On California's foreclosure front: Losing in La Quinta

From L.A. Times staff writer Peter Hong:

L.A. Times video journalist Brent Foster and I spent a week on the road visiting some of the places in California hardest hit by the foreclosure crisis.

Many of the foreclosure hotspots are places built on sales to subprime borrowers and first-time homeowners. But there are also plenty of foreclosures in affluent areas, where relatively well-off folks, emboldened by soaring home equity, traded up to more lavish houses they thought would continue to appreciate. Some also had real-estate-related incomes that climbed with the market, giving them even more confidence to take on mortgage debt.

When the market declined, they were upside-down on their houses, and in some cases suddenly earning far less than what they needed to cover mortgage payments.

We met one such couple in the golf resort community of La Quinta.

Blogger's note: This is the first of a four-part series from Peter Hong and Brent Foster.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: L.A. Times

Comments

[tealeaf]

*** I'M NOT LISTENING ***

Areas in the IE don't impact anything in LA.

There's no "move up effect" - this may as well be in Minnesota.

Buyers in San Dimas don't come from Ontario. Buyers in Pasadena don't come from San Dimas. Buyers on the Westside don't come from Pasadena. Only A list and Lakers.

No relative impact. And I will not try to convince you all of the contrary.

I'm on sacred ground.

[Steve]

This is just one more economic cycle where some loose and some win. Life and business is timing. The La Quinta couple loose and another couple will buy that property for a fraction of what they paid for and win. I own 5 rental homes in Colorado and just increased the rent by 20% and have a waiting list of Californians who want out of the hell hole. LA I can't thank you enough$$$$$$$$$.

[Laker]

Peter, you mention foreclosure that happen in areas with subprimers and first timer buyers. Then you added that you've seen foreclosures in affluent areas too.
I have a revelation about foreclosures that perma bulls might not like.
Everybody is saying that foreclosures are the reason for price drops an housing crisis. They claim that since there are a lot more of them TODAY in the inland empire, riverside, high desert than say in west side, it means these bad areas will suffer with huge declines where the better areas will not have lower prices. WRONG. WRONG and again WRONG.
I claim that foreclosures are only serving to bring price discovery FASTER. That is a foreclosure means the bank will reduce price eventually until it sells much much faster than average joe home seller. What I'm trying to say is that housing prices are dropping only because they are not affordable - people can't qualify/ pay/ want the houses at today's prices. If we limit foreclosures, we will have the RE market freeze for years as in 10-20 years. Foreclosures are the best thing for our economy as they serve to fix this afford ability problem much much faster which means we will be much better sooner.
So in areas like west side, south Pasadena, San Marino, the RE might not crash fast, but it sure would crash slowly and surely at least until 2010-2011 when the prime ARMS and prime Option ARMS will recast...

[Laker]

I'm shocked (not shockg...). Per the article about the Magsam family:
They bought in 1999 for $140,000 and sold for $170,000.
They bought in 2000 for $215,000 and sold for $452,000.
Then they bought in 2004 for $685,000 and they took a second mortgage for $100,000.
Now, prudent people would be today with $330,000-360,000 in the bank assuming the house bought in 2004 was 0-10% down.
"...They stopped paying the mortgage in December, just before their interest rate was reset, raising their monthly payment to $4,000, up from $2,400...."
That is an OPTION ARM my friends. No regular ARM can adjust from $2400 to 4000 at once. Why didn't they take fixed rate loan???
Where is the money from their house tradeups / resales / 2nd mortgage?
Though i don't see them as house flippers as they seem like simply traded up their primary residence which is fine. Seeing that the husband is now working at Home depot making $8-10 an hour brings back the slogan: " From flipping houses to flipping burgers..."
from being business owner that makes $40,000 a month to a box boy at home depot making $1400 per month....
Lastly these people are smart by realizing that renting same/similar place for $2000 per month is the best move for them. aka much better than paying $4000 per month...on depreciating house.
Hopefully, they have the $300,000 cash in their bank account so they could rent for 1-2 years and but same La quinta house ($685,000 house in 2004) for $250,000 for CASH.

[bkl]

Bought in 2000 for $215; sold in 2004 for $452. They had $237 for down payment on next house, even assuming 0 down on the previous house.
Bought current house in 2004 for $685 and borrowed $537, putting only $148 down. This means they took out $89 from the previous home. They later took out another $100.

My guess is that they invested the $189 in the business, which means that they put their home at risk to support the business and used an adjustable loan to boot. These were not wise choices. If they had just bought a house with a fixed rate mortgage instead of financing their business with their home, they would have been ok.

[Randy Adams]

Gee, Steve, hope that continues to work for you. Times change my friend. The competition for a diminishing supply of accessible fossil fuels is intensifying very rapidly now. Our "hell hole" as you call it is on a coast where less energy is needed. The climate requires less energy for human comfort and will allow us to generate more energy from the sun. Ocean shipping is the most fuel-efficient type. Trucking is the least fuel efficient. Rail falls in between. So we will still be able to receive and ship goods. Look at Australia. People live on the coasts for a reason: they're sustainable.

[NoSympathy]

At least the Magsams admit that they were not victims and are in the situation they are in because of their choices.

They gambled on a business and a change in lifestyle and lost. I'm sure this happens all the time, regardless of if it was a down RE market or not.

[campechano]

great article peter!

[puckhead]

Wow, talk about a perfect storm of a foreclosure story. These people made every wrong bet at every turn,

a) bought in an overbuilt area
b) bought at the height of the bubble
c) did not refinance to a fixed rate when they had the chance
d) took equity out of their home
e) owned business that was dependant on the RE industry

The guy is 48 years old and at the end of the story the wife says they are young enough to start over. I hate to tell them, but it is kind of late in the game for them. You guys should have been stashing away acorns and hubby should be slowing down at work and looking forward to retirement, not “starting over”. Just clueless and bad decisions all around.

[copter]

Why didn't the reporter, Peter Hong, mention where the Magsams' $100k went that they took out on a second mortgage? None of these sob-stories about foreclosures ever seem to ask where the HELOC money went. Guess that would make the subjects look less like victims.

[Steve]

Randy,

IF CA is so sustainable why did I just pay $3.69/G for fuel here in CO and your at $4.50/G. I do use more energy for heating/cooling but for some strange reason my utilities are half the cost they were in CAfor twice the house. What is most sustainable is I just paid $400K for a 4000sq ft mini mansion in paradise on a golf course, that same love shack in the hell hole would be $2M. We put 5K miles/Yr on our vehicles here, where in the hell hole I put 20K per year. To summarize if sustainability is competing with 40M people to survive you are right, you are better off saying in the hell hole.

[sfvrealestate]

This was a wonderfully-written article and I intend to post a link on my blog later today.

[alvin]

how refreshing to read a story where someone actually stands up to the mistakes they made rather than point fingers and lay blame elsewhere for their mess.

[jb]

Steve - just curious, if you dont mind my asking, when did you buy those 5 rental properties (I thought that Colorado, Denver in particular was getting hammered)....

p.s. I think CO is awesome and would love to live there but my job keeps me in this lovely town (it isnt hell, but CO or seattle or bay area would be preferable for me)

[CD]

Congratulation Peter, you guys put a real article of interest on the front page. I have been going to La Quinta for 22 years and would stay at the beautiful resort there. It was so great and empty, no houses around just a resort in the middle of nowhere, the best of the desert.....Then, THEY came...: the developpers, the realtards/brokers/owners/investors
In 2007 I was interested in buying in Palm Springs or Indian Wells. It was as if the world had exploded. Every house was suddenly 800K, 1.2 millions,1.8 millions and up and up and up. I came to realize thanks to the internet and Patrick, Zillow, and foreclosure.com that something nasty was about to happen. Anyone you met there was a realtor,every single person, young or very old had a license and singing the praise of the desert. There are no jobs in the desert, only realtors and loan people and furniture stores.....Only jobs related to the greatest Ponzy scheme in American history. 7 months out of the year it is an oven, AC is about $1000/month, then the HOA,then the Indian land lease.,then the gardeners blowing the lawns 7 days a week. What was once a paradise is now a true hell hole. I like the Salton Sea, realtors do not live there, it is too dangerous,just like Desert Hot Spring, empty and no gardners with blowers there......Lots of people with guns who hate developers....On the happy side there was a house I like on Alhambra on the Canyon Country Club, it was 1.2 millions now reduced to 750K.Should be 400K. Also if you look up the names of local realty owners and match them with names on the REO and NOD list s on Foreclosure.com ,you will see that all those guys are in big trouble. That list is the who's who of Palm Springs. Well lets wait some more and see what happens.....It is getting interesting.
Robert in Palm Springs knows well about all the area.
Remember, EVERYONE, in the desert has a broker's license( no civilians) and would kill their own mother for a sale.

[tew]

This is not a foreclosure crisis. It is an affordability crisis in the process of resolution. There is a governance crisis - government is racing blindly ahead to help the underserving at the expense of the prudent and to the detriment of the common long term good.

[FreedomCM]

what did they do with the $412k they extracted from their houses?

[xtine]

Steve, you write...

"What is most sustainable is I just paid $400K for a 4000sq ft mini mansion in paradise on a golf course..."

You have an odd idea of sustainability. Really odd. If everyone had a 4000 sqft house and a golf course we would all truly be living in hell...no matter what state you live in. You are eating an enormous amount of energy, water and farmable land. You suck.

My guess is you have an SUV too.

You enjoy all that while you still have a planet to put it on.

[shockg]

More holy water for the bears.....

Market watcher Steve Thomas at Re/Max Real Estate Services in Aliso Viejo says demand for O.C. homes is now above 2006’s pace, as measured by new deals placed into escrow for existing homes and condos. Demand was 2,720 as of Thursday — a 46% improvement above a year ago and 4% above this time in 2006.

Thomas says: “Current Orange County housing demand not only obliterates 2007 levels, but it now has surpassed 2006 levels as well. Demand has reached a mark not seen in 24 months. Thus far this year, it has charted a course that is not at all cyclical and has improved unabated. The most rational reason for this break in tradition is pent-up demand, specifically, pent-up first-time home buyer demand.”

[Mike G]

I've come up with a perfect way to get out of an upside-down loan.

Sell drugs and get caught. The government will then confiscate your property, presuming that you bought it with drug money. Thus, the government will assume your bad loan.

It's a perfect plan. What could go wrong?

[Ascended Master]

The real question is why does peter not report on the real cause of the problem. We were told in 2000, in that years Bildergroup meeting that this was going to happen. The rich and powerful planed this from the beginning. It is funny, all the stupid comments that the rest of the sheeple make. They are all sinking in the same boat and will never learn who is truley drilling holes in the hull of the ship. But I guess that is what you get when you read news from corporate owned media outlets controlled by Bilderberg Group. OH and by the way, in the Bildergroup meeting 3 years ago, it was stated that they would artificially inflate gas to 6 dollars a gallon. I sure glad that I had a home school education and I learned about these things before they happened, and I was able to get out of the Matrix, but I do feel sorry for those of you who are as blind as bats with eyes stabbed out. Later All.

[tealeaf]

Good old Steve Thomas.

Any report on the mix of distressed properties in escrow vs. traditional sales?

Pace of NOD filings vs. listings?