I was browsing through the Metro section of the San Francisco Chronicle - the way one does when it's a Bank Holiday and there are no Jeremy Kyle re-runs on ITV2 - when I came across an article with the catchy title "Foreclosure Prevention Fair Big Draw in Merced". I think it says something quite profound and therefore it is worth sharing.
Merced is a small city in Northern California, part of the San Joaquin Valley which is reputed to be the world's most fertile farm region. And yet, this rich promised land has been left scarred by the on-going sub-prime mortgage crisis which is gripping America. The article starts :
"An overflow crowd piled into the Merced Civic Center, spilling out of the main auditorium, into the halls and down the stairs. Some brought babies, others elderly parents. Everyone brought their paperwork - the sum of their financial lives and wreckage of their American Dream. A foreclosure prevention fair on a brilliant Saturday afternoon was the place of choice for more than 200 people in Merced, a city of 65,000 best known as the gateway to Yosemite National Park".
The scale of the crisis can be seen by what has already happened in the neighbouring city of Los Banos where 5% of the city's 10,000 homes have already been foreclosed (i.e re-possessed by the mortgage company for arrears in mortgage payments) and an additional 5% are expected to foreclose in the coming months. The foreclosures reflect the worsening economic situation in Merced County where the unemployment rate climbed to 13.3% in January and housing prices have fallen by between 30% and 50% during the last year.
The causes of the crisis are, of course, multi-faceted but you can get an idea by the part played by a combination of naive and hapless investors and criminally greedy financial institutions by the following extract from the article.
""We're three payments behind, which they told us here is not that terrible," said Elizabeth Gomez. "If we can't hold on, we're lost." Most families had similar woes. One couple said the same broker who had written their loan in 2005 refused to take their calls. He had promised them he would help them refinance to a 30-year fixed rate when the teaser rate of 2 percent expired. Their mortgage on a $300,000 house mushroomed from about $900 to over $2,000".
During the last few weeks I have noticed that conversations around the dinner table and in the public bar have increasingly turned to the state of the UK economy. More and more people are recognising that very difficult times are ahead. But in this country it is still mostly expectation rather than reality. We watch for the first real signs of the coming economic storm in the same way that we watch for weather patterns crossing the Atlantic. In the ever-sunny Merced County, however, the storm has already broken out.