The ATM on Turtle Ridge, Irvine, California

Felix Salmon sends us to Irvine Housing Blog:

Rudolph the Red-Nosed Reindeer: Address: 24 Shady Lane, Irvine, CA 92603. Beds: 3. Baths: 3.5. Sq. Ft.: 2,629. Lot Size: 5,053 sq. ft. Area: Turtle Ridge. County: Orange. MLS#: S512996: From Redfin:

Best deal around. Great plan 1 in private cul de sac location in the prestige Ledges at Turtle Ridge. Home shows as new very clean private location and great value for the Ledges estate. Nice rear yard area and great street appeal. Truly great deal here priced below most homes in area...

Let’s look at the loan history on this property.... The property was purchased in January 2005 for $1,157,000. The combined first and second mortgages totalled $1,156,730 leaving a downpayment of $270. Let’s just call it 100% financing. By April, they owners were able to find refinancing through Countrywide with a $999,999 first mortgage... Option ARM with a 1% teaser rate... a simultaneous second mortgage for $215,000 pulling out their first $58,000. So look at their situation: They are living in a million dollar plus home in Turtle Ridge making payments less than those renting, and they “made” $58,000 in their first 4 months of ownership.

Apparently, these owners liked how hard their house was working for them, so they opened a revolving line of credit (HELOC) in August 2005 for $293,000. Did they spend it all?... In December of 2005, they extended their HELOC to $397,990. In June of 2006, they extended their HELOC to $485,000. In April of 2007, the well ran dry as they did their final HELOC of $491,000. I bet they were pissed when they couldn’t get more money.

So by April 2007, they have a first mortgage (Option ARM with a 1% teaser rate) for $999,999, and a HELOC for $491,000. These owners pulled $333,000 in HELOC money to fuel consumer spending. Assuming they spent the entire HELOC (does anyone think they didn’t?), and assuming... negative amortization... the total debt on the property exceeds $1,500,000. The asking price of $1,249,000 does not look like a rollback, but if the property actually sells at this price, the lender on the HELOC (Washington Mutual) will lose over $300,000.

These owners will probably just walk away. I doubt they have any assets. They never put any money into the deal, they pulled out $333,000 in cash, and they got to live in Turtle Ridge for 3 years. Not a bad deal — for them...

Needless to say, this is not a typical case.

Comments

[albrt]

It has been a while since I took economics, but if I remember correctly prices are not set by the "typical case." I think the question is how marginal are the margins where prices are being set?

[trotsky]

Doesn't a "Home Equity Line of Credit" require "home equity" to lend against?

Owning no shares of Washington Mutual, I don't care about their lending practices. It looks like simple banking malpractice, though.

What are the odds the Turtle Ridge home "owner" himself worked in the mortgage business?

[MobiusKlein]

A physical bank has armed guards stationed around the premises to prevent and deter direct theft. What kind of guards do banks use to prevent theft in the way presented? It certainly wasn't the mortgage brokers - their pay is analogous to paying the physical guards a cut of all the cash leaving the bank, no matter who carries it.

[christofay]

Get ready, from now until the next Fed meeting there will be an emphasis on the bad news in order to generate pressure for the Cramer Call, analogous to the Greenspan Put.

The piece quoted above was also quoted by the Big Picture blog today. And here's a snippet quoted off of CNBC (is that supposed to be a business/finance teevee channel?) quoted on the Atrios site in the "Helicopter Ben" post:

"There are certain things that are so bad they almost can't be allowed to happen. There's never been a famine in a Democracy because people just won't let it happen and I think that's what the Fed's for."

At the very least we are heading to a massive bout of inflation, creation of money supply greater than the growth of the economy requires.

[christofay]

Anyways, while that is a gross example, that was our Greenspan/Bush recovery, the debt fest.

[JRossi]

Get paid 100k per year but have to live in southern California. Doesn't sound like too great a deal to me.

[christofay]

And here's another quote of a quote from Atrios from a guy who has grasped reality:

'Loomis Sayles & Co. declined to invest after receiving one of 16 invitations for a personal meeting last week with current Fed Chairman Ben Bernanke, said Daniel Fuss, who oversees $22 billion as chief investment officer at the Boston-based firm.

'``It's so nice to get a personal invitation to go to Washington and have a one-hour visit with Ben Bernanke,'' said Fuss, who decided participating wasn't worth the risk to his firm. ``Oh, boy, did I feel important for about 27 seconds, and then you smell a rat.'''

Yeah, go Boston.

[JonF]

Re: These owners will probably just walk away. I doubt they have any assets.

Yes, but unless they declare bankruptcy they will have ruined credit and debt collectors hounding them for the rest of their lives. Anc if the bank takes a charge-off on the HELOC debt without repossessing the property (and that's what usually happens in these cases as the first lien holder gets the property) they'll also have the IRS after them for income tax on that 300K charged off debt, again assuming no bankruptcy filing.

[christofay]

Greenspan, horse shit whisperer, was supposed to deliver ponies. The turtle ridge people just built a barn. Now we're blaming the people who over-invested waiting for the ponies.

[Bernard Yomtov]

How much does the CEO of WaMu make? All well-earned, no doubt.

[jim]

How do we know it isn't a typical case? All I've seen are anecdotes. This is another one. Which of the anecdotes, if any, actually describe a modal situation? Statistics! We want statistics. The media keep giving us anecdotes.

[VennData]

Anyone know how I can get a good chunk of my assets into the Paulson/Citi Super-SIV? I bet it'll be way over-subscribed, Chinese IPO-like.

[Steve]

Sounds like a pretty typical case here in Las Vegas.

[bigTom]

From my old days in the computer business. It was always really difficult to displace an incumbent IBM machine, because if you succeeded, the IBM salesman was required to repay his sales commission to IBM. I bet WashMutual didn't have a similar arrangement with their loan brokers.

[bakho]

Illegal mortgages supporting pot growing houses:

Most of these people who are orchestrating these operations have multiple houses. Some investigators say the minimum is three, some say five. The largest number that I've run into is 12," Leininger says, referring to a case he investigated right there in Renton.

Leininger says the growers prefer to own their houses, because it eliminates the risk of a nosy landlord. And he says growers — or their intermediaries — have little trouble getting the loans to buy the houses they need. He said the man who bought 12 houses was a typical case.

"Many of the loans were zero-down, no-document loans," he says. "He did not have any employment, and if I remember correctly, he was able to purchase about $6 million worth of property — and he didn't have a job."

Backed by Crooked Mortgage Deals

[p.wilmington]

The street name is also a bit shady -

http://maps.google.com/maps?sourceid=navclient&ie=UTF-8&rls=GGIC,GGIC:2006-50,GGIC:en&q=24+Shady+Lane,+Irvine,+CA+92603&um=1&sa=N&tab=wl

[bullbust]

Not typical ? Ha ha ha.

I'm sure you believe it's not typical. So too did M. Antoinette, about the 'let-them-eat-cake' part.

You really should get your head out of the clouds, and mingle more.

You have no clue what lurks in your backyard. The Bay Area is full of these ATMs.

[p.wilmington]

The google url above takes you to the map of Turtle ridge, not the satellite image as I had intended. At any rate, if you want to see the extent of tree cover, use the url and then go to the satellite image.

[save_the_rustbelt]

Typical maybe for California, and maybe for the east coast and Florida, but not so the center of the country.

But then here, depending on the location, a house that size (assuming built within the past ten years) would be $250k - 400k. The scenery would not be as nice of course, and there is that winter nonsense.

Here, people who bought at reasonable prices are going bust.

The hottest business here is packing up whole factories and shipping them overseas.

[DILBERT DOGBERT]

Did someone crib this from the IrvineHousingBlog???? http://www.irvinehousingblog.com/
I don't know who cribed from who but I first read of this in the Irvine Blog.

[DILBERT DOGBERT]

ACK!!! Didn't check the link.
Red in face turns and walks quickly away.

[Felix]

I'd love to, but I'm afraid I can't take credit for this one. I think you probably mean Calculated Risk.

[Cal]

This is typical in Orange County, San Diego County and the hinterlands of Los Angeles County, where the newer housing went in. I am hearing about this stuff from my friends who represent banks and who represent white collar criminals, err people in business accused of crimes.