When I was growing up, the Christmas season usually kicked off in early December with classic Christmas movies. One that I looked forward to every year was Rudolph the Red Nosed Reindeer. Burl Ives sang all the tunes from that movie. Here we go…

Rudolph, the red-nosed reindeer

had a very shiny nose.

And if you ever saw him,

you would even say it glows.

All of the other reindeer

used to laugh and call him names.

They never let poor Rudolph

join in any reindeer games.

Then one foggy Christmas Eve

Santa came to say:

“Rudolph with your nose so bright,

won’t you guide my sleigh tonight?”

Then all the reindeer loved him

as they shouted out with glee,

Rudolph the red-nosed reindeer,

you’ll go down in history!

Rudolph the Red-Nosed Reindeer — Burl Ives

.Sometimes when I see what people did and how they lived during the bubble, it fills my Reservoir of Schadenfreude. Today’s featured property has a story to tell, and I want to thank Brittney for providing me the detailed mortgage data that allows me to tell it.

Asking Price: $1,249,000

Income Requirement: $312,250

Downpayment Needed: $249,800

Purchase Price: $1,157,000

Purchase Date: 1/6/2005

Address: 24 Shady Lane, Irvine, CA 92603

Beds: 3

Baths: 3.5

Sq. Ft.: 2,629

$/Sq. Ft.: $475

Lot Size: 5,053 sq. ft.

Type: Single Family Residence

Style: Mediterranean

Year Built: 2005

Stories: Two Levels

View(s): City Lights

Area: Turtle Ridge

County: Orange

MLS#: S512996

Status: Active

On Redfin: 8 days

From Redfin, “Best deal around. Great plan 1 in private cul de sac location in the prestige Ledges at Turtle Ridge. Home shows as new very clean private location and great value for the Ledges estate. Nice rear yard area and great street appeal. Truly great deal here priced below most homes in area.”

How can any “plan 1” be worth over $1,000,000?

.

.

This one isn’t a rollback yet, but I doubt the owners care because they have already made their money on the deal. Let’s look at the loan history on this property and see just how these people managed to live over the last 3 years.

The property was purchased in January 2005 for $1,157,000. The combined first and second mortgages totalled $1,156,730 leaving a downpayment of $270. Let’s just call it 100% financing.

By April, they owners were able to find refinancing through Countrywide with a $999,999 first mortgage. This mortgage was an Option ARM with a 1% teaser rate. The minimum payment would be $3,216 per month.

Also in April of 2005, they took out a simultaneous second mortgage for $215,000 pulling out their first $58,000.

So look at their situation: They are living in a million dollar plus home in Turtle Ridge making payments less than those renting, and they “made” $58,000 in their first 4 months of ownership.

Apparently, these owners liked how hard their house was working for them, so they opened a revolving line of credit (HELOC) in August 2005 for $293,000. Did they spend it all? I can’t be sure, but the following certainly suggests they did.

In December of 2005, they extended their HELOC to $397,990.

In June of 2006, they extended their HELOC to $485,000.

In April of 2007, the well ran dry as they did their final HELOC of $491,000. I bet they were pissed when they couldn’t get more money.

So by April 2007, they have a first mortgage (Option ARM with a 1% teaser rate) for $999,999, and a HELOC for $491,000. These owners pulled $333,000 in HELOC money to fuel consumer spending.

Assuming they spent the entire HELOC (does anyone think they didn’t?), and assuming the negative amortization on the first mortgage has increased the loan balance, the total debt on the property exceeds $1,500,000. The asking price of $1,249,000 does not look like a rollback, but if the property actually sells at this price, the lender on the HELOC (Washington Mutual) will lose over $300,000.

These owners will probably just walk away. I doubt they have any assets. They never put any money into the deal, they pulled out $333,000 in cash, and they got to live in Turtle Ridge for 3 years. Not a bad deal — for them.

Karma will not leave these people alone though. They have become accustomed to a lifestyle far beyond their means. Their house was providing them with $111,000 a year in tax-free income. When they get forced out, their credit will be ruined, and they will have to go from living the life of the nouveau riche to being a destitute renter. We can only hope this transition is painful and the memory of what they lost lingers for years.

These people likely drank the kool aid and actually believed this kind of lifestyle could be sustained. That level of ignorance makes it hard to have much sympathy for them. However, when you see the excess of this lifestyle, you can’t help but wonder if it was worth it.

If you knew prices were going to collapse, and the lifestyle was not sustainable (like many on this board did,) would you have done it anyway? When you see the lives led by people like today’s owners, it is not difficult to see why so many chose that life.