Wednesday, March 17, 2010

Squatter Stimulus: No Mortgage Payment for Three Years and Counting

by Bill McBride on 3/17/2010 12:33:00 PM

Note: I didn't mean "Squatter Stimulus" as a put down. Many of these people are in limbo and facing serious uncertainty. This is a term that is being bandied about ... and I didn't mean to make fun of the plight of some homeowners.

The Irvine Housing Blog has an example of the squatter stimulus (homeowners living in their homes and not paying the mortgage): One Defaulting Owner’s Free Ride: Three Years and Counting (ht ghostfaceinvestah)

Freeloaders enjoying the entitled life are not confined to subprime areas. Today's featured property may be the worst case of housing entitlement in the country, and it is right here in Irvine.
...
The owner of today's featured property paid $465,000 on 10/23/2003. She used a $372,000 first mortgage, a $93,000 second mortgage, and a $0 down payment.
  • On 12/30/2004 she refinanced into an Option ARM for $486,500.
  • Two months later on 2/3/2005 she opened a HELOC for $67,000.
  • Total property debt is $553,500 plus 3 years of missed payments, negative amortization, and fees.
  • Total mortgage equity withdrawal is $88,500.
  • Consider what this woman accomplished:
  • She put no money into the transaction. None.
  • She extracted $88,500 in just over one year. That is nearly the median income in Irvine, and that money came to her without tax withholding.
  • She has lived in the property since 2003, and in the full term of ownership, she has not made payments totaling what she pulled from the property.
  • ...
    The owner of this property stopped making payments sometime in late 2006. It has been over [three years] since this owner stopped paying, and she is still listed as the property owner, so one can assume she still occupies the property.
    I've heard a number of stories of people living in their homes for a year or more without paying their mortgage - and without the bank foreclosing. It is difficult to get a handle on the actual number of long term delinquencies (say longer than 6 months without the bank foreclosing). Is this widespread or are these isolated incidents?

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