Most people assume the relative lack of must-sell inventory at the high-end of the housing market is because fewer borrowers at these price ranges are distressed. Nothing could be further from the truth.
So why have we seen so few foreclosures?
Amend-extend-pretend. The banks are choosing squatting over foreclosure. With little government support and no political support for a bailout, the neighborhoods with house prices in excess of $800,000 are only maintained by the legions of unforeclosed delinquent mortgage squatters. With no pressure from regulators to mark their loans to market value, and with near zero cost of money, banks plan to wait until demand returns to this segment. With no home equity from the lower rungs of the housing ladder, a weak economy, slow job creation, and no incentives to save, banks may be waiting a very, very long time.
Carolyn Said — Updated 06:44 p.m., Saturday, June 23, 2012
Jeana Pieralde and Diana Tierney did everything right when they bought their Pleasant Hill house in 2006, choosing something they could afford and making all payments on time.
Now, however, they’re trapped in a mortgage with a 6.375 interest rate – sky-high compared with current rates, which average 3.7 percent – and they can’t refinance because their house is underwater and their jumbo mortgage is excluded from government plans for underwater refis.
Their dilemma is shared by huge numbers of Bay Area residents who bought homes with “jumbo” loans before the real estate market tanked.
“It makes me sick when I think about it. We could save between $800 and $1,200 a month,” said Pieralde, who works in information technology security for the city of San Francisco. Tierney is a social worker for Contra Costa County. “We have tried every avenue over the past four years to try to refinance our home. I call about every three months trying to do something.”
If it makes her sick when she thinks about it, then perhaps she shouldn’t think about it. Refinancing is not an entitlement. She should be happy she was smart enough to borrow within her means and can comfortably make the payments.
‘Nothing you can do’
The four-bedroom split-level they bought for $799,000 has plunged in value to $566,000 – and they owe $648,000. Their paychecks as government workers have shrunk from contractual changes. The couple, who have perfect credit, don’t want to blemish it by walking away from the house or doing a short sale.
Government workers in California can afford $800,000 homes? Obviously, they are overpaid.
“I have so many clients who are in that position” of being unable to refinance an underwater loan, said Fif Ghobadian, a broker with Guarantee Mortgage in San Francisco. “There is nothing you can do; it’s a brick wall.“
During the housing boom, almost 60 percent of Bay Area housing loans were jumbos – mortgages above the former limit of $417,000, according to San Diego real estate service DataQuick.
The prevalence of jumbo loans in coastal California explains much of the lack of foreclosures. The GSEs and the FHA are promptly processing their foreclosures. The banks are sitting on their bad loans.
Refinancing at a lower interest rate provides a sort of household economic stimulus. “If you have that extra money in your pocket, obviously you’d be spending more, and it makes life more comfortable for people,” Ghobadian said.
That economic stimulus effect inspired the government to expand its underwater refinance program. HARP 2.0, which went into effect this year, lets Fannie Mae- and Freddie Mac-backed mortgage holders refinance no matter how underwater their homes are. But Fannie and Freddie only back “conforming” or non-jumbo loans, leaving holders of jumbo loans with little recourse. And efforts to remedy the problem through legislation have gone nowhere.
And such efforts will continue to go nowhere. Imagine how people in flyover country would feel about subsidizing California jumbo loan holders.
“There is not much that can be done legislatively for loans that are not agency-backed because they are covered by individual private contracts,” said Guy Cecala, publisher of Inside Mortgage Finance in Maryland. “Servicers will tell you they don’t know who the investors are. It’s very frustrating when you hear that kind of thing, but very common.”
Digging deep to refi
Refinancing is so important to some underwater homeowners that they’re willing to dig into their pockets to make it happen.
That was the case with a Half Moon Bay couple who asked not to be identified for financial privacy. They bought their seaside home in 2005 for slightly more than $1 million with a seven-year adjustable-rate mortgage. Late last year, when they went to refinance, the home appraised at $730,000 – and they still owed $834,000.
So they took $140,000 out of their retirement and savings to pay down the mortgage enough to refinance into a 30-year fixed at 4.25 percent.
“We felt we were up against the wall,” the woman said. Refinancing “would bring our interest rate down and save a lot of money over the life of the loan. It was a hard decision but we made the financial calculation that it was worth it.”
Most people don’t have the resources to explore that option, however.
What? I thought all jumbo loan borrowers were rich?
Fall through cracks
Every time a new program is announced, “we fall through the cracks,” she said. “We’re financially able to keep our house, but we cannot get the advantages other people have that fall into the right categories, or who defaulted.”
That’s the point of the false-hope bailout programs. The only real aid goes to the banks, and borrowers are left only with false hope to get them to make a few more payments. The next couple are testament to how successful these false-hope bailout programs really are. This family likely would have defaulted long ago if not for false hope.
Pieralde and Tierney have had the same experience of falling through the cracks.
They’ve applied for a loan modification, tried for the Federal Housing Administration refinance programs and looked into a “short” refinance with their bank. For a while they pinned their hopes on the national “robosigning” settlement, which calls for the five largest U.S. banks to offer principal reductions and underwater refis. But their servicer, JPMorgan Chase, does not own their loan, which makes them ineligible for the refi.
“We’ve worked hard all our lives,” Pieralde said. “We’re watching other people get help. This settlement was something we were hoping (would help). Now we’re stopped dead again.”
And they will continue to be stopped dead over and over again. They are the ones paying for the bailouts of the irresponsible borrowers through their continued high interest rate payments. Suckers.
Did they bother making any payments on that jumbo loan?
I have written many times about the amend-extend-pretend with high end loans. Today’s featured property is a perfect example. The nicer areas of Irvine actually peaked in the spring of 2007. This property was purchased at the highest tick of the market on 5/8/2007. Based on the NOD filed later that year, this borrower didn’t make many payments. It took more than four years to finally foreclose.Foreclosure Record Recording Date: 02/28/2011 Document Type: Notice of Sale Foreclosure Record Recording Date: 12/03/2010 Document Type: Notice of Default Foreclosure Record Recording Date: 09/30/2009 Document Type: Notice of Sale Foreclosure Record Recording Date: 06/29/2009 Document Type: Notice of Default Foreclosure Record Recording Date: 01/03/2008 Document Type: Notice of Rescission Foreclosure Record Recording Date: 11/20/2007 Document Type: Notice of Default
$899,900 …….. Asking Price
$1,190,000 ………. Purchase Price
5/8/2007 ………. Purchase Date
($290,100) ………. Gross Gain (Loss)
($95,200) ………… Commissions and Costs at 8%
($385,300) ………. Net Gain (Loss)
-24.4% ………. Gross Percent Change
-32.4% ………. Net Percent Change
-5.3% ………… Annual Appreciation
Cost of Home Ownership
$899,900 …….. Asking Price
$179,980 ………… 20% Down Conventional
3.62% …………. Mortgage Interest Rate
30 ……………… Number of Years
$719,920 …….. Mortgage
$177,048 ………. Income Requirement
$3,281 ………… Monthly Mortgage Payment
$780 ………… Property Tax at 1.04%
$192 ………… Mello Roos & Special Taxes
$225 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$96 ………… Homeowners Association Fees
$4,574 ………. Monthly Cash Outlays
($738) ………. Tax Savings
($1,109) ………. Equity Hidden in Payment
$212 ………….. Lost Income to Down Payment
$132 ………….. Maintenance and Replacement Reserves
$3,071 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$10,499 ………… Furnishing and Move In at 1% + $1,500
$10,499 ………… Closing Costs at 1% + $1,500
$7,199 ………… Interest Points
$179,980 ………… Down Payment
$208,177 ………. Total Cash Costs
$47,000 ………. Emergency Cash Reserves
$255,177 ………. Total Savings Needed
We're sorry, but we couldn't find MLS # S702031 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
5 bd / 3 ba
2,800 Sq. Ft.
4 bd / 2.75 ba
2,550 Sq. Ft.
4 bd / 3.5 ba
3,150 Sq. Ft.
4 bd / 3 ba
2,794 Sq. Ft.
4 bd / 2.5 ba
3,000 Sq. Ft.
4 bd / 2.5 ba
2,700 Sq. Ft.
5 bd / 3.5 ba
2,996 Sq. Ft.
5 bd / 4 ba
3,220 Sq. Ft.
4 bd / 2.5 ba
3,029 Sq. Ft.
5 bd / 3.5 ba
3,029 Sq. Ft.