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California Inland Empire Still in Housing Tailspin
By NATHANIEL POPPER
RIVERSIDE, Calif. — The one-story home that Scott and Summer Gieser just moved into is a far cry from the new two-story, four-bedroom house they owned before the great mortgage collapse.
Their sprawling house had termites and water damage when they bought it, but they counted themselves lucky. Given what has happened over the last five years, since the demise of the investment bank Lehman Brothers, it is a near miracle that the Giesers have a home at all. At times, they did not.
The couple personify the story of this region of desert scrub an hour east of Los Angeles, known as the Inland Empire. It is the tale of a soaring housing market, a hurtling crash and a recovery that has greatly lagged the rest of the country.
In several parts of California, Florida, Arizona and Nevada, real estate markets were built up with infusions of credit from Lehman and other Wall Street firms. The banks financed the construction of sprawling developments of tract homes, purchased the subprime mortgages that homeowners took out when they moved in and packaged them into bonds that were sold to investors.
The Inland Empire was the burning core of this speculative fever because of the availability of cheap land between Los Angeles and San Diego. In no other region of the country did subprime loans account for a bigger proportion of the overall mortgage market, according to a Federal Reserve study.
By the time he was 28, Mr. Gieser had become a force as a mortgage broker. He had billboards in downtown Riverside with his grinning face, advertising “Loans by Scott.” His own home was financed with an interest-only subprime loan.
But then, in a devastating feedback loop, real estate prices slowed and banks stopped lending, decimating Lehman’s investments and forcing it to declare bankruptcy five years ago on Sunday. That event was a moment of truth not just for the finance industry but also for millions of homeowners across the country. Just a few weeks after the filing in New York, the Giesers decided that they could no longer make their monthly mortgage payment.
Mr. Gieser experienced the collapse from both sides, as a real estate professional who lost his business and a homeowner who lost his house. For a while, he was driving between local parking lots, washing cars for $20 each.
Stories like Mr. Gieser’s are everywhere. Over the last five years, 220,000 Inland Empire homes have been seized by banks and sold out of foreclosure, according to Lender Processing Services. That is one foreclosure for every four mortgages — twice the rate for California as a whole.
In the labor market, three of the biggest sources of economic growth before the crisis — real estate, government and manufacturing — have all been in a tailspin. The construction industry has lost 68,000 jobs over the last five years, about the same amount that it gained in the decade before the collapse.
Mr. Gieser’s parents moved here from Los Angeles when he was a child; his mother became a real estate agent late in life. Mr. Gieser wanted to get into real estate almost as soon as he earned his G.E.D. and found work with a small company selling mortgages.
In the years after he started, banks were willing to offer loans to almost anyone who asked. The proceeds paid for a lavish life for Mr. Gieser and his wife, with weekend trips to San Diego and a Lexus in the driveway.
“Scott was making so much — I didn’t foresee him ever slowing down,” said Mrs. Gieser. “We didn’t foresee the market doing what it did.”
In 2007, the easy credit allowed the couple to buy a new two-story stucco home on Silver Dust Trail in Hemet, one of the many small towns where a Lehman-financed company, SunCal, turned empty desert into endless cul-de-sacs of tract homes. The Giesers’ home was paid for with a loan from the subprime division of the infamous lender Countrywide Financial, which did not require the couple to make a down payment or show proof of their income.
Signs of trouble began piling up even before the Giesers moved in.
The Giesers went through their savings and tried to modify their mortgage three times. They were eventually forced to move out the day after Christmas in 2009, filing for bankruptcy. In the filing, Mr. Gieser listed his income in the first half of 2009 as $1,400.
Home prices in the Inland Empire fell 53 percent from the peak in 2006 to the trough in 2009. When the government-backed lender Fannie Mae sold the Giesers’ house again in 2010, it went for exactly half of the $320,000 they paid three years earlier.
Mr. Gieser and his wife first moved back in with his parents, sharing his childhood bedroom with their newborn son. They were kept afloat by Summer Gieser’s job doing background employment checks.
The Giesers counted down to the anniversary of their own bankruptcy last December, when they could borrow again. They immediately put in a bid for a home on a leafy street in Riverside that had been built in the 1950s.
When the deal finally went through in July, the Giesers paid with a fixed 30-year mortgage from the Federal Housing Administration.
The night of the closing, they sat in the empty living room.
Their sprawling house had termites and water damage when they bought it, but they counted themselves lucky. Given what has happened over the last five years, since the demise of the investment bank Lehman Brothers, it is a near miracle that the Giesers have a home at all. At times, they did not.
The couple personify the story of this region of desert scrub an hour east of Los Angeles, known as the Inland Empire. It is the tale of a soaring housing market, a hurtling crash and a recovery that has greatly lagged the rest of the country.
In several parts of California, Florida, Arizona and Nevada, real estate markets were built up with infusions of credit from Lehman and other Wall Street firms. The banks financed the construction of sprawling developments of tract homes, purchased the subprime mortgages that homeowners took out when they moved in and packaged them into bonds that were sold to investors.
The Inland Empire was the burning core of this speculative fever because of the availability of cheap land between Los Angeles and San Diego. In no other region of the country did subprime loans account for a bigger proportion of the overall mortgage market, according to a Federal Reserve study.
By the time he was 28, Mr. Gieser had become a force as a mortgage broker. He had billboards in downtown Riverside with his grinning face, advertising “Loans by Scott.” His own home was financed with an interest-only subprime loan.
But then, in a devastating feedback loop, real estate prices slowed and banks stopped lending, decimating Lehman’s investments and forcing it to declare bankruptcy five years ago on Sunday. That event was a moment of truth not just for the finance industry but also for millions of homeowners across the country. Just a few weeks after the filing in New York, the Giesers decided that they could no longer make their monthly mortgage payment.
Mr. Gieser experienced the collapse from both sides, as a real estate professional who lost his business and a homeowner who lost his house. For a while, he was driving between local parking lots, washing cars for $20 each.
Stories like Mr. Gieser’s are everywhere. Over the last five years, 220,000 Inland Empire homes have been seized by banks and sold out of foreclosure, according to Lender Processing Services. That is one foreclosure for every four mortgages — twice the rate for California as a whole.
In the labor market, three of the biggest sources of economic growth before the crisis — real estate, government and manufacturing — have all been in a tailspin. The construction industry has lost 68,000 jobs over the last five years, about the same amount that it gained in the decade before the collapse.
Mr. Gieser’s parents moved here from Los Angeles when he was a child; his mother became a real estate agent late in life. Mr. Gieser wanted to get into real estate almost as soon as he earned his G.E.D. and found work with a small company selling mortgages.
In the years after he started, banks were willing to offer loans to almost anyone who asked. The proceeds paid for a lavish life for Mr. Gieser and his wife, with weekend trips to San Diego and a Lexus in the driveway.
“Scott was making so much — I didn’t foresee him ever slowing down,” said Mrs. Gieser. “We didn’t foresee the market doing what it did.”
In 2007, the easy credit allowed the couple to buy a new two-story stucco home on Silver Dust Trail in Hemet, one of the many small towns where a Lehman-financed company, SunCal, turned empty desert into endless cul-de-sacs of tract homes. The Giesers’ home was paid for with a loan from the subprime division of the infamous lender Countrywide Financial, which did not require the couple to make a down payment or show proof of their income.
Signs of trouble began piling up even before the Giesers moved in.
The Giesers went through their savings and tried to modify their mortgage three times. They were eventually forced to move out the day after Christmas in 2009, filing for bankruptcy. In the filing, Mr. Gieser listed his income in the first half of 2009 as $1,400.
Home prices in the Inland Empire fell 53 percent from the peak in 2006 to the trough in 2009. When the government-backed lender Fannie Mae sold the Giesers’ house again in 2010, it went for exactly half of the $320,000 they paid three years earlier.
Mr. Gieser and his wife first moved back in with his parents, sharing his childhood bedroom with their newborn son. They were kept afloat by Summer Gieser’s job doing background employment checks.
The Giesers counted down to the anniversary of their own bankruptcy last December, when they could borrow again. They immediately put in a bid for a home on a leafy street in Riverside that had been built in the 1950s.
When the deal finally went through in July, the Giesers paid with a fixed 30-year mortgage from the Federal Housing Administration.
The night of the closing, they sat in the empty living room.
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