Travisty in Vallejo

Guambat was a GI brat. He was born on an Air Force base (US) before there even was an Air Force. His younger sister was born at Travis AFB, in Vallejo, his younger brother at March AFB, in Riverside, and his youngest sister whilst Daddy Guambat was at Goodfellow AFB.

So Guambat's radar screen lights up when one of these places blips the headlines.

In this case, it was accentuated because of the BAY AREA connection, to which Guambat and Mrs. Guambat and Guambat's legal education are so nearly related.

Vallejo was once, in Guambat's youth, a remote SF bedroom community, grafted to the dry hills on the far side of Carquinez Strait. Guambat's vague memory banks tell him that is where he learned about grasshoppers and pollywogs and beautiful weeds and the smell of water sprinklers on dry grass.

Its reputation is more one of neglect than elegant, though its ties to California, and Western US history in broader terms, is deserving of more respect than that. It seems the town is named after an adventurous man who had an erstwhile connection to Fray (or Pale, as they say on Guam) Junipero Serro a legend of the California before the Americans discovered it. Certainly, the Vallejo family was a fascinating player in the history of pre-California California. Not that most Bay Area folk would admit as such.

With his own connections, and having lived on Guam long enough to realize that history as we know it is a stack of important documents covered in dust and piled haphazardly in the far and undisturbed reaches of the basement of an otherwise elegant library, Guambat feels somewhat akin to the, what -- Vallejomanians??

Thus, with the news of the day appending a small reference to Vallejo, Guambat took note. Curiously, but in keeping with the way history "reveals" these things, this is what was being reported:

With hundreds of concerned residents looking on, the Vallejo City Council voted unanimously late Tuesday to file for bankruptcy, making the city the first of its size to seek protection due to unaffordable labor contracts.

It seems that those greedy bastards in the health and safety rackets are responsible for the economic implosion of this historically named municipality.

The enormity of the situation even caught the attention of the world-wide-worldly Felix Salmon, who Guambat assiduously reads and greatly admires as one who has his blog on the heartbeat of trans-Atlantic economic events. Felix says,

Vallejo, California, postponed a decision on whether to reorganize under Chapter 9 of the federal bankruptcy code after reaching a cost-cutting agreement late Thursday with labor unions representing its police officers and firefighters.

But are Vallejo's problems fairly cast at the feet of the folks on the beat? Methinks, it is a bit more of an ulterior agenda of the media framing the story. They neglected to mention this little anecdote delivered about a month ago by Janet Yellen, President of the SF Fed:

Close to 20 percent of subprime mortgages are delinquent or in foreclosure nationwide. “Hot spots” include parts of Nevada, Florida, Ohio, and California, where the highest delinquency rates are in the Central Valley.

The Bay Area has not been immune. In some cities, such as Fairfield and Vallejo, subprime mortgages accounted for over one-fourth of new originations in 2006, and in 2007, delinquencies and foreclosures there increased sharply.

And the San Francisco Chronicle provided this puzzle piece of history in a story written about a year ago:

Subprime loan crisis is hitting Vallejo hard

Vallejo is the Bay Area's version of ground zero for the subprime loan crisis.

A significant number of residents of the largely blue-collar city of 120,000 have taken out subprime loans -- expensive mortgages issued to people with poor credit.

Vallejo home prices fell 8.5 percent from November to March, according to DataQuick Information Services.

In a report called "Losing Ground," the center spotlights the Vallejo-Fairfield metropolitan area (which comprises all of Solano County) as a potential trouble spot, with one of the highest projected foreclosure rates in the country. The report predicted "that 23.8 percent of subprimes there will end in foreclosure," said Paul Leonard, director of the center's office in Oakland.

Much of the Bay Area has been insulated from the subprime fiasco because home prices have continued to rise and affluent residents qualified for the more- desirable prime mortgages.

But in outlying areas where home prices have fallen and incomes are lower, the subprime fallout is making an impact.

In the past few years, aggressive lenders and mortgage brokers pushed subprime loans on people who couldn't really afford them. Most came with low "teaser" rates. As those rates have expired in recent months, tens of thousands of homeowners around the country have seen their mortgage payments soar, have been unable to keep up and have received notices of default from their lenders -- the first step in the foreclosure process.

At nonprofit counseling agency Vallejo Neighborhood Housing Services, the phone has been ringing off the hook for several months, with about 40 people a week calling because they have fallen behind in their mortgage payments, according to Carol Hardy, a housing counselor there. That contrasts with the 12 months that ended in August, during which the agency advised just eight families on foreclosure prevention.

The people seeking help have almost identical stories, Hardy said. They bought homes using subprime loans. After a low initial rate, their monthly payments skyrocketed. Meanwhile, home prices in their neighborhoods went down, so they cannot easily sell or refinance. The result is that the homeowners owe more on their homes than the houses are worth.

Hardy said her clients tend to be blue-collar workers who earn close to the median income for Solano County, which is $75,400 for a family of four. Some of them used what are called stated-income loans, meaning a loan officer allowed them to claim that their earnings were higher than they are.

They bought homes about two years ago, using a type of mortgage loan in which they made low, interest-only payments for two years, followed by 28 years of adjustable-rate payments. Usually they did not make down payments. Once the initial two years were up, their monthly mortgage payments shot up.

"Nobody sat down with them and said if your interest rate goes up just 2 percent, here's what your house payments will be," she said. "These people all of a sudden are getting notices that in 60 days their house payments will go up $600 or $800 a month, and they say 'I can't do that.' "

In Solano County, 116 homeowners received notices of default last March, according to real estate information service DataQuick. Such notices, which banks send when borrowers fall behind in their payments, are the first step in the foreclosure process. By August, the number of foreclosure notices had almost doubled. By March, it had almost tripled to 338. During the 12 months ended in March, 2,555 Solano households received the notices, according to DataQuick.

In this game of cops and robbers, it's the robbers -- the slick banks, mortgage go-for-brokers and Wall Street Derivative slice-and-dicers -- that are the real villains here, not the cops, nor the fire fighters.

Guambat is not saying that unions are man's best friend, just that a bit of perspective can reveal more than clever journalism might hide.

Many cities in California are struggling with falling revenue and rising pension costs. Vallejo is just the first in line.