After reading Lenn Harley's California Subprime Borrowers May Get Relief I found that my comments had turned into a post about our California foreclosure problem. We are going to see massive foreclosures in many areas throughout the state. In a post I wrote yesterday... Help for California Subprime Borrowers... Maybe... Maybe Not .... it may be that the Governor isn't quite telling the truth about his agreement with some of the state's lenders.
However even if these lenders are willing to help some borrowers we are still facing major problems in some areas because of poor judgment on the part of all parties... including borrowers. Sure some were suckered but many of those in trouble are there because they used their homes to finance a lifestyle they couldn't afford based on fantasy incomes they knew they didn't make. .
I'm guessing that Bill Nazur who commented on Lenn's post that the number of subprime loans was about 10%14% and the balance of foreclosures is more about financial irresponsibility and adjustable loan resets then fraud is probably right. While RealtyTrac likes to tout that almost everyone in California is in foreclosure it isn't true. What is true is that there are a lot of people with multiple loans in serious trouble in addition to those who stopped making payments after 8 months and are walking away. Here is something to think about....the housing problems in California could be a preview of the future in other areas of the country.
The California housing issues have a number of causes not the least of which is affordable housing. We need a minimum of 200,000 new units a year but rarely get much over 150,000 so we are negative in the available housing arena. We are built out in the most desirable areas meaning much of the new housing that is built is a 1.5-2 hour commute from the centers of employment.
The major areas of subprime foreclosures in CA are in those places where new homes were built and often the financing was provided by an in-house lender.... Riverside, San Bernardino, The Central Valley and Sacramento. When the cost of gas doubled consumers began to feel the pinch... add in mortgage payments that doubled or tripled along with the normal number of incidents of divorce, job loss, death etc and your have some very real problems. Suddenly no one can afford their home mortgages or the drive to their jobs.
Another pocket of foreclosure activity were those where lenders made loans to people who could not afford the payments. Many of these folks were illegal immigrants or legal immigrants who speak little English and relied upon a member of their ethnic community to help them buy a home. Sadly there are those who prey upon the less skilled members of a community.
Finally there were middle to upper middle income earners who believed that they were entitled to anything they wanted.. whether they could afford it or not. Saving for a home was not part of the agenda. They had no money and lousy credit and they bought the biggest home with the smallest payment they could find. No one wanted to start small and move up.. they wanted to just move up.
Cheap money combined with a sense of entitlement helped create the mess we are seeing all over.... this had disaster written all over it. Add to this mix a bunch of new REALTORS who didn't know squat but wanted to make big bucks along with their equally uninformed new lenders who also wanted to make big bucks and you have problems.
Truthfully, I'm not sure whether greed or lack of knowledge was the heaviest culprit in the current debacle.. but I do know that the situation must play out to the bitter end. You can't help most of these people because they will continue to do the same thing over and over. They have lousy credit for a reason. They don't have money for a reason. They make bad choices for a reason. The reason isn't the banks or bad agents or a loan that is resetting. The reason is that many have never had to take responsibility for their financial affairs. Some will learn and some won't .. that isn't the responsibility of the government.
We are always going to have higher property values in California because the best parts of the state are built out. If you want to live close to the cities of San Francisco, Los Angeles or San Diego you will pay a premium for the privilege. In fact as more and more communities enact NIMBY laws it's only going to get worse. Eventually we will reach a point where the middle class can't afford to buy in the better neighborhoods and will either have to be permanent renters or begin to reclaim inner city neighborhoods.
I suspect that many of the areas hit the hardest by foreclosures will take years to recover. At close to $3.75 a gallon for gas not too many foreclosures in the Inland Empire or other far flung neighborhoods are going to be high on buyers' lists as places to purchase no matter how low the price. Meanwhile the neighborhoods that are nearer to places of employment will see some neighborhoods hit by a number of foreclosures but they will ultimately rebound because of the location.
Many of the more affluent areas will be hit by foreclosures and short sales but most will not be in big trouble compared to other parts of the state. Ed Rybczynski's offering.. A Coin Only Has 2 Sides .. about his sister is right on. They may have purchased more house then was perhaps prudent but they can afford it. Contrary to many pundits there are a lot of people in California who make a lot of money and have good financial resources.
Only time will tell how badly the housing market will be affected in California. Some areas will certainly be clobbered while others will survive relatively intact although bruised and battered. To all of you making snide remarks about California.. learn from us or you may well be facing the same problems in the future.
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Here is something to think about....the housing problems in California could be a preview of the future in other areas of the country.
Right on, Kaye. A blatantly honest appraisal of the mess that exists in California.