Ground Zero in San Diego’s Mortgage Mess

Monday, Aug. 20, 2007 | On a hushed street in the middle of a neighborhood that didn’t exist a few years ago, foreclosure is a constant neighbor.

Little Lake Street in Chula Vista is one of many spots countywide where next-door neighbors are simultaneously drowning in their mortgages.

But it’s especially bad here: In the last few months, foreclosure has hit 1326 Little Lake Street. And the house across the street: 1327. And next door: 1330. And 1346, and 1401, and 1406, and 1413, and 1425, and 1448. And others.

The street holds 43 cookie-cutter new homes in the Hillsborough neighborhood of Chula Vista’s Otay Ranch. Eager would-be homeowners once waited in line to purchase a place here.

But now, a big wave of trouble has washed over Little Lake Street. Buyers borrowed loans at terms they can no longer — or couldn’t ever — handle. And they overwhelmingly used loans to cover 100 percent of the purchase price.

Other homes on the street that were recently repossessed have been sold at a loss. At least three homeowners have listed their properties for sale at prices tens of thousands of dollars less than they paid.

Welcome to Ground Zero of the county’s mortgage mess.

On this street, where the paint on the brand new homes hasn’t even had a chance to fade, fried brown lawns and tall weeds signal many of the troubled homes. Between two stakes in front of one home, a young tree is dead. Several are locked shut with code boxes for real estate agent access. Without homeowners to pick them up, Realtors’ we-can-help-you fliers and junk mail litter walkways. An abandoned gray sectional couch appears strategically placed over a brown spot in the lawn of a corner lot home in foreclosure.

On a hot August afternoon recently, Little Lake homeowner Keith Vincent glanced grimly down the street where a half-dozen wooden real estate signs stick out of his neighbors’ lawns. He and his wife aren’t in trouble on their mortgage, he said, but the weed of uncertainty on the street grows taller daily. He used to count the signs, he said, but he’s lost track.

“The signs and the burnt-out lawns tell you who’s going,” Vincent said. “It’s not easy to swallow.”

As foreclosures skyrocket throughout the county and recent mortgage sector trouble makes getting a loan infinitely more difficult, the county’s housing market is making a turn for the worse. Many homeowners can’t sell or refinance for as much as they owe on their houses.

Chula Vista has four of the top 10 ZIPs in the county in a list of the raw number of houses affected by foreclosures in the first half of the year, according to RealtyTrac and DataQuick Information Systems. A deluge of new homes swept through the eastern part of Chula Vista during the real estate boom, increasing its housing stock by several thousand in the last few years.

Some phases, like the one holding Little Lake Street, were finished quite near the peak of the market. Buyers who used 100 percent financing now owe more than their house can sell for, perhaps as much as $100,000 more.

The homes that have sold since 2005 on the resale market — either by the first owners or by lenders — sold for an average of $336 per square foot. But the homes that are currently for sale are listed for an average of $285 per square foot, and have been sitting unsold for an average of 73 days. And throughout the new developments, builders stuck with new unsold homes have dropped prices and added incentives, making those new homes more attractive than the ones that have already been lived in.

Though Little Lake Street has it worse than others, the wave of foreclosures leaves nothing but pessimism on the lips of several Realtors in Chula Vista.

“The Chula Vista 91913 is horrible,” said Kristian Peter, a longtime Chula Vista Realtor who sells homes that have been repossessed by banks. “Right now it’s a flood and it’s only getting [worse].”

The trouble’s not contained there. In a county brimming with homeowners in trouble, there are more streets like Vincent’s. In the first six months of 2006, the ZIP code with the most homes in foreclosure had just 35.

But in the same period this year, foreclosures slammed 92057 in Oceanside, affecting 512 houses near the so-called back gate of Camp Pendleton.

With 512 properties in foreclosure among a housing stock of 16,000-some houses and condos, according to DataQuick Information Systems, the 92057 code has nearly 32 in 1,000 homes in foreclosure, nearly three times the county average.

This county’s foreclosure story — much like that of California and many parts of the country — is much about financing for people who stretched to get into homes at every level of the market. The rapid price increases for homes a few years ago meant that many households were just as rapidly priced out of using traditional mortgages, the kind where borrowers save up a sizable down payment and lock in a low interest rate based on a good credit score.

To stop up the holes in the buyer pool, lenders invented new ways to make loans. They didn’t require verification of income or assets; they didn’t look for down payments. Investors clamored to buy up the loans after they were made, taking the burden of making a risky loan off of the lenders’ shoulders. Loan brokers assured homebuyers that they should just refinance the loan in a couple of years, using newfound equity to get one of those traditional, fixed-rate loans.

But the cycle of easy credit that increased demand for homes also pushed prices up to a peak near the end of 2005. Now a glut of unsold homes on the market pushes desperate sellers to list their homes for prices tens of thousands of dollars off of those peak prices just to compete.

With surrounding homes used to measure a home’s worth, those homeowners counting on refinancing their unconventional loans to fixed rates have found that their homes aren’t worth as much as they were when they bought them. And the trouble has pushed so many lenders out of business that the ones still alive are tightening their belts, raising the bar for qualifying borrowers and pricing even more of them out of the market.

They not only owe more on their house than they can sell or refinance it for, but many have hit the reset period of those unconventional loans, when monthly payments often triple or quadruple. That has pushed many people into foreclosure.

Realtor Marcy Samoiloff said the 92057 neighborhood in Oceanside typically holds some of the lowest-priced homes in the county.

“The people that buy those homes are the ones using 100 percent, no down payment, stated income,” she said. “These are the people who really can’t afford to pay an extra $100 a month.”

After the 92057 ZIP is Barrio Logan, 92113, and Golden Hill, 92102, in San Diego, each with about 140 foreclosures and close to 30 homes per 1,000 affected.

Among the ZIP codes faring the best thus far are Coronado, with less than one house per 1,000 in foreclosure, and parts of high-end North County areas like Carmel Valley, Del Mar, Encinitas, Carlsbad, Solana Beach, La Jolla and Cardiff by the Sea.

But it’s plain that foreclosure trouble is gaining ground in those neighborhoods — 63 homes in La Jolla, 54 in Carmel Valley, 48 in Encinitas in the first half of this year compared to the 7, 10 and 16 homes in such straits, respectively, in the same period of 2006.

The most recent trouble in the finance sector that has tightened standards even for good-credit borrowers with sizable down payments shovels more gloom on the region’s housing market.

Peter, the bank-owned home specialist, predicted two to three years of price declines and five to 10 years before prices start to appreciate again in the region.

“I think what we’re hearing from federal economists is that we’re hitting the bottom,” Peter said. “But it could be 2019 before we see another peak.”

And with tightened credit and all the uncertainty, Peter said it’s no wonder there aren’t more buyers able to absorb some of the unsold home inventory. And there’s not much to stop the neighborhood’s property values from declining past the point they’re at currently, he said.

“People’s eyes start to glaze over when they see ‘foreclosure,’” he said. “But there’s no such thing as a good buy right now in San Diego.”

Vincent, the homeowner on Little Lake Street, says he tries to be optimistic. He thinks he and his wife will be able to hang onto their home until the foreclosure wave subsides.

But more new homes are on the way, with construction workers and cranes still scattered throughout Eastlake and Otay Ranch, Vincent fears his home could lose much more value in the coming months and years.

“Who knows, ’cause they’re building as far as the eye can see,” he said.

Please contact Kelly Bennett directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.