Mortage crises leads to tent cities

Ace Pace · Post by **Ace Pace** » 2007-12-21 07:13am

ONTARIO, California (Reuters) - Between railroad tracks and beneath the roar of departing planes sits "tent city," a terminus for homeless people. It is not, as might be expected, in a blighted city center, but in the once-booming suburbia of Southern California.

The noisy, dusty camp sprang up in July with 20 residents and now numbers 200 people, including several children, growing as this region east of Los Angeles has been hit by the U.S. housing crisis.

The unraveling of the region known as the Inland Empire reads like a 21st century version of "The Grapes of Wrath," John Steinbeck's novel about families driven from their lands by the Great Depression.

As more families throw in the towel and head to foreclosure here and across the nation, the social costs of collapse are adding up in the form of higher rates of homelessness, crime and even disease.

While no current residents claim to be victims of foreclosure, all agree that tent city is a symptom of the wider economic downturn. And it's just a matter of time before foreclosed families end up at tent city, local housing experts say.

"They don't hit the streets immediately," said activist Jane Mercer. Most families can find transitional housing in a motel or with friends before turning to charity or the streets. "They only hit tent city when they really bottom out."

Steve, 50, who declined to give his last name, moved to tent city four months ago. He gets social security payments, but cannot work and said rents are too high.

"House prices are going down, but the rentals are sky-high," said Steve. "If it wasn't for here, I wouldn't have a place to go."

"SQUATTING IN VACANT HOUSES"

Nationally, foreclosures are at an all-time high. Filings are up nearly 100 percent from a year ago, according to the data firm RealtyTrac. Officials say that as many as half a million people could lose their homes as adjustable mortgage rates rise over the next two years.

California ranks second in the nation for foreclosure filings -- one per 88 households last quarter. Within California, San Bernardino county in the Inland Empire is worse -- one filing for every 43 households, according to RealtyTrac.

Maryanne Hernandez bought her dream house in San Bernardino in 2003 and now risks losing it after falling four months behind on mortgage payments.

"It's not just us. It's all over," said Hernandez, who lives in a neighborhood where most families are struggling to meet payments and many have lost their homes.

She has noticed an increase in crime since the foreclosures started. Her house was robbed, her kids' bikes were stolen and she worries about what type of message empty houses send.

The pattern is cropping up in communities across the country, like Cleveland, Ohio, where Mark Wiseman, director of the Cuyahoga County Foreclosure Prevention Program, said there are entire blocks of homes in Cleveland where 60 or 70 percent of houses are boarded up.

"I don't think there are enough police to go after criminals holed up in those houses, squatting or doing drug deals or whatever," Wiseman said.

"And it's not just a problem of a neighborhood filled with people squatting in the vacant houses, it's the people left behind, who have to worry about people taking siding off your home or breaking into your house while you're sleeping."

Health risks are also on the rise. All those empty swimming pools in California's Inland Empire have become breeding grounds for mosquitoes, which can transmit the sometimes deadly West Nile virus, Riverside County officials say.

"TRICKLE-DOWN EFFECT"

But it is not just homeowners who are hit by the foreclosure wave. People who rent now find themselves in a tighter, more expensive market as demand rises from families who lost homes, said Jean Beil, senior vice president for programs and services at Catholic Charities USA.

"Folks who would have been in a house before are now in an apartment and folks that would have been in an apartment, now can't afford it," said Beil. "It has a trickle-down effect."

For cities, foreclosures can trigger a range of short-term costs, like added policing, inspection and code enforcement. These expenses can be significant, said Lt. Scott Patterson with the San Bernardino Police Department, but the larger concern is that vacant properties lower home values and in the long-run, decrease tax revenues.

And it all comes at a time when municipalities are ill-equipped to respond. High foreclosure rates and declining home values are sapping property tax revenues, a key source of local funding to tackle such problems.

Earlier this month, U.S. President George W. Bush rolled out a plan to slow foreclosures by freezing the interest rates on some loans. But for many in these parts, the intervention is too little and too late.

Ken Sawa, CEO of Catholic Charities in San Bernardino and Riverside counties, said his organization is overwhelmed and ill-equipped to handle the volume of people seeking help.

"We feel helpless," said Sawa. "Obviously, it's a local problem because it's in our backyard, but the solution is not local."

Post by **Darth Wong** » 2007-12-21 10:21am

Move out of the high-rent area, you fucking stupid twats. You can go to any shithead NowhereVille town in the country and get cheap rent, or even buy an incredibly cheap house. And yet I hear from these people who say that because rents are so high and houses are so expensive, they can't find a place to live other than a fucking tent?

I've seen plenty of people who live in shitty welfare-grade housing in low-rent areas, on the dole. It ain't glamourous, but it's still better than a tent.

General Zod · Post by **General Zod** » 2007-12-21 11:44am

I have to wonder just how much the rent in California is. I'm only barely breaking the middle-class income bracket, but I still had no trouble finding a halfway decent apartment in a nice enough neighborhood in my city and I have zero problems making my payments on time.

Post by **K. A. Pital** » 2007-12-21 11:50am

Can they really move out into another region? It might be possible they are also jobless, or in the process of job transit - in which case, the lack of housing would first drive them to motels, then to tent camps, since they just don't have the funds for a relocation. Possibly they already spent out all funds and have no funds at all.

Fools, indeed, but I do pity the fools. Their perception was shaped by the current economy; they acted as they were taught from every media outlet out there: "consumer heaven, consume without borders!" and suffered the outcome.

NeoGoomba · Post by **NeoGoomba** » 2007-12-21 03:26pm

The desire to have a percieved status led them there, let them rot for not using their fucking brains.

Pity the fools indeed

Joviwan · Post by **Joviwan** » 2007-12-21 03:51pm

Rent in southern california is pretty obscene, the orange county area especially. A single bedroom apartment in Irvine (The Superbubble) in a shitty neighborhood for 'poor income' families, runs between 700-900 bucks a month. Oh, and theres a four year waiting list. And you can be evicted if you don't vacuum enough. A fairly standard studio or flat for one or two people is 1000-2100 a month in the orange county region.

As for moving, I can understand if they don't have the money to move, kind of. Moving your shit can be expensive, but if your living in a tent, that tells me two things: 1) You could have moved earlier, but didn't, and stupidly tried to stay in california; 2)You don't have a lot of shit except what you can fit in your tent, so pack it up and go somewhere else. I can give leniency for not having a job, maybe, but finding menial labor in california is actually fairly easy. You can do SOMETHING, even if it has nothing to do with that sociology major.

The Star Marshall · Post by **The Star Marshall** » 2007-12-21 04:28pm

General Zod wrote:I have to wonder just how much the rent in California is. I'm only barely breaking the middle-class income bracket, but I still had no trouble finding a halfway decent apartment in a nice enough neighborhood in my city and I have zero problems making my payments on time.

I recently came back from a trip to San Francisco and I stayed with a friend while there. Her rent was $3,000 per month for a small 2 bedroom apartment; by small I mean her kitchen is the same size as my bathroom. I live in Cincinnati and rent a 2 bedroom apartment at least twice (possibly three times) the size of her place. I pay $800 a month. Land prices are insane in CA.

Post by **Darth Wong** » 2007-12-21 05:28pm

I don't buy this "can't afford to move" bullshit. For one thing, the vast majority of these people have no children; notice how the article said that there were "a few" children in the entire tent city. For another, I moved many, many times as a poor student when I was in university; if you don't have a lot of stuff, you can just pack your belongings into a suitcase and buy a fucking bus ticket. Nobody said you had to travel in style. And finally, if you do have a lot of stuff, you can sell it to get money to buy yourself a bus ticket out of Real Estate Hell.

Post by **K. A. Pital** » 2007-12-22 02:59am

I don't really know what are they hoping for.

Seriously, what can a person in a tent camp hope for? He won't get any housing, so...

What's the rationale to be there at all.

Falkenhorst · Post by **Falkenhorst** » 2007-12-22 07:34am

Instead of sitting in their tents whining they should find discarded shopping carts and start scavenging scrap metal. Seeing as they have nothing else to do they should be able to quickly accumulate enough money from aluminum cans, lawn chairs, weber grills and screen door/storm window extrusions to at least feed into vending machines for cheap food.

Post by **Darth Wong** » 2007-12-22 07:50am

These people who are drawing welfare but can't afford rent; what are they doing with the accumulated money? If they're drawing welfare but living in a rent-free tent for months, shouldn't they have accumulated more than enough money to move elsewhere?

Oops, I forgot- the article didn't mention it but I'd bet money that they spent the money on drugs and booze.

Aaron · Post by **Aaron** » 2007-12-22 08:07am

How can they draw welfare without a fixed address?

Big Phil · Post by **Big Phil** » 2007-12-22 11:23am

When foreclosures first began, I remember reading an article about a police officer in California who was losing his $800,000 home because he couldn't keep up with the payments. He made $80,000 per year, his wife didn't work, and they had a reverse mortgage, so that by the time he lost his home, he actually owed about $920,000, and didn't understand why a reverse mortgage was a bad idea. That's the level of stupidity we're dealing with here.

The Star Marshall · Post by **The Star Marshall** » 2007-12-22 12:31pm

SancheztheWhaler wrote:When foreclosures first began, I remember reading an article about a police officer in California who was losing his $800,000 home because he couldn't keep up with the payments. He made $80,000 per year, his wife didn't work, and they had a reverse mortgage, so that by the time he lost his home, he actually owed about $920,000, and didn't understand why a reverse mortgage was a bad idea. That's the level of stupidity we're dealing with here.

I believe you're talking about a Negative Amortization mortgage, not a Reverse mortgage. They're two different things and reverse mortgages are only available to people above a certain age.

Negative Amortization is the evil step brother of an interest only mortgage. For the first five or ten years your payments are actually set to a level so that the payment you're making doesn't even cover the interest accruing on the loan, so the interest above the amount paid is added on to the principal. After the initial period is up it then becomes a conventionally amortizing loan and the payments skyrocket as you now have to pay the interest, and the enlarged principal off in the next fifteen to twenty years.

In other words fromt eh example above, for five years his payments were probably equivalent (in dollar value) to a thirty year $150,000 home mortgage. After it reset he was making payments on a fifteen year $920,000 mortgage. Rather a large difference.

Big Phil · Post by **Big Phil** » 2007-12-22 12:39pm

The Star Marshall wrote:
SancheztheWhaler wrote:When foreclosures first began, I remember reading an article about a police officer in California who was losing his $800,000 home because he couldn't keep up with the payments. He made $80,000 per year, his wife didn't work, and they had a reverse mortgage, so that by the time he lost his home, he actually owed about $920,000, and didn't understand why a reverse mortgage was a bad idea. That's the level of stupidity we're dealing with here.
I believe you're talking about a Negative Amortization mortgage, not a Reverse mortgage. They're two different things and reverse mortgages are only available to people above a certain age.

Negative Amortization is the evil step brother of an interest only mortgage. For the first five or ten years your payments are actually set to a level so that the payment you're making doesn't even cover the interest accruing on the loan, so the interest above the amount paid is added on to the principal. After the initial period is up it then becomes a conventionally amortizing loan and the payments skyrocket as you now have to pay the interest, and the enlarged principal off in the next fifteen to twenty years.

In other words fromt eh example above, for five years his payments were probably equivalent (in dollar value) to a thirty year $150,000 home mortgage. After it reset he was making payments on a fifteen year $920,000 mortgage. Rather a large difference.

That's the one - paying on part of the interest each month.

Post by **Darth Wong** » 2007-12-22 01:04pm

What kind of imbecile would get such a thing? This is exactly why it would be absolutely wrong to bail out these threatened homeowners; if you don't make people pay for their reckless financial irresponsibility, they'll never change their ways.

The Star Marshall · Post by **The Star Marshall** » 2007-12-22 01:26pm

Darth Wong wrote:What kind of imbecile would get such a thing? This is exactly why it would be absolutely wrong to bail out these threatened homeowners; if you don't make people pay for their reckless financial irresponsibility, they'll never change their ways.

I agree with you that people need to learn from their mistakes and they should be punished for their complete lack of financial foresight and planning. The problem is all the secondary effects of those foreclosures, foreclosures drive housing prices down due to causing a glut of cheap homes on the market,. These deserted, usually trashed, homes also provide a convenient area for criminals and junkies to hang out increasing crime. There is also the fact that these foreclosures are bad for the banks as well, foreclosure can take years and by the time they're done a bank will only recover roughly half of what they're owed.

Post by **Broomstick** » 2007-12-22 04:49pm

Darth Wong wrote:Move out of the high-rent area, you fucking stupid twats. You can go to any shithead NowhereVille town in the country and get cheap rent, or even buy an incredibly cheap house. And yet I hear from these people who say that because rents are so high and houses are so expensive, they can't find a place to live other than a fucking tent?

I've seen plenty of people who live in shitty welfare-grade housing in low-rent areas, on the dole. It ain't glamourous, but it's still better than a tent.

Well, part of the problem is that in many municipalities they are tearing down the "shitty, welfare-grade housing" and replacing it (so they say - much of this is not completed) "mixed income" housing that will leave fewer rental units for the poor. It's not the WHOLE problem, but it is yet another contributing factor. It has the effect of causing a rental shortage, which drives rent up.

There is also the issue of proximity to work and costs of living/commuting but I won't go into that here.

Then there's the issue of "we don't want to live next to people who don't look like us".

Of course, part of the problem is that many of these people are financial idiots even if they have a great deal of formal education. My husband and I have lived within our means and rented instead of over-extending ourselves to buy a house (and were called foolish for doing so). Thus, despite being out of work and living on unemployment benefits (which is a form of government subsidy, though god forbid we call it that!) we are still able to pay our bills. I am also not too proud to supplement that with some physical labor (I've spent several days a week going up and down ladders 8-10 hours a day with a paint brush and roller for the last few weeks). Too many of these folks will not take such jobs even on a temporary basis. Truthfully, some can't - which gets back to my "stay healthy" plan for continued good living.

I have a friend who has said that if I can't get a job that replaces a significant amount of what I used to make before next summer he'll loan me a mechanical rotortiller and the landlord has said I can convert the backyard to a garden and grow some of my own food.

About the only big thing I've had to give up is the aviation hobby - but such is life. It's also an incentive for me to climb back up the socio-economic ladder again. Honestly, I have no problem finding enough work to fund a rather frugal lifestyle, the only real worry I have right now is a complete lack of healthcare insurance.

But, bottom line, there's no point to buying a house you can't afford to keep - renting is smarter than that, whatever bullshit has been fed to folks over the years about the advantages of home ownership. Yes, owning a home is wonderful but it's not the only way to survive and have a good lifestyle. As another example, in contrast to the "living within one's means" example, my parents could afford a house but they were no longer physically able to keep up with the maintenance. So they downsized to a rental apartment where maintenance is no longer their problem, and invested the profit from selling their house another way to help fund their retirement.

Chris OFarrell · Post by **Chris OFarrell** » 2007-12-22 05:38pm

I'm surprised that no investor group hasn't started to buy up all these houses, at least those in viable areas and turn them into rent properties. Given that the market is so crazy for rent by all these reports, I'm sure they could rapidly fill the houses up. Granted it might take a few years to make back the cash, but if this crisis continues to deepen and the US economy continues to stagnate, it might well be sound strategic investment to look to move into the rental market...

Darth Fanboy · Post by **Darth Fanboy** » 2007-12-22 05:47pm

Ontario isn't the steepest place in the area for rent (a quick search on craigslist shows there are studio apartments availiable for under $1000 a month) but these people who can't afford the cost of housing out here should not be living out here. There are places where nice apartments can be had for far less, and the cost of living is much lower.

Big Phil · Post by **Big Phil** » 2007-12-22 06:54pm

Chris OFarrell wrote:I'm surprised that no investor group hasn't started to buy up all these houses, at least those in viable areas and turn them into rent properties. Given that the market is so crazy for rent by all these reports, I'm sure they could rapidly fill the houses up. Granted it might take a few years to make back the cash, but if this crisis continues to deepen and the US economy continues to stagnate, it might well be sound strategic investment to look to move into the rental market...

Most homes are too overpriced for the rental market - who wants to buy a $700K home for $500K, paying a mortgage of (let's say) $3,000 a month, knowing they'll only be able to get $2,500 in rent.

Master of Ossus · Post by **Master of Ossus** » 2007-12-22 07:31pm

SancheztheWhaler wrote:
Chris OFarrell wrote:I'm surprised that no investor group hasn't started to buy up all these houses, at least those in viable areas and turn them into rent properties. Given that the market is so crazy for rent by all these reports, I'm sure they could rapidly fill the houses up. Granted it might take a few years to make back the cash, but if this crisis continues to deepen and the US economy continues to stagnate, it might well be sound strategic investment to look to move into the rental market...
Most homes are too overpriced for the rental market - who wants to buy a $700K home for $500K, paying a mortgage of (let's say) $3,000 a month, knowing they'll only be able to get $2,500 in rent.

The real problem is that tax breaks in the US only apply to owner-occupied housing, so there's a HUGE break between people who are trying to live in houses and what they can afford, and companies trying to buy property and then lease it to others.

Elfdart · Post by **Elfdart** » 2007-12-22 07:48pm

General Zod wrote:I have to wonder just how much the rent in California is. I'm only barely breaking the middle-class income bracket, but I still had no trouble finding a halfway decent apartment in a nice enough neighborhood in my city and I have zero problems making my payments on time.

My brother pays about a third less for a 4 bedroom/2.5 bathroom house on an acre of land with trees; than what he paid for a two bedroom/one bathroom house in Riverside that had maybe 6 feet of yard to either side and a small patio that passed as the backyard -with no trees.

Chris OFarrell wrote:I'm surprised that no investor group hasn't started to buy up all these houses, at least those in viable areas and turn them into rent properties. Given that the market is so crazy for rent by all these reports, I'm sure they could rapidly fill the houses up. Granted it might take a few years to make back the cash, but if this crisis continues to deepen and the US economy continues to stagnate, it might well be sound strategic investment to look to move into the rental market...

Foreign banks have been grabbing up some of these properties, though most are probably waiting for the market to hit rock bottom before they start buying. Why buy cheap when you can wait a few months and buy cheaper?

Korto · Post by **Korto** » 2007-12-22 08:13pm

SancheztheWhaler wrote:Most homes are too overpriced for the rental market - who wants to buy a $700K home for $500K, paying a mortgage of (let's say) $3,000 a month, knowing they'll only be able to get $2,500 in rent.

Well, one reason is that for a net $500 a month, you're buying a house worth $700K, and in Aus, at least, the amount of tax deductions you can claim on a place you're renting out is amazing. Mortgage interest, land rates, repairs, utilities...

Post by **Darth Wong** » 2007-12-22 08:48pm

I suppose it should be pointed out that while personal idiocy is the root cause of this problem, better government regulation of the mortgage market could have prevented it. Yet another example of the "smaller government = better" axiom in action.

I can't believe libertarians still keep saying that the people don't need paternalistic government. I could agree with that if there were not such ample evidence of the people being generally imbeciles.