On January 20th, John Marshall* joined the ranks of US homeowners who have foreclosed on their homes. The thirty-year old African-American is struggling to make sense of his surreal situation.
In December 2005, he and his Latina wife Blanca* bought a house in Tolleson, Arizona, a small town on the outskirts of Phoenix. At the time, it was a dream come true: a modest but comfortable home in a new development, located close to their jobs.
When I visited the family three years ago, their faces radiated pride and anticipation. They felt they had achieved the American Dream, and were confident in their ability to provide for their two young children.
By all accounts, their expectations were reasonable. Both have college degrees; John a Masters as well. Climbing government and non-profit career ladders quickly, they fulfilled their minority parents' hopes and expectations. Hard-work and responsibility are their mantra.
As he puts his keys in the mailbox, John is in a state of disbelief that their dream turned into a nightmare.
Tolleson: Epicenter of the National Mortgage Bubble
Purchased for $245,000 three years ago, their house is now worth $60,000-$90,000. Some houses in his neighborhood are on the market for even less. Worse yet, many have simply been abandoned.
According to the Arizona Republic, the Phoenix metropolitan area has among the highest foreclosure rates in the country, with about 35,000 homes foreclosed in 2008. At the end of January 2009, a record 52,000 homes were for sale, says local Remax Realtor Michae Cazallucci.
Yet Tolleson has fared even worse. The town has the highest foreclosure rate in Maricopa County (which includes the entire metro area). In 2008, the foreclosure rate increased over 600%, with 300% more foreclosure notices handed out compared to 2007. On some blocks, foreclosure has affected over 30% of homes.
"There are 519 active listings for Tolleson, and for a small town, that's a really high number," observes Cazallucci.
John and Blanca should have never needed to foreclose on their home. They bought when the market was high, but they lived within their means. They budgeted for the mortgage payment, and were not facing any kind of financial difficulty.
Their problem was not their own ability to keep their home, but everyone else's.
Many homebuyers between 2002 and 2006 purchased their homes using adjustable or variable-rate mortgages, which offered very low monthly payments in the short-term. In many instances, these homeowners had only interest to pay for the first several years.
"We had a lot of first-time homebuyers purchasing homes with no down-payment, and using loan programs that have since closed," says Cazallucci. She notes that "many of today's renters have higher credit scores than home buyers did a few years ago."
Such buyers wagered that, by the time the rates ballooned in a few years, they would have either substantially increased their own incomes or would have sold the house for a handsome profit. An electric charge permeated the air, contributing to a feeling of invincibility. So distorted was the climate that anyone not participating in the gamble was regarded as a fool.
Real estate agents and property investors flocked to the Valley, eager to capitalize on the boom. "In Tolleson, investors were buying ten to fifteen homes at a time, planning to flip them or rent them out," Cazallucci recalls.
In the Phoenix area, those most tempted by such mortgages tended to buy new homes on the extreme periphery of the city, in former farming communities such as Tolleson. Cavallucci sees a direct correlation between the growth and the subsequent crash.
"We could all see it coming. The average home price was up about 30-35%, but wages were only up 2-3%," she recalls, noting that today, home prices have returned to more affordable 2002-2003 levels. "Any area that saw massive building in this period, that was booming then, is seeing a significant decline now. And Tolleson was really flooded by development, especially in 2005."
A Neighborhood Turned Ghost Town
As more of their neighbors vacated their properties, John and Blanca witnessed their new neighborhood rapidly spiral downward. Front yards succumbed to dead plants and weeds; backyard pools became "green" with algae and the block took on an ominous feel of neglect.
"Vandalism has become a real problem, especially the theft of air conditioning units, pool filters and copper wiring from abandoned houses. Graffiti is also a problem. Neighbors who remain have to be extra-vigilant to report these crimes," adds Cazallucci.
Normally, the Home-Owner's Association would serve as a last-resort to keep property-owners in line. Yet John's HOA essentially went bankrupt, unable to collect its dues. The few remaining residents could not maintain all of the vacant properties without any funds or manpower. The fabric of the community was essentially destroyed.
Even so, the Marshall family felt bound by a sense of responsibility to stay in their home. That all changed with a series of violent incidences.
One afternoon last summer, John and his son were walking to the park when they came upon an ice cream truck. As they approached, John found himself face-to-face with a snarling pit bull on the street.
"The driver motioned for us to hop into his truck. I don't know what we would have done if he hadn't been there," John recalls, adding that it was difficult to explain to his son why they could not return to the park.
"The roaming pets are a huge problem. When people lost their homes, they just let their pets loose on the street, abandoning them because they couldn't afford them or because the apartments they were moving to wouldn't accept them." Since the incident, John repeatedly came across pit bulls and other potentially vicious breeds as he drove to work.
Soon thereafter, John awoke one night to the sound of gunshots. Discussing the episode with his neighbor across the street later that day, he learned the disturbing details.
His neighbor told him that there had been a home invasion at his house shortly before dawn. The neighbor defended himself, firing a dozen rounds at the intruder. While several bullets hit the would-be-criminal, many more flew haphazardly in the direction of John's home. John and Blanca were terrified, realizing how close their sleeping children had come to being hit by a stray bullet. Since that incident, the sound of midnight gunfire has become a semi-regular occurrence.
The couple decided to move to a nearby suburb for their children's safety, financing the purchase with the remainder of a VA loan. While this meant paying for two mortgages each month, the Marshalls could see no other way to keep their children safe while meeting their obligations on their first loan. They even considered renting the first home at a loss.
John and his family were just settling into their new home near the end of December when a horrific act of violence shook their old neighborhood.
On December 23, 2008, two young boys were murdered while playing in a park near John's home in Tolleson. The two cousins, ages 7 and 10, were visiting from Tucson for the holidays when they were beaten to death by a 36-year old man wielding a baseball bat.
The final blow came on January 20th. John called his bank to discuss his options and was told that he should abandon the house. The bank official, speaking on his personal cell phone to avoid the company recording him, put aside his bank's interest to speak candidly.
"You would be stupid to hang on to the property. In five, six years, the house may be worth $150,000 if you're lucky. Even then, you likely won't be able to sell it - you'll still owe almost $100,000 on the mortgage."
John had intended to keep the house until President Obama could enact helpful legislation, but the banker advised against it. "That's the worst thing you could do. Once the gears start moving again, you'll be stuck with the house with no excuses. There's a very small window of permissiveness right now."
The official added that, in this economic climate, his bank is unlikely to pursue those who have foreclosed on their homes. He urged John to hurry, pointing out that the blemish on his credit record will be minor compared to the financial hit he would take every month on the old house.
And so, another house in the Tolleson neighborhood lies vacant. The Marshalls were forced to participate in the maddening exodus, in order to save their children's future.
"I keep looking back, trying to figure out what I should have done differently," says John.
The terrible reality is that there is nothing they could have done.