Central Valley Mortgage Slaves

UPDATE

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%