The American Dream Is Not Really The American Dream
The Union Tribune reports from California. “Like other buyers who used risky financing to purchase their homes while banking on rapid real-estate appreciation, Maria and Oscar, who asked that their last names not be used, are facing ballooning monthly payments they know they cannot afford. Now feeling trapped in a depreciating real estate market, many of these frightened homeowners are hoping to stave off foreclosure by taking whatever steps they can.”
“In the first two months of this year, default notices issued in San Diego County quadrupled over what they were a year earlier, and analysts are predicting those numbers will rise.”
“When Maria and Oscar realized that they weren’t going to be able to continue making their mortgage payments and also pay their steep property taxes, they opted to move in last year with Oscar’s parents. At the same time, they rented out their three-bedroom house in Eastlake, which helped cover a little more than half the $3,000 monthly payment on the two interest-only loans they took out to finance their no-money-down purchase.”
“But with the mortgage due to increase to more than $4,000 next month, the couple has put the house up for sale, realizing that they will likely lose money on what they believed was a sure thing three years ago.”
“‘We don’t dodge our bills, we just had a bad deal.’ said Maria.”
“Maria said that she and her husband recently reduced the price on their house to a little above the $512,000 in loans they currently owe on the property ‘We’re looking at selling it for less than what it’s worth and cutting our losses,’ said Maria. ‘We just don’t want to throw our money away.’”
“The vast majority of homeowners who are now finding themselves in desperate situations are victims of disreputable brokers and lenders, believes Gabe Del Rio, homeownership director for the nonprofit group Community HousingWorks. But they also were banking on a real estate market accustomed to double-digit increases in appreciation.”
“‘Those people made assumptions of making money and using the cash out to supplement their income, and those times seem to be over,’ del Rio observed.”
“Where last year his office would receive one call a month from homeowners with mortgage delinquency woes, the calls have now mushroomed to several a day, he said.”
“Richard Novelo, who purchased his Lemon Grove home three years ago for $381,000, is hoping that the terms of his high-interest-rate loan can be modified before he misses any more of his $3,800 monthly payments.”
“Advised that his poor credit would make it difficult for him to refinance, he finally settled for a new loan that has put him into a far more precarious position. He was able to pull some cash out but his payment ballooned to nearly $4,000, and his loan amount has risen to $420,000.”
“‘The broker was in it only for the money and didn’t really think about the situation he was putting us into,’ said Novelo. ‘If we could do it all again, we wouldn’t do it. The American dream is not really the American dream. It’s more like an American nightmare. All of a sudden, that small apartment we lived in doesn’t seem so bad.’”
“Reacting to a nationwide spike in subprime loan defaults, lenders recently raised their requirements for loans to borrowers with low credit scores. Some analysts say the industry is overreacting. ‘I see it as definitely a bad thing,’ said Greg Wickstrand of GMAC Mortgage Corp. in San Diego.”
“The collapse of the subprime market ‘is something that was waiting to happen, with investors buying any loan originated, regardless of the risk,’ Wickstrand said.”
“‘The trend has been to make loans that satisfy the needs for Wall Street and now it is all coming crashing down, but the ultimate loser is the borrower who can’t make their payments,’ said Kevin Stein, associate director of a lending watchdog group. ‘San Diego is right in the heart of all of this. There have been a lot of questionable loans sold in San Diego. We have a whole lot of loans that have been made where people didn’t understand and couldn’t afford their payments. To me, that is an indictment of the industry.’”
“San Diego County homeowners are defaulting on loans at a rising pace. In the first two months of this year there were four times as many default notices issued as were issued during the same period of 2006. Foreclosures here tripled over that period, according to DataQuick.”
The Orange County Register. “New Century spokeswoman Laura Oberhelman said the company was overtaken by unforeseen events: rising loan delinquencies, a change in the type of loans Wall Street would buy and New Century’s financial backers cutting off its credit.”
“‘All of these events converged on the company over a matter of weeks, and clearly that was never projected,’ Oberhelman said.” “Interest-only loans, which expose borrowers to drastic payment spikes when principal comes due, peaked at 29.6 percent of New Century’s originations in 2005, up from 19.5 percent in 2004.”
“More than 40 percent of New Century’s loans were based on stated income. Through the first three quarters of 2006, stated documentation loans were $19.2 billion, 42.3 percent of total lending.”
“Amanda Milano, a former senior loan processor who worked at New Century for four years, said she witnessed a deterioration in its guidelines last year. Still, she said, any mistakes New Century made were common in the industry. ‘It’s just that we were larger,’ Milano said.”
“Brett Buchanan, a former New Century loan processor, described the pressure he faced when outside brokers tried to get New Century loans.”
“‘The norm would have me talking to one broker who was obviously fishing for guidance on packaging a kinky deal with another one on hold … because he couldn’t get more rebate by jacking the borrower’s rate any higher and another one in the lobby frothing at the mouth because we found out the W2s he’d submitted were doctored,’ he wrote.”
“Karen Waheed, an underwriter with the Home123 retail unit of New Century, said some loan applicants called themselves landscapers or tree surgeons and reported dubious incomes of $10,000 to $15,000 a month.”
“Waheed, who was laid off April 2 after three years with the company, said exceptions were also made that allowed elderly borrowers on fixed incomes to get adjustable-rate loans that would eventually become unaffordable…though she personally wouldn’t approve such a loan.”
“‘It got to a point where I literally got sick to my stomach,’ she said. ‘Every day I got home and would think to myself, I helped set someone up for failure.’”
The Desert Sun. “The Coachella Valley Workforce Housing Summit (plans) to address the following at the summit: Will affordable housing be available for all valley residents? How do we house the new residents? Will there be enough jobs for current and future residents?”
“‘The housing market is starting to balance itself out, but the county median housing price is still significantly higher than the median household income,’ said Emilio Ramirez, deputy director of housing for the Riverside County Economic Development Agency.”
“Compounding matters is the impact that ‘exotic loan’ lending could have on the valley.”
“‘There is potentially a higher incidence of foreclosures and bankruptcies because of the mortgage loans that were taken out,’ Ramirez said. ‘I’m hearing (anecdotally) that if they can’t sell their house, they just leave it.’”
