A Mortgage Hole Too Deep
Overextended capital-area families see their dreams dashed, finances battered.
Christina Cavaness didn’t know how to explain the bad news to her 8-year-old son, so she kept it simple.
“The payment is a little bit much for us to handle right now and we are going to have to move,” the Orangevale mom recalls telling James late last year, before the family gave up the three-bedroom, two-bathroom house they had owned since 2001 to move into a rental.
“A little bit much” was putting it mildly. Due largely to an adjustable-rate mortgage, the Cavanesses’ house payments had grown $200 a month, to $2,300 including taxes and homeowner’s insurance — about 60 percent of their $3,800 monthly gross income. Ultimately they defaulted on their loan and last week their home went up for public auction.
That kind of overextension lies beneath an ever-larger portion of the region’s foreclosures.
In the Sacramento region last year, about one of every six homeowners spent more than half his or her gross income on housing, according to a Bee analysis of new census data. That’s 30 percent higher than the 2005 rate, and almost double the 2000 rate.
Spending 50 cents or more of every dollar — before taxes — on housing will push a family to the limit, financial experts say. And, these days, some families are folding, their homes going to the bank.
“You have to have money available to pay for taxes, car payments, food, utilities,” said Martha Lucey, president of ByDesign Financial Solutions, a statewide loan counseling nonprofit with offices in Sacramento. “It puts you in a very risky position.”
Lucey recommends that families not spend more than 30 percent of their gross income on housing; 38 percent is her absolute maximum.
Census numbers showing a growing number of local residents not following that advice mean the current foreclosure crisis has the potential to persist.
Last year, about 67,000 Sacramento metro homeowners were in the danger zone: spending more than half their income on mortgage payments, property taxes and property insurance, census figures show.
From January 2005 to July 2006, lenders issued 18,000 default notices in the region, according to housing research firm DataQuick. That leaves at least another 49,000 households treading water — or worse.
Adjustable-rate mortgages explain much of the upward trend. With enticing introductory rates well below those of traditional loans, many adjustable-rate loans are now resetting and new interest rates of 7, 8 or even 9 percent are common.
“I feel like someone said, ‘Here’s a shovel. Dig yourself a hole,’ ” Christina Cavaness said.
Those shovels were handed out liberally to families already struggling to get by and hoping to cash in on the booming housing market. Of the homeowners spending more than half of their income on housing last year, about 80 percent earned less than the median household income — about $57,000 — for the region, census figures show.
The heavily mortgaged families also were more likely to include people who are foreign-born, single mothers and minorities, and those families were more likely to have bought their home recently.
As a minority and immigrant, Cambodian-born Sokho Khlok fits into a couple of those categories. She ran a doughnut shop and owned her own home until both she and her boyfriend Saly Min got sick last year.
When Khlok had a stroke and Min developed gout, the couple had to give up their south Sacramento doughnut business. They refinanced, but still missed some loan payments. The penalties started stacking up.
By then, Khlok and Min were grossing about $2,200 a month, mostly from federal aid, including disability. That would have kept things tight even had their mortgage remained at its old level of $950. But after several months of missed payments, Countrywide Financial sent them a letter saying that, for a year, they would need to pay $3,307 a month to keep their home — about 50 percent more than their total monthly income.
Countrywide did not return a phone message left by The Bee. In the past, the company has declined to comment on its clients.