“We took out a one hundred percent loan to value,” Harlan says. “But our real-estate agent double-ended the deal. So the place had appraised at $550,000, and basically she cut us a check for half of her commission.”
The Harlans paid no money down. Their mortgage is around $2900 per month, homeowners’ association (HOA) fees are $378 per month, and taxes are another $450 — for a total payment of just over $3700 each month.
Their 1100-square-foot unit is on the sixth floor — the top floor — and it faces the tree-lined courtyard inside Union Square. It has two stories, with a 300-square-foot private deck, stainless-steel appliances, and granite countertops.
Their unit reappraised last year for $450,000. But now, Jordon Harlan says, the value is closer to $400,000, or maybe even $350,000.
“With the economic situation,” Harlan says, “it could take five years for my place to get back up to the value it had when I bought it. At that rate, with me paying the interest payments on it and not actually amortizing the loan at all, it doesn’t make any financial sense to stay in the place. For instance, we figure that over the next three years it’ll cost us about $133,000. We’d need to see an increase in value for that to be worth it. And it’s not likely to happen.”
Harlan and his brother are looking into loan solutions offered by the government, but they’re not finding relief there. “There’s an $8.5 billion settlement offered by Countrywide,” Harlan says, “although that applies to subprime loans and pay options, which is where you can make a minimum payment for less than the interest on the loan [resulting in negative amortization]. And this is basically predatory lending. So they’re allowing you to call Countrywide and just have your place refinanced. But they don’t have those programs for prime loans, which sucks, because my value’s being hit by the subprimes and the pay options and the foreclosures, but they don’t have any solutions for me. But I’m going to call in and try to work out something where either they refinance the value of my loan down to a fair-market value. Or I’d even be open to the lender renting it to me, with the option of buying it back a few years from now.”
Harlan is a second-year law student at USD, and he waits tables a couple of nights a week at Tapenade Restaurant in La Jolla. But mostly, he’s going into debt, paying school loans on top of his home loan, without much income.
Harlan’s brother is in the search-engine-optimization business.
Harlan learned about real estate by reading books such as Home Buying for Dummies and from spending hours on the phone with his real-estate agent.
“My loan is an 80/20,” Harlan says. “The first is a 5.75 percent interest rate, which is really reasonable. And it was full doc [fully documented], which means they got all my income and my brother’s income. The 20 percent is a home equity line of credit, and that fluctuates with the prime rate.”
A new possibility that the Harlans have put on the table is foreclosure. “I don’t want to sit in the house for six years,” Harlan says, “waiting for the value to come back. It doesn’t make any sense financially. At this point, I’m going to pay more to stay here than I’ll ever make from selling it. Not to mention that the adjustable rate I got was for seven years, which was, I thought, more than enough. So my loan could actually adjust, which I thought would be unheard of when I first bought it.
“You feel like a failure, you know,” he says. “Because you made such a huge investment, and you had your naysayers when you did it. And you had your supporters, too, people who backed you up, people you trusted. And you didn’t know who to believe or what to believe. And then to have to foreclose is to say that you made the wrong decision. To admit that you had poor judgment. And there’s the credit issue. Landon’s credit has rebounded from the 500s to over 700 now. Mine is bordering on 800. I’ve never been late for a payment in my life. So to have a foreclosure, it’s like, Jesus, I went through so much work to get my credit where it is.
“We had the income to finance a house this size. But 100 percent financing was a bad idea, from the bank’s perspective. When you’re looking at a half-million-dollar house, if you don’t have any equity in it, and it stops appreciating, then you have no reason to stay in it except for your credit. You have no equity.
“It’s a tough situation to figure out what to do, because, how do you price your credit score, you know? And it’s an interesting side note for me, because I’m going through a moral-character application for the California bar, where they evaluate your financial record. So essentially, a foreclosure could keep me from being admitted to the bar. I have to worry about what this whole housing situation might do to my career.”
From a Developer’s Point of View
“This isn’t particularly a bad time for us,” says Brian Stoddard, emphasizing the word us, “it’s a bad time for everyone.” Stoddard is the president and chief operating officer for Calgary-based Pointe of View, Vantage Pointe’s developer. “We’re not having any project-related issues, we’re having market-related issues. We continue to believe in that building, and we continue to believe in San Diego. We’re putting up a landmark in a world-class city.”
Stoddard says that Pointe of View hasn’t made the decision yet whether it’s going to offer properties for rent. “Am I going to rent out units, or reprice the units, just because we’re in a bad market?” Stoddard asks. “Or am I going to sit there and carry those units and sell them at a time when I think the market may be better, if I think that’s going to be months instead of years away? That’s a mathematical equation for me. And it’s the kind of thing we’ve done in the past. We’ve sat on units. I have no reason to fire-sale units. We are a large developer. We have thousands of units all over the continent. We have buildings in Ontario, Calgary, British Columbia, Arizona, Hawaii, Orange County, and we have another site in San Diego (at 11th and Broadway), just two blocks away from Vantage, which we haven’t begun to build on yet. Again, we believe in San Diego. Those units in Vantage Pointe are going to sell. Is it going to take 8 months, 10 months, 15 months to sell them? Maybe. I don’t know. But it’s not going to break us to sit there and carry that building for the next year. We know the market is going to come back, and someday, we’re going to have two big residential buildings in San Diego. At least two.”