patrick.net

Nobody, even Senator Dodd himself, can win enough political support to bailout the FBs. If you are in California, you are bailed out automatically due to anti-deficiency law. If this is your ONLY residence, and you owe more to the bank than the proceeds from the sale, you can be free of the further debt obligations if you mail your key back, as long as you didn't refinance. So in this state, FBs are already entitled to a break like this.

This is a huge break, in Japan and Hong Kong, where anti-deficiency is NOT even heard of, middle class or middle upper class are tossed upside down for decades paying off their debt even if the property is 80% off. The life of these NEOs (Negative Equity Owners) is completely wrecked from that point onwards.

In any circumstances, FBs in California are in much better situation than elsewhere, the most that they can lose is their house, without even having to declare bankruptcy (surprise?). Anti-deficiency event will impact their credit scores but not as much as filing for bankruptcy. However, no matter how you cut it, they will lose their house.

If there is a financial tsunami caused by massive foreclosure and individual bank failure, a bailout is necessary, even for the savers. You need to park your money somewhere right? If one doesn't know which bank, which brokerage is going to fall next, how can a saver sleep tight? Not to mention the social instability in such upheaval, even if you have gotten a big pot of gold stacked away, who would want to invest in anything when there are hungry mobs on the street?

So the bottomline is, the Californian FBs are not that fucked to begin with, and as a member of a civilized society, all of us to some extent will have to chip in for other people's mistakes, and it doesn't mean that they won't be punished for their mistakes, just that they won't be punished as harshly as in other less developed countries.

Here we go again - DQ numbers out for SoCal Feb 2007:

http://www.dqnews.com/RRSCA0307.shtm

It's the same story - sales at their lowest since 1997, while the overall median is up YoY and MoM. As we've all said, the nosedive in sales will eventually exert negative price pressure and bring down prices. Add to that the subprime mess, and we'll see what happens.

Interestingly though, as even Mr. Prentice points out, only LA and San Bernadino counties showed YoY price gains. SD is down -5.9% YoY!!! As before, San Diego is leading the way up AND the way down.

Btw, regarding that San Jose Merc article, the journalist (Sue McAllister) wrote back to me regarding SFBay mort reset exposure:

"...you are right about the combined risk posed by the resetting ARMS. If I had it to do again I would have remembered to plug in some info on that into this morning’s story! Luckily, there is always a next story on the way..."

I think the main purpose of ethics is to derive a good way of life so that the person living it could attain to some form of satisfaction and tranquility.

I somewhat agree. I am a utilitarian though.

If I had it to do again I would have remembered to plug in some info on that into this morning’s story! Luckily, there is always a next story on the way…”

Kurt,
Perhaps instead of "if I had to do it again..." she meant, "if my editors didn't cut that part of my story out b/c of advertisers' (REIC) pressure.

DinOR Says:
Malcom,

I was kind of scratching my head over that too? That’s what makes all this talk so pointless. We’ve already bent over backwards as far as we can to accomodate RE as a “preferred” investment class what more can we do? Take over and make their payments YET still allow them to take the mort. int. ded?

(Just wait, it will soon be a tax credit.....lol)
I've never seen any other type of one sided speculative proposal. So these guys buy houses and if they make a chunk of money that is great. They make a profit. If they lose a chunk of money, well, it's the banks' problem. Then on top of that, they get to bad mouth the whole insitution, and the media actually then feels sorry for them.

the other other side, which i like to call 'reality',

whilst 'theotherside' is sitting there enjoying is rapidly depreciating debt-to-equity ratio, we'll continue to rent a brand new home for less than 1/3 the cost to service a 30-year fixed+taxes+insurance+maintenance, even assuming we put down enough cash to keep the loan conforming.

fixed rates are a great way to exploit inflation, except there are a couple of caveats that are big old but's.

* you have to be able to afford the payments. because as the value of your fixed-debt rises (the more it underprices rising rates) the greater the cost of default to you the debtor
* the asset against which the secured, fixed debt is, well, secured, has to hold its market value. many in the past have found themselves geniuses for holding a 30-year fixed at say 6%, when inflation implies a market rate of something like 8.5%. But at the same time they find the market value of the asset sinks by greater than their fixed-debt value.
* housing prices are _not_ very well correlated to interest rates. the 2 bouts of stagflation in 70s/early 80s were marked by both rising and sinking housing markets.
* rising inflation won't hurt a saver *if* they are prudent about continually reallocating their savings into appropriate yielding instruments. the bond market is pretty efficient, and bond funds are pretty easy to buy into.

* ps: accountants won't be able to do much with most people's taxes. accountants only change things dramatically for those who earn huge incomes, have lots of capital investments, own businesses, or are the 1-in-100,000 day traders who gets lucky.

In a sense, the anti-deficiency act will make the housing market in California fall faster.

In states where such act is unavailable, the FBs are essentially faced with the choice of turning over the house back to the bank and having their ass chased by the bank for the difference, or sticking it out in the same house till the very last minute.

In California, the calculation is much easier. The earlier you turn over your house to the bank, the earlier you can start a new life, because the moment you turn your house over you are free of any more debt obligations.

Therefore, to make the housing market fall faster, we should make such provision more known to the FBs so that they walk faster, instead of struggling to make mortgage payment.

What is JBR?

I am deontological.

Nice to see someone else has studied ethics.

OO,

I think the legality of whether anti-deficiency laws will cover normal refinancing is an open issue, yet to be settled -- probably soon to be settled. The way it was explained to me, the spirit of the law clearly would intend for "normal" refinancing to fall under its umbrella. The other side says that a refinancing is a restructuring of the obligation and therefore invalidates the anti-deficiency protection. But a lot of legal folks see this just as an industry attempt to circumvent the law because a vast majority of homes are refinanced during their loan term (something like nearly 90% I think).

Just using my outside, non lawyer, observer hat, I'll bet anti-deficiency *does cover* refis. Lenders will be left with going after HELOCs, 2nds, and other exotic pile-on loans.

I want Gyges' ring. But then I'd use it to prove to my brother all that's hidden in area 51 is a bunch of toxic waste.

Randy, is anti deficiency the same as non recourse? If that is what you are referring to, my general understanding is that seconds, refis, and HELOC are not non-recourse loans, and other assets can be attached.

Hey, does Virginia have an anti-deficiency provision in their mortgage laws?

Randy,

I am not surprised if they want to argue that HELOC, 2nds and refinancing for consumption will also be covered by anti-deficiency protection, since we know what kind of place California is.

The only problem is, somebody (dunno if it is the banks or hedge funds) will be left with a bunch of repossessed homes, and somebody will have to eat up the difference between the market value of the home and the loan amount. If that amount is big enough, somebody (very likely taxpayers) will have to help foot the bill. But we will worry about it when we cross the bridge.

OO, just to clarify a msiconception because California is definitely unique in a lot of ways but home loans here are definitely written in the lender's favor. To be clear, California does not have mortgages. We have TDs (trust deeds).
As opposed to a mortgage which is just a loan secured by real estate, TDs are an actual ownership position in the property. That is why in general the recourse of the lender is only for the property itself.

The only other state with anti-deficiency protection that I know of is N. Carolina.

I was made aware of the protection about a few years ago when the property market started going wild in BA, since some mortgage loan companies were touting this in their talking points for FBs who don't have enough dp or cash flow. It is a classic head I win, tail you lose situation.

In a normal market this is great for lenders, that's why the subprime market is crashing here. Lender's normally love the idea of a foreclosure in CA because often times they basically buy the house for the loan balance. Often times (OJ's house for instance) the lender will actually bid against other buyers and pay a little bit out of pocket to get the free title to the house. Then they can sell for whatever the market will bear.

skibum :

I agree completely, and I’ve made this point as well several times.

I remember now. Good, I won't feel so lonely now. :-) The median is masking a lot of things now. Eventually they will surface.

OO Says :

What is JBR?

Assuming it was not a joke ...

JBR != OO

Maybe that's why you don't know :-)

(Those new to the blog, OO's old handle was OwnerOccupier)

OO,

I have been table pounding on the purchase money loans for a while (purchase money PUT as the otherside likes to say). All we need is some traction from the MSM to get things really moving (as in FB talks about being freed from debt bondage and what a relief it is). I do feel sorry for folks who refi with a different lender and are only delaying the inevitable (and may be losing the anti-deficiency protection).
Refi's from the same lender will likely be covered (see cases below).

Our view is reinforced by the holdings in DCM Partners v. Smith (1991) 228 Cal.App.3d 729, 737-738 [“It is now well established that as a general rule where a note is created as a purchase money note it remains as such even though the terms of that note may be altered, modified or extended provided the obligation is secured by the same property. (See Palm v. Schilling (1988) 199 Cal.App.3d 63, 76)”]
http://caselaw.findlaw.com/data2/californiastatecases/b109744.doc
Definitely not legal advice!

Saw on Ben's blog that Saint Shiller was on bloomberg.com. I will take the S&P Case-Shiller Home Price Indices over medians any day (but I guess I like my news three months late :-) ) Unfortunately they don't cover your 'hood StuckInBA.

Is otherside a Realtor(TM)? S/He writes very similarly to our other Realtor(TM) friends who have posted here.

I would think that for someone to be visiting this blog and be antagonistic and have a 'look at what I have and you don't!! If you were as smart as I was you'd be an owner!!!' you would either be one of the Realtors(TM) in danger of having a falling income, a mortgage broker in danger of having a falling income, or someone who is a reset away from disaster or in danger of losing equity/being under water on a loan.

The property owners who are regular posters are mystifyed by this bubble and would like to see the housing market come back to reality (with a small 'R') so that our society can function rationally again. (I have a personal interest because I would like to see it easier for my husband to recruit people from out of the area). Otherside says s/he can comfortably afford his mortgage (I'm assuming it's a 15 year fixed in that case), so s/he must work in the industry.

Sue is awaiting your comments...

http://tinyurl.com/2bnuvn

-JB(PA)R

CR says Fleckstein says...
http://calculatedrisk.blogspot.com/2007/03/fleck-on-alt.html

Alt-A in big trouble

ubermonkey Says:

> If any of you want to see why a bailout probably
> will happen, fucking over anyone who displayed
> the smallest amount of prudence, check out this link:

With a link to the “comrades” over at the Daily Kos that said:

“The only thing wrong that these 2.2 million have done is wanting a piece of the American dream.”

Wanting a piece of the American Dream was one of the few things that they didn’t do that was “wrong”. Some (but not all) of the things they did that was wrong are:

1. Not reading the Loan Documents
2. Not asking what “neg am IO” was
3. Getting Cash Back at Close
4. Stating an income 300% higher than their actual income
5. Not asking if the payment would ever change
6. Getting a HELOC to pull out cash 6 months after buying with no money down
7. Not paying bills on time and starting with a low credit score and high start rate
8. Not asking why the “appraised” value of their home was $100K higher than others in the area.
9. Not asking “how” they could “qualify” for a $500K loan when they only made $20K
10. Believing that the fact that “they are not making any more land” means that a $500K s#it box in Turlock will be worth $600K next year…

Some sub-prime lender just called me on my cell phone to offer to refi me at 1%

This is clearly a junk call.

How do I file a complaint and get money out of them?

eburbed,

I think it is quite difficult to do. I think you notify them that you are on the list and then have to be able to prove that they called again.

The next time he calls just say "Oh, I'd love to! Can you hang on a minute?' Pop back in a minute and then, after a couple seconds say 'Oh, I'm so sorry, hang on a second.' Pop back after 5 minutes and then ask him to hold on again. Go out to dinner, when you get back if he is still there tell him you've changed your mind and not to call back.

PAR,
I gave Sue my housing bear opinion.

Malcolm Says:

> Randy, is anti deficiency the same as non recourse?

As someone has funded and foreclosed on over a $1 Billion in California real estate loans I can tell you that almost all loans in California are “effectively” non recourse loans.

California is a “trust deed state” (about half the states use trust deeds and half use mortgages to secure an interest in real property).

California is also a “single action state” (some states allow a lender to take back a property and then later go after a Borrower for a deficiency judgment).

When someone stops paying a Lender they can either take back the property under the terms of the deed of trust (DOT) or go through a long “judicial foreclosure” and get a deficiency judgment.

Since it is rare that a person with a high net worth (or much of any net worth) stops making payments the lenders just take the property back and move on…

How do I file a complaint and get money out of them?

Forget the complaint. Take the money, borrow 105%, trash the house, walk away when it resets. :)

Disclaimer: Not advice.

I just sold CFC short... a whopping 10 shares. It's my 'fun bet'.

FAB,

Can you provide the link for that DKos comment? I don't see it on the front page.

I think it's unfair in general to characterize a website based on one random comment. If someone took just one comment or commenter here, this site could be characterized as racist or knife obsessed or Pi denying.

In fact, my first contact with a mass awareness of the credit bubble and the housing bubble came via DailyKos and other "comrade" sites. That was around early 2004, some people at Kos (a majority of those voicing an opinion on the subject) were actually advising against borrowing against the house, speculating in RE and to refinance into fixed rate mortgages!

To clarify, that should read:

advising against borrowing against the house and speculating in RE, and for refinance into fixed rate mortgages!

eburbed,

If your cellphone is registered on donotcall.gov, there is an area to file a complaint. (takes about 2 minutes). I was getting spam calls and filed a complaint.

If only the government could do that for all those assy student loan scammers disguised as official mail and credit card offers disguised as collections notices!

Trolls are all the same, they ignore any reasonable comment that rebuts them and repeat the same old tripe over and over again. I'm beginning to think Trollism is a diagnosable condition like in-grown toe nails or stinky armpits.

Obama keeps calling my phone. Or at least some kids who claim to be working for him do. They're probably calling from my lawn with their newfangled cell phones!

theotherside, you conveniently forget the $0.5m that Randy has in cash. What about the interest he'll earn on that for five years? And no way he pays 7% to realtor in this market. 5% is generous.

SFBB,

Interesting. All I got was letter from Hilary asking for money. Since I don't like her, her policy, or a Bush Clinton Bush Clinton America, I tore it up. Thinking back, maybe I should have mailed bag of pennies with the prepaid envelope...

This Subprime crisis sucks. I didn't think the stock market would get this hammered.

My main holdings are in tech stocks (i know i know) and I'm just getting hammered.

So now BA prices are stagnant, and my net worth is falling. Fantastic.

eburbed,

I feel for ya, man. I keep thinking I should get my 'downpayment' amount out of stocks and in bonds. The rest I would let ride.