And, apparently, there's no point in seeking help from Washington. Early in the 20th century, the Great Depression inflicted enough suffering and stirred up enough of a public outcry that legislation was passed to create a whole string of financial consumer-protection agencies: the Federal Deposit Insurance Corporation to protect individual savings; the Securities and Exchange Commission to regulate investments; the Federal Housing Administration to insure mortgages and home loans. Today, we can't even get to a bipartisan report on what created the financial collapse, much less the political will to mitigate against a repeat performance.
That no one has been listening, that there is no workable government program to turn to for relief, and that the banks continue to deny permanent loan modifications even after receiving taxpayer bailouts for that very purpose, has frustrated and angered many. The Home Affordable Modification Program (HAMP)—the "socialist" program that set CNBC's Rick Santelli off on the tear that launched the tea party—was very unpopular among those I talked to in the Central Valley, but for reasons far different than Santelli's. HAMP was supposed to help between three and four million Americans stay in their homes. The program received $75 billion aimed specifically at incentivizing mortgage companies to lower payments and renegotiate rates for at-risk homeowners. Yet according to the Treasury Department, less than one-third of all temporary modifications through HAMP are made permanent.
Last summer, Sarah Palin passed through the Central Valley to speak at a private fund-raising event at the state university in Turlock. In opening remarks, she gave a shout out to family farmers, many of whom have been slammed by the decline in the price of Stanislaus County's number-one commodity, milk, saying: "I have great respect for you [and the] business that you want to pass on, generation to generation." In a 35-minute speech, Palin said "liberty" 18 times and "freedom" 17 times, with nearly as copious references to "threats" to both. But in a county where 1 out of every 99 homeowners has received a foreclosure notice, (the national average is 1 in 492 ), she offered not a peep about the quotidian threats of a mortgage collapse.
In the months I traveled through California's Central Valley, it was nearly impossible to meet anyone who hadn't been affected by the foreclosure crisis. One morning I spoke with a HUD-certified mortgage counselor about her clients. She volunteered that her own house in the agricultural town of Visalia was underwater because so many neighbors had been foreclosed and the value of her property had plummeted. She had no plans to walk away from her mortgage, she said. But she understood why many were making a rational economic decision to do just that.
At Wool Growers, a Basque restaurant in Bakersfield that’s been serving pork dip and pink beans in massive family-style helpings for a half-century, our waitress said she was having trouble keeping up with her ARM. Her best friend had just lost her home. Others had gotten caught up in the romance of refinance, using the equity in their home as an ATM. "People actually came to our neighborhood and went door to door asking if folks wanted to fix up their house," Fresno-area resident Sandra Crump told me. "Everybody jumped on it. Our neighbor down the street lost his house. The people behind us lost their house." Once hailed as engines of a booming economy, the aspirants to the ownership society now struggled simply to keep a roof over their head.
Here are some of their stories.
Steve Rath, City Manager, Los Banos, California (population 35,000)
Los Banos was a small agricultural town that ballooned when residents of nearby San Jose and the South Bay discovered affordable homes there. "Of course, you know the story. These people were drawn into adjustable rate mortgages and low-interest teaser loans. When the mortgages started to adjust upward, they couldn't pay," said City Manager Steve Rath. High-end new homes were the first to default. "I think it's safe to say that by 2012 at least half of the homes in Los Banos will have gone through foreclosure. Our tax revenues have gone down 90 percent."
California's property tax initiative, Proposition 13, guarantees a slow recovery. "Homes that once sold for $400,000—and we would get property tax on $400,000—now sell for $150,000, and the tax base locks in at that level. Even if the economy turns around and in two years that home is back up to $400,000, Prop 13 ensures that property taxes can only increase by a maximum of 2 percent a year." Today, lush medians that developers keep manicured by city ordinance lead to subdivisions with paved streets but no homes—just tumbleweeds and rusting cable. "I think it will be 10 to 12 years before Los Banos even begins to approach where it was before this crash. We have 2,500 lots on the ground ready for development and they're not going to be built for years. Even in good times."