OTS' New Plan For Fraud...

Another “plan” to keep people in their homes, but one that will lead to tremendous losses and unaccounted fraud.

Check out CNN's article Mortgage crisis: Don't forgive debt, just postpone repayment

“Aren’t we trying to keep people in their homes? Isn’t that the best thing for the economy?” you may be asking. I think we need to get beyond what I have dubbed the Iraq Response for addressing issues and crises.

Regardless of how you feel about Iraq, there is an underlying argument that is used for proponents of staying until “the job is done”. I am not going to debate the war (please don’t e-mail about that) and there may on may not be some validity in that position of “well, we may have underestimated the outcome (etc.)…but, now that we are there, we need to finish the job.” Again, there may be some weight behind that thought, but likely from a moral point of view, not a logical one.

However, can we use that same logic for all of the decisions that we make as an individual, an organization, or a country? My initial response is “no way!”

It is absurd to think that the recommendation that would be given to any individual regarding a tremendous financial blunder is to continue in that direction. For example, if someone acquired an automobile that they could not afford and they were getting crushed with monthly payments, then the logical response would be to get out of that situation. Sell the car or if you cannot, then the company will repo it. The creditor has recourse that they can exercise which is “repossession”.

But, for a friend, would you tell them to continue to make the payments that have been reduced with a large lump sum waiting in the end, or extend their payments from 48 months to 96 months on a depreciating asset? No, that would not be a good plan.

This new plan to “postpone repayment” is continuing to feed the fraud frenzy mindset that is out in the market today and is completely short sited.

There are so many thoughts and questions on yet another attempt and bailing out homeowners that likely should not even own a home. That may be harsh, but what do you tell your friend with a wife and 2 kids that makes $40k a year and goes out and buys a Ferrari? Is this a good idea? Of course not.

This proposed plan by the OTS is once again short sited and is doomed for failure.

You don’t have to be a genius to figure out why this won’t work.

How about this as an example…

A homeowner is underwater $150k (Sacramento) and the lender decides to issue a neg-am certificate for the $150k. The homeowner does not object and they are now making payments that have been re-amortized for $300k – a significant reduction in payments.

The homeowner wants to stay in the house through retirement, but doesn’t feel good about that extra $150k that is looming. They go out and find Mr. Strawman and get him to buy the house for the current market price of $300k. He does.

This now wipes out the $150k that was looming against the future appreciation of the home. Mr. and Mrs. Homeowner go out and get a new loan for $300k and repurchase the home. Voila! They are now making payments at the current market rate (hopefully) and without the looming neg-am certificate.

The risk was transferred to the one that purchased that “certificate” (security) as an investment and hopefully the contract was written in such a way as to avoid all potential for litigation (not likely). Now, he is out his investment and Wall Street (brokerage houses, financial institutions, and pensions) will pick up the tab. Again!

Who in the world would consider buying a Neg-Am Certificate? Let’s hope that there is no new legislation being developed that will give Fannie Mae and Freddie Mac full discretion to pick these things up. They didn’t do due diligence on the Subprime junk that they bought – just ask Cuomo in New York.

The Sub-Title Says it All...

Number of homes lost to lenders almost equals the total sold in January...

From the Sacramento Bee:

January saw nearly as many people lose their homes as buy them.

....................

January saw 1,815 closed escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Yolo and Yuba counties, DataQuick Information Systems of La Jolla reported Thursday.

But in a financial phenomenon that most analysts believe is unprecedented, 1,782 households in the same counties lost their homes to lenders. Figures for Sutter County were not available.

....................

Wow! That is quite a ratio of sold homes to foreclosures. But, I am sure we have hit the bottom...any second now...come on, where is that bottom?

The dive in prices is stressful for people who have to sell their homes, but it's a growing advantage for people who until now have been shut out of buying.

Casandra Leon was one of the fortunate ones.

Leon, 26, a Sacramento County public employee, paid $235,000 for a three-bedroom, two-bath bank repossessed home in Elk Grove on a street she thought she could never afford.

"Three years ago we would never have thought we could purchase a house like this," Leon said Thursday. She said the bank paid closing costs and did the deal without a complication. [my comment: Gee, I wonder why.]

"A lot of these foreclosures are not being purchased by investors, but by first-time buyers and people who want to live in them a long time," said Chris Saizan, a real estate agent in Elk Grove.

Well, I am glad that there are still 26 year olds that can still afford a house. Let's see...using the 2.8 rule for a traditional loan...(235,000/2.8)...that means she/they are "hopefully" making around $85,000 in order to "afford" this home.

Assuming that they qualified for a 5.89% 30 Year Fixed (no money down) there would be a monthly mortgage payment of: $1392.37. That is just for P&I - throw in taxes and insurance and you are looking at about $1800+. That doesn't even begin to touch on maintenance which is always overlooked - therefore, for this exercise, we shall do the same.

It looks like you can rent a brand new 3/2 home in Elk Grove for about $1300-$1400 (which includes maintenance and often includes yard care, etc.). So, take the $400 difference that you were apparently going to spend anyway and start socking it away (maybe even pay off those credit cards that you are still charging on). At the end of 2 years you would have about $10k in the bank and ready for a decent down payment, but I guess the idea of saving is old fashioned.

Now, don't get all cranky. I am not saying that Cassandra didn't do exactly that in the last couple of years...she probably did. She probably saved up 10%-20% down and had planned her retirement and everything. Yeah...that's it.

So, let's just say that the values continue to drop (regardless of what anybody says, there is no evidence that we have hit the bottom). What if the depreciation for Elk Grove is only 9% for 2008 instead of the 26% that we saw in 2007? And then a 5% in 2009? How much will Cassandra's home be worth then?

$235,000 * (1-.09) = $213,850: $21k loss for 2008
$213,850 * (1-.05) = $203,157: $10k loss for 2009 ($32k loss in 2 years)

At the beginning of 2010, they will still owe about $30k more than it is worth.

Then, let's say that there is an appreciation of 5% per year after that (though, I think that will be rather high). In 2013, the same house will be worth $235k - which is what they paid for it. They will have about $17k in equity, so if they plan to move at that point, I hope that the bank pays their closing costs then too.

It cost the "owners" $21,600/year ($108k total) to live in the home. Does it work out that it is still an advantage to write off the interest on this? Hmm...this is sort of a ramble. I am sure all of you are smarter than I am on this stuff. It just doesn't seem like a good deal at the moment. Am I wrong?

Well, I hope that Mr. Saizan is correct that they will want to live in it "a long time".

I know, I know...I am a bitter renter.

Bonds...More Bonds...

More bonds...more bonds...

My head is spinning with how many bonds are out there, approved, and are stacking up along with more and more debt for the state and various counties for future generations. It seems fairly simple; a bond is nothing more than borrowing money today against revenue tomorrow, regardless of the amount of revenue that will be there. The money is "borrowed" at a discount, so, the county will actually get less than they owe - sort of a like a home buyer in the last few years.

Then, later down the road (but let's not think about that right now), we will have to pay this money back. Where will the money come from? The General Fund or we may in fact have to raise another bond or taxes in order to pay off the former bond. And why? Because no one likes to say that we are raising taxes...when we are raising funds in the future to pay down the bond from collected tax money, which leaves less tax money for other things...which starts the cycle all over again and may require another bond, blah, blah, and more political blah.

How come no one is asking questions like, "Where is all that revenue from the California Lottery going?" I thought that was going to be the magic bullet that would solve all of our financial issues. But, instead we see that the Lottery only accounts for about 2% of K-12 spending. Additionally, we apparently cannot leave the decision in the hands of the Local School Boards as to where to allocate the funds. In 2005-06, they spent about 64% of the funds on salaries and benefits. Then, they want to ask the educators to take a pay cut because times are hard. Sheesh!

There is a lot more to this than I can write in a single entry, but I have friends that are teachers and they give me the low-down on what they go through just get books in the door. It is ridiculous.

So, why am I discussing this on a "real estate" blog? Because this all has to do with decreasing revenues from local property tax. More depreciation leads to wider gaps in budgeting - but, no one wants to give up new spending based on increased property tax revenues. So, pass a bond because the sheep won't understand that we still have to either raise taxes or cut spending in coming years in order to pay for it.

Well, there is one more option that I believe that they are all counting on; that is that revenues will increase because the housing market will bounce back like a Jack in the Box once the two boys on the hill (Bernanke and Paulson) stop turning the little crank. Good luck with that.

Frustration is nigh. I am done.

Comparison Shopping...

Perusing the foreclosures in the area, Ione definitely stands out as a city that is looking down the barrel of a depreciation cannon. There is a sign on Highway 49 that says "Smart people are buying now." I always laugh when I see that and I always wonder if they know how offensive that statement is; the conclusion being that if you are not buying now and in fact waiting for something that seems reasonable and sensible, then you are a fool and a dolt. We shall see.

Of course, I wonder of those same agents told their clients 12-24 months ago that it was not a good time to buy. Likely, they have never told anybody that it is a bad time to buy.

This house in Ione at 2108 Village Dr. is a great example of why it is such a smart time to buy. According to Amador.WhoBoughtWhat.com this property was last sold in March 2006 for $365k. It was probably brokered through those agents on Highway 49.

So, $365k in 2006...soon foreclosed upon...and now less than 2 years later it can be picked up for $248,900! Wow! $116k off the last sales price and yet the lender is still having a hard time unload this place. Apparently, those in Ione haven't seen that sign on 49.

In fact, NexTag doesn't understand the market in Ione either; they are currently listing the value as "NexTag Estimate: $372,300". Someone better let that lender know that they are pricing it way too low.

NexTag Description

2108 Village Dr, Ione, CA 95640
NexTag Estimate: $372,300 (as of 12/23/2007)
Appreciation Since Last Sale: $7,300 (+2%)
A comfortable 3 bedroom, 2 bathroom single family home in Ione, California. This home, built in 1996, measures 1,232 sq ft on a 47,916 sq ft (1.1 acre) lot. Amenities include central heating, central cooling, and fireplace. NexTag estimates this Amador county home's value to be $372,300.

If smart people are buying now, I figure if I wait long enough to buy, I will be really smart.

Foreclosure Lane...

It must really stink for all those that actually bought their homes with the idea of living in them and being able to afford them, only to see that the frenzied, post Dot Com bust, housing bubble is impacting your American dream.

Foreclosures are hard for the people that are going through them, hard for the economy, but they are just as difficult to deal with for the people that are left in neighborhoods surrounded by them. The impact of this bust for the average person that didn't seek to dive in the deep end past the safety nets of financial prudence is heavy indeed. There is one in my neighborhood that has been vacant for several months which casts a negative light on the whole block.

I noticed in the post from Monday "New Trustee Sale Announcements", that there are actually 2 streets that have 2 future REOs on them apiece.

Preston Ave.
424 PRESTON AVENUE IONE, CA
445 PRESTON AVE, IONE, CA

Church St.
219 South Church Street, IONE
311 S. CHURCH STREET, IONE

What a deal! As one man said, "Life is a deal. It is either a big deal or a little deal, but it is a deal!"

New TSAs...

A few new Trustee Sale Announcements today with some sleuthful commentary. All announcements courtesy of the Ledger Dispatch.

PUBLIC NOTICE NOTICE OF TRUSTEE'S SALE TS # CA-07-110924-JB
940 Carbondale Rd Ione, CA 95640
Notice of Sale: $267,153.38
Date of Sale: 2/28/2008

PUBLIC NOTICE TSG No.: 2866068
15031 Maranatha Way , Sutter Creek, CA 95685
Notice of Sale: $221,661.03
Date of Sale: 2/28/2008

PUBLIC NOTICE NOTICE OF TRUSTEE'S SALE TSG No.: 3504915
16050 Meadow Lark Lane, Sutter Creek, CA 95685
Date of Sale: 2/28/2008
Notice of Sale is: $567,555.33
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The place on Meadow Lark Lane in Sutter Creek has an interesting background and fairly recent history. According to Amador WhoBoughtWhat, this place was most recently purchased less than a year ago for $680k. Wow, now that is a bust and a half at lightning speed!

Consider that someone approximately 10 months ago actually negotiated a deal to purchase a home in which they are currently in default. 10 months!

Apparently, they thought they were getting a deal at the time by paying $680k, since the previous owner had purchased it 2 years earlier for $715k. Ouch!

Check out the history at: 2BD in Sutter Creek sells for $680K

Walking Away...

Wow, I never thought that I would see the day that "walking away" from a mortgage would be a profitable business. CNN Money does not offer much in the way of a positive picture with this running as their lead.


There are more and more reports about people that have a new perspective on their homes/mortgages. It is a new paradigm in which the old guard at BofA, Wells Fargo, Citi and a host of others were taken completely unaware.

The new mortgage culture does not see their debt as a moral obligation, but instead sees their mortgage as nothing less than a business transaction. This is confusing for the golden parachute crowd in that for the first time in American history, the consumer shares their same viewpoint. It puts a major monkey wrench about the size of a gorilla in the cogs at the mortgage servicing factory and is wreaking mass havoc at the top.

Basically, the new "walk-away" culture says to themselves, "Why should I continue to pay for an increasing monthly mortgage amount on a depreciating piece of property/real estate?" They see it as a business transaction - if a business is losing money in a certain sector of their market, they shut the doors. Corporations don't feel a moral obligation to continue to pay for things or people that do not perform, therefore, why should the mortgagee?

Interesting question - we will touch on that more later, but here is a new company that apparently is doing very well that counsels people whether they should walk away or they should stick it out. Wow. No, this is not a joke.



Here is the link for the new company: You Walk Away

Serving Others Brings a Smile...

With all of the bad news in the media concerning real estate, the economy and a myriad of other issues, I thought that this article in the Amador Ledger Dispatch touched on something that many in this nation have forgotten about - serving others. I have always found it is a blessing to be able to sacrifice time and resources in order to help those that need it. Thank God we still have those that feel the same.

'Smiles For Kids'

Jackson Creek Dental Group hosted its 23rd Annual "Smiles For Kids" day at their office on the corner of French Bar Road and Highway 49. Part of the California Dental Association's "Give Kids a Smile" program, it offers free dental care to kids without dental insurance. Sandy Garcia, Jackson Creek Dental Group's coordinator/marketing manager, said the dental office served 55 children last year, up from 28 children in 2006.

More Taxes...

The general idea of government is fairly consistent: when revenues increase (like when a boom in housing brings in more taxes) create new expenditures in order to burn through this new surplus. But, when revenues decrease, the opposite does not occur - the budgets rarely get cut. Instead new "fees" (taxes) are created to fill the gap because of the shortfall.

The Calaveras Enterprise is reporting one of these increases that California is planning for all current homeowners. The idea is that they cannot count on taxes coming through your property tax, because...well, your homes are depreciating and there are so many vacancies now that they are not reaping the harvest that they used to. So, instead of trying to budget appropriately like any common citizen would do, they need to increase revenue in order to cover their mismanagement.

They know that they cannot raise your property tax - many people are fighting the current valuations that the county has assessed in this depreciating market. But, they figure the best way to collect on a large scale would be to insert a fee or "surcharge" - not on the value of your home - but on your insurance policy. That way they will be sure to get it.

Leave it to California politicians to increase the tax on your house, without increasing the tax on your house.

Nice - here is the link. Calaveras Enterprise: Governor proposes new Cal Fire fee for 2008-09

What are the odds...

Is this some country or what? Why are we spending billions (potentially trillions) in Iraq to bring them freedom and democracy when in the end it appears that the will of the people don't matter anyway and can be stifled through litigation and financial arm-twisting?

The Ledger-Dispatch is reporting that all of you who thought this issue was laid to rest when you cast your vote are just a bunch of flag-waving sheep. This is sick.

From the Ledger-Dispatch (Full Article):

In 2005 Amador County residents voted against a second Indian casino in the county by a resounding 85 percent.

But now the county board of supervisors is asking the populace to carefully reconsider the issue. They have scheduled six public workshops to consider whether the casino should be allowed to go forward.

New Trustee Sale Announcements...

Just a quick list of soon to be REOs recently published in the Ledger Dispatch here in Jackson, California. The courthouse steps are rather busy - I predict this will continue throughout 2008.

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PUBLIC NOTICE NOTICE OF TRUSTEE'S SALE Trustee Sale No.: 45078
213 K New York Ranch Road, Jackson, California 95642
WILL SELL AT PUBLIC AUCTION TO THE HIGHEST BIDDER FOR CASH
$229,319.17
Date of Sale: 02/08/2008

PUBLIC NOTICE NOTICE OF TRUSTEE'S SALE TSG No.: 3464718
16622 South Madrone Court, Pioneer, CA 95666
Notice of Sale is $282,314.88
Date of Sale: 02/14/2008

PUBLIC NOTICE NOTICE OF TRUSTEE'S SALE TS No. 07-50256 Title Order No. 3488020
Date of Sale: 02/13/2008
23082 RODEN LANE, PIONEER, CA, 95666
Notice of Sale is $405,909.99

NOTICE OF TRUSTEE'S SALE Trustee Sale #CA0813672
Date of Sale: 02/14/2008
445 PRESTON AVE, IONE, CA 95640
Notice of Trustee's Sale is: $288,987.56

PUBLIC NOTICE NOTICE OF TRUSTEE'S SALE T.S. No. GM-108171-C
Date of Sale: 2/15/2008
424 PRESTON AVENUE IONE, CA 95640-0000
$218,613.82

PUBLIC NOTICE NOTICE OF TRUSTEE'S SALE Trustee Sale No. 0710258JV
Date of Sale: 2-19-08
219 South Church Street, IONE, CA
$240,717.99

PUBLIC NOTICE TS# 3466.127
Date of Sale: February 15, 2008
1400 W. MARLETTE STREET, SPACE 12, IONE, CALIFORNIA 95640
(No price listed)

PUBLIC NOTICE BRS# 303307 TSG# 90-6946
Date of Sale: 2/19/2008
19095 PINE DRIVE EAST PIONEER, CA 95666
$135,492.02

NOTICE OF TRUSTEE'S SALE T.S. No: A345746
Date of Sale: FEBRUARY 7, 2008
311 S. CHURCH STREET, IONE, CA 95640
$52,468.39

NOTICE OF TRUSTEE'S SALE TSG No.: 3464718
Date of Sale: 02/14/2008
16622 South Madrone Court, Pioneer, CA 95666
$282,314.88