The Subprime Mortgage Crisis in Stockton
While many American suburbs, bastion of tranquility, have been rocked by the mushrooming subprime mortgage crisis, one town has been particularly hit. Stockton, California, formally a bucolic Californian farming town is at the epicenter of the crisis that is poised to cripple the U.S. economy.
Stockton is within 80 miles of San Francisco, San Jose and Sacramento - three of California's most important cities - has attracted thousands of would be home owners during the crazed real estate boom that took off in 1999.
There are 15,000 to 18,000 homes in the area whose mortgage rates have reset in the month of March and a similar number of home loans will reset in June, said Carol Ornelas of the Visionary Home Builders, a non-profit organization constructing housing for low income families.
In a city of 279,513 residents with a median income of $46,000 a year, many of the families are carrying mortgages on homes in the $400,000-$6,0000 range, estimates Ornelas. The number of troubled families is significant enough to effect employment opportunities and revenues derived from property taxes in the area.
There is hardly a street in the newer parts of town - built in response to the spike in the demand for housing - without at least one for sale sign or worse, a foreclosure sign on the front lawn. Many lawns are going untended and gardens are dying from neglect. For many, their American dream has been shattered. To foreclose on their property will ruin their credit, hampering their ability to reconstruct their lives.
Some borrowers understood the types of loans they were getting into and planned to refinance - taking advantage of the rapid increase in the equity of their homes - before their rates escalated; however, many didn't fully understand the terms of their loans.
Vicky Geisler, a homeowner in near-by Salida, CA refinanced her home to buy out her ex-husband. The initial low rate the bank offered her crept up over time until she was paying $1,600 in interest bi-weekly alone. "This is killing meâ€¦This is not what they told me in the beginning."
It was only after she failed to make a few payments that her bank sent her a list of payment options and she realized that she had not even been paying down the principal on her loan. "I've got to stop this insanity or I will walk away," said Geisler.
With little equity in their homes, many homeowners are considering abandoning their properties, an idea traditionally unthinkable to Americans. The situation has become dire enough that a coalition of organizations, Hope Now, has put together a symposium to bring together lenders and borrowers to negotiate the restructuring of their loans in order to prevent short-sales and foreclosures.
Yet every cloud has its silver lining. "No matter which way the market is headed there is always an opportunity for arbitrage," said Sean O'Toole, founder of Foreclosure Radar, a web-site that tracks foreclosures throughout California. Radar Foreclosure provides information to potential investors on foreclosed properties.
"The site serves as an important clearing mechanism for foreclosed properties," explains O'Toole who has been buying foreclosed properties since 2002 for investment purposes. O'Toole attributes the real estate boom to "financial engineering instead of market fundamentals. Poorly thought through (mortgage) products have left banks essentially landlords."
Despite the severity of the crisis, entrepreneurial spirit endemic to the country continues to manifest itself. Real estate agent and mortgage loan officer Cesar Dias offers bus tours in Stockton - as well as other California cities - of foreclosed properties to potential buyers. His business sprang up in response to the dramatic downturn in the real estate and mortgage loan markets beginning last summer.
"I want to say that there is hope and opportunity in this situation. "I hope we can refinance those that do qualify and those that don't, to get them back into rentals and start the healing process," said Ornelas. "I believe they will be better buyers in the future. Some very hard lessons have been learned, but I believe we will come together as a community."
"I have struggled quite a bit. I know I will survive," said Geisler. "I think this will turn around. Maybe not today, but I'm hopeful."
It remains unknown to what extent the crisis will deepen and what effect it will have on a country hovering on the brink of recession.
Text by Mimi Rohr
© 2008 Mimi Rohr
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