Tuesday, November 18, 2008

Lawmakers tour areas hurt by foreclosures in housing crisis

By J.N. SBRANTI
jnsbranti@modbee.com

last updated: September 07, 2008 03:12:03 AM

STOCKTON -- Boarded-up windows, dead lawns, yellow auction signs and abandoned houses gave silent testimony Saturday to the brutal impact the foreclosure crisis is having on central Stockton.

As a tour bus filled with lawmakers and their staff members cruised the distressed neighborhoods, the message was clear: The Northern San Joaquin Valley is hurting.

"It is very helpful to see these things physically," said Rep. Barney Frank, D-Mass., who convened a congressional hearing in Stockton to better understand how the housing crisis has devastated the region and to discuss ways the federal government might help.

The bus tour was followed by more than three hours of testimony and questioning.

"Foreclosures have a negative effect beyond the person losing their home," Frank stressed. "It hurts the neighborhoods. It hurts the cities. It hurts the whole economy."

That point was driven home by nine speakers from throughout the valley who shared their views and experiences with the House of Representative's Financial Services Committee, which Frank chairs.

About 150 community members sat quietly listening during the hearing at the Stockton Arena.

"The crisis is real, it's here and this is the epicenter of it," insisted Rep. Jerry McNerney, D-Pleasanton. He and Rep. Dennis Cardoza, D-Merced, persuaded Frank to hold the hearing in Stockton.

The speakers -- including Modesto mortgage broker Patty Amador and Merced Mayor Ellie Wooten -- offered varying advice about what Washington should do to ease the valley's troubles. Some expressed doubt that lawmakers can do much.

Two years to bottom

"We risk creating a moral hazard with government intervention to step in and save those who would otherwise lose their homes," warned state Sen. Michael Machado, D-Linden. "Rewarding risky behavior will only perpetuate the problem."

Machado predicted "the hardest hit areas of the Central Valley are likely to take at least two years before they hit bottom, and even longer before they begin to recover." He said foreclosures likely will keep increasing because so many valley residents took out risky adjustable rate mortgages that soon will require much higher monthly payments.

"Unable to refinance due to minimal equity and tight underwriting standards ... many of the borrowers with payment-option ARMs (adjustable rate mortgages) are likely to become the next wave of foreclosures," Machado said. "Many of these homeowners also end up upside down in their mortgages, owing more on their mortgages than their homes are worth, and unable to sell their homes as a result."

Buyers need options

Changes in federal law will make it harder for first-time buyers to purchase those homes, according to Amador, who has owned Ambeck Mortgage Associates since 1989.

"My message is that we cannot bring this market back by shutting buyers out by limiting their options," she said. "Eliminating down payment assistance programs, increasing down payment and closing cost requirements, and increasing monthly payments through increased mortgage insurance premiums will once again make homeownership unaffordable."

American dream: own or rent

Amador and other speakers advocated preserving the American dream of homeownership, but Frank challenged that concept.

"The American dream should be for a decent place to live, and that could be in rental housing," Frank insisted. "One of the mistakes we made was to encourage people to buy homes who should not have bought. ... We have not done enough for rental housing."

All types of housing are suffering in Merced, according to statistics Mayor Wooten offered.

In 2006, near the height of the region's building boom, Wooten said an estimated "80 percent of home purchases in Merced were being made by speculators, many attracted by the opening of the UC Merced campus."

Such peak-of-the-market speculation, combined with subprime mortgage problems and the bad economy, have caused foreclosure rates in Merced to be among the nation's highest, Wooten said. She noted how home values have plummeted, one in 12 Merced County landowners hasn't paid their property taxes, businesses have closed and unemployment has soared.

"We have no reason to believe the situation will be improving any time soon," she said.

Frank invited anyone who would like to submit written statements to his committee to do so this week by mailing them to Cardoza's office, 137 E. Weber Ave., Stockton, 95202.

Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or 578-2196.

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