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When the landlord defaults

Foreclosures force some of the poorest renters out of homes.

August 26, 2008|William Heisel | Times Staff Writer

Ruth Cordoba has never owned a home, but she is feeling the effects of the mortgage meltdown acutely.

Cordoba, 28, rented a three-bedroom home in Riverside for six months with the help of so-called Section 8 funds, money provided by the federal government through local housing agencies. In June, when her landlord could no longer make the mortgage payments on the house Cordoba was renting, she and her three children had to move to a hotel.

"I never missed a rent payment," Cordoba said. "Then I hear someone outside one morning, and I go outside and see a sign on my door that says they're auctioning the house."

The collapse of home mortgage lending, which according to U.S. Housing Secretary Steve Preston may lead to 2.5 million foreclosure filings nationwide this year, sent shock waves up the income strata -- from home buyers who took out subprime loans they couldn't pay, through banks that couldn't cover their losses on those loans, and onto high-end investors who had bought the banks' bad loans.

Now the mortgage crisis is radiating downward and cracking the already fragile finances of people like Cordoba. There are more than 300,000 households getting Section 8 assistance in California, and their median income is $14,428, according to the Department of Housing and Urban Development.

State and federal officials are unable to say how many Section 8 renters have been affected by the wave of foreclosures sweeping the country, but local housing authorities say the number is significant -- and growing.

Sacramento County had fewer than a dozen people seeking new Section 8 homes in June because of foreclosures. In July, the number was 100.

In Riverside County, more than 70 renters who receive Section 8 funds have asked for new homes because of the foreclosure crisis since the beginning of the year, and officials expect the number to grow.

"It's been a huge increase because of these foreclosures," said Heidi Marshall, director of the Riverside County Housing Authority. "And families who are very low income feel the costs of having to move even more than other people."

East L.A. Community Corp., a nonprofit that owns and operates affordable housing, recently started going door-to-door to homes that were going into foreclosure, intending to help owners regain their footing. Instead, they found that most of the homes were occupied by renters, some with Section 8 vouchers, said Maria Cabildo, the group's president.

"I don't think we've seen the worst of it," Cabildo said. "The research shows that there are going to be more waves of these mortgages resetting, and people won't be able to make the payments. That's going to be devastating for these renters who have been in their homes in some cases for 10 or 15 years."

Although new foreclosures statewide decreased in July, experts anticipate a steady stream of homes being taken over by banks well into 2009 because of the large population of people with teaser-rate loans that will reset, increasing homeowners' mortgage obligations beyond their ability to pay.

Diane Barragan, a Los Angeles tax preparer, bought more real estate than she could afford in the early part of the decade. By 2006, she owned four homes and a vacant commercial lot and was renting out two of the homes. She assumed home prices would keep going up, and she took out risky loans that had low payments for a few years but were scheduled to reset at a higher amount. She thought that if she had trouble making her payments, she would be able to refinance at a lower rate.

But when her loans started resetting, the payments outstripped her income. By 2007, she was facing foreclosure on two of her properties. One of them was a Section 8 rental in Moreno Valley that at one point had been owned by HUD. She paid $339,000. By the time it went into foreclosure, it was worth $207,000, according to Riverside County Assessor records, less than her loan.

"I had spent a lot of money on that house, put in a new dishwasher, upgraded the plumbing," Barragan said. "I ended up losing everything."

She was able to sell the other rental property at a loss. Now she has just one house and her commercial lot. She says those properties are in jeopardy too, because of equity loans she took out to make home improvements.

"I took out so many personal loans from friends just to keep paying my bills that for a while I was just hiding in my house," Barragan said. "I didn't want to answer the phone, didn't want to answer the door."

The man who was renting the house that went into foreclosure, Robert Harris, was another casualty of her poor financial planning, she said.

Harris had rented one house from Barragan for a year with his daughter and two grandchildren. When Barragan decided to sell that house for a profit, he moved to the property that ultimately went into foreclosure. He was in the new place from early 2007 until February. Like Cordoba, he found out from the mortgage company, not his landlord, that he was being kicked out.

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