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Irvine Housing Blog

Irvine Housing Blog

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Banksters should be held accountable for ruining the housing market and economy

Posted: 30 Mar 2011 03:30 AM PDT

As the housing market crumbles, those most responsible for its demise are the ones suffering the least.

Irvine Home Address ... 115 OVAL Rd Irvine, CA 92604
Resale Home Price ...... $329,000

Caviar and cigarettes
Well versed in etiquette
Extraordinarily nice

Recommended at the price
Insatiable an appetite
Wanna try?

Queen -- Killer Queen

The banksters taking over our country enjoy extraordinarily nice lives of caviar and cigarettes. They're insatiable greed is only surpassed by their lack of accountability. In last weeks post on shadow inventory, I came across a February story on how bankers let each other squat. It really made me angry: 

Bankers allow each other to squat

One of the most infuriating facts about shadow inventory is its epicenter: the New York MSA. Boneheads in New York think their market is immune as it is one of the few where properties still routinely trade at peak prices. Little do they know that this price stability is an illusion created by shadow inventory.

Shadow inventory to push foreclosures to new heights

by JACOB GAFFNEY -- Wednesday, February 2nd, 2011, 3:57 pm

"The shadow inventory in the New York MSA will take the longest to clear — 130 months as of fourth-quarter 2010. That is at least twice as long as it will take in any of the other top 20 MSAs and 2.7 times the average time to clear for the U.S. as a whole," the S&P report states. "This is primarily due to very low liquidation rates in New York."

What the hell is this? Very low liquidation rates? Why is that? Could it be that bankers don't want to hurt their own property values? What other reason could there be? Assholes.

The behavior of the banksters has been utterly reprehensible. They unleash a destructive Ponzi virus on our financial system for their own personal enrichment. When their Ponzi virus consumes the housing equity of a generation, they (1) give themselves huge bonuses, they (2) lobby government for handouts, and they (3) selectively refuse to foreclose on properties in their neighborhoods to preserve their own property values.

These creatures have taken greed and unaccountability to new hubristic heights.

A Lawyer's Perspective on... Promoting and Preserving Failure in America

Friday, March 18, 2011 -- Capitalism Without Failure 

It was with considerable sadness that I learned, during the financial crisis, that people I knew - economists, investment professionals, bankers - had given bad advice to their companies and their clients. They had not seen a housing bubble developing. They had not seen a highly over-leveraged banking system. They had not questioned the viability of an opaque derivatives industry that was growing exponentially. In fact, they had not seen any abnormal risk. And they had advised their clients and firms accordingly. As a result, their funds and their portfolios and their clients lost massive amounts of money.

I was concerned for these people. After all, their inability to call a major economic catastrophe, with plenty of warning signs, had led to horrible losses. And since plenty of people had been predicting a collapse... I assumed that my friends would all be losing their jobs, and their reputations.

That is a very reasonable assumption. Bankers should be held accountable for the problems they created. Those responsible should have lost jobs, and some of the worst should have gone to prison.

I could not have been more wrong. That's not how it works in the world of elite finance and economics. In the highest echelons of economics and banking and investing and advising, the people that succeed are not the ones that get it right. The people that succeed are the ones that do what they have to do in order to succeed.

Fifteen years ago, I completed a Masters Degree in International Economics at the Johns Hopkins School of International Studies. I had studied with a number of people that ended up working at top banks. In 2005, I had been considering a home purchase but was becoming convinced that real estate in the USA was in an unsustainable bubble. At that point, I had been working as an attorney for a number of years - so I thought I should speak to an expert. I called an economist friend of mine that had ended up at Goldman Sachs and asked him about the possibility that there was a bubble that could be bursting. He assured me that the economy was strong, and robust, and that I had nothing to worry about. He told me that economists who were worrying about potential weakness ahead, had it dead wrong and that they should be ignored. He called them "crazy".

If I had listened to him, I would have bought a house at the height of the market - and would have lost every penny of down payment that I had managed to scrape together. Luckily, I did not listen. Instead, I considered what he said. Then I read more about what was going on and decided to take a huge risk - I decided to ignore the experts, to not to buy a home, and to risk missing out on the huge appreciation that those experts were predicting. In the end, he turned out to be wrong - not jut a little bit wrong, but absolutely and completely incorrect.

How many realtors and mortgage brokers told their clients tales that turned out to be a fantasy? And how many of those buyers made their decision based on the faulty advice? Do the realtors involved feel guilt or shame over their responsibility for the family financial catastrophes that resulted from their bad advice?

I didn't see him until after the meltdown was well behind us. I assumed he had lost his job. After all, his analysis was an absolute disaster. And he had been more than willing to share it.

Here's where my own powers of analysis failed in a major way: I assumed that he would have lost his job; instead, he had been promoted. In fact, not one person I knew in the financial industry had lost their job. I remember subsequently chatting with another Goldman Sachs economist shortly after the bailouts. He seemed completely unaware that there was even an issue with regard to how the industry had been protected. All that was really going on for him was that he had multiple nannies helping to care for his 2 young children. He was otherwise in terrific spirits.

My very fortunate friends turned out to be a perfect microcosm of what we all witnessed: the worst analysts with the worst judgment that got us into the worst financial quagmire in a century, were not only maintained - they were promoted. This happened in the private sector, academia, and in the public sector. In the public sphere, Tim Geithner and Ben Bernanke come to mind. And let's not forget Robert Rubin and Larry Summers. (And I would sincerely appreciate it if we could stop hearing from Alan Greenspan - arguably the arch-architect of our misery.)

We have done little to fix the underlying problems. We have now entrenched incompetence and largess into our system of finance at the expense of good governance.

We all know why my friends ended up on top; we bailed out their failed banks and our compromised financial system. That is wrong on many levels. But it's not as wrong as what has happened within our government. If our political economy had been functioning properly, Geithner and Bernanke would have lost their jobs - and their influence - long ago. Instead, Bernanke is arguably the most powerful individual in the world. And Tim Geithner (an alum of mine from SAIS!) is not far behind.

The United States has an incredibly resilient economy. It has withstood mismanagement and corruption on a scale that rivals almost any country in this world. It continues to putt along, notwithstanding the undermining of meritocracy, fairness, and justice - in every sphere. Unfortunately, the long-term prospects for a system that promotes the most corrupt and most compromised actors is poor.

Even the most resilient economy on earth requires the rejuvenation that comes with the removal of people with failed ideas, poor judgment, and who are corrupt. Our current leadership has taken a stand when it comes to our economy: instead of weeding out the corruption and allowing for organic economic strength to return, they are working to overwhelm the corruption-induced-failure with the economic equivalent of steroids. That can only work temporarily when the worst and most corrupt actors are allowed to thrive and maintain leadership roles. Ultimately, those compromised people and their compromised ideas will threaten our macro-economy again. We will never need principled and courageous leadership more than when that eventuality is upon us.

How do we purge the system?

Our financial services sector is too large. Contrary to popular belief on Wall Street, pushing paper does not create value. Wall Street is supposed to determine which sectors of our economy and which businesses obtain capital to expand. They are traffic cops directing the flow of money. Their activities create nothing of value directly, but they enable those who create valuable goods and services.

Unfortunately, we have let this sector of the economy take over. They believe their fiefdom will endure forever. Beyond the desire to save their own housing values in NYC, bankers believe someone will come along who makes enough to pay a huge mortgage. They plan on holding onto all their shadow inventory as long as they have to for buyers to come back. They don't think it will take very long. If we don't stop them, they may be right.

Setting a low bar

The owners of today's featured property increased their mortgage by 50% in the 11 years they owned it. Personally, I don't think it is wise financial management to increase a mortgage balance by 50%, but it's what passes for conservative borrowing here in California.

  • The property was purchased on 7/26/2000 for $175,500. The owners used a $157,950 first mortgage, and a $17,550 down payment.
  • On 4/25/2001 they refinanced with a $165,000 first mortgage.
  • On 4/11/2003 they refinanced with a $166,322 first mortgage.
  • On 2/1/2008 they refinanced with a $222,000 first mortgage.

Their mortgage equity withdrawal was only $64,050, small by Irvine standards. As a result, they stand to get a check at closing. It will be about $75,000 smaller than it should be.

Irvine House Address ... 115 OVAL Rd Irvine, CA 92604  

Resale House Price ...... $329,000

House Purchase Price … $175,500
House Purchase Date .... 6/26/2000

Net Gain (Loss) .......... $133,760
Percent Change .......... 76.2%
Annual Appreciation … 5.8%

Cost of House Ownership
$329,000 .......... Asking Price
$11,515 .......... 3.5% Down FHA Financing
4.79% ............... Mortgage Interest Rate
$317,485 .......... 30-Year Mortgage
$66,503 .......... Income Requirement

$1,664 .......... Monthly Mortgage Payment

$285 .......... Property Tax (@1.04%)
$0 .......... Special Taxes and Levies (Mello Roos)
$69 .......... Homeowners Insurance (@ 0.25%)
$140 .......... Homeowners Association Fees
$2,157 .......... Monthly Cash Outlays

-$155 .......... Tax Savings (% of Interest and Property Tax)
-$397 .......... Equity Hidden in Payment (Amortization)
$21 .......... Lost Income to Down Payment (net of taxes)
$41 .......... Maintenance and Replacement Reserves
$1,668 .......... Monthly Cost of Ownership

Cash Acquisition Demands
$3,290 .......... Furnishing and Move In @1%
$3,290 .......... Closing Costs @1%
$3,175 ............ Interest Points @1% of Loan
$11,515 .......... Down Payment
$21,270 .......... Total Cash Costs
$25,500 ............ Emergency Cash Reserves
$46,770 .......... Total Savings Needed

Property Details for 115 OVAL Rd Irvine, CA 92604
Beds: 2
Baths: 2
Sq. Ft.: 1200
Property Type: Residential, Condominium
Style: Two Level, Contemporary
Year Built: 1972
Community: 0
County: Orange
MLS#: S652347
Source: SoCalMLS
Status: Active
On Redfin: 5 days
2 bedrooms 2 baths remodelled home has 19' tile floors on lower level, remodelled kitchen with newer appliances, recessed lighting, scraped ceilings, ceiling fans, attached garage, enter from dining room. Upgraded bathrooms with new tub and granite sink top. large back patio has avocado, lemon and grape trees. wide open street in front of the home makes it a desirable location in the tract. walk across to the shopping center and restaurants. close to library , parks and more. association offers pool, spa, basketball court, children's play area, bar b que and pays for insurance, water, hot water and trash. lots of greenery and plenty of parking in the neighborhood. this home can easily be converted to 3rd bedroom. NO MELLO ROOS, LOW TAX RATE. REGULAR SALE RESPONSE IN 24 HOURS.

real estate home sales


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