Liberal lending leads to '03 rollback in SJC

A recent OC Register story by Matt Padilla on foreclosures spiking unevenly around OC included this observation about foreclosures in Orange County:

Experts generally agree that foreclosures are spiking now because it was too easy to get a home loan during the housing boom. Loose lending combined with escalating home prices spurred speculators to buy several properties and resulted in others stretching to buy a home to live in, experts say.

Today's property - a 2003 rollback in San Juan Capistrano - is an example of easy and available credit during the bubble phenomenon, and what can happen when the proverbial rug is yanked away. It's hard to argue that the owner truly "stretched" to get into this property, because they didn't need to put more than $1 of their own money into the purchase.

The photo at the top is from when the property was on the market as a rental last July for $2,200 per month. This is the only photo with the current listing:
26405 Smoketree Lane, 92675

Asking price: $279,999

Asking price/ sq ft: $233
Income requirement: $69,999.75
Purchase price: $302,000
Purchase date: 11/21/03
Size: 2 beds, 1 bath, 1,200 sq ft (built in 1973)

MLS: S529200 (7 days on Redfin)

Zillow Zestimate: $534,500 (just a bit off)
2007 property tax: $3,300
HOA dues: $112
Type: Single Family Residence

Style: Ranch

Stories: One Level
Lot size: 3,000 sq ft
From listing: BANK says, 'BRING US AN OFFER!' Single-Level Home on Cul-de-Sac with Excellent Community Recreation! Outdoor Courtyard Living! Granite & Tile Kitchen. Dining Room + Covered Dining Patio! Big Living Room Floorplan currently set-up as small Living Room + Den/3rd Bedroom. Big Master & 2nd Bedroom w/ Walk-In Closets. Full Bath w/ Tub. Garage, Carport, Driveway plus low-cost community RV/Boat Parking. EZ Commuter Access for I-5 & 73. Near Shops, Harbor & Beach. WOW~Community Fishing Lakes, Pools, Parks, Sports Fields & Courts, Tot Lots, Nature Trails surrounded by open Countryside!

Because Google street view is our friend, here is what the street looks like:
Here is the story behind this property:
11/13/03: Current owner purchased for $302,000 with $1 down using a $241,599 1st loan and a $60,400 2nd loan. Let's call it 100% financing.
2/16/05: New loan for $369,000 from Resmae.
10/24/05: Re-fi from World Savings for a total of $391,500 in loans.
3/7/07: Re-fi again for total debt of $439,850. This includes a $370,400 1st loan and a $69,450 2nd from Countrywide.
3/26/08: Notice of default filed on the 1st loan in the amount of $9,605.

Assuming a sale for the current asking price, the shortfall would be $38,800.94 off the 2003 price, including 6% sales costs. But, as the financial history above shows, the true loss the lender will likely face is much more considering the amount of debt that is actually on the property.

Now you see how easy it was for the owner to buy a house with essentially no money of their own and then have their house provide "free" cash during the boom years. Do you feel they should be bailed out, and that they deserve to stay in the home and have the principle on their loan reduced?

Trust us - this is no aberration. In fact, it is the hidden story of South OC real estate during the bubble. There is a significant amount of properties that have similar stories to tell, and we'll do our best to share many of them with you.