As if paying off a huge mortgage wasn't bad enough

Imagine, as a homedebtor, having to deal with podantic homeowner's associations such as these.
Great story from Salvador Hernandez and Cristina Bautista of the Orange County Register. Excellent photos by Bruce Chambers too.

Just hard to believe, since most homedebtors in Orange County, California where Aliso Viejo is located:

a.) Don't have a basement (building codes regarding earthquakes prevent this), and

b.) Usually store all of their personal shit in their garage, which means,

c.) They are damn lucky if they can manage to park even one of their typically 2 family cars inside the garage 7 days a week.

Just take a drive around any Orange County community on a Saturday afternoon - Aliso Viejo, Mission Viejo, Lake Forest, it doesn't matter.

Now notice all the garage doors wide open and check out all of the junk inside. Not everyone does this, but I'd be willing to wager that over 50% do use the garage as a storage location. Some people are down right neat freaks and are anti-packrat. The rest don't have a choice due to a complete lack of space - or lack money to pay for monthly mini-storage.

Maybe the homeowner's association would like to donate part of their monthly dues to financing more affordable, local personal storage units to it's members? Just an idea.

This kind of callousness and short-sighted thinking is what makes the OC Register story about the Henderson family in Aliso Viejo all the more sad. Is it too much to ask to go over to their house and talk to them? Does everything have to be drawn out into a legal quagmire? What about the neighbors? Could they offer some help?

Probably not, they don't have any room in their garage either.

Yeah, it's 75 degrees out and sunny every day of the week here in OC. But the hearts of some people around these parts are just stone cold.

Maybe the first of many negative dividends realized as a result of the housing downturn and unfulfilled expectations.

(Photos by Bruce Chambers of the OC Register)

Cramer Says: "Dump Your House"!

Jim Cramer from CNBC on the collossal housing crash and whether you should keep paying your mortgage on a so-called "asset" declining in value, or just dump your losses and rent.

Very compelling statement also on prioritization of paying your bills: Pay off credit cards first, THEN pay your mortgage.

Nice!

Transcript Courtesy of Housing Doom:

Here's the video link: http://tinyurl.com/2kqgnf

Transcript:

Torabi: "I have to bring up a video we did yesterday that was entitled ‘Walk away from your house’". Torabi: "Jim Cramer says, y’know, ‘there is a time to walk away from your house’. To re-visit the video yesterday, you said, ‘when your house is down 20%, essentially, when you have no more equity left…’"

Cramer: "Right"Torabi: "…that’s a good time to sell…"

Cramer: "Yeah"Torabi: "… but what [unintelligible] because that"

Cramer: "Well not just sell, to walk away. You can’t sell it."

Torabi: "How do you walk away?"

Cramer: "Well you just default on the mortgage. It makes huge economic sense. You go rent. Uh, you don’t want to lose your job, so you keep your car. Uh, you keep your credit cards so you can buy, and all that really happens is is that you made a bet and you lost, so don’t compound it by continuing to pay."

Torabi: "Now the hierarchy of debt, you were saying also that y’know, your credit card debt should be less of a priority than if your house is losing value"

Cramer: "Oh, yeah, credit cards are much more important than your house. Remember, your house is only a good bet if you can build equity. But if you are going to lose money each month, you might as well rent. You shouldn’t own."

Torabi: "And, but, yesterday you’re also saying there are no places in this country where there is value in homes. A lot of homes are depreciating…"

Cramer: "No, No, there is no place where [mumble] you wouldn’t be down on your home if you bought it in 2006, that’s what the issue is. So, I’m saying that buying homes in 2006 was like buying the Nasdaq in February of 2000. They’re very very similar - it was better to be margined out than to continue to put capital against those Nasdaq stocks."

Cramer: "There was a report this morning by David, I believe it was David, uh, Blitzer, on, when I was on with the wonderful and fabulous Erin Burnett and it was that the, some housing prices have, uh, been, have actually stopped going down and some are going up and I just think that’s not true. I think, like, bad CDOs, and, like, bad leveraged loans, the actual mark to market is down everywhere. I get that from the 5 homebuilders whose conference calls I listen to. There are no up markets, and there are markets that are falling 20-30%, and those are the ones where it’s much smarter to walk away from your house."

Torabi: "Is the 20-30%… what’s that based on, or is that just…"

Cramer: "It’s where the, uh, purchase prices are, uh, when you back in the discounts. The discounts are very hard to see, cause all the homebuilders do two things: One is is that they offer incentives that don’t surface, so the list price is $250,000, but you’ll get rebates just like a car, so the list price of a car is $25,000, y’know, but you’re really only paying $18,000, so take in that, and the second thing is is that there’ll be Realtors, and what’ll happen is is that you’ll say ‘look - the list price is $225,000′, but you can negotiate down and go $190,000. I’m using the negotiable prices.

Cramer: "This is happening in the inland empire, in Sacramento, uh, it’s happening in Phoenix, it’s happening in Denver, and it’s happening in Las Vegas, and in southern California, uh, anywhere near the bread, the so-called bread basket, Modesto, these are all places where there’s tremendous overbuilding, and where it may pay to leave your house."

Hey Jim,

"Boo-Yah!" from overpriced and overvalued Orange County, Southern California.

California Foreclosures in June 2007: Up 799%

And the worst may lie before us all. Brace yourselves.

Purveyors of Ponzi: Destroyed OC Mortgage Lenders

John Lansner's Blog (OC Register) shares with us a demoralizing list of OC mortgage lenders who have officially surfed their last wave. Pretty sombering shit when you consider that the people who worked at many of these companies are now pounding the OC pavements this summer looking for new work.

Orange County & Irvine Slammed by Slate.com Article

Mr. Daniel Gross of Slate.com unleashes a rancid torrent of truth about the Orange County housing market, with a special dose of vitriol - nicely delivered - for that carefully planned OC McCity called Irvine, which Mr. Gross generously dubs "a center of reckless real estate lending and borrowing" and "the nation's capital of real estate folly".

Until recently, Orange County was New Jersey to Los Angeles's New York -- upscale but generally ignored, and not nearly so chic or happening as its urbane neighbor. Television helped change the image with glitzy offerings such as "The O.C.," "Laguna Beach" and "The Real Housewives of Orange County." These shows portray the county's glittering beach communities as the capital of plastic surgery and extreme consumption. But inland, just over the hills, the massive planned community of Irvine has become the nation's capital of real estate folly.

Wow. Ouch.

Yeah, see that gaping wound I have right over there? Yeah, I'd like you to throw a fistful of salt in it please. What? No salt? Well, do you have terpentine?

Indeed sub-prime mortgage loans (even prime loans), irrational exhuberance for real estate of any shape, color or size, and financial illiteracy are indeed biting the OC middle class and even the more well-to-do.

Construction Permits for New OC Homes Crashing

Prudence.

Demonstrating prudence when running a real estate business deserves acknowledgement. Business leaders respect that. Employees appreciate it. And investors? Well, they pretty much expect prudence to be a given from the start, and they're easily pissed off when a lack of sound business judgement taps into their hard earned resources.

And let's face it. Investors in home building activities, if there are any left, have had good reason to be disappointed. Finally, homebuilders may be putting their hammers down long enough to listen to their investors and take a look at the residential real estate market.

Home builders in Orange County, California are finally demonstrating some much needed caution - and common sense. The LA Times reports that permits for new homes crashed by 85% from the previous year, from 225 in June 2006 to only 1,448 in June 2007. Seems as though homebuilders have placed some weight on actually being able to sell the homes they build at a reasonable price, rather than just build like no tomorrow and decide what to do about pricing and incentives later on.

Good call, homebuilders.

Now, for the love of God, can you please do something about this idiotic page on your website (if only you would take it down until the housing market crash subsides)?

"It's a great time to buy."

Is it? Is it really?

Ventura, California : "Foreclosure Tsunami" On The Way

More of the buyer-seller standoff in Southern California from the Ventura County Star:

"The market's slapped me on the hand, and now I'll be a little less greedy."

- Ventura County California House Flipper & Part Time Century 21 Agent

OC California: "Unbelievable how many people were conned into taking these mortgages"

State of California homeowners, as of July 2007, rank second to only Nevada with the most frequent use of the f-word.

Foreclosure, that is.

The OC Register reports that in Orange County foreclosure filings totaled 1,647 in June, or one for every 589 households. That's down about 8 percent from May, but more than doubled the total compared to June 2006.

There were over nine thousand filings in Orange County, California over the first six months of 2007, over three times the number of foreclosure filings during the same period in 2006.

The OC Register article quotes Dr. Walter Hahn, an Irvine-based real estate economist and consultant, who says that foreclosures will increase going into 2009. Hahn says millions of subprime borrowers and real estate speculators will see their introductory "teaser rates" adust and will not be able to afford higher payments.

"It is just unbelievable how many people were conned into taking these mortgages," Hahn said.

Would we call it that?

Dr. Walter Hahn, 40 years of real estate experience in Southern California

I mean, being "conned" into taking a mortgage? That sounds like pretty strong language, while admittedly probably not as strong as the other f-word being used with just as high frequency in 1 out of every 589 OC households right about now. I don't know. Being conned into doing something sounds so criminal!

There are hundreds of OC mortgage brokers out there still touting the merits of interest-only and pay option ARM loans. Is it OK that people are still being "conned"? Maybe these mortgage brokers are just trying to do their part and contribute to the greater good of Orange County society because they know something most of us do not. Perhaps the rate of interest that the layperson sees today are at an all-time high, while OC mortgage brokers sees lower rates on the horizon?

And what role did Realtors play in selling these homes to home debtors in Orange County?
Did they assuage home debtor concerns about the balloon mortgages, saying it would all be OK and that they could "just refinance in a couple of years"?

Let's remember that the OC median home price was around $600,000 per unit in 2005.
Median gross incomes for families in Orange County, CA hovered at around $75,000 per annum. Those two market variables (some like to call them fundamentals) don't always make good bedfellows, unless you can get creative. Real creative. To buy a home with such an income, well, let's just say it would take "some doing". And some outside of California, where home values tend to be a little more grounded with reality, might call creative home financing "cheating". But let's not use that word. Let's just say the OC realtor found a homebuyer, and just referred them to a "great contact" of theirs in the mortgage business, and, abracapocus, deal is sealed. The homebuyer is now a glorified OC homedebtor and welcomed to the exclusive club! Over there is my accountant Skippy, and over there is my broker, Scooter, and next to the hearth, my realtor-niece Buffy! See you at the martini bar! Don't forget, tee off at 10:00 sharp!

Now fast forward to July 2007. A number of those better-than-median incomed OC homedebtors are falling hopelessly behind with their mortgages. Notices of default are three times what they were a year ago. Lending standards have tightened dramatically in most corners. Inventory of OC homes are increasing. Several large mortgage lenders (many based in Orange County) have gone out of business entirely. Some smaller lenders are trying desperately to stay in business. Meanwhile, Realtors are left scrambling on deck, unsure what message should be relayed to prospective clients: "What are we supposed to say again? 'It's a great time to buy' or 'houses are staying on the market longer than they used to'? "Oh God, what do we say now? What do we say!?"

And the pay option arms and interest-only loans? Hey, whether you need them or not, these same mortgage financing intruments that were used to "con" millions of OC home debtors? They are still in the front window of most banks and lending institutions here, here and here.
Fact is, the instruments might very well make sense to prospective homebuyers who have money to burn, strong cashflow, financial flexibility, and are somehow not averse to interest rate risk of any kind.

"Unbelievable how many people were conned into taking these mortgages".

True. Very true, but nobody put a gun to anyone's head.

And so it is. Caveat emptor, Orange County. Caveat-freaking-emtor!

OC Home Debtors: Are You Forgetting The Tax Man?

Apparently OC home debtors find themselves pre-occupied with the increased mortgage payments on their newly adjusted ARM or interest-only home loans - so much so, that many have neglected to make appropriate financial plans to pay Orange County property taxes.

John Lansner of the OC Register reports from his interview with Mr. Chriss Street, Orange County Treasurer, that 5.5% of OC residents were delinquent on their second installment property tax payments which were due in April 2007.

Street reported that the increase in delinquencies is related to the fact that more taxpayers do not have the ability to pay the tax charges.

"Some of the stories are just grim. People were just desperate," Street said. "Clearly they didn't know what they were getting into."

Was it the local REALTOR that convinced prospective home buyers to "get in now" while interest rates are low and bite off more 6-figure OC home than they could possibly chew?

Or was it the "no problem, we can make it happen for you"-referal to the local ARM and IO mortgage broker, who decided to ignore the ability of the prospective client's ability to pay the mortgage and other budgetary expenses longer term, and to shift them into the ARM and IO variety in order to secure the higher sales commissions?

I suppose it does much matter at this point. More OC home debtors are going to find themselves financially slapped around by the bank on one side and the county on the other.

To MLS & Realtors: Another example why consumers don't trust you anymore

The Southern Cal Multiple Listing Service (MLS) announced to real estate agents several weeks ago that it would be pulling DOM statistics, which represent the number of days a home has been for sale on the market.

So why is this being done?

The Southern Cal MLS claims that this change was implemented for the benefit of real estate consumers (namely prospective home buyers and including home sellers). The DOM numbers previously posted were apparently not accurate and were also overstated - higher than they should be, leading prospective buyers to make inaccurate conclusions as to how motivated the seller is to accept price concessions, etc. Real estate consumers, in the MLS view, do not have the expertise required to properly interpret what the DOM numbers really mean, and that such interpretation should be done through a qualified Realtor or real estate agent. The statistics are still available, but now prospective buyers must ask for them.

"The listing history record is complex and requires some interpretation," said Russ Bergeron, CEO of SoCal MLS. "The SoCal MLS (board) felt that clarity was best achieved by encouraging practitioners to have discussions with their clients about those histories where appropriate, and that the information is best conveyed through a discussion between agents and clients," he said.

Encouraging discussion and dialogue between a Realtor and a prospective client is a good thing.

But this move raises a lot of suspicion and more questions about the practices of the MLS and Realtors.

How does this policy change by the MLS impact the question of legal agency and fiduciary conduct?

If a prospective home buyer has this "encouraged discussion" with a Realtor, and DOM numbers are requested, which DOM numbers will the prospective home buyer receive?

Will they be accurate?

Will they include historical data?

And how will he or she as prospective home buyer know the difference?

What kinds of inferences are today's home shoppers making about a home that is 150 days on the market that need to be "corrected" by a Realtor?

One inference that is already being made in the market place is that home sellers want to hide the truth about the DOM statistics, and that the SoCal MLS and Realtors wish to be accomplices in this effort.

What is perhaps most fascinating of all - and you won't witness it in most industries of business - is the arrogance of these two accomplices: One is the largest national home listing service in Southern California. The other is the largest organization of real estate sales people.

Prospective home buyers are being beckoned by them both.

MLS: Come to us. Trust our massive listing service, second to none.

Realtors: Talk to us. Trust our local market expertise. Help us find your dream home.

Yet, at the same time, and perhaps without realizing it, given the new policy change in the listing of DOM statistics, the MLS and Realtors have just insulted the intelligence of Southern California prospective home buyers.

The truth is, real estate consumers are far more informed than Realtors or the MLS give them credit.

Prospective buyers are trying to do their own homework, except the SoCal MLS and Realtors apparently went to the school where it was OK to rip out pages from research information or just insert new data to support their version of events.

Why not just burn the information entirely?

There is no one correct way to interpret the data. Let is stand on its own, raw and untarnished.

Let it be what it is: profound or immaterial.

The MLS should show it all. Yes, Realtors should weigh in and provide their experienced council. Prospective buyers should also make their own inferences. Home sellers should be allowed to explain it.

Just don't hide or manipulate the information. And don't force less informed consumers to remember to ask for it. That's just deceptive.

This development, is just one example of why Realtors and the MLS system cannot be trusted by real estate consumers going forward.

It's a great time to buy a house in Orange Count.....wait, no it's not.

The OC Register reports today what many have suspected for some time - that the OC housing market is in serious trouble. As of June 21, 2007 home sales are down by a total of 29% from 2006 (including single family homes, condominiums and new homes).

In Lake Forest, CA year to date home sales are down 48.5% in June 2007 compared to June 2006, but the median home price skyrocketed to $647,500.

John Lansner correctly points out that while the total OC median home price is the same as this time last year at $640,000, it is impossible to discern whether actual home sale concessions in 2007 are up or down compared to last year's exchanges (concessions include paying out closing costs and buyer agent commissions, etc.).

It's now July. The summer home sales spectaculars must be in full swing.

Can OC Realtors now, after 6 shaky months, look at prospective buyers in the eye - in that oh so"special way" that a mere computer cannot- and still proclaim: "Hey, it' still a great time to buy"?

They can't.

Orange County + Home Affordability = Oxymoron

ox·y·mo·ron (ks-môrn, -mr-)n. pl. ox·y·mo·ra (-môr, -mr) or ox·y·mo·rons - A rhetorical figure in which incongruous or contradictory terms are combined, as in a "deafening silence" and "a mournful optimist".

Local realtors like to spout off about how "It's a great time to buy now" as well as the OC classic after looking you up and down: "But, darling, everyone wants to live here!" But what these country club realtors and Boiler Room mortgage lenders conveniently forget to mention is that few can truly afford to do so. The median family income in Orange County is now $75,700 gross. Local median home prices are 10 times that.

Any city in Orange County is now considered No. 3 in the Top 10 of least affordable American cities.

So what to do? You have to have a piece of the American dream! You're entitled! You work hard. You pay your taxes! But what if you're Mr. Average Joe in Lake Forest, pulling down $75,700 salary per annum. No commissions or bonuses. How can you get in on the local $750,000 3 bedroom, 2 bath single family?

The truth is you can't. You simply can't afford it. After carefully evaluating your personal budget: cash flows coming in and expenditures going out, including auto loans, education loans, planned expenditures, household expenditures, and any credit card debts, reality starts to sink in. At $75,700 it's time to either lower expectations, rob a bank or move away.

Even if you lived your OC life like a Spartan, shunning those weekend fashion shopping sprees with friends at the Irvine Spectrum, with only $75,700 per annum you cannot afford to buy a single family home in Orange County. Many OC mortgage lenders, after first laughing their asses off to your face, would then try to regain their composure and politely recommend more humble accomodations, such as a 2 door, 2 bedroom flat or condominium.

Got kids? Better get the bunk beds. IKEA has them for $199.99.