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.
Harris had been living mostly on state disability payments since 1989, after he was stabbed while working as a prison guard. But for the last two years, he had taken classes to become a home inspector and had paid off his debts in anticipation of buying his first home.
"I was doing everything I thought I was supposed to do," Harris said. "All of a sudden, I have to move."
He moved into another house shortly after Barragan's house went into foreclosure. In July, though, he found out that his new landlord was also about to have her home taken away because she couldn't make her payments.
"The owners are just collecting the rent up until the last minute, because they're trying to get as much money as they can to pay their mortgages, and then they tell us three days before they're about to kick someone out," said the Riverside County authority's Marshall. "That doesn't give these families nearly enough time to find a new place."
Section 8 renters have suffered on both sides of the housing boom, experts say. When housing prices were climbing, landlords were able to charge more than the program was willing to pay, reducing the number of low-rent homes available.
Now that prices are dropping, the low-income landlords are getting out -- or being forced out.
"These low-income renters weren't involved in the housing problem, or at least that's what they thought," said Nancy Sidhu, senior economist for the Los Angeles County Economic Development Corp. "Now they're caught up in the whirlwind too."
Technically, landlords who receive Section 8 money are supposed to give their renters 90 days' notice of an eviction. But if they don't, there is little the housing authorities can do. It would cost them more in staffing and paperwork to try to sue the landlords than they would be likely to recover, housing officials said. And the housing agencies have no leverage with the banks that have taken over the homes.
"Obviously we can't hold the mortgage company accountable for a contract they don't have with us," said Margarita Lares, Section 8 director for the Los Angeles County Housing Authority.
And Section 8 covers only the month-to-month rent. It doesn't help with deposits or moving costs.
That's why Cordoba is living in a hotel in Lake Elsinore. She lost her deposit when the house she rented went up for auction and, although she was able to negotiate a small payout from the bank that took over the house, it was not enough to pay for a new deposit and storage costs while she looks for a new place. She also was laid off from her job in May as an assembly-line worker in a grass-seed plant.
One of her daughters used to walk to the bus stop every day to go to middle school. The other walked a few blocks to elementary school. Now Cordoba drives them to school and spends the rest of the day looking for a job and a home.
"The kids at school make fun of my kids because they are living in a hotel," she said. "I tell them not to listen to them, but it makes them really upset."
She had hoped to find a new home by Labor Day but has not found a place big enough that will take Section 8 vouchers.