Canada's Minister of Finance, Jim Flaherty, implemented policies to effectively curb the excesses of Canada's housing bubble. I am shocked, and today I eat my words to the contrary. Kudos to Mr. Flaherty.

Irvine Home Address … 25 CERRITO Irvine, CA 92612

Resale Home Price …… $459,000

{book1}

Well, when I was younger, I was so full of fear

I hid behind anger, held back the tears

It was me against the world, I was sure that I'd win

But the world fought back, punished me for my sins

And they tried to warn me of my evil ways

But I couldn't hear what they had to say

I was wrong, self destruction's got me again

I was wrong, I realized now that I was wrong

I was wrong Ya!

I was wrong

Social Distortion – I Was Wrong

In December of 2009, I reported that US Exports Housing Bubble to Canada and Canadian Realtors Ignore Housing Bubble — that last one is a shock, right?

In the first article, I was very critical of Canada's Finance Minister because his public pronouncements have the same hubbub as the boobs in charge of the US housing finance markets. I was wrong about Jim Flaherty. I was as wrong as wrong can be, and today I eat crow.

First, let's review the a simple case for a Canadian housing bubble:

The Canadian Housing Bubble

Prior to 2009, there was little talk about a real estate bubble in Canada because there wasn't one. Prices in Canada have stayed relatively close to cashflow value for many years. Despite their over-reliance on adjustable-rate mortgages, their market has been a model of stability — at least it was until the implementation of new interest rate policies of the United States, a policy required by our own housing bubble ("It (expanding FHA) was an effort to keep prices from falling too fast. That’s a policy." — Barney Frank).

When the Federal Reserve in the United States lowered interest rates, it caused affordability to increase about 20%. [which is why prices did not fall much in 2009]

This is what Canada is facing, Canada housing market still ablaze in November:

OTTAWA, Dec 15 (Reuters) – Sales of existing homes in Canada jumped 73 percent in November from a year earlier to just below the record high for the month, the Canadian Real Estate Association said on Tuesday.

The average national price in November rose 19 percent from a year earlier to C$337,231 ($318,142). Year-to-date, the average price was up 4.4 percent from the same period of 2008.

How much more obvious can this situation be? Interest rates create a 20% increase in affordability, and during the depths of a deep recession, Canadians managed to make house prices go up 20%. Hmmm… I think cause and effect would indicate that prices have bubbled to match interest rates, and they will go back down when interest rates go up.

Canada Denies Housing Bubble

Is it the responsibility of politicians everywhere to deny the obvious and foster dreams of Bailouts and False Hopes? They seem to excel in this area, Canada minister sees no housing bubble at present:

"If we see — which we have not seen — but if we see clear evidence of an upward bubble, particularly with respect to insured mortgages, then we have some tools available which we've used before and we can use again," he said in his Ottawa office.

We have tools. LOL! I feel totally secure knowing the government has a tool like this guy in charge of finances.

Flaherty said it was not surprising to see substantial activity in the mortgage and housing markets given low interest rates and the fact that people had held back on big investments during the recession.

He said he was not as concerned about housing prices so much as the ability of Canadians to service their debt.

"I'm more concerned about affordability (of mortgages) and people not being lulled into a false sense of security, taking out relatively low interest-rate mortgages, when we all know that the mortgages rates have only one way to go over time — and that's up," he said.

Sorry to break the news to you Mr. Finance Minister, but you have inflated a housing bubble, and it will cause problems in your country as it did in ours. At least I give you high marks for choosing to do nothing about it. Perhaps the stooges in charge of our housing market can learn from you and do nothing further.

Eating my Words

I was critical of the Canadian Finance minister at the time because he sounded like the pirates captaining our ship, but then Mr. Flaherty did something shocking: he instituted significant policy changes that will stop the Canadian housing bubble from inflating further. In fact, many of his policies are similar to those I advocated in Regulatory Solutions to Prevent the Next Housing Bubble. Flaherty was right, and in my skepticism, I was wrong.

I have become too cynical about the embedded corruption in the United States government. The Canadian Finance Minister has proven that government can work, and that public officials have policy options available to them to prevent or curb housing bubble excess.

So why don't we?

Have we all resigned ourselves to the status quo? Are paper tigers purportedly too-big-to-fail scaring the sheeple into feeding them endless extortion profits while servile taxpayers act as grooms of the stool armed with bailout pooper scoopers to clean up the losses? Have the lobbyists for our lending oligarchs captured our legislature? Or has the Greenspan pathology of zero regulation poisoned our current batch of wouldbe regulators?

While US regulators choose wrongheaded policies designed merely to divert funds to a broken system, Canadians are fixing their problems. I give them credit for having the courage to limit credit.

Canada tightens mortgage lending rules

By ROB GILLIES (AP) – February 16, 2010

TORONTO — Canada is tightening mortgage lending rules as historic low rates are raising fears of a potential housing bubble, the country's finance minister said Tuesday.

Finance Minister Jim Flaherty said there is no compelling evidence of a bubble but said the government is taking proactive measures to prevent one.

"We're looking ahead and taking action now before there is a problem," Flaherty said.

Notice the standard bureaucratic denial of a problem, and also notice the proactive measures to combat the denied problem — which by action tells you much more than the denying words.

Marvel at the clear thinking and thoughtful action this man took:

To qualify for a government-insured mortgage, [1] borrowers will have to meet the standards for a five-year fixed-rate mortgage — up from the current standard for three years.

Flaherty also said if Canadians want to purchase a property where they will not be living, [2] they will have to come up with a 20 percent down payment.

And he's imposing tighter restrictions on how much money people can borrow against their houses. [3] Instead of being able to borrow 95 percent of the value of their property, the limit will now be 90 percent. The changes take effect April 19.

Allow me to recap and interpret:

(1) He is forcing qualification at a higher payment rate. If he had stated 30-year fixed rather than a 5-year fixed, It would be better, but it is a step toward stable financing. I wish the statement clarified whether or not interest-only ARMs are permitted there. I believe the qualification standard he is imposing is based on a 30-year amortizing mortgage with only a 5 year fixed rate.

(2) Twenty percent down payments? I would like to see this on all property, but common sense says investment properties and second homes should require a significant down payment — people don't hesitate to walk away from investment properties.

(3) And limiting cash-out refinancing to 90% LTV is identical to the proposal I made. I like this requirement because it provides an equity cushion that stabilizes markets and prevents walkaways.

"We do want to discourage the tendency by some to use their home as an ATM machine, the tendency by some to buy three or four condominiums by way of speculation," Flaherty said. "This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up."

Our government actively encouraged us to borrow, spend and be happy while Canadians are being warned about excessive debt and spending their equity foolishly. The contrast is conspicuous.

Canada's housing recovery has been so rapid that some are worried. There has been no crippling mortgage meltdown or banking crisis in Canada, where there is greater oversight of mortgages, but Canada's central bank has vowed to keep interest rates at a historic low of 0.25 percent until the middle of the year.

A variable-rate mortgage interest rate can be had for as low as 2 percent to 2.25 percent in Canada, while the fixed five-year posted rate at Canada's top five banks is 5.39 percent.

Some are worried that borrowers who are taking out variable-rate mortgage rates will struggle to make payments when interest rates rise. Canada's central bank been warning for months that homeowners should make sure they can absorb an increase in their floating-rate mortgages once rates start rising.

Canada's ARM Problem

I visited my friends at the local Google office last year, and I spoke with one manager there who recently moved from Canada. We talked about the many differences he noted between their market and ours and the two most notable were (1) the absence of a mortgage interest deduction in Canada and (2) the prevalence of adjustable rate mortgages.

I haven't written much recently on The ARM Problem here in the United States because it has since morphed into a Shadow Inventory problem as many ARMs including 75% of option ARMs, have already exploded or gone into default for other reasons, like unemployment, negative equity, or negative cashflow.

We're All Shadow Inventory Now.

In Canada the majority of mortgages are ARMs and many of those are interest-only; the entire Canadian housing market is exposed to interest rate risk, and with most borrowers at their maximum ability to pay at historically low interest rates, they are certainly set up for a fall.

It may be too late for Canada. Their housing bubble is different than ours, it may even be a result of the response to ours — artificially low interest rates — but what makes Canada's housing bubble uniquely Canadian is the housing market foundation they built on the shifting sands of mortgage interest rates. Canada is likely to experience a slow grinding decline similar to ours over the next decade as interest rates rise keeping loan balances small, appreciation minimal, and foreclosures abundant.

Irvine Home Address … 25 CERRITO Irvine, CA 92612

Resale Home Price … $459,000

Income Requirement ……. $96,452

Down Payment Needed … $16,065

3.5% Down FHA Financing

Home Purchase Price … $262,500

Home Purchase Date …. 2/24/2000

Net Gain (Loss) ………. $168,960

Percent Change ………. 74.9%

Annual Appreciation … 5.6%

Mortgage Interest Rate ………. 5.13%

Monthly Mortgage Payment … $2,413

Monthly Cash Outlays …..….… $3,230

Monthly Cost of Ownership … $2,400

Property Details for 25 CERRITO Irvine, CA 92612

Beds 3

Baths 1 full 1 part baths

Home Size 1,507 sq ft

($305 / sq ft)

Lot Size n/a

Year Built 1975

Days on Market 107

Listing Updated 2/17/2010

MLS Number S595319

Property Type Condominium, Residential

Community Rancho San Joaquin

Tract Jh

Absolutely charming end unit home located at the end of a tree lined cul-de-sac in the prestigious community of Rancho San Joaquin in Irvine! This gorgeous three bedroom (one currently being used as office) home has a most desirable floorplan & features a beautiful European white kitchen that opens to the dining & living areas making this home perfect for entertaining. Upgrades include designer paint, crown moulding, mirrored entry walls, hardwood floors in the kitchen and entryway, tile floors in the baths, & upgraded lighting fixtures. The master bedroom suite features dual sinks, large closets with built in organizers, ceiling fan, & custom draperies. With three spacious outdoor patios, enjoying the fresh outdoors & lush greenery is easily in reach from every part of this immaculate home! Inside laundry. Close to golf course, fabulous shopping, entertainment, So Cal beaches, the University of California Irvine, transportation & easy freeway access. Truly a great home!

I picked this property because the red in the decor. What do you think?

IMO, the red is a bit much in this office. It is a color more appropriate for a harlot's bed chamber.

Will the baby boomers fund their retirement from succeeding generations home purchases? Should they?

Irvine Home Address … 55 CASTILLO Irvine, CA 92620

Resale Home Price …… $599,000

{book1}

People try to put us d-down

Just because we get around

Things they do look awful c-c-cold

I hope I die before I get old

This is my generation

This is my generation, baby

The Who — My Generation

I don't know if baby boomers still want to die before they get old, but many are not going to experience the retirement they thought they were.

Baby boomers busted by housing market collapse

The following article by real estate reporter Mary Umberger in the Chicago Tribune aptly illustrates the issue:

"I'm a baby boomer who thinks it's probably time to sell the manse and move to someplace smaller. That's what I'm thinking, anyway. Barring some nationwide economic miracle, however, that's not going to happen. Until housing finds its footing again and home prices start to look up, I'm going nowhere, unless I'm keen to lose money.

I have plenty of company. My fellow boomers and I, it appears, are suffering from a serious case of real estate irony. Housing, the very thing that fueled our generation's legendary mobility and free spending, is keeping us right where we are….

The Urban Land Institute's study, called "Housing in America: The Next Decade," divides us into two groups: older and younger…. The older group, aged 55 to 64, will continue to work, either out of necessity or choice. The news here is that just a few years ago, boomer studies were predicting that we'd put off retirement for the latter reason, that we liked the busy-ness of work. Those studies, though, were before the stock market shredded a generation's 401(k) plans. Now, the money is doing the talking.

The real estate takeaway for this older group is, in the institute's verbiage, that many boomers will be "trapped" in their suburban homes until values recover. Not only are they waiting for their homes' values to emerge from underwater status, but their houses, the institute says, tend to be bigger and farther out in suburbia than the next generation wants.

The younger boomers (aged 46 to 54) also won't have an easy time selling their homes. These people are in their prime earning years, but they're facing flat incomes and the ugly truth that many of them have very little home equity. In the olden days (five years ago), they would have been prime candidates for purchasing vacation homes, a prospect that now, for the aforementioned reasons, is "greatly diminished," according to the institute.

I could go on, but I've typed myself into a deep funk, here in my too-big ol' house. So I figure I might as well take a glass-half-full view of things: The Urban Land Institute study didn't say I'd never manage to sell, only that it will take longer than my generation, famous for its I-want-what-I-want-right-now attitude, is used to."

The group most harmed by the real estate bubble is the baby boomers who were relying on their imaginary home equity as their primary retirement nest egg. Boomers fortunate (or unfortunate) enough to live in areas that avoided the housing bubble never believed they had hundreds of thousands of extra equity dollars to create false expectations. Prudent boomers in these areas maintained other savings vehicles, whereas in California even the prudent came to believe outside saving was less important when the appreciation God's endowed them with so much housing wealth.

Eventually, baby boomers are going to need to convert their housing asset into living cash. For their sake, I hope they don't use reverse mortgages — the terminal Option ARM for seniors — but more on that for another post. Baby boomers face either downsizing to sell and extract cash equity, or as the article points out, they must stay put. If they either chose to stay or if they are forced to stay, they will need to (1) earn more money through delaying retirement (2) live on less in retirement and-or (3) grow a cancerous reverse mortgage which will leave them homeless and penniless in their old age. The last option being more difficult when many HELOCed themselves out of equity during the good times.

Whatever solution baby boomers hatch, succeeding generations pay the bills either through government entitlements or overpriced homes. As the Keystone Kops in our government attempt to keep the Ponzi Scheme inflated, particularly here in California, generations following the baby boomers are asked to pay higher debt-to-income ratios and assume larger overall debt loads in order to benefit baby boomers. The generation that cashes-out the baby boomers will not receive a similar entitlement. The California Social Contract is dead.

Irvine Home Address … 55 CASTILLO Irvine, CA 92620

Resale Home Price … $599,000

Income Requirement ……. $124,736

Down Payment Needed … $119,800

20% Down Conventional

Home Purchase Price … $441,000

Home Purchase Date …. 12/28/2009

Net Gain (Loss) ………. $122,060

Percent Change ………. 35.8%

Annual Appreciation … 198.5%

Mortgage Interest Rate ………. 5.05%

Monthly Mortgage Payment … $2,587

Monthly Cash Outlays …..….… $3,210

Monthly Cost of Ownership … $2,510

Property Details for 55 CASTILLO Irvine, CA 92620

Beds 3

Baths 2 baths

Home Size 1,650 sq ft

($363 / sq ft)

Lot Size 4,841 sq ft

Year Built 1977

Days on Market 7

Listing Updated 2/8/2010

MLS Number S604556

Property Type Single Family, Residential

Community Northwood

Tract Og

Single story house with high ceiling. Newly installed/upgraded: Hardwood floor, Electric range, Dishwasher, recessed lights, garage door & opener, window blinds, paint. Granite countertop. Spacious attic above the kitchen. Walking distance to award-winning middle school, and shopping center. Low HOA fee. No mello-roos assessment.

The picture is missing the alter and incense….

The intersection of Irvine Boulevard and Culver Drive is just behind that wall.

Has anyone else noticed lenders seem to be foreclosing on the worst properties first?

Utilize fixed-rate assumable financing: This is the most useful advice I can give those buying during the coming decade.

Irvine Home Address … 14 HONEYDEW Irvine, CA 92603

Resale Home Price …… $899,000

{book1}

Time for the final bout.

Rows of deserted houses..

All our stable mates are highway bound.

We'll rest easy (justified).

I've suffered a swift defeat.

I'll endure countless repeats.

Death Cab For Cutie — Stability

From my first post at the Irvine Housing Blog I am IrvineRenter, I have provided housing market analyses to help people make sound financial decisions with regard to real estate. To date, most analyses have pointed to renting rather than owning, but as conditions change, I will point out the positives and pratfalls of owning today. To that end, today's posting is among the most important because this post contains specific advice that in the future will either help you sell your house faster and easier or for more money.

Utilize fixed-rate assumable financing: Government entities like FHA, VA, GNMA or some other official government program (not Freddie or Fannie) provide assumable, fixed-rate loans desired by your future buyer.

Maximize your down payment (within reason)

I am not advocating FHA loans because they allow you to put down as little as 3.5%. I believe you should minimize your time to payoff by optimizing (generally enlarging) your down payment and utilizing accelerated amortization. Nor am I advocating emptying savings accounts and failing to keep liquid reserves or other investments. The middle road I advocate leads to financial freedom, whereas the road of maximum debt leads to deflation through individual financial disaster. The debt road is well traveled, but like Robert Frost poetically noted,

Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference.

Money-changers chastise me for advising borrowers to eliminate debt when cheap money abounds. They contend debt is great as long as the borrower's back can bear the payments; similarly, cancer is great as long as the medication can treat the patient. Compound interest grows like cancer, and both are best avoided or annihilated.

Debt is like fat; it is an excess carried around as reminder of glories and gluttonies past. Go lean, purge cancerous debt and grow your net worth; wealth isn't going to appear through home-price appreciation for the next decade, so paying down debt is the best opportunity available for consistently improving your financial life. It isn't a Ponzi Scheme. Take advantage of it.

Expect no home-price appreciation

No meaningful appreciation will occur in the decade of the twenty-teens. The majority of knife catchers and much of the market participation over the next two years will be those who cling to beliefs of past appreciation coupled with those who don't believe prices will remain flat. The activity of knife catchers will provide liquidity as prices continue their controlled decent.

Some will buy without expectation of appreciation — certainly those who follow my writing expect very little — and if prices do appreciate, those not motivated by appreciation will consider it a bonus.

Assumption of Mortgage

Despite the apparent lack of price appreciation, there is still a method for obtaining financing equity from property from a little-known and oft-forgotten loan term known as assumption.

Assumption of mortgage is the purchase of mortgaged property whereby the buyer accepts liability for the debt that continues to exist.

To be more precise, the borrower is assuming both the rights and obligations of the promissory note and the Deed of Trust. Assumable loans have been around as long as lending. Borrowers seeking release from their payment obligations usually sell for cash and terminate the loan; nonetheless, a qualified new buyer may assume the previous borrower's liability and simply take over making payments on the loan.

Lenders despise mortgage assumptions (and they should)

Both buyers and sellers benefit from assumption, but lenders suffer — which is why assumption is generally limited to government programs and adjustable-rate mortgages; lenders do not want their fixed-rate loans assumed.

Lenders borrow short to lend long; in other words, when they underwrite you a 30-year loan, they obtain the money they loan you with short-term borrowing, mostly from savings accounts, maybe even your own. In the industry this problem is known as an asset-liability mismatch. If lenders have a portfolio of low-interest loans outstanding in a high interest rate borrowing environment, they experience a negative spread, and eventually go bankrupt. In fact, much blame for the Savings and Loan fiasco traces back to a negative spread condition and asset-liability mismatch during the early 80s.

Rather than letting thrifts die, we deregulated and allowed them to build taxpayer insured Ponzi Schemes prompting a massive government bailout. The Savings and Loan industry collapse was the early warning of problems with banking deregulation — not all deregulation is good; for instance repeal of the Glass–Steagall Act was a disaster as it enabled the conditions that contributed to our global Ponzi Scheme that collapsed in late 2008.

In rising interest-rate environments lender spreads are squeezed but not eliminated as older, low-interest loans are replaced with newer, high-interest loans. If all loans were assumable, lenders would be handicapped in their ability to rematch their assets and liabilities. To avoid asset-liability mismatch, lenders put due-on-sale clauses in their promissory notes specifically to prevent low-interest loans from surviving to term with a series of debt-assuming owners.

Fortunately for buyers, the federal government cares not about making a profit or cost of financing, and they hold loans to term; as a result, assumable loans are underwritten to standards compliant with FHA or other government programs and insured by same.

Unfortunately for taxpayers, A rising FHA default rate foreshadows a crush of foreclosures and the US taxpayer will be called upon to pay billions in losses for a government policy to keep the house prices artificially high. The taxpayer losses represent the loss burden lenders shifted to us and the moral hazard we are enabling for the future. You should feel defrauded… again.

Understanding by example

A buyer looking at properties like today's will spend nearly $4,000 a month paying down a 30-year mortgage on a $900,000 house (current FHA loan cap is $729,750 in Irvine). Fast forward ten years, and the future buyer of this property will likely be able to afford a $6,000 monthly payment, but since interest rates will also be higher, the mortgage is not larger, and thereby, prices are not higher. As I mentioned in, A Theory of House Prices and Housing Markets, expanding mortgage balances are necessary for prices to appreciate, and rising interest rates cause mortgage balances to contract rather than expand. In fact, if interest rates move higher faster than wages, prices decline.

If a future buyer is spending $6,000 per month to borrow the same amount that $4,000 supports today, then the future buyer would be $2,000 a month better off by assuming the old loan at 5% rather than underwriting a new one at 9% or higher. It is the desirability of the low payment on the old loan that makes assumption work.

Any rational buyer would want to assume a loan with lower payments and fewer than 30 years remaining to pay. The only downside for a buyer is that they will never refinance into a lower interest loan simply because they already have one. I have written many times about the virtue of buying when interest rates are high and refinancing into a lower interest rate to accelerating amortization. Buyers obtain this same benefit through assumption, and sellers can extract value from the transaction.

Seeing this potential outcome in advance will help you position yourself to take full advantage. Most fixed-rate private loans — including those issued by GSEs — are not assumable, and borrowers who utilize financing today with due-on-sale clauses will have no opportunity to extract value from their financing.

Sell faster or sell for more

If interest rates rise, assumable fixed-rate financing has value even if the financing has not been in place long. For instance, if a buyer must become a seller two or three years into their mortgage — and if they have equity and can sell — they will have a significant advantage over sellers with similar properties who do not have assumable loans. A few years from now, the lower mortgage payment will be an attractive feature prompting buyers to select one property over a neighboring one. If you faced two competing properties but one offered an assumable loan that reduces your payments 5%-10%, all things being equal, wouldn't you chose the one with the lower payment? I would.

As interest rates go up and time passes (which reduces remaining amortization), an assuming owner enjoys monthly savings and a shorter amortization schedule. At first, this is merely a sales point, but at eventually, the benefits accruing an assuming owner morphs into a source of real monetary value a seller can obtain.

How to use owner financing to obtain equity from assumable loans

There are three primary ways owners obtain direct and measurable financial value from their assumable loan:

1. Buyer increases down payment and pays more total dollars
2. Seller offers and buyer accepts a seller-financed second mortgage and the seller either keeps the cashflow or discounts the loan in the secondary market and obtains a one-time cash infusion.
3. Seller offers and both buyer and lender accept a wrap-around mortgage.

The first concept — buyers increasing their down payment and paying more total dollars — should be familiar to anyone who has prepaid interest points when originating a loan. People frequently pay interest up-front in order to lower their interest rate and monthly payments over the life of the loan. When a buyer assumes a seller's low interest-rate loan, they are doing the same thing, but instead of that money going to a lender (or mortgage broker) that money accrues to the seller. Do you see why lenders hate assumption?

The second and third concepts — issuing seller financing as either a second mortgage or wrap-around mortgage — are far less common and much more complicated, but the financial rewards are great, and any seller with an aging and assumable first mortgage should explore the options assumable financing creates.

Seller financed second mortgages

Let's go back to the opening example of a loan issued today with a $4,000 monthly payment. Fast-forward to 2020, and the same loan balance financed at 9% yields a $6,000 a month payment. Obviously, a buyer would prefer the $4,000 payment to a $6,000 one, and the seller would like to extract the equity accumulated through paying down the loan balance plus a premium for the value of their financing.

If the seller allowed themselves to be taken out by a buyer using a conventional loan, they would obtain the $138,619 in financing equity obtained by paying down their mortgage debt, and at the closing, the sales price would show no change, and the seller would obtain a check for their financing equity minus fees. However, If the seller offers and the buyer agrees to a second mortgage with a $2,000 payment for a 15-year term at 9%, the seller would obtained an annuity worth $197,186 when the loan balance has only been paid down $138,619 for a value-added of $58,567 or about 8%.

(The annuity value of a $2,000 monthly payment over 15 years discounted at 9% is $197,186)

Why would a buyer agree to this? Well, if you were buying this property in 2020, you are still paying $6,000 a month, so you are no worse off on a monthly payment basis, and your total debt is the same, so you are no worse off on a total debt basis; however, and this is a big however, you will have one loan on a 15-year amortization schedule and another with 20 years remaining out of 30 — you have just accelerated your amortization and reduced your Time to Payoff. I would take such a deal, wouldn't you?

Both buyer and seller benefit greatly from assumption; only lenders dislike it.

Wrap-around mortgages

Wikipedia's description is well written, so I relay it in full here:

A wrap-around mortgage, more-commonly known as a "wrap", is a form of secondary financing for the purchase of real property. The seller extends to the buyer a junior mortgage which wraps around and exists in addition to any superior mortgages already secured by the property. Under a wrap, a seller accepts a secured promissory note from the buyer for the amount due on the underlying mortgage plus an amount up to the remaining purchase money balance.

The new purchaser makes monthly payments to the seller, who is then responsible for making the payments to the underlying mortgagee(s). Should the new purchaser default on those payments, the seller then has the right of foreclosure to recapture the subject property.

Because wraps are a form of seller-financing, they have the effect of lowering the barriers to ownership of real property; they also can expedite the process of purchasing a home. An example:

The seller, who has the original mortgage sells his home with the existing first mortgage in place and a second mortgage which he "carries back" from the buyer. The mortgage he takes from the buyer is for the amount of the first mortgage plus a negotiated amount less than or up to the sales price, minus any down payment and closing costs. The monthly payments are made by the buyer to the seller, who then continues to pay the first mortgage with the proceeds. When the buyer either sells or refinances the property, all mortgages are paid off in full, with the seller entitled to the difference in the payoff of the wrap and any underlying loan payoffs.

Typically, the seller also charges a spread. For example, a seller may have a mortgage at 6% and sell the property at a rate of 8% on a wraparound mortgage. He then would be making a 2% spread on the payments each month (roughly, anyway. The difference in principal amounts and amortization schedules will affect the actual spread made).

As title is actually transferred from seller to buyer, wraparound mortgage transactions will violate the due-on-sale clause of the underlying mortgage, if such a clause is present.

Note that pesky due-on-sale clause is back. Lenders do not like wraps any more than they like assumption and they dislike it for the same reasons, asset-liability mismatch.

Facts about loan assumptions

I wrote to Soylent Green Is People with help in writing this post, and he provided me the following list of facts about assumption:

• Assumptions do not require a down payment. If the seller has equity it's paid to the seller. If the loan is break even to value to upside down, it's simply taken over.
• Assumptions do not (for the most part) require appraisals. It depends on the investor. An FHA insured loan would not require an appraisal, a private investor ARM loan would.
• Credit qualifying is based on underwriting standards available at that time. Income, assets, credit, and debt to income ratios apply.
• Condo project HOA's are not re-evaluated. If an FHA loan was made in an association that was acceptable at origination but has since deteriorated, it is of no issue to the assumption department. Since the borrower must credit qualify for the assumption, the current HOA dues might impact the buyers ability to qualify, but that's the absolute depth of scrutiny these loan applicants will get.
• "All in" lender costs to assume is about $1,500 per transaction. It is not a scalable fee. There will be escrow, title, and other non lender costs, but minimal at best.
• The loan must be originated and in place for 12 months before an assumption can be completed.
• The seller or borrower must pay any escrow shortage/past due interest.
• These are our current guidelines, subject to change of course, and not applicable to every lender, but likely similar to what everyone else has as policy.
• We get "many" requests to assume, but are closing 1-2 per month. I'd say this is likely due to below market financing available today. Most vintage 2005- 2008 FHA loans were priced in the high 5's. 2009 FHA loans do not have 12 month seasoning yet. Project forward into 2011-2012 – if we aren't all wiped out from the planetary alignment/Mayan calendar event…. I'd guess there will be plenty of cheap rates available for buyers willing to purchase FHA financed homes through assumption of the original note.

The GSEs will underwrite ARMs with assumability, but since they are ARMs, the assuming buyer is not locked in to a low rate, so it becomes worthless and pointless. Assuming an ARM does not work like assuming a fixed loan. Don't mistake one for the other. You want to take out an assumable fixed-rate loan.

Make sure your financing is fixed and assumable

As I stated at the opening of this post, this may be among the most valuable pieces of advice I have offered at the IHB. Fixed-rate financing that allows assumption is the best — and absent appreciation, the only — method of extracting value from real estate going forward.

Use it.

I will.

Irvine Home Address … 14 HONEYDEW Irvine, CA 92603

Resale Home Price … $899,000

Income Requirement ……. $187,208

Down Payment Needed … $179,800

20% Down Conventional

Home Purchase Price … $745,444

Home Purchase Date …. 11/24/2009

Net Gain (Loss) ………. $99,616

Percent Change ………. 20.6%

Annual Appreciation … 77.3%

Mortgage Interest Rate ………. 5.05%

Monthly Mortgage Payment … $3,883

Monthly Cash Outlays …..….… $5,100

Monthly Cost of Ownership … $3,760

Property Details for 14 HONEYDEW Irvine, CA 92603

Beds 4

Baths 2 full 1 part baths

Home Size 2,057 sq ft

($437 / sq ft)

Lot Size n/a

Year Built 2003

Days on Market 4

Listing Updated 2/9/2010

MLS Number S604912

Property Type Condominium, Residential

Community Quail Hill

Tract Lind

Beautiful house in Quail Hill. Upgrades starting from driveway, landscaping to Crown moldings at ceiling. Too many upgrades to list. Seeing is believing. View this gorgeous home before it's sold.

The Twenty-Teens

What is the name of the current decade and who decides? When I started writing this post, I found the world of opinions on the subject, but in the end, common usage will determine what we call it. I am casting my vote with Twenty-Teens because I like the way it sounds. Twenty-teen as the T-T sound sandwiched in the middle that is just fun to say. The nineteen-teens (1910s) sounds ridiculous, so we couldn't have used it over the last seven hundred years because each century name had a -teen ending.

In my opinion, T-T sounds cool, but Teen-Teen sounds, well… teenish. I found one forum where a poster liked the sound of Twenteens, but it is a bit too clever, and too easily misunderstood or confused with Twenteen, "the new age for a person who doesn't want to lose being a teenager once they hit the age of twenty!"

The default choice from the last seven centuries leaves us with the twenty-tens. Boring.

I like Twenty-teens. It is a clean moniker seven hundred years overdue.

High end sellers seem to believe prices have already recovered back to peak valuations and are appreciating wildly.

Irvine Home Address … 24 PRAIRIE Irvine, CA 92618

Resale Home Price …… $1,480,000

{book1}

They were sitting

They were sitting on the Strawberry Swing

Every moment was so precious

Cold, cold water bring me 'round

Now my feet won't touch the ground

Cold, cold water what ya say?

When it's such…

It's such a perfect day

It's such a perfect day

Coldplay — Strawberry Swing

IHB News

The IHB News section of the weekend open thread is a place I consider an open forum for anything I want to say. If you want to read about real estate, skip this section today and go down to the Patrick.net links.

My copy of Garner's Modern American Usage arrived, and I set about finding my usage errors. I am begrudgingly dropping downpayment as a single word. I think it is a great compound, but I am not with the mainstream on this one, so I am breaking it up. I admit to three years of persistent and foolish misuse of downpayment for down payment. However, I will still use cashflow. Garner doesn't mention it, I like it, so I will keep using cashflow.

I am also going to start providing links to definitions for any uncommon word or uncommon use of a common word I looked up to write a post. Actually, this is one of the greatest strengths of the Internet and the blogging media; bloggers can make very obscure references and provide immediate lookup assistance with a hyperlink. It is also a good way to see if I am using too many of them….

After completing The Unceremonious Fall from Entitlement, I was spent, and I still have not fully emotionally recovered. I must admit, I cannot sustain that level of writing and prolificacy. It isn't that I am unwilling to put in the time and energy, I am, and I do, but when I tune in to complex emotional issues, sort through the meanings and present it coherently, it takes time and often more energy than I can muster.

I want to thank SK who left this gem in the astute observations:

I was also especially struck by your definition of wealthy people and their preferences, think you got it absolutely right.

Heres a very nice definition of being free, in case you like it as much as I did (unfortunately its not original)

The most precious sort of freedom you will not hear talked about in the great outside world of winning and achieving and displaying. The really important form of freedom involves attention, and awareness, and discipline, and effort, and being able truly to care about other people and to sacrifice for them, over and over, in myriad petty unsexy ways, every day. That is real freedom.

When I read that definition of freedom, I wept; I felt the meaning beneath the words because recently, I have been feeling more freedom and abundance in my life.

Today's featured song is one of my son's favorites, and like many of Coldplay's songs, it just makes you feel good.

I hope you are enjoying this perfect day.

Housing Bubble News from Patrick.net

Realtors, lenders, government screwed California; now doing it again (pinnaclenews.com)

Fitch Says Prime Jumbo RMBS Near 10% Delinquent (housingwire.com)

California Housing Losses By County and City (Jas Jain)

The Housing Double Dip Began In December (businessinsider.com)

Losses Per Square Foot For Southern California (Jas Jain)

Money pit: What buying a foreclosure really costs (money.cnn.com)

Fannie, Freddie Exist To Lose Money, Keep House Prices Artificially High (businessinsider.com)

Five decades of failed housing subsidies are enough (washingtontimes.com)

Housing Crisis Getting Uglier in 2010 (cbsnews.com)

Early signs of a 'double dip' in housing prices (marketwatch.com)

Foreclosures

Slumburbia (blogs.nytimes.com)

Foreclosures surge on the way? (news.yahoo.com)

Millions approaching retirement 'in denial' over pension income (thisismoney.co.uk)

Every single human being should short U.S. Treasury bonds (Mish)

The Poor Are Better Off Renting (online.wsj.com)

Mortgage applications fall despite low interest rates (news.medill.northwestern.edu)

A look back…

Housing Bubble? That's Crazy Talk (Full of shit in 2002) (thestreet.com)

Fed's Greenspan Doubts 'Housing Bubble' Thesis (Full of shit in 2004) (thestreet.com)

Market facts puncture myth of 'housing bubble' (Full of shit in 2005) (bizjournals.com)

Underwater and walkaway

American mortgages: Return to lender (economist.com)

40 percent of South Florida mortgage holders 'underwater' (sun-sentinel.com)

One-Fifth of U.S. Houseowners Owe More Than Properties Are Worth (bloomberg.com)

House Underwater? Walk Away from Geithner's Perverse 'Relief' Plan (alternet.org)

Strategic Default: Smart For Wall, Smart For Main Street (gather.com)

Miscellaneous

Forget the Mortgage, I'm Paying My Credit Card Bill (usnews.com)

Talking Aboot Canada's Housing Bubble (blogs.wsj.com)

Freddie, Fannie escalate insane purchases of their own crap loans (reuters.com)

The Unceremonious Fall from Entitlement (irvinehousingblog.com)

How a New Jobless Era Will Transform America (theatlantic.com)

False Profits: We Will Be Suffering from Fed's Ineptitude for a Long Time (alternet.org)

Alan Greenspan's Does Not Admit Error (theawl.com)

Sales of million-dollar-plus houses way down (sfgate.com)

Jumbo Mortgage Serious Delinquencies Rise to 9.6% (bloomberg.com)

Phoneix Real Estate Prices Still Falling On Foreclosure Sales (nuwireinvestor.com)

Ken Lewis: If I'm Going Down, Paulson and Bernanke Coming With Me (nymag.com)

Million-dollar houses in California suffer further sales drop in 2009 (latimes.com)

Large parts of California still in bubble (doctorhousingbubble.com)

LA area foreclosures jumped in 2009 (lacanadaonline.com)

Federal effort to help homedebtors revives risky mortgages (nctimes.com)

Mortgage banker group's massive losses on own mortgage for D.C. offices (washingtonpost.com)

Baby boomers trapped in bad housing market of their own making (chicagotribune.com)

Geithner Says U.S. Will "Never" Lose Its Aaa Debt Rating (businessweek.com)

Fed "might" buy more mortgage bonds with more counterfeit money (washingtonpost.com)

Irvine Home Address … 24 PRAIRIE Irvine, CA 92618

Resale Home Price … $1,480,000

Income Requirement ……. $308,195

Down Payment Needed … $296,000

20% Down Conventional

Home Purchase Price … $1,351,000

Home Purchase Date …. 10/29/2007

Net Gain (Loss) ………. $40,200

Percent Change ………. 9.5%

Annual Appreciation … 3.7%

Mortgage Interest Rate ………. 5.05%

Monthly Mortgage Payment … $6,392

Monthly Cash Outlays …..….… $8,600

Monthly Cost of Ownership … $6,430

Property Details for 24 PRAIRIE Irvine, CA 92618

Beds 4

Baths 3 full 1 part baths

Home Size 3,577 sq ft

($414 / sq ft)

Lot Size 6,044 sq ft

Year Built 2007

Days on Market 13

Listing Updated 2/9/2010

MLS Number P720861

Property Type Single Family, Residential

Community Portola Springs

Tract Sera

Retreat to the comfort of Beautiful Portola Springs. Situated on Cul-de-Sac, this 2007 Standard Pacific built home has it all! Gracious Interior upgrades include Crown Molding, Baseboards, Oil-Rubbed Hardward and Granite Counters. Hardwood Flooring is Complemented by Stone and Granite in bath areas.Gourmet Kitchen has Professional Stainless Steel Appliances, Oversized Island that seats 4 opens to Great room with French door,Fireplace and Custom Built-in Entertainment Center. Private Office/Den. This plan offers separate living quarters featuring First Floor Master Suite with Double French doors extend your private living area to serene lush landscaped yard or relax in private interior courtyard. Oversized Master Bath with Dual Vanity, Natural Stone Shower, His and Her built in Dressers and Huge Walk in Closet. Upstairs Quarters bedroom 2 has private bath, juliette balcony,Bdrm 3&4 have Jack n Jill bath,retreat. Upstairs Laundry.Professional landscape includes Fireplace and Fountain.

Can anyone identify a pattern to the capitalization above?

BTW, does anyone think this owner has a prayer of selling for a profit?

Today’s post on Non-Judicial Foreclosure is the second in a three part series on foreclosure. We will also look at a property in one Northwood neighborhood stubbornly refusing to fall in price.

Irvine Home Address … 176 GARDEN GATE Ln Irvine, CA 92620
Resale Home Price …… $669,000

{book1}

Space: the final frontier.
These are the voyages of the starship Enterprise.
Its five-year mission:
to explore strange new worlds,
to seek out new life and new civilizations;
to boldly go where no man has gone before.

Star Trek Intro — Gene Roddenberry

Today we embark on a five-minute exploration of Judicial and Non-Judicial foreclosure and the ramifications for different borrowers, and we will also go step-by-step through the non-judicial process.

Foreclosure 101: Vesting Title

Foreclosure 101: Non-Judicial Foreclosure

Foreclosure 101: Mechanics of a Trustee Sale

To start, I recommend Foreclosure Radar’s excellent series on foreclosure: Types of Foreclosure, Non-Judicial Foreclosure Process and California Foreclosure Laws.

Judicial or Non-Judicial Foreclosure

Foreclosure proceedings in most states are either Judicial or Non-Judicial at lender’s discretion. Unlike mortgages, Trust Deeds give the lender the Power of Sale at public auction if the borrower fails
to repay the debt. With a Trust Deed, a lender can exercise this right without a court
order using the faster and less-expensive non-judicial foreclosure.

The lender may sue
the borrower for repayment of property debt in a judicial foreclosure and obtain a Deficiency Judgment which they can record as a blanket lien against all borrower property in a given jurisdiction. Lenders often will pursue judicial foreclosure and Delinquency Judgment if the amount is large and the borrower has other liquid assets the lender can take or illiquid assets the lender can encumber (look out Coastal California). Lenders greatly weaken — but do not extinguish — their claim to borrower assets in the non-judicial process. Without a judgment, lenders are merely unsecured creditors similar to credit card companies hoping to squeeze life from the insolvent.

Once a lender has decided to obtain a judicial foreclosure — a relative rarity in California so far — it enters a court process ultimately leading to a Trustee Sale and Deficiency Judgment. The non-judicial process is of most interest to us because it is a process we can follow, it is the most common, and it is a process hundreds of thousands of California borrowers are enduring.

The step-by-step Non-Judicial Foreclosure process

The Non-Judicial Foreclosure process, established by the Legislature and encapsulated in the Trust Deed, begins when a lender records a Notice of Default. There are three events, (1) Notice of Default, (2) Notice of Trustee Sale, and (3) Trustee Sale, which cannot occur quicker than the prescribed timeframes; the speediest is one-hundred fifteen (115) days with one-hundred twenty (120) being typical — assuming no delays.

The law makes no time requirement on lenders after default before lender has option to record a Notice of Default. By custom lenders give borrowers ninety days, but they can give as many or as few as they like; lately, lenders like delay. The lender is never required to issue a Notice of Default, but unless the property is worth less than the loan balance — a common occurrence of late — the lender will issue a Notice of Default as quickly as possible to move the process along and regain their stranded capital.

After the Notice of Default is recorded, the borrower is granted a ninety-day redemption period to bring the loan current before the lender has option of Trustee Sale. Historically, this period was the only period in which the borrower was allowed to bring the loan current; the Notice of Trustee sale being a point of no return. This law was changed, and now the borrower has unrestricted right to reinstate the loan up until five days prior to a Trustee Sale.

Once a Notice of Trustee Sale is recorded, the Trustee must send notification via certified mail to all known borrower addresses of the scheduled sale, and the Trustee must publish Notice of Sale in a newspaper or other prescribed media (1) three times (2) one week apart. If the Trustee publishes the day after the Notice of Trustee Sale is recorded, and published again on the next two weeks, the entire process can be completed in about three weeks.

The Trustee Sale occurs at a public site determined by the Trustee, often at the County Courthouse, but sometimes in front of the Trustee’s office. Since these auctions are often held at the County Courthouse, many people incorrectly believe the Courts are involved in the process in some way; courts are not involved in the process here in California unless the lender specifically chooses to pursue a Judicial Foreclosure.

Black hole of payment default

In 2010, payment default is akin to crossing the event horizon of a black hole never to return. The singularity sucks in and spaghettifies every troubled borrower with the relentless tug of equity-squashing financial gravity. The black hole feeds continuously on the unemployed and overextended and cleanses the universe of toxic mortgages in its purifying crucible.

The first public problem
disclosure, our detection of loan particles passing the event horizon, is the TransUnion report on 60-day delinquencies, and this data is supplemented by the First American CoreLogic report of 90-day delinquencies (Irvine 90-day delinquencies.pdf). In the
aftermath of The Great Housing Bubble, lenders by choice to maintain
their capital ratios or by force through Government moratoria chose not
to issue Notices of Default: they chose to amend, extend and pretend. Impact of
these delays, besides the multi-month extension to the process, is
accumulation of vast Shadow Inventory.

(Load the image above into a new browser tab or print the diagram to follow the discussion.)

Visible inventory

Once a Notice of Default is issued, properties move from Shadow Inventory to Visible Inventory where they are tracked by Foreclosure Radar and other companies. At this point in the process, borrowers are usually at
least 3 payments behind, but they are given another 90 day period to
reinstate the loan through (1) bringing payments current, (2) selling the property
for a net greater than the loan balance (no shorts), or (3) negotiating a
loan modification. Since most borrowers are also underwater and since short
sales are very difficult and take months to get approved, few have option of a market sale, and loan
modification or foreclosure become the only available paths.

Loan modification recycling

Loan Modification programs have consistently proven to fail. The first of these programs floundered back in 2007, and now in 2010, they continue to writhe and flail. The entire fiasco resembles a rancid meat
grinder where toxic loans are ground and reground with the fetid
meat-debt stuffed in a paper
sarcophagus printed at the Federal Reserve (The FED program to buy GSE debt is printing money).

The loan modification recycling will continue for the foreseeable future as lenders prefer to defer; lenders, and US taxpayers insuring GSE debt, are praying for appreciation to save them. Lenders must wait a decade or more to be successful, and practicality suggests more properties will grind through the foreclosure process.

When loan modifications are completed, the lender issues a Notice of Rescission announcing the borrower has reinstated the loan. This resets all statutory timeframes, and if the borrower were to default again — something they do with great regularity — then the process starts all over.

Restarting the process removes a property from both Shadow Inventory and Visible Inventory, and although these properties are no longer measured in our statistics, most will ultimately go through the foreclosure process. Consider properties in the Loan Modification Recycling process as Shadow Shadow Inventory (or double-secret probation).

Lenders hope to recycle the toxic mess until values come back.

Trustee sale postponements

Besides the delays creating Shadow Inventory, Trustee Sales are postponed for a variety of other reasons — but mostly because the lender doesn’t want to either take a loss or buy the property. These postponements add weeks or months to the process, and there is no knowing if an auction will occur as scheduled. The frequent postponements make purchasing at Trustee Sales difficult for the few all-cash novices making the attempt.

Foreclosure Suffering Flow Chart

Another way to conceptualize the foreclosure process is to look at borrower circumstances and outcomes. Above we defined the timelines of events that occurs once borrowers enter the whirling vortex of mortgage debt, but we have not discussed the ramifications of this process on the borrower both short- and long- term.

I last covered this topic in The Financial Implications of Short-Sales and Foreclosures. That post referred to an attorney’s post on the subject: The California Foreclosure Rules or “So What Happens If I Let My California House Go Back To The Bank?”.

(Load the image above into a new browser tab or print the diagram to follow the discussion.)

Bad Credit is best result

All borrowers who default on their loans endure credit problems because credit scores are impacted by delinquencies; no defaulting borrower avoids this fate. Beyond that, the range of possibilities ranges from (1) complete freedom from further financial obligation to (2) complete liability for every penny of lost lender funds and legal judgments to obtain same. Obviously, most prefer the former to the latter, and unfortunately, many believe they can and have escaped the bills, but the system is not finished with them quite yet.

Many who become delinquent lose their homes and become renting-former-owners; they snobbishly will never identify with being a “renter.” Renting-former-owners believe they will own real estate again in a year, eighteen-months tops.

Not going to happen.

The GSEs and FHA have guidelines preventing them from loaning to anyone who discharged mortgage debt over a five-year lookback period, and few private lenders extend such loans. Many have suggested the large number of renting-former-owners are a pent-up-demand that lenders will gush over. Perhaps so, but the borrower pool has proven default, so why would a lender want that business? — except perhaps to obtain huge fees, charge usurious interest, and go back to subprime lending-as-usual. Do we want that again? Really?

Borrower options

The borrower has four major options when in delinquency: (1) make up missed payments, (2) sell in resale market, (3) enter into a loan modification agreement with the lender, or (4) do nothing and wait for the Trustee Sale.

The best outcome for everyone is for the borrower to make up the missing payments, and sometimes they borrow from Peter to pay Paul and cure the mortgage delinquency through other borrowing, but this outcome is rare because borrowers are in financial distress.

If the delinquent borrower attempts a sale, they are giving up their house, so this isn’t a pleasant outcome, but if they have equity, they can sell the property, pay off the loan, and obtain their cash equity to move on with life. If they do not have equity, they must wait for approval from the bank for a short payment on the sale of collateral (short sale) or acceptance of a deed-in-lieu legal abandonment. This has serious negative credit repercussions, and few borrowers bother to read the onerous terms of the short sale agreement where lenders often make the borrower personally guarantee the shortfall.

A common outcome lately has been a delay; loan modifications are the rolling loans gathering no loss, an attempt by both parties to avoid dealing with a problem that isn’t rolling away.

Lenders Captain the Titanic

No matter what option a borrower chooses, lenders push forward with the process leading to Trustee Sale. The Titanic is heading inexorably toward the iceberg with lenders at the helm, and it is up to borrowers to divert its course. If borrowers do nothing, a Trustee Sale is assured.

If a property goes to Trustee Sale and borrower loses legal title, they must vacate the property and the ramifications of their previous decisions become apparent; good or bad, they reap what they sow. If the borrower bought at the peak and borrowed too much, but they never refinanced or took any mortgage equity withdrawal money, they have a Purchase Money Mortgage, and they have no further financial responsibility to the lender or to the IRS. They endure the credit hit, but they are rewarded for their small modicum of restraint and prudence with debt forgiveness; this is the best possible outcome.

Recourse sucks for borrowers

If the borrower adds to or refinances a purchase money mortgage — even if the refinanced balance is the same size or smaller — they give up their recourse protections, and lenders gain several options borrowers find unappealing: (1) seek deficiency judgement, (2) become unsecured creditor, (3) charge off debt and issue borrower a 1099 creating a tax liability. There are no good outcomes for borrowers who lost their recourse protections.

In the best case scenario — remember these people already lost their homes and their credit is trashed — the borrower is reported to the IRS and ends up with a major tax liability because forgiveness of debt is considered income (that HELOC money was income after all). This point is critical: borrowers who have not received a 1099 have not had their debt discharged.

Many think that because lenders are not badgering them that somehow the lender forgot they are owed money. Lenders haven’t forgotten, they just haven’t put the systems in place to chase down payment on mountains of unsecured debt. Many bright attorneys are working to create this debt collection doomsday machine to slice people to rubble. Look for this to be a developing story over the next several years.

The worst possible outcome is reserved for those borrowers with assets. If lenders believe they can obtain more money than it will cost them to pursue the borrower, they will opt for a Judicial Foreclosure to obtain a Deficiency Judgment. I recently attended a meeting of the Turnaround Management Association, a group of turnaround specialists. Many of the assembled attorneys, investors and consultants derive their livelihood from pursuing borrowers who personally guaranteed defaulted debt. This group is going to be very busy.

California Legal Code Pertaining to Foreclosure

The links provided by ForeclosureRadar.com are supplement to today’s post.

Ideal Home Brokers Trustee Sale Service

If you are interested in learning how you can become active in the Trustee Sale market, review Ideal Home Brokers Trustee Sale Service or contact us at sales@idealhomebrokers.com.

Irvine Home Address … 176 GARDEN GATE Ln Irvine, CA 92620

Resale Home Price … $669,000

Income Requirement ……. $141,375
Downpayment Needed … $133,800
20% Down Conventional

Home Purchase Price … $550,000
Home Purchase Date …. 6/9/2003

Net Gain (Loss) ………. $78,860
Percent Change ………. 21.6%
Annual Appreciation … 2.9%

Mortgage Interest Rate ………. 5.18%
Monthly Mortgage Payment … $2,932
Monthly Cash Outlays ………… $3,830
Monthly Cost of Ownership … $2,840

Property Details for 176 GARDEN GATE Ln Irvine, CA 92620

Beds 3
Baths 3 baths
Home Size 1,600 sq ft
($418 / sq ft)
Lot Size 3,264 sq ft
Year Built 1998
Days on Market 4
Listing Updated 1/13/2010
MLS Number S601543
Property Type Single Family, Residential
Community Northwood
Tract Glle

Equity Seller has to move!Charming Plan D/3bdr Highly Ugraded Northwood Single Detached Home.3 Full Bdrms plus office,Main floor Bd&Bath.Beautiful Gourmet Kitchen with Maple Cabinets,,Formal Dining RM open to GREAT ROOM,Cathedral Ceilings,Firplace,Recess Lighting, Designer Paint,New Carpet,Plantation Shutters through out. Built In Media and Office.French Doors Open to Entertainers Backyard.Pre-wired for Security System,Full Size 2 Car Garage w/Built-in Cabinets..Walk to Blue Ribbon Award Winning Cayonview Elem & Northwood High School.

I like this neighborhood, and apparently so do many cash-heavy buyers. Prices on many homes here have held over $350/SF, and this owner thinks he can get over $400/SF. He might be right as someone will probably borrow $417,000 and put $252,000 down. Cash is king.