Wednesday, September 12, 2007

Central Valley Mortgage Slaves


From the NY Times:

Homeowners whose loan rates are soaring may want to head for the exits. Many of them, though, will find no way out. If they sell their home or refinance, they will face a penalty of thousands of dollars for paying off their loans early...Waiting out the expiration of a penalty, especially a short one, does not sound so bad — until home prices turn south.

In 2005 [Dorinda Weisman, a social worker in Elk Grove, Calif.] borrowed $353,000 from Pacific American Mortgage to buy a home in Sacramento with a small down payment. The prepayment penalty, of $9,000, expired in just a year. “One of the things I always wanted was to own a house,” Ms. Weisman said in a telephone interview. “I was a single parent, and my son is a hemophiliac. I had been living in a middle-class African-American neighborhood that went downhill after the drugs came in.”

By the time the penalty expired, her house had declined in value. Refinancing was no longer possible. Her interest rate had shot up to 9.8 percent from 4.75 percent. She says about 85 percent of what she brings home — her salary is $60,000 as a social service consultant with the state government — now goes to the mortgage.

She is trying to negotiate a new loan with the help of the Neighborhood Assistance Corporation of America, a nonprofit home ownership organization based in Jamaica Plain, Mass. “Like a lot of people, the adjustable ate up her equity,“ said her mortgage broker, Antonio Cook of Toneco Financial. “She’s got to ride it out and sacrifice. I tell people, ‘I don’t care if you eat bologna sandwiches, just pay your bills on time.’ If she can ride it out, things start coming up good.”

From USA Today:
Thirty-seven percent of U.S. homeowners with mortgages are spending 30% or more of their before-tax income on housing — the threshold where the government says a home becomes unaffordable — according to 2006 Census data being released Wednesday. This compares with 27% in 2000, before the real estate boom drove the nation's median home price up more than 50%.

For some, the financial burden is far worse: 14% of homeowners with mortgages — more than 7 million households — shell out at least half their gross monthly income to cover their home loan, property taxes, insurance and utilities, up from 10% in 2000.
What was most surprising to Rachel Drew, research analyst at the Joint Center for Housing Studies at Harvard University, was a sharp rise in the number of financially strained homeowners from 2005 to 2006. In that one year, more than 1.5 million additional homeowners with mortgages began spending 30% or more of their income on housing, including 680,000 who are spending more than half. Drew expects the number of financially squeezed homeowners to continue to rise, in part because millions of loans have adjustable rates that will rise this year and next, adding hundreds of dollars to monthly mortgage payments.
Among the largest 100 metro areas, these have the highest percentage of homeowners with mortgages who spent at least 30% of gross income on housing in 2006:
  • #3 Stockton, Calif.: 54%
  • #4 Modesto, Calif.: 54%
  • #10 Sacramento/Arden/Arcade/Roseville, Calif.: 49%
At least 50% of gross income:
  • #3 Modesto, Calif.: 24%
  • #6 Stockton, Calif.: 23%
  • #11 Sacramento/Arden/Arcade/Roseville, Calif.: 19%


wannabuy said...

Wow. Great find. I'm still stunned at all of the areas that have 20% or more of the people paying 50% or more of their income.

I lurk quite a bit here but rarely post. Thanks for all the information!

Got popcorn?

Cmyst said...

That's really shocking when you plug in your personal numbers. If I was paying 30% of my gross, that would be about half my disposable income. 50% of my gross would, in theory, leave me with nothing.
It's not surprising, but it is unsettling, that so many have gotten themselves into so much financial trouble. And yet -- they keep soldiering on at the malls, like good little citizens. Every day I expect the other shoe to drop, but we keep hanging in there.
I'm betting on late October being when the Recession begins to be acknowledged.

golfer_X said...

Those are amazing numbers. I'm with cmyst, 50% of my gross would barely leave me with enough for a case of Top Ramen.

I wonder if any of the so called "economists" will grasp what these numbers mean for the economy. If 20% of the people paying a mortgage are spending most of their monthly take home on it. What is left to buy goods with. Since our whole economy is based on consumption this can't bode well for the future.

I'm already seeing a big slowdown in the number of people eating out and playing golf. I went to "The Block" (a mall in OC) yesterday for lunch and the place was a ghost town. Last Friday night I took the kids to BJs for dinner and it was very light. Normally we would have waited 30~45 minutes. I can get a tee time just about anytime I want now and many of the courses are offering discounts and specials to entice golfers. These changes have all happend over the last few months.

anon1137 said...

I wonder how many of these stretched homeowners in the valley are long distance commuters? With oil at $80/barrel, it won't be long before gas prices start taking a bigger bite out of budgets.

Gwynster said...

yThat was what I was wondering too 1137.

Now I do know of several families that moved here but have sold and moved back to the BA already because of the communting costs.

50% of my gross would be a non- starter. I agree with y'all. 33% of our gross would equal better then twice our current rent. It just boggles the mind

The area I really really worry about is places like Olivehurst, Marysville, and Yuba City as those are the people who stretched the most to get into housing and were depending on commuting into Sacramento. Ouch! I know Cmyst has family that is feeling this >; (

Zoe Rochelle said...

This prompted me to figure out my percentage which is 22%. I gross 5662.00 a mo. I take a commuter bus to work (and get a stipend from my employer for using transit) so gas only affects pleasure driving. I feel so (unusually) responsible! With 2 kids I still don't have money to throw around though. How do these people live? I'd be going crazy. Literally.

Mark said...

50% wouldn't be be bad if you're making over $200,000 a year. Ridiculous but you'd still have a lot left over. I suspect that the ones who are paying >50% are earning far less than that and living on credit cards. Now that they are upside down in their homes they a totally screwed. The credit companies really set these people up for a life of indentured servitude with the "bankruptcy modernization" they paid congress to enact.

Gwynster said...

How anyone can afford to live here and have kids is beyond me. We just had a lively discussion about this on Cmyst's blog.

ralphk said...

Sort of off topic. There's a lot of misinformation regarding the changes to the bankruptcy act.

We provide recovery services to financial institutions.

My numbers are a little stale, but last I heard then changes impacted less than 3% of the filers in California. Most are still filing Chapter 7; with only a small percentage forced into Chapter 13 repayment.

Lander said...

Paying 85% of take home pay to the mortgage advances you from a mere "mortgage slave" to a "mortgage zombie" IMHO.

Cmyst said...

" Ouch! I know Cmyst has family that is feeling this >; ("

Sadly true. I've never been one to hold back on saying "I told you so", though. It's so emotionally exhilarating, and it's only possible when you know you did everything in your power to stop them, and they did it anyway.

SacramentoCrash said...

Well does this mean that 19% of the mortgaged properties will end up REO?

At least 50% of gross income:

* #3 Modesto, Calif.: 24%
* #6 Stockton, Calif.: 23%

* #11 Sacramento/Arden/Arcade/Roseville, Calif.: 19%

wrong moves said...

On Wachtel Way near Oak Ave in Citrus Heights are 10 McMansions. They were completed in early 06. They all sold for more than 500K.

Recently we drove by and commented on how many had CrewCab F350/ski boat combos parked in the driveways. That is easily 80K in debt right there. We keep asking ourselves "How are others doing it"

We gross 8500 a month, we save ALOT, but just don't see how we could do something like that.

This clues us in a little.

I love these blogs.