Californians Talk Housing as Super Tuesday Looms

GWEN IFILL: As we just saw in Jeffrey Kaye's piece, the simplicity of shelter has become a challenge for a growing number of Americans. We're joined here today by a group of Southern Californians who, in one way or another, have been affected by the housing crisis, but they don't necessarily agree on what should be done about it.

Andy Sobel, let me ask you, you lost your one-bedroom condo that you owned in San Diego. You had two adjustable-rate mortgages, kind of got out of control. How did you get in that fix?

ANDY SOBEL (D), Former Condo Owner: Well, when I started out, it certainly didn't feel like a fix. I was purchasing my first home, and it wasn't an investment property. It was a place to live and seemed like a reasonable purchase. You know, I was paying a little bit too high, but something I could afford.

And then my second started creeping up, because it was a variable rate. And two years later, my first adjusted. And all of a sudden, I was way out there from what I could afford, and I couldn't refinance reasonably, and there was kind of no way out, perfect storm of things happened.

GWEN IFILL: Perfect storm.

Darren Hendon, you probably -- you're a housing counselor?

DARREN HENDON (D), Housing Counselor: Yes.

GWEN IFILL: You talk to a lot of people who have suffered from the perfect storm. Does that story sound familiar to you?

DARREN HENDON: I'm on the firing line every day. I see five to six individuals with pretty much the same scenario of an adjustable-rate mortgage that has either adjusted or is about to adjust. And they're panicking. They're panicking right about now.

GWEN IFILL: Ed Smith, the lenders, the mortgage brokers have also been suffering in this downturn. Business down by how much?

ED SMITH (R), Mortgage Broker: Probably, in my operation in San Diego -- I've been in the business for 25 years -- we're probably off 40 percent in production of loan originations.

GWEN IFILL: If there is fault, the fault lies with the lenders or with the borrowers?

ED SMITH: Well, there's a multitude of fault. The products that were rolled out from Wall Street were very aggressive. The availability of credit to low-, or moderate-income, or credit-challenged individuals, the criteria was reduced, and those things kind of mushroomed.

GWEN IFILL: Roberta Berthold, I see you nodding along with Ed on that. You're also involved in lending. And you also have seen kind of both sides of what's happened with this crisis. Where would you say the tipping point is?

ROBERTA BERTHOLD (D), Mortgage Loan Officer: I don't believe we're necessarily at the tail end of it. A lot of the subprime crisis kind of started with the two-year and three-year adjustable-rate loans.

We're about halfway through those adjusting, and that's where some of the problem has come into. So maybe I'm thinking maybe another year or so of trying to tread water to get through this.

GWEN IFILL: Julio Manzo is a first-time homebuyer trying still to hold onto your home. How's that going?

JULIO MANZO (D), Homeowner: It's difficult. We've been trying to keep the house, and we've been trying to keep the lines open for communication with the lender. And, unfortunately, in our case, they haven't been able to help us the way we need help.

GWEN IFILL: Let's talk about your situation. It was a $250,000 loan. It was a, what, three-bedroom, two-bath house?

JULIO MANZO: Three-bedroom, two-bath, yes.

GWEN IFILL: A hundred percent financing?

JULIO MANZO: Yes.

GWEN IFILL: And things shifted under your feet?

JULIO MANZO: Yes. It's adjusting upwards. And the property values, they're coming downwards.

GWEN IFILL: So where does that leave you right now?

JULIO MANZO: It leaves us where we can't refinance. The value is not there. And pretty much the bank is saying, you know, "Take this deal, take this modification, or nothing else."

GWEN IFILL: Part of the dilemma, Ben Lamson, is that prices have gone up so high. I mean, you've watched this happen. The soaring prices, have they added to what's been happening here?

BEN LAMSON (R), Rental Property Manager: Well, I believe so. Looking at the market in Southern California, and I think across the country, the soaring prices have been driven by a lot of spec buyers getting in to buy homes.

GWEN IFILL: Now, what do you mean by "spec buyers"?

BEN LAMSON: Investors, people that thought that they could make a quick flip on a property, and they might go buy one or two homes. They weren't looking to occupy the homes that they were buying, so that created a false demand on the property. And when you have a greater demand, the prices do go up.

GWEN IFILL: Ben, I wanted to ask you about the rental market. You do a lot of work in the rental market. Has this crunch in the mortgage market had an effect? Are more people moving into rentals out of homeownership?

BEN LAMSON: All the investors and spec buyers that were speculating on the market that now can't sell their houses especially, they're having to rent them out. So you'll see a "For Sale" sign and a "For Rent" sign, and whatever happens first, happens.

In our area, in San Bernardino, Riverside County, three-bedroom, two-bath home that used to rent for $1,500, $1,600, $1,700, you can now rent for $1,100 and $1,200.

GWEN IFILL: Robert Lamoureux, you're in the construction business. How have you seen it affect your business?

ROBERT LAMOUREUX (R), General Contractor: Radically. Our numbers are down about 40 percent in the construction industry overall.

New construction is completely down. If you drive around anywhere -- Santa Clarita is where our offices are -- you'll see that there's new concrete pads and conduits all sticking up out of ground, and the grounds are vacant of men.

Is there something the government should be doing to step in to help people like Julio and Andy and other people who have been suffering?

LORI STAEHLING (R), Real Estate Agent: Absolutely. They are taking action. They're lowering interest rates.

I would add that California is a very expensive place to live. It has been for as long as I've been in real estate, which is since 1978, and it was for my parents a very expensive place to live at that time.

We pay more, percentage-wise, of our median income towards housing than in many states of the United States, and people do have to stretch. And when people are stretching so hard and wanting to have that dream of home ownership, I think the majority of the buyers are actual homeowners.

The adjustable mortgages were very desirable, because they could make that payment more affordable for people. It's just they weren't prepared for the long-term effect of, what if the prices don't hold them, they can't refinance? Or what if the interest rates don't hold and we can't refinance? And that's put people in a real bind.

GWEN IFILL: Darren, we have heard from so many politicians, elected officials in the last few weeks about the things government should or should not do. What is your thought about what government should or should not do?

DARREN HENDON: In this situation, recall the types of products that were put out for consumers. Restructure them. And that's really the only immediate solution that we're going to have, and some type of government mandatory regulation for the banks to get involved and to participate in restructuring and modifying these loans.

GWEN IFILL: Andy, I'm going to ask you to follow up on that. Is there a role, like Darren suggests, for government?

ANDY SOBEL: I think that Darren's exactly talking about the right thing, in terms of everybody should get a good 30-year fixed loan and don't have all these special products.

So they should, you know, if they can prove that they can pay over the life of the loan, which is something right now -- all you have to do is prove that you can pay the first month. Nobody cares about the future.

So if people can say, "Look, I'm good for the next 30 years," then they should be able to buy a home.

ED SMITH: I have a different take, a little bit from Andy's perspective, is that when you mentioned that the 30-year fixed is the panacea of the world...

GWEN IFILL: It's not?

ED SMITH: Not in my opinion. The average person that works in Southern California cannot afford a medium-priced home in this area. So these products were developed by Wall Street to help answer that demand.

At the point where you first decide to buy a home, you need to talk to a qualified person and explore your entire opportunities available to you. What's your plan? How long do you plan to stay in this home? Are you going to be transferred? What's your income, projected income, looks like?

These are a lot of the questions that were not answered in the beginning of the transaction that got people in trouble.

ROBERTA BERTHOLD: I think everyone has to take a certain amount of responsibility in that. You know, a lot of people made a lot of money.

But I think now that, you know, the government has to be a little careful about regulating the industry and getting too involved, because sometimes over-involvement can be a hindrance, as well. The market has already started to correct itself.

There's another thing floating around Washington right now, is to do a big bailout. Why should we have to bail out those investors? Why should we have to bail out those people who have used their homes for years as an ATM machine?

You know, some of it is the responsibility, also, of the buyers. You know, first-time homebuyers is one thing, but there's people who have purchased their home and refinanced, cash-out refi, cash-out refi, and just sucked all the equity out of their home. And now they're saying, "Oh, poor me, please help me."

GWEN IFILL: Julio, let me ask you about something very practical here. Hillary Clinton has a plan to freeze fluctuating interest rates, but is that a bailout, like Roberta was saying?

JULIO MANZO: Yes, a bailout, but at the same time, if you don't invest in people keeping their houses now, the whole entire neighborhood, the people that have 30-year loans on their properties are affected, also.

GWEN IFILL: Do you feel that first-time homebuyers like yourself were targeted for these types of loans? Do people say, "Ah, there's someone I can get to buy into this"?

JULIO MANZO: I believe so, being from immigrant parents and not having, you know, your parents have bought a home before, not having gone through the whole first-time buyer programs. We have learned our lesson, but we do need help.

GWEN IFILL: Andy, as someone who actually got one of these very attractive loans and ultimately lost a property that you owned, as you listen to people say, "You know what, everybody was just greedy, and they should have seen this coming," what do you say?

ANDY SOBEL: It's so complicated, because every loan is different from every other loan, so there can't be an across-the-board solution. So it's a very nuanced process, where we have to work with individuals.

And I agree. There's some folks who went in there, and took all the equity, and got a bunch of money, and bought things, and I'm uncomfortable with those folks getting bailed out.

On the other hand, it affects communities. So there needs to be some process to make sure they can stay there, but, hopefully, they're responsible for the cash they took out.

GWEN IFILL: Lori, when you go out now with people who are looking for homes to buy in this kind of depressed market, in still a very expensive market, what do you tell them?

LORI STAEHLING: Most people are looking to what we did in the old days, put a down payment, borrowed from family, take it out of retirement, take it out of savings.

GWEN IFILL: You mean the old days, five years ago?

LORI STAEHLING: Five years ago, because all of my career we didn't have this. This is very short-term time that we had to, you know, no down payment.

They want to know, when's the bottom of the market? That is the biggest question I get: When's the bottom of the market? And what I have to tell them over and over -- and I really believe it -- is we never know when the bottom is until we've gone long past it.

When the prices were high on homes and they were going up, people got very excited. "Go buy, go buy, go buy, because prices are going up." Well, they were a little late then.

Right now, I think if people don't buy now or in the very near future, they're going to look back and say, "We were a little late if we waited," and that's the discussion.

ED SMITH: One of the things that we haven't addressed that I think is critical in the particular cases of the two gentlemen that are here is financial literacy, being able to understand the process or having the basic skills to look at financial documents and to understand the responsibilities of homeownership.

GWEN IFILL: Do you think that's the state's role?

ED SMITH: I think that that is the industry's role, and it's also possibly a state's role, if you start financial literacy skills early in high school, with teaching kids about credit card use.

I think the financial literacy of this country is very, very minimal. We live in a microwave society, where you can push a button and things instantly happen. And we've gotten away from some of the basic principles, like down payment on a house.

GWEN IFILL: Well, let me ask Andy this. Is it fair to say that when you signed those documents for that condo you didn't fully get what you were signing onto?

ANDY SOBEL: That is fair. I think financial literacy is great, but I wish the mortgage broker would have sat in there with me, also, so that part of the conversation is looking at my total package.