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Irvine Housing Blog

Irvine Housing Blog

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Sheila Bair: The Home Mortgage Interest Deduction Inflates House Prices

Posted: 30 Jun 2010 03:30 AM PDT

Count Sheila Bair among the critics of generous U.S. housing subsidies. 


Irvine Home Address ... 12 SANTA RIDA Irvine, CA 92606
Resale Home Price ...... $959,000

I want to break free
I want to break free
I want to break free from your lies
You're so self-satisfied I don't need you
I got to to break free
God knows, God knows I want to break free

Queen -- I Want to Break Free 

FDIC's Bair questions housing tax breaks

Count Sheila Bair among the critics of generous U.S. housing subsidies.

Bair, the chairman of the Federal Deposit Insurance Corp., said in a speech Monday that Congress should consider paring back federal tax deductions for homeowners. She said these subsidies helped inflate house prices, harming the very consumers that many of the programs aimed to help.

Bair took aim at federal tax deductions for mortgage interest, local property taxes, and capital gains on house sales (in certain circumstances). She said these taxpayer subsidies for homeowners, taken together, "are about three times the size of all rental subsidies and tax incentives combined."

Even that probably understates the case. Consider the hundreds of billions of dollars the feds are spending to support Fannie Mae (FNM) and Freddie Mac (FRE) in the name of making mortgages available, and the limited-time-only tax credits that have helped to prop up house prices over the past year.

Whatever the tab, though, Bair said the problem is the same: Government subsidies for property owners push up the price of houses, undermining so-called affordable housing programs run by the likes of Fannie and Freddie.

Bair rejected the notion that laws like the Community Reinvestment Act, the 1977 law that encourages lending in low-income areas, fed the housing crisis.

Risky loans "were made in large volumes because for a time they were highly profitable and because Wall Street would buy them and securitize them," she said. "It's as simple as that."

But she said policymakers have a duty to better educate consumers and to reform securitization, the process that Wall Street uses to turn loans into bonds salable to pension funds and other risk-averse institutional investors.

Along the same lines, she said, the government should reconsider popular tax deductions that helped the U.S. homeownership rate hit an all-time high of 69% during the bubble in 2005. That number stayed in the mid-60s throughout the 1980s and 90s. It was recently 67%, the Census Bureau said.

"Sustainable homeownership is a worthy national goal," Bair said. "But it should not be pursued to excess when there are other, equally worthy solutions that help meet the needs of people for whom homeownership may NOT be the right answer."

Letting the bank deal with it

The owners of today's featured property now have a Newport Coast address. Since they couldn't sell this one and get their money back, they have decided to let the bank deal with the problem.

The property was purchased on 6/1/2004 for $978,000. The owners used a $782,400 first mortgage, a $100,000 second mortgage and a $95,600 down payment.

On 9/30/2005 they obtained a $176,100 HELOC which allowed them to extract most of their down payment. They quit paying in early 2009. 

Foreclosure Record
Recording Date: 03/23/2010 
Document Type: Notice of Sale  

Foreclosure Record
Recording Date: 06/24/2009 
Document Type: Notice of Default 


Irvine Home Address ... 12 SANTA RIDA Irvine, CA 92606

Resale Home Price ... $959,000

Home Purchase Price … $978,000
Home Purchase Date .... 6/1/2004

Net Gain (Loss) .......... $(76,540)
Percent Change .......... -7.8%
Annual Appreciation … -0.3%

Cost of Ownership
$959,000 .......... Asking Price
$191,800 .......... 20% Down Conventional
4.80% ............... Mortgage Interest Rate
$767,200 .......... 30-Year Mortgage
$194,074 .......... Income Requirement

$4,025 .......... Monthly Mortgage Payment

$831 .......... Property Tax
$0 .......... Special Taxes and Levies (Mello Roos)
$80 .......... Homeowners Insurance
$50 .......... Homeowners Association Fees
$4,986 .......... Monthly Cash Outlays

-$975 .......... Tax Savings (% of Interest and Property Tax)
-$956 .......... Equity Hidden in Payment
$352 .......... Lost Income to Down Payment (net of taxes)
$120 .......... Maintenance and Replacement Reserves
$3,526 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$9,590 .......... Furnishing and Move In @1%
$9,590 .......... Closing Costs @1%
$7,672 ............ Interest Points @1% of Loan
$191,800 .......... Down Payment
$218,652 .......... Total Cash Costs
$54,000 ............ Emergency Cash Reserves
$272,652 .......... Total Savings Needed

Property Details for 12 SANTA RIDA Irvine, CA 92606
Beds: 4
Baths: 3 baths
Home size: 2,535 sq ft
($378 / sq ft)
Lot Size: 5,504 sq ft
Year Built: 1997
Days on Market: 43
Listing Updated: 40308
MLS Number: S616538
Property Type: Single Family, Residential
Community: Westpark
Tract: Othr
According to the listing agent, this listing may be a pre-foreclosure or short sale.

This property is in backup or contingent offer status.

Corner lot in newer area of Westpark. Highly upgraded home, with downstairs bed & bath, gourmet kitchen, laminate wood floors, granite countertops, cathedral ceilings, custom paint, mirrored wardrobes, and a spacious loft - library/office/media/play room. 3-car garage w/ built-ins for extra storage. Large, professionally landscaped yard is great for entertaining. Excellent full community amenities & close to to shops, dining, schools, and toll roads.

real estate home sales


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