in an outrageous move, the California Housing Finance Agency is now offering mortgage relief to HELOC abusers.

Irvine Home Address … 50 BURLINGAME Irvine, CA 92602

Resale Home Price …… $549,900

I have no regrets

There's nothing to forget

All the pain was worth it

Not running from the past

I tried to do what's best

I know that I deserve it

Madonna — I Deserve It

The California Housing Finance Agency can't give away the cash allocated to needy borrowers — which isn't surprising considering responsible borrowers are not losing their homes. In fact, as today's post demonstrates, responsible homeowners are paying the price of irresponsible ones. So in an effort to keep their budgets, they are expanding the free-money offering to include HELOC abusers.

How do you like your tax money bailing out spendthrifts?

Isn't this government sanctioned theft?

When you follow the money, a transfer of wealth through tax dollars to forgive the indebtedness of individuals is theft from the collective to benefit the few.

A borrower and a lender agreed to a transaction. When borrower fails to meet the terms of the note, a lender can force an auction for sale of the collateral to recover their capital. The end. If government is asked to step in to the borrower's shoes and repay the loan, a loan that is not already government insured, then taxpayers are giving money to banks through the borrower.

Both parties to the transaction benefit from the government assistance. Lenders get their interest payments covered, or an increased recovery on their bad loan, and borrowers get to continue using the property they cannot afford. The only loser is the taxpayers, nearly 40% of which are renters, who are asked to pay the burden of supporting the two parties who entered into a bad private contract.

It looks like theft. It feels like theft. Isn't that theft?

Some may argue that all government taxation and spending is theft. But all government is merely organized thuggery. The direct transfer of wealth from one group to another is theft, particularly when their is no collective good obtained from the transfer. Proponents of the mortgage theft being perpetrated today would argue that rescuing the banks was necessary for society and keeping squatters in homes benefits neighborhoods. I think that is bullshit.

Bear rally buyer

The owner of today's featured property is paying the price of their poor timing. This property once sold for $745,000 back on 6/6/2006. The current owner bought this “bargain” as REO paying $550,000 on 11/29/2007. He borrowed $440,000 and put $110,000 down, a good chunk of which he is about to lose.

Despite getting it for $200,000 off it's peak price, the property is being offered for its purchase price, and with commissions, the owner is going to take a loss. Apparently, Irvine real estate was not the best place to park his money over the last 3 years. He should have read the IHB.

Irvine House Address … 50 BURLINGAME Irvine, CA 92602

Resale House Price …… $549,900

House Purchase Price … $550,000

House Purchase Date …. 11/29/2007

Net Gain (Loss) ………. ($33,094)

Percent Change ………. -6.0%

Annual Appreciation … 0.0%

Cost of House Ownership

————————————————-

$549,900 ………. Asking Price

$109,980 ………. 20% Down Conventional

4.87% …………… Mortgage Interest Rate

$439,920 ………. 30-Year Mortgage

$99,718 ………. Income Requirement

$2,327 ………. Monthly Mortgage Payment

$477 ………. Property Tax (@1.04%)

$100 ………. Special Taxes and Levies (Mello Roos)

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

$0 ………. Private Mortgage Insurance

$348 ………. Homeowners Association Fees

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

$3,366 ………. Monthly Cash Outlays

-$396 ………. Tax Savings (% of Interest and Property Tax)

-$541 ………. Equity Hidden in Payment (Amortization)

$206 ………. Lost Income to Down Payment (net of taxes)

$89 ………. Maintenance and Replacement Reserves

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

$2,723 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$5,499 ………. Furnishing and Move In @1%

$5,499 ………. Closing Costs @1%

$4,399 ………… Interest Points @1% of Loan

$109,980 ………. Down Payment

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

$125,377 ………. Total Cash Costs

$41,700 ………… Emergency Cash Reserves

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

$167,077 ………. Total Savings Needed

Property Details for 50 BURLINGAME Irvine, CA 92602

——————————————————————————

Beds: 3

Baths: 3

Sq. Ft.: 1821

$302/SF

Property Type: Residential, Condominium

Style: 3+ Levels, Contemporary

View: Courtyard, Panoramic, Peek-A-Boo, Trees/Woods

Year Built: 2001

Community: Northpark

County: Orange

MLS#: P776324

Source: SoCalMLS

Status: Active

——————————————————————————

Bring your checkbook & RUN DON'T WALK! Equity Seller * PRICED 2 STEAL! * DROP-DEAD GORGEOUS w/ Walls of Windows & DRAMATIC Open Layout offering ARCHITECURAL FLAIR, Designer Paint, Elegant Shutters, & Stylish Decor! SURPASSES Every Home in this Price Range! IDEAL FOR ENTERTAINING Inviting Family Room w/ IMPRESSIVE Fireplace & Soaring Ceilings opens to GENEROUS Dining & BRIGHT Charming Kitchen. * SHOWS LIKE A MODEL! * Retreat upstairs to SPACIOUS Master w/ Romantic VIEWS, Walk-in Closet & Relaxing SPA-LIKE BATH w/ Large Soaking Tub. Spacious Secondary Bedrooms, including Generous Main-Floor Suite, offer PRIVACY & CONVENIENCE for Family, Guests or Roommates. Enjoy Summer BBQ's in Spacious Tree-Lined Patio. Convenient Indoor Laundry & Direct Access Garage w/ Built-in Storage make this HIGHLY DESIRABLE floor plan a * MUST SEE! * RESORT-STYLE Amenities include 5 Pools & Spas, Tennis & Sports Courts, Clubhouse, Parks & Tot Lots, & Meandering Walking Trails WELCOME HOME! ACT FAST! Only ONE at this Price!

ARCHITECURAL?

The California housing market continues to sputter with declining sales and declining prices.

Irvine Home Address … 4 AMBERWOOD Irvine, CA 92604

Resale Home Price …… $464,900

They waitin' for that decline

Pray that I lose my mind

They never want me to shine

Uh-huh I know what's on your mind

You don't think were gonna shine

I face you to prove you wrong

Chiddy Bang — Decline

The largely unexpected decline in house prices has been deep and long lasting, particularly in markets outside of Coastal California. Since lenders have embarked on the amend-extend-pretend policy, sales volumes have dried up, and prices edge lower as supply begins to weigh on the market.

Southland Home Sales Still Slow, Prices Edge Down

April 13, 2011

La Jolla, CA—Southern California home sales turned in another lackluster month in March, the result of a fussy mortgage market, slow job growth and a continued wait-and-see attitude among potential buyers and sellers. There were signs, however, that the market was a little less dysfunctional than in recent months, a real estate information service reported.

I think it's sad that DataQuick feels they need to punch up their reporting with feel-good realtor nonsense. The market shows no signs of strength whatsoever. Sales are weak and prices are falling.

A total of 19,412 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in March. That was up 35.1 percent from 14,369 in February, and down 5.2 percent from 20,476 in March 2010, according to DataQuick of San Diego.

Sales were dismal last year, for sales to be down despite the lower prices is surprising, and it isn't a good sign.

Sales always increase from February to March. Last month’s sales count was 21.4 percent below the 24,706 average for all the months of March since 1988. Sales so far this year are 20 percent below the norm. During the last half of 2010 sales were 25-30 percent below average.

Sales of newly built Southland homes totaled 1,144, the lowest March in DataQuick’s statistics, which go back to 1988. The peak March was in 2006 with 7,205 sales. The March new-home average is 3,661.

New home sales are at the lowest levels ever. Wow! Sales are 50% off their historic averages and 85% below the peak.

Not to worry, all is well in Irvine. Or so they say.

Irvine home sales drop 11%.

• Citywide sales totaled 210 – that's down 26 purchases or 11.0% vs. a year ago. Countywide, sales were down 4.3% vs. a year earlier.
• Irvine home sales were 8.6% of the countywide market in the latest period vs. 9.2% in the year-ago period.
• Of Irvine's 8 ZIP codes, 4 had sales gains vs. a year ago while 3 had a gain in their median selling price vs. a year ago.
• Medians within the city's ZIPs ran from $386,500 to $830,000 – while the price gap was $442,500 to $874,000 a year ago.
• 3 of these 8 ZIP codes beat the -0.1% overall performance of the countywide median for the past year.

Back to the DQ News press release:

The median price paid for a Southland home last month was $280,500, up 2.0 percent from $275,000 in February, and down 1.6 percent from $285,000 for March a year ago.

Sales volumes are down and prices are down. If sales volumes pick up, lenders will release more inventory. It doesn't look like prices will go up any time soon.

The median’s low point for the current real estate cycle was $247,000 in April 2009, while the high point was $505,000 in mid 2007. The peak-to-trough drop was due to a decline in home values as well as a shift in sales toward low-cost homes, especially inland foreclosures.

“As an indicator of upcoming trends, the month of March is actually pretty reliable. We got off to a slow start with sales this year and it doesn’t look like that will change anytime soon. Two of the likely game changers in the short run would be a surge in job creation or another round of price corrections,” said John Walsh, DataQuick president.

It's more likely we will see another round of price corrections before we see a surge in hiring.

“The foreclosure issue is going to be with us for a good while. But mortgage availability, or rather the lack thereof, is key. If a well-crafted home loan program comes down the pike, it’s going to make some lending institution the dominant player, at least for a while,” he said.

This is the holy grail of lending, isn't it? Financial innovation is folly. There is no mortgage innovation beyond the 30-year fixed-rate mortgage. Only the event horizon of the Ponzi abyss awaits those who eschew amortization through complicated financial innovation schemes.

Adjustable-rate mortgages (ARMs) accounted for 7.8 percent of last month’s Southland purchase loans, up from 7.7 percent in February and 4.9 percent a year ago. While still at a low level, last month’s ARM usage was the highest since 10.3 percent in August 2008. Over the past decade, a monthly average of about 42 percent of purchase loans were ARMs.

Jumbo loans, mortgages above the old conforming limit of $417,000, accounted for 15.9 percent of last month’s purchase lending, up from 15.6 percent in February and the same as a year earlier. In the months leading up to the credit crisis that struck in August 2007, jumbos accounted for 40 percent of the market.

Think about the Orange County housing market. How many properties require a jumbo loan for financing. More than 15.6% i imagine. If high end prices were inflated by debt, and if both loan balances and the number of transactions is declining, the only support for this market is the large down payments of the few active buyers that remain.

Foreclosure resales – properties foreclosed on in the prior 12 months – made up 36.4 percent of resales last month, down from a revised 37.0 percent in February and down from 38.3 percent a year ago. Foreclosure resales hit a high of 56.7 percent in February 2009 and a low of 32.8 percent last June.

In the post 2008 era of amend-extend-pretend and shadow inventory, foreclosure numbers don't really mean much.

Short sales – transactions where the sale price fell short of what had been owed on the property – made up an estimated 18.5 percent of Southland resales last month. That was down from an estimated 19.6 percent in February but up from 18.0 percent a year earlier and 12.2 percent two years ago.

Absentee buyers – mostly investors and some second-home purchasers – bought 26.0 percent of the Southland homes sold in March, paying a median $205,000. The absentee share of the market reached a peak in February at 26.4 percent. Over the last decade, absentee buyers purchased a monthly average of 16.3 percent of homes.

Are these the elusive foreign cash buyers being active in the high-end market? Perhaps, but increased investor activity both foreign and domestic at the low end is more likely.

Cash purchases accounted for 30.5 percent of March home sales, paying a median $205,250. The cash purchase share was down from 32.3 percent in February, the all-time high, but up from 27.9 percent a year earlier. The 10-year monthly average for Southland homes purchased with cash is 13.3 percent. Cash purchases are where there was no indication in the public record that a corresponding purchase loan was recorded.

Government-insured FHA loans, a popular low-down-payment choice among first-time buyers, accounted for 32.0 percent of all mortgages used to purchase homes in March – the lowest level since August 2008, when 26.8 percent of purchase loans were FHA. Last month’s FHA level was down from 32.2 percent in February and 36.5 percent in March 2010. Two years ago FHA loans made up 36.5 percent of the purchase loan market, while three years ago it was just 10.5 percent.

interesting that FHA sales are dropping off. It may be partly due to the increased cost of private mortgage insurance on FHA loans. In fact, I have updated my cost of ownership spreadsheet to reflect the 1.15% PMI currently being charged FHA borrowers. The cost is so high that it no longer makes sense to use FHA financing in many circumstances. This increased cost is also contributing to the continued weakness in pricing across all price levels.

Last month 19.2 percent of all sales were for $500,000 or more, up from a revised 18.7 percent in February and down from 20.3 percent a year earlier. The low point for $500,000-plus sales was in January 2009, when only 13.8 percent of sales were above that threshold. Over the past decade, a monthly average of 26.9 percent of homes sold for $500,000 or more.

Viewed differently, Southland zip codes in the top one-third of the housing market, based on historical prices, accounted for 35.8 percent of total sales last month. That was up from 34.8 percent in February and up from 35.2 percent a year ago. Over the last decade, those higher-end areas contributed a monthly average of 37.0 percent of regional sales. Their contribution to overall sales hit a low of 26.2 percent in January 2009.

Last month the percentage of Southland homes bought and re-sold on the open market within a six-month period was 3.2 percent, the same “flipping” rate as the month before but down slightly from 3.3 percent a year ago. Flipping varied last month from as little as 2.5 percent in Ventura County to as much as 3.5 percent in Orange County.

Not surprisingly, the flipping rate is close to the foreclosure rate.

DataQuick monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

The typical monthly mortgage payment that Southland buyers committed themselves to paying was $1,185 last month, up from $1,174 in February and down from $1,220 in March 2010. Adjusted for inflation, current payments are 48.0 percent below typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 57.4 percent below the current cycle’s peak in July 2007.

Affordability is becoming widespread in Southern California — just not here in Irvine.

Indicators of market distress continue to move in different directions. Foreclosure activity remains high by historical standards but is lower than peak levels reached over the last two years. Financing with multiple mortgages is very low, and down payment sizes are stable, DataQuick reported.

	Sales Volume			Median Price
All homes	Mar-10	Mar-11	%Chng	Mar-10	Mar-11	%Chng
Los Angeles	6,747	6,590	-2.3%	$329,000	$320,000	-2.7%
Orange	2,652	2,615	-1.4%	$432,000	$430,000	-0.5%
Riverside	4,156	3,843	-7.5%	$198,000	$198,000	-0.0%
San Bernardino	2,955	2,544	-13.9%	$152,000	$150,000	-1.3%
San Diego	3,227	3,063	-5.1%	$330,000	$325,000	-1.5%
Ventura	739	757	2.4%	$375,000	$349,000	-6.9%
SoCal	20,476	19,412	-5.2%	$285,000	$280,500	-1.6%

Source: DQNews.com Media calls: Andrew LePage (916) 456-7157

The spent most of it

• The owners of today's featured property paid $269,000 on 1/12/2001. The used a $215,200 first mortgage, a $40,350 second mortgage, and a $13,450 down payment. A whopping 5% down.
• On 9/3/2002 they refinanced with a $257,000 first mortgage and obtained about $12,000 for whatever.
• On 1/10/2005 they obtained a $25,000 HELOC.
• On 10/18/2005 they refinanced with a $254,600 first mortgage.
• On 5/10/2006 they obtained a $125,000 HELOC.
• On 10/18/2006 they refinanced again with a $305,600 HELOC.
• On 12/26/2007 they got another $75,000 HELOC.
• On 7/20/2009 they refinanced with a $370,000 first mortgage.
• Total mortgage equity withdrawal is $114,500.

Irvine House Address … 4 AMBERWOOD Irvine, CA 92604

Resale House Price …… $464,900

House Purchase Price … $269,000

House Purchase Date …. 1/12/2001

Net Gain (Loss) ………. $168,006

Percent Change ………. 62.5%

Annual Appreciation … 5.2%

Cost of House Ownership

————————————————-

$464,900 ………. Asking Price

$16,272 ………. 3.5% Down FHA Financing

4.87% …………… Mortgage Interest Rate

$448,628 ………. 30-Year Mortgage

$101,692 ………. Income Requirement

$2,373 ………. Monthly Mortgage Payment

$403 ………. Property Tax (@1.04%)

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

$97 ………. Homeowners Insurance (@ 0.25%)

$516 ………. Private Mortgage Insurance

$320 ………. Homeowners Association Fees

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

$3,709 ………. Monthly Cash Outlays

-$389 ………. Tax Savings (% of Interest and Property Tax)

-$552 ………. Equity Hidden in Payment (Amortization)

$30 ………. Lost Income to Down Payment (net of taxes)

$78 ………. Maintenance and Replacement Reserves

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

$2,876 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,649 ………. Furnishing and Move In @1%

$4,649 ………. Closing Costs @1%

$4,486 ………… Interest Points @1% of Loan

$16,272 ………. Down Payment

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

$30,056 ………. Total Cash Costs

$44,000 ………… Emergency Cash Reserves

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

$74,056 ………. Total Savings Needed

Property Details for 4 AMBERWOOD Irvine, CA 92604

——————————————————————————

Beds: 3

Baths: 2

Sq. Ft.: 1520

$306/SF

Property Type: Residential, Condominium

Style: Two Level, Contemporary

Year Built: 1976

Community: 0

County: Orange

MLS#: S654402

Source: SoCalMLS

Status: Active

On Redfin: 7 days

——————————————————————————

Get the most for your money in Irvine! Convenience and comfort set this townhome apart. Near freeways and shopping while being adjacent to a city park, tennis courts, and bike trails (and across from a golf course) allow you to live in the city with room to breathe! Bright and open, it includes a master retreat with fireplace, garden window in the kitchen, and tons of storage space. Custom upgrades: hardwood floors, high quality carpet, duel paned windows, new doors, remodeled staircase, large entertaining patio/yard, and $25k spa-inspired bathrooms! Come for a visit. Make it your home.

A mortgage servicer in Florida has given a house to the delinquent borrower. What were they thinking?

Irvine Home Address … 80 MODESTO Irvine, CA 92602

Resale Home Price …… $429,500

Well, I ain't been home to see my baby,

in ninety nine and one half days.

'Bout time I see her,

Wait a minute something's wrong here

The key won't unlock the door.

Jimi Hendrix — Red House

Wait, there's something wrong here. The key will unlock the door.

Well, maybe they won't want to own it…

Perhaps those HELOCs weren't a good idea

The debate in Washington is focusing on the terms of first mortgages, but the real problems in the housing bubble were the second mortgages and HELOCs. Subordinate loans were the free-money vehicle of choice for most.

The owner of today's featured property paid $298,000 on 1/25/2002. She used a $238,000 first mortgage, a $29,700 second mortgage, and a $30,300 down payment.

On 4/30/2004 she went Ponzi and refinanced with a $274,000 first mortgage and a $100,000 HELOC. She enlarged the HELOC to $185,000 on 8/24/2007. There is no way to be certain she spent that last $185,000, but she did stop paying the first mortgage.

Foreclosure Record

Recording Date: 04/04/2011

Document Type: Notice of Default

It seems likely this woman could afford the first mortgage without the second mortgage debt. However, adding to the first mortgage and piling on a huge HELOC put her over the edge. Now this will be a distressed sale.

Irvine House Address … 80 MODESTO Irvine, CA 92602

Resale House Price …… $429,500

House Purchase Price … $298,000

House Purchase Date …. 1/25/2002

Net Gain (Loss) ………. $105,730

Percent Change ………. 35.5%

Annual Appreciation … 4.0%

Cost of House Ownership

————————————————-

$429,500 ………. Asking Price

$15,033 ………. 3.5% Down FHA Financing

4.87% …………… Mortgage Interest Rate

$414,468 ………. 30-Year Mortgage

$93,949 ………. Income Requirement

$2,192 ………. Monthly Mortgage Payment

$372 ………. Property Tax (@1.04%)

$100 ………. Special Taxes and Levies (Mello Roos)

$89 ………. Homeowners Insurance (@ 0.25%)

$477 ………. Private Mortgage Insurance

$352 ………. Homeowners Association Fees

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

$3,582 ………. Monthly Cash Outlays

-$359 ………. Tax Savings (% of Interest and Property Tax)

-$510 ………. Equity Hidden in Payment (Amortization)

$28 ………. Lost Income to Down Payment (net of taxes)

$74 ………. Maintenance and Replacement Reserves

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

$2,815 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,295 ………. Furnishing and Move In @1%

$4,295 ………. Closing Costs @1%

$4,145 ………… Interest Points @1% of Loan

$15,033 ………. Down Payment

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

$27,767 ………. Total Cash Costs

$43,100 ………… Emergency Cash Reserves

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

$70,867 ………. Total Savings Needed

Property Details for 80 MODESTO Irvine, CA 92602

——————————————————————————

Beds: 2

Baths: 2

Sq. Ft.: 1346

$319/SF

Property Type: Residential, Condominium

Style: Split-Level, Spanish

View: Mountain

Year Built: 2001

Community: Northpark

County: Orange

MLS#: S653991

Source: SoCalMLS

Status: Active

——————————————————————————

Bright and airy, large 2 Bedrooms, 2.5 Bathrooms condo in most desirable guard-gated, resort-like Northpark Community. Formal dining room. Seperate living room with over 12 feet high ceiling. Upgraded entry, kitchen and bathrooms floor with Slade stone. Custom window treatment with plantation shutters. Spacious kitchen with built-ins. Two large bedrooms upstairs each has its own bathroom. Balcony off the Master bedroom with hills view. Hugh patio outside of front door. Walk to the Del Mar Garden. Close to shops, school, Tustin Market Place and much more. ..

Seperate? Hugh patio?

Have a great weekend,

Irvine Renter

The right-to-rent proposal floating around Washington would crash house prices as loan owners everywhere strategically default to lower their monthly payments and stay in their houses.

Irvine Home Address … 40 DESERT WILLOW Irvine, CA 92606

Resale Home Price …… $995,000

Man, living at home is such a drag

Now your mom threw away your best porno mag (Bust it!)

You gotta fight for your right to party

Beastie Boys — (You Gotta) Fight Your Right (To Party)

The idea of a right to rent has been floated by Dean Baker of the Center for Economic and Policy Research. His proposal is to give every loan owner the right to stay on in their foreclosure for five years paying market rents.

I first covered this issue in The Right to Rent Would Flatten the California Housing Market. I noted the following:

Dean Baker of the CEPR was one of the early public voices who called the housing bubble. He accurately noted the disparity between rent and payments and concluded housing prices were not sustainable. Like me, he was a renter looking to buy as prices were ramping up, and like me, he noted that since it didn't make sense for him personally to buy, it didn't make sense for anyone else either. Being an economist at an influential think tank, he was in a position to research and write about the issue and be heard.

I really like Mr. Baker's proposal, but I have been afraid to write about it because I don't think lawmakers fully understand what passing his legislation would do to the housing market. I would very much like to see it become law, but if it does, every inflated housing market in the country would crash very hard as loan owners accelerate their defaults.

My position on this issue hasn't changed. I would like to see it be made a policy because of the impact it would have on the housing market and the economy in the long term. Short term, it will crush the banks as the remaining inflated markets crash under waves of strategic default.

Commentary: Right-to-Rent Would Ease Foreclosure Mess

By Dean Baker — April 11, 2011, 1:14 PM ET

Developments asked Dean Baker, co-director of the left-leaning Center for Economic and Policy Research in Washington, D.C., to weigh in on the housing market. Mr. Baker first proposed the right-to-rent idea in 2007.

While the rate of foreclosures may have finally peaked, it is not going to come down quickly. We are virtually certain to see at least a million foreclosures in 2011 and comparable numbers in 2012 and 2013. Many more homeowners will lose their homes through distressed sales.

This is a crisis for both the homeowners themselves and also for the communities where these foreclosures are concentrated. There is considerable research showing that foreclosed properties are a blight on neighborhoods, bringing down property values and creating eyesores and safety risks. For these reasons, there is a strong argument for taking measures to reduce the pace of foreclosures.

I think some of those arguments are spurious. In my opinion, foreclosure is the best form of principal reduction, and foreclosures are essential to the economic recovery. But assuming Dean Baker is right and

I am wrong, the impact of his proposal on the housing market would be catastrophic for lenders.

However, few would argue for yet another round of the federal Home Affordable Modification Program. HAMP has proven bureaucratic and ineffective. Only a small share of threatened homeowners have received permanent modifications and a large portion of this select group is expected to re-default.

I’ve said it before, and I’ll say it again: There is a simple alternative that involves no government money and no new bureaucracy. We could temporarily change the rules on foreclosure to allow homeowners the right to stay in their home as renters for a substantial period of time (e.g., 5 years) following a foreclosure.

During this period, they would pay the market rent as determined by an independent appraiser. They would have the same rights and responsibilities as other tenants, with the exception that they could not be evicted without cause. The lender would own the property and would be free to sell it, although the former homeowner would still have the right to remain as a tenant even if the home is sold.

If every loan owner in America had the right to stay in their current house and pay only market rents rather than an inflated house payment, then every underwater loan owner with a loan payment exceeding rent would have less of a dis-incentive to strategically default. The only thing stopping most loan owners from defaulting is the fact that they have to leave their houses when they do. If you take away that punishment, many more people will strategically default.

This policy accomplishes several important goals. First and foremost it provides housing security for homeowners who got caught up in the middle of the bubble. These people can be blamed for having made a mistake by buying homes at bubble-inflated prices. But this mistake is small compared with the mistakes made by the banks that made hundreds of billions of dollars of bad and often deceptive loans.

I agree with his assessment that banks made the bigger mistake and lenders are more culpable than borrowers when it comes to lending issues. However, borrowers can't be given a free pass if our system of lending is to function.

We were willing to give these banks trillions of dollars of loans at below market rates. Allowing foreclosed homeowners to stay in their homes as renters seems a rather small concession in comparison. This right-to-rent provision can also be narrowly structured so that it only applies to owner-occupied homes of less than the median value that were bought during the bubble years. This will ensure that it is not exploited by wealthy homeowners or investors.

I like that provision, but those just above the median won't feel quite as good about it. I am delighted that his proposal would not help HELOC abusers stay in their homes.

By changing the balance of power between lenders and homeowners, the right to rent provision would give lenders more incentive to voluntarily arrange modifications that allow homeowners to stay in their house as owners. This would be the best possible outcome.

The fact that foreclosed homes remain occupied will prevent the sort of neighborhood blight that has devastated many communities across the country. Tenants with security in their home will have an incentive to keep the property looking respectable.

I don't think that is true. Holdover owner tenants will not spend anything to maintain the property during the period of bank ownership. In fact, the tenant demands on the landlord for routine maintenance will undoubtedly get out of control. Loan owners will quickly realize they can have the benefits of renting (owner pays for maintenance) at a lower cost, and they will likely be given a chance to repurchase again in the future. Does anyone really think strategic default would not become the norm?

Finally, the right to rent could free up money that is currently going to mortgage payments on homes where owners never accrue any equity. In some of the former bubble markets the difference between mortgage payments on a house purchased near the peak of the bubble and the market rent can be more than $1,000 a month. The money saved by former homeowners is money they will spend in the communities where they live.

I argued the same in foreclosures are essential to the economic recovery. Californian's gain no long term benefit from making oversized mortgage payments. The money they currently send to a lender is a drain on the local economy. Only fresh borrowing and a return to Ponzi living can make the old system work.

So there you have it: A simple policy that requires no taxpayer dollars and no new bureaucracy.

I love his idea, but realistically, it will never happen because the resulting strategic default would make the foreclosure problem much worse for the banks. It would be a great thing for society because every inflated market would immediately crash down to cashflow levels and stay there. Lenders would be forced to limit house payments to comparable rents because that is all they can recover if the borrower defaults. The days of payments exceeding comparable rents would be over. I think that would be great.

Would the right-to-rent replace the choice-to-squat?

I first profiled today's featured property back in August of 2009 when it was a short sale advertised at $750,000. Even then I noted they had been squatting for a while.

Foreclosure Record

Recording Date: 08/25/2008

Document Type: Notice of Default

Not much has changed since then.

Foreclosure Record

Recording Date: 03/02/2010

Document Type: Notice of Sale

These owners have been squatting in this million dollar home for almost three years. Should we let them stay on for another 5 years at market rents?

I would rather see them move out so a family who can afford the property can move in. Just because a lander have them a dodgy loan and allowed them to occupy a property they cannot afford does not mean we should go to heroic efforts to keep them in a property while displacing a family who could legitimately afford it.

Irvine House Address … 40 DESERT WILLOW Irvine, CA 92606

Resale House Price …… $995,000

House Purchase Price … $1,306,500

House Purchase Date …. 2/9/2006

Net Gain (Loss) ………. ($371,200)

Percent Change ………. -28.4%

Annual Appreciation … -5.2%

Cost of House Ownership

————————————————-

$995,000 ………. Asking Price

$199,000 ………. 20% Down Conventional

4.87% …………… Mortgage Interest Rate

$796,000 ………. 30-Year Mortgage

$180,432 ………. Income Requirement

$4,210 ………. Monthly Mortgage Payment

$862 ………. Property Tax (@1.04%)

$542 ………. Special Taxes and Levies (Mello Roos)

$207 ………. Homeowners Insurance (@ 0.25%)

$0 ………. Private Mortgage Insurance

$160 ………. Homeowners Association Fees

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

$5,981 ………. Monthly Cash Outlays

-$1023 ………. Tax Savings (% of Interest and Property Tax)

-$980 ………. Equity Hidden in Payment (Amortization)

$373 ………. Lost Income to Down Payment (net of taxes)

$144 ………. Maintenance and Replacement Reserves

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

$4,495 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$9,950 ………. Furnishing and Move In @1%

$9,950 ………. Closing Costs @1%

$7,960 ………… Interest Points @1% of Loan

$199,000 ………. Down Payment

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

$226,860 ………. Total Cash Costs

$68,900 ………… Emergency Cash Reserves

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

$295,760 ………. Total Savings Needed

Property Details for 40 DESERT WILLOW Irvine, CA 92606

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Beds: 5

Baths: 4

Sq. Ft.: 3168

$314/SF

Property Type: Residential, Single Family

Style: Two Level, Modern

View: City Lights

Year Built: 2006

Community: Columbus Grove

County: Orange

MLS#: P776945

Source: SoCalMLS

Status: Active

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Short Sale!!!! This is a lovely home, well kept, great curb appeal, Big kitchen with island, large master suit with jacuzzi tub and seperate shower, One Bedroom and one Bathroom Downstairs, Hardwood like floors Downstairs, Carpet upstairs, Beautiful Back Yard for entertainment or Family gathering. Laundry room with sink, large community park and association pool. Original Oweners Put over $150,000 in upgrades!! Too much to mention, please bring your fussy Buyers they will absolutely fall in love with this home.

Today I discuss the latest happenings in the Las Vegas housing market. Foreclosure sales to third parties were up dramatically in March. I know. I was there (virtually).

Las Vegas Home Address … 6349 BLUSHING WILLOW St North Las Vegas, NV 89081

Resale Home Price ………….. $86,900

You Just slip out the back, Jack

Make a new plan, Stan

You don't need to be coy, Roy

Just get yourself free

Hop on the bus, Gus

You don't need to discuss much

Just drop off the key, Lee

And get yourself free

Paul Simon — 50 Ways to Leave Your Lover

There must be 50 ways to leave your lender. Strategic default is now a way of life in Las Vegas. With most properties underwater and little prospect for recovery, most loan owners are wisely walking away.

On 3-22-2011 I noted that Nevada has 167,564 empty houses. In that post, I made the following observation:

The number of properties pushed through the Las Vegas auction site in March to third parties has been remarkable. I picked up five this month. Any rumors of an end to the foreclosure problems in Las Vegas will be dashed when the March foreclosure numbers are announced. Remember you heard that here first.

Guess what?

Nevada foreclosure sales rise sharply in March

There is no reason to believe lenders will speed things up. It doesn't serve them. Prices in Las Vegas are so low because there is simply too much supply for the available demand. Affordability is NOT an issue there, and it won't be for quite a while.

The ebbs and flows of auction bidding

One of the key functions I serve to my investment fund is selecting properties to bid on each day. It's a task that requires patience and discipline in order to be successful.

Each day when I have money to deploy, I obtain the list of properties where opening bids are below an estimation of market value. My task is to pull comps for twenty or thirty properties a day and establish what I believe to be a more accurate resale value. I back out my costs and arrive at my maximum bid. If this number is above the opening bid, I put it into the market and see what happens.

The margin I demand varies from property to property based on its location, condition, and rental desirability, but I consistently apply my methodology irrespective of the prices paid at the auction site. Over time, I have noticed how the margins go up and down depending on how many bidders are active and how aggressive they are.

For instance, I had a few closings, so I had $350,000 to go shopping last week. Monday last week was a zoo. Jacki reported there were three times as many people at the auction site, and it showed.

After the auction, I like to evaluate the auction price relative to my bid. It gives me an indication of bidder aggressiveness. On Monday, many properties were sold for more than 10% higher than what I was willing to pay. And remember, it takes two aggressive bidders to push prices up. At 10% more than I paid, the best case scenario for those buyers is to break even. Many houses purchased last week will turn into losers.

As the week wore on, the aggressive bidders were getting properties, and transaction prices began to get closer and closer to my bids. It told me the more aggressive bidders were spent, and I would soon be getting properties.

On Monday I picked up one, and on Tuesday (yesterday) I picked up two more. I'm spent for a few days until my next closing.

It takes patience to put so many bids in the market and resist the temptation to chase, but overpaying and not making any money doesn't help, so patience is mandatory.

The foolish ways flippers lose money

Having observed the auction market for some time now, I have noticed a variety of ways people lose money. The following is my shortlist of ways auction participants lose money:

Buying occupied properties

You probably remember Vicente the Fox. Occupied properties are nothing but problems.

In retrospect, what I see as the biggest problem with occupied properties with holdover tenants is the idle money. When I have money tied up in a property, that is capital not available for me to buy another profitable flip. It becomes a drag on returns. The further unpredictability of damage during eviction can turn the inconvenience of idle capital into the tangible pain of loss.

If I have experienced these issues, others have too. Occupied properties have greater apparent margins. For those chasing margins through occupied properties, it's only a matter of time before these problems emerge.

Automated valuation models are wrong

Some bidders use automated valuation models to establish what they believe they can resell the home for. In fact, there are some operators out there who believe they have invented a better mouse-trap. They are wrong.

Automated valuation models all have weaknesses. There is no automated model that will provide the accuracy of a human being with market knowledge and the power of discernment.

Bidders who rely on these models usually end up buying those properties where their model was wrong and grossly overstated the value. The winner at auction is the bidder with the most aggressive assumptions. If their automated valuation model spits out overly aggressive assumptions, they are certain to end up with those properties. Have at it. The pattern of losses will fascinate the programmers.

Failing to recognize their costs

Many bidders don't know what it really costs them to prepare a house for sale, nor do they realize all the taxes and fees in the transaction. It's common for newbies to overpay and obtain little or no margin because unknown costs eat up their profits.

On one of mine, I underestimated the HOA settlement price by $3,000 on a deal where I obtained full asking price. Unlike here in California where HOA debts are wiped out, HOA debts survive foreclosure in Nevada, and collection has become a racket. I have one statement where the HOA turned a $380 late fee into a $3,600 collection due. In fact, it was that one that blew out my budget. I learned to budget for a back HOA fee on any property with an HOA, and I triple any recorded lien amount. It's still a guess.

Many buy properties with no idea what they need to do to prepare them for sale. What home sales background do they have? What about homebuilding experience? It isn't rocket science, and intelligent people can figure it out, but without guidance and experience in these areas, prospects for success are limited.

To prepare for sale, it's very difficult to spend less than $1,500 on any property, and $3,500 to $6,000 is the norm. For older properties it can be much more. Many foolishly budget zero. And when they realize they have a problem — nobody wants to buy their house — they have no idea how to solve it. I hope they like the house because they will own it a while.

People will bid thin until they buy a few with missing kitchens (it's happened to me. You can't always see the interior. I budgeted for it.) The few that blow up their costs blow up their venture. I always budget for a full renovation unless I have either (1) interior pictures from an occupied MLS house, or (2) interior pictures of empty houses taken through the windows on the morning of the auction. If the pictures show I won't need certain costs, I can tighten up my bid number and still get my margins. I need to be aggressive when I safely can if I want to keep getting properties.

Failing to recognize the value of certain costs

Sometimes it is wiser to spend a few more dollars to obtain better service.

I know one bidder who is attempting to deploy several million at the site. He is paying someone with little or no training to pull comps and bid on properties, and he has gone to a $300 listing agent to sell them. As you might imagine, he as overpaid for most of the properties because he usually ends up with the ones where his inexperienced agent blew the comps. Also, since he is not paying for any assistance with the listings, he is managing all his own escrows and he has problems with deals closing on time. He is penny wise and pound foolish.

I use a bidding service to obtain data on the properties I buy. This service is expensive. There are competing services in the area. However, I witnessed one of these competing services buy a house with no kitchen because they were looking at old pictures. Overpaying for the wrong properties due to bad data can be costly. Despite the higher cost of the better service, it provides value in excess of its cost.

Not viewing the activity as a business

The primary reason amateurs fail at the auction site is that they don't look at the activity as a business. People go there as if buying property were a spin at the roulette wheel. Most believe they can buy anything, broom it out, and buyers will eagerly snap it up for a huge profit — and my previous post probably fed into that misconception. The reality is flipping houses is like navigating a minefield where one misstep can be a disaster.

Processing properties is akin to homebuilding. It requires a steady pipeline of properties moving through. The process needs to be managed with the urgency of an ongoing enterprise rather than a speculative wait-and-see. Those that wait-and-see in this business rarely like what they find.

Trying to hit home runs

Related to the last point, those who operate as a business try to hit many singles. Amateurs try to hit home runs. It's not uncommon for flippers to buy a property put it on the market and be unwilling to lower the price to sell it. Whatever they thought it was worth doesn't matter. The market is never wrong. Those that fail to cut their losses in a declining market end up with very large losses.

Buying expensive properties

Properties prices over the median are enticing at auction because the apparent margins can be very large. The buyer pool with $1,000,000 cash on any given day is pretty thin. I try to keep less than $100,000 in cash at all times. Idle money is a drag on returns. The thin buyer pool makes for lower bids and wider margins.

The problem with these apparent margins is the speed at which it can be converted back to cash. It's rare to get full asking price offers the first day of a $1,000,000 listing. And if it happened, the property was probably priced too low. The sales velocity at the high end is low in any market, but it is excruciatingly slow in distressed markets. Flipping in that market can mean holding a property for six months or more to find a buyer willing to pay top dollar. Since the high end is in decline nearly everywhere, holding out for a high price may take years, decades even.

So how will I fare on this property?

House Address … 6349 BLUSHING WILLOW St North Las Vegas, NV 89081

Resale House Price …… $86,900

House Purchase Price … $61,700

House Purchase Date …. 3/18/2011

Net Gain (Loss) ………. $19,986 **

Percent Change ………. 32.4%

Annual Appreciation … 490.1%

Cost of House Ownership

————————————————-

$86,900 ………. Asking Price

$3,042 ………. 3.5% Down FHA Financing

4.90% …………… Mortgage Interest Rate

$83,858 ………. 30-Year Mortgage

$17,789 ………. Income Requirement

$445 ………. Monthly Mortgage Payment

$75 ………. Property Tax (@1.04%)

$18 ………. Homeowners Insurance (@ 0.25%)

$122 ………. Homeowners Association Fees

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

$660 ………. Monthly Cash Outlays

-$42 ………. Tax Savings (% of Interest and Property Tax)

-$103 ………. Equity Hidden in Payment (Amortization)

$6 ………. Lost Income to Down Payment (net of taxes)

$11 ………. Maintenance and Replacement Reserves

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

$533 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$869 ………. Furnishing and Move In @1%

$869 ………. Closing Costs @1%

$839 ………… Interest Points @1% of Loan

$3,042 ………. Down Payment

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

$5,618 ………. Total Cash Costs

$8,100 ………… Emergency Cash Reserves

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

$13,718 ………. Total Savings Needed

Property Details for 6349 BLUSHING WILLOW St North Las Vegas, NV 89081

——————————————————————————

Beds: 3

Baths: 2

Sq. Ft.: 1505

$058/SF

Property Type: Single Family Residential, Detached

Year Built: 2006

County: Clark

MLS#: 1129694

Source: GLVAR

Status: Exclusive Right

On Redfin: 24 days

Cumulative: 24 days

——————————————————————————

MOVE IN READY! Not a Short Sale or REO. Quick Response from Seller. 2-Story Home, 3 Bedroom, 2-1/2 Bath in a newer gated community in a nice area of North Las Vegas. Neighborhood includes lots of grass, park, and jogging trails.

** the net gain or loss numbers in the post do not represent what I net on the deal. Other expenses usually cut the apparent margin above in half. If I obtained full asking price for this property, the fund will make about $8,000, not the $19,986 my post spreadsheet formula put out. My normal daily posts don't include other costs of preparation for sale. A 30% gross yields a 10% net.

What's it worth?

The following were the comps I used to value this property. They are all recent sales within the subdivision of model-match properties. Those last two sales aren't good for the comps…

Comparable Resales	Resale Date	Amount
2007, 3/3, 1505 SF, $80000, $53.12/SF, 6307 BLUSHING WILLOW ST, CENTENNIAL BRUCE WEST 40-UNIT	3/8/11	$80,000
2006, 3/3, 1505 SF, $80000, $53.12/SF, 1022 SHADES END AV, CENTENNIAL BRUCE WEST 40-UNIT	2/22/11	$80,000
2005, 3/3, 1505 SF, $88000, $58.43/SF, 1016 APPALOOSA HILLS AV, CENTENNIAL BRUCE WEST 40-UNIT	2/18/11	$88,000
2005, 3/3, 1505 SF, $89998, $59.75/SF, 1033 APPALOOSA HILLS AV, CENTENNIAL BRUCE WEST 40-UNIT	1/24/11	$88,649
2005, 3/3, 1505 SF, $84900, $56.37/SF, 1243 MAPLE PINES AV, CENTENNIAL BRUCE WEST 40-UNIT	12/23/10	$82,000
2007, 3/3, 1505 SF, $86900, $57.7/SF, 923 SHADES END AV, CENTENNIAL BRUCE WEST 40-UNIT	12/22/10	$85,000
2004, 3/3, 1505 SF, $89000, $59.09/SF, 1158 MAPLE PINES AV, CENTENNIAL BRUCE WEST 40-UNIT	12/2/10	$90,000
Comparable Rentals	Lease Date	Amount
6216 STANDING ELM ST — 3 bed 3 bath 1505 SF — 2004 List: $995	12/20/10	$950
932 APPALOOSA HILLS AV — 3 bed 3 bath 1505 SF — 2005 List: $995	12/8/10	$995
1017 SUNNY ACRES AV — 3 bed 3 bath 1505 SF — 2007 List: $980	11/23/10	$980
923 APPALOOSA HILLS AV — 3 bed 3 bath 1505 SF — 2005 List: $1000	9/23/10	$950
1232 N APPALOOSA HILLS AV — 3 bed 3 bath 1505 SF — 2005 List: $1000	6/16/10	$1,000
6217 BLUSHING WILLOW ST — 3 bed 3 bath 1505 SF — 2008 List: $1000	8/30/10	$1,000
906 APPALOOSA HILLS AV — 3 bed 3 bath 1505 SF — 2006 List: $995	8/1/10	$995

If there are many more transactions in the low 80s, it may be difficult to get an appraisal for a higher asking price. That uncertainty is the business risk in a transaction like this one.

How does it work as a rental?

I pull rental comps to see if properties are desirable as rentals if local owner-occupants don't step up. This one is a fairly good one even for a retail buyer paying full asking price.

	Mortgage Purchase Financial Analysis	15-Year	30-Year
5	Mortgage Interest Rate	4.5%	5.1%
6	Actual Monthly Cashflow	$(0)	$139
7	Cashflow after Financing	$3,093	$4,306
8	Initial Capital Investment (down payment)	$18,083	$16,780
9	Cash-On-Cash Return = Cashflow / Investment	17.1%	25.7%
Notes:	Rental Income	Terms	Calculations
10	Gross Rent		$1,000
11	Vacancy and Collection Loss	5.0%	$50
12	Monthly Rental Income		$950
	Operating Expenses	Terms	Calculations
13	Property Tax	2.67%	$189
15	Homeowners Insurance	0.50%	$35
16	Maintenance and Replacement Reserves		$45
17	Homeowners Association Fees	$79	$79
18	Property Management Fees (% of Gross Rent)	10.0%	$100
19	Monthly Cash Expenses		$448
20	Net Operating Income		$502
21	Monthly Payment (based on maximum loan)		$362
22	Actual Monthly Cashflow(assuming impounds)		$139
	Net Operating Income		$502
23	Interest Expense (subtract from NOI to obtain P&L)		$282
24	Total P&L After Expenses and Debt(loan amortization plus excess)		$219

This is a solid rental property providing positive cashflow with a 30-year mortgage.