The Snow Balling Effect of Foreclosures

March 23rd, 2009

Foreclosures have a snowballing effect with one thing leading to another with disastrous consequences. In Mountain House lying 60 miles east of San Francisco the foreclosure crisis is grim with 90% of the mortgaged houses being underwater. Jason Heinemann had started his store in 2006. Today business is down by 50% with people not having the money to buy stuff. He had to lay off one employee adding to the unemployment problem of San Joaquin County where the rate of jobless has crossed 10%. He is no longer advertising in the local journals and fancy magazines. With the shop suffering he is tightening his own spending habits and gearing up for a pale Christmas at home.

Underwater mortgages are known as negative equity. After carefully collecting data FirstAmerican has placed Mountain House as ranking first in the country for negative equity mortgages. Here there are 1,856 mortgages and of these 90% are underwater. Only 209 house owners with mortgages have loans that are less then the value of the house.

The first houses made their debut in Mountain House in 2003 – it was the time when the housing boom was making its presence felt. Being near to San Francisco many opted for commuting the distance by living in their own houses. Jerry Martinez and his wife Marcie are one of the families struggling to ward off foreclosure. They bought their house in 2005 for $630,000. But today its value is only $420,000. To Jerry the situation seems unbelievable and absurd. They took an interest only loan which seemed attractive at that time but in due time these became complex and cumbersome. Afraid of the future they stay put in their house playing board games and watching rented movies. No – they do not play Monopoly as it reminds them of the reality knocking at their front door.

The circle is viscous as the economy falters Millions are not spending and this has affected his career of remodeling houses. His job as a contractor too is affected with work on commercial properties coming to a halt. Martinez has made up his mind that if the middle of next year the foreclosure crisis does not slow down he and his family will just walk away from the bad loan and the house. Many in Mountain House have already started packing to go without hanging on for few more months. There are no signs of improvement in the horizon.