31 Responses to “Pipe dreams in San Jose”

1. DensityDuck Says:
   August 13th, 2008 at 10:12 am

   3.5 bathrooms? Just imagine how many Mexicans you could stuff into a place like that!

2. sonarrat Says:
   August 13th, 2008 at 10:22 am

   I think the excluded part is the extra bed and bath that were added without permits, which is why the listing doesn’t match county records. The house is probably bigger than 1292 sf, and only $629K? That’s, like, twelve square feet in San Francisco, and besides, you get to live your own pipe dream!

3. cardinal2007 Says:
   August 13th, 2008 at 10:43 am

   Don’t put Mexicans there, that is just rude. There are neighbors you know.

   And yeah, at that price buying it does seem like a pipe dream to people in that neighborhood I suppose.

4. Jim D Says:
   August 13th, 2008 at 10:55 am

   Days on Market: More than 30 days.

   Yeah. No kidding.

5. Brian Says:
   August 13th, 2008 at 1:49 pm

   Lot Size Approx. 1-4,500sf

   LOL

6. madhaus Says:
   August 13th, 2008 at 2:27 pm

   Take a look at the aerial map, that’s some teeny leetle lots. Also, the MLS#, 606325, doesn’t even come up on Redfin (even with an 80 prefix attached). That’s an OLD listing number! And it’s not on mlslistings.com either. I wonder if it’s one of those foreclosures they aren’t trying that hard to sell.

   Whoever lives there pays their taxes early. But likes refinancing. A lot.

   Purchased in 1999 for $269,500 with a fixed $256K loan, then there’s some interesting resales involving the same person. Then the tale of woe begins. This home was refinanced in 2004 for $281K, so the owner no longer has any skin in the game. In 2006 he borrowed $500K in July, and that wasn’t enough because he then borrowed $500K plus a $50K second in October! Still not satisfied, in October 2007 he refinanced a $480K first and $90K second. This looks EXACTLY like the equity ATM abuse documented on irvinehouseblog.com, where buyers purchase a property responsibly and then starts sipping the “Housing Prices never go down” Kool-aid. Although I’m not sure a 5% down payment is really all that responsible, this guy (gal?) did hold onto it for 5 years before leaping at all the “free” money.

   Bank of America is the bagholder here, and I fully expect them to lose the entire second $90K loan as well as come up short on the first.

   Also, if you really want to understand Alt-A, there’s a terrific article on Calculated Risk explaining it throughly. Here’s a couple key grafs that opened my eyes:

   You’re probably still wondering what all this has to do with Alt-A. Alt-A is sort of a weird mirror-image of subprime lending. If subprime was traditionally about borrowers with good capacity and collateral but bad credit history, Alt-A was about borrowers with a good credit history but pretty iffy capacity and collateral. That is to say, while subprime makes some amount of sense, Alt-A never made any sense. It is a child of the bubble. …

   Alt-A, we are regularly told, is a kind of loan for people with good credit but weak capacity or collateral. It overwhelmingly involved the kind of “affordability product” like ARMs and interest only and negative amortization and 40-year or 50-year terms that “ramps” payment streams. But it doesn’t do this in order to help anyone “catch up” on arrearages; people with good credit don’t have any arrearages. Alt-A was and has always been about maximizing consumption, whether of housing or of all the other consumer goods you can spend “MEW” on. If subprime was supposed to be about taking a bad-credit borrower and working him back into a good-credit borrower, Alt-A was about taking a good-credit borrower and loading him up with enough debt to make him eventually subprime. …

   To me, the failure of Alt-A is the failure to represent reality of the view that people who have a track record of successfully managing modest amounts of debt will therefore do fine with very high amounts of debt. Obviously the whole thing was ultimately built on the assumption that house prices would rise forever and there would always be another refi. There was also the assumption that people are emotionally attached to their FICO scores–in more old-fashioned terms, that borrowers care about their “reputation” and don’t want to ruin it by defaulting on a loan. The trouble with that assumption was that we were busy building a credit industry in which there was plentiful credit–on easy terms–for people with any FICO, any “reputation.” A bad credit history is only a strong deterrent to default when credit is rationed, granted only to those with acceptable reputations, or–as in the case of “classic” subprime–granted only to those with poor reputations but strong capacity and collateral, and at a penalty rate. Unfortunately, the consumer focus (encouraged, of course, by the industry) on monthly payment rather than actual cost of credit meant that for a lot of people the fact of the “penalty rate” just didn’t register. In such an environment, the fear of losing your good credit record isn’t much of a deterrent to default.

7. madhaus Says:
   August 13th, 2008 at 2:34 pm

   Whoops, forgot to mention that 1152 Pipe Dream sold for $547K. In April. I doubt 1175 would sell for the same price today.

   Here’s 1152′s sales history, which might explain the amusing wishing price for 1175:

   Date Price Appreciation
   Mar 31, 1995 $195,000 –
   Apr 06, 1998 $229,190 5.5%/yr
   Oct 06, 2003 $256,500 2.1%/yr
   Aug 11, 2006 $665,000 39.7%/yr
   Apr 15, 2008 $547,108 -11.0%/yr

   Got peak?

8. anon Says:
   August 13th, 2008 at 2:47 pm

   According to the listing agent’s website, the “exclude converted bedand…” refers to “with half of car garage concerted (sic) to a very nice 1 bedroom & 1 full bathroom without permit”. Note that the listed 3 BR 2.5 BA was actually the original floorplan, not counting the unwarranted BR & BA addition. The listing website claims that the house is really a 4 BR 3.5 BA (nod, wink).

9. anon Says:
   August 13th, 2008 at 6:26 pm

   lol wut? ^^

10. cardinal2007 Says:
    August 13th, 2008 at 6:41 pm

    The other pipe dream probably doesn’t have the extra bedroom and bathroom, so it might not be worth as much.

11. jorge Says:
    August 13th, 2008 at 7:02 pm

    why do people hate me?

12. madhaus Says:
    August 13th, 2008 at 7:08 pm

    cardinal2007: The other pipe dream probably doesn’t have the extra bedroom and bathroom, so it might not be worth as much.

    The other pipe dream also has a full garage. I’m not sure 1175 is worth more. Check the comps in the neighborhood, $639K isn’t just high, it’s ridiculous. This is a “duet” (attached) house on very little land.

13. cardinal2007 Says:
    August 13th, 2008 at 7:15 pm

    #11 “jorge”, Stealing my name like that is NOT cool, not cool man.

    madhaus:

    Yeah, I suppose some people might like their pipe dreams with full garages, but I’m single, I have no need for such things, so I suppose I don’t value it it that well. But when I see the POS houses in price range or close to it I do really hate it when they have converted the garage, so I guess I can see where you’re coming from.

    Anyway, I haven’t looked at the other pipe dreams over there, but I supposed if it is that much higher than others it will be an overpriced pipe dream, and the bank will just have to reduce it’s asking price to match the market.

14. madhaus Says:
    August 13th, 2008 at 7:22 pm

    cardinal, I think using this house as an ATM was the pipe dream. The sick part is the owner’s probably not going to pay any of it back. What the heck did he spend it on? A Hummer? A trip to Aruba? 24K gold-lined garage unit? Heck, he didn’t even put in enough pergraniteel in the kitchen to be a cliche. He owes $570K on a house he bought for $270K, I mean WTF?

    Hey, if you want to commute from San Remote, you can buy a condo, but do you REALLY want to drive in from that far?

15. Pralay Says:
    August 13th, 2008 at 7:30 pm

    Whoops, forgot to mention that 1152 Pipe Dream sold for $547K. In April.
    ———-

    That’s not real sale, but bank taking back the home. Aug 2006 price ($665K) is the best price this home got. It won’t see that kind of number in near future.

16. madhaus Says:
    August 13th, 2008 at 7:52 pm

    Dang, you’re right Pralay, that was the bank taking it back. The current owner is American Home Mortgage Servicing.

    Cool, the 2003 sale was 100% financing at a variable rate. But I can’t find out what happened to the last owners by searching on their names, and there’s no NOD filed by the property APN.

17. Renter4 Says:
    August 13th, 2008 at 8:27 pm

    >He owes $570K on a house he bought for $270K, I mean >WTF?

    My guess is he/she’s a speculator and the 300k went on down payments on other houses that haven’t sold.

18. WillowGlenner Says:
    August 13th, 2008 at 9:33 pm

    $495 per sq ft in East San Jose is ridiculous.

19. WillowGlenner Says:
    August 13th, 2008 at 9:36 pm

    madhaus that article on calculated risk about Alt-A is baloney. What a load of crap, seriously.

20. nomadic Says:
    August 14th, 2008 at 12:01 am

    Lemme get this straight. 1152 went from $256k to $665k in THREE YEARS? Yah, right. Who thought that was a good idea? Were the banks asleep or what? The stupid buyer may not have had a clue, but sheesh…

21. calla Says:
    August 14th, 2008 at 12:38 am

    300K in five years would about cover two four-year programs at highly prestiggy RBA institutions.

    I mention this because I know several people in Silly Valley who were making good bank but nailed themselves to the wall: they used the Mortgage Biz to leverage their purchase of privileges for their kids (they assumed) through the Ed Biz. Some used their own homes, others, second or even third properties.

    Several of the mainstream press tales o’ woe I’ve read about Bayareans in trouble followed this storyline as well.

    calla

22. anon Says:
    August 14th, 2008 at 1:45 am

    And, as RE puts it, they were laughing all the way to the bank. Too bad they’re not in jail.

23. smurf Says:
    August 14th, 2008 at 4:27 am

    Pipe Dream Court, sweet! Is that near “Overprice St”?
    http://nihoncassandra.blogspot.com/2008/08/dear-investor.html

24. cardinal2007 Says:
    August 14th, 2008 at 11:57 am

    They may still have the money somewhere, at some point maybe they figured better to let the house go, and pay cash for a house elsewhere, (or for the same type of house), than keep paying the loans off.

25. madhaus Says:
    August 14th, 2008 at 1:25 pm

    WG, thank you for your complete, informative, thorough, leave-no-stone-unturned analysis of that article. I certainly understand so much more after hearing from you. Why that was right up there with some of RE‘s best work.

26. WillowGlenner Says:
    August 14th, 2008 at 1:56 pm

    madhaus, the point is that that tanta article is claiming that there is no incentive for people with Alt-A mortgages to hold on to their underwater homes, therefore expect the same flood of foreclosures that we got with subprime. Do you see any issues with that “analysis”?

    Heres a few minor details,
    1. Tanta says, Alt-A was about borrowers with a good credit history but pretty iffy capacity and collateral.

    BS. Alt A is for small business people. NOT “Iffy CAPACITY”. He says this term CAPACITY a few times. “Collateral” is also not a problem for Alt-A. Alt-A is simply for people who do not receive a W-2, which is a lot of wealthy people.

    2. Tanta says, Alt-A-It overwhelmingly involved the kind of “affordability product” like ARMs and interest only and negative amortization and 40-year or 50-year terms that “ramps” payment streams.

    More BS. I need some evidence here. I have Alt-A mortgages as do many I know, and all of them, yes 100% are FIXED LOANS.

    3. Tanta says, Alt-A was about taking a good-credit borrower and loading him up with enough debt to make him eventually subprime

    WTF??????????????????

    4. tanta says, To me, the failure of Alt-A is the failure to represent reality of the view that people who have a track record of successfully managing modest amounts of debt will therefore do fine with very high amounts of debt. Obviously the whole thing was ultimately built on the assumption that house prices would rise forever and there would always be another refi.

    The failure of Alt-A? What is he talking about? This is all speculation on his part. And the “whole thing” was NOT built on rising house prices, like I said I have had ALt-A mortgages for years, SIMPLY BECAUSE I DO NOT RECEIVE A W-2. Same for any computer consultant in the area, and there are millions of these, or small business owners.

    5. Tanta says, Unfortunately, the consumer focus (encouraged, of course, by the industry) on monthly payment rather than actual cost of credit meant that for a lot of people the fact of the “penalty rate” just didn’t register. In such an environment, the fear of losing your good credit record isn’t much of a deterrent to default.

    What a MORON this person is! Do you know that companies such as verisign and others are doing CREDIT CHECKS when making hiring decisions and if you have bad credit you don’t get hired? Did this guy just pull this article out of his ass? Thats what it seems like.

    Housing prices declined dramatically in the early 90s, and there were plenty of alt-a loans, then. Were there massive defaults, NO. The difference this time around is SUBPRIME, and SPECULATORS. thats it. There were even some speculators in the early 90s but nothing like today. Anyhow, Alt-A has never crashed before and there is no evidence thus far that it is happening now. There is a massive amount of speculation that Alt-A will crash like subprime but it hasn’t happened.

27. madhaus Says:
    August 14th, 2008 at 5:37 pm

    WG, thanks for the better explanation of what you didn’t like about the article. Some of what you say makes sense, some is only particular to yourself, though.

    I have read in several places that a majority of Alt-A loans were variable, interest-only, or neg-am. Not just here.

    I also heard Alt-A was a fairly new product (2000s). Were the loans you got in the 1990s called Alt-A or just similar to what you’re getting now?

    There is some discussion of commercial vs residential loans, I think Tanta’s issue was how this was done with residential loans. So in a way you’re reacting to your Alt-A (investment) loans but that isn’t what the article was discussing.

    Plenty of people on this board have discussed loan brokers pushing variable, interest-only and neg-am loans starting in 2002-03. The kool-aid was out there. You were smart enough to tell them no, but how many others did? When you see farmworkers in Watsonville signing no-doc loans saying they made 5x what they really did to qualify for huge mortgages, that’s actually a problem. Just because you don’t have that problem doesn’t mean it doesn’t exist.

    How many people knew in 2004 that the loan they signed would bite them in the butt 4 years later and affect their ability to get a job? Seriously? Do you remember anyone mentioning “Hey, they want to run a credit check on me because I filled out a job application”? Again, you ascribe your thought processes to everyone, which is a bad mistake to make. What was that quote, something like nobody ever went bust underestimating the stupidity of the American people? I know that’s not quite right but it’s close.

28. burbed Says:
    August 14th, 2008 at 5:42 pm

    Actually it turns out many landlords don’t run credit checks.

    http://www.sfweekly.com/2008-07-30/news/how-renters-work-the-system-to-live-for-free-in-one-of-america-s-most-expensive-cities/2

    With so much at stake, it’s a riddle how serial evictees are able to trick one landlord after another when credit reports, court records, and job histories are readily available. But landlord attorney Daniel Bornstein says it’s not as difficult as it might seem.

    There are many landlords in San Francisco who simply don’t do thorough background checks, either because they are trusting or they are in a hurry to start collecting rent, Bornstein explains. “Believe it or not, a lot of landlords are struggling, and they can be in a hurry to fill an empty unit,” he says. “And some guy with charisma comes along and the landlord is willing to take a chance.”

29. WillowGlenner Says:
    August 14th, 2008 at 10:21 pm

    madhaus,

    You were smart enough to tell them no, but how many others did? When you see farmworkers in Watsonville signing no-doc loans saying they made 5x what they really did to qualify for huge mortgages, that’s actually a problem. Just because you don’t have that problem doesn’t mean it doesn’t exist.

    Herein lies my point. The farmworkers in 700K mortgages was SUBPRIME. Not Alt-A. Alt-A requires high fico scores- you need to have consistent credit and a fair amt of it. That farmworker didn’t have that, he had no documented earnings and no track record of any kind. And yes, subprime defaulted- in a major way. But that doesn’t mean Alt-A will. Alt-A is not subprime. The people who are claiming it is the same are people like Tanta that are pushing some kind of agenda. Successful small business people WILL NOT WALK if their house declines in value. They are not “one foot away from subprime” as that lame article states, with no concern about their credit.
    And btw I knew some people who got an interest only loan in 2005, Alt-A (they were the only ones I knew that had an exotic Alt-A loan)- and they chose to refi recently, now they are fixed.

    Suffice it to say I am tired of this attitude that anybody that is leveraged in a mortgage is going to walk because the public is as stupid and irresponsible as a bag of rocks. Subprime was the key problem here and thats the most of it.

30. R Says:
    August 14th, 2008 at 10:53 pm

    I’d be real curious to see the percentage of Alt-A loans made to people with legitimate income v. those earning an extra 80k a year from bogus side businesses. I have seen a lot of individuals with good credit scores but insufficient legitimate income to come close to paying off the loan. Of course, paying off the loan was never goal, loan fees and refinancing was. I don’t know the percentages but I have a real hard time believing that all, or even a majority, of the Alt-A loans were made to tech-type guys like you WG who really do have sufficient earnings to carry the loan

31. colton Says:
    August 15th, 2008 at 7:55 am

    Check out mr mortgage by searching you tube alt a implosion. It is a huge disaster in the making. Think about it people in sacramento who 100 percent financed their stucco boxes see their homes now worth only half as much. People are just walking away in big numbers. If you see a large decline in home prices your area you will see your foreclosure rate spike and may feel like a dummy yourself making 2-3 times the payment on a house that has crashed in value.

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