Demographics of the Inland Empire Mortgage Meltdown
August 23, 2009, 06:56 AM
A+
|
a-
Print Friendly and PDF
The New York Times article "A Cul-de-Sac of Lost Dreams, and New Ones" profiles a nice-looking street in Moreno Valley in Riverside County, CA, where four of the eight homes have been foreclosed, and two more are teetering. It provides a human interest illustration of what I've been saying all along based on statistics.

Riverside Co. is ground zero for the mortgage meltdown. Moreno Valley, with 180,000 people, is 60 miles east of downtown LA, 80 miles in from the ocean. It was filled in by houses from west to east in the 1980s and 1990s. When I played golf there around 1990, the west half was completely carpeted by subdivisions, with homes under construction making up the eastern edge of the carpet, and the rest of the valley, farther from the jobs, all sagebrush. The demographics in 2007:

The racial makeup of the city was 23% Non-Hispanic White, 20% African American, 0.94% Native American, 8% Asian/Pacific Islander, 3% from other races, and 5.83% from two or more races. 46% of the population were Hispanic or Latino of any race.
The street attracted strivers from the working class and the lower middle class. Since people moved in and moved out, it's a little hard to calculate the demographics of the street from the article, but it looks like at the peak of the bubble it was at least half Mexican, one quarter white-Mexican couples, and perhaps one-eighth black. (The retired white couple featured in the article, the Hansons, who own their house outright and serve to keep the neighborhood organized, live around the corner from this culdesac.) This seems typical of who defaulted — people from the second quartile up from the bottom who bought a nicer home than they could maybe afford, often to get into a decent school district and keep their kids out of the 'hood.

The houses on this street were built around 1997 so a lot of the owners got in before prices went crazy around 2004. But the ones who got in at non-crazy prices often couldn't resist home equity loans to live the good life or to speculate further on the Bubble.

Equity soon became irresistible.

Ms. Sanchez and Mr. Winkler, the couple with two daughters, wanted a new car. So they pulled $15,000 out of the house. Mr. Godfrey and Ms. Saldamando, the schoolteachers, dipped into their equity to landscape their back yard. Mr. Blanco, the electrician, used it to invest in a lot in the desert, and Mr. Soto, the landscaper, picked up a rental home in the Central Valley, an agricultural area northwest of here.

The block’s first residents, Ms Hernandez and her husband, bought a shiny commercial truck, with dreams of expanding his trucking business. He pulled money out of the house nearly annually. And the couple from South Los Angeles [I'm guessing they were black] used their house — bought for $152,500 in 1997 — as a veritable cash machine, refinancing three times before selling it in 2006 for $440,000.

But one by one, the strings began to come apart.

The new buyer of the Los Angeles couple’s home was quickly in over his head; he lost the house in less than a year, with $375,273 still owed.

Title records show that Ms. Hernandez and her husband bought their home in 1997 for $123,000, using nearly 100 percent borrowed money. They refinanced first in 2003, at 11.1 percent interest on $129,000. The equity loans kept coming: the balance rose to $230,000 in 2004; $323,00 in 2005; $374,000 in 2006; then, finally, $415,000, at 8.12 percent, in 2007.

�For a while things were going really, really good,� Ms. Hernandez said. �Then the truck broke down, and things went down from there. One day I came home and there was a note on the door that said call this number.�

It was only then, Ms. Hernandez said, that her husband told her about the equity loans and that �we were in foreclosure and needed to get out.� Last fall, the bank offered them $1,000 to leave the house quietly.

In general, the people who defaulted, setting off the crash, are the kind of people for whom our elites in recent decades had no plans for how they could earn more money (such as through immigration restriction or tarrifs), but lots of plans for how they could borrow more money.

How's that working out lately?