Author Archive: Irvine Renter
Warning! Don’t read today’s post if you have a weak stomach or a strong affinity for consumer debt. This is your only warning.
Repost from OC Housing News 2011-2016Hang on, Alice, as we bolt through the rabbit hole on an adventure to financial Wonderland. Come with me on a fantastic journey to the Great Lakes to save fish falling prey to evil bloodsuckers, and along the way, we will save borrowers from the evil of debt peddler, Louie the Lender Lamprey.
The Sea Lamprey and the Great LakesPrior to canals of the nineteenth century, the Great Lakes were a thriving fishery. With over fishing and the introduction of the sea lamprey through the canals, the fisheries of the Great Lakes were devastated. According to Wikipedia: The Sea lamprey (Petromyzon marinus) is a parasitic lamprey[READ MORE]
Escaping an onerous mortgage can be the best thing for a family's financial and mental health.
Repost from OC Housing News 2011-2016I feel bad for loanowners (AKA underwater borrowers). When I started blogging in February of 2007, I felt a sense of urgency to convince as many people as I could they shouldn’t buy a house. I knew the impending price collapse was going to have serious long-term consequences on people’s lives. Many would succumb to the weight of their debts and lose their homes in foreclosure. Many more would endure years of owing more on their mortgage than their home was worth. Mortgage debt is always a heavy burden, but when it greatly exceeds the value of the house it’s attached to, the crushing weight is almost too much to bear. For many loanowners, the last ten years in borrower purgatory[READ MORE]
Very few strategic mortgage defaults were ruthless. Most strategic defaults were inevitable, and the borrower merely chose the timing.
Repost from OC Housing News 2011-2016People form strong attachments to their homes. Walking away is never a decision they take lightly. We can discuss the pros and cons and come up with our own beliefs and attitudes about it, but the turnover of our housing stock caused by the housing crash will be very painful for those who go through it.
Ruthless default or accelerated default?I write often about hidden premises buried within the arguments writers make. These distinctions are important, and unless we uncover our fallacious beliefs, we make erroneous judgments and carry false beliefs. I wrote many times about strategic default, and in my last post on the subject, I uncovered something new. There is no accepted definition of strategic default. Lenders have[READ MORE]
The foreclosure crisis stopped when lenders quit foreclosing and forced homeowners to wait until they had equity to sell the property. Many homeowners are still waiting, so MLS inventory is quite low.
Repost from OC Housing News 2011-2016I’ve stated many times my contention that the housing recovery is built on a foundation of market manipulation; distressed inventory dried up because lenders opted to modify loans rather than foreclose and purge the bad debt from the economy. Unfortunately for lenders, today’s loan modifications are tomorrow’s distressed property sales, and in my opinion, the mortgage mess is not resolved, the outcome has merely been delayed by loan modifications. Lenders designed loan modifications to maximize lender profits while giving borrowers feeble hope of clinging to their family homes. Lenders only began granting loan modifications in response[READ MORE]
People buy homes for many good reasons, and many bad reasons too.
Repost from OC Housing News 2011-2016The need for shelter is basic, often closely followed by the desire for community. In the United States, people borrow prodigious sums to buy real estate to satisfy this need, whether it's good for them financially or not. Basic human emotions drive the activity in real estate markets. Most people buy because their family circumstances push people toward ownership at different times. Some are fortunate, buy at the bottom of the real estate cycle, and earn an enormous windfall. Some are not so fortunate, buy at the peak, and leave after a foreclosure, destitute and angry. The most damaging aspect of our system is the price volatility because it capriciously rewards some and destroys others. Further, home price volatility creates a culture of Ponzi borrowing and[READ MORE]
Good climate, good services, and a chronic shortage of housing combine to create an intractable problem with homelessness in California.
What is the minimum level of housing quality people are entitled to? If you pose that question to Coastal California residents, many will cite their needs for a large single-family detached house with granite counter tops — and they believe they are entitled to it. For me, I’m just thankful I am not homeless. Have you ever thought about what you would do if you faced homelessness? How would you tackle the problems of daily life without stable shelter where you can store your possessions or control your environment? If I were facing homelessness, I wouldn’t want to freeze, and I wouldn’t want to starve, so I would seek out a location with good climate and ample[READ MORE]
When people view homes as an investment rather than a family home, prices become volatile, and it disrupts people's financial lives.
Repost from OC Housing News 2011-2016Homeowners love it when houses go up in price; after all, it makes them rich. During a home price rally, the bulls intoxicate with greed and obsess about owning real estate as an investment. However, once houses become an investment, the prices of houses begin to behave like an investment, and volatility enters the system. Houses should not trade with the volatility of a commodities market because it causes more harm than good. Price volatility is a very disruptive feature in a housing market: the upswings are euphoric, and the downswings are devastating — and there are downswings. Declining house prices are emotionally and financially draining both to[READ MORE]
Future housing busts will be busts in sales volume, not in price.
Repost from OC Housing News 2011-2016When lenders make loans, they far prefer borrowers to repay those loans; in fact, their entire business plan relies on it. As long as borrowers are current with their payments, lenders are happy and making money. When borrowers don’t make their payments, the end result is a distressed sale. If there are enough of these, market prices go down dramatically, causing significant lender losses. Lenders know this too, so when distressed loans become an overwhelming problem, they devise can-kicking methods including loan modifications, mark-to-fantasy accounting, and when all else fails, they simply allow the delinquent borrowers to squat without paying a dime. Below is the lender decision tree for delinquent borrowers. Today we will explore this diagram in some detail and discuss the ramifications of the decisions lenders make. [READ MORE]
Debt-to-income ratios must be limited because beyond a certain point, rising debt service becomes a Ponzi scheme.
Repost from OC Housing News 2011-2016In The Great Housing Bubble, I wrote about how we could prevent the next housing bubble: Loans for the purchase or refinance of residential real estate secured by a mortgage and recorded in the public record are limited by the following parameters based on the borrower’s documented income and general indebtedness and the appraised value of the property at the time of sale or refinance:
- All payments must be calculated based on a 30-year fixed-rate conventionally-amortizing mortgage regardless of the loan program used. Negative amortization is not permitted.
- The total debt-to-income ratio for the mortgage loan payment, taxes and insurance cannot exceed 28% of a borrower’s gross income.
- The total[READ MORE]