R.E.D.(Real Estate Diversion) Alert. When you need to take a break from politics, give your mind a rest in Real Estate.
920 W. Camile Street, Santa Ana, California
Is this home worth well over a half million dollars? It was actually purchased in January of this year for a hefty $625,000 by a couple who have another home in Santa Ana, they both hold jobs as garment workers at St. John Knits and they support three children. The Gomez family wanted a three bedroom place for their growing family and they simply could not pass up this terrific deal over on Camile St., Santa Ana. This is a second home purchase, making the Gomez family landlords of their previous residence. There have been some unusual features to this O. C. Register story – among them is a mystery person who put $125,000 as a “down” to help complete the transaction. This property supposedly doubled in value from October 2008 and January 2009 (mere months!). How in the world did garment workers “qualify” for the enormous loan and debt load? Will they ever receive the promised 52-inch television and $30k bonus cash to complete the deal?
Camile Street has been the target of numerous articles on real estate for several years. It is a notorious address to real estate watchers. Camile has the distinction of having one of the highest rates of subprime mortgates in the entire nation, which has resulted in massive home foreclosure rates. The Gomez’ purchase appears to have many elements of real estate fraud responsible for families losing their homes recently. If this was such a great deal back in January, then why is this comparable home just a few doors down at 926 Camille being advertised for $245,000?
Comparable housing at 926 Camile Street. Asking price: $245,000
Nice place. Nice discount if you can come up with the nearly $50,000/ 20% down needed to get in thanks to tightened credit requirements. The Gomez family didn’t have to come up with $125,000 down – Some unidentified do-gooder put that money into escrow for them. Maybe Santa Ana has a stealth Dark Knight character, flush with cash, helping out deserving home buying families? Or just maybe liar loans, dubious transactions and suspect appraisals continue to victimize the vulnerable, the unaware and the unsophisticated among us… The churn and burn of home ownership by people who get in way over their heads financially.
I think it is a safe guess that fraud and churning of real estate properties is still alive and deadly over on Camile St. I smell a massive rip-off. Any bets if the Gomez family will be able to hold onto BOTH of their properties going forward? They’re already expressing buyer’s remorse at the time of this latest OC Register article interview. Are these new investment property owners savvy enough to know what they are doing? Somehow they completely missed the serial articles about fraud on Camile in local newspapers that gained national attention. Would successful investors have missed this kind of basic due diligence necessary to evaluate risk? I cannot even imagine what their loan provisions look like. Stay tuned, as it is inevitable that the stories of Camile street will continue to be told.
As always, Buyer Beware…….
Red.
You surely raise some interesting questions. Before going further I think you have an error in the dates where you say: “This property supposedly doubled in value from October 2008 and January 2009 (mere months!.”
It is difficult to make an appraisal on a comp to any neighboring home in that this one has a vault in the basement with Al Capone’s stash that Geraldo Rivera was unable to locate under the Lexington Hotel in Chicago.
As such “we should not judge a book by its cover.”
Red Vixen –
Your post is limited in scope and fails to take into account the next wave of defaults — Alternative A mortgages. Most know south OC is taking a beating. I await your report about the property owners with excellent credit and white collar jobs losing their homes because they were too stupid to understand the loan they entered.
The New York Times does a splendid job of detailing what’s next on the horizon regarding defaults. Read on …
August 4, 2008
Housing Lenders Fear Bigger Wave of Loan Defaults
By VIKAS BAJAJ
The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.
Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.
The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.
The mortgage troubles have been exacerbated by an economy that is still struggling. Reports last week showed another drop in home prices, slower-than-expected economic growth and a huge loss at General Motors. On Friday, the Labor Department reported that the unemployment rate in July climbed to a four-year high.
While it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two, analysts said.
Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.
“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”
In a conference call with analysts last month, James Dimon, the chairman and chief executive of JPMorgan Chase, said he expected losses on prime loans at his bank to triple in the coming months and described the outlook for them as “terrible.”
Delinquencies on mortgages tend to peak three to five years after loans are made, said Mark Fleming, the chief economist at First American CoreLogic, a research firm. Not surprisingly, subprime loans from 2005 appear closer to the end of defaults than those made in 2007, for which default rates continue to rise steeply.
“We will hit those points in a few years, and that will help in many ways,” Mr. Fleming said, referring to the loans made later in the housing boom. “We just have to survive through this part of the cycle.”
Data on securities backed by subprime mortgages show that 8.41 percent of loans from 2005 were delinquent by 90 days or more or in foreclosure in June, up from 8.35 percent in May, according to CreditSights, a research firm with offices in New York and London. By contrast, 16.6 percent of 2007 loans were troubled in June, up from 15.8 percent.
Some of that reflects basic math. Over the years, some loans will be paid off as homeowners sell or refinance, and some homes will be foreclosed upon and sold. That reduces the number of loans from those earlier years that could default. Also, since the credit market seized up last year, lenders have become much more conservative and have stopped making most subprime loans and cut back on many other popular mortgages.
The resetting of rates on adjustable mortgages, which was a big fear of many analysts in 2006 and 2007, has become less problematic because the short-term interest rates to which many of those loans are tied have fallen significantly as the Federal Reserve has lowered rates. The recent federal tax rebates and efforts to modify more loans have also helped somewhat, analysts say.
What will sting borrowers more than rising interest rates, analysts say, is having to pay interest and principal every month after spending several years paying only interest or sometimes even less than that. Such loan terms were popular during the boom with alt-A and prime borrowers and appeared appealing while home prices were rising and interest rates were low.
But now, some borrowers could see their payments jump 50 percent or more, and they may not be able to sell their properties for as much as they owe.
Prime and alt-A borrowers typically had a five- or seven-year grace period before payments toward principal were required. By contrast, subprime loans had a two-to-three-year introductory period. That difference partly explains the lag in delinquencies between the two types of loans, said David Watts, an analyst with CreditSights.
“More delinquencies look like they are on the horizon because so few of them have reset,” Mr. Watts said about alt-A mortgages.
The wave of foreclosures is still rising in states like California, where many homeowners turned to creative mortgages during the boom. From April to June, mortgage companies filed 121,000 notices of default in California, up nearly 7 percent from the first quarter and more than twice as many as in the second quarter of 2007, according to DataQuick, a real estate data firm based in La Jolla, Calif. The firm said the median age of the loans increased to 26 months from 16 months a year earlier.
The mortgage giants Freddie Mac and Fannie Mae, which own or guarantee nearly half of all mortgages, are trying to stem that tide. Last week, they said they would pay more to the mortgage servicing companies that they hire to modify delinquent loans and avoid foreclosures.
Delinquencies in prime and alt-A loans are particularly challenging for banks because they hold more such loans on their books than they do subprime mortgages. Downey Financial, which owns a savings bank that operates in California and Arizona, recently reported that 11.2 percent of its loans were delinquent at the end of June, a big increase from the 6.1 percent that were past due at the end of last year.
The bank’s troubles stem from its $6.2 billion portfolio of so-called option adjustable-rate mortgages, which allow borrowers to pay less than the interest owed on their mortgage in the early years. The unpaid interest is added to the principal due on the loan, so over time borrowers can owe more than the initial loan amount. Eventually, when loans grow by 10 percent or 15 percent, the borrowers are required to start paying both the interest and principal due.
Many borrowers who got these loans during the boom had good credit scores, but many of them owe more than their homes are worth. Analysts believe that many will not be able to or want to make higher payments.
“The wave on the prime side has lagged the wave on the subprime side,” said Rod Dubitsky, head of asset-backed research at Credit Suisse. “The reset of option ARM loans is a big event that will drive the timing of delinquencies.”
Larry,
You may not have clicked on the O.C. Register link, but the stories about Camille Street are more widely followed than just in the OC. The details of the doubling in value are contained in the snip from the article: http://www.ocregister.com/articles/camile-house-mortgage-2104411-fargo-wells
It seems like a rare bright spot in a dark real estate market.
A year ago, the house at 920 W. Camile St. in Santa Ana was bank-owned, deserted and tagged with gang graffiti, a symbol of how the subprime lending bonanza had blighted a city block.
In October, the house sold at auction for $304,500, little more than half what a buyer using 100-percent subprime financing paid in 2006.
Today, 920 W. Camile has been renovated, repainted and floored with faux marble. It resold in January for $625,000, according to county records – a $125,000 down payment and a $500,000 mortgage from Wells Fargo Bank.
An “investor” paid $304k at auction and was able to unload it about 3 months later with some minor upgrades for $650k (easily a “double”)to the Gomez family. The critical purchase dates were October 2008
(auction) and January 2009( Gomez family).
There have been stories about this kind of fraud during the height of the housing boom. You’d see a home listed for say $500k and when the sale came though, it would be listed at $750k. How could this be? Why would anyone pay this inflated price tag unless it was some kind of crazy bidding war? But these deals were done as the market was softening, so there were other issues afoot. It was often done by groups or individuals who would inflate the price of the home and give money back to the buyer in order to “qualify” for the loan b/c the buyer would use that chunk of money to put as a “down” and sometimes would give a kickback to the seller and/or use the additional funds for trips, upgrades, harley davidsons, big tv’s, landscaping etc…
Of course this kind of transaction is loaded with hidden traps. The buyer who doesn’t actually have the downpayment, is probably at risk for losing the home in the long run because they are simply not “savers” who know how to budget for a downpayment and have reserves in case they hit rough times ( like a job loss). This type of buyer doesn’t often read any of the loan docs – instead, they trust the brokers and loan agents in escrow to assure them that the payments will be affordable – when the ADJUSTABLE rates kick in months/years later, the buyer finds that he’s unable to keep up with the huge rise in monthly mortgage payments amounts and that is when the defaults trigger.
And if you’ll take that example of home listed for $500k, but really closing at a $750k price tag, you’ll realize that an additional $250k debt was added onto the property at the time of escrow. This debt load will have to be paid off by the borrower.
Really old people became pawns in this kind of scheme. They are on fixed pensions and if their credit got “ruined” – so what? They’d just rent when they finally got kicked out by the banks. Their lifespan is seen as limited, so why not go out in style? Many did it for the big chunk of cash being offered by the sellers. A pensioner who received $50K cash in exchange for qualifying for a toxic mortgage on an overly inflated price home was not that uncommon.
In the case of the Gomez family, “someone” put down $125k so the loan could get thru escrow. Gomez is claiming that he bought the home for “only” $500k, not the $625 that the loan documents record at. He’s paying much higher property taxes and insurance on $625k in loans vs. $500k – either scenario is above his means, imo.
Then there is the tiny problem of why the apraisal came in so high? I think this story might end in some jail time for folks, but we’ll see. The loan officer, the person who snuck in the down payment, the escrow officer, the appraiser and the real estate agents SHOULD all be in trouble for this kind of illegal and predatory lending fraud, but so far, the numbers have been so high, that there have not been enough resources to go after scams like this.
I know you’re from south county, Larry. But for anyone who drives around Camille, the place was nearly deserted for about a year, as people crashed and burned on toxic mortgage loans.
As far as the Gomez’s go – they had success in buying a foreclosure property back in 1998 for over $100k and probably assumed that strategy would work well again. However, they showed a remarkable lack of understanding of the current real estate market, loans and trends, so they just might get run over by the negative momentum that is starting to build in this market.
I am pretty sure that two textile workers are not making anywhere close to the $150k/year that would be reasonably required to make the monthly payments on their latest purchase. They may have other generous resources – who knows? But if they don’t have reserves and if they have signed up for a toxic loan package, then their american dream will be axe murdered on the next down leg.
#2 anon,
Thank you for joining in discussions with Larry and I on this. You clearly have a big picture understanding of real estate. It would not suprise me if you were a visitor from our neighboring blog, the Irvine Housing Blog (IHB) and I welcome you. 🙂
One point that you make that is still not talked about in common circles;
“The bank’s troubles stem from its $6.2 billion portfolio of so-called option adjustable-rate mortgages, which allow borrowers to pay less than the interest owed on their mortgage in the early years. The unpaid interest is added to the principal due on the loan, so over time borrowers can owe more than the initial loan amount. Eventually, when loans grow by 10 percent or 15 percent, the borrowers are required to start paying both the interest and principal due.”
There were so many people with great credit that were convinced that this market would not retrace and that you could count on you home’s equity going up year after year, and then they started to spend accordingly. With the rapid rise in prices at the store and at the gas pumps, there is less and less wiggle room for people to actually be able to save and to stay out of credit card debt, if they do not have the discipline and resources to do so. No longer can people re-fi and roll their consumer debt into their home mortgage loan like they were doing on regular intervals.
Our local SAUSD just laid off many workers – and I am sure there is a nice sized percentage of these long-term workers that have mortgages to pay. The state is threatening jobs of state employees and there will be more job difficulties at city and other local municipalities. The safety-net affect of home equity is evaporating.
It makes sense that there are limits to how long a loan can be kept “cheap” until the borrower has to begin paying back ALL of it. Thanks for explaining the parameters. Clearly we are headed for some rough waters – at all levels.
#2
Your post is limited in scope and fails to take into account the next wave of defaults — Alternative A mortgages. Most know south OC is taking a beating. I await your report about the property owners with excellent credit and white collar jobs losing their homes because they were too stupid to understand the loan they entered.
Please don’t be too hard on me. This post was only a “diversion” from all the city misdeeds and shinanigans posted on this blog. SA is the subprime epicenter, and there’s some pride here in that distinction. We’ve got a lot of labor and bluecollar issues, whereas Irvine, S. County and other local whitecollar communities will have their own demons to exorcise 😉
Red. Having watched Geraldo on that TV drama I was trying to be cute.
You are correct. I have not read the linked story. There are more stories to cover than hours in the day, if we are to keep a life other than our keyboards.
I am sure that games are currently being, and have been, played in the real estate industry.
Larry,
Didn’t Geraldo fail to deliver on at least one other program promise?
He just kind of faded quickly after all that for me. I like strong follow thru, not just some weak promises. ANYONE could have drilled a hole in that dumb vault ahead of time and figured out that it was empty or it needed some seeding, so the program and the host would not be seen disappointing 😉
Hey, doesn’t a mortgage have a security document saying that the buyers have to live on the property? In order to receive the bearer on demand documents?
If they bought a secondary property and are living in the property at Camile, then they are probably violating the convent or security document on the first property and could cause the acceleration of the first loan because they are not living on the property. If they are now Landlords they must have a business license from Santa Ana (if the property is in Santa Ana) to rent the property and claim income to the family on their taxes as earn income which would increase their taxes. Do these people understand if they are a Agent of the Mortgage company, they must report this to the company so that the stock holders get their dividends, until the Mortgage is paid off, Or face being a rent skimmer. I’m not an authority of any of this, but it should be checked out, by these people before they lose out completely. Which they probably will after this article because the cat is out of the bag now.
Lisann,
Welcome to the conversation. Don’t you have some background understanding real estate and housing?
You bring up some good points. I think that the business license aspect is particular to Santa Ana. However IF it is a requirement, then the Gomez family is severely exposed after the articles and attention.
This secondary home should be a stand-alone venture – meaning that the owners should be able to handle both mortgages without rental income in order to qualify for the second home’s loan. As I see it, the Gomez family is going to have extreme difficulty managing the high service rate of their new home mortgage, much less be able to balance both residences on their salaries as garment workers.
As I understand it, loan qualifications and stipulations have changed quite a bit and an unknowing “investor” could find themselves squarely on the wrong side of the law and taxes.
There were quite a number of “professionals” with licenses who assisted in this real estate transaction. It is my opinion that they should be arrested and tried for all applicable crimes. It is this type of predatory lending that has made SA a hotbed for foreclosures. It is sad to see families in these no-win situations and with so much to lose.
Red,
You know anything that I put my 2 cents in is something that has happened to me (As a renter of a primary residence) to a landlord that would take out 1st time homebuyer loans from fannie mae, he owned several properties that he was renting out. Well after living in the property for 10 years he decides to sell the property and the real estate agent told him that he could not sell till were were out so what did they do they evicted us, saying we just had been in the property for 4 months and we caused an action to be evicted. Since there are no land lord tennant rights in the city of Santa Ana. We had no money to fight the eviciton I tried on my own and this is the knowledge that I gained on my eviction. I could demand from the mortgage company all the money that he received cash and demand it be paid back, or get an administrative citation from the city of Santa Ana’s Mr Ream, but we know that won’t happen this is where I found out about the selling of documents with SSN. I just don’t have the resources to fight the system. I have a judgement against me that I do not think is right because the landlord would not accept it. This is where I feel that the people of Santa Ana deserve better than this.
I meant to say because the landlord would not accept the money from us. because when you have renters on the property under a security document, they become a financial interest in that property, at least that is my under standing under Dept of California DRE Regulations.
The crooks are at it again.
Lisann,
Thanks for your personal perspective and insights.
To all – I think it’s pretty obvious that Camile is going to stay on the radar for a bit longer. There is plenty of predatory fraud still out there as cook has pointed out. Stay tuned for future developments…
One helluva diversion! Thanks!!