The new listing at 8695 Tom Kite looked like just another Somersett owner getting serious about today’s real estate market. The home was purchased in October 2005 for $842,306, has probably seen another $100,000 in landscape work, and is listed at $700,000. Interestingly, the owner put 40% down and there is only a $500,000 first loan recorded – an Option Arm for $500,000 through Washington Mutual with a 125% cap (low-ball alert).
The real story turns out to be the owner’s other properties, purchased between October 2004 and April 2006, ALL with Option ARM loans from WaMu:
– 2635 Burr Ct., $495,000, 80% first loan plus 10 % HELOC, later upped to $119,525.
– 2290 Emerald View, $578,750, 72% first.
– 1480 Mescalero, $339,900, 80% first.
– 5895 Blue Canyon, $315,000, 80% first.
– 6052 Bankside, $310,000, 70% first.
– 896 Sauvignon, $311,000, 70 % first.
– 1798 Evening Rock, $642,500, 30% first and a later $239,000 HELOC.
– 1421 Foster, $271,000, 65% first.
– 700 W. Golden Valley, $330,000, 75% first.
Our gentle land baron certainly put some skin in the game on most of these 10 properties. I would guess that the varying first loan percentages may have to do with out-of-state 1039 exchanges. but who knows? I also assume they have been paying the minimum amount required by the loans, which would put them at least 10% negative amortization on each loan by now. And Reno’s median has dropped how much? Safe loans can go really, seriously bad. The owners are current with all payments as far as I can tell – I have no beef with them (well I do on the moral end, but that’s another post). Watch these properties – they may show up as bargains shortly.
So, WaMu. 10 Option ARM loans to one party, and I never saw that Second Home Rider box checked off once. This owner is PERFORMING as far as your books go, but how much longer can that last? You are going to be hosed even on the loans that looked like sure bets. And this is on the Good Stuff on you books. I can’t imagine the rest of the garbage a deep audit would find. You screwed the pooch big time. Time to die for your sins. The thing that makes me run screaming into the night is that you won’t be a JP Morgan Chase savior issue when you belly, you are going to be an FDIC issue. And that means me, the taxpayer, is going to be saddled for your bazillion dollars in criminally stupid underwriting. WooHoo.