Housing ATM: We Have a Winner

I was digging around in the Snohomish County public records and I came across this interesting property history. Original purchase price is unknown, but records indicate that the serial refinancer owned the property since at least 1976.

Date Document Amount
03.01.2002 Deed of Trust $12,528
03.07.2002 Deed of Trust $82,787
06.21.2002 Deed of Trust $17,973
08.15.2002 Deed of Trust $20,263
03.31.2003 Deed of Trust $118,000
10.07.2003 Deed of Trust $6,680
11.25.2003 Deed of Trust $8,752
07.22.2004 Deed of Trust $18,653
05.02.2005 Deed of Trust $23,461
09.27.2005 Deed of Trust $28,457
01.23.2006 Deed of Trust $159,820
02.08.2006 Deed of Trust $10,458
03.17.2006 Deed of Trust $15,401
11.03.2006 Deed of Trust $30,982
12.19.2006 Deed of Trust $41,976
11.24.2008 Notice of Trustee Sale $157,544
07.07.2009 Trustee Deed $159,820

Granted, we’re not talking about a lot of money here (relative to the cost of most Seattle-area homes), but fifteen refinances in less than five years?!? Followed (not surprisingly) by a foreclosure last year. That has to be some kind of a record.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

32 comments:

  1. 1

    I came across a neighborhood in Snohomish County a couple of years ago where it seemed like everyone refinanced every 4 months. I can only assume a loan originator lived in the area.

  2. 2

    RE: Kary L. Krismer @ 1

    When You’re Over 50

    And you’re still refinancing and up to your eye-balls in upside down debt; its high time to speak to a honest financial advisor, one who uses like a 1% gain on your 401Ks to estimate when and how much you’ll need for retirement.

    Article in part on our Zombie longterm stock market:

    “….It’s almost 11 years since the Dow first closed above the 10,000 level and “the market is not going to be very far from where it is today 10 years from now,” says Vitaliy Katsenelson of Investment Management Associates in Denver….”

    http://finance.yahoo.com/tech-ticker/get-used-to-dow-10000-value-maven-predicts-10-more-years-of-famine-420496.html?tickers=%5EDJI,%5EGSPC,SPY,DIA,QQQQ,%5EIXIC,%5ERUT&sec=topStories&pos=8&asset=&ccode=

    These older refinancing buffoons will be working until they have to throw them in a decrepit nursing home.

  3. 3
    AMS says:

    Wonder what’s up with the first year, 2002, when there are four Deeds of Trust in less than six months.

    Also value on the final Trustee Deed amount matches the January 23, 2006 Deed of Trust in the amount of $159,820.

  4. 4
    Jillayne says:

    The_Tim it’s hard to say what went on without looking at the chain of title.

    Did each loan pay off the previous loan or were these multiple liens: 1st, 2nd, 3rd, 4th lien on title?

    Sometimes when I see multiple liens backed up like this, we’re talking about a person that may have a problem with gambling, alcohol or drugs, etc, and is getting more and more behind each month.

    I had a student in 09 at Bellevue CC who’s loan originator talked him into refinancing every 6 months. “That way, I get to skip a mortgage payment every year. I take the mortgage payment and invest it in the stock market.”

    What I explained to him is that every time he refinanced, his LO was churning out another set of fees and his equity was slowly being drained.

    LO also was referring him to the “investment advisor” who was “taking care of” his money.

    guy was totally convinced that this was the very best decision he’s ever made.

  5. 5
    CCG says:

    Let me know if I have this right.

    $596,191 was stripped out.
    $159,820 was recovered in the foreclosure sale.
    Bank is out $436,371, to be made whole by taxpayers.

    Multiply this by however many million times it’s happened across America. I’m hoping I’m wrong.

  6. 6
    The Tim says:

    RE: CCG @ 5 – I suspect we’re looking at just two or three mortgages that each increase in size each time they are refinanced. For example, the biggest one had 3 refinances: $82,787, $118,000, $159,820. So the $159,820 has the earlier ones rolled up into it. It’s not exactly clear from the documents though.

  7. 7
    Ray Pepper says:

    Just amazing what rolls out everyday now.

    http://www.earthtimes.org/articles/show/loan-value-group-launches-rh,1154970.shtml

    It may not be Cramdown but WIN A REWARD for paying your Mortgage is just too funny….

  8. 8
    Cheap South says:

    RE: Jillayne @ 4

    “….we’re talking about a person that may have a problem with gambling, alcohol or drugs, etc, and is getting more and more behind each month.”

    Let’s hope it’s not medical bills to stay alive. I heard those stories too (neighbor).

  9. 9
    Jessica says:

    The Tim,

    Hi. I was wondering if you could write a post sometime on the relationship between interest rates and home prices (or direct me to a previous post if you’ve already done this). My husband is feeling pressured to buy a home within the next couple of months b/c he thinks interest rates will go up soon and we will have to spend more money for a house. I feel that an increase in interest rates will cause home prices to drop further. What is the historical relationship between interest rates and home prices? Have home prices ever declined before when interest rates go up? What data exist to inform your opinions on this? Also, does an increase in interest rates usually lead to an increase in inflation? I would appreciate your input on this, now or in some later post. Thanks!!

  10. 10

    […] for any nominees is that they are allergic to chicken.   This week’s winner is…The Seattle Serial Borrower.  This guy would be a train wreck on Deal or No Deal.   I imagine that this is not the first or […]

  11. 11

    RE: Jessica @ 9

    Its Easy

    If interest rates go from 5% to 15%, the price will decrease 70% to stay the same mortgage payment….meaning, if you have 30% down right now, you can buy a house with cash if that happens.

  12. 12
    gordonshumway says:

    RE: Jessica @ 9

    I’ve been wondering about this as well. It seems logical that rising interest rates put downward pressure on prices, everything else being held constant. But historically there have been numerous times where interest rates were extremely high, and home prices didn’t fall a proportionate amount. So while the above theory makes sense, it doesn’t seem to show historically in the data.

    BusinessWeek did a comparison between prices and interest rates and found no correlation. http://www.businessweek.com/lifestyle/content/dec2009/bw20091229_199828.htm

    I admit this is confusing. One one hand you have the popular opinion that rising rates later this year will further drive down prices, on the other you have historical data that suggests otherwise. What am I missing?

  13. 13
    Ray Pepper says:

    RE: Jessica @ 9

    NEVER EVER buy a home because of Low Rates. Your rate can ALWAYS be bought down by the seller in an effort to unload their property.

  14. 14

    RE: Ray Pepper @ 13 – Yes, back in 1979 the seller could probably have bought your rate down to 11%. :-D

    Not to mention that buying down the rate typically makes a lot more sense typically for a seller rather than a buyer.

  15. 15

    RE: gordonshumway @ 12 – The last time interest rates rose significantly, you could sell your house subject to the existing mortgage. Due on sale clauses were not enforceable. Thus, using numbers from back then, if you had a house worth $80,000, and you had a $50,000 mortgage, the buyer only had to pay the higher rate on $30,000 less their down payment. And they were willing to pay you more to the extent that your rate on the $50,000 mortgage was really good.

  16. 16
    mukoh says:

    RE: softwarengineer @ 11 – Softie when rates increased housing prices did not fall in the ratio that you describe.

  17. 17
    AMS says:

    RE: Jessica @ 9 – Rather than address the issue specifically, which requires advanced statistical techniques, I am going to ask a slightly different question:

    So your husband wants to load up on debt today to buy an asset that might go down in value?

    Once again, if he thinks that the home will go up in value, then does an extra percent or two really make that much difference? (If he thinks the home is going up in value, then maybe it’s better to lock in low, but we need to discuss risk here.)

    Again, avoiding the advanced statistical analysis, let me ask the following question that addresses your question more directly:

    Do you really think that if interest rates rise that people will simply be willing to spend more on housing?

    Some observations-

    1. We seem to be in a period where people are looking to spend less, not more, on housing.
    2. In general raising interest rates puts downward pressure on inflation.
    3. In regards to the claim by gordonshumway @12, there never has been a period in time when the level of leverage is so high. The higher the percentage of cash buyers, the lower the impact increased rates would have.
    4. I have claimed that boomers are looking to downsize and retire. If this is the case, we might have a demand problem that will push prices lower for many years to come.
    5. When it cost $2 per gallon extra in gas, the entire country was severely impacted. If people cannot afford an extra $2 per gallon in gas, do you really think housing prices are going to increase if interest rates go up?
    6. This might be the most important. I don’t think there is anyone who claims that higher interest rates will push prices higher. (When I suggest this, let me also suggest that the rates are uniform in application, so all borrowers will pay more. There are people who suggest that paying higher taxes increases the value of the property based on the ability of those who can pay the higher taxes.)
    7. Given equal payments, you’d rather pay a higher interest rate with a lower principal. You can always pay off the debt early, or possibly refinance, but you cannot go back and reduce the purchase price.

    And, finally,

    8. If interest rates do go up, and if housing prices hold, or go up, then simply buy a less expensive home. What happens if everyone does this?

    I hope this helps.

  18. 18
    AMS says:

    RE: softwarengineer @ 11 – Computations please, including duration.

    One game that people are trying to play is duration extension. Raise the interest rate, but extend the duration, so the payment goes down, even if the interest paid is more.

    Another game that is being played is to extend the duration at the same interest rate. Undiscounted there is more interest paid.

    Finally, there are cash buyers. How did you factor these into your computations?

  19. 19
    Hugh Dominic says:

    Rising interest rates usually co-exist with inflation. Inflation makes salaries rise and real estate debt more attractive, usually. I think that added noise to the system that destroyed the expected correlation where rising interest rates should force lower prices.

    This time, however, we may see interest rates rise without inflation, without salary increases, and without a desire for real estate as an inflation shelter.

  20. 20
    Gilly says:

    Medical bills is my guess. Especially if they’d owned the house a long time, paid off the original loans, then suddenly started pulling equity out over a few years. They’re taking secondary loans, periodically rolling them into new primary loans of 82, 118, 159. 1st lienholder eventually forecloses for $159k, junior lienholders go whistle. To be fair to the banks they don’t always foreclose until the sick person dies, then their partner goes to live with their daughter (we hope) and the bank takes the house.

  21. 21
    Scotsman says:

    RE: Hugh Dominic @ 19

    Hugh is right- this is really pretty simple. In the past folks were willing to pay higher interest rates because ongoing inflation was expected. An interest rate of say 11% made sense, or at least seemed manageable when home values were going up at a rapid clip and wages were also rising. Because of the expectation for additional future price and wage increases home values were relatively insensitive to interest rates. As rates moved up or down a couple of points home values didn’t change much- except to adjust to inflation.

    The situation now is very different- incomes are stable or dropping and there isn’t an immediate expectation of significant inflation. It is quite probable that as rates rise home values will fall at an even faster rate to compensate. Economics is somewhat complicated and people tend to focus on simplistic explanations of traditional relationships in an effort to better understand the world around them. But the “rules’ everyone likes to refer to don’t always hold, in part because there are often more variables involved than simple rules can recognize. This is one of those situations.

    I would suggest waiting to purchase until home prices have more obviously hit bottom. A rise in interest rates in our current environment will only depress home prices further. There is a thread here that covers this topic pretty throughly within the past year or so as I recall. Tim will probably dig it out soon. ;-)

  22. 22
    AMS says:

    Seeking Alpha on inflation versus interest:

    A couple excerpts:

    “Raising and lowering interest rates is the most common mechanism for implementing monetary policy. Interest rates are increased to moderate demand and inflation and they are reduced to stimulate demand. If rates are set too low, this may encourage the build-up of inflationary pressure; if they are set too high, demand will be lower than necessary to control inflation.”

    “A change in interest rates has an instant impact on consumers’ confidence, which influences spending immediately. To be practical, these interest rate changes take much longer to actually influence consumers’ and producers’ behavior, decisions and psyche. However, it provides a great platform and framework for the sea change.”

    Much more at the source:

    http://seekingalpha.com/article/85805-inflation-vs-interest-rates

    Also expectations relative to inflation is one of the factors in setting an interest rate. A rate of return higher than inflation maintains purchasing power. A rate of return below inflation, and the principal is losing purchasing power.

  23. 23
    Jonness says:

    RE: Jessica @ 9

    Jessica: I have some tools on my website that might be of interest to you. The first is called “Median Home Price vs. Mortgage Rates vs. GDP Charting Tool”

    If you spend some time with it, you will realize many factors influence home prices, and mortgage rates are not the factor of most influence. But, as others have said, they do influence price because people can only afford to pay so much per month. In the current economy, this will be more pronounced than in economic prosperous periods–especially given the amount of late-payment distress currently in the market. Nothing is for sure, but the risk to the downside is currently FAR greater than the risk to the upside. The thing to take away is that a multitude of factors affect home prices, so you have to try to weigh them all together.

    http://housingcorrection.com/

    Another tool you should look at if you are thinking of buying in this area is “Case Shiller Absolute House Price vs Median Household Income (U.S. Census version).” If you compare Seattle’s correction to other cities, you will see that Seattle prices are about 25% too high compared to incomes. This is true for about every city in WA, so it isn’t a “Seattle is special” thing. Here is a short tutorial on how to use the tool:

    http://housingcorrection.com/medianpricevsmortgagerate/pricetoincometutorial.htm

    Las Vegas has corrected to levels well below historical relationships to incomes. The blip up in many cities over the last few months has been the result of unprecedented government stimulus spent to prop house prices up above true market levels. Seattle had corrected about half way back to normal when the stimulus frenzy was let loose across the nation. Many other places that had corrected further started going up in price, but Seattle is still so overpriced it didn’t even appreciate during the unprecedented stimulus.

    Now, that the government has fired the bulk of its weapons, it is running low on cash and is about to begin pulling back for political purposes. The Fed has been purchasing almost all of the mortgage backed securities available in the market and is about to stop and let the market take control again. The govt. is also about ready to stop the tax credit. What this means is real market forces will have much more influence on house prices than they have over the course of the last year. Places that have largely corrected will probably decline a little more. It depends on how many toxic mortgages exist in a area as well as the unemployment rate. Seattle is low/medium toxicity city but highly overpriced compared to most other cities. Thus, there is extreme risk in buying a home here right now. It doesn’t mean it won’t turn out well. It just means there is a huge risk to the downside in this area that far outweighs the risk to the upside.

    Keep in mind, nothing is for certain about any potential future. Investing boils down to risk management through proper use of diversification, hedging, and intelligent use of probability theory.

    My opinion is to expect Seattle home prices to decline at least another 10% before they trough. Then again, bubbles are typically symmetrical and fully retrace, so the loss to the downside could be far greater.

    Take another look at Seattle median house prices compared to King County median household incomes and ask yourself if buying a house that’s 25% overvalued compared to incomes makes sense to you at a time when the government is on the verge of stopping an unprecedented level of support for house prices. Here is my opinion for your husband: As long as you have a legitimate down payment, you want interest rates to go up. Embrace it if it occurs. IOW, what matters is the amount of money in the buyer pool compared to the available inventory. Credit has tightened for the last 10 months I’ve been keeping track. Most of the money in the buyer pool is credit money.

    We are witnessing an unprecedented opportunity to save up a down payment. Use the “Median Home Price vs. Compound Interest Charting Tool” and you will find Seattle home prices have appreciated at a 6.5% rate since 1985. IOW, if you wanted to save $36,000 this year toward a higher down payment on a $400K house, price appreciation would normally eat up $26K of that for a total real savings of only $10K. But alas, we are in home buying Nirvana. Not only will you most likely get to apply the full amount of your newly saved down payment, house prices will probably go down as well for an even further savings. For most people, this means they can save up in a year what it would normally take 3 to 5-years to save.

    But don’t listen to me. Do your own research and make up your own mind drawing from a broad variety of resources and opinions.

  24. 24
    Jonness says:

    By gordonshumway @ 12

    I admit this is confusing. One one hand you have the popular opinion that rising rates later this year will further drive down prices, on the other you have historical data that suggests otherwise. What am I missing?

    My charts pretty much show the same thing as your link, which surprised me upon initial discovery. But it’s important to keep in mind, mortgage rates are only one factor of many that affects prices. For instance, if wages are rising while rates are high, the amount of money available in the buyer pool is rising as well. Thus, treating rates like a holy grail that must always correlate does not work. IMO, they are a minor factor that work in conjunction with other more powerful factors.

    Consider MV=PQ. Is credit tightening? If so, V goes down. Since M = MB/R, if the banks aren’t lending R (reserves) PQ (price times quantity produced) won’t rise despite a steep rise in M accomplished through government printing. That’s part of what has many inflationists confused right now. Many only look at a single factor, the rise in M, without looking at how it fits the rest of the equation. There is no holy grail. The economy is a complex function, and the sum of the parts must be taken into consideration in order to output the correct answer. Since there are so many parts to consider, it’s tough to be consistently right. But that does not undermine the truth of the function.

    There is no single silver bullet indicator. You have to look at as many factors simultaneously as you can.

    Many RE agents claim future price cannot be reliably predicted. Then again, I proved that prices would hit a new low this winter. Of course, that came to pass. Most RE agents that make such claims don’t know math.

  25. 25

    Jonness said “Most RE agents that make such claims don’t know math.”
    You ever look at the real estate listings? They don’t know spelling or grammar either.

  26. 26
    shawn says:

    RE: Jessica @ 9 – I know this is a simple answer, but you can always refinance later to a lower interest rate, but you can never lower the price of the home.

  27. 27
    shawn says:

    RE: AMS @ 18 – I think what happened was that SoftWarEngineer found that when he recalculated his figures that mysteriously the right hand side of the equation cancelled out the left hand side leaving him the startling fact that 1 does equal 0.

  28. 28
    Mikal says:

    RE: Gilly @ 20 – I bet your guess is correct. But according to many here we have a great health care system and those things just don’t happen.

  29. 29

    […] Rates Lead to Falling Home Prices? By The Tim on February 9, 2010 | Leave a response Yesterday a reader asked:I was wondering if you could write a post sometime on the relationship between interest rates and […]

  30. 30

    By Jonness @ 24:

    By gordonshumway @ 12

    I admit this is confusing. One one hand you have the popular opinion that rising rates later this year will further drive down prices, on the other you have historical data that suggests otherwise. What am I missing?

    My charts pretty much show the same thing as your link, which surprised me upon initial discovery. But it’s important to keep in mind, mortgage rates are only one factor of many that affects prices. For instance, if wages are rising while rates are high, the amount of money available in the buyer pool is rising as well. Thus, treating rates like a holy grail that must always correlate does not work. IMO, they are a minor factor that work in conjunction with other more powerful factors.
    .

    You’re starting to sound like me! ;-)

    Seriously, there are so many factors that affect real estate prices that if you just focus on one you’re more likely to be wrong than right.

  31. 31
    gordonshumway says:

    I think you guys make a lot of sense. I’m sure this is an oversimplification, but it sounds like you can chalk up the early 80’s price appreciation / rising interest rates to an inflationary environment. I fully agree that’s a far cry from where we are today and drawing comparisons is probably foolish. While I was surprised to see prices rise even when mortgage rates rise in the past, I think we’re in a pretty unique situation today and looking for parallels in the past probably isn’t going to be reliable.

    By Kary L. Krismer @ 30:

    By Jonness @ 24:

    By gordonshumway @ 12

    I admit this is confusing. One one hand you have the popular opinion that rising rates later this year will further drive down prices, on the other you have historical data that suggests otherwise. What am I missing?

    My charts pretty much show the same thing as your link, which surprised me upon initial discovery. But it’s important to keep in mind, mortgage rates are only one factor of many that affects prices. For instance, if wages are rising while rates are high, the amount of money available in the buyer pool is rising as well. Thus, treating rates like a holy grail that must always correlate does not work. IMO, they are a minor factor that work in conjunction with other more powerful factors.
    .

    You’re starting to sound like me! ;-)

    Seriously, there are so many factors that affect real estate prices that if you just focus on one you’re more likely to be wrong than right.

  32. 32

    […] of 400 foreclosures per market, this data does explain why it is so ridiculously easy to find outrageous examples of equity withdrawl gone wild.Lili Sotelo, managing attorney at Northwest Justice Project, said she’s seen thousands of […]

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