Transcript - 4.27.07
BRANCACCIO: Welcome to NOW.
We want to take a close look at the late great housing bubble and what it says about us as Americans. Did it sound too good to be true when housing prices went up and up and up? It was. The thing is, many Americans wanted to believe.
NOW went back to Northern California to catch up with some of the true believers. Last time we looked, home prices there were shooting up 20% a year. Many were living large, and often, beyond their means... not anymore. Alexandra Dean produced our report.
HINOJOSA: Santa Rosa, Northern California. August 2005. The peak of the housing bubble--new homes everywhere, prices skyrocketing.
Chris Nunez is a local broker and two years ago he was riding high pushing interest only mortgages with the zeal of a true believer...
NUNEZ: We just previewed your house. Looks really nice. I'm going to sell it. I'm not kidding.
HINOJOSA: And he had good reason to believe, he was 'Mr. Real estate boom' himself. Just five years before, Chris Nunez was working the register at a grocery store. But by 2005, this son of migrant workers was pulling down six figures as a real-estate agent..
NUNEZ: I have three master bedrooms...
HINOJOSA: Nunez purchased his home in one of Santa Rosa's swankiest developments... the cost? A million dollars
NUNEZ: It's still a little surreal here when I come out here and hang out. I just, I think a lot of times, how did I pull it off?
HINOJOSA: Well, how did he pull it off? He used a new financing device called an interest only loan. Chris Nunez evangelized about these loans to his clients ...the Carnes family were among his converts.
CARNES: We ended up meeting Chris at a party. And everything he said just made sense to us.
HINOJOSA: The $950,000 price tag on this house felt daunting, but they really wanted it... so an interest-only loan was their ticket in.
Here's how it works: for three years they only pay the interest on their mortgage. Then payments spike because they start paying off the principal on their house. Their mortgage rates could also go up, depending on the market.
Together, the Carnes earn just over $100,000 a year. With this income, they would traditionally qualify for only a $200,000 loan, but in the housing market of 2005, the Carnes were able to borrow $700,000 -seven times their yearly income.
CARNES: So we ran the numbers. And the guy says, "Yeah, it looks good." And we couldn't believe him. And so we did it.
And like I said, we just barely made it. They told us that.
HINOJOSA: Like millions of Americans the Carnes were betting big time that interest rates would stay low and the housing market hot.
But what actually did happen? Over the last year the bottom part of the market went south.
That's the part called the subprime market, high interest loans confined to borrowers, who, unlike the Carnes, have bad credit or no credit history at all.
Home buyers like Nick Ramirez.
He is a construction worker who lives in the San Francisco bay area . Back in 1997 he bought his bungalow for under $200,000--well within his means--his financing...a sub-prime mortgage.
After a divorce money was tight but the value of his house was shooting up. Every day lenders called offering Ramirez cash in return for some of his equity
Egged on by lenders--he used the house like an atm machine, eventually borrowing more than it's value. Then last year house prices dropped and the calls stopped, His girlfriend, says Ramirez, was unprepared for the fallout:
GREMMINGER: They're adjustable rate mortgages and so they don't explain to them. And after you know two years the payment's gonna go up and the people are not gonna be able to pay 'em back.
HINOJOSA: This year Ramirez' payments shot up to $3900 a month far beyond what he can pay--so he defaulted
ramirez: I feel like I'm like, a loser, I feel like a plain loser to be where I'm at right now.
HINOJOSA: When subprime borrowers can't make their payments, subprime lenders also lose out. In just the last year, two dozen lenders have filed for bankruptcy.
Economist Christopher Thornburg predicts this sub-prime meltdown is only the first phase of massive downturn in the broader mortgage industry.
THORNBERG: Fact is...prices will start to fall. With the subprime market starting to go south, foreclosures, delinquencies on their way up, with home builders with excess inventories on their hands, auctioning 'em off just to get rid of 'em, you're now starting to see the back end.
HINOJOSA: So will the back end of the subprime collapse affect borrowers who have good credit--people in the prime market? NOW went back to Santa Rosa to find out.
Chris Nunez remains generally optimistic, even if recent trends in real estate don't jibe with his upbeat attitude.
NUNEZ: I think pretty much everybody's gonna be okay. I don't think it's that--I don't think there's that much trouble in this market. I think the--I think the media's making it bigger than it actually is, you know, to be honest with you.
HINOJOSA: We also checked in with the Carnes, who are staying afloat, for now...
They're still paying down only the interest on their mortgage and will be for another year and a half.
after that--they have no idea how high the payments will go...
Since their house value has remained steady, they hope to refinance.
In the meantime, they have taken a little equity out of the house to do some decorating.
So far so good, but not everyone has been so lucky.
Lilian Mendez is in the same boat as the Carnes. She earns a little less than them--about 65,000 a year , but she also bought a house that was a stretch--spending half a million dollars.
She got a 100 percent financing--that's a prime mortgage--and then, a year later refinanced into an interest only loan.
MENDEZ: When they told me that the third year was going to be a variable interest rate, I thought that, okay, it might probably be $500, $600. And then I thought, okay, it's kind of ... you know ... not too bad.
HINOJOSA: In fact, when it came time for rates to adjust, the payment increase was twice what she expected...
MENDEZ: My mortgage payment has increased tremendously from $2,800 to $4,200. And this is only for the first month. And they said it's going to be changing every month.
HINOJOSA: Mendez is now spending almost her entire paycheck on her mortgage...she decided to sell the house...but even at a reduced price she had no takers
This is a problem popping up all around the Bay area, where houses that used to sell within minutes are now sitting on the market for months. After six months Mendez gave up and tried to refinance.
MENDEZ: Today its being more difficult to refinance because the mortgage companies are being more strict about your credit score, something has changed
HINOJOSA: Since she can't refinance and she can't sell Mendez is in deep trouble...
MENDEZ: We had dreams and hopes and we also have good memories here, and I wish we could stay here! I don't want to lose my house.
HINOJOSA: But that loss can be someone else's gain in this housing market--Robert Lott turns a profit buying up mortgages in distress and selling the properties on..
LOTT: Default's hundreds of 'em. There is a large percentage of people in default here. Now they cure the default by making up their payments. Those that are unable to make up the payments--unable to refinance or get a second--third mortgage wind up at the sale on the courthouse steps.
HINOJOSA: That's what nick Ramirez is trying to avoid, in fact his house was supposed to be sold on the auction block the day we spoke with him.
RAMIREZ: Cause I had called she called yesterday and I had talk to you yesterday about my situation.
HINOJOSA: He's been in a panic, dialing the mortgage company again and again
RAMIREZ: God, this is a nightmare, and its scary to know that we're alone.
HINOJOSA: At the last minute the company relents. Ramirez has one more month to find the money. Robert Lott sees people like nick Ramirez go into foreclosure every day,
LOTT: I've seen the foreclosures triple in just the past six months.
HINOJOSA: And it's no longer just subprime borrowers who can't keep up
LOTT: There's--a lot of hundred percent financing all going bad. As adjustable rate mortgages adjust, the payments are going up by a third. And--people weren't--either not expecting it or unaware of it.
HINOJOSA: The news this month shows just how much pain there is for homeowners. Home foreclosures are breaking records. Nationally, they jumped almost 50 percent from a year ago, and in the state of California, foreclosures increased more than 80 percent. It's jolted the whole housing market.
LOTT: Every--every home that's--foreclosed upon in an area--in a neighborhood will reduce the price of that--the next-door neighbor, the neighbor across the street--by about ten thousand dollars.
HINOJOSA: And just this month, home sales plunged nationwide prompting the national realtor's association to predict a nationwide drop in house prices for the first time since they started making predictions in 1968.
THORNBERG: Overall, the declines in the top to bottom of the market could be something on the order of 15, 16 percent before things finally bottom out and prices basically go steady for a period of time. But we have a ways to go in this.
HINOJOSA: When pressed even super broker Chris Nunez admits his clients in Santa Rosa are starting to lose their faith in the market
NUNEZ: You know a lot of people are--are scared to buy right now. They're scared that--they're gonna be caught in--at the--the middle and they wanna buy when it's low. You know? I don't blame them for waitin' because of the fact that I'd be doing the same thing too.
HINOJOSA: And--he says one of his clients called him recently, hoping to be saved from foreclosure,--Nunez had to admit he couldn't pull off a miracle.
NUNEZ: I get a lot of calls these days not about--purchasing a home but how to get out of their problems. I feel more like a psychiatrist and a counselor than I do a real estate agent these days. They--they all hope that--that somebody's got some special answer for them. They real--I don't got an answer for them. You just--unfortunate that I have to tell 'em that there's nothing I can do to help you.
BRANCACCIO: Here's a question for you. Let's say a huge corporation does something that you don't agree with. What action do you take? If your answer is that there's no point in even trying, listen to the unlikely success of a group of farm workers in Florida. They pick the tomatoes that may wind up on your fast food burgers or burritos, and for the past decade, they have been trying to get a better deal out of corporate America. khadijah White produced our report.
HINOJOSA: Exhaustion permeates the air at this church in downtown Chicago. These Florida farm workers...kids in tow... have traveled thousands of miles to get here. They've come to make one big request--better wages. And they plan to take their case to the headquarters of the largest fast food chain in the world-McDonald's.
Their trip began in a tiny town you've probably never heard of... Immokalee, Florida.
Immokalee is all about tomatoes, endless fields of tomatoes ...and on those fields, workers, hundreds upon hundreds of them.
Picking tomatoes off a garden vine might be easy, but try doing it every day with this kind of speed. Lucas Benitez, a worker here, told us just how hard it is.
BENITEZ: These buckets weigh 32 pounds, and they weigh 32 pounds all day long. You have to run 100 or 150 feet to where you take the buckets. And this is in temperatures that are in the 90s, and sometimes it's even hotter than 90. But you have to keep running the whole day.
HINOJOSA: These workers are paid by the bucket. When we first met up with them in 2005, filling 125 buckets would earn them about 50 dollars. That's about $7,500 a year.
14 years ago, when Lucas Benitez arrived in Immokalee, he expected hard work and decent pay. He didn't expect abuse.
BENITEZ: We lived in a climate of fear. The bosses felt like they were kings or that they were gods over all the workers. And there were cases of physical violence while you were working, It was very normal. A lot of times when someone wanted water, the boss didn't want them to have any. They'd say, "You came here to work, you didn't come here to drink water."
HINOJOSA: And it was a drink of water, and all that followed, that would eventually change these workers' lives.
In 1996, a 17 year old boy paused while picking tomatoes to get a drink. Instead of water, he got a brutal beating--his boss' punishment for taking the break. The injustice ignited workers, who turned out in force--500 people marched to the contractor's house, carrying the boy's bloody shirt.
The workers realized that they would have to do more than just speak out in anger. So the next day, not a soul turned up to work in that contractor's fields. That day turned into weeks--the message was clear.
BENITEZ: This was what changed the balance of power. The bosses no longer would be confronted with one worker, but instead they would have to confront the entire group.
HINOJOSA: They called themselves the Coalition of Immokalee Workers. With their newfound strength they decided to tackle the issue of their wages. It's hard to believe, but the tomato pickers hadn't had a real raise in 30 years. When pressuring local growers for an increase didn't work, the CIW focused on where the tomatoes they picked ended up.
BENITEZ: We knew the fast food industry was involved in this business and that they are demanding the products at a low price. The only people who pay the price for these cheap products are us, the workers.
HINOJOSA: In 1999, the coalition found out that some of their tomatoes wound up at taco bell. Taco Bell is a subsidiary of yum foods-the corporation that runs several major chains, including Kentucky Fried Chicken and Pizza Hut. For the next three years, the workers wrote letters to the fast food giant asking for a meeting--the corporation ignored them.
BENITEZ: For years we've had our hand in the industry, but we were always invisible. Nobody saw us. So we decided to put our mark and our fight in front of these restaurant chains, and we began with Taco Bell.
HINOJOSA: In early 2001, the CIW declared a nationwide boycott of Taco Bell and insisted on two things--better working conditions and a penny more per pound.
They went on the road-staging rallies throughout the country. The longer the coalition stuck it out, the more people rallied behind their cause. Even students joined in, starting their own campaign called "Boot the Bell"--to kick Taco Bell products, sponsorships, and restaurants off their campuses.
SELLERS: From the beginning, students had to be involved.
HINOJOSA: Pressure from students, workers , and the boycott had finally worked.
Taco Bell conceded to the coalition's demands. They would-hold suppliers accountable for the treatment of their workers-and they would pay more per pound of tomatoes, an increase that would essentially double some workers income to more than $13, 000 a year. The boycott of Taco Bell was over. And the company chose to take credit for the initiative.
BLUM: Taco Bell has taken a leadership role in social responsibility today by helping the CIW improve the working and pay conditions for farm workers on the tomato fields in Florida.
HINOJOSA: Never before in history had a fast food company paid money back down the supply chain for workers' wages. It was a huge success for the Coalition of Immokalee Workers--which by now represented thousands of field workers. The coalition decided to take on the rest of the industry giants--one by one.
First on the list: McDonald's.
In the spring of 2005, the group began writing to the corporation, asking for a meeting. McDonalds response was quick, but resolute-claiming that it already had a code for suppliers that held them accountable for the way they treated their employees.
While the workers may have been disappointed with this response, they weren't surprised.
BENITEZ: All corporations have different politics that you have to learn when you begin a campaign against them. McDonald's has, for example, a lot of experience confronting public relations crises.
HINOJOSA: The man at McDonalds dealing with both the public relations crisis and the workers was senior vice president J.C. Gonzales-Mendes.
GONZALEZ-MENDES: They were looking for a company that had a history of social responsibility and then believed in it.
HINOJOSA: Behind the scenes, McDonalds was working on a strategy. The company created SAFE, the socially accountable farm employers association. Its purpose? Getting growers to improve working conditions in the fields.
GONZALEZ-MENDES: SAFE is nothing else but a--a statement that the industry is taking into making sure that all of the farmers are abiding by those standards that are so important.
HINOJOSA: The idea was that SAFE would provide an additional certification-like "fair trade"--saying that the tomatoes used at McDonalds came from growers that treated workers well. But almost immediately, there were problems. Eleven of the sixteen companies that were supplying Florida tomatoes for McDonalds ended their supply agreements with the fast food giant rather than abide by the new working conditions.
But the biggest issue for the workers was that there was still a voice missing in all this--theirs.
BENITEZ: Simply put, SAFE cannot be sufficient for the workers because the workers had nothing to do with the design of its code of conduct. This was created by the coyotes to take care of the chickens.
HINOJOSA: The workers campaign ramped up-and so did McDonald's. In April 2006, the fast food company commissioned a report. Its findings? A controversial claim that tomato pickers earned as much as 18.27 an hour. Academics and former labor officials disputed the study, questioning both its accuracy and objectivity.
BENITEZ: We knew that it was a giant company that was very concerned about social responsibility. The truth is that we hoped that McDonald's would react in another way.
HINOJOSA: Around the country, other leaders threw their hats in the fight by showing their support--in April 2006 Ethel Kennedy, the widow of Robert Kennedy, visited the CIW workers in the fields... just as her husband had met with Cesar Chavez during the famous Californian farm worker struggle almost forty years ago.
And the pressure was heating up in the boardroom, too. Some of McDonalds' shareholders, in alliance with Immokalee workers, had submitted a human rights resolution for better pay and working conditions. McDonald's asked the Securities and Exchange Commission to prevent a shareholders' vote on the proposal. Last month, the SEC ruled against McDonalds--shareholders could indeed take the vote.
Only two weeks ago, workers and supporters from around the nation were traveling to Chicago for that planned protest at McDonald's headquarters--when their rally suddenly turned into a victory celebration.
The fast food giant had decided to meet all the workers demands.
GONZALES-MENDES: We're--we're actually doing this, because this is the right thing to do. It's the right thing to do, not only for our shareholders, or employees, but more specifically, for the farm workers.
HINOJOSA: In the agreement the Immokalee workers could be paid up to 75% more per bucket for McDonalds tomatoes.
But the CIW says this win means more than money-it means that another major fast-food chain, the biggest in the world, has recognized the need for corporate driven change in the agricultural industry.
GONZALEZ-MENDES: If this proves to be the right thing to do for tomatoes--I think it will be incumbent upon not only the growers, but the repackers, as well as the end-users to--continue to push this issue--to the top of the--the agenda.
HINOJOSA: Next up on the CIW's target list? Burger king.
MORELLO: On my count--CIW 2, McDonald's and Taco Bell, 0, Burger King watch out!
BENITEZ: Until the worker is seen to be what he is, as a person, not a machine or a slave, then this campaign is not going to stop until we have what other employees have in other industries: respect, dignity, and the most basic needs.
BRANCACCIO: And that's it for now. From New York, I'm David Brancaccio. See you next week.