By Matt Coker
By R. Scott Moxley
By Charles Lam
By Nick Schou
By Gustavo Arellano
By Gustavo Arellano
By Steve Lowery
By R. Scott Moxley
An upstairs condo in a shitty part of Garden Grove, three bedrooms, two baths, and overlooking alleys and the neighbors' wash lines, was listed at $449. The unit below it—one bedroom, maybe 700 square feet, and smelling of pee—was going for the fire-sale price of $345. At that price, my payments (interest only!) would be $2,298 a month—until those interest rates went up, of course, and don't you think they won't.
* * *
I'd find something, goddamn it, and I'd find it in Stanton, home of the very, very free. But on a recent comprehensive trek through available properties there, the most affordable I could find was a townhome, 1,100 square feet crammed into two dark, narrow stories, on a concrete-slab lot, for $410,000.
And I couldn't come close to affording that either. The couple who wrote us that letter, the couple that pulls in a sweet hundred grand a year? They could buy it, but their payments would be approximately $3,000 a month—for the privilege of owning their dark, gloomy, narrow townhome—in Stanton—and that's if they use one of those "exotic" loans that are causing Federal Reserve chairman Alan Greenspan such acid reflux, where they would be paying interest-only for five years at a fixed rate, after which their interest rates would adjust every six months and then in 10 years it would reamortize so they were paying principal as well, and if interest rates went up even just one little point in the next five years, their payments would hop to $4,316. A month.
But it's titty-bar-convenient!
* * *
But enough about that other couple, livin' large on their pretty concrete-slab patio: What about me?
I had Gene Burd at New West run my numbers for me. He figures that no more than 40 percent of your income should go to mortgage payments. "Forty percent of your gross income would be $1,648 a month," he told me. "You qualify for a storage unit."
Well, that would be a creative solution!
* * *
Burd seemed like a swell guy. I'd met him at an open house for a sprawling five-bedroom in Stanton, desperately in need of updating, that was listed for $649,000. Two months ago, a smaller house across the street sold for $630,000, but this listing wasn't even getting lookie-loos.
"This market's almost done, Rebecca," he told me frankly. "It can't go much further." But what about all those people who said the market might stagnate, but California real estate never crashes?
Yeah, Burd said, that's what they said back in '89. And by the end of that year, he no longer had two offices with almost 70 full-time agents. If you can weather that kind of downturn because you're planning to stay in your house for the next 40 years, and you don't have any balloon payments coming due at just the time the market's dropped, that might be fine. But if you're counting on this tulip craze continuing, just remember: a house can't quadruple in value every five years indefinitely. If it did, that would mean in five years, our Stanton townhome, already beyond the reach of almost everyone in the county, would be worth $1.6 million. And do you really think that's going to happen?
Burd did have some good advice for me, though: he told me I should get married. "Find a rich old guy who won't live that long," he said sunnily. "You're a good-looking girl!"
We had now moved from exotic to erotic financing.
* * *
I clearly needed someone with loans that were a little more "exotic," so I called Gavin Fenske, president of Great Financial Mortgage in Fullerton. I'd read an article in Newsweek on the scourge of "negative-amortization" loans, and Fenske was their negative-amortization-loan go-to guy. The whole thing sounded shady to me. Sign me up!
With negative amortization, you're not only paying interest-only—you're not even paying all your interest every month. So the amount you owe grows with time.
That sounded perfect.
Fenske got back to me within minutes of my message. I gave him my stats and lied and said I had excellent credit. "I can qualify you for $350, which is not going to get you a home in Southern California," he said, clearly unaware of the one-bedroom place that smelled like pee. "But with excellent credit, I can qualify you for $450."
I explained I could scrape together a $20,000 down payment: I bought stocks after 9/11, wanting to be patriotic, and those have quintupled to about $5,000. I have another $5,000 in my IRA. And, hypothetically, I could get my 10 dearest friends to loan me $1,000 each. "Twenty thousand might pay your closing costs," he said. So I couldn't even qualify for those risky negative-amortization loans, because you need 5 percent down to be eligible.
"Here's the thing," Fenske told me. "The whole logic for buying at these prices only makes sense if things continue the way they're going. You can get an interest-only loan and say, 'I don't care about paying $300 or $400 a month in principal, because my house just went up $10 grand.' But at some point, to me, that won't make sense either, because at some point the buyer pool will shrink. Prices will steady or drop; it's got to happen. Yeah, I want to do loans just like everyone else, and I want to stay in business, but I also want to sleep at night. I can qualify you for a lot on paper, but are you going to be comfortable with the payment?"