payment performance on debts, low balances of outstanding revolving credit and a relatively short period of ownership of their current homes.

Gaskin lifted the lid on the FICO black box a smidgen more. Using a variety of data — including property values, historical valuation trends along with standard FICO scores and other information in credit bureau files — the strategic default score essentially tries to get inside homeowners' heads to predict their behavior.

“We're trying to understand from the consumer's perspective,” she said. “How much have I lost on the value of my home? What is the velocity of change?”

When the answers are grim and the prospects for equity recovery are distant, the probability that the owners will plot a strategic departure — often characterized by an abrupt halt to mortgage payments while staying current on credit cards and car payments — goes up sharply.

As it should. Remember, lenders inflated this housing bubble with their shoddy lending practices. It is fair and just for them to eat the losses in the aftermath. Each borrower who does not strategically default is agreeing to pay the losses of the lender who deserves it. Strategic default is moral imperative to prevent future housing bubbles.

“Most consumers have a pretty good idea of what the market is doing” in their local neighborhoods, Gaskin said.

What they often don't know, however, are the penalties they face for walking away. These include triple-digit drops in their credit scores — which will hamper their ability to rent a house or obtain credit for years — plus the possibility that lenders will find a way to seek recovery of whatever they owe after foreclosure proceedings.

Strategic default will not hamper their ability to rent, nor will it stop them from obtaining credit for years. Lenders will give credit cards to people a day out of bankruptcy. Lenders are little better than drug pushers hanging out at the discharge door of a rehab center. They don't want the credit addicted to get away, so they make their product available when people are vulnerable.

About a dozen states, including California, restrict “deficiency” recoveries. But in most states lenders are free to pursue whatever assets they can locate, and often do so if the amount of unrecovered debt is large enough to justify the legal expenses.

Ultimately, strategic default for many owners boils down to a calculation: Are the costs, financial and otherwise, worth the relief from an albatross house and mortgage? If the Moody's study is accurate, thousands of jumbo borrowers are struggling with that calculation right now, and a lot of them are likely to bail out.

kenharney@earthlink.net

Distributed by Washington Post Writers Group.

The housing bust is over five years old now, and we still haven't found a durable bottom. Kool aid intoxication is dying, and so are the dreams of jumbo loan owners everywhere. One way or another, people will be relieved of the excessive debt burdens of the bubble years. Strategic default, short sale, foreclosure, and bankruptcy are all options we will see plenty of going forward, unless of course, they decide to forgive everyone's underwater principal balance… not going to happen.

Option ARM implosion

Now that we are five or more years into many of the bubble era Option ARMs, many are facing payment recasts where the loan converts to fully amortizing over the remaining term of the loan. When this occurs, even if interest rates are low, the payment is going to skyrocket. Many of these loan owners could never afford the property anyway, so when their payment goes way up, default becomes inevitable.

The owners of today's featured property bought at the peak with an Option ARM, and they have strategically defaulted.

Foreclosure Record

Recording Date: 11/04/2011

Document Type: Notice of Default

They won't be the last.

Look for more supply like this home to hit the market over the next several years as high end prices continue to show weakness.

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This property is available for sale via the MLS.

Please contact Shevy Akason, #01836707

949.769.1599

sales@idealhomebrokers.com

Home Address … 23 TIOGA Irvine, CA 92602

Asking Price ……. $850,000

Beds: 6

Baths: 3

Sq. Ft.: 3700

$230/SF

Property Type: Residential, Single Family

Style: Two Level, Mediterranean

Year Built: 1998

Community: West Irvine

County: Orange

MLS#: S679690

Source: CRMLS

Status: Active

On Redfin: 13 days

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(no description)

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Proprietary commentary and analysis

Asking Price ……. $850,000

Purchase Price … $1,075,000

Purchase Date …. 9/23/2005

Net Gain (Loss) ………. ($276,000)

Percent Change ………. -25.7%

Annual Appreciation … -3.7%

Cost of Home Ownership

————————————————-

$850,000 ………. Asking Price

$170,000 ………. 20% Down Conventional

4.02% …………… Mortgage Interest Rate

$680,000 ………. 30-Year Mortgage

$175,704 ………. Income Requirement

$3,254 ………. Monthly Mortgage Payment

$737 ………. Property Tax (@1.04%)

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

$177 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$371 ………. Homeowners Association Fees

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

$4,539 ………. Monthly Cash Outlays

-$754 ………. Tax Savings (% of Interest and Property Tax)

-$976 ………. Equity Hidden in Payment (Amortization)

$238 ………. Lost Income to Down Payment (net of taxes)

$126 ………. Maintenance and Replacement Reserves

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

$3,173 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$8,500 ………. Furnishing and Move In @1%

$8,500 ………. Closing Costs @1%

$6,800 ………. Interest Points

$170,000 ………. Down Payment

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

$193,800 ………. Total Cash Costs

$48,600 ………… Emergency Cash Reserves

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

$242,400 ………. Total Savings Needed

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

Larry Roberts is hosting a Las Vegas cashflow properties presentation at the offices of Intercap Lending (9401 Jeronimo, Suite 200, Irvine, CA 92618) on December 7, 2011, at 6:30. Please RSVP at sales@idealhomebrokers.com.

Blair Applegate of Peter Schiff's Euro Pacific Capital, Inc. will be presentating at the offices of Intercap Lending (9401 Jeronimo, Suite 200, Irvine, CA 92618) at 7:30 on December 7, 2011. Please RSVP at sales@idealhomebrokers.com.