Delinquent mortgage squatters are spending $50 billion this year stimulating the economy rather than paying their mortgages.

Irvine Home Address … 37 NAVARRE Irvine, CA 92612

Resale Home Price …… $395,000

I was a young boy that had big plans.

Now I'm just another shitty old man.

I don't have fun and I hate everything.

The world owes me, so F you.

Glory days don't mean shit to me.

I drank a six pack of apathy.

Life's a bitch and so am I.

The world owes me, so F you.

Green Day — The Grouch

Recently I wrote about The real Ponzis and posers of Irvine. Peggy Tanous of the Real Housewives of OC made a conscious decision to get a boob job rather than pay her rent. She is not alone.

The plastic surgeon undoubtedly appreciated the money, and any other provider of goods and services that received the Tanous's money did the same. The combined economic stimulus of all the delinquent mortgage squatters is estimated at $50 billion this year alone. Back in June of last year, I reported Strategic Default: The $10,000,000,000 Monthly Economic Stimulus.

The case could be made that our HELOC economy based on mortgage equity withdrawal and consumption has been replaced with a squatter rent economy based on people failing to pay their mortgages and spending that money instead.

In the astute observations recently some challenged me on why this upsets me so much. The real question is why doesn't it upset all of you? Does anyone want to see this behavior rewarded? With our tax money going to bail out the enabling banks, you and I as taxpayers are indirectly supporting these people.

You paid for part of Peggy Tanous's boob job.

I want a refund.

‘Squatter Rent’ May Boost Spending as Mortgage Holders Bail on Payments

By Bob Willis and John Gittelsohn – May 6, 2011 7:26 AM PT

Melissa White and her husband stopped paying their mortgage in May 2008 after it reset to $3,200 a month, more than double the original rate. That gave them extra cash to pay off debts and spend on staples until their Las Vegas home sold two years later for less than they owed.

“We didn’t pay it for about 24 months,” said White, who quit her job as a beautician during that period after becoming pregnant with her first child and experiencing medical complications. “What we had, we could put towards food and the truck payments and insurance and health things I was dealing with.”

The couple above aren't the only ones enjoying a payment-free lifestyle.

Millions of Americans have more money to spend since they fell delinquent on their mortgages amid the worst housing collapse since the Great Depression. They are staying in their homes for free about a year and a half on average, buying time to restructure their finances and providing an unexpected support for consumer spending, which makes up about 70 percent of the economy.

So-called “squatter’s rent,” or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending that’s equal to about half the estimated savings generated by cuts to payroll withholding in December’s bipartisan tax plan.

“We’ve had a lot of government transfers to the household sector; this is a transfer from the business sector to households,” Feroli said. “It’s a shock absorber that has helped the consumer ride out the storm.”

We have created a subsidy for the least deserving in our culture, and it is being spun as if it's an economic boost we should all be happy about. Mortgage squatting doesn't help out the American consumer, it only helps those consumers who are not paying their mortgages.

BTW, why don't we have rent modification programs? If renters become unemployed, why aren't we forcing landlords to lower their rent? Why doesn't the government allocate some TARP money to paying the rent of those who cannot afford it?

When a renter fails to pay their rent, for any reason, it's just assumed they should move out and find a more affordable place even if that is in the gutter. Loan owners get to apply for relief programs and government assistance not being offered to renters — programs renters are being forced to pay for. And if none of those programs offer satisfactory relief, loan owners get to squat in these houses indefinitely.

Now Renting

White, 28, now has two children, daughter Makenzie, 2, and son Christian, 1. She and her husband, Shannon, a sheet-metal worker, rent a house for $1,425 a month.

$1,425 per month in Las Vegas will rent a very nice property. Most rents in Las Vegas run between $1,000 and $1,200 per month. I'm not sure how an unemployed beautician and a sheet-metal worker afford that.

“My credit’s back,” she said. “I’d buy a house again, but I’d get a fixed-rate loan.”

At least they learned something of value for this experience. BTW, there are now loan offerings for people a day out of short sale. This family probably could get a loan. That won't contribute to strategic default, will it?

Consumer spending is projected to rise 2.8 percent this year, according to economists in an April Bloomberg News survey, after a 1.7 percent increase in 2010.

Delinquencies and defaults have helped homeowners save more, pay down other debts and move on to more affordable homes, according to Stan Humphries, chief economist at Zillow Inc., a Seattle-based provider of housing data. Owners in default need the savings because degraded credit scores from the default make it more difficult to borrow, he said.

“It’s bad that they’ve lost the home, but household finances have been rearranged in such a way that it’s arguably more sustainable,” Humphries said.

That reality is why we will continue to see strategic default, particularly once the general public realizes the 2009 bottom was an illusion.

Delinquent Debt

Van Perrault, a home appraiser who defaulted on his Saint Mary’s, Maryland, investment property in 2007 after his tenants stopped paying the rent, used the extra money to take care of late payments on his delinquent credit-card debt.

Do you think his tenants stopped paying the rent, or do you think he stopped paying the mortgage and skimmed their rent?

The additional $1,500 a month “made a difference in my life,” said Perrault, 60, adding that paying down his card balances helped him and his wife limit the damage to their credit scores.

Anyone who avoids paying a $1,500 monthly bill will find it makes a difference in their life. What's astonishing about this situation is that failing to pay their bills is being so handsomely rewarded.

Consumer debt fell to $11.4 trillion in the fourth quarter of 2010, down about $1.1 trillion from the peak in the third quarter of 2008, the Federal Reserve Bank of New York said in February. Mortgage debt dropped 9.1 percent in the period.

A total of 6.3 million homeowners weren’t current on their loans at the end of March, with 2.2 million in the process of foreclosure, according to data from Lender Processing Services Inc., a Jacksonville, Florida-based provider of mortgage- processing services and data. Loans in foreclosure were an average 549 days late.

If 6.3 million people haven't been making mortgage payments for nearly two years, you can see how the $50 billion adds up.

Conscious Decision

While many Americans couldn’t make payments because they lost their jobs or earned less during the recession, others made the conscious decision to stop paying — or carry out a so- called strategic default — on homes worth less than the outstanding obligation.

About 27 percent of single-family homeowners with mortgages, or about 15.7 million, were “underwater” at the end of last year, according to Zillow, the highest share since the first quarter of 2009, during the recession. Las Vegas led the nation, at 82 percent, followed by 70 percent for Phoenix.

Those numbers are shocking. Everyone in Las Vegas is underwater. The 18% that aren't include some recent buyers with large down payments and buyers from before the 00s who paid down their mortgages. It isn't very many people.

Failing to pay a mortgage bill is “a big moral issue,” said Karl Case, co-founder of a housing-price index that bears his name. “On the other hand, it’s exactly what you would expect given the way we treat and reward behavior in an economic system built for private gain.”

Strategic Default

More than a third of mortgage defaults were strategic, according to a June 2010 survey by finance professors Paola Sapienza of the Kellogg School of Management at Northwestern University and Luigi Zingales of the University of Chicago’s Booth School of Business. That was up from 29 percent in a March 2009 survey.

In Las Vegas that number is much, much higher. The people who believe they are paying because it's the right thing to do are being tested by market conditions. At some point, they have to wonder if they are doing the right thing for their families.

Almost half of Americans surveyed in January “said they would be more likely to default if their bank was accused of predatory lending, even if they’re morally opposed to strategic default,” Zingales said in a telephone interview from Chicago. “One likely reason for this may be related to a psychological notion of retribution.”

Adam Turner, 43, went eight months without making payments on his Las Vegas townhouse after he quit his job as a casino- restaurant wine steward in November 2009. He stopped paying as “a way of sticking it back to the banks” for pushing mortgages on people who shouldn’t have been qualified, he said. He sold the property in a July 2010 short-sale — when a bank agrees to accept less than the outstanding value of the loan.

When people want to take an action or make a decision they are morally uncomfortable with, it is quite common to seek out rationalizations and justifications. If they believe they have been victimized, even if it was by their own decisions, they can cloak their own misdeeds as bringing justice to an unjust situation.

Distressed Deals

Distressed deals — short sales and foreclosures — accounted for 40 percent of existing-home transactions in March, up from about one third last year, according to the Chicago- based National Association of Realtors.

With unemployment at 9 percent in April and forecast to average 8.7 percent for the full year — well above the 4.6 percent average in 2007 before the recession began — more Americans probably will enter the default pipeline this year. The number of homes receiving a foreclosure notice will climb about 20 percent, reaching a peak for the housing crisis, predicts RealtyTrac Inc., an Irvine, California-based data seller.

Turner, now a waiter and renting an apartment, used the money he saved by not making mortgage payments to take care of electric and phone bills and buy necessities while he was unemployed.

I wonder how he defined necessities….

“It definitely boosted my cash flow, which was helpful to move on with my life,” said Turner, who made almost $100,000 a year before the recession. “It was not like I was celebrating and partying. It was a rough time. It represented the American dream that collapsed around me.”

To contact the reporters on this story: Robert Willis in Washington at bwillis@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net; Kara Wetzel at kwetzel@bloomberg.net

(Almost) 20% down the drain

The owners of today's featured property are offering it as a short sale. Although they have not been served a NOD, in all likelihood, they are not paying the mortgage. Why would they? They credit is going to take a big hit either way.

I heard yesterday that FHA has guidelines which punish short sellers more severely if they also have missed payments, so perhaps there is some small incentive in the system to keep paying. The incentive to save two years of mortgage payments is arguably more enticing.

• These owners paid $608,000 on 4/7/2006. They used a $456,000 first mortgage and a $152,000 down payment.
• They refinanced on 8/30/2007 with a $482,400 first mortgage.
• On 11/14/2007 they refinanced again with a $492,000 first mortgage.

They bought at the peak, and they still managed to squeeze out $36,000 of their down payment in mortgage equity withdrawal. Like most bubble era buyers, they undoubtedly expected the HELOC money ATM to go on forever.

They were wrong.

They bought a house they can't afford, and now they are selling it short.

Irvine House Address … 37 NAVARRE Irvine, CA 92612

Resale House Price …… $395,000

House Purchase Price … $608,000

House Purchase Date …. 4/7/2006

Net Gain (Loss) ………. ($236,700)

Percent Change ………. -38.9%

Annual Appreciation … -8.1%

Cost of House Ownership

————————————————-

$395,000 ………. Asking Price

$13,825 ………. 3.5% Down FHA Financing

4.62% …………… Mortgage Interest Rate

$381,175 ………. 30-Year Mortgage

$83,941 ………. Income Requirement

$1,959 ………. Monthly Mortgage Payment

$342 ………. Property Tax (@1.04%)

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

$82 ………. Homeowners Insurance (@ 0.25%)

$438 ………. Private Mortgage Insurance

$395 ………. Homeowners Association Fees

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

$3,217 ………. Monthly Cash Outlays

-$317 ………. Tax Savings (% of Interest and Property Tax)

-$491 ………. Equity Hidden in Payment (Amortization)

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

$69 ………. Maintenance and Replacement Reserves

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

$2,502 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,950 ………. Furnishing and Move In @1%

$3,950 ………. Closing Costs @1%

$3,812 ………… Interest Points @1% of Loan

$13,825 ………. Down Payment

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

$25,537 ………. Total Cash Costs

$38,300 ………… Emergency Cash Reserves

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

$63,837 ………. Total Savings Needed

Property Details for 37 NAVARRE Irvine, CA 92612

——————————————————————————

Beds: 2

Baths: 3

Sq. Ft.: 1524

$259/SF

Property Type: Residential, Condominium

Style: Two Level, Villa

Year Built: 1978

Community: 0

County: Orange

MLS#: S656795

Source: SoCalMLS

Status: Active

On Redfin: 10 days

——————————————————————————

Two-story townhome–award-winning floor plan is bright and open with extra-high ceilings and has direct access to 2-car garage Two full bedrooms and baths upstairs. Master suite is huge. A den/office and full bath downstairs. Very private enclosed courtyard entry with lush plants. Remodeled kitchen is full of light and overlooks spacious open atrium/porch. Dual-pane windows and sliders. Baths remodeled. Easy-care wood-like tile flooring. Build-in wine rack, inside laundry, and more. Enjoy the Villas at RSJ, a unique, upscale comminity ideally located next to the golf course and the Racqet Club. Walk across the street to shops, restaurants, etc. Resort-like Pool and Spa. Near UCI, Senior Center, best schools and public transportation. Plus, HOA dues covers trash, water, and earthquake insurance.

Is Rancho San Joaquin upscale? comminity?

Fannie May posted an $8.7 billion loss in the first quarter bringing total GSE losses to $164.4 billion so far. More losses are coming.

Irvine Home Address … 1 SOLANA #22 Irvine, CA 92612

Resale Home Price …… $550,000

Just look at all those hungry mouths we have to feed

Take a look at all the suffering we breed

So many lonely faces scattered all around

Searching for what they need

Is this the world we created?

we made it on our own

Is this the world we devastated

Right to the bone?

Queen — Is This the World We Created?

When the housing bubble became apparent to policy makers in Washington, they realized there was only one way to prevent a catastrophic collapse in house prices: they had to take over housing finance. To that end they took the GSEs into conservatorship, and the federal reserve began buying mortgage-backed securities at prices the free market was unwilling to pay. With both the delivery mechanism under direct government control and the ability to print money with through the federal reserve, aggregate loan balances were maintained al levels much higher than otherwise would have occurred. This is the world of mortgage finance we created. The taxpayer is paying the bills.

Today, we are gradually returning to a free market in housing finance, but the government still dominates with well over 90% market share. The federal reserve has stopped buying mortgage-backed securities with printed money, and the government is scaling back it's loan limits. However, when the government took over the GSEs, it assumed the liability for all their bad loans; past, present, and future. The bills keep mounting.

Fannie Mae 1Q loss $8.7 billion

by JON PRIOR — Friday, May 6th, 2011, 3:14 pm

Fannie Mae reported net loss of $8.7 billion in the first quarter, including a $2.2 billion dividend payment to the Treasury Department. The loss narrowed from $13 billion one year ago.

Fannie said still falling home prices drove losses during the quarter. The government-sponsored enterprise estimated home prices fell 1.8% during the quarter, even though some regions experienced gains.

The mortgage giant's regulator the Federal Housing Finance Agency requested $8.5 billion from the Treasury to eliminate Fannie's net worth deficit. Fannie now owes the Treasury $99.7 billion and so far paid $12.4 billion in dividends.

Its sibling company, Freddie Mac actually reported a profit in the first quarter and did not request funds. Together both Fannie and Freddie have pulled a total of $164.4 billion from the Treasury since entering conservatorship in 2008.

Despite the continued losses, Fannie Mae showed how vital its operations are to funding the housing market. It remained the largest issuer of mortgage-backed securities in the first quarter, purchasing or guaranteeing roughly $189 billion in loans. The company's market share dipped to 48.6% in the quarter from 49% in the previous period.

But Fannie said if the market shifts away from refinancing as is likely to occur as mortgage rates rise, market share will dip further.

A declining market share for the GSEs is exactly what we need. Eventually, their market share needs to fall to zero and the entities need to be eliminated. Realistically, that process won't begin in earnest until the housing market achieves a durable bottom, probably in 2012 or 2013.

While business could be declining, legacy issues are too. The serious delinquency rate on Fannie Mae loans dropped to 4.27% in the first quarter from 5.47% one year ago and 4.48% in the previous period. The company said modifications and other workouts, combined with foreclosures when other alternatives are exhausted, outnumbered new delinquent loans hitting its books.

That is a good sign. We can't bring down REO inventories until we stop adding to them. Of course, the vast majority of loan modifications will fail, and those properties will once again go delinquent, but by delaying the inevitable, it allows the GSEs to reverse the tide of delinquencies, but it also ensures the liquidation process will drag on far longer than anyone anticipates.

Fannie Mae CEO Michael Williams said “credit-related expenses” will remain high in 2011 as it remains exposed to falling home prices.

“As we move forward, we are building a strong new book of business that now accounts for 45% of the company’s overall single-family guaranty book of business,” Williams said. “We continue to be the leading provider of liquidity for single-family mortgages and affordable multifamily rental housing while we remain focused on our responsibility to find solutions for distressed homeowners and their families.”

The only solutions the GSEs are providing is to give free houses to delinquent mortgage squatters on the taxpayer's dime.

In other GSE news,,,

Freddie Mac sells record number of REO in 1Q

by JON PRIOR — Friday, May 6th, 2011, 5:36 pm

Freddie Mac sold roughly 31,000 previously foreclosed and repossessed homes in the first quarter, a new record for the company as both government-sponsored enterprises shed inventory from the end of last year.

Combined, both Fannie Mae and Freddie hold 218,000 REO properties as of the end of the first quarter, down from roughly 234,000 at the end of 2010, according to their filings.

In the first quarter of 2011, Freddie holds roughly 65,000, compared to its larger sibling Fannie, which holds 153,000 REO in its inventory.

While both GSEs made progress in cutting down this portion of the nation's inventory of foreclosed homes, which continues to drag down home prices, inventory has elevated since one year ago.

Both Fannie and Freddie held 163,000 properties in the first quarter of 2010, almost what Fannie holds currently by itself.

Repossessions at Freddie increased by nearly 1,000 in the first quarter, and the holding period for these homes averaged 191 days before being resold. This varies significantly from state to state, especially as servicers restart foreclosure processes in different areas of the country. Servicers paused the process late last year to correct procedural problems.

The GSEs are delaying processing many of their delinquent loans because they already have too many REOs, and they are delaying releasing their REOs because if they don't they will pummel house prices.

“We expect the pace of our REO acquisitions to increase in the remainder of 2011, in part due to the resumption of foreclosure activity by servicers, as well as the transition of many seriously delinquent loans to REO,” Freddie said in its financial supplement.

Fannie, Freddie align servicing guidelines for delinquent mortgages

by JON PRIOR — Thursday, April 28th, 2011, 1:31 pm

The Federal Housing Finance Agency directed Fannie Mae and Freddie Mac Thursday to align their guidelines for servicing delinquent mortgages.

Previously, the government-sponsored enterprises maintained different requirements for how their mortgage servicers would treat these loans. But the FHFA forced an alignment to push servicers into engaging the borrower as soon as they become delinquent. The foreclosure process cannot begin if the borrower and servicer are working toward solving the delinquency in a good-faith effort, effectively prohibiting the practice of “dual tracking.”

The state of California blocked legislation that would have prohibited dual track foreclosure. The GSEs are merely adding time to the foreclosure process and enabling delinquent mortgage squatters to further game the system.

Under the new requirements, servicers must engage in a single track for considering foreclosure alternatives up to the 120th day of delinquency, according to the FHFA. Servicers must also perform a formal review of the case to confirm the borrower was considered before starting foreclosure. Even then, servicers are required to continue work with the homeowner on other alternatives.

Not only procedures, but incentives were aligned. Servicers for both GSEs will be rewarded and penalized the same under the new guidelines.

“FHFA's directive to align Enterprise policies for servicing delinquent mortgages should result in earlier servicer engagement to identify the best solution available for homeowners, given their individual circumstances,” said FHFA Acting Director Edward DeMarco.

The FHFA said the updated framework will expedite borrower outreach, align modification terms and establish “a consistent schedule of performance-based incentive payments and penalties.”

Now all the bad processes that encourage strategic default will be uniform. I don't see that as an improvement.

Fannie Mae CEO Michael Williams said the alignment is a major step toward an improved servicer process.

“This initiative will direct servicers to reach families earlier, communicate more frequently and clearly, and provide relief,” Williams said. “Fannie Mae fully supports this Initiative, and we remain committed to stabilizing communities and building a stronger foundation for housing.”

Freddie Mac CEO Ed Haldeman said the FHFA action will simplify the process for delinquent borrowers.

“Alignment of key servicing practices between our two companies will help servicers achieve these goals by enabling them to streamline their operations and more effectively target resources to distressed borrowers,” Haldeman said in a statement. “For example, it will simplify the process for seeking help by giving borrowers one application to fill out and servicers one application to review for all Freddie Mac loan modifications and foreclosure alternatives.”

The GSEs should be dismantled. They can no longer successfully function as a quasi governmental agency. Lenders would prefer to keep the GSEs around so lenders can continue with an origination model with no risk, but with the US taxpayer being on the hook for the foolishness of bankers everywhere, I doubt that model will survive much past the market bottom.

They went Ponzi too

Day after day, I see more loan owners and Ponzis than responsible owners who paid down their mortgage. Eventually, I will run out of these profiles because we haven't created any new ones in the last 4 years. With the credit crunch in August 2007, the mortgage equity withdrawal spigot was abruptly turned off.

Contrary to popular belief, the free money of mortgage equity withdrawal will not be coming back soon. In a rising interest rate environment, money is no longer free. Adding to debt adds to monthly bills. Only the steadily falling interest rates of the Greenspan era allowed refinancing of larger and larger amounts with the same payments. It also permitted borrowers to Ponzi themselves into unsustainable lifestyles which they now have to abandon.

Unfortunately, the general public knows none of this. Most buyers who overpaid for Orange County real estate over the last 4 years did so because they fully expect house prices to go up and lenders to resume handing out free money. Despite the crash, most wouldbe buyers consider California real estate to be a bottomless pit of gold.

Shevy and I have been advising people to look at a house as an expense not an investment. A mortgage is to be paid off, not added to or otherwise “managed.” I harp on this day after day because I keep seeing people who lost their homes because they fell victim to the kool aid thinking in California. These people all had a choice, and they made the wrong one — often multiple times with varying degrees of stupidity. Nothing can be done for these loan owners, but we can all learn something from their mistakes.

• The owner's of today's featured property paid $377,000 on 12/14/2001. My records are incomplete, but it looks as if they used a $301,600 first mortgage (80% LTV), a $75,000 second mortgage, and a $400 down payment.

These people were very regular about their visits to the housing ATM. In April for four consecutive years, they extracted a little cash — well, actually a lot of cash. Many people become accustomed to an April “windfall” when they get their tax refund. The forced savings of tax withholdings is the only savings many people have. These borrowers must have felt their tax returns were not big enough, so they borrowed themselves into oblivion.

• On 4/16/2003 they refinanced with a $436,500 first mortgage.
• On 4/29/2004 they obtained a $420,000 first mortgage and a $78,750 stand-alone second.
• On 4/7/2005 they opened a $130,525 HELOC.
• On 4/10/2006 they obtained a stand-alone second for $254,260.
• Total property debt is $674,260.
• Total mortgage equity withdrawal is $297,660. Not bad for a $400 investment.

Given that such a windfall has proven possible, it's not surprising that California real estate is so highly prized.

Irvine House Address … 1 SOLANA #22 Irvine, CA 92612

Resale House Price …… $550,000

House Purchase Price … $377,000

House Purchase Date …. 12/14/2001

Net Gain (Loss) ………. $140,000

Percent Change ………. 37.1%

Annual Appreciation … 4.0%

Cost of House Ownership

————————————————-

$550,000 ………. Asking Price

$110,000 ………. 20% Down Conventional

4.62% …………… Mortgage Interest Rate

$440,000 ………. 30-Year Mortgage

$96,896 ………. Income Requirement

$2,261 ………. Monthly Mortgage Payment

$477 ………. Property Tax (@1.04%)

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

$115 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$384 ………. Homeowners Association Fees

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

$3,236 ………. Monthly Cash Outlays

-$380 ………. Tax Savings (% of Interest and Property Tax)

-$567 ………. Equity Hidden in Payment (Amortization)

$191 ………. Lost Income to Down Payment (net of taxes)

$89 ………. Maintenance and Replacement Reserves

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

$2,569 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,500 ………. Furnishing and Move In @1%

$5,500 ………. Closing Costs @1%

$4,400 ………… Interest Points @1% of Loan

$110,000 ………. Down Payment

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

$125,400 ………. Total Cash Costs

$39,300 ………… Emergency Cash Reserves

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

$164,700 ………. Total Savings Needed

Property Details for 1 SOLANA #22 Irvine, CA 92612

——————————————————————————

Beds: 3

Baths: 2

Sq. Ft.: 2000

$275/SF

Property Type: Residential, Condominium

Style: Two Level

View: Park/Green Belt

Year Built: 1975

Community: Rancho San Joaquin

County: Orange

MLS#: S657444

Source: SoCalMLS

Status: Active

——————————————————————————

A superb opportunity to acquire this stunning and spacious Two-Story Townhome with Just One Common Wall for a great price. This home boasts an elegant front yard leading to the tastefully upgraded interior. The gourmet kitchen with granite countertops and matching appliances is a delight for every Chef. The crownmolding complements the high quality tile floors and the newer carpet throughout this bright and spacious home. Schedule a showing today to appreciate the charm of this welcoming home in a very desirable neighborhood.

Most owners contemplating selling resist the idea in a declining market. Today's post looks at the arguments in favor of selling now as opposed to waiting.

Irvine Home Address … 2 VERNAL Spg Irvine, CA 92603

Resale Home Price …… $3,395,000

Seems like I've been playing your game way too long

Seems the game I've played has made you strong

When the game is over I won't walk out the loser

I know I'll walk out of here again

I know someday I'll walk out of here again

Bruce Springsteen — Trapped

One of the more annoying lies realtors push on wouldbe buyers is “buy now or be priced out forever.” In the Great Housing Bubble, I described it this way:

When prices rise faster than their wages, people can obtain less real estate with their income. The natural fear under these circumstances is to buy whatever is available before there is nothing desirable available in a particular price range. This fear of being priced out causes even more buying which drives prices higher. It becomes a self-fulfilling prophecy. Of course, the National Association of Realtors, the agents of sellers, is keen to exploit this fear to increase transaction volume and increase their own incomes. If empirical evidence of the recent past is confirming the idea that real estate only goes up, the fear of being priced out forever provides added impetus and urgency to the motivation to buy.

Once prices begin to fall, the fear of being priced “out” forever changes to a fear of being priced “in” forever. A buyer who overpaid and over-borrowed will be in a circumstance where they owe more on their mortgage than the property is worth on the open market. They cannot sell because they cannot pay off the mortgage. They become trapped in their homes until prices increase enough to allow a breakeven sale. This puts the conditions in place to reverse the cycle and causes prices to drop precipitously.

Fear is not a good emotion for making clear decisions. Whether that fear is being priced-out or priced-in, it isn't an emotion a realtor should prey on if they truly want their clients to make the best financial decisions. Of course, we all know that realtors often are motivated more by commissions than they are by serving their clients.

The Case for Selling in a Falling Housing Market

Stan Humphries — Apr. 28 2011 – 10:20 am

The problem with the American housing market isn’t that too few of us want to move. We estimate that at least 4 million homeowners would love to sell their home and buy another one that’s bigger, smaller, better located or more affordable.

What’s holding back these “sidelined sellers?” Some can’t sell because they owe more than their homes are worth, of course. But many more are simply paralyzed by the fear of selling and buying again in a falling market. Often at root here is what psychologists and behavioral economists call “loss aversion.” We avoid accepting a grim loss on a current investment, and recent research suggests that we over-estimate the pain associated with a future loss (say, with buying a home that then loses value).

Loss aversion is paralyzing. The phenomenon is most apparent — and most dangerous — in securities trading. With a stock or other traded security, an investor can lose money by doing nothing. Selling for a small loss is often preferable to taking a risk on a very large loss. Most novice traders refuse to take small losses, and they end up allowing a few losers to grow out of control and wipe out their account.

So it’s understandable to want to wait for better days to sell, but—at least when it comes to your house—you’re probably making a mistake.

First, let’s dispense with the idea that better days are coming soon. The consensus among the 100 economists surveyed by Cambridge-based data firm MacroMarkets is that housing prices will slip 1.3% in 2011. That’s far, far too optimistic. At Zillow, we believe prices will tumble as much as 7% in 2011. After reaching the bottom, we expect real estate appreciation will remain in the doldrums for three to five years—something we’ve been forecasting for more than three years.

I think there is a bit of revisionist history going on here. I have been bearish for four and a half years, but I don't recall Stan Humphries and Zillow being so bearish. In any case, he is rightfully bearish now — in fact, he is even more bearish than I am.

So we’re all going to have to make a little peace with falling prices. But here’s the good news: If you run some numbers, you find that selling in a falling market is not always a bad idea. Especially if you’re thinking of trading in your current home for a smaller home or one in a less expensive neighborhood.

Check the math. Say you and your spouse own a nice two-bedroom condo like this on the north side of Chicago. You bought it in 2007 for $390,000, but it may only sell for $310,000 now.

Now say you’re feeling crowded in this condo because your two increasingly energetic kids have hit school age. You’ve got some savings and a good commuter car, and you think you can buy a 2,500-square-foot house like this one in a kid-friendly section of suburban Elgin for $370,000.

This is the oldest trade in the book—but here comes the loss aversion. First, you recognize that selling the condo means you’ll finally realize the painful $80,000 loss on your condo purchase. Then—and this is almost worse—there’s an anticipated loss on the new house. In February home prices in Chicago were down 10.3% from a year earlier, and you’re convinced they are likely to continue that decline and fall another 5%. Buy the new house and in a year you could be sitting on another $18,500 capital loss. It churns your guts, and maybe you decide it’s better to stay put and take the 5% hit in a smaller home.

That is a reasonable way to look at the problem. If prices are declining for all properties, it is better to wait out the decline in a less expensive one. Of course, it's even better to wait out the decline in a rental.

Trouble is, most of us wildly overestimate the benefits of waiting. We convince ourselves that avoiding a potential future loss is the same as saving money.

If you are a renter, avoiding a future loss is the same as saving money. Timing does matter. If you're a home owner, you're already exposed to whatever the real estate market has in store.

We underestimate the risks that we’ll face by waiting another year. And we totally ignore the real, measurable costs of staying in a home that’s too big or too small or poorly located.

Start with the $18,500 in savings that you thought you would garner by waiting another year to relocate to the suburb. Those savings will probably be offset by a similar decline in value on your downtown condo, which could sell for $15,500 less a year from now. Yes, by waiting you’ll also save $1,200 or so in reduced realty brokerage fees and closing costs to sell the depreciated condo. But add it all up and your total actual savings will be just $4,300.

That’s a couple of house payments, you may be thinking. That’s a solid down payment on second car—pretty handy when you move to a suburb. Wrong.

See, $3,500 of it that $4,300 would just be a net savings of home equity. It’s a paper loss you would avoid. The value would be on your family’s balance sheet, so perhaps it could serve as collateral for a loan. But it wouldn’t be real money in your pockets.

Actually, it would be real money in your pocket. If the timing is perfect, the savings would be real and tangible. It would be in a check at the closing. The fact that most people roll this equity into their new house doesn't make the money any less real.

The issue for home owners is whether or not trying to save a few thousand dollars is worth staying in a property the family wants to move out of. Financially, waiting is clearly the better decision, but for other reasons, it may not be the best decision for the family.

Now consider the risks you would have to take to get a shot at that $4,300 gain. Because while the potential savings are mostly on paper, the potential costs are quite real.

For one, you took an entire year’s worth of interest-rate risk. There are wars in the Middle East, escalating energy costs and lots of talk of inflation these days. If 30-year fixed mortgage rates move from 5% to 6.5%, the payment on a $200,000 loan goes from $1,070 to $1,260. That’s an extra $2,300 a year in mortgage costs.

That is a fallacy. If interest rates go up and mortgage costs rise, the overhang of distressed inventory will simply push prices lower. I exposed that nonsense last year in The National Association of realtors Latest Scare Tactic: Rising Interest Rates.

Then there’s market-timing risk. Different neighborhoods don’t always snap out of a market correction at the same moment. Maybe demand for bigger suburban homes will snap back faster than demand for condos in the city. That house in Elgin could get more expensive while the condo’s value continues to slide.

The risk of different market segments moving at different speeds is very real. The condo market will be the last to recover because people don't want to live in condos. The fact that the upper half of the market is crumbling shows the market is not at the bottom.

Then other, practical costs of holding the condo also creep in. Will you rent a storage space to hold the clutter that you would have shoved into the backyard shed in the suburbs? That’s at least $700 for the year. And what about the cost of sending two kids to private schools in the city for an additional year instead of sending them to Elgin’s public schools? That’s at least $10,000 per child. These costs won’t show up in the your house payment, but they’re real, measurable hits to the family cash flow.

Now he is bringing in bogus costs that could just as easily go the other way.

That’s just the math for a trade-up. Now suppose instead you want to downsize. The numbers become even more compelling.

Suppose you’re retiring. Say you dream of selling this home in Santa Monica for $900,000 and purchasing a significantly larger house like this 20 minutes away in Encino for $750,000.

Here, the costs of waiting to sell really pile up. If prices in Los Angeles fall 5% over the next year, the $150,000 difference in prices of the two homes will shrink by $8,000. And that $8,000 cost of waiting a year would not merely be a paper loss. You will actually have that much less money in your pocket after the sale of your home in Santa Monica.

I don't understand how this magic works in one circumstance and not in another. Whether prices are going up or down, there is a closing with a check to the owner. That check contains real money. Whether this money is spent on a down payment for another house, either more or less expensive, doesn't make any difference.

The $8,000 potential loss would be offset only somewhat by the lower commissions and closing costs you would face by waiting a year to sell your home in Santa Monica. But there would also be other costs involved in waiting for the trade-down. Like property taxes. Say you purchased your Santa Monica bungalow during the property bubble, when it was worth more than $1 million, and that your annual property-tax bill is roughly $13,000. That’s $3,000 to $5,000 more than you would have paid if you had moved to the Encino home.

Overall, it’s helpful to think of house prices as a river that flows forward and, on very rare occasions, backward. It’s natural for us to prefer to jump from one raft to the next when the river is moving forward—that is, when prices are rising, not falling. But even when the river is flowing backward, jumping rafts midstream can make sense. When the river is flowing backward, we tend to fixate on the speed of the next raft relative to the stationary riverbank (e.g., “My next home is going to fall 5% in value after I buy it”). We should focus instead on the speed of the two rafts relative to each other (e.g., “Both homes are going to fall 5% in value”).

He is right. Once a renter becomes a home owner, they are subject to the ebbs and flows of market prices, and when and where they move is not a big deal unless they are making a big change in the quality, price, or location of their home.

Here’s the bottom line. Of the three general classes of homeowner—first-time buyers, existing homeowners buying another home and existing homeowners exiting real estate altogether—only first-time buyers face a substantial risk when buying in a declining market. For homeowners seeking a trade, there are only real costs of selling now for people trading up, and even those are less than most of us perceive.

The broader housing market in the United States is heavily dependent upon first-time buyers, most of who should wait until prices stabilize. The failed government attempts at market manipulation simply delayed the real bottom by two years and made first-time homebuyers wait two years longer than they should have.

It turns out that in most scenarios, people who sell homes before the market bottoms do fine.

We devised this chart to show the potential loss (shown in amber or red) or gain (shown in green) you’d face in a year if you trade up or down in a falling market now. For example, trading up now to a house priced 20% greater than your current one in a market that you expect to decline by 5% over the coming year results in a 1.4% loss relative to waiting one year to buy that house. Most people likely anchor their loss expectations around the expected 5% decline in home values when, in reality, the actual loss is much less.

Percentages make the numbers seem small and insignificant, but if you talking about 4% on a $700,000 home, that is $28,000. That seems like a lot of money to me.

The third group—people leaving home ownership altogether in favor of renting—should, of course, always sell as early as possible in a falling market. That way they’re most likely to preserve as much equity as they can. In reality, I think many of these sellers are holding out in the current market hoping for some recovery in home values in the near-term. These people are waiting for Godot.

I agree that most discretionary sellers are holding their properties off the market waiting for better days that will not be coming any time soon.

My advice here doesn’t require you to be either a bear or a bull on home value appreciation. My chief point is that, when trading homes, future home value declines will matter a lot less than most people believe.

“I feel like this morning I’ve had nine different people tell me they don’t want to sell when the market is still falling,” Detroit-area real estate agent Jeff Glover says with a sigh. Glover wishes he could get more people into the leafy, prosperous suburbs west of the city, where prices have been falling now for nearly six years. He’s even got a catchy line he uses: “Do you want to wait this market out in your current house or do you want to wait it out in your next house?”

Most people ignore him. Maybe they shouldn’t.

It's unfortunate that what could have been an honest examination of the pros and cons of selling now instead turned into a smoke screen of nonsense. There are legitimate reasons to sell in a declining market. Selling to rent instead being first and foremost among them.

For home owners, the only real issue is the activity in the market for the existing home, and the activity in the market for the next home. If these markets are moving at different speeds, then either acting or waiting may be the correct decision.

For example, when the upper half the market finally does bottom, it will be better to get out of a condo and into a single-family detached. But right now with the upper half of the market falling and the lower half holding steady, it is far wiser to wait and stay in the condo until SFD prices come within reach.

Although there are good reasons to sell in a declining market, this article was not particularly convincing.

All Cash

The buyers of today's featured property bought it about a year ago in an all-cash transaction. Since they are selling it so quickly, it seems likely this was purchased as a speculative flip. Many people believed the housing market bottomed in 2009, despite proof to the contrary.

The high end already suffers from an excess of inventory and very few buyers, so where is the buyer for this property going to come? Do you think this owner will be able to sell this property and make money?

I don't.

Irvine House Address … 2 VERNAL Spg Irvine, CA 92603

Resale House Price …… $3,395,000

House Purchase Price … $3,020,000

House Purchase Date …. 3/11/2010

Net Gain (Loss) ………. $171,300

Percent Change ………. 5.7%

Annual Appreciation … 10.1%

Cost of House Ownership

————————————————-

$3,395,000 ………. Asking Price

$679,000 ………. 20% Down Conventional

4.72% …………… Mortgage Interest Rate

$2,716,000 ………. 30-Year Mortgage

$605,094 ………. Income Requirement

$14,119 ………. Monthly Mortgage Payment

$2942 ………. Property Tax (@1.04%)

$625 ………. Special Taxes and Levies (Mello Roos)

$707 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$610 ………. Homeowners Association Fees

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

$19,003 ………. Monthly Cash Outlays

-$1925 ………. Tax Savings (% of Interest and Property Tax)

-$3436 ………. Equity Hidden in Payment (Amortization)

$1215 ………. Lost Income to Down Payment (net of taxes)

$444 ………. Maintenance and Replacement Reserves

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

$15,301 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$33,950 ………. Furnishing and Move In @1%

$33,950 ………. Closing Costs @1%

$27,160 ………… Interest Points @1% of Loan

$679,000 ………. Down Payment

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

$774,060 ………. Total Cash Costs

$234,500 ………… Emergency Cash Reserves

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

$1,008,560 ………. Total Savings Needed

Property Details for 2 VERNAL Spg Irvine, CA 92603

——————————————————————————

Beds: 5

Baths: 8

Sq. Ft.: 5533

$614/SF

Property Type: Residential, Single Family

Style: Two Level, Spanish

View: Canyon, Golf Course, Hills

Year Built: 2004

Community: Turtle Rock

County: Orange

MLS#: U11001856

Source: SoCalMLS

Status: Active

——————————————————————————

Situated in the exclusive residential golf preserve of Shady Canyon, this beautiful residence has a private location and exceptional views. The home embodies Hacienda-style Spanish Revival architecture and sits on an oversized lot with a large salt water pool with water features, separate children's wading pool, spa and heated outdoor cabana with a built-in barbeque, bar and kitchen, a pool bath outdoor showers. This attractive and spacious home has warm hardwood flooring, a gourmet kitchen, great room, office, guest casita and media room and extensive upgrades throughout. The master suite offers a relaxing reprieve with a spa-like bath, fireplace, balcony and views of the golf course, rolling hillsides and canyon.

Home sales are off again in 2011 and remain well below historic norms. Are lenders creating this problem with overly tight lending standards?

Irvine Home Address … 507 TERRA BELLA Irvine, CA 92602

Resale Home Price …… $285,000

I'd put out a burning building with a shovel and dirt

And not even worry about getting hurt

I'd lay in a pile of burning money that I've earned

and not even worry about getting burned

The Fabulous Thunderbirds — Tuff Enough

Everyone who put a down payment on an underwater home is laying in a pile of burning money they earned. In the end, they all get burned. Some will succumb to the financial pressures, some will accelerate their defaults, and some will hang on paying far too much for the properties they inhabit.

Now that house prices are again in free fall, lenders need to be concerned about loan quality and borrower qualifications more than ever. If they make bad loans now, they won't have a rising market to sell into that will recover their capital.

Slow spring: Home demand off 5%

May 2nd, 2011, 6:34 am — posted by Jon Lansner

The latest Orange County home inventory report from local broker Steve Thomas — data as of April 28 — says …

Demand, the number of new pending sales over the past month, decreased by 5% over the past month, shedding 169 pending sales and now totals 3,189. This year, the height in demand was reached on March 31st with 3,358 pending sales.

My criticism of Steve Thomas's methodology is that pending sales fall out of escrow — frequently. Using pending sales simply distorts the numbers. During the beginning of the selling season escrow numbers should be increasing instead of going down.

Two weeks prior, on March 17th, demand had increased to 2,982. So, current demand may be off over the past month, but it is definitely up from earlier in the year. The Orange County market had been following a normal cyclical pattern, but has changed course over the past month. Typically, demand remains elevated or increases during the spring, not dropping.

This is a sign of just how weak the market really is.

Is it the negative press on pricing, buyer fear, tight financing, unemployment, consumer confidence, gas prices, the Middle Eastern upheaval, the U.S. economy, or the world economy? Maybe the answer is a bit simpler; we suffer from the “too much information age.”

I will admit, the IHB contributes to the “too much information age.” Now people know what is really going on with the market. it must have been much easier for realtors when people accepted their bullshit as experts.

Market psychology is not what is holding back the market right now. The problem is that there are not enough people with jobs and good credit scores to buy the available inventory, not to mention the shadow inventory lingering out there.

In The Great Housing Bubble, I wrote about the problem this way:

In the denial stage of a residential real estate market, many speculators are unable to obtain the sale price they desire. The accumulation of unrealistically priced houses starts to build a large inventory of homes “hanging” over the market. Overhead supply is a condition in a financial market when many units are held for sale at prices above current market prices. Generally there will be a minor rally after the first price decline as those who missed the big rally but still believe prices will only go up enter the market and cause a short-term increase in prices. This is a bear rally. It is aptly named as those bullish on the market buy right before the bear market reverses and quickly declines. For prices to resume a sustained rally, the overhead supply must be absorbed by the market. Once prices stopped going up and actually began to fall, demand is lessened by diminished buyer enthusiasm and the contraction of credit caused by mounting lender losses. With increasing supply and diminished demand prices cannot rally to absorb the overhead supply. The overall bullish bias to market psychology has not changed much at this point, because owners are in denial about the new reality of the bear market; however, the insufficient quantity of buyers and the beginnings of a credit crunch signal the rally is over and the bubble has popped.

The problem is not buyer psychology. Kool aid is still alive and well in Orange County.

Back to the OC Register article.

Everybody seems to react to just about anything and everything that is happening locally, nationally and abroad. There just is too much information at our fingertips with cable news, Internet news, print news, blogs, and RSS feeds. So, where do we go from here? Demand is not going to plummet like it did a year ago with the end of the first time home buyer tax credit. It will be interesting to gauge demand in June and see if it finally surpasses 2010 year over year comparisons, a real measure of market strength.

Yes, this summer will tell us if the market is going to hold its own over the winter or take another major leg down. Based on the weak sales number so far this year, I am becoming more bearish about this fall and winter. It could get ugly.

Thomas calculates a “market time” benchmark tracking how many months it theoretically takes to sell all the inventory in the local MLS for-sale listings at the current pace of pending deals being made. By this Thomas logic, as of last Thursday, it would take:

• 3.49 months for buyers to gobble up all homes for sale at the current pace vs. 3.36 months two weeks ago vs. 2.45 months a year ago vs. 2.35 months two years ago.
• Of the 8 pricing slices Thomas tracks, 1 had faster market time vs. 2 weeks ago; and 2 improved over a year ago.
• Homes listed for under a million bucks have a market time of 3.10 months vs. 9.43 months for homes listed for more than $1 million.
• So, basically, it is 3.0 times harder to sell a million-dollar-plus residence!
• And just so you know, the million-dollar market represents 17% of all homes listed and 6% of all homes that entered into escrow in the past 30 days.

Is there any good news in there for bulls? I don't see it. By any measure, the market for high end homes in Orange County is very weak. The reduced asking prices will likely continue to be reduced. There is far too much inventory and very few buyers.

Here’s the recent data, as of last Thursday, for listings; deals pending; market time in months; last Thursday vs. 2 weeks ago, a year ago and 2 years ago (Note: k=thousand; m=million) …

Slice	Listings	Deals	Time (month)	2 week ago	1 yr. ago	2 yr. ago
$0-$250k	1,833	648	2.83	2.72	1.64	1.61
$250k-$500k	4,068	1,441	2.82	2.72	1.62	1.62
$500k-$750k	2,329	669	3.48	3.30	2.62	2.40
$750k-$1m	1,081	247	4.38	4.27	3.39	3.16
$1m-$1.5m	718	117	6.14	6.56	6.50	5.78
$1.5m-$2m	384	39	9.85	8.56	7.89	6.83
$2m-4m	526	37	14.22	13.42	13.49	11.71
$4m+	295	11	26.82	26.45	38.44	29.50
All O.C.	11,144	3,189	3.49	3.36	2.45	2.35

The glut of high-end homes is apparent. And since many delinquent mortgage squatters are inhabiting these high end properties, the shadow inventory makes the time on the market much, much longer.

The main reason there are so few sales at the high end is because people in Orange County don't make enough money to support those prices. The jumbo loan market is the only game in town. Jumbo loan lenders are lending their own money, so they are concerned about loan quality, whereas the rest of the market is origination-based lending where it only has to pass GSE or FHA standards.

Jumbo loan lenders won't loan money to people who won't pay them back, so FICO score requirements are high, interest rates are between 0.5% and 1.0% higher than conforming mortgages, and lenders are carefully scrutinizing what people really make. Jumbo loan lenders are not willing to count the appreciation and HELOC booty as income. Without mortgage equity withdrawal, far fewer people can afford the payments on jumbo loans, hence we have very low sales volumes at the high end.

That isn't going to change because the government is not insuring the market.

To make matters worse, the conforming limit is going down which will force more buyers to go jumbo — a loan they may not qualify for.

Are lenders being too tough?

May 3rd, 2011, 8:11 am — posted by Jon Lansner

In his latest biweekly commentary, veteran Orange County home broker Steve Thomas ranted about lenders going overboard with their underwriting, claiming it’s a reason the home market looks sluggish these days.

Lenders have reversed course and now look at every potential borrower as not lendable unless they can prove their worthiness with a mountain of written documentation and many requests that are borderline ridiculous.

Apparently, documenting income with more than a signature is too cumbersome for him. It certainly would be easier if everyone could just apply for a loan and get whatever they want, but when lenders tried that, they found that borrowers often didn't pay them back. Whocouldanode?

Their reaction reminds me of my kids reactions to painful experiences. Mia, my four year old daughter and splitting image of her gorgeous mother, was stung a few weeks ago after accidentally placing her hand on top of a crawling bee. After wiping her tears and a quick dose of Benadryl to stop the swelling, she didn’t want to go outside in fear of being stung again. Fortunately, she swiftly recovered after I took her by the hand and explained to her in front of a flowering bush swarming with bees that they were not out to get her as long as she left them alone. She resumed her normal neighborhood activities and hasn’t talked about it since.

That is cute analogy. However, what if those bees were African honey bees who will aggressively attack anyone nearby? Leaving those bees alone wouldn't be enough to protect yourself.

Lenders were stung, and they should be afraid to lend. Their lack of caution was directly responsible for the disaster they created. In a declining market with few qualified buyers, the aggressive lenders simply lose more money and go out of business — provided they are not too big to fail. The danger has not yet passed. The likelihood of more defaults and price declines is high. Lenders who fail to recognize that risk won't last very long.

I would like to take lenders and the U.S. government by the hand and show them that hard working buyers with a respectable job history, good credit and a reasonable down payment will NOT sting them. Instead, the lenders won’t go outside to play right now.

That is simply not true. Sales volumes are 30% below normal right now, but that still means 70% of the normal transaction volume is still occurring. Who are those people? They are the hard working buyers with a respectable job history, good credit, and a reasonable down payment. There aren't enough of those people. That is the problem.

They are playing it WAY too safe by lending only to those that qualify by the strictest of standards. It is time for lenders to go outside and play nicely.

Readers, do any of you think it's a good time to loan money to jumbo borrowers in Orange County? Would you put your own money behind such a loan? I wouldn't, except for those few good borrowers that remain.

They won’t get stung again as long as they don’t lend based upon one’s ability to fog a mirror.

If I understand his argument, he is saying we can do many other varieties of lending — which were proven losers during the housing crash — to inflate prices and increase sales as long as we don't go back to the worst of the housing bubble's lending practices. That sounds like nonsense to me.

Dr. Lawrence Yun, the chief economist for the National Association of Realtors estimates that if lenders would just relax their standards, sales activity would receive a 15% bump. If you don’t believe me, ask buyers and Realtors in the trenches. Lenders are commonly requesting letters of explanation for the absurd: a job 10 years prior, an old phone number that is no longer used, and much, much more.

Lenders learned from their mistakes of the housing bubble, and they don't want to repeat them. Steve Thomas does want them to repeat these mistakes because it would increase sales volumes and make him a few more pennies on commissions.

MEMO TO LENDERS AND THE U.S. GOVERNMENT: go outside and play again, lend to those that qualify, the entire economy and housing market is counting on it. An increase in sales activity would translate to more homes sold and a quicker improvement in the housing market. An improvement in the housing market helps in reestablishing consumer confidence. Confident consumers translate into more dollars spent and a return to a robust U.S. economy. Until then, expect more of the same, a housing market and an economy that lacks much direction other than sideways.

Does Thomas have a point?

No. Not really.

He paid over $400,000 for a 1 bedroom apartment

One of the surest signs of the housing bubble was the amounts people were willing to pay for glorified apartments. Properties like this only make sense as rentals. It's an obvious bubble when the cost of ownership is more than double the cost of rental — as it is with a $405,000 price tag.

This purchase was foolish for a couple more reasons. One, this was purchased in May of 2007 which is after the subprime meltdown and after outlets like the IHB were telling people the market was going to crash. The future buyer for this place was going to have difficulties without ignorant subprime lending. Two, there was no backup plan if the price didn't continue to rise 10% a year. Renting makes no sense when you are losing $1,000 or more a month with no opportunity for HELOC supplementation.

This purchase captures the essence of kool aid intoxication. It's a property purchase that only makes sense if you believe prices are going to rise significantly every year and lenders are going to give out unlimited HELOC money at ever-decreasing interest rates. Obviously, that didn't happen. It never could.

This property was purchased on 5/24/2007 for $410,000. The owner used a $328,000 first mortgage, a $82,000 HELOC, and a $0 down payment. I am amazed that any of the no money down deals still survive. We don't see them very often any more.

Despite this borrower's perseverance, the market has collapsed, and this owner is hoping for a 35% loss. I think it needs to go lower. The rent still only covers about two-thirds of the cost of ownership. Not exactly a cash cow.

Irvine House Address … 507 TERRA BELLA Irvine, CA 92602

Resale House Price …… $285,000

House Purchase Price … $410,000

House Purchase Date …. 5/24/2007

Net Gain (Loss) ………. ($142,100)

Percent Change ………. -34.7%

Annual Appreciation … -9.1%

Cost of House Ownership

————————————————-

$285,000 ………. Asking Price

$9,975 ………. 3.5% Down FHA Financing

4.72% …………… Mortgage Interest Rate

$275,025 ………. 30-Year Mortgage

$61,272 ………. Income Requirement

$1,430 ………. Monthly Mortgage Payment

$247 ………. Property Tax (@1.04%)

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

$59 ………. Homeowners Insurance (@ 0.25%)

$316 ………. Private Mortgage Insurance

$395 ………. Homeowners Association Fees

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

$2,447 ………. Monthly Cash Outlays

-$133 ………. Tax Savings (% of Interest and Property Tax)

-$348 ………. Equity Hidden in Payment (Amortization)

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

$56 ………. Maintenance and Replacement Reserves

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

$2,040 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$2,850 ………. Furnishing and Move In @1%

$2,850 ………. Closing Costs @1%

$2,750 ………… Interest Points @1% of Loan

$9,975 ………. Down Payment

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

$18,425 ………. Total Cash Costs

$31,200 ………… Emergency Cash Reserves

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

$49,625 ………. Total Savings Needed

Property Details for 507 TERRA BELLA Irvine, CA 92602

——————————————————————————

Beds: 1

Baths: 2

Sq. Ft.: 944

$302/SF

Property Type: Residential, Condominium

Style: 3+ Levels, Other

Year Built: 2000

Community: 0

County: Orange

MLS#: S656825

Source: SoCalMLS

Status: Active

On Redfin: 4 days

——————————————————————————

Exclusive Northpark community with 24 hour guard gated security, 6 swimming pools, tennis courts, sports courts, clubhouse, parks and trails. Spacious floor plan with an indoor laundry and a 2 car tandem garage space. Highly desirable and sought after unit. Please note, sale excludes wash/dryer and refrigerator.

In a rare wise move in Sacramento, the California state Senate killed a bill that would have dramatically changed the foreclosure process.

Irvine Home Address … 76 PACIFIC Crst Irvine, CA 92602

Resale Home Price …… $999,900

What Does It Matter To Ya

When You Got A Job To Do

You Gotta Do It Well

You Gotta Give The Other Fellow Hell

Paul McCartney & Wings — Live and Let Die

Each month when lenders get their dreadful delinquency reports, they make decisions on who is pushed through to auction and who is allowed to squat. The let some mortgage live and the let others die.

What is dual track foreclosure?

Foreclosure is the final act in a much longer drama. Foreclosure is akin to the river card in a game of poker or the verdict in a long civil trial. In poker many hands are decided before the river card is played, and in civil litigation most cases are settled without going to court.

Foreclosure is a threat to compel action. The lender wants the borrower to repay under the terms of the loan. Lenders don't want to get their money back and find another borrower, they would rather the borrower keep making their payments.

Dual track foreclosure is the process of reviewing loan modification application while simultaneously pursuing a foreclosure. Why do lenders do this? Well, many loan modifications get denied because the borrowers don't demonstrate hardship. In those cases, the foreclosure process should go forward unimpeded. Further, any loan modification is still a negotiation, and without the threat of imminent foreclosure, many borrowers don't recognize the weakness of their bargaining position.

Dual track foreclosure processing is necessary to prevent unwarranted delays by borrowers who seek loan modifications for which they don't qualify. If we eliminate the practice and force all lenders to “fully evaluate” borrowers for loan modifications, they merely add time to the process and allow delinquent mortgage squatters to further game the system.

California bill ending 'dual track' foreclosures faces key vote

Pursuing foreclosure even if a borrower has sought a loan modification has faced criticism. The Senate measure would require a lender to fully evaluate a homeowner for a loan modification first.

By Alejandro Lazo, Los Angeles Times — April 27, 2011

A proposed law facing a key vote in Sacramento on Wednesday would require lenders in California to make a decision on mortgage modifications for delinquent homeowners before beginning the repossession process, in effect ending “dual track” foreclosures in the state.

Financial institutions commonly pursue foreclosure even if a borrower has requested a loan modification, a two-track process the lending industry has argued is necessary to protect its investments. But dual tracking is under fire from regulators and lawmakers in the wake of last year's “robo-signing” scandal, which revealed widespread foreclosure errors.

Robo-signer did not reveal widespread foreclosure errors. That false perceptions probably exists in the minds of the public because the political Left heated up the rhetoric, but the Robo-signer investigations and subsequent lawsuits have not demonstrated a pattern of wrongful foreclosure. People who make their payments do not get foreclosed on.

The California Homeowner Protection Act,

People with no equity facing foreclosure do not own anything. Their names may be on title, but the only thing they own is their loan.

authored by state Senate President Pro Tem Darrell Steinberg (D-Sacramento) and Sen. Mark Leno (D-San Francisco), is one of the furthest-reaching efforts to limit the practice. Several other states have passed requirements for third-party groups to oversee mediations between mortgage servicers and homeowners.

The California bill, SB 729, would require a lender to fully evaluate a borrower for a loan modification before filing a notice of default, the first stage in the formal repossession process, and a significant change in the way foreclosures are conducted in the Golden State.

What does it mean to “fully evaluate?” And when did it become an entitlement for borrowers to get a loan modification? Aren't these private contracts? The attorneys will generate a lot of fees fighting over the definition of “fully.” No matter what banks do, lawsuits will be filed stating they haven't done enough.

The law would give delinquent homeowners the right to sue their lenders to stop foreclosures if they believe the requirement to properly evaluate their loan modification requests had not been followed. If the sale occurs without the proper evaluation, homeowners would also be given the right to sue for damages or to void a foreclosure sale for up to a year after the sale.

Auction prices would crumble if that provision were passed. With the one-year clawback, no title insurer would touch a property for a full year after an auction. Cash buyers would be required to hold for a full year unless they wanted to sell to another cash buyer. Bank REO would be similarly encumbered.

Such a change is necessary in the state because the two-track process often leads to unintended foreclosures by mortgage servicers that “don't know what they are doing” and often bungle the loan modification process, Leno said in an interview.

“We know of folks not only entering the loan modification process, but folks who have already been accepted, and are making timely loan modification payments, and then getting a knock on their door and being told 'your home will be sold,'” Leno said. “The stories are many and horrifying.”

It may be the perception of many who get foreclosed upon that the bank didn't give them the loan modification they deserved. However, the foreclosure may also be the bank's way of saying no, particularly if the borrower is hiding assets or otherwise gaming the system.

Groups representing lenders said the legislation overreaches and would only inhibit the state housing market's recovery by slowing down an already drawn out foreclosure timeline.

Yes, it would slow down the foreclosure process and deepen the ongoing crash in house prices. BTW, the housing market recovery meme needs to die now that we took out the 2009 lows.

California's comparatively streamlined foreclosure system, which allows for a home to be taken back without a court order, has helped the state work through a foreclosure glut relatively quickly and recover faster than other hard-hit states.

Nothing has recovered in California. The crash is ongoing.

“It is just not good for the housing market, which is not good for the state economy, especially when we are at 12% unemployment,” said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn. “It is a reaction, an overreaction, to procedural mistakes,” he continued, “and this doesn't really get at solving any of those problems.”

My disdain for lenders is widely known, but sometimes they are right. This is a dumb idea at the wrong time that solves none of the problems with the housing market.

The bill also would make it more difficult for investors to purchase, renovate and resell bank-owned properties to first-time buyers because it gives foreclosed-on homeowners a year to sue after a foreclosure sale, critics said. Home buying by investors has been a significant driver of California home sales since the housing market hit bottom two years ago.

Yes, this would seriously impact the auction market and the resale market within a year thereof.

“It's unlikely that any prospective home buyer would want to buy these properties with that lingering uncertainty hanging over their heads,” said Beth Mills, a spokeswoman for the California Bankers Assn. The bill also would require mortgage servicers to:

• Prove they have a right to foreclose;

• Adhere to new timelines when evaluating borrowers for possible loan modifications;

• Provide an explanation letter detailing why a mortgage modification was not granted if a borrower is denied;

• Make a declaration of compliance with the law each time a notice of default is filed.

The bill also would allow a state banking regulator or the state attorney general to take action against lenders if the law isn't followed. …

So how much cost would those provisions add to the process? Who is paying that bill? Lenders? Taxpayers?

Fortunately, cooler heads prevailed.

Foreclosure prevention legislation fails in Sacramento

A proposed law that would have ended “dual track” foreclosures in California failed to win a key vote in Sacramento on Wednesday.

The California bill, SB 729, would have required a lender to fully evaluate a borrower for a loan modification before filing a notice of default, the first stage in the formal repossession process.

Sen. Alex Padilla (D-Pacoima) abstained from voting following a hearing in the state Senate's Banking and Financial Institutions Committee and the bill failed 3-3.

The California Homeowner Protection Act, authored by state Senate President Pro Tem Darrell Steinberg (D-Sacramento) and Sen. Mark Leno (D-San Francisco), was one of the furthest-reaching attempts to limit dual tracking, a common practice among financial institutions in which they pursue foreclosure even if a borrower has requested a loan modification.

The two-track process is one the lending industry has argued is necessary to protect its investments. But the practice is under fire from regulators and lawmakers in the wake of last year's “robo-signing” scandal, which revealed widespread foreclosure errors.

The most cowardly way politicians kill a bill is to let it die in a committee without a nay vote. It's sad what they have to go through in order to do the right thing. I suppose its the price they pay for pandering the rest of the time.

Ordinarily, I wouldn't rejoice when the banks win one, but this was a bad bill that deserved to go down to defeat.

A 2003 high-end rollback

First and ONLY Showing Wednesday at 6pm May 4th! CORPORATE OWNED REO; NOT A SHORT SALE

Today's featured property is a previously rare 2003 rollback at Irvine's high end. With weak sales and prices reaching 2003 levels across much of Irvine, properties like this will be more common.

• The owner paid $1,015,000 on 12/15/2003. He used a $761,250 first mortgage and a $253,750 down payment.
• On 1/29/2004 he opened a $150,000 HELOC.
• On 2/13/2004 he got a second $150,000 HELOC with a different lender.
• On 1/25/2005 he obtained a $418,750 HELOC.
• On 3/28/2008 he took out a $100,000 loan from Anaheim General Hospital. Perhaps that is the Corporate owned reference in the description. The owner on title is the individual who HELOCed himself into oblivion and quit paying the mortgage.

Foreclosure Record

Recording Date: 03/28/2011

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 12/21/2010

Document Type: Notice of Default

I think the description is likely bullshit. From what my records show, this is likely to be a short sale unless a bidding war happens this afternoon at 6PM and the offered price makes this borrower whole. In this market, I don't see that happening.

Irvine House Address … 76 PACIFIC Crst Irvine, CA 92602

Resale House Price …… $999,900

House Purchase Price … $1,015,000

House Purchase Date …. 12/15/2003

Net Gain (Loss) ………. ($75,094)

Percent Change ………. -7.4%

Annual Appreciation … -0.4%

Cost of House Ownership

————————————————-

$999,900 ………. Asking Price

$199,980 ………. 20% Down Conventional

4.72% …………… Mortgage Interest Rate

$799,920 ………. 30-Year Mortgage

$178,213 ………. Income Requirement

$4,158 ………. Monthly Mortgage Payment

$867 ………. Property Tax (@1.04%)

$283 ………. Special Taxes and Levies (Mello Roos)

$208 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$100 ………. Homeowners Association Fees

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

$5,617 ………. Monthly Cash Outlays

-$1003 ………. Tax Savings (% of Interest and Property Tax)

-$1012 ………. Equity Hidden in Payment (Amortization)

$358 ………. Lost Income to Down Payment (net of taxes)

$145 ………. Maintenance and Replacement Reserves

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

$4,104 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$9,999 ………. Furnishing and Move In @1%

$9,999 ………. Closing Costs @1%

$7,999 ………… Interest Points @1% of Loan

$199,980 ………. Down Payment

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

$227,977 ………. Total Cash Costs

$62,900 ………… Emergency Cash Reserves

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

$290,877 ………. Total Savings Needed

Property Details for 76 PACIFIC Crst Irvine, CA 92602

——————————————————————————

Beds: 4

Baths: 3

Sq. Ft.: 3456

$289/SF

Property Type: Residential, Single Family

Style: Mediterranean

View: Park/Green Belt, Yes

Year Built: 2001

Community: Northpark

County: Orange

MLS#: 11-523255

Source: TheMLS

Status: Active

——————————————————————————

First and ONLY Showing Wednesday at 6pm May 4th! CORPORATE OWNED REO; NOT A SHORT SALE; PRICED FOR QUICK SALE; RARE AND PRIVATE DOUBLE SIZE LOT(12,000 SQ FT). BEAUTIFUL HOME IN NORTH PARK SQUARE WITH A LARGE FLOWING FLOOR PLAN WITH A GOURMET KITCHEN WITH GRANITE COUNTERS THAT OPENS TO LARGE FAMILY ROOM WITH COZY FIREPLACE. ONE BEDROOM DOWN AND THREE UP INCLUDING A GRAND MASTER SUITE WITH A SPA LIKE BATH + BONUS ROOM + COMPUTER CENTER. .. 3 CAR GARAGE. .. LIMITED SHOWINGS WITH 24 HOUR(OR MORE) NOTICE BUT WELL WORTH IT. .. DO NOT DISTURB OCCUPANTS