The Dallas Morning News recently ran an interesting and somewhat disturbing article about the decrease in local foreclosures in 2009. The good news is that the number of foreclosures dropped in 2009 from previous years. But the bad news is that this drop may have been artificially induced by strategies employed by financial institutions. Here are excerpts from the article:
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.
Neighborhoods in Grand Prairie, Southeast Dallas, McKinney, DeSoto and Frisco led the area in total foreclosures in 2009.
Lenders foreclosed on the most local homes in the first quarter of last year – about 5,000. But after a slowdown in the summer months, the fourth quarter saw an increase in forced sales.
The number could have been even higher.
More than 40 percent of the homes posted for possible foreclosure last year in Dallas-Fort Worth were repeats – cases where the lender delayed taking the property while negotiating with the borrower.
Roddy says repeat foreclosure filings slowed in early 2010 but are still high.
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.
While analysts worry that there could be a deluge of foreclosures at some point, Scott Norman, president-elect of the Texas Mortgage Bankers Association, doesn’t expect it.
“It’s possible that the numbers of foreclosures will rise, but I don’t think they will spike,” he said. “Lenders are trying to exhaust every option they have before foreclosing on a house.”
10% fall behind
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.
Such forbearance wasn’t the norm during the last big housing sector shakeout in Texas in the late 1980s and early 1990s.
Real estate analysts are hoping that the more moderate approach in this cycle will dampen the impact of reselling foreclosed homes.
Dr. James Gaines, an economist with the Real Estate Center at Texas A&M University, said it’s “a good thing if the lenders manage to stagger the foreclosures rather than dumping thousands of properties on the market at once – that doesn’t do anybody any good,” he said.
“So far the market has been able to absorb most of the foreclosures.”
The potential for increased lender foreclosures is one of the clouds hanging over the local housing market, said D’Ann Petersen, business economist with the Federal Reserve Bank of Dallas.
“Hopefully the lender programs will work, and a majority of homeowners will be able to stay in their homes,” she said. “A sudden and steep increase in forced sales could swell the housing inventory and put downward pressure on home values.”
Lower impact
So far, the impact of foreclosures on home values in North Texas has been less than expected.
In all of 2009, the median price of homes sold through the Realtors’ Multiple Listing Service was flat compared with 2008.
In the last two months, the benchmark S&P/Case-Shiller Home Price Index has recorded modest increases in D-FW residential values.
The discounts on foreclosed homes sold in the D-FW area have been substantially lower than in the late 1980s, when “we regularly saw 40 to 50 percent write-downs in values,” Roddy said.
But statewide, the inventory of foreclosed homes available for resale has increased more than 25 percent in recent months, he said.
Almost 40 percent of the residential real estate sold in North Texas the last quarter was foreclosed or distressed properties, according to a recent study by Clear Capital.
“In some neighborhoods, up to 60 percent of the home sales are foreclosures,” Roddy said.
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.
Pain of unemployment
Keeping more homeowners in their properties will require job creation, analysts agree.
“Better economic times would certainly help,” Petersen said.
The majority of home foreclosures are now attributed to borrowers losing their jobs or part of their income – not the result of the onerous mortgage provisions that caused most foreclosures a couple of years ago.
“One in three of the unemployed right now are at least six months behind in income,” said Todd Mark of Consumer Credit Counseling Service, which works with thousands of troubled mortgage holders each month.
“And they are letting their house payments fall behind.”
Mark’s organization has seen an increase in housing counseling requests since December.
“We’ve definitely seen a surge in calls over the last 2 ½ months,” he said.
Many mortgage companies are still giving borrowers more time, Mark said.
“Some lenders are letting them stay in their homes six months,” he said. “What a stark contrast to what we saw before.
“Maybe property values will have a chance to come back a little bit in the interim,” Mark said.
“Maybe their employment situation will improve. It’s buying time for both sides.”
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.