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In pockets of foreclosure, housing woes spread block by block
In Modesto, Calif., home prices could fall as much as 25 percent.
from the December 11, 2007 edition
Page 2 of 3
Their troubles began when their home was robbed, something that grew common in the neighborhood with the lack of work and the empty homes. That sent their insurance rates higher. Then her husband lost his job in home construction: No one is building these days. They haven't made a mortgage payment in three months on their 40-year, no-money-down loan.
Now they are weighing whether to rent around Modesto or just return to Mexico. "I stay up at night with the fear that they'll come and take me out of the house with my children," Ms. Ramirez says.
Vacant homes surround her: the next-door neighbor, the house at the end of the block, three in a row behind her on St. Charlotte Ave.
Residents around St. Salazar worry about the effects of foreclosures on the area. On San Ramos Ave., thieves hauled off a heavy air conditioning system – a prelude to wholesale stripping, seen elsewhere in Modesto, of everything down to the copper wire yanked from the drywall.
That's the problem with foreclosures concentrated in a neighborhood.
"Default begins to feed on itself," says Stuart Gabriel, chairman of the real estate school at the University of California at Los Angeles. The banks holding foreclosed properties try to unload them, sometimes at fire-sale prices, depressing the home values of neighbors. If those neighbors' finances are shaky and they hold an exotic loan, the loss of value could trigger another foreclosure, starting the cycle all over again.
In La Loma, neighbors do lawn care
Such problems, in full swing around St. Salazar, are popping up closer to Modesto's center.
In the leafy La Loma area near downtown, Bill Graham is one of several residents looking after vacant properties.
"I come over here and mow this lawn – for the neighborhood," he says. "I hate to see people lose their homes to foreclosures, and I don't want to see it happen to myself either."
He's in danger of losing his main residence and another house in town once the adjustable rates go up again. He had planned to refinance to consolidate his investments, but that's looking unlikely.
More than 5,700 homes in Modesto's Stanislaus County are actively under foreclosure or have already been turned back to the bank, according to RealtyTrac, based in Irvine, Calif. – with a fresh wave expected after February's reset on adjustable-rate mortgages. Modesto has been trading honors with nearby Stockton and Merced for the dubious distinction of being the country's foreclosure capital.
A third of buyers had been investors
In Modesto, investors made up roughly a third of buyers in recent years, says John Hillas, a local appraiser. That's bad news for the city, since investors are more likely to default than live-in owners, according to Mr. Gabriel.
The good news is that more established neighborhoods typically have a larger share of owners who have built up equity and didn't use exotic loans to finance their homes. Risky interest-only and more unusual adjustable-rate mortgages are only a recent phenomenon – ballooning from 1 to 2 percent of loans in 2001 to more than 30 percent by 2006 nationally. So even in newer Modesto neighborhoods built around 2003, foreclosures haven't triggered the kind of unease evident in Ramirez's neighborhood. Many residents say they are not worried about losing their home because they have fixed-rate mortgages and can wait out the downturn.
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