In what can only be described as the best decision of the housing bust a from regulator, Federal Housing Finance Agency’s head Edward DeMarco said there will be no principal reduction on Fannie and Freddie loans. He will be loudly criticized, particularly from left-wing panderers, but Mr. DeMarco understands that Moral hazard is the central issue in housing bust, and giving away free money to loan owners is never a good idea. Millions of loanowners will be crushed by this news. Everyone who doesn’t want to see their tax dollars squandered to bail them out will rejoice.
Regulator says no to Obama mortgage write-down plan
By Rachelle Younglai — WASHINGTON | Tue Jul 31, 2012 5:41pm EDT
(Reuters) – The top housing regulator rebuffed a plan by the Obama administration to cut mortgages held by struggling homeowners, a blow to the White House which is keen to show voters it can help fix the housing market.
I don’t see how this is a big blow to the Obama Administration. It isn’t like Romney was out saying principal reduction is a good idea. This may anger some on the extreme left, but those people were going to vote for Obama anyway. I rather doubt swing voters in the middle are going to vote for Romney because they believe he will endorse forgiving the principal balance on their mortgages.
The regulator for government-run housing finance giants Fannie Mae and Freddie Mac said on Tuesday that using taxpayer-funded bank bailout money could encourage defaults and not make a big improvement in reducing foreclosures in a cost-effective way for taxpayers.
“The anticipated benefits do not outweigh the costs and risks,” said the Federal Housing Finance Agency’s head Edward DeMarco, who has come under intense pressure from the government to agree to the plan.
He is absolutely correct. It’s more cost effective to take a big loss on 10% of the portfolio rather than a somewhat smaller loss on 100% of it.
The regulator’s decision drew an immediate rebuke from the Obama administration and Democratic lawmakers. Treasury Secretary Timothy Geithner disputed the agency’s conclusions and urged DeMarco to reconsider his decision.
Although the housing market has shown signs of recovery, about 11 million homeowners owe more than their properties are worth and the Obama administration has struggled with various taxpayer-funded programs to keep people in their homes.
“I do not believe it is the best decision for the country,” Geithner told DeMarco in a letter released to the media.
Geithner has been a consistent opponent of principal reduction. Only since the political pressure has heated up from left-wing Pandercrats has he given lip service to the idea.
The use of targeted principal reduction would “provide much needed help to a significant number of troubled homeowners, help repair the nation’s housing market and result in a net benefit to taxpayers,” he said.
ANALYSIS
Geithner pointed out that DeMarco’s own data showed that the program would help nearly half a million homeowners and save taxpayers as much as $1 billion.
The housing regulator responded saying that figure only applied to a group of homeowners that had not made a mortgage payment in a year and would assume all those borrowers would win a mortgage writedown — a scenario deemed unlikely.
Rather, DeMarco’s analysis showed that the projected net benefit to taxpayers would be $500 million in the best case scenario and its experience has shown that the likelihood of successfully modifying mortgages was small.
The scholarly paper at the center of this controversy was put out by people with an agenda. DeMarco’s analysis is much closer to reality. The squatters who are deeply underwater are committed to squatting until foreclosure pushes them out. If you reduced their principal a little, it’s not likely they would suddenly start dutifully making their payments.
The administration has pressed DeMarco to allow Fannie and Freddie to do more principal writedowns. But DeMarco has maintained that this would needlessly drive up the costs of their taxpayer bailout.
He is right. It would.
Fannie and Freddie, which have received $190 billion in rescue funds to stay afloat, were seized by the government in 2008 amid threats of insolvency due to losses on subprime loans.
Although the regulator found that using the taxpayer bailout funds could result in about 74,000 to 248,000 borrowers being eligible for the mortgage reductions, it said “nearly all of this benefit is simply a transfer from taxpayers” and would rack up the tab for the public.
Implementing the program “would actually increase taxpayer costs,” said DeMarco.
This is a free-money giveaway to those who least deserve it. I am surprised and very relieved that DeMarco is taking such a strong and unpopular stand.
After spending six months studying whether to use the taxpayer funds, DeMarco’s agency concluded that the program would not only be costly and time-consuming to implement but could also send the wrong message to troubled borrowers who might choose to default to win a mortgage reduction.
It’s isn’t that this program “could” send the wrong message. It certainly “would” send the wrong message. People respond to incentives. Anyone who keeps paying their mortgage gets nothing while those who quit paying their mortgage get offered free money. What do you think would happen?
The Obama administration wants to use money from the $700 billion Troubled Asset Relief Program to pay Fannie and Freddie as much as 63 cents for every dollar of mortgage debt they forgive.
Democratic lawmakers blasted the FHFA’s decision.
“It is incomprehensible that Mr. DeMarco would reject the chance to save up to a billion dollars in taxpayer funds while helping nearly half a million homeowners stay in their homes,” said Representative Elijah Cummings.
It’s incomprehensible to me that anyone would want to see politicians give away their tax dollars to loanowners.
The housing bust has left little for us to cheer about, but today is a major victory. Principal forgiveness for the least deserving is not forthcoming.
One of the worst cases of HELOC abuse I have ever documented
This one is bad, folks. Really bad.
I’ll spare you the daily pontification on the evils of HELOC abuse. This one speaks for itself.
- The property was purchased on 3/1/1994 for $1,060,000. The owners used a $742,000 first mortgage and a $328,000 down payment.
- On 12/14/1995 they obtained a stand-alone second for $301,031 and withdrew most of their down payment.
- On 1/13/1999 they refinanced with a $1,287,000 first mortgage.
- On 6/9/2000 they obtained a $215,000 HELOC.
- On 10/19/2001 they refinanced with a $1,500,000 first mortgage.
- On 1/22/2003 they refinanced with a $2,000,000 first mortgage.
- On 3/31/2003 they obtained a $100,000 HELOC.
- On 3/24/2005 they refinanced with a $2,336,000 Option ARM from Washington Mutual.
- On 8/3/2005 they obtained a $250,000 HELOC.
- On 10/17/2006 they opened a $500,000 HELOC.
- On 10/12/2007 they obtained a $1,000,000 HELOC from Bank of America. A million dollar HELOC backing an Option ARM. BofA deserves to lose everything on that one.
- Assuming they maxed out the HELOC — and based on their previous borrowing behavior, it’s safe to conclude they did — the total property debt was $3,336,000 plus accumulated negative amortization.
- Total mortgage equity withdrawal was $2,594,000.
- They quit paying in early 2009. A NOD was filed on 7/30/2009. He wasn’t booted from the property until 2/21/2012, about three years later.
This family extracted over $2.5M plus they got to squat in a luxurious mansion for 3 full years. Perhaps we should forgive their principal and let them do it again?
I admit, I am jealous of this one. That’s the deal I want during the next bubble.
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Proprietary OC Housing News home purchase analysis
31752 SECOYA Way Coto de Caza, CA 92679
$2,275,000 …….. Asking Price
$1,060,000 ………. Purchase Price
3/1/1994 ………. Purchase Date
$1,215,000 ………. Gross Gain (Loss)
($84,800) ………… Commissions and Costs at 8%
============================================
$1,130,200 ………. Net Gain (Loss)
============================================
114.6% ………. Gross Percent Change
106.6% ………. Net Percent Change
4.1% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$2,275,000 …….. Asking Price
$455,000 ………… 20% Down Conventional
4.05% …………. Mortgage Interest Rate
30 ……………… Number of Years
$1,820,000 …….. Mortgage
$467,687 ………. Income Requirement
$8,742 ………… Monthly Mortgage Payment
$1,972 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$569 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$800 ………… Homeowners Association Fees
============================================
$12,082 ………. Monthly Cash Outlays
($1,497) ………. Tax Savings
($2,599) ………. Equity Hidden in Payment
$645 ………….. Lost Income to Down Payment
$304 ………….. Maintenance and Replacement Reserves
============================================
$8,935 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$24,250 ………… Furnishing and Move In at 1% + $1,500
$24,250 ………… Closing Costs at 1% + $1,500
$18,200 ………… Interest Points
$455,000 ………… Down Payment
============================================
$521,700 ………. Total Cash Costs
$136,900 ………. Emergency Cash Reserves
============================================
$658,600 ………. Total Savings Needed
The property above is available for sale on the MLS.
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65 Responses to “GSE regulator DeMarco says NO principal reduction”
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What it all boils down to is …
if you think preservation of systemic failure will be maintained at all costs infinitas and a marxist/socialist style central-planned model-driven economy will succeed for the first time in World History and you can ‘get-out’ stat before interest rates rise— then buying now makes perfect sense.
You’re starting to get it.
The debate might be moving to eminent domain and principal reduction will be done on the local level. We will see in 6 months or so.
However, even BofA was offering a principal reduction lottery and it was surprising because it didn’t get much interest.
And the beat goes on…
June Sees 60,000 Completed Foreclosures: CoreLogic
In June, 60,000 homes turned into completed foreclosures compared to 80,000 foreclosures a year ago, CoreLogic reported Tuesday.
The analytics company stated the yearly drop puts completed foreclosures at 2007 levels. Month-over-month, there was no reported change in completed foreclosures for June. Since September 2008, 3.7 million homes have been lost to foreclosure.
“The decline in the flow of completed foreclosures to pre-financial crisis levels is more welcome news pointing to an emerging housing market recovery,” said Anand Nallathambi, president and CEO of CoreLogic. “However, we believe even more can be done to reduce the inventory of foreclosures by decreasing the level of regulatory uncertainty and expanding alternatives to foreclosure.”
The number of homes in national foreclosure inventory in June stood at 1.4 million, or 3.4 percent of all homes with a mortgage. June’s figure is a slight drop from a year ago when the total was 1.5 million, or 3.5 percent. From May, the figure was unchanged. CoreLogic defines foreclosure inventory as the share of all mortgaged homes in some stage of the foreclosure process.
“While completed foreclosures and real-estate owned (REO) sales virtually offset each other over the past four months, producing static levels of foreclosure inventory for most of this year, they are beginning to diverge again,” said Mark Fleming, chief economist for CoreLogic. “Over the last two months REO sales declined while completed foreclosures leveled out. So we could see foreclosure inventory rising going forward.”
The states that saw the highest number of completed foreclosures over a one-year period since June 2012 were California, leading with 125,000, followed by Florida (91,000), Michigan (58,000), Texas (56,000) and Georgia (55,000).
The top five states accounted for 48.4 percent of all completed foreclosures nationally.
Florida (11.5 percent) led as the state with the highest share of inventory in foreclosure, with New Jersey (6.5 percent), New York (5.1 percent), Illinois (5.0 percent), and Nevada (4.8 percent) taking the next four spots.
The suburbs are not dead
For nearly a generation, pundits, academics and journalists have written off suburbia. They predict that the future lies in the cities, with more Americans living in smaller spaces such as the micro-apartments of 300 square feet or less that New York and San Francisco are considering changing their building laws to allow. Even traditionally spread out cities, such as Los Angeles, are laying out plans to create greater population density, threatening the continued existence of some neighborhoods of single-family homes.
Yet wishing something dead does not make it so. Indeed, the suburbanization of America is likely to continue over the next decade. The 2010 Census — by far the most accurate recent accounting — showed that over 90% of all metropolitan growth over the past decade took place in the suburbs.
Some central cities, notably New York, enjoyed decent population growth, but their increases were still below the national average. The Joint Center for Housing at Harvard notes that, only five metro areas —Boston, San Diego, San Jose, Calif., and the Florida cities of Cape Coral and Palm Bay — saw an increase in the share of households living in core cities relative to their suburbs and exurbs.
To be sure, the Great Recession slowed the growth of suburbs, as many Americans lost the ability to achieve their dream of owning a single-family house. “Back to the city” advocates have seized on Census estimates for the past year that suggested that urban core growth has actually been a tad faster than that of suburbs.
However, the Census Bureau numbers may be less accurate, and certainly less predictive, than many suggest. University of Pittsburgh urban analyst Chris Briem points out that in the last decade, some Census Bureau city estimates turned out to be vastly exaggerated compared to the actual 2010 Census. This was particularly true in Chicago and New York, where constant lobbying by city officials — after all, federal aid is distributed based on population estimates — meant that optimistic urban estimates turned out to be hundreds of thousands of people off.
More amazing still, the Census Bureau essentially assumed that growth was even in all municipalities in a county. This bizarre practice projects that growth, say, in the city of Los Angeles, is equal to that of newer communities like Santa Clarita, or that suburbs of Alleghany County grew at the same rate as the city of Pittsburgh. This surely can’t be the case.
Reporters concentrated in Manhattan and the District of Columbia didn’t look seriously at these numbers. They repeated the assumption that this was the result of mass migration, particularly among the young, out of suburbs and into cities.
Yet in reality, there was no evidence of that trend. In fact, the Census Bureau’s core county estimates (which are demonstrably more accurate than the municipal estimates) showed a slight core county loss in domestic migration over the past year. The real story of the estimates has to do with the recession, which has led to record-low levels of mobility. Inter-county migration has fallen almost half from its 2006 level. Essentially, a historically weak economy has boosted the city share of population growth.
Geithner Says 2-3 Years of Creative Housing Needed
Treasury Secretary Timothy F. Geithner said two to three years of “aggressive, creative” programs are needed to help the U.S. recover from its housing crisis.
“We’re going to keep at this as long as necessary,” Geithner said at an event in Los Angeles today. “We think there’s a very good case for people deeply under water, experiencing hardship, to modify their mortgages by reducing principal.”
Government-sponsored enterprises Fannie Mae and Freddie Mac won’t forgive principal on delinquent mortgages they guarantee, the firms’ regulator said today. Months of analysis showed there would be no clear benefit to taxpayers if the Federal Housing Finance Agency were to change its policy barring the mortgage- finance companies from loan modifications that include debt writedowns, Edward J. DeMarco, the agency’s acting director, told reporters.
Geithner criticized the decision in a letter to DeMarco today. “I do not believe it is the best decision for the country,” Geithner wrote. “The use of targeted principal reductions by the GSEs would provide much-needed help to a significant number of troubled homeowners.”
Activist Groups
DeMarco’s decision follows months of pressure to reverse the policy from activist groups and congressional Democrats, who touted it as a way to keep more families from losing their homes to foreclosure. FHFA has been in talks since January with Treasury officials, who offered Fannie Mae and Freddie Mac as much as 63 cents for each dollar of principal reduction, using unspent funds from the Troubled Asset Relief Program.
“What we’re going to try to do is continue to push as much as we can to get more relief for the housing market,” Geithner told the Los Angeles World Affairs Council. “One of the most powerful tools now you can do now for housing is make it easier for people to refinance their mortgages.”
DeMarco’s stand and Geithner’s letter reflect tension between FHFA, an independent agency, and President Barack Obama’s Democratic administration, which has pushed to expand aid for more than 11 million borrowers who owe more than their homes are worth in the wake of the 2008 financial crisis.
Fannie, Freddie
Fannie Mae, based in Washington, and Freddie Mac of McLean, Virginia, have drawn almost $190 billion in Treasury aid since they were taken under U.S. conservatorship in 2008 amid loan losses that pushed them to the brink of insolvency.
In other remarks, Geithner said Europe is “absolutely committed to doing what’s necessary” to resolve the continent’s debt crisis, one day after meeting with German Finance Minister Wolfgang Schaeuble and European Central Bank President Mario Draghi.
“This is completely within their financial ability to solve,” Geithner said. He added that “the politics of doing this are very hard.”
Wasn’t “creative financing (really that what it is) the problem in the first place? Just Oy!, it give me a headache.
2-3 years of “creative housing” needed to sustain otherwise unsustainable housing prices…..
Unfortunately, others aren’t as good at reading between the lines as you are.
Will the government meddling ever end?
The headline for this article should read, “White House sees political need for more housing help lip service to make sure Obama gets reelected.”
White House sees more housing aid needed to boost economy
(Reuters) – The White House said on Friday that housing rescue programs are still needed to help homeowners who remain behind on their mortgage payments due to the housing boom and bust that helped fuel the 2007-2009 recession.
“We are far from where we want to be,” White House Press Secretary Jay Carney told reporters when asked about the current state of the housing market. “We need to continue to take the steps necessary to assist responsible homeowners to keep making their payments, to stay in their homes.”
While the sector is more of a bright spot in the economy this year, it remains hobbled by a glut of unsold homes flooding the market. The S&P/Case Shiller composite index of 20 metropolitan areas gained 0.9 percent in May on a seasonally adjusted basis, exceeding economists’ expectations for a 0.5 percent gain.
The White House would not comment on whether or not it is prepared to take further action if the regulator for Fannie Mae and Freddie Mac fails to approve a debt forgiveness program for troubled borrowers. The Federal Housing Finance Agency, which oversees the two companies, is expected to respond to the administration soon on whether or not the two will slash loan principal amounts for those with government-backed loans.
“It would be way premature to suggest that we don’t need to take more steps to assist homeowners,” Carney added.
This is untrue (from a post a few days back):
“The national economy also benefited from this arrangement. Since millions of loanowners no longer made house payments, their income was freed up to spend on other goods and services. The squatter stimulus is huge, and politicians won’t complain about anything which stimulates a weak economy.”
The economy is actually suffering from this arrangement, as private sector money is being diverted from productive ventures to subsidize banking/real estate. Saving, underconsumption, is how an economy grows. Spending makes and economy appear to benefit in the near term, but only at future expense. Read Bastiat Broken Window Fallacy, and Paradox of Thrift.
Paging MellowRuse; who had ‘this’ to say just a short time ago:
December 22, 2010 at 2:38 pm
”It’s easy to be positive on real estate when prices have been climbing for two years and sales have reversed their post-tax credit decline.”
only to be followed up by ….
January 10, 2011 at 3:57 pm..
”The strength in the housing market is not being driven by subsidies, but by improving confidence”.
———————————————————————————————————————–
Meantime, re price, according to C/S (MR’s fav metric to gauge price) a series of lower highs and lower lows has clearly materialized. As expected.
http://confoundedinterest.files.wordpress.com/2012/07/cs20may20112.gif
PS: Estancia sed mi amigo
How sly of you to post a national index in response to my comments about the local market. Sadly, your prediction about the ’09 bottom being “toast” hasn’t come to fruition for either the local C/S index, or your favorite, the OC SFR median. The fact is that prices have done well this year, exceeding both ’09 and ’11, and are getting close to the legendary 530k death grip of 2010. Sales have done even better, recently breaking multi-year records.
Let’s face it homie… Your arguments are getting stale and your attacks are getting desperate, similar to our old friend Truthi before she was committed to Fairview.
Do you conveniently choose to ignore or are you unable to comprehend the ‘false bottom’ created by 0% fed funds rate and other various forms of unsustainable government intervention and subsidy?
Let us also remember that scared money from US and around the world is coming to our shores, temporarily driving down interest rates and buoying house prices.
MR says: How sly of you to post a national index in response to my comments about the local market. The fact is that prices have done well this year, exceeding both ’09 and ’11,
————————————————————————————————–
Oh…. OK, let’s review the local stats:
May LA/OC
2008: 198.54
2009: 159.18
2010: 174.67
2011: 169.07
2012: 165.76
LOL
Pero gracias por jugar
Your data is 3-5 months out of date. What does that prove?
If there’s one thing you’ve always been consistent about, it’s to use the index that paints the picture you want, only to turn around and trash it when it doesn’t.
MR self-pwned again.
The only reason I cite C/S stats is because you’ve cited it many times in the past as if it had relevance, especially when it suits your bullish POV. In fact, it is your preferred index to gauge price. ie.,
MelloRuse says:
September 15, 2011 at 11:20 am
According to Case Shiller, LA/OC is at October 2003 pricing. We are also still higher than the first 10 months of 2009.
MelowRuse says:
April 26, 2011 at 10:51 am
“LA/OC values are 6% above the cyclical bottom hit in May 2009.”
A 6% gain in two years sounds like a historically normal rate of growth to me.
————————————————————————————
Now, let’s have a look at what I’ve said about the metric and why its not my preferrred index to gauge actual price in the past…
el O says:
April 26, 2011 at 11:26 am
Case/Shiller index metric does not reflect the total marketplace = useless data;
**CAPTURES: only OWNER OCCUPIED homes, single family detached/semi-detached housing.
**DOES NOT CAPTURE: investment properties, multi-family housing, condos or new construction sales.
***Comprised of LAGGING data.
—————————————————
I think we’re done here LMAO!!
Your response still doesn’t reconcile the fact that you’re citing 3-5 month old data to counter my statement about YTD activity.
I said: “The fact is that prices have done well this year…” and your response is to use the index that you know has the greatest lag time because it’s the only one that still sort of paints the picture that you want it to.
Is it true that Presidents have your birthday off as a holiday?
I tried to find DeMarco’s initial letter explaining why he would not be endorsing principal reduction, but failed. It is damning to principal reduction supporters. His letter outlines the current programs available in detail (HARP & HAMP). HAMP does some crazy stuff trying to keep borrowers in their homes. It will reduce the interest rate to near 0% just to get the DTIs down to reasonable levels. It will also defer principal years down the road with NO interest accruing! If you can’t qualify under HAMP, then you really cannot afford the home you’re in.
The naysayers might say, “Well, HAMP hasn’t been as widely used as expected and isn’t modifying the number of homeowners’ loans we’d like.” How would FHFA allowing principal reductions under HAMP change any of this?
HARP 2.0 and HAMP are two very beneficial programs to underwater borrowers. More “help” isn’t necessary and would only serve to further unfairly benefit certain borrowers at the expense of everyone else.
“The naysayers might say, “Well, HAMP hasn’t been as widely used as expected and isn’t modifying the number of homeowners’ loans we’d like.””
To me, this emphasizes how many people got in so far over their heads that they couldn’t possibly be helped.
“More “help” isn’t necessary and would only serve to further unfairly benefit certain borrowers at the expense of everyone else.”
That is so true.
Preventing a moral hazard? The start of the big moral hazard was bailing out the banks. Make timebomb investment: big pay at the start until it blows up. Don’t worry, you don’t need to give back your ill gotten gains. We’ll give you a retention bonus.
Obama needs to give the appearance of caring and have the blame assigned to Bush for getting out into the mess and the current regulators for not allowing the Obama plan to fix the mess. The Obama 2009 $3 trillion was about $2.4 trillion too much.
I guess the moral hazard boat has already sailed, hasn’t it?
That’s why I believe that the housing mess will repeat itself and also morph into other indurstrial/investment boom busts cycles. If you gamble without other people’s money and only benefit from great wins, the gamblers will take extreme risk for extreme rewards cause the extreme risk has no personal risk to them.
Publically traded stocks have CEO’s that give average preformance year after year. Those CEO are usually far less compensated than the CEO that had less than a decade of great returns and then decades of poor returns. The later ones are compensated much better the the steady hitters.
Unfortunately, the system is designed for asset price volatility. Some get lucky, and some get hosed. The federal reserve is supposed to have stable prices as part of its mandate, but their existence creates a safety net that encourages risk taking and thereby increases market volatility.
Taxpayers complain of bank bailouts; but what do taxpayers expect if they wont remove the moral hazard known as the FDIC?
At least if the FDIC is brought in, the bank is reorganized, and the management losses their jobs. I can deal with bailouts with such strong consequences for the people involved.
The FDIC isn’t paid for by taxpayers.
Keep believing that.
http://en.wikipedia.org/wiki/Government_Corporation_of_the_United_States#United_States
The taxpayer ultimately pays for the mistakes of banks, through taxation or inflation(the hidden tax). The moral hazard caused by the FDIC is the root cause of the problem. Depositors care not what banks do with their money because it has a government guarantee, thus removing the ever important fear aspect from the equation (the least corrupt form of regulation being this free market mechanism inhibiting fraud and excess risk). Unintended consequence abounds.
So a Google search led you to Wikipedia. Wow…just wow.
I’ll remember August 1, 2012. That was the first good decision made by a government agency………ever. Kudos to the FHFA.
IR,
I’m not sure if I agree with your negative opinions about the ponzi borrowers. I do admit they took advantage of the system that is now being paid by taxpayers. But how is that different than any bank who over speculated and got bailed out? I hate the nationalized losses but privatized gains economy more than anyone, but it seems to me that these people much like trading a CDS or stock or anything else have done their homework, figured out the potential negative effects of their decision (lost credit) and are ready to move on. In fact, maybe stories like this will force the banks to have more solid underwriting and disposition criteria.
I completely agree with you that it is a ponzi, but anyone on Wall Street would do the same thing. Its the financially (not saying anything here about morality cuz that is a different argument) rational thing to do. Again, I am not saying it is right, or that is how I want our nation to become. If I or anyone else was in their shoes, you can not make a financial argument that they made a bad decision.
People should be outside with pitchforks, but I think they would rather watch the Kardashians instead or worry about the color of Angelina Jolie’s shoes. So sad.
The Ponzis did make a great short-term financial decision. And if more people copy them, perhaps the banks will go under next time — which would be a bonus. It upsets me to see Ponzis be given free money by banks who then turn to the US taxpayer to make them whole. It’s just like welfare except the banks are a middleman, and the recipients have to fill out mortgage applications instead of welfare applications. The fact that this was a short-term financial decision that came out in their favor is exactly the problem. The system shouldn’t work that way because if everyone did it, the system would collapse.
It’s call corporate welfare. Works well for funding new industry to get estiblished, but should not be used to reward political contributors for BK’ing the country.
It’s not the first time and it won’t be the last. Remember the Mexico hedge fund bailout and internet creative account in the 1990′s. Internet accounting blew up 10 years later.
This country was built upon Ponzi schemes, snake oil and suckers. Social security, unions, real estate, healthcare, banking …the list goes on. If you think the law is there to regulate or protect the small guy you are sadly mistaken. We have anti trust laws, yet there are plenty of monopolies. Heck we even made the best selling board game after the idea. No my friend, the law is to regulate the small fries. Bernie may have run the largest ponzi scheme as an individual..(now he is in jail), but our institutions run even bigger ones every day (completely untouchable and deemed too big to fail). Laws are passed to make money for industries and institutions. Not you.
So stop with the whole moral hazard argument. How can you define morality when the fabric of this country is built upon “moral hazards”??!
The sooner we get off our pious pedestals (the opium of the masses) , the sooner we will prevent ourselves from being herded off a cliff.
This country has not seen an “economic boom” not caused by a bubble or ponzi scheme since ..? Ever?
I’m ready for the next one, and as long as it’s not against the laws, it’s fair play.
I can’t allow my cynicism to cause me to surrender to the injustice.
This may be a stupid question, but is there any way that the administration or Congress could circumvent DeMarco’s decision here?
Just wondering.
I’m thinking of writing DeMarco a letter of thanks. That job can’t be much fun in the first place, but now that the heat is on, he could probably use some encouragement.
The Left is going crazy to find a way to replace him – similar to the Right going crazy over Bernanke’s ZIRP and QE policies.
DeMarco was supposed to be “replaced” years ago. He’s the temporary head of the FHFA until Obama makes a permanent appointment. After 3 years, he still has not done so. I think the Senate would have to approve the appointment, which might be difficult, yet Obama made a recess appointment of Richard Cordray to the CFPB and that seemed to stick despite Republican protest.
IR… I know a bit about today’s profiled property in Coto and you are absolutely right, this family maxed out every dollar they could get in HELOC and 2nd mortgages to blow on everything from vacations to “business” expenses. Prototypical O.C. housing bubble behavior at its worst. I’ve been following this saga for over 3 years and was wondering just how long they would get to squat for free. Multiple “short sale” attempts fell through, at $2.5+million because potential buyers aren’t stupid. I visited this property about a year ago, and let me tell you, even at that time all the nice features of the pool (modeled exactly after their favorite resort pool) and landscaping on property are in disrepair and needs lots of TLC to be restored, probably a good $300-400K minimum to restore. Nice property, lots of land, but if you got to squat in a 6-acre mansion estate for free for 3-1/2 years, knowing that the game would be up eventually, would you pay anything to upkeep or maintain the house and property? I wouldn’t!
It gives me a glimmer of hope, however, knowing that a return to sanity and lending standards will prevent this again, and the family had to file personal BK and is definitely going to suffer a major loss of entitlement. That is, unless our fearless leaders continue policies and encourage banks to once again lend this stupidly.
“would you pay anything to upkeep or maintain the house and property? I wouldn’t!”
I see that in houses I buy in Las Vegas. If the former owners were delinquent for a long time, there are a hundred little things wrong with the property.
“the family had to file personal BK and is definitely going to suffer a major loss of entitlement”
These people can’t be happy campers right now. Their extreme extravagance will never be possible for them again, unless perhaps they win the lottery. This behavior epitomizes everything wrong with the bubble and the Ponzi lifestyle.
If the rumors are true, they have a house in Hawaii that they are living in.
Don’t know about that one, but it wouldn’t surprise me at all if it were true.
IIRC, it wasn’t the potential buyers that backed out of the short sale, and my suspicion is that one of the potential “buyers” was never really a buyer at all, but rather a shill to keep extending and pretending.
Good to know that regulators like DeMarco are walking around with measurable levels of testosterone. I was beginning to think that species was going extinct.
Today’s HELOC abuse story: Just plain amazing. I didn’t think it was arithmetically possible to pull off such a feat. I sure would of liked to have been around when those HELOC checks were spent. Must of been one heck of a party.
I want my HELOC checks too!!! So much for living below my means, sacrificing and saving, and behaving prudently. Screw that, I’m with IR. I want a free house ATM like this next go around!
architectdave,
If you continue on your saving and living below your means, your saving will be eaten away by inflation, rigged markets and taxes. When will the house borrower ATM reopen? Those in the mid-west didn’t get much benefit the last round (low price and not much increases for most properties) — at least not were I invested and didn’t HELOC.
http://www2.ocregister.com/articles/balloon-collins-air-2596123-property-wind
This featured property today was featured 3 years ago in an OC Register article when attempting to sell. This house was listed at $10.95 million back in 2007, obviously no takers. But still… WTF??
I saw that one. I was hoping I could embed the video into the post, but it no longer works.
Does IR or anyone here know if bankruptcy stalls eviction in California like it does in Colorado such as in the article listed below? Crazy story. This couple moved away from their home temporarily – a home they had owned and lived in for many years. Came back to find squatters living there. The surprise visitors had “purchased” a “deed of adverse possession” for $5k from a criminal realtor. A court case ensued. A judge ruled the real owners could have their home back. Everything seemed cool… until the tenants filed for BK. The sheriff’s office says they will not proceed with an eviction while there is a bankruptcy in question. To twist the knife, the tenants have also filed a frickin’ restraining order against the owners of the home so they can no longer approach their own home!
Obviously, what’s happening there is a bit unusual, however it does give me pause at the idea of taking on tenants even in a rental unit here in California if such a loophole also exists here.
Links:
Part I: http://www.dailymail.co.uk/news/article-2174095/Family-returns-home-living-away-squatters-bought-house-5-000.html
Part II: http://www.dailymail.co.uk/news/article-2182085/Its-just-nightmare–Family-evict-illegal-squatters-home-file-bankruptcy-exploit-legal-loophole.html
Filing bankruptcy gets the filer an automatic stay from foreclosure and eviction. The lender can go to court to circumvent the filing, but it takes additional time.
Those squatters are quite a piece of work. The owners could bring a civil suit against them for all the damages, but you can’t get blood from a stone.
Thanks for the reply. It’s perplexing because I had thought the Bankruptcy Abuse Prevention and Consumer Protection Act made it so that if the landlord obtains a judgement of possession prior to the tenant filing BK, then supposedly the stay does not stop an eviction…. which is why their story seems so strange. (Also, BK is not supposed to interfere with an unlawful detainer already filed prior to the tenant’s BK filing.) As far as I know from the article, those squatters filed BK after the true owners obtained the judgement in their favor. I wouldn’t think they’d be allowed to stay. Hopefully in California the BAPACPA rules apply as I think they do… but I honestly don’t know. It makes me wonder if the article is wrong about the timing of their BK filing.
Yeah, those squatters are a piece of work, however I do sympathize with them a bit as they legitimately, albeit naively believed they owned the home. The realtor crook who sold them the fraudulent deed preys upon non-English speaking immigrants who lack understanding about what they’re getting into. It’s not his first rodeo. The restraining order, on the other hand… not cool. Again, not sure why they would be granted that while they are (illegally?) living in someone else’s home. Argh. Brain cramp.
“As far as I know from the article, those squatters filed BK after the true owners obtained the judgement in their favor. I wouldn’t think they’d be allowed to stay.”
I think you are right about this one. I don’t believe the automatic stay applies after the fact. Of course, the owners may still have to go to court to prove they had the judgement first, so the squatters may still get more time. In a bankruptcy court, the debtor is given a wide range of protections.
I don’t know about renting, but the loan modification bank law recently passed makes it completely legit to squat mortgage and tax free in CA indefniately….all you have to do is apply for a mod every month! Yay!
Let the free housing party go on!!!
IR,
“One of the worst cases of HELOC abuse I have ever documented”
Did you have a NPB loan owner who purchase under a million and then refinced in the multi-millions, squatted for years and then was trying to leasing out the house for $10,000 per month? She kept up the place, so the bank may of like her.
I did a series on high-end HELOC abuse back at the IHB. I had some really awful cases in there. This is the worst one I have done in a while. Their behavior was pretty outrageous.
Not paying the bank for years and pocketing 2 to 3 million and the gall to try to lease it out for $10,000 per month. Hard to beat that.
Is there an OCHN Facebook page? I searched the site for a FB button but I couldn’t locate one. I would like to have the posts in my FacePlace news feed.
SoCal78,
See if that works. You first to ask and i really don’t maintain it. If fact, the only posting I do is on this this site…for obvious reasons.
https://www.facebook.com/OrangeCountyHousingNews?ref=hl
Mike
PS I don’t know it it’s not public, it should be.
Perfect. Yep, I can see it.
“the only posting I do is on this this site…for obvious reasons.”
I guess it’s been a long day. The obvious reasons flew over my head.
Anywho. Looks like it does get frequent updates throughout the day.
I post news stories on North, South, and OC Beach Housing blogs for Orange County. OCHN is actually 5 sites.
“the only posting I do is on this this site…for obvious reasons.”
Sorry, meaning I don’t venture on to too many other websites, unless it housing or business. This site keeps me busy. Its’ funny because most business is usually delivered using RSS, twitter, or readers.
It seems that many want justice or payback for those who squatted and didn’t pay their mortgages for years. It seems that many think that there will be some type of “fairness” meted out to the abusers.
I wouldn’t count on it.
There seems to be a lot of reporting that the “bottom” is in for OC real estate.
We bought our home in October of 2011, about ten months ago. We just received our new Orange County property tax assessment. It is for 5% less than we paid for the house.
Interesting. The appraiser hasn’t called a bottom yet.
Since the assessment is for Dec 31st, 2011, that means you lost 5% in two months, or 30% annualized. In my experience, the tax assessor is also too conservative, assessing values 5-10% too high to maximize tax collections.
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