For Francisco Santos and his wife, Linda, the American dream came remarkably quickly. A few years after arriving in Northern Virginia from his native Honduras, the tiler bought his first home for $95,000.
Before long its value had risen to $230,000 and Spanish-speaking estate agents started urging him to move up the property ladder. It couldn't go wrong, they told him. He had a steady job, excellent credit and was already a US citizen; he should buy a bigger house.
Today he is one of hundreds of thousands of Americans who have lost their homes in the so-called "sub-prime mortgage" crisis, a financial timebomb that has sent shockwaves through world markets. In a brief speech in the White House Rose Garden yesterday, President George Bush outlined the first belated efforts to help borrowers who were never going to be able to cope with the mortgages they were sold.
Prodded into action by fears of a Wall Street meltdown, he urged banks to "work with homeowners to adjust their mortgages" when they run into difficulties, rather than foreclosing and repossessing the house. As a practical measure, the government will temporarily stand behind mortgages with lower rates and set up a new "foreclosure avoidance initiative".
Many of those now in trouble were the victims of aggressive mis-selling. They were sold mortgages at attractive rates without being told that payments would rise steeply in a couple of years, or that interest rates would be hiked up if they missed a payment. Others got caught up in a frenzy of greed and did not think they could lose.
"It was a big orgy and everyone took off their clothes and jumped in the pool naked," said Jose Luis Semidey, an estate agent- turned-talk show agony aunt for the victims. "It was the buyers, the sellers, the real estate brokers, the banks, the home inspectors and even the counties, and now they are all hurting. The agents were pushing to sell houses in a crazy market with low interest rates. Everyone wanted to buy a house and flip it six months later at a huge profit."
At the heart of the crisis was a policy of handing out loans to individuals who declared a "stated income," which was never verified. Wall Street played a role too, by making easy loans available to people who would not normally qualify. These "investor loans" are at the root of many of the foreclosures because the rules under which they were established do not allow any flexibility or modifications by the lender when a borrower gets into trouble.
"This is what happened to Mr Santos," Mr Semidey said. "Now his credit is ruined; he is literally a financial cadaver who nobody will touch. It's a tragedy."
The American Home Services bank has already repossessed the Santos' house and, with a wife and two children to support, he is in financial ruin. But things could be worse. He still has a job and, unlike 47 million Americans, he has health insurance.
"They called and called and told me it was a perfect time to buy another house. They sweet talked me," Mr Santos said yesterday. Soon Mr Santos had the keys to a five-bedroom redbrick house on Lord Culpeper Drive in Northern Virginia and was busy upgrading it with marble bathrooms. At one stage last year, his dream home was worth more than $580,000.
"I feel desperate," said Mr Santos. "My wife is pregnant and I tried so hard to make things better for us. I wanted to give my kids a good life. Now my wife just blames me for our troubles."
According to Mr Semidey, the Bush initiative is already too late for these people. "There are 250 to 500 homes going into default in Northern Virginia every day," he said. "The politicians need to recognise that the problem has not yet crested and is going to explode on them. Instead of worrying about immigrants coming to the US, they need to focus hard on this issue."
From California to the East Coast, dozens of counties which have experienced a homebuilding boom are laying claim to being at the epicentre of the crisis.
The problems are indeed everywhere. In Jackson, New Jersey, Mark and Kerrie Russo, who are raising two young daughters, are desperately trying to hang on to their home. After arranging a 30-year mortgage in 2005, which was on a fixed-rate and based on a solid credit history, a local broker offered a new product. According to the sales pitch, they could choose from different payments from one month to the next.
"What we were not told," Kerrie Russo said, "is that this was a 'negative amortization' loan", in other words, an expanding debt that put the couple ever deeper into debt when they thought they were paying off their mortgage balance. "It's called 'predatory lending,'" said Ms Russo, "that is what I am a victim of."Reuse content