Mortgage-Relief Plan Divides Neighbors

A mortgage-relief plan being pushed by the government is supposed to help debt-laden homeowners across America. But it's creating dashed hopes and fresh tensions in this city that mushroomed during the subprime-lending boom.

Shannon Kelly was excited when she first heard about the plan, rushing to tape a TV news report about it. But her hope of escaping a sinkhole of debt was short-lived: Her adjustable-rate mortgage doesn't qualify for a bailout under the terms outlined by the Bush administration and the mortgage industry.

Across town, in a condominium development riddled with foreclosures, there was holiday cheer for Karey Kelly, who is no relation. With monthly payments on her $351,000 mortgage set for a punishing rise in January, the single mother already had applied for an extension of her rate when the government-backed initiative was unveiled. Her credit score is on the cusp of the limit, but "I'm pretty positive that I meet the plan's criteria," Ms. Kelly says.

The Bush administration has touted the plan, announced this month, as a potential lifeline for hundreds of thousands of subprime borrowers, as well as a means to cushion the economy from the mortgage meltdown. Supporters say the proposal to freeze interest rates for certain buyers and accelerate loan refinancing for others aims to target deserving debtors and avoid aiding those who really can't afford their homes. Congress joined the rescue effort last week, passing legislation to help borrowers with mortgages up to $417,000 to secure refinancing.

Yet Southern California, an epicenter of foreclosures, poses a particularly tough challenge because of the mix of adjustable-rate loans and high home prices that put many mortgages above the ceiling for government guarantees. The relief efforts so far have been met with skepticism.

The prospect of aid for some borrowers, but not others, brings another layer of discord to neighborhoods already racked by plummeting home values, rising bank repossessions and vacant houses whose owners simply up and left.

Surveying Calle Canon Road, a one-block street with five current or pending foreclosures, homeowner Josefina Navarro says, "It's very frustrating that people are going to be saved, but it's good for them, I suppose." In October, the interest rate on the mortgage she and her husband secured in 2004 rose nearly two percentage points. The Navarros recently refinanced into a 30-year fixed-rate mortgage, but she says they are struggling to make monthly payments that are $400 higher than those under their original loan.

Microcosm of Devastation

The bedroom community of Corona is a microcosm of the looming devastation for homeowners in California's so-called Inland Empire, the vast Riverside and San Bernardino counties east of Los Angeles. Nationwide, California is among the leaders in foreclosure filings this year. It notched state-record highs for default notices and homes lost to lenders in the June-to-September quarter, according to DataQuick Information Systems, a La Jolla, Calif., real-estate research firm.
The state's highest number of foreclosures is in the Inland Empire, a region of 4.1 million people. The area might seem ripe for the mortgage-rescue plan, which would freeze interest rates for certain borrowers who have kept current on their loan payments but can't afford scheduled interest-rate increases over the next two years. The Inland Empire was a builder's delight in recent years as middle-class families increasingly were priced out of Los Angeles and Orange County. Giants such as Lennar Corp., KB Home and Beazer Homes USA Inc. uprooted citrus groves and paved over dairy farms to blanket the area with tract housing and upscale developments.

Incentives and adjustable-rate mortgages got first-timers into homes without any down payment and enabled refinancing. Many who refinanced drained their equity, betting that home values would keep soaring. Now tens of thousands of homeowners are exposed to unaffordable interest rates and a sluggish resale market.

Corona lawyer Nathan Fransen says he has nearly 100 clients trying to avoid foreclosure but none appear eligible for the rescue package. "The government has misread California. Most foreclosures here are on loans that haven't adjusted, meaning that people can't afford what they have now," says Mr. Fransen. He lives in a gated community where he says dozens of million-dollar homes face foreclosure. "The plan won't help much here, and the problem is going to get worse."

A Surge in Business

Locksmith Henry Almendarez, changing the lock one recent morning on a mobile home whose indebted owners had fled, says he expects a surge in eviction business once mortgages reset to higher rates. Shawnie Card, a Riverside County Sheriff's Department corporal presiding over this mobile-home lockout near Corona, says her department is mulling adding a fourth deputy to the eviction beat because of foreclosures. She isn't looking forward to the work. She recalls a heartbreaking eviction before Christmas a few years ago. "The family's little boy asked me: 'How is Santa going to find us?' " Ms. Card says.

The Inland Empire has suffered housing busts before. In the early 1990s, a recession triggered widespread foreclosures that turned 40% of San Bernardino city's housing stock into rental units. The question today is whether the subprime crisis here will spark a broader recession.

The Inland Empire has emerged as a hub of industry, warehousing and services and it has surpassed San Diego county in jobs. In Corona -- which grew rapidly in recent years to 145,000 residents -- and in surrounding areas, new shopping centers are opening, office buildings are rising and housing projects that were in the pipeline before the subprime crisis are being built.

Still, local governments expect lower growth in tax revenue because of the mortgage bust, and economist John Husing predicts the number of area jobs could decline next year as expansion slows. Mr. Husing is an authority on the Inland Empire, a term coined in the 1950s as the region evolved from an agriculture belt to a suburban sprawl of 48 cities, interlacing highways and grueling commutes. "My sense is that the [rescue] plan won't help," Mr. Husing says. "A lot of people made dumb decisions."

On Calle Canon Road, residents say they were drawn to the street by the two-story, 4,000-square-foot homes, built on some of the biggest lots in the area. Developer William Lyon Homes Inc. was selling stucco-and-stone-faced models in 2004, starting at around $500,000. Other than the high-tension power lines overhead, the mountainside setting is idyllic. The nearby highway to San Diego is hidden from view, and Calle Canon Road rises to a park with a baseball field bounded by an orange grove, a playground and grass-grazing wild rabbits.

Today, four of the 11 properties on one side of Calle Canon Road are abandoned, and some sport big foreclosure-auction notices. At least three foreclosed homes were originally bought by investors who never lived in them, and one was never occupied. A "Bank Owned" for-sale sign is visible at a house on a cross street. Of the scores of houses for sale in the area, about half are in default or foreclosure, real-estate agents say.

Jim Saffold traded up to this groomed hillside neighborhood from a nearby subdivision in 2004. He bought a house from a speculator and refinanced through his wife's hairdresser-turned-mortgage-broker. The new loan brought him current on various debts, but saddled him with unsustainable monthly payments that he hoped to reduce through another refinancing. But falling home values nixed that plan.

Now, more than $16,000 behind in mortgage payments and expecting a notice of default any day, the retired public-school-district employee has put the house up for sale. The asking price is $599,000, which is less than he owes on the mortgage. He can't qualify for the government-backed plan because he hasn't paid since August.

"It's not that we don't want to pay. It's that we can't pay," Mr. Saffold says. "I've kicked myself so many times."

Selene Lefranc was the first resident of Calle Canon Road, moving there in 2004. Today she has mixed feelings about the rescue plan. "It will help me in my job," says the mortgage-loan officer, whose husband is a Los Angeles policeman. "But it's unfair to responsible homeowners like us."
She says speculators hurt the neighborhood. But she says some neighbors refinanced at 100% of their home's value at the market peak and now face expensive interest-rate resets.

Her home is adorned with elaborate Christmas decorations. But dark houses sandwiching hers, and other vacant residences nearby, indicate some homeowners aren't waiting around for aid. In recent months, moving trucks have pulled up unexpectedly to homes on Calle Canon Road and neighbors have vanished.

"It's a sad situation. My kids keep asking me: Why is everyone moving out?" says Kevin Peterkin, who lives near one of the vacant homes. "They're wondering if we're going to move, too."

He initially thought nothing of it when the people living two houses away recently loaded motorcycles and other belongings into a truck. "I figured they were putting things in storage," he recalls. "Then all of a sudden, they were gone. They didn't say anything."

The case of Karenn and Steve Oropeza from down the street shows how Inland Empire buyers complicated their lives by overextending themselves.

'The New Orange County'

The Oropezas arrived at Calle Canon Road in 2004. Corona appealed to them because of its quality of life and regional cachet. "It was labeled as the new Orange County," Mrs. Oropeza says. Public records show they paid $557,000 for a four-bedroom house and took out a $500,000 mortgage. Her husband is an area manager for an auto-parts retailer and she is a purchasing manager for a firm that sells dietary supplements.

As property values skyrocketed, they refinanced three times, most recently in late 2006, for $835,000, Mr. Oropeza says.

The couple say they used some of the money they pulled out of the house for home improvement, such as a backyard waterfall. But Mr. Oropeza says the bulk was used to pay off credit-card arrears. "We were in a vicious cycle of refinancing our home to get out of debt," he says. "We banked on selling the house, but that's where we failed."

The couple listed the house several times, even before the final refinancing, which raised their monthly payments to about $6,300. Earlier this year, they were asking $839,000 for the house. But it just sat. Elsie Cambone, the Coldwell Banker agent who had the listing, says prospective buyers were put off by the vacant home next door.

Meanwhile, Mr. Oropeza expected to be transferred to Texas, so the couple began house hunting there in 2006. In June, they bought a 3,600-square-foot home for $283,000 in the Houston suburb of Katy, Mrs. Oropeza says. "It was easy. We had good credit. The deal was done in seven days."
In the run-up to their move, she says, the couple lived off credit cards to "make sure we had cash for the house payments" in Corona. They packed up in June, and then took their 9-year-old son and 2-year-old daughter on a long-planned Caribbean vacation. They returned to Calle Canon Road, "got in our cars and drove to Texas," Mrs. Oropeza says.

Neighbors Ms. Lefranc and Mr. Saffold are dismayed over the Oropezas' departure and note that shortly before leaving, the couple bought a new Lexus. "I think they took money out of their house and split," Ms. Lefranc says.

Mrs. Oropeza says that she and her husband recently bought a Lexus and a Chevrolet Suburban with no money down. She denies that the family intended to abandon the house. The choice was straightforward, she says: "It was easier to keep the house in Texas than the one in California."

Countdown to Foreclosure

The couple stopped making their Corona mortgage payments in June, triggering a notice of default 90 days later and starting the countdown to foreclosure. The family is now living in Texas. But Mr. Oropeza says he no longer expects a transfer, so every other week, sometimes more often, he says he flies west to make his usual rounds of retail locations in the Inland Empire. Mrs. Oropeza says she travels to Orange County every three weeks for her job.

"We're sad because there goes our credit, and because people think we are a bunch of flakes who walked away from the house and tried to make money," Mrs. Oropeza says. The property's for-sale listing has expired. "We have zero expectation that we can sell this house," she says. After the government-brokered mortgage plan was announced, Mr. Oropeza says he called the toll-free helpline and left a message, though he doubts he will qualify to get his Corona house back.

Next door is a vacant house. Pete Nyiri, the real-estate broker who handled that property before it went to auction, says he's been amassing bank-owned listings like never before. His Top Producers Realty business in Corona represents some 150 properties and works exclusively on foreclosures, giving his corporate motto an ironic ring: "Selling the American Dream since 1969."

Mr. Nyiri sends out four drivers daily to monitor properties, offer cash to coax people out of their homes and accompany sheriff's deputies on lockouts. Reflecting on his bountiful business, Mr. Nyiri says, "We'd like to see this end, to be honest. We're being worked to death."

A small glimmer of progress emerged on Calle Canon Road one recent afternoon. At a vacant home flanking Ms. Lefranc's, the front door -- normally sealed with a lockbox -- was open. Inside, Chris Jensen, an appraiser, was taking stock for a woman who bid on the house at an October foreclosure auction.

The hints of new life in the neighborhood -- and the prospect of a government-backed mortgage lifeline -- clash with warning signs. To the south, unfinished developments aggressively market new homes. Shaking her head, Ms. Lefranc sighs, "They keep building houses."