Foreclosed properties help new buyers

Low-income households becoming homeowners
By Emmet Pierce
UNION-TRIBUNE STAFF WRITER

November 11, 2007

The mortgage market meltdown and the resulting surge in foreclosed homes offered for sale has created welcome home-buying opportunities for San Diego County’s low-and moderate-income households.
Online: For information on first-time home buyer education programs, go to housingcollaborative.org

“When was the last time we put thousands of affordable housing units on the market?” asked Gabe del Rio of Community HousingWorks. “We are talking about homes you bought for $450,000 last year that now are being sold for about $300,000. . . . It makes a big difference.”

The opening is the first glimmer of hope for families long priced out of the region’s real estate market and is one positive aspect of the credit crunch that began over the summer when adjustable-rate mortgage failures took off.

Although foreclosures remain only a small fraction of the county housing picture, in some neighborhoods foreclosed homes “have become a significant part of the market,” del Rio said. He is vice president of lending and homeownership for Community HousingWorks, a local nonprofit group that provides housing services.

Researcher John Karevoll of DataQuick Information Systems said today’s price declines bring a sign of stability after the doubling in home prices recorded countywide between 2000 and 2005.

The county saw home affordability rates plummet during the first half of the decade as the region’s median home prices ranked among the highest in the nation.
“This is one of the first steps in a market that is starting to rebalance itself,” Karevoll said. “It is a good thing.”

But some housing analysts are concerned that speculators may snap up many of the foreclosed properties and convert them to rentals until home prices rise again. To head that off, City-County Reinvestment Task Force Director Jim Bliesner is exploring the creation of a public-private partnership to form a regional land bank. The bank would buy foreclosed homes to create affordable buying and renting opportunities.

The task force promotes private and public financing of affordable housing and economic development in neighborhoods suffering from a lack of investment.

The best deals for first-time buyers are in low-income areas such as City Heights, Bliesner said. On any given day, hundreds of homes in the county are in various stages of foreclosure, he said. “Everything indicates more properties will be on the market in the affordable range.”

Blas Vazquez, 40, a father of four who works the overnight shift at Ralphs in Carmel Mountain Ranch, bought a foreclosed home in City Heights. For years he and his wife, Maria, and their children, ages 9 to 16, have lived in a small apartment nearby.

“We tried to buy a condo for about a year, but we couldn’t afford it because the price was so high,” said Blas Vazquez, who has a second job as a gardener to make ends meet.

Working with Community HousingWorks and Bank of America loan officer Teresita Davis, the Vazquez family last month purchased a small two-bedroom home on 41st Street for $305,000. A year earlier, the house had been offered for $500,000, Davis said.

The lending package that enabled the family to buy the home was a patchwork of fixed-rate loans, grants for low-income buyers and city redevelopment funds. Although the home is less than 900 square feet, it occupies a large lot that gives the Vazquez children plenty of room to play. There’s also a large covered front porch.

Most of the neighboring homes are modest but well-kept. Blas Vazquez said he eventually wants to enlarge the house.

“This is my first house in America,” said Vazquez, who became a U.S. citizen in 2004. “I have a beautiful family. Now I have everything.”

The glut of foreclosures has also created opportunity for renters, said Robert Adelizzi, a former banker who serves on the reinvestment task force. With home prices in decline, banks are eager to get foreclosures off their books.

Davis said the growing number of low-cost foreclosure homes has changed her approach in working with first-time buyers, broadening their choices.

“Last year all my buyers were in condos,” she said. “This year I have seven in houses.”

Those who buy foreclosed homes should be careful not to fall into the same traps that led the previous owners to default on their loans. That means not borrowing more than they can afford to repay. Home buyers should be able to sleep at night, Davis said.

The key to securing good financing on a foreclosed home is to get preapproved for a loan and to work with counselors designated by the U.S. Department of Housing and Urban Development, del Rio said. For loans of less than $417,000, which are purchased by government-sponsored Freddie Mac and Fannie Mae, interest rates remain near historical lows.

Making foreclosed properties affordable to low-income households usually requires “a multilayered loan transaction,” said del Rio. “We utilize the California Housing Finance Agency’s first-mortgage product along with a variety of down-payment-assistance programs.”

The average buyer that del Rio’s agency works with has an income in the mid-$30,000s, and the average purchase price is $316,000.

Adelizzi said the current market situation may be short-lived, however. There is no guarantee that interest rates will remain favorable, and “we are not going to see these prices again.”

While some will benefit from foreclosures, others unable to pay their mortgages will lose their homes, said Paul Leonard, state director of the Center for Responsible Lending.

“There are winners and losers in this proposition,” he said. “Certainly, to the extent that financing is done in a responsible way, it will put people into homeownership. We don’t know where the market is going.”

In inner-city areas such as City Heights, prices on some foreclosed homes have dropped by as much as 40 percent in recent months, said Marc Carpenter, a real estate agent who specializes in foreclosures.

The jump in foreclosures has affected virtually all county ZIP codes, but the biggest numbers have been in Oceanside, Escondido, certain San Diego neighborhoods and areas in the southern portion of the county, including Chula Vista.

The county ZIP code with the most foreclosures was 91977, the Spring Valley area, with 98, representing an increase of 654 percent over the same period last year, DataQuick reported.

Filings of notices of default – the first legal action in the foreclosure process – show Oceanside ZIP code 92057 leading the county in the third quarter with 228, a 196 percent increase from a year earlier.

Blas and Maria Vazquez recently had a barbecue with friends to celebrate their purchase. Homeownership is part of the better life Blas envisioned when he came to the United States from Mexico in 1980.

In their new location, the couple now worry less about gangs and crime.

“My children, they can play outside,” Vazquez said. “I can do more gardening. I don’t know how to explain. It’s happy. When you have your family and your house, it’s another life.”