Summation

Just to sum up the last three posts.

There were three people who claim they did nothing wrong while removing the equivalent of a six figure income annually from their So Cal homes. These six figure jobs supported many consumption oriented jobs this decade.

Now the economy no longer has these equity jobs or the retail jobs they created, what will drive the Cal recovery?

Know your motivator

http://money.cnn.com/galleries/2009/real_estate/0901/gallery.tough_workouts/5.html

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Ron Nash is not someone who's shy about pushing to get what he wants; he's a motivational speaker, headhunter and author of "How to Find Your Dream Job; Even in a Recession."

The lender offered an extremely low rate, 2.8%, which sounded great. The problem was the value of his property has dropped from $840,000 to about $620,000 and the lender would do nothing to reduce the mortgage balance. Nash believed he would be upside-down on his mortgage, owing more than the house was worth, for years.

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CNN has multiple posts on this motivational speaker. They also have a few incorrect facts. The home in question was purchased in 2000 for $398K and then refinanced until Mr Nash owed $840K. Even without adjusting for if this home had been purchased and paid for the "traditional' way, Mr Nash still removed approximately $60K post tax per year from this home. Once again this is equivalent to adding a pre tax six figure job to his family income. I doubt his motivational speaking pays $100K annually.

Mr Nash comes off as a wonderful guy. He continuously borrowed money from his home and then went to the press and claimed it was unacceptable that he should need to pay back the money at a 2.8% APR.

Luxury Market Victims

http://money.cnn.com/2009/08/07/real_estate/expensive_homes_miss_recovery.fortune/index.htm?postversion=2009080714

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One five-bedroom bungalow by the beach has been hanging over her, at $1.2 million, since January. The owners, who bought the house as a second home, aren't willing to lower the price, but they need to sell it to pay off debt borrowed against it during the boom. In the meantime, they're renting the place out to their own children.

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Well at least in this article the owners admit they borrowed against the home during the boom.

The home was bought Dec 1998 for $725K it is currently listed at the amount needed to pay off accumulated debt, $1.175MM. If the home was purchased with 20% down on a fixed amortizing loan and not refinanced the owners would currently owe about $485K. This means each year for 10 years the owners removed $65,000 post tax dollars from their home versus "traditional" mortgage paydown actions.

In other words just another owner in So Cal that added another $100K pre tax income to their household prior to the boom. How many $100K jobs are there in So Cal? How is the Cal economy going to recover?

Equity Victims?

In July, A Fortiori, who could not be reached after several attempts, informed the Kempffs that they would not receive a loan modification. A OneWest Bank spokesperson said the Kempffs didn't qualify for a loan modification because the amount they owed on their first mortgage was more than $729,750.

The unpaid amount on the Kempffs' loan is $786,802.59, short of qualifying for a modification by about $60,000.

On the date of auction, Lois Kempff approached the auctioneer with proof of bankruptcy and her property's auction was postponed until Sept. 21. Had the auction proceeded, the beginning bid for their home would have been $433,000. They originally bought their home for $430,000 and estimate that it's now worth about $550,000.

http://www.ocregister.com/articles/kempff-lois-kempffs-2554460-juergen-home

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This is a story about a family that claims they are victims. These victims extracted $350,000 out of their house in six short years from 2002 to 2008. It might actually have only been five years, it is tough to determine from the article. In six years these "victims" extracted $60,000 post tax dollars per year. That is also approximately equal $100,000 pre tax dollars per year. In other words, their home was the third income earner in their household. In fact, their home may have been the primary income earner in the household.

For those who believe economic recovery is just around the corner in Cal consider how many of these income earners need to be added back in to grow the economy.

The other key point is seeing they are not eligible for refinance cause they needed more than the max conforming limit. Fannie and Freddie may be wards of the state, but it is good to see it has not stopped them from making loans that cannot be repaid.