FacebookTwitterGoogle+RedditEmail

The Mechanic’s Tale

In the late 1990s, an entrepreneurial mechanic with a wife and one child bought a house for $65,000 with a down payment of $1,500?and took a fixed-rate FHA mortgage. His wife, a beautician, got a job as a clerk at a discount store. In the midst of the speculative real estate boom in Merced six years later, now with three children and a warehouse job, he took out an equity loan for $126,000, did some remodeling on the exterior (new stucco, paint, new lawn turf, foam sculpture), bought furniture, a big-screen TV and a nearly new Escalade. It is estimated that about $35,000 went for the home improvements and goods. Where did the other $91,000 go? It didn’t go into the property. Why wasn’t the equity loan monitored for home improvements?

A year later, with four children and two big SUVs, the speculative real estate boom in full force, he took out a conventional variable equity loan on his house for $246,500. The paperwork doesn’t reveal if this was a wraparound loan, including the mortgage and the first equity loan. He bought a five-bedroom, two-story house for more than $300,000. He put about $160,000 down on the new house, bought $60,000 worth of new furniture and another used Escalade, and hoped to put a pool into the yard of the new house.

It can only be speculated if or when he got an equity loan on his new house.

He rented the old house to relatives, with an option to buy. The rent was based on the variable equity loan. It began in 2006, at about $500 a month. The relatives have two children. The husband built trailer homes; the wife had a good job in food service. In the next two years, they had another child and the husband lost his job and she quit her job to go to school –?while expecting to?buy this house.

In April 2008, payments on the variable loan of $246,500 increased to more than $2,500, and the owner informed the relatives with the option to buy that the rent had increased fivefold. The relatives had no clue that the loan was variable. It’s possible the owner didn’t quite grasp that either. In any event, the relatives went shopping for a loan, without success, as the boom was turning into a bust.

If the owner of the two houses, now with five children and a new custom Escalade including the latest in rims, had just stayed in his first house and not taken out two equity loans, he would have been paying between $400-$500 a month on his mortgage. Even if he had spent the entire $126,000 to expand his 900-square-foot house on a 10,000-square-foot lot and not borrowed another $246,500 – in part, to buy another house and more good-life toys he might have been able to survive.

Result: the relatives had to move out, the house is empty and in foreclosure, and the owner is months behind on his mortgage payments on his present house, and his variable on the new house will kick in next year.

Late last year someone seeking to buy the house contacted a realtor. The realtor, after examining the documents for a month or two, told the prospective buyer that it was extremely difficult to tell who actually owns this house, title being clouded by: 1) sloppy title company work to begin with; 2) the number and size of the various, variable loans; and 3) the mystery of who might possibly own those loans now.

So, here is an empty house worth between $50,000-$75,000 for cash, given that few if any will qualify for a loan on it in the present lending climate. Meanwhile, the grass has died in the front and back, junk was left behind, an old pickup stands in the driveway. It has joined that ever-growing number of residential properties in foreclosure, in decline and its title may be clouded by the different loans, all with different companies. Nor is it clear to realtors or prospective buyers whether there was a consolidation of loans or not. It will not be clear before the house goes through auction on the county courthouse steps.

What were the owner and his lenders thinking? At a broader level, what were all the Valley business and political leaders thinking, as they approved project after project, predicting the growth boom would go on forever and universal prosperity would come to the Valley without jobs to support the inflated prices of the real estate? The entrepreneurial warehouseman should not have been given the first equity loan on his first house. Politicians, from city councils to boards of supervisors to state legislators to members of Congress, and the media are blaming poor people for their irresponsibility.

Meanwhile, in Merced, the foreclosure section of the Merced Sun-Star announced in late October, 2008,  that Hank Vander Veen, the publisher of the Merced Sun-Star, presumed to be far better educated, more worldly and wealthier than the warehouseman, walked away from a $507,000 house in suburban McSwain.

BILL HATCH lives in the Central Valley in California. He can be reached at: wmmhatch@sbcglobal.net.

More articles by:

November 20, 2018
John Davis
Geographies of Violence in Southern California
Anthony Pahnke
Abolishing ICE Means Defunding it
Maximilian Werner
Why (Mostly) Men Trophy Hunt: a Biocultural Explanation
Masturah Alatas
Undercutting Female Circumcision
Jack Rasmus
Global Oil Price Deflation 2018 and Beyond
Geoff Dutton
Why High Technology’s Double-Edged Sword is So Hard to Swallow
Binoy Kampmark
Charges Under Seal: US Prosecutors Get Busy With Julian Assange
Rev. William Alberts
America Fiddles While California Burns
Forrest Hylton, Aaron Tauss and Juan Felipe Duque Agudelo
Remaking the Common Good: the Crisis of Public Higher Education in Colombia
Patrick Cockburn
What Can We Learn From a Headmaster Who Refused to Allow His Students to Celebrate Armistice Day?
Clark T. Scott
Our Most Stalwart Company
Tom H. Hastings
Look to the Right for Corruption
Edward Hunt
With Nearly 400,000 Dead in South Sudan, Will the US Finally Change Its Policy?
Thomas Knapp
Hypocrisy Alert: Republicans Agreed with Ocasio-Cortez Until About One Minute Ago
November 19, 2018
David Rosen
Amazon Deal: New York Taxpayers Fund World Biggest Sex-Toy Retailer
Sheldon Richman
Art of the Smear: the Israel Lobby Busted
Chad Hanson
Why Trump is Wrong About the California Wildfires
Dean Baker
Will Progressives Ever Think About How We Structure Markets, Instead of Accepting them as Given?
Robert Fisk
We Remember the Great War, While Palestinians Live It
Dave Lindorff
Pelosi’s Deceptive Plan: Blocking any Tax Rise Could Rule Out Medicare-for-All and Bolstering Social Security
Rick Baum
What Can We Expect From the Democrat “Alternative” Given Their Record in California?
Thomas Scott Tucker
Trump, World War I and the Lessons of Poetry
John W. Whitehead
Red Flag Gun Laws
Newton Finn
On Earth, as in Heaven: the Utopianism of Edward Bellamy
Robert Fantina
Shithole Countries: Made in the USA
René Voss
Have Your Say about Ranching in Our Point Reyes National Seashore
Weekend Edition
November 16, 2018
Friday - Sunday
Jonah Raskin
A California Jew in a Time of Anti-Semitism
Andrew Levine
Whither the Melting Pot?
Joshua Frank
Climate Change and Wildfires: The New Western Travesty
Nick Pemberton
The Revolution’s Here, Please Excuse Me While I Laugh
T.J. Coles
Israel Cannot Use Violent Self-Defense While Occupying Gaza
Rob Urie
Nuclear Weapons are a Nightmare Made in America
Paul Street
Barack von Obamenburg, Herr Donald, and Big Capitalist Hypocrisy: On How Fascism Happens
Jeffrey St. Clair
Roaming Charges: Fire is Sweeping Our Very Streets Today
Aidan O'Brien
Ireland’s New President, Other European Fools and the Abyss 
Pete Dolack
“Winners” in Amazon Sweepstakes Sure to be the Losers
Richard Eskow
Amazon, Go Home! Billions for Working People, But Not One Cent For Tribute
Ramzy Baroud
In Breach of Human Rights, Netanyahu Supports the Death Penalty against Palestinians
Brian Terrell
Ending the War in Yemen- Congressional Resolution is Not Enough!
John Laforge
Woolsey Fire Burns Toxic Santa Susana Reactor Site
Ralph Nader
The War Over Words: Republicans Easily Defeat the Democrats
M. G. Piety
Reading Plato in the Time of the Oligarchs
Rafael Correa
Ecuador’s Soft Coup and Political Persecution
Brian Cloughley
Aid Projects Can Work, But Not “Head-Smacking Stupid Ones”
David Swanson
A Tale of Two Marines
FacebookTwitterGoogle+RedditEmail