The Foreclosure Report

'Upside-Down' Loans Grow Among Texas Defaults

My San Antonio reports on Texas defaults. "Bankruptcy reform appears to be catching homeowners unaware and playing a role in accelerating first-quarter foreclosure rates in Bexar County and around the state. February foreclosure postings in Bexar County were the highest since December 2004. And the monthly average this quarter was 753 compared with a monthly average of 699 in 2005."

"'For some time now, lenient lending practices and employment issues have plagued the foreclosure market,' said George Roddy. 'With the recent changes in bankruptcy, credit card payments, and the cost of goods and utilities, families who were barely making it a year ago will in all likelihood be pushed over the edge.'"

"Leslie Linfield, executive director of the Institute for Financial Literacy, noted a new phenomenon in Texas and Georgia, two states with monthly Tuesday auctions. 'The Monday of the week before, credit counseling organizations in those states are incredibly busy,' Linfield said. 'Many of the emergency sessions we are doing are to try to stop foreclosure. We will give priority to them to get them counseling so the bankruptcy attorney can file immediately.'"

"The housing boom increased the number of mortgages going to buyers with risky credit. Of the 684 residential mortgages on the county's March foreclosure auction list, more than 23 percent were for loans less than two years old."

"Still, the 2 percent increase in Bexar County foreclosures from the first quarter of 2005 was modest compared with other urban Texas counties. Dallas County was up 19 percent and Tarrant County rose 17 percent. Creditors file notices three weeks before auction day, making quarterly statistics available the second month of each quarter."

"Home buyers who took riskier mortgages, such as adjustable-rate or FHA loans, are heavily represented in the March auction. Adjustable-rate mortgages account for 15 percent of loans and 35 percent are FHA, which often go to people who put little or no money down. About 17 percent of loans in the quarter and 31 percent of loans in March were upside-down, meaning the loan exceeded the taxing district's assessed valuation of the property. This occurs when no down payment is required and closing costs are included in the loan."

"'Both homeowners and lenders are in a no-win situation with these upside-down properties,' Roddy said. 'The homeowner is unlikely to sell the home for what he or she owes, especially prior to the foreclosure deadline. And after repossession, the lender is unlikely to sell the asset for all that is owed against it.'"

"Texas routinely reports the highest number of foreclosures in the nation. Foreclosure.com counted 12,251 Texas properties in January, followed by 8,400 in Ohio, and 8,284 in Michigan. As with newly constructed houses and existing houses sold through real estate agents, distressed properties are also attracting more out-of-state investors, said Gregg Stanley."

posted by Ben Jones @ 7:34 AM