Posts Tagged ‘california foreclosure homes’

As the housing crisis rages the blame game goes on. The crux of the foreclosure problem is the yawning gap in incomes.

The banks are being blamed for seeking out the gullible and making them swallow adjustable rate sub-prime mortgages. Scant attention was taken of the fact that these borrowers hardly had the income to maintain the monthly payments once the latter began to rise. Some of the borrowers were greedy and looked for new loans planning to sell them off as the housing boom marched on to astronomical heights. They thought this would continue without stumbling – after all real estate prices could never fall. These were the borrowers who understood the nature of the loans and knew they could never be able to pay the enhanced rates. Despite this they went ahead banking on the theory that housing prices would continue to rise to dizzy heights. Just by selling the units they would not only clear the mortgage but also pocket neat profits. Another alternative they bargained on was refinancing with low initial payments while taking out cash from the equity for buying luxury items like boats, jumbo television sets and other adult toys. This analysis of the foreclosure crisis is partly true looking at it from a particular angle.

There are other economic factors also at work that are even more deadly than the traditional greed basic to man’s lower nature. Looking at the statistics it appears that the rich and wealthy in California have not become foreclosure victims. This dubitable honour has been left for the middle class – it is they who are getting most of the foreclosure notices. This is happening because the income gap is widening into a gulf. The rich are getting wealthier and can afford the increased payments while the middle lots are losing their purchasing abilities. The inflation is having a greater impact on the middle class. Proportionately they are more affected by rise in food and petrol prices. This picture becomes lucid and clear from the latest information coming in from the state’s Franchise Tax Board that has been analyzed by California Budget Project. The latter, based in Sacramento is non-partisan in its attitude.

In the fiscal year 2005-2006 the income of the 1% richest Californians increased by 3% while the middle class comprising of 40% saw their incomes fall by 1%. The price of essentials rose by 5% during the period. The impact on the middle class is on the conservative side.

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Today majority of American families have a foreclosure story to tell. This particular one was the story of a couple who were professionals in real estate business.
They couple lived in Orange County and earned a combined income of $1, 30,000 a year. With the setting in of the recession in the housing sector, the first downturn wedged into their pockets and their once high income began to dwindle. Following a second bout of declining prices the couple was required to clear the house, which was unfeasible because of the softening real estate market. They had to face a foreclosure.
The foreclosure story that circulated met with doubts and disbelief. Inhabitants outside Southern California sent mails with enquiries as to how a couple with an income as high as $1, 30, 000 sling into a foreclosure? It was an incredible story for a person in North Dakota as he was unaware of the effects of hyper-consumerism and the massive spending habits that the people of South California were used to. The websites bore testimony to the facts. The story was related to the previous month of the August credit event of the decade. Adding worries to woes the couple indulged in high-class living and had incurred huge debts that never gained support. “It was a Ponzi scheme” and went off track at the slightest bump.
As a follow-up of the foreclosure story, the detail of the financial condition was exhibited in the Los Angeles Real Estate Professional show. The shell of the matter was that the real estate professional couple made $1, 30, 000 in 2006 and expected to earn $40, 000 in 2007. The situation was a compelling one.
She had undergone a previous foreclosure of a rental home due to tenants going through a divorce; there were three mortgages on primary residence; mortgage no.1 $1, 700 a month, mortgage no.2 $600 a month and mortgage no.3 $ 440 for setting up an additional pool; all these figures were simply unsupportable. The $401K savings that they had were, under the circumstances being utilized to stay afloat and now she was a single mother trying to support her kids. She owed on her home$6, 00,000 and had estimated the value of her property to be $550,000. She was a real estate professional and expected to find a job with a six-figure tag.
Unfortunately she was unaware that market conditions would never be the same again.

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Once upon a time it was taken for granted that real estate prices would go up. But reality proved to be contrary. Sellers are being forced to drop prices even at a heavy loss if the unit was bought in 2005 or 2006. The housing bubble, which had been getting bloated since 2002, has suddenly busted. It was a fall out from the foreclosure fiasco. Credit began to slow down and so who would or could buy houses? The confidence of many was shaken. Who knows whether prices would further fall or not? So there is no point in investing now. Rather before things get worse it is better to sell off.

Research shows that some of the worst hit areas are east Contra Costa and Alameda Counties together with Solana County and even San Francisco. The infection seems to be spreading all round the Bay area. San Joaquin County tops the list of affected areas with 1 in every 27 foreclosing during the first half of 2007. This is the highest ratio in the entire country. According to another online survey the Central Valley recorded a drop of 7.7%. It is the high-end houses that are causing the median to rise. The regular homes will not be sold until completing all those in the foreclosure listing. It is the foreclosed units that set the rate. A buyer will look at the foreclosed one down the street and give that offer with a take-it or leave-it attitude. Some are just testing the market and thereby adding to the list.

A lot of difference can be made if owners are willing to cut prices but some are stubbornly not doing so. Neither do they want to initiate any changes in the house. One house on Brighton Drive, which had been bought in 2004 for $430,000, was being offered for $419,000; most probably that would have to cut down to $399,000. This is the general trend and not an exception. The main factor that is affecting the market is escalating interest rate. The entire Bay area is affected. Most probably this is because here the house owners lack long-term experience or cash reserves to tide over the crisis. In other places like Silicon Valley the picture is not so grim because the people have the income and store to tackle the problem.

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Stockton has the dubious distinction of ranking first in the foreclosure race with 8000 foreclosures this year. Stockton has a population of about 300,000. One in every 27 houses has slipped into foreclosure. The highest concentration is in Weston Ranch region of Stockton. The figures have been released ACORN, a non-profit organization. The inhabitants belong to the middle-income category for whom it was a bolt from the blue.
People dreaming about house ownership had been lured into the sub-prime mortgage by predatory lenders. The costs of the houses were inflated to expedite loan procedures. Many walked into the trap with the sure hope that real estate prices could never fall but would only rise.

The Weston Ranch streets are dotted with sale signboards standing on overgrown gardens. The victims have just disappeared leaving food on their tables. The remaining neighbours are infected with this gloom of auctions taking place all around. People are getting a double beating. Moving out of his own foreclosed house one person became tenant in another house. But soon the second place of shelter too was gobbled up by foreclosure.

Agents dealing in short sales and rentals are doing brisk business. This is a positive way out for harassed owners to save some credit and avoid the stigma of foreclosure. By an arrangement between the lender and the borrower the house is sold off at a price, which will bring in less the amount than what is owed. Rental business has gone up with people shying away from buying properties. Right now there are very few buyers. Properties are sleeping three times longer than it did last year. The average price has plummeted by 10%. Right now there are 350 houses waiting in the line to be sold. At the present pace it will take another five years for this to happen. The general prediction is that the weather will not clear till 2010.

A spokesperson of a Stockton non-profit organization opines that at the root of the matter is ignorance of the buyer about mortgage and other matters related to property. The borrowers must be educated about the law and the terms of the agreement to avoid pitfalls. Being forearmed is to be forewarned! The goal is to try to help the weaker section to have a roof of their own. But the thrust is on the point of affordability.

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