Rich Americans Default on Luxury Homes Like Subprime Victims

[Purveyor]

By Bob Ivry and Dan Levy

May 6 (Bloomberg) -- Chuck Dayton put down a quarter of the $950,000 purchase price when he bought his house in Newport Beach, California, in 2004. He was making $500,000 a year with his drywall company and he expected home values to keep rising.

Then the mortgage market collapsed, new construction stopped and builders no longer needed his services. Dayton, 43, went into default four months ago because he couldn’t afford payments on the three-bedroom home, located within a block of the Pacific Ocean. He hopes his lender will agree to sell the seven-year-old house for less than he owes to avoid a foreclosure.

“It’s just wait and see right now,” Dayton said.

Borrowers such as Dayton, whose 2004 compensation was almost 10 times the median U.S. household income, are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.

The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

‘Trickle Up’

“It’s the trickle-up effect,” said David Adamo, chief executive officer of Luxury Mortgage Corp., a home-loan bank in Stamford, Connecticut. “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”

More...

Bloomberg: http://www.bloomberg.com/apps/news?pid=20603037&sid=aXIKT1zzD4.g&refer=home

[Vickers]

1. I feel bad for anyone losing their house, but got-DAMN...$950,000?

:wow:

[Johonny]

16. I know how'd he get such a good price

for a house that close to the Ocean near the peak of the housing bubble. Houses in southern California have there own impossible pricing structure. A 950 K house in LA at the peak of the bubble wasn't really that WOW a place, just a normal house.

[Mari333]

2. Big ass homes around here collapsing too

gated communities with huge McMansions have For Sale signs popping up like warts on a toad.lot of people just got in over their heads and banked on the economy not tanking.

[CoffeeCat]

8. There is a development in my suburb...

Four years ago, this development was touted as a "town within a town"--with it's own retail section, school, lake,
walkways and parks.

Four years later, there are maybe 20 huge houses built out there. These houses are surrounded by dirt and some green. Nothing
else. Nothing as promised has been built. It looks ridiculous.

I imagine that the developers were banking on using the money from home sales to "build up" all of the bling that was
promised.

Most of these homes are 500k and up.

Who in the heck, during these times, is going to buy a half million dollar home?

This land secured for this development spans a few miles. So far, there's a cluster of homes down at one
end--and nothing else but dirt.

The initial buyers of this dream, are most likely in for a rude awakening--when the capital is not there to
build what was promised.

It's a sad, sad sight. Our city has a population of only 35,000--so the incomplete status of this project is glaring.

[Mari333]

17. I think thats happening everywhere!

I live in a tourist town of about 3500 people..in the summer it grows to 30,000
the developers went nuts and started a LOT of new construction, condos, subdivisions...and some halfway done..then WHAM...the shit hit the fan...
i have breakfast with the mayor every sunday, and she told me a LOT of these developers are desperate now...folding like cheap dominos..and wish they wouldnt have built so much..
I think a lot of places are seeing it..a lot.

[jaksavage]

3. We have 4 more payments.

We will then be homeowners.

[CoffeeCat]

12. Awesome!!!

Congratulations on that amazing milestone.

What an accomplishment!!

:woohoo:

[Turbineguy]

4. It's those tricky

Trickle Economics. One way doesn't work, the other way does.

[Skink]

5. So if he was making that much since 04 why can't he keep up with the mortgage?

If he could afford a quarter down payment what's up?

[PM Martin]

6. Americans have a problem with budgeting and setting priorities.

[Mari333]

7. you said a mouthful nt

[SammyWinstonJack]

9. Living large?

[CoffeeCat]

11. The biggest dirty secret in America...

...is that the upper-middle class is poor. That's what Dave Ramsey says in his financial
seminars, and I see that playing out daily in our suburb. Up the hill from us, sits some
pretty large homes. They're not McMansions, but they're 5BRs, 4baths, 3 levels, 5,000 sq ft or so.

These homes are mostly inhabited by two-income earners. Both incomes are needed to make the mortgage.
Plus, you've got landscaping, furniture, two expensive cars in the driveway. Families like this are
mortgaged to the eyeballs. There are many "for sale" signs in these yards. I know a few people who have
lost their jobs, and they can't meet their financial obligations with one income.

Many people wanted it all--and they were willing to spend every penny they had to get it.

[sinkingfeeling]

13. Because he's not making that now and has something over $11,000 a month in mortgage payments.

Read the article. He refinanced for $1 million in Feb. 07 and then took out 2 more loans.

[liberal N proud]

15. Probably spent it on other luxurys...

Like a big ass boat, Several hot cars and SUV's plus the vacation home in the mountains and the trips to the Caribbean.

It appears this guy was living on borrowed bubble time. Unlike those who were suckered into buying homes who couldn't afford it with little or no down payment and ballooning mortgages.

[sinkingfeeling]

10. Would somebody sent this to all the 'talking heads' that claimed it was the poor, Clinton forcing

banks to lend through CRA, and ACORN that caused the mortgage crisis.

[L0oniX]

14. Sympathy = 0

[dysfunctional press]

18. "He hopes his lender will agree to sell the seven-year-old house for less than he owes..."

"to avoid a foreclosure."

unlikely- and even if they did, he'd still be on the hook for the difference.