And Now the Rest of the Story About the Poster Child for Eminent Domaining Mortgages

Lord have mercy on me. ||| Earlier this week I blogged about a biased New York Times article on the use of eminent domain to seize loans from mortgage-holders and gift them to the underwater and/or delinquent residents of the homes in question. That article ended with a sympathetic portrait of the kind of victim/family that would be “saved” by eminent domain:

Many of the communities considering eminent domain were targeted by lenders who steered minority families eligible for conventional mortgages into loans with higher interest rates and ballooning payments. Robert and Patricia Castillo bought a three-bedroom, one-bathroom home in Richmond because their son, who is severely autistic, would anger landlords with his destructive impulses. They paid $420,000 for a home that is now worth $125,000, Mr. Castillo, a mechanic, said.

But over at smartertimes.com, Reason.com columnist Ira Stoll manages to obtain what looks like convincing details of Castillo’s mortgage from a banker claiming inside knowledge:

The story fails to mention that the Castillos went delinquent back in July 2009 and within 4 months they received a principal and interest rate modification plus the loan was turned into an Interest Only. Their existing 1st lien mortgage, which is sitting in LXS 2006-GP4 and is serviced by GMAC Mortgage, had their interest rate reduced from 5% to 2% with $40,000 of principal deferred. This combined with turning the loan into an IO, drastically reduced their payment from $2064.81 to $638, which is a 69% reduction. This new payment was effective in November 2009 and the Castillos have been current ever since.

Why would the Castillos walk away from a $636 monthly payment?? This payment is equivalent to a $150,000, 30 year loan at 3%.

The story also fails to mention that when the Castillos "purchased" their home in April 2005, they put NO MONEY DOWN. Their original 1st lien was for $336,000 and their original 2nd lien was for $84,000. This totals to $420,000, which is their purchase price. By May 2006, they refinanced into a Greenpoint Option ARM 1st lien of $381,300 combined with a revolving credit line of $55,200. [...]

Investors are owned $422,805.43 on this loan.

Whole thing, plus Stoll commentary, here

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  • Hugh Akston||

    They paid $420,000 for a home that is now worth $125,000, Mr. Castillo, a mechanic, said.

    Forgive my crippling ignorance, but since the last person who bought this house paid $420,000, doesn't that mean the house is worth $420,000?

  • Paul.||

    Hugh, being the master of backhanded insult, I'm assuming this is humor.

    Price, it's not what you say it is...

  • Hugh Akston||

    Look Paul, I'm master of two things: backhanded insults and not knowing shit. In this case I am actually asking an actual question. How is a house not "worth" whatever the last sucker paid for it?

  • SugarFree||

    Because the worth is what someone will pay for it, not what someone paid for it. Is your car still worth what you paid for it or what you could reasonably sell it for based on mileage, condition, make, model, year, and color?

  • Hugh Akston||

    I plan to sell my car for $1 million or best offer. If the best offer happens to be a hard drive full of Anthony Wiener junk shots, then we'll know just what my car is worth.

  • Sigivald||

    And you're right.

    You will know exactly what your car really is worth.

    Literally, all jokes aside, the only hard measure of anything's economic value is what someone pays for it - not what someone did pay for it under previous, different conditions.

  • Sevo||

    "Literally, all jokes aside, the only hard measure of anything's economic value is what someone pays for it - not what someone did pay for it under previous, different conditions."

    To add a bit to this, the claim is that the equity-market collapse in 2008 "caused a loss of $Xbn".
    Bullshit.
    It caused a loss of an "expected" $Xbn; the equities were not worth that expected amount, it turns out they were worth far less.
    Tough.

  • Jordan||

    I'd say a house is only worth what the next sucker will pay for it.

  • Hugh Akston||

    But how do you know that until the sucker actually buys it?

  • Jordan||

    Research the real estate market. That should put you in the ballpark.

  • some guy||

    You don't, which is what makes investing in real property so exciting!

  • Paul.||

    You don't.

    Hugh, all you need to know about economics comes from the wisdom of the Lone Biker of the Apocalypse.

    Price, fair price, it's not what you say it is, it's what the market will bear.

  • Bill Dalasio||

    Strictly, you don't. You can make a reasonbly educated guess though. Worth is subjective. Only price is objective.

  • Zeb||

    You hire an appraiser who tells you how much it is worth.

  • Paul.||

    You hire an appraiser who tells you how much it is worth.

    Would this appraiser be like the appraiser for King County who told me my house value had increased, year over year during the Great Recession?

  • Zeb||

    That's probably an assessor, working for the county. Not quite the same thing. The bank doesn't care what the tax assessment is.

  • Paul.||

    That's probably an assessor, working for the county. Not quite the same thing.

    I know that, I was being facetious.

    But on a serial note, bank appraiser's weren't exactly accurate either.

  • AlexInCT||

    Actually, it will be worth whatever a lending institution, after an appraisal, is willing to lend someone to by it. Finding someone that is willing to pony up $420K, unless they have that in the bank and will pay cash, isn't enough to make it woorth that.

  • Zeb||

    How about "willing and able to pay"?

  • NeonCat||

    How quaint!

  • Paul.||

    ow is a house not "worth" whatever the last sucker paid for it?

    Because if it was "worth" what the last sucker paid for it, we wouldn't refer to him as a 'sucker'.

  • R C Dean||

    I'm just dying to hear the "public use" that these houses will be put to as justification for spending public funds to seize the mortgage on them.

  • Raston Bot||

    They're not ED'ing the houses, just the mortgages.

    I'm more confused about how Mortgage Resolution Partners can profit from this.

  • R C Dean||

    OK, fair enough, what public use will the mortgage be put to?

    And I don't see how writing it off to benefit a single individual is a public use.

  • Paul.||

    Public Purpose.

    *boom*

    Justified.

  • AlexInCT||

    Brothels...

  • Sevo||

    Not in Richmond...

  • AlmightyJB||

    + infinity Linda Ronstadt. Had the album with her in satin shorts and roller skates on the cover. Hot.

  • Paul.||

    Saw her in concert wearing nothing but a teeshirt. She... she was wearing nothing but a teeshirt. I was fully clothed.

  • ||

    That sounds like a completely awesome concert.

  • SugarFree||

    "Now I ain't sayin' you ain't pretty"

  • Dweebston||

    I'll take Benatar over Ronstadt any day.

  • JW||

    Look at this and say that again.

  • Night Elf Mohawk||

    I'd take Benatar today over Rondstadt then.

  • JW||

    There's something very wrong with you.

    But, it's nothing that Airtight Grannies wouldn't take care of.

  • BakedPenguin||

    I'll admit Benetar has held up relatively well. Still, Pat today vs. Linda then?

    What is this I don't even.

  • JW||

    And I'll even cop to having a major thing for Benetar, back in the 70's. Still, no contest.

    And with that, Ann and Nancy Wilson.

  • Night Elf Mohawk||

    Some people like the dopey, empty-eyed Zooey Deschanel look, some don't. At least neither one is fat.

  • JW||

    It is possible to like both looks.

  • Night Elf Mohawk||

    It is. I don't.

  • johnl||

    Is that an iPhone in her left front pocket?

  • Harvard||

    Back in the Stone Ponies days nobody was hotter than Linda. Today on the other hand.....

  • Paul.||

    Whenever I hear about a poor, poor middle class family having their farm in the late 80s home taken, I immediately want to know their back story, and it sure would be nice to know their personal money management history.

    I currently know one (1) person who's on the edge of getting her house foreclosed, and she's a financial basket case.

    Hell, I remember Terry Gross doing an interview on NPR with a woman who wrote a book in the 90s about her family farm being taken by unscrupulous lenders.

    The author let slip during her interview that her father was a land speculator and made a whole series of fucked up decisions causing his debt. Even Gross was stunned by the revelation, causing the author to defensively declare, "It's not my father's fault he was a bad business man!"

  • PapayaSF||

    I remember something like this from the mid-'70s, a TV news sob story about a laid-off auto worker. He had two new cars, bought a house filled with new furniture bought on credit, a wife who didn't work, and maybe a kid (I've forgotten). He was spending every cent he made and had no savings, so the whole thing would collapse if he lost work for even a month.

  • Sevo||

    "He was spending every cent he made and had no savings, so the whole thing would collapse if he lost work for even a month."

    A local (lefty) columnist makes the claim that 'we're all just one paycheck away from homelessness'! Strangling seems appropriate.

  • Invisible Finger||

    It's probably true for leftards.

  • Monkey's Uncle||

    +1!!!!! I know of many who have chosen this situation and complain bitterly that they are such the victims. Big Government gasoline on the fires of self delusion and entitlement is a frequent situation, no?

  • Invisible Finger||

    The rule of thumb is: anyone who volunteers to be the sob story in these types of "news" pieces is a lying sack of shit.

  • Dweebston||

    That crushing burden of debt—you didn't build that.

  • Doctor Whom||

    Once, I was listening to NPR (yes, I know, but my passenger insisted) when it played a Two Minutes Hate against the evil mortgage lenders. One poor, oppressed victim had taken out a mortgage whose payments would be twice his pre-tax income.

  • Jordan||

    One poor, oppressed victim had taken out a mortgage whose payments would be twice his pre-tax income.

    Jesus fucking christ. Dude must be a hardcore Keynesian.

  • AlexInCT||

    Was probably a progressive and aspiring member of the Obama Admin, so they figured they wouldn't need to pay taxes?

  • ΘJΘʃ de águila||

    NEW WORLD DICTIONARY:

    DEBT = WEALTH

  • PapayaSF||

    "I bought something that dropped in value! Save me!"

    Hugh: There was a housing bubble, and many people bought at inflated values.

  • Sevo||

    Oh, there's more yet:
    "Doris Ducre [...] “I’ve lived here 55 years and my home is $200,000 underwater,”"
    Which means she lived in Richmond, but here's the story:
    "Public records show that Ducre and her husband bought the house in 1999 for $144,000 and have since done some cash-out refinances, which increased their mortgage debt."
    You could say that; the house is worth $190K so she's upside down wholly because she borrowed against it.
    http://blog.sfgate.com/onthebl.....s-it-fair/

  • PapayaSF||

    I remember a worse story from 4-5 years ago. A family in Oakland had bought a house in the '50s for something like $18,000 but were now in trouble because they had taken out a series of home equity loans, and now owed hundreds of thousands on a house that wasn't worth hundreds of thousands.

  • Dweebston||

    Credit is like fast food, to the enlightened left: too tempting for people who don't know better.

  • Fluffy||

    Doris was clearly a victim.

    A victim of people giving her hundreds of thousands of dollars to spend on whatever she wanted.

    And all she has to do to not pay any of it back is give her creditors a vastly depreciated asset that doesn't come close to equaling her debt.

    DORIS IS A VICTIM OF GOOD FORTUNE.

  • JW||

    DORIS IS TOO STUPID OR VENAL TO UNDERSTAND THIS.

  • AlexInCT||

    "A victim of people giving her hundreds of thousands of dollars to spend on whatever she wanted."

    BLAME THE EVIL LENDER!

    They forced her to borrow more than she could affordby not telling her to fuck off.

  • Bill Dalasio||

    Reminds me of one of the sob stories I saw on the Sunday morning television. The couple were crying about how they'd been taken advantage of by the eeeevilll predator lenders. The husband worked as a cabbie. The wife sold perfume at Macy's. They had what sounded like a perfectly nice house in Queens. They decided that wasn't doing it for them. They financed a McMansion on Long Island up to the hilt. They didn't bother selling their house in Queens.

    It was then that I decided I didn't have much in the way of sympathy for the "victims" of the housing crisis. Had things worked out a little differently, they'd have made a killing and they'd be telling everyone what geniuses they were.

  • JW||

    The story also fails to mention that when the Castillos "purchased" their home in April 2005, they put NO MONEY DOWN.

    This seems appropriate here.

  • Night Elf Mohawk||

    I paid off my house in 13 years and didn't cash out or borrow anything against it. Is there someone to whom I can speak to get a big check or did I screw myself by buying something I could afford and then paying for it in full?

  • R C Dean||

    Not to worry, Nightie. Just take out the biggest home equity loan you can, then default on it. There you go, costly history of personal responsibility wiped clean, and you are now eligible for a basket of goodies!

  • Night Elf Mohawk||

    That, plus maxing out of all my cards and then expatriating seems like the best way to get my share of the new American Dream. Hell, with just the cards I could live for at least the seven years it would take for it all to drop off my credit and do it again.

  • ΘJΘʃ de águila||

    NEW WORLD DICTIONARY:

    FINANCIALLY RESPONSIBLE = STUPID

  • JW||

    No, no, only the stupid, greedy and/or imprudent get rewarded for their behavior. That's the not-go-gettedness that we need to encourage more of, in this nation.

  • ||

    I'm looking at their sale information right now (I got curious) and all of the details in the article are correct (though I have the lender as "GEM Capital Funding"). And whereas the other sales for this house (the prior ones) have no value (null) in the "Cash Down" field, theirs has...a big fat zero. The first, bigger loan has variable rate interest whereas the smaller second one has fixed.

    $420,000 for this.

  • Night Elf Mohawk||

    Looks like about $60-80K worth around here.

  • ||

    Their assessment (probably based on comparable sales for comparable properties, but remember a property tax assessment is not market value)...is $115,000. Yet their tax bill is still $2806. The house's finished square footage is 1160 sqft. This house is a postage stamp.

    These are not smart people.

  • ΘJΘʃ de águila||

    NEM, this is Caliland, no such thing as a $60K house....anywhere.

  • Sigivald||

    Nonsense!

    You can get a manufactured home in Yreka.

    Or a real, stickbuilt home in Bishop, for instance.

    You just can't get anything nice, in a place people actually want to live.

  • SugarFree||

    But they are so close to Rosie The Riveter WWII Home Front National Historic Park!

  • BakedPenguin||

    And Cesar Chavez elementary school, where their kids are getting a totally non-political education.

  • JW||

    $420,000 for this.

    Is there something about Richmond that turns people into blithering idiots?

  • Sevo||

    JW| 8.1.13 @ 1:17PM |#
    "$420,000 for this.
    Is there something about Richmond that turns people into blithering idiots?"

    Richmond is (clear traffic) 20 minutes from SF; in SF $420K will get you an empty lot in a not-so-hot part of town and five years' haggling with the city gov't about what they (and your neighbors) will let you build.
    You can argue that it's crazy, but that's the market.

  • JW||

    MOVE.

  • Sevo||

    No reason for Mr and Mrs Sevo to move; we're well ahead of the curve.

  • JW||

    Well, not you, but maybe you'll get some smarter neighbors.

    If it weren't for the crippling and moronic regulatory nanny state and the prices, I'd move to SF in a heartbeat.

  • Sevo||

    "If it weren't for the crippling and moronic regulatory nanny state and the prices, I'd move to SF in a heartbeat."

    Governments get away with this crap only where the conditions are so nice that they *can* get away with it.
    I'd say it's pretty much a given that if you bought X years back, the regs and the prices were more acceptable, regardless of where you are.
    In our case, it's long enough that it probably wasn't worse than, say Sacto is now.
    And given SF's 'rent control' laws some of our income has increased far beyond market rates.
    I might feel bad about this, but I've never voted for one of the asinine regs or lefty politicos the entire time I've been here.

  • Adam.||

    fucking california

  • Invisible Finger||

    Certainly answers Ira Stoll's question "Why would the Castillos walk away from a $636 monthly payment??"

    It's not worth the principal they owe and aren't paying down. A borrower like this with an IO loan is basically telling the lender he doesn't actually want to own the house, he only wants to rent it.

    That said, I'm thinking the eminent domain is actually a better deal for the lender in some of these cases because they are NEVER going to collect the principal without a 300% increase in house prices.

  • Aresen||

    QE may get them that 300% increase.

  • Adam330||

    But $636 seems like a good deal on rent too.

  • Brandybuck||

    Yeah, no way in hell are you going to rent a three bedroom house in Richmond for $636 a month.

  • R C Dean||

    You assume, Mr. Finger, that the lender is going to get paid the outstanding amount on the loan. If that were the case, there would be no need for ED.

    They're going to ED the mortgage because they plan to pay less.

  • Invisible Finger||

    I am not assuming the lender is going to get paid the outstanding amount.

    I am assuming the payment from the proposed ED procedure is going to net the lender more of the outstanding amount than the borrower is going to pay them.

  • Night Elf Mohawk||

  • Dweebston||

    Yes, please. That is lovely. Shame about the carpeting, though.

  • Night Elf Mohawk||

    Easy fix... still maybe for less than $420K total.

  • Zeb||

    Even that seems like a rip to me. The house across the street from me is for sale for $320,000 or so. Old New England farm house with addition including a modern kitchen. 5 Acres of land. Two old barn/garages plus one new, large, heated barn/workshop.

    Anyone want to move to NH?

  • Aresen||

    Anyone want to move to NH?

    There's always a catch.

  • Zeb||

    Holy fuck, how could anyone possibly believe that that could ever maintain a value of $200,000, let alone twice that?

    Pretty much every specific example I see of someone in trouble with a mortgage reenforces my original view that pretty much all of these people got what they had coming.
    I don't care how uneducated you are on financial matters. If you make $2500 a month, no you will not be able to afford a $2000 mortgage payment and that should be bloody obvious.

  • Invisible Finger||

    Of course you are correct. But this demonstrates the essential hope/fraud of the entire system.

    On the one hand you have a borrower who behaves as if the property is vastly overvalued and therefore won't put one red cent on it as a down payment - he is purely looking at his mortgage payment as rent. Such rent is probably "high" for the area but it comes with a cut of the proceeds when then joint is sold again (to a bigger sucker) at a higher price.

    On the other hand you have a lender who is giving money to a borrower who has no intention of putting any skin in the game. The lender's entire reason for giving the loan is the knowledge that he could package this loan with a bunch of others as a security so to them they hold the loan for a matter of weeks and then some other sucker (like a pension fund) pays them for the loan.

    Both sides went into the deal knowing that were holding a bag of shit but only had to hold it for a short period of time before someone else would buy the bag from them. The thought never occurred to them that someone might want to look inside the bag at some point and then discover just what exactly was in it.

  • PRX||

    seems to me they run the risk of turning Richmond into a cash only market which will hurt values for the entire city. if that turns out to be the case, they're basically flushing people's equity.

  • SugarFree||

    We paid 20% down in 2001. During the closing, the bank tried to give us an equity line of credit, basically a debit card that drew on our down payment. I stared at the loan officer for about 15 seconds, struggling not to laugh in his face.

  • JW||

    I stared at the loan officer for about 15 seconds, struggling not to laugh in his face.

    How can that be? I'm told those things are as irresistible as bum fights.

  • SugarFree||

    The Wife was there. She is basically the brave carbon rod of our relationship.

  • JW||

    Huh. I would sworn that there some sort of dildomatic telepresense in her controlling you.

  • Heroic Mulatto||

    Where do you think the carbon rod is stuffed into?

  • Aresen||

    I have a home equity line of credit. The balance is currently zero, but I used it to finance my bathroom renos a couple of years ago.

    I have since paid it in full, but I may go into it again if I decide on further renos.

    I am using it because the interest rate is better and I don't want to cash in my investments (and pay a whack of income tax on the capital gains.)

  • SugarFree||

    I'm not saying it doesn't work out for some people, it was just the absurdity of offering it to us right at that moment.

  • Aresen||

    Yeah, I have seen HELOCs used to finance trips to Disneyland/Vegas and new cars every year.

    People that dumb do not deserve to own a house.

  • JW||

    The wife-unit wants us to get a HELOC to do the bathrooms and kitchen, which I agree need much work. That still doesn't change the fact that we don't have the extra cash for the payment, after mortgage, college savings, 401k's, etc.

    But, after reading this article, I'm convinced that the best way to go is to get a 50-year ARM as a 2nd mortgage for 90% of the value, with a 20% balloon payment due after 3 years.

  • Paul.||

    Going into debt when you have cash makes a lot of sense in particular circumstances. People who have working braincells in the money management department know this so there's nothing wrong with it.

  • ||

    "Hey, would you like to take an interest bearing loan on your own money that you just paid to us? Now, I realize that I'm almost slapping you in the face by calling you stupider than dirt, but what do you think?"

  • Heroic Mulatto||

    Dude, you're lucky you didn't laugh. The loan officer could have been one of the Predator lenders and he would have caught you in his nano-fiber net and then vaporized you with his shoulder mounted plasma canon.

  • Brandybuck||

    My loan officer asked me the same thing, but half a second later, before I could laugh, she said "but of course you don't want it!"

  • Killazontherun||

    Man, even with some of the funniest and bawdiest bloggeners on the 'net, real estate is still tits up boring.

    'I pass over to you this pile of money, you hand me the key. Deal?'

  • Marc F Cheney||

    I lay my head on the railroad tracks
    And wait for the double-E
    The railroad don't run no more
    Poor, poor pitiful me

  • Marc F Cheney||

    I met a girl in West Hollywood
    I ain't namin' names
    She really worked me over good
    She was just like Jesse James

    She really worked me over good
    She was a credit to her gender
    She put me through some changes, Lord
    Sort of like a Waring blender

  • Zenjuris||

    "Why would the Castillos walk away from a $636 monthly payment?" Because it makes more sense to pocket that $636 and live rent free until the bank throws them out -- which thanks to our bleeding-heart politicians could take years.

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