Monday, January 23, 2006

A misleading statistic...and a firewall 'work'around

I want to take this post to show why an important stat is misleading and show people another way to get to this site if they are having trouble with firewalls at work. Not that anybody would ever surf the net from work or anything?!?!?

I like the pic on the reminds me of how many people got through economics. Maybe they shouldn't have slept through all that boring financial stuff. Hopefully this site isn't getting boring for anybody...I wouldn't want that!!!

I know that most people don't go back a few threads to look for new comments, so I want to address this one here. A few days ago, a poster had a comment regarding some info posted by the San Diego Association of Realtors. If you go to the website, you will see a box on the right hand side with the heading "NAR Economic Outlook". You can download a 10 page PDF from there. On page 5 of the PDF, there was the stat that was in question: "However, only 3% of the loans have loan-to-value ratios over 90%, so the foreclosure risk is minimal". The reader was bothered because they thought this number should be much higher...BUT I have very little doubt in my mind that the stat is true! WHAT?!??!? Are you kidding me?!?!?! BUT SoCalMtgGuy, YOU are the one who says people are doing lots of 100% financing...what gives?!?!?

Here is the problem. Loan-to-value (LTV) is NOT the same as combined-loan-to-value (CLTV). That stat is ONLY taking into loans that have an LTV over 90%. That stat does NOT take into account somebody that has an 80% first, and a 20% second for a 100% CLTV. The subprime industry used to do a lot of 95 and 100% 1-loan deals. These deals did not have PMI, and the borrower did not have to take on a higher rate 2nd mortgage. Yes, they paid a slightly higher rate because the LTV was high, but they could also get interest only in the full 95 or 100% of the loan, instead of just 80% had they done a combo loan.

A 100% LTV means 1 loan. A 95% LTV is not the same as an 80/15 which is 95% CLTV. An 80/20 is an 80 LTV loan and a 20 LTV loan, for a combined 100% CLTV loan.

Have I lost anybody???

Many months ago, I used to do a lot of 100% 1-loan interest-only loans. Since then, the rates have gone up dramatically as most investors do NOT want to lend 100% of the value of a property in 1-loan. They would rather do 80/20's in case the borrower defaults, this way they will probably only lose on the 2nd lein. Most A-paper lenders will NOT do a loan over 90% LTV. They will primarily do 80/10, 80/15, or 80/20, and each of these loans will NOT fall into the 3% of loans with LTV's of 90% or more. These loans have high CLTV's, and first leins of 80 LTV.

The same can be said for people that might have taken out a HELOC to push their CLTV over 90%. I have seen plenty of people that put money down on their property, only to turn around months later and pull it out, or get a HELOC.

NOW, does it make sense why that statistic doesn't mean very much. Most people don't know the difference between LTV and CLTV...but now you do. Aren't you glad you didn't sleep through this?

I think I will do a post and point out the 'spin' they are putting on their numbers, as well as the holes in some of their arguments. That could take me a while, so look for that later this week.

I want to thank everybody for the constructive comments on yesterdays post. I think our fellow reader knows what needs to be done, and will find a way to make things work. They e-mailed me and were glad for the support and the comments. I will keep you posted as I hear how things work out. I think it is safe to say we are all hoping things work out for them!

I haven't had as much time lately to read the comments and post over on Ben's blog. I am receiving anywhere from 10-30 e-mails a day, and I reply to every one, so that leaves less time to post other places. I read the articles posted, and try to read the comments on 'hot button' stories. I did see where a reader overthere was looking for me as they were having trouble accessing the site from work because of the firewall at work. Here is another way to get to this site, that should bypass the website f-word filters: . I hope this helps some of you (thanks scprofessor for answering long before I could!)

Keep the e-mails, comments, and feedback coming! I also want to give a special thanks to those of you that have made donations...they are greatly appreciated!



Anonymous Anonymous said...

Have you seen this ?

How many more lawsuits are we going to see ?


1/24/2006 2:22 AM  
Anonymous Anonymous said...

Full URL

1/24/2006 2:23 AM  
Anonymous Anonymous said...

Ameriquest to pay millions to mortgage customers

I hope this link will work.

1/24/2006 7:22 AM  
Anonymous Anonymous said...

This is the beginning of serious regulation of this corrupt RE business.
Corruption and Easy money are widespread when you study all irrational bubble markets.
Class action lawsuits against real estate industry going to be very popular hunting ground for the greedy trial lawyers.
About 12-18 months out is when the real pain starts. Panic is starting to set in and blogs like this expose the insanity.

1/24/2006 7:29 AM  
Blogger David said...

Those misleading B*stards. They are intentionally decieving the public.

Bubble Meter Blog

1/24/2006 7:52 AM  
Blogger Pointlines said...

Yo Socal

saw a good one for you in the register which seems to be part of your underlying theme again and again....

Adjustable Loans Push Prices Up

1/24/2006 7:53 AM  
Blogger drwende said...

Company managers even encouraged loan officers to watch the movie "Boiler Room" to hone their high-pressure sales tactics, the Attorney General's Office said.

Why am I not surprised?

My prediction... by 2010, mortgage lending will be regulated more like securities trading. No more situations where six flunkies work loans under one person's license.

There will be calls to reform the real estate biz, but the National Association of Realtors will swear that it's all under control (waving their code of ethics), and nothing will come of that.

1/24/2006 8:45 AM  
Blogger panicearly said...

Snakeoil salesmen.
This press release from Ameriquest website,posted sept.2003

Orange, Calif. – Aug. 23, 2004 – Ameriquest Mortgage Company has named Rodrigo J. Alba Vice President of Federal and Regulatory Affairs. Alba will provide counsel on all issues pertaining to federal regulatory compliance and serve in the company’s Washington, D.C. offices.

Alba, who earned his Juris Doctor from Syracuse University College of Law in 1993, most recently was Senior Director of Government Affairs for the Mortgage Bankers Association in Washington, D.C. There he led advocacy activities, served as lead staff on the organization’s Regulatory Compliance and Legal Issues committees and was lead staff on MBA’s anti-predatory lending campaign and regulatory reform issues. He also advised on all aspects of regulatory issues under federal law, including the Real Estate Settlement Procedures Act, Truth in Lending and Home Mortgage Disclosure Act, among others.

Previously, Alba was with the U.S. Housing and Urban Development’s Office of General Counsel GSE/RESPA Division, where he participated in the drafting and development of every major rule and administrative interpretation under RESPA and Regulation X from 1994 to 2000. He also was lead staff attorney in developing and drafting the Joint Report to Congress Concerning Reform to TILA and RESPA and led the group’s efforts to reform and streamline federal laws concerning mortgages and the loan origination process.

“We’re thrilled to have Rod aboard,” said Adam Bass, senior executive vice president for Ameriquest Mortgage. “His experience and knowledge of regulatory issues is invaluable to Ameriquest’s ongoing commitment to being an industry leader at the forefront on consumer issues.”

Bass said Alba’s knowledge of the nuances of federal regulations is an asset to the company’s ongoing commitment to Best Practices in lending.

Alba earned a Bachelor of Arts degree in economics in 1990 from the University of Maryland, College Park. He is a frequent speaker and presenter on panels and at conferences relating to regulatory developments in mortgage lending.

Ameriquest Mortgage Company is a national mortgage lender committed to helping consumers achieve their homeownership dreams and financial freedom through the origination and servicing of home mortgage loans. The company operates 300 retail loan offices nationwide; the company and its affiliates employ more than 12,000 associates.

Contacts: Sandi Cain, 949-497-2680; Byron de Arakal, 949-706-3060

1/24/2006 9:05 AM  
Blogger panicearly said...

make sure you read that second paragraph above a couple of times.
They bought this guy in to help them do exactly what they did. This "settlement" is basically just steal $10 and pay $1 back to avoid any future class actio law suits.
For someone to work in HUD and then go and prey on vulnerable people, how do these people sleep.

1/24/2006 9:11 AM  
Blogger SoCalMtgGuy said...

bubble butt,

that is a great article...and exactly what I have been seeing the past few years.

I don't think it takes a rocket scientist to see that there will reach a point where there are not enough new people to use ARM's to keep pushing prices higher.

When the payments adjust, it won't pretty.
When they rush to sell, it won't be pretty.
When the go to refi, it won't be pretty.

There is too much weight on too many budgets that are held together with a shoestring.

Stay tuned...


1/24/2006 10:30 AM  
Blogger SCProfessor said...

This past summer and in the fall semester I taught an online foreclosure class that focused on the subject matter by comparing the foreclosure processes in California, Texas and Kentucky. I also tried to help students view the subject matter from the perspective of a lender, borrower, and investor.

Frankly I was not happy with the effort. Just not enough foreclosure action here in California to justify providing students with real world examples, accessible over the Internet. Thanks to this blog and other blogs, that problem appears to be going away.

Based upon the speed with which this market appears headed, I'm considering offering the course this semester as a late start.

We are entering interesting times. Gone are the days where the only apparent prerequisite for qualifying as a creditworthy borrower was a heart beat......

1/24/2006 11:43 AM  
Blogger SoCalMtgGuy said...


Thanks for the info. Could you shoot me an e-mail if/when you get a chance?



1/24/2006 12:01 PM  
Blogger Pointlines said...


Along the same lines of the article I showed you.... I found another one:

Unraveling the Pyramid

The former head of FHA said it is time to change the way appraisals are ordered

There were a couple of good quotes even though this is an industry related (and usually biased??) article..

"Today, no one can accurately assess how many homes are overvalued in the U.S. housing market and for how much. There are those who argue that there is no such thing as appraisal inflation and therefore, no problem exists; if a buyer is willing to pay an asking price, then the price isn't inflated. True enough. But, when appraisal inflation becomes systemic to the loan process and when almost half of appraisers say they are pressured to inflate appraisals by others involved in the loan closing, then maybe it is time to change the way appraisals are ordered. The increased use of creative mortgage products and slowly rising interest rates, combined with predictions of falling prices in the hot real estate markets, concerns Julie Williams, the then-acting Comptroller of the Currency. In a speech given in March 2005 Ms. Williams raised price declines as part of her warning about the growing credit risks stemming from aggressive retail lending. She said, in an article titled "Amid the Housing-Bubble Din, Something Different?" published in the American Banker (like Broker, a SourceMedia publication) on April 12, 2005, that some of the increasingly popular hybrid mortgage products "are often predicated on continued healthy price appreciation for residential properties. No one knows how these loans will perform if housing prices stabilize or fall or, worst yet, if the value of homes fall below what the borrower owes." As interest rates rise no one knows how many Americans will be strapped with too much debt and forced into default; no one knows the magnitude of the damage over-valued homes will have on the U.S. economy."


1/24/2006 12:16 PM  
Blogger biliruben said...

socalmtgguy -

"Many months ago, I used to do a lot of 100% 1-loan interest-only loans. Since then, the rates have gone up dramatically as most investors do NOT want to lend 100% of the value of a property in 1-loan. They would rather do 80/20's in case the borrower defaults, this way they will probably only lose on the 2nd lein."

When I was buying my house a couple of years ago, and trying to avoid PMI, the lender was pushing an 80/10 pretty hard (I ended up scraping up 20%). I was wondering why that was. Why not just write me one loan for 90%, and modify the overall rate slightly to make up for the increased risk?

Could you explain why you say the lender likely wouldn't be on the hook for the big piece?


Great blog, btw. It has overtaken Ben's blog, Seattle Bubble Blog (where I live) as my favorite, because of the original content and insider stories that you provide, as opposed to the link and spit method.

Keep up the good work, and try harder to bore me with the details!

1/24/2006 12:19 PM  
Blogger SoCalMtgGuy said...


When you go over 80% ltv with conforming and most A-paper loans, you have to pay what is called PMI (mortgage insurance).

Your broker was pushing an 80/10 so that you would avoid PMI, get a better rate on a the first, but have a smaller 2nd with a higher rate.

For many a-paper borrowers, the blended rate between a combo loan (80/10, 80/15, etc) is usually better than a higher LTV loan with mortgage insurance.

Lets say a lender makes 1-loan to 100%. If the property goes down 5%, and the borrower defaults, then the lender has a lent more money than the property is worth. If the lender does an 80/20, there are 2 loans. If the property drops 5%, and the borrower defaults, the person who has the 80% is still 'ok'. The person who holds the 2nd knows they are taking more risk, and that is why rates on 2nds are higher. They are in 2nd position to get paid off, if/when a borrower defaults.

In the past, if a borrower defaulted, the bank could slash the price, and still get thier money back. But in the past, most people were putting 20% down, and paying off principle.

I don't know what is going to happen to an industry that is throwing around 'funny money' on overvalued assets that are disconnected from the fundamentals.

Does that help?


1/24/2006 12:51 PM  
Blogger Rob Dawg said...

I don't know what is going to happen to an industry that is throwing around 'funny money' on overvalued assets that are disconnected from the fundamentals.

I want to know what's going to happen to everyone next in line. The primary mortgage holder is going to take a haircut up about eybrow level but those 2nds are gone, gone, gone. Who the heck owns a 2nd on a house these days? I want to be as far away from them as possible. CALPERS "said" they were reducung exposure but they are IMO the 2nd smartest retirement adminstrators in history. Are we going to see a domino effect in seemingly unrelated investment communities?

1/24/2006 1:01 PM  
Blogger biliruben said...

They are in 2nd position to get paid off, if/when a borrower defaults.

Well that explains it. Thanks.

I don't know what is going to happen to an industry that is throwing around 'funny money' on overvalued assets that are disconnected from the fundamentals.

No shiznet. I am having to exercise restraint, and make sure I temper what I read with the fact that it is almost never as bad as bears predict, to avoid throwing all my savings at shorting Countrywide (CFC), partly just to hedge against declining home valuues.

1/24/2006 1:03 PM  
Blogger SoCalMtgGuy said...


I agree with you about the doom and gloom. I don't want to come across that way, and I hope I don't.

I want to use the data that is out there, along with my personal experiences to show people some of what is happening in and driving this market.

I think if people have good information, they will generally be in a better position to make a good decision. When the data says that 82% of purchases in CA from Nov 04 to Nov 05 were I/O or Neg-am, what should that convey to people?

I just think there are waaaay too many people using "buy later" loans banking on appreciation. How it all turns out is up for debate. I just want people to have good information so they can make informed decisions.


1/24/2006 1:11 PM  
Blogger biliruben said...

Your site is a breath of fresh air in many ways. Despite the name, you seem to be giving it pretty much straight, without much if any hyperbole.

Until 9 months ago or so, I couldn't find nearly any mention of the risks involved in buying a house. The mainstream media would simply quote platitudes from inside the RE industry. Hearing an insider such as yourself providing a much needed reality-check is a wonderful service for those willing to search out the details on the possible downside of buying a home.

Two years ago when shopping for a house and mortgage, I had to do my best to work through the fundemental macro and micro-economic numbers (without much background) to try to get a handle on how much risk I was taking on with my purchase. I would have loved to have stumbled upon this site back then.

I came to the conclusion that it was quite a bit.

Hence I bought much less house than I could afford, and knew I could ride out a 30% decline in my asset. Just because it has gone up close to that much in paper-value since then doesn't give my tremendous comfort, except that I know that we have that much more cushion if/when it does decline.

Let me thank you on behalf of all those that are currently in the situation I was in 2 years ago, providing invaluable knowledge that could save people from making some very bad, life destroying, decisions.

1/24/2006 1:35 PM  
Blogger SoCalMtgGuy said...


That is why I started doing this blog. Once I really got into the mortgage industry it made the decision to wait to buy much easier. Sure, lots of people were 'getting rich' around me, but the looks on many of their faces has changed lately. That 4.8% appreciation for San Diego isn't what many were hoping for.

About the title...I chose it because it grabs attention. I don't care if you are in high school, or a very sophisticated businessman...everybody has been in a situation where they have uttered the words where something or somebody is f'd.

Aside from the title, I don't use any profanity on the blog. There are a few website filters from people's work that have a problem with it, but no negative e-mails about it yet ;)

Thanks for the comments...


1/24/2006 1:53 PM  
Blogger mtnrunner2 said...

scprofessor - what happens when a borrower is upside down on their mortgage in CA? I lawyer friend in AZ told me that AZ (and she thinks CA too) has a Civil Code which protects homeowners who owe more than their house is worth.

SoCalMtgGuy - what happens when lenders find out that their holding overvalued liens? How long is the lag time for the bank to realize the borrower's house has lost value? What is the likelihood they will recall the loan or part of it?
Also, thanks for the detailed analysis of the RealtorSpeak on the CDAR website. That economics report is so full of mistruths like the one you stated, that I could write an entire essay on it. It sounds like you may be doing so yourself. I think you should send a copy of it to the Voice of San Diego and the UnionTribune, since both seem interested in exposing the housing bubble.

robert cote-I think we'll see a lot of pension and hedge funds with problems, as they were probably the ones investing in those 2nd deeds, to get the higher return. I did a little research the other night, and found 10 - 12% returns on deeds of trust. Lots of companies offering this! You'd need to charge a subprime borrower at least 1 - 2% over to make any money. I read a forum where a guy was writing about investing in this company, bec. he wanted a high return.

On a last note - it is disappointing that there are so many ARMs that won't reset for about 5 years. That means the ride down will be slow. I am waiting to buy another house until the bottom hits, and I'm disappointed that I'll have to rent for 5 years, maybe 10. Any reason to think it could unravel faster? It seems until all ARM holders have folded, there is still pent-up equity. Or will the desperate sellers make it go down real quick?

1/24/2006 1:57 PM  
Blogger SCProfessor said...

MTMRunner2, what your AZ lawyer is referring to is anti-deficiency legislation and can be found in California Code of Civil Procedure Section 580b. It is limited in its applications to purchases of residential property (1 to 4 units), and applies to indebtedness created at the time of purchase (known as a purchase money indebtedness).

Anti-deficiency legislation also precludes lenders from obtaining a judgment against the borrower where real estate vendor financing is involved (seller carry-back situations) and where the foreclosure proceeds in a non-judicial method under California Civil Code Section 2924b.

Go to Texas and the rules are different. I wonder how many California investors who are seeing Texas as the place to invest are going to wake up some day to a Texas generated deficiency judgment encumbering their California real property.

Before investing in speculative property, it would be wise to do a little research on whether anti-deficiency protection exists. Not doing so is like flying without a parachute. It is OK in a commercial jetliner, but may not be in a poorly constructed ultralight aircraft…….

1/24/2006 3:45 PM  
Blogger mtnrunner2 said...

scprofessor - are you saying that TX law supersedes CA law, so a deficiency judgment on a Texas home can be entered on a person's CA home? Doesn't the CA law protect you?

1/24/2006 5:17 PM  
Blogger Scoopy said...

OT, but I had to share:

From today's LA Times,0,1094478.story?coll=la-home-headlines&track=morenews

California Sees Surge in Million-Dollar Homes
By Annette Haddad
Times Staff Writer

3:45 PM PST, January 24, 2006

Million-dollar homes were once a sign of real affluence. Now, at least in California, they are getting to be a dime a dozen.

The number of homes selling for $1 million or more in the state surged 47% last year over 2004 for a total of 48,666 properties, according to real estate sales data released today. That is nearly four times the number of seven-figure homes sold in 2002.

Indeed, if you sold a home in California last year, there was a 1 in 13 chance it went for at least a cool $1 million, according to DataQuick Information Systems, a La Jolla-based real estate research firm. Your chances in 2004? One in 20. In 2002, it was 1 in 43.

Sure, Malibu and Beverly Hills got their share. In the San Diego County community of Rancho Santa Fe, one of the nation's wealthiest enclaves, virtually all home sales were in the million-dollar category.

The real news is that $1-million homes are becoming more commonplace in many areas not known for lifestyles of the rich and famous. Take the Glassell Park area of Los Angeles. Eighteen homes there sold for $1 million or more last year, versus only one in 2004.

In San Pedro, the total rose to 18 from four; in Baldwin Hills, it went to 23 from 9. Temple City posted 17. The year before: zilch.

"A million dollars isn't want it used to be," said James Joseph, owner of a Century 21 brokerage.

Adolph Rangel is among thousands of California homeowners who have joined the $1-million home club recently, thanks to the state's 5-year-old real estate boom. In 2004 the 30-year-old mortgage bank branch manager sold a Yorba Linda house for $1.05 million. He had paid $750,000 for it 12 months before.

Last year, he bought a new tract home there for $1.3 million, and on Sunday he accepted an offer on it for $1.55 million.

"It's amazing when you think about it," Rangel said. "Where did all these millionaires come from?"


I've just gotten my popcorn to watch the bubble burst, and now I know the answer to that last question!

1/24/2006 5:56 PM  
Blogger SoCalMtgGuy said...


When you can get a 100% loan to 1.5 million with a 600 FICO, what worries do you have?

I have seen million dollar neg-ams where the payment was in the low-mid 2000's. Sure, that is only the minimum payment, but who cares. You 'own' a million dollar home right?

I have seen several people take out 960k firsts with 250k HELOC seconds to buy 1.2 million dollar homes with NO money down.

I laugh at what qualifies for a 'million dollar home' in many areas of CA today.

Also, having a million dollar loan on a 1.2 million dollar home does NOT make you a millionaire.

That said...I hope you have lots of popcorn...because this is going to one long 'movie'


1/24/2006 6:11 PM  
Blogger Scoopy said...


Several weeks ago I was bidding on a 420K townhouse in Studio City, CA that was a total cosmetic fixer. We were approaching an 80/20 with 5% down and being encouraged to change our withholdings so that we could "afford more and let the taxes break us even" at taxtime.

I know you and others here talk about preaching to the choir, but being steered here and to Ben's bubble site has literally stopped the process and alerted me to the danger of buying *anything* before the balloon deflates, at least enough for us to feel confident about buying.

You are *not* only nodding in agreement with each other here. You are saving a potentially f'd bwr. I have a long way to go before I am able to fairly judge a mortgage or a property and this is one place to get down and dirty truths. Please keep it up.


1/24/2006 6:21 PM  
Blogger SCProfessor said...

MTMRunner2, step one in this analysis relates to the concept of “full faith and credit.” That is decisions that come out of a sister state’s court should be recognized in other states. A California resident makes a voluntary decision to go to Texas and buy property there. Defaults on his obligation and the lender goes to court and gets a deficiency judgment. That lender brings its judgment here to California and files an application with the California Court for recognition of the judgment. The procedural aspects of the Texas proceeding (notice and opportunity to be heard) are met. The California Court properly recognizes the sister state judgment and an abstract of that recognized judgment can be recorded, encumbering all of the real property owned by the judgment debtor in the county where the abstract is recorded.

1/24/2006 6:24 PM  
Blogger SoCalMtgGuy said...


I'm glad I could help! It is people like yourself that I wanted to help when I first started this blog.

You weren't trying to get rich overnight, you were just looking to buy a place to live for crying out loud. So many people bought into the 'buy now, or be priced out forever' line that I have heard so many times.

I'm glad you stepped back. I think you will be happier and have much less stress at this stage of the game.

Having to change your withholdings so that you could afford an 80/20 loan on a fixer-upper is NOT a good place to be in my opinion. Not in this market, not at this time. The days of making 100k in 3-4 months are over in all but the most extreme or special circumstance.

Keep saving money, and watching the market, the fundamentals cannot be defied for too much longer.

Best of luck to you!


1/24/2006 6:33 PM  
Blogger Scoopy said...


I thought the withholding thing sounded like a stretch. But you know, my spouse and I harbor guilt for not having the "things" that couples traditionally have, like security and a home. I can feel that little nut of shame in the background, telling us that if we *can* own a house, then we can *afford* to own a house. And we're smarter than that! Much smarter! But more powerful and subtle issues are behind this psychotic market.

My parents were depression babies who didn't know how to transmit the knowledge that they'd been raised with -- the idea that wealth is earned, at great odds. What happened to me (and probably a lot of others) is a rebellion against the depression baby fear.

Frankly, my dad *can* afford new f**king dishtowels. But he cannot stop hoarding and scrimping. He's not crazy to do so (I guess), but growing up he gave me a million eye-rolling moments with his fixation on scrimping. It seemed like an obsession. I'm sure that in many cases it is.

Who knows, maybe that's where this generation of dipshit spendies came from. A senseless rebellion against the shell-shocked depression babies.

1/24/2006 7:05 PM  
Blogger Arioch said...

From Scoopy's post where he has a cut from the paper:

"It's amazing when you think about it," Rangel said. "Where did all these millionaires come from?"

The answer? Lets all say it in unison now.....

"The millionaires came from nowhere".

What an amazing spin, where did the millionaires come from. If it was me, the quote would be....

"It's amazing when you think about it," Arioch said. "How did all of these people qualify for a million dollars worth of debt?"

1/24/2006 7:13 PM  
Blogger cereal said...

"in Baldwin Hills, it went to 23 from 9."

for a minute i thought you said some body actually paid a million dollars to live in baldwin hills.

1/24/2006 7:35 PM  
Blogger Wes D said...

I was in a business meeting last week with a CEO from a mid-size company, an ex bank executive, and a retired CEO from a software company. Those three very intelligent, highly educated men were speculating on the Florida housing market. Two of them have decent size houses in FL. One guy said to the other than he belived RE wasn't going to decline because of the intrinsic value of real estate, ie the ability to come home to a house each night. The other guy remarked that he agreed and the whole thing was blown out of proportion. I kept my mouth shut lest I blow a business op with them.

The ex-CEO and I went out to dinner that night and after a couple drinks we started talking about the housing market. He was shocked to hear that many people were taking out IO and neg-am mortgages. I began telling him stories from this blog, stories about my friends who are F/Bs, and certainly convinced him that there may be something to this story of a bubble.

My guess is a lot of people don't follow up with the news or certainly believe the realtor talking points. I've finally convinced my dad this thing is going to blow.

We will all be free soon. Free of our assets and our jobs. I'm going to save up about $5k cash so I have enough cash to get to Montana and spend some time camping. Might not be a bad idea to get first dibs on a prime living/camping site in one of our beautiful national forests as well.

1/24/2006 7:42 PM  
Anonymous Anonymous said...

what's wrong with baldwin hills? wouldn't mind living there at all.

i was at a party in view park last weekend. the houses are nice.

1/24/2006 7:44 PM  
Blogger ff2017 said...

re: first few comments on corruption and "those evil boiler room bastards"

Stop the presses. It is my belief, there are going to be quite a number of F-ed borrowers. But here's the thing, no one forced them to go and take out huge mortgages to buy property that may or may not be overvalued.

It is similar to the dotcom crash of a few years ago. I didn't see any analysts put a gun to my head as I bought overpriced stocks and watched them go down. Its my own damn fault for not understanding what was really going on.

People need to stop blaming other people for their own mistakes and take personal responsibility.

I mean you're putting hundreds of thousands of dollars on the line, read the damn document and carry a calculator. Heck those evil people even give you 3 days to say, eh, no thanks, after you sign the thing!

1/24/2006 8:14 PM  
Anonymous Anonymous said...

scprofessor: thanks for taking us to school! This is reminding me of the good 'ole days of bklawyer over at Ben's. It's amazing to me how many Californians have this idea that you can just "give back the keys" if you get underwater -- they seem to not realize that (a) it only applies to purchase money, (b) that it only applies to the primary lien (right?) and (c) that any debt forgiveness is considered by the IRS to be income on which taxes will be assessed. (!) It would be really (really!) interesting to know how much mortgage debt in California is currently covered by the one action rule -- my guess is that it's something like 30%, or perhaps even less. Has someone quantified this?

1/24/2006 8:41 PM  
Blogger SoCalMtgGuy said...


You only have a 3 day recision period on refinances in the state of California...not purchases.

I agree that this country lacks a whole lot of personal responsibility.


1/24/2006 8:45 PM  
Blogger diemos said...

That's an interesting point about an 80/20 not counting as 100%LTV. So tell me, if everyone had an 80/20 1st and 2nd mortgage on their home. Would the average LTV on all outstanding mortgages be 50%?

I seem to recall that figure being bandied about as a reason that people had "plenty of cushion" in case of declines.

1/24/2006 9:11 PM  
Blogger mtnrunner2 said...

scprofessor - does the deficiency clause apply only to purchases, and not to refinances? If so, what do you think is the amount of money that the average homeowner might owe on their house when the market corrects? Since most loans are 80/x, the x portion is not safe from judgment. Neither is the HELOC, or the entire amount if it's refinanced. So there is only minimal protection. What is the status of foreclosures? I checked one site which stated 218 in San Diego, but when I tried to get a list, only 5 came up. Couldn't people still get out of their house just by selling?

SoCalMtgGuy - I think it's great we have so many insiders on this blog, like the professor, and the title company owner. If we could get a realtor to round it out, to give us the scoop on the all the reductions. This is the big mystery - what is going on in the field, real time? The NAR data is 2 - 3 months lagging, since they report closings of the prior month. And they like to put that positive spin on everything.

1/24/2006 9:17 PM  
Blogger SoCalMtgGuy said...


I think there are a few realtors that post over on Ben's site...from the LA area I believe.


1/24/2006 9:41 PM  
Blogger SoCalMtgGuy said...


I don't have the specifics on that stat. I think I heard it about Fannie or Freddie's loans, but I'm not sure. Without knowing that, I can't really add anything more.


1/24/2006 10:04 PM  
Anonymous Anonymous said...

tinyurl won't work. It just redirects. It takes you back to - at which point the filters will catch it.

1/24/2006 10:18 PM  
Blogger SoCalMtgGuy said...


Thanks for the input. I know that it has helped some get around it, but I'm by no means an expert on how the different filtering programs work.


1/24/2006 10:54 PM  
Blogger SCProfessor said...

Mtnrunner2, Oh yes that issue of the refinance. I'm going to explain my answer a bit here and I think you will understand why.

Let's say for example you have a $400K purchase money loan with WaMu and it is an ARM. Now, you are decidedly conservative and approach WaMu about modifying the loan to make it a fixed rate. So, WaMu prepares a document titled "note modification" that accomplishes this purpose. Is purchase money anti-deficiency protection (PMADP) gone? I doubt it.

Let's change the facts in a minor way. Rather than modify the note, a new note and deed of trust are prepared with WaMu. Proceeds of this new loan are used to payoff the old note, the old deed of trust is reconveyed, and the new deed of trust is recorded. Does PMADP (that new acronym I've invented) remain? Assuming the lender (WaMu) remains the same and the loan amount is the same, I think you might be able to make a winning argument that it would (notice how I hedged my bet).

OK, scenario three (3). You know longer like WaMu because they charged you an overdraft fee on your checking account. You are sure BofA is a better bank. So, you decide to refinance with BofA, borrow an additional $200K to buy a Hummer, take a three month around the world cruise because you deserve it, and have a little money in savings. You sign that $600K note and Deed of Trust and head out to enjoy yourself. While Somewhere in the middle of the Pacific Ocean you learn (1) you are part of a company RIF -- loosing your job, and (2) it is bubble time.

Of course the unexpected happens. Your home drops in value from $800K to $300K. You can't make your payments. BofA follows the process associated with judicial foreclosure and sells the home for $300K. BofA looks to you for $300K. You point their lawyers to CCP Section 580b. They point out the language relating to purchase money financing. Your best argument is you should only owe them $200K because $400K of the $600K you borrowed went to pay off a purchase money loan. As to the $200K, well IMHO there is no question you are the stuckee.

1/25/2006 8:14 AM  
Blogger SCProfessor said...

Damn it I hate when I say something and look stupid. In the second to last paragraph in my previous response I said:

"You know (sic) longer like WaMu because they charged you an overdraft fee on your checking account."

I hate is when I do something stupid like this. It makes it appear as though I have "know" idea of what I'm talking about.

1/25/2006 8:43 AM  

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