RIVERSIDE, Calif. â€" The one-story home that Scott and Summer Gieser just moved into is a far cry from the new two-story, four-bedroom house they owned before the great mortgage collapse.
Their sprawling house had termites and water damage when they bought it, but they counted themselves lucky. Given what has happened over the last five years, since the demise of the investment bank Lehman Brothers, it is a near miracle that the Giesers have a home at all. At times, they did not.
The couple personify the story of this region of desert scrub an hour east of Los Angeles, known as the Inland Empire. It is the tale of a soaring housing market, a hurtling crash and a recovery that has greatly lagged the rest of the country.
In several parts of California, Florida, Arizona and Nevada, real estate markets were built up with infusions of credit from Lehman and other Wall Street firms. The banks financed the construction of sprawling developments of tract homes, purchased the subprime mortgages that homeowners took out when they moved in and packaged them into bonds that were sold to investors.
The Inland Empire was the burning core of this speculative fever because of the availability of cheap land between Los Angeles and San Diego. In no other region of the country did subprime loans account for a bigger proportion of the overall mortgage market, according to a Federal Reserve study.
By the time he was 28, Mr. Gieser had become a force as a mortgage broker. He had billboards in downtown Riverside with his grinning face, advertising “Loans by Scott.†His own home was financed with an interest-only subprime loan.
But then, in a devastating feedback loop, real estate prices slowed and banks stopped lending, decimating Lehman’s investments and forcing it to declare bankruptcy five years ago on Sunday. That event was a moment of truth not just for the finance industry but also for millions of homeowners across the country. Just a few weeks after the filing in New York, the Giesers decided that they could no longer make their monthly mortgage payment.
While the financial industry â€" and large parts of the country â€" have largely rebounded since then, there are many communities where the fallout from Lehman’s collapse and the financial crisis is still a daily fact of life, and few places more so than the Inland Empire. The local employment market continues to languish and real estate prices are still 40 percent below their precrisis peak, according to CoreLogic.
Mr. Gieser experienced the collapse from both sides, as a real estate professional who lost his business and a homeowner who lost his house. For a while, he was driving between local parking lots, washing cars for $20 each.
Now, though, the Giesers are part of the area’s nascent recovery as real estate prices begin to recover some of their losses. Mr. Gieser has found clients looking to get back in, and he and his wife recently took advantage of the low prices to buy their new home. But the couple have no illusions about returning to the old ways.
“We’ll never live that life, even if I make that money again,†he said. “I’ve taken my licks. I got my wounds.â€
Stories like Mr. Gieser’s are everywhere. Over the last five years, 220,000 Inland Empire homes have been seized by banks and sold out of foreclosure, according to Lender Processing Services. That is one foreclosure for every four mortgages â€" twice the rate for California as a whole.
In the labor market, three of the biggest sources of economic growth before the crisis â€" real estate, government and manufacturing â€" have all been in a tailspin. The construction industry has lost 68,000 jobs over the last five years, about the same amount that it gained in the decade before the collapse. Only now is there any sign of the losses reaching a bottom.
“We’re in the beginning of the fifth year of the national expansion â€" and then we have the Inland Empire,†said Jerry Nickelsburg, a forecaster in the business school at the University of California, Los Angeles. “It has not yet found the new engine of growth in the future. It’s in that twilight zone between its previous economy and its future economy.â€
The upheaval has dealt a blow to both the economy and the psychology of the area, which used to be viewed as a promised land for many lower-income and immigrant families who could not afford a house with a yard in either Los Angeles or San Diego.
Mr. Gieser’s parents moved here from Los Angeles when he was a child; his mother became a real estate agent late in life. Mr. Gieser wanted to get into real estate almost as soon as he earned his G.E.D. and found work with a small company selling mortgages.
In the years after he started, banks were willing to offer loans to almost anyone who asked. The proceeds paid for a lavish life for Mr. Gieser and his wife, with weekend trips to San Diego and a Lexus in the driveway.
“Scott was making so much â€" I didn’t foresee him ever slowing down,†said Mrs. Gieser. “We didn’t foresee the market doing what it did.â€
In 2007, the easy credit allowed the couple to buy a new two-story stucco home on Silver Dust Trail in Hemet, one of the many small towns where a Lehman-financed company, SunCal, turned empty desert into endless cul-de-sacs of tract homes. The Giesers’ home was paid for with a loan from the subprime division of the infamous lender Countrywide Financial, which did not require the couple to make a down payment or show proof of their income.
Signs of trouble began piling up even before the Giesers moved in. And once the collapse hit fully, the idea of a recovery seemed like a mirage. The Giesers went through their savings and tried to modify their mortgage three times. They were eventually forced to move out the day after Christmas in 2009, filing for bankruptcy. In the filing, Mr. Gieser listed his income in the first half of 2009 as $1,400.
Home prices in the Inland Empire fell 53 percent from the peak in 2006 to the trough in 2009. When the government-backed lender Fannie Mae sold the Giesers’ house again in 2010, it went for exactly half of the $320,000 they paid three years earlier.
Mr. Gieser and his wife first moved back in with his parents, sharing his childhood bedroom with their newborn son. They were kept afloat by Summer Gieser’s job doing background employment checks.
The turnaround began modestly, when Mr. Gieser found work showing homes that banks had seized â€" earning $50 a trip. That allowed the couple to move out of his parent’s house into a rental, and for Scott to find a job as an assistant to Doug Shepherd, the owner of the Shepherd Realty Group.
Mr. Shepherd said that Mr. Gieser’s past financial difficulties did not put him off. “A lot of good people got into bad situations,†Mr. Shepherd said.
Initially the homes were mostly foreclosure collateral. The buyers were often investors looking for properties they could rent out to the legions of people who had lost their homes.
Those forces have helped push prices up 12 percent last year and 15 percent so far this year, CoreLogic figures show.
More recently, demand for homes has also come from families like the Giesers, who filed for bankruptcy or lost their homes in the years after the crisis. Mr. Shepherd said that Mr. Gieser had used his own experience to cater to these clients.
“He can look people in the eye and say, ‘I understand what you are going through, but there is hope,’ †Mr. Shepherd said.
The Giesers counted down to the anniversary of their own bankruptcy last December, when they could borrow again. They immediately put in a bid for a home on a leafy street in Riverside that had been built in the 1950s.
When the deal finally went through in July, the Giesers paid with a fixed 30-year mortgage from the Federal Housing Administration. The night of the closing, they sat in the empty living room.
“We just stared at each other in disbelief, that we did it,†Mr. Gieser said.
