Wednesday, March 14, 2012
The seemingly endless mortgage crisis has San Diego homeowners seeing foreclosure as a good alternative, and housing experts saying principal forgiveness is the only good answer.
SAN DIEGO Rolling Hills Ranch looks like a pretty plush neighborhood. Three thousand square-foot stucco homes line the winding streets, and they’re framed by a panorama of nearby mountains. But like a lot of Chula Vista neighborhoods developed in the past decade, its new homes went to market near the height of the housing bubble. Now homeowners here are underwater, owing more than their homes are actually worth.
Chula Vista Councilman Rudy Ramirez says the large number of empty, foreclosed homes here allowed a scam artist to forge their titles, and actually rent them out. The neighbors were not happy.
“People were complaining about, you know, loud parties,” he said. “In a lot of cases these were not outstanding citizens. This must have been, in some ways, folks that couldn’t get housing anywhere else because of their rental history.”
The continued drag on the housing market is the bug in the salad of our economic recovery. The number of San Diego homeowners who owe more than their homes are worth may be as high as 50 percent, depending on who you ask.
Many homeowners who face foreclosure are beginning to lose patience, as the housing recession just won’t let up and they seem they seem to remain hopelessly behind in their effort to win equity.
Ali Tarzi counsels underwater San Diego homeowners for Community Housing Works. He says these days getting an interest rate reduction, to lower monthly payments, isn’t enough for many people, and the prospect of abandoning the house is looking more and more attractive.
“In today’s environment is it feasible to keep my home?” he said, posing a common question among people who owe much more than their homes are worth. “Is it feasible to stay in my property long-term, knowing that I’ll never get my equity back, knowing that the rental market may be much more affordable than this huge upside-down mortgage I’m paying?”
Tarzi, and many others, say resolving the home price recession must involve forgiveness of principal on the loan. Matt Battiata, president of Battiata Real Estate Group, questions whether that is a realistic goal. But he admits that modified loans, with lower interest rates have been very hard to get. And even when a homeowner convinces a bank to approve one, they often wonder why they bothered.
“They spend a year trying to get a loan modification, and they’re told at the end of the process, ‘Hey, great news! You’re going to get a loan mod. We’re dropping your payment by $200 a month.’ And they’re incredulous. What do you think $200 is going to do for me?” said Battiata.
Banks take losses on homes all the time, when homes go to foreclosure. But while foreclosures and short sales may be the cost of doing business, loan mods or forgiving loan principal are different. Battiata said banks fear that if they modify loans or forgive principal, everybody is going to want same deal.
If principal forgiveness is the real answer, the question comes up: Who’s going to lose out? Tim Sullivan, with John Burns Real Estate Consulting, says the arrow points to the banks.
“That’s really where the focus becomes,” he said. “The banks are the mortgage holders. And they are ultimately the ones that would have to take the haircut.”
But Beth Mills, with the California Bankers Association, said bankers are in no hurry to visit the barber.
“Some banks will on a case-by-case basis look at principal reductions to see if that’s in the best interest of the borrower and the lender, but it probably wouldn’t be the first solution they would look to,” said Mills.
There are some people who have gotten some relief.
Mark Turner is homeowner in his 40s with a goatee beard and a sunny nature. He must have needed that good cheer for what he went though. He bought a house in Spring Valley for $660,000 that’s now worth $425,000. He’s underwater despite having put all of his savings, $150,000 down. A couple years ago, he lost his job and couldn’t keep up with his mortgage payments.
“I got notices of default. I got foreclosure notices. I even got an auction sale date, when they were actually going to sell the house,” he said.
But he got another job, and he got some help from home counselors linked to the Department of Urban Development (HUD). They convinced the bank to reduce Turner’s mortgage payments to $3,100 a month, down from $4,700. Still, I asked Turner why he didn’t walk away from the house. He got no principal forgiveness. He still has a mountain of mortgage debt and the unlikelihood he will ever pay off his home.
“I’ll give a couple of reasons why I didn’t do that,” he responded. “First, this is the first time I’d bought a home. Second, my parents never, ever bought a home, neither did my siblings. And I have a family, a wife and kids.”
Turner remains optimistic that someday he’ll be able to sell his home and buy something more affordable.
“I feel that this is just the best place for us to be. I just want to ride this wave out and hopefully, the economy will get better and things will turn around, is my outlook,” he said.
In Chula Vista, an estimated 8 percent of new homes sold in the last decade have been lost to foreclosure. All people agree, it’s in the best interest of everyone to keep people in their homes. Foreclosures make banks to lose money; they drag down real estate prices and ruin credit ratings. But trick is deciding how you prevent foreclosures, and whose ox will get gored.
Home mortgage counselor Ali Tarzi shares some of Mark Turner’s optimism. The Obama administration has agreed to increase financial incentives for banks to reduce principal. Tarzi adds that the multi-state home-mortgage settlement provides not only money for loan forgiveness, but also an enforcement mechanism to hold over banks.
“So I can tell you that for the first time in a long time, I am optimistic about these changes,” he said.
But the downward pressure of distressed properties on San Diego home prices will take years to resolve. The question is whether it’ll be resolved through more foreclosures, or homeowners and banks striking some kind of a deal.