TOPICS > Economy

Mortgage Crisis Leads to Abandoned Homes, Employment Cuts

September 7, 2007 at 6:30 PM EDT
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TRANSCRIPT

JIM LEHRER: Now, the impact of the subprime mortgage crisis beyond the housing market. NewsHour correspondent Jeffrey Kaye of KCET-Los Angeles reports from Hemet, California.

JEFFREY KAYE, NewsHour Correspondent: In the southern California city of Hemet, 90 miles east of Los Angeles, the real estate mortgage crisis has turned into a public health problem.

LOU JUAREZ, Riverside County, Department of Environmental Health: We’re at the early stages of larvae.

JEFFREY KAYE: Mosquitoes are breeding in the backyard pools of abandoned homes. The insects can carry diseases. With home foreclosures in Hemet soaring, the number of neglected swimming pools is on the rise.

LOU JUAREZ: The public health hazard would be West Nile virus, which can be very fatal.

JEFFREY KAYE: Mosquito control technician Lou Juarez works for Riverside County, inspecting and fumigating so-called “green pools.” He says his workload has doubled over the past year.

LOU JUAREZ: We have a tendency of receiving probably three or four complaints on a daily basis. At times, you don’t know, you know, who the property owner is anymore, because he has vacated the premises. The bank has now taken — there’s been a foreclosure on it. Our intention is to go in as quickly as possible and as soon as possible so we could avoid any potential health hazards.

JEFFREY KAYE: Besides the green pools, the color of the mortgage crisis in Hemet is brown. Dying front lawns and “For Sale” signs make foreclosed homes easy to spot. Some remaining residents of Hemet’s many housing tracts say their neighborhoods are starting to feel like suburban ghost towns.

MICHELLE HOLSHOUSER, Resident, Hemet: It’s becoming barren. Everybody is leaving. I think this house was empty for about eight months, and then somebody moved in. They’re getting ready to leave. The house across the street was empty, and they moved in for about, I would say, eight months and left.

JACQUI YUNGEN, Resident, Hemet: Now you’ve got people who know that these houses are vacant that are coming around and they’re jumping in the pools, they’re going into the houses. We have 11 houses right around on this one block that are all vacant.

Buying binges in the Inland Empire

JEFFREY KAYE: The Hemet real estate market wasn't always this bleak. Once a farming and retirement community, Hemet is in a region known as the "Inland Empire" that, in recent years, saw a boom in residential construction and one of the largest population explosions in the United States.

Attracted by relatively low home prices and easy credit, Hemet became an affordable real estate refuge, a bedroom community for families unable to buy homes in coastal areas. Between 2000 and 2005, as the population increased, home values doubled. Owners used their properties as ATM machines. Buying binges helped fuel the local economy, as businesspeople fondly remember.

ADELE SADLER, Realtor: Five years ago, you no sooner list them that they would sell right away.

BOBBY CALLOWAY, Car Dealer: A lot of people went and refinanced their houses, put the cash in their pockets, and then came and bought cars.

SETH WEINGER, Real Estate Investor: It was actually pumping money into the area, because people could take a loan out and spent it on RVs, boats, cars, toys, all things that they didn't need, and then figured that, "Oh, we'll just sell the house for more money and get out of it."

JEFFREY KAYE: That was then. Now "For Sale" signs are everywhere. Home sales are at their lowest level in a decade. The number of foreclosures tripled in the past year. And Hemet home values are falling, says real estate agent Adele Sadler.

ADELE SADLER: Well, I've seen as much as 25 percent drop.

JEFFREY KAYE: Twenty-five percent?

ADELE SADLER: Yes, I have.

JEFFREY KAYE: And are they moving at that price?

ADELE SADLER: Not all. Some are; some aren't. It just depends. There just isn't that many buyers out there right now.

BOBBY CALLOWAY: It all trickles down into each and everybody's own little business, you know, how it affects us.

Effects on other businesses

JEFFREY KAYE: Bobby Calloway owns the local Chrysler dealership. With the real estate boom gone bust and an uncertain economy, people are holding on to their money. Like other businesses in town, car dealers are making adjustments.

BOBBY CALLOWAY: I can show you some used ones if you want to see the used ones? I'd be glad to do that for you.

JEFFREY KAYE: The Chrysler dealership has cut staff and reduced advertising. It's gone from selling mostly new cars to used ones.

BOBBY CALLOWAY: And that's kind of what's been our success through these hard times is selling a less-expensive car that a person who normally would be buying a brand-new car that might be in a price range of $20,000, $25,000, $30,000 grand. What's selling now is a used car that's, you know, in the $10,000 to $15,000 price range.

JEFFREY KAYE: Businesses involved in home construction and remodeling are more directly affected by the real estate slowdown. Red Peryea owns a contracting company.

RED PERYEA, Contractor: Very definitely, our business has slowed down. We have a landscaping company and a construction company, as well, and it has definitely affected us to the point we don't have as many jobs going, like one or two at a time, as opposed to three or four as a time.

JEFFREY KAYE: So what are you doing to adjust?

RED PERYEA: To adjust, what we're trying to do is reaching out into doing new things that we didn't do before. And I didn't do a lot of carpeting before, but, hey, now, I'll got into carpeting now.

JEFFREY KAYE: Workers in the construction trades, many of them immigrants, have seen jobs dry up and paychecks cut. Emilio Oliva is a drywaller from El Salvador. He says his income has dropped from $3,000 to $1,500 a month.

EMILIO OLIVA, Construction Worker (through translator): It's much harder now to make the rent and to earn enough to do anything. I'd say, in a month, we only get about 15 days of work.

JEFFREY KAYE: And Oliva's current job is going to end sooner than planned.

EMILIO OLIVA (through translator): Here they haven't sold a single one. And since they aren't selling, the company isn't going to build more homes on this site.

Borrower vulnerability

JEFFREY KAYE: Peggy Hoppe, manager of Hemet Escrow Company, has laid off three employees. As foreclosures mount, she worries about the vulnerability of borrowers.

PEGGY HOPPE, Escrow Manager: You see young kids come in here, young couples. And you see that they're going to be paying $1,500, $1,800 a month. You take yourself back to the time when you were those ages. You know, that's a big payment. And so you always just kind of hold you're breath for them and hope they make it.

JEFFREY KAYE: But some hope to take advantage of the real estate market's changing fortunes. Builders have cut prices and offer move-in deals for willing buyers.

Karen and Tom Mixon sold their Hemet house. It was on the market for four months, and they got $30,000 less than they asked for. But they're expecting to buy a home in a nearby area at a bargain price. This one was about to be foreclosed on by the bank.

LONI VOGLER, Realtor: Well, that will save you a lot of money.

JEFFREY KAYE: Loni Vogler, the Mixons' real estate agent, says an oversupply of homes relative to the demand is forcing down prices.

Are the Mixons in pretty good shape?

LONI VOGLER: Right now, as buyers, they're in great shape.

JEFFREY KAYE: Why?

LONI VOGLER: Because they have good credit, they've got money to work with, and they've got -- their home sold. So now is the fun part. Now we get to shop.

JEFFREY KAYE: House buyers aren't the only ones benefiting from the current climate. Real estate agents say sales of manufactured homes are up, as homeowners in over their heads downsize and move to mobile home parks. Renters are also finding good deals, as property owners unable to sell homes at prices they want instead rent them out.

I gather there's just a lot of rental property available.

SETH WEINGER: There's a lot. And the more there is, it's supply and demand. The rents will come down. People will lower their rents to try to keep something in there, more out of desperation. They'd rather have something coming in than nothing.

JEFFREY KAYE: Real estate speculator Seth Weinger says he's reluctant to make too many concessions.

SETH WEINGER: We're lowering rents. We're trying to do things the right way, but we're not giving away three months' free rent and no security deposit, which you see signs in some of the apartment complexes for things like that right now in order to try to fill space.

JEFFREY KAYE: Many Hemet businesspeople are optimistic, saying the current downturn is one of many periodic cycles that will soon run its course.