More than 20 percent of foreclosure listings thus far in 2010 in the Dallas area were for houses with more debt than the appraised tax value. That’s a very large increase from the same period in 2009. This is not only a problem for the homeowner, but also for the lender, who usually cannot resell the house for the amount they have invested in the mortgage and other costs.

According to the newspaper, “Recent studies estimate about 15 percent of all Dallas-area homeowners with mortgages owe more than their house is worth. They either paid too much for the property or, more likely, values have fallen in their neighborhoods due to distressed property sales and high inventories of unsold homes.”

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Dallas-Fort Worth area home foreclosures for 2009 fell to their lowest level in three years. But the almost 12 percent drop doesn’t mean that fewer North Texans are threatened with losing their homes. Indeed, the number of D-FW homeowners with a loan in default is at a record high, and foreclosure filings continue to grow. Actual foreclosure sales have fallen, though, because many lenders are negotiating longer with borrowers and delaying foreclosures for months, a close look at the data shows.

“There are an awful lot of problem loans out there that should be foreclosed on and are not,” said George Roddy, who heads Foreclosure Listing Service of Addison, which tracks foreclosures in 19 Texas counties. “Perhaps they think if they delay long enough, the situation will work itself out. ”Yes, foreclosures are down, but it’s artificial.”

Last year, lenders sold 18,637 homes at foreclosure auctions in Dallas, Tarrant, Collin, Denton and Rockwall counties. That’s down from 21,174 forced sales in 2008 and 19,102 in 2007, according to a Dallas Morning News analysis of Foreclosure Listing Service’s numbers. More than 65 percent of the loans on foreclosed homes were made between 2005 and 2009. The average loan balance was about $130,000.

Along with avoiding the bad publicity from throwing thousands more homeowners out of their houses, lenders postpone taking ownership of the property because it can cost them. By some estimates, it costs a lender $50,000 to foreclose on a home.

Recent reports showed that the ratio of Texans behind on their mortgage payments has risen to more than 10 percent for the first time. In the Dallas-Fort Worth area, about 6 percent of homeowners with loans at the end of 2009 had missed three consecutive mortgage payments. Even in cases where borrowers are that far behind, many mortgage companies – spurred by government programs – are attempting to modify the debt and avoid foreclosure.

So far, there’s no indication that foreclosure filings and home mortgage payment delinquencies will decline in 2010. So far this year, home foreclosure filings in the D-FW area are up 22 percent from the first quarter of 2009. About 15 percent of Dallas-area homeowners with mortgages owed more than their house was worth at the end of 2009, according to a new report from First American CoreLogic. That makes them much more likely to walk away from their homes if they’re caught in a cash squeeze.

In June, HAMP officials began conducting rigorous reviews of mortgage servicers, and have now started a “second look” program, under which servicers’ decisions to approve or deny HAMP modifications will be scrutinized. Compliance officers are also analyzing HAMP-modified loans to track error rates with servicers.

Government officials have tried to stimulate the rate of modifications several times. The Treasury Department has set a goal of 4 million mortgage modifications by 2012, but estimates indicate that only about half that number will actually be modified.

Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said, “The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified.” He may insert a cramdown provision into legislation that would overhaul the financial system, which would allow bankruptcy judges to lower the balances on mortgages to the market value of the property and set new interest rates. That bill will become a top priority in early 2010.

Loan Resolution Corp. chief operating officer Travis Olsen said one of the top 10 servicers has hired his firm to manage the short sale process. “We will take their borrowers who have been denied a home retention plan and hand-hold them during the rest of the process,” he said. The COO also noted that his Scottsdale, Ariz.-based pre-foreclosure asset-management company has received requests for bids from several top-five servicers.

Treasury is expected to provide incentives for servicers to conduct short sales and share some of the costs of paying off second lien holders. “The final details of the [short sale] program are being finalized, and will be announced as soon as completed,” HUD assistant secretary David Stevens told a congressional panel on Wednesday (Sept. 9).

In a short sale, the lender agrees to accept a loss on the sale of the property and forgive the remaining balance on the mortgage. If a short sale doesn’t work, the next stop is foreclosure. It usually takes LRC a couple of days or weeks to complete a short sale after the buyer makes an offer, while the timeline for servicers can be 60-120 days. “We can sometimes approve short sales the same day the offer is received,” Mr. Olsen said.

About one-third of option ARMS are already in default, and it is expected that 600,000 option ARMS will reset within the next four years. According to Barclays Capital, 81% of the option ARMs originated in 2007 are expected to default, with many ending in foreclosure. Barclays projects that banks will lose $112 billion on option ARMs written from 2005 to 2007.

Although reverse mortgages have been available in Texas for more than 10 years, only about 7,000 were taken out in 2008. However, that number is increasing as older baby boomers and other seniors discover this way to free up their home equity to serve present or future cash needs.

The homeowner continues to live in the home, pay property taxes, and pay homeowner’s insurance. But the reverse mortgage lender will give the homeowner the equity and pay off any existing mortgage. The new lender will have a first lien on the property.

Reverse mortgages can take several forms — a lump sum, a monthly payment, a combination of both, or a line of credit. The loans are not suitable for everyone, and to make it work, seniors should have at least 50% equity in their homes.

The economic stimulus package passed in January 2009 increased the cap on reverse mortgages to $625,500, but that limit is in effect only until the end of 2009, when Congress will reconsider what the cap will be. The stimulus package also reduced the origination fee to 2% on the initial $200,000 of the home’s value and 1% on the rest, up to a cap of $6,000. But even with that reduction, there are significant costs to obtaining a reverse mortgage, including origination fees, title costs, appraisal fees, and all the normal closing costs of a regular mortgage.

Several reputable organizations offer counseling and information about reverse mortgages, including the AARP and the National Reverse Mortgage Lenders Association.

The study found that the cure rate for prime loans dropped to 6.6% as of July 2009, from an average of 45% for the years 2000 through 2006. The cure rate of Alt-A loans fell from 30.2% to 4.3%, and for subprime loans fell from 19.4% to 5.3%.

Cure rates have plunged despite the Obama administration’s prodding of banks to ease the terms of mortgages for millions of borrowers to try to prevent foreclosures. Barclays Capital projects that the number of foreclosed homes for sale will peak at 1.15 million in mid-2010, up from an estimated 688,000 as of July 1, 2009.

The information covers a wide range of consumer issues, including debt collection, frauds and scams, identify theft, mortgage fraud, price gouging, and tenants’ rights, and each topic is explained in an easy to understand format.

While it is often necessary to consult an attorney to take specific action in an individual case, the information available from the Office of the Attorney General is a good starting place to educate yourself about your consumer rights under the laws of the State of Texas and the Federal government.

Many people falsely believe that FHA loans are available only for first-time buyers or those with perfect credit. Both of those misconceptions are untrue. FHA loans are not limited to first-time buyers and even those with damaged credit can qualify for such a loan.

One of the factors that makes FHA loans so popular is the low down payment required – only a payment of 3.5% from the borrower’s own funds is required. The funds can come from savings, a checking account, or retirement funds, or from gifts to the borrower by a relative or other party. Customers with credit scores between 620 and 740 may be able to obtain a better rate, lower fees, and lower mortgage insurance costs with an FHA loan as compared to conventional loans.

While FHA does require a borrower to show an overall history of repaying obligations in a timely manner, it does allow for less than perfect credit in some cases. Even if a borrower has a bankruptcy in their past, they may be able to obtain an FHA loan. If two years have passed since the borrower had a Chapter 7 case and there have been no late payments on the borrower’s credit report since that time, an FHA loan may be obtainable. If a Chapter 13 case has been completed and discharged, an FHA loan can be obtained immediately if the preceding 12 bankruptcy payments were made on time. It is even possible for a borrower to obtain an FHA loan during a Chapter 13 bankruptcy, if trustee payments have been made on time and the trustee and the court approve the incurrence of the new debt.

FHA loans are also assumable, which will make a home more sellable later. Another advantage is the streamlined refinancing procedure should a buyer later wish to convert the loan into a more favorable one later.

More information concerning FHA loans is available from the website of the Federal Housing Administration.

The Harvard researchers said that the U.S. housing business is in its worst slowdown since the 1940s. “Restoring demand to more normal levels will take time since so many owners are in financial distress or trapped in homes worth less than their mortgages,” the report found.

U.S. home equity fell by $2.5 trillion in 2008 and is now down $5.9 trillion – or 43% – from 2005. Dallas-Fort Worth is among many markets in the nation where home prices are now back to 1990s levels in real terms. The drop in prices has had a chilling effect in many markets.

“Homeowners who are not under pressure to sell are usually unwilling to cut their prices drastically,” the Harvard report said. “Many would-be sellers therefore prefer to stay put unless compelled to move. Still, the longer that foreclosures remain a problem, the greater the pressure on sellers to drop their prices.”

Researchers also found that lower-income neighborhoods have been hardest hit by price declines around the country. Many such homeowners relied on risky sub-prime loans, which have resulted in higher than average home foreclosures.

The Associated Press reports that Obama “said Americans are demanding it. ‘Those ridiculous contracts with pages of fine print that no one can figure out – those things will be a thing of the past,’ the president said in a statement accompanying the 152-page draft bill.” The AP adds Republicans “and bankers, however, already are balking and gearing up for a fight.” But Tom Quaadman, executive director of the U.S. Chamber of Commerce’s center for capital markets, said, “This isn’t only bad government but big brother lurking at everyone’s doorstep.”

The New York Times reports, “Banks and mortgage lenders are placing top priority on killing President Obama’s proposal to create” the financial consumer protection agency. Industry executives “vowed on Tuesday to fight Mr. Obama’s plan with everything they have, even though banks are still heavily dependent on many taxpayer-supported loans and loan guarantees to get through the crisis.” The “industry’s heated reaction presages an intense lobbying battle that is already beginning.”

From the American Association for Justice news release.

It is estimated that one in five foreclosed properties is a rental, and that as many as 40% of people who have lost housing because of foreclosures were tenants. Proponents of the measures say the new law will help keep renters safe from the risk of homelessness.

“This is a big win, one that really protects people who have done nothing wrong,” said Mira Tanna, assistant director of the Metropolitan St. Louis Equal Housing Opportunity Council. The new federal rules would be a “dramatic change,” said Sheila Crowley, president of the National Low Income Housing Coalition. “This is a testament to how serious of an issue this is.”

According to George Roddy, president of Foreclosure Listing Service, postings in the four counties totaled 5,024 for June, a 10% drop from the figure in May. “Even though this is welcome news, it is not staggering,” Roddy said. “In this foreclosure cycle, I have only seen [the area’s] home postings top 5,000 four times, and three of those times have been in each of the last three months.”

About 29,049 foreclosures have been filed in the four counties, up 14% from the same period in 2008, and a number Roddy called the “highest volume of postings that I have seen in 20 y

Many economists expect the current 8.9% unemployment rate to rise into the double digits, and foreclosures of all types of mortgages are likely to increase. “We’re about to have a big problem,” said Morris A. Davis, a real estate expert at the University of Wisconsin. “Foreclosures were bad last year? It’s going to get worse.”

Economists refer to the current surge of foreclosures as the third wave. The first was the initial spike when speculators gave up property because of plunging real estate prices. The second wave occurred when borrowers’ low introductory interest rates expired and were reset higher.

“We’re right in the middle of this third wave, and it’s intensifying,” said Mark Zandi, chief economist at Moody’s Economy.com. “That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They’re coast to coast.”

The borrowers sliding into foreclosure today are more likely to be modest borrowers whose loans fit their income than the consumers of exotically lenient mortgages that formerly were typical in the economic crisis. Economy.com expects that 60% of the mortgage defaults this year will be set off primarily by unemployment up 29% from last year.

The ads direct people to the Federal Reserve’s website, where consumers can get tips for avoiding foreclosure scams. The website advises consumers:

–        Work only with a counselor approved by the Department of Housing and Human Development.

–        Don’t agree to work with a counselor who collects a fee before providing services.

–        Be wary of “guarantees.” A reputable counselor will not guarantee to stop the foreclosure process, no matter the circumstances.

–        Understand any paperwork that you sign. Don’t be pressured to do so if you haven’t read it.

–        If it sounds too good to be true, it probably is.

A record 5.4 million homeowners, nearly 12%, were at least one month late or in foreclosure at the end of 2008, and scam artists have been quick to move into the business of “stopping foreclosures.” In fact, there is no way to force a mortgage company to stop a foreclosure, other than by filing bankruptcy. Approved counselors may be able to mediate a settlement between a mortgage company and a homeowner, but consumers should carefully investigate the counselor’s qualifications before paying for such services.