Bad Credit Texas Home Loans Fuel Foreclosure Crisis
Foreclosures have been surging for five years in the North Texas housing market, and almost nobody cared. Now, though, the problem is part of a global financial crisis.
It’s easy to blame California, Florida and Nevada, all the places where the housing bubble is going pop. But the state itself is also at fault.
“It’s going to be a cold winter,” says John Baen, a real estate professor at the University of North Texas, who predicts tough times ahead for housing and the broader economy.
Foreclosures aren’t the cause of the trouble; they’re a symptom of scores of bad credit home loans and years of overbuilding. In this area, rising foreclosures were sending a signal to the market three or four years ago, but they were ignored - with few consequences. And that says a lot about how the housing market became so overheated.
Texas foreclosures should have been the canary in the coal mine: Put too many people in homes they can’t afford, and loans go bad and streets fill up with empty houses.
In other cities, where home prices were soaring, overextended borrowers could simply refinance home loans and take out cash to stay afloat. Not so in Texas, because home values increased slowly or not at all.
Now that prices are falling in formerly hot cities, the game is over and the shakeout is under way. Investors around the world, who bought U.S. mortgages believing that they were a safe bet, have been stung by rising defaults in their portfolios.
Their panic is hammering Wall Street and prompting some extreme moves by the Federal Reserve and central bankers from other nations. Mortgage lenders have also tightened credit rules, and some home loans are almost impossible to get — or prohibitively expensive.
With the easy money gone, home builders are slamming the brakes on new construction.
“It’s actually a good thing, because the market needs to adjust and catch up,” says George Roddy, whose Foreclosure Listing Service in Addison has chronicled the local buildup in bad home loans. “It won’t be pleasant, but it’ll lead to a much better future.”
In the north part of the state, Texas mortgage default postings have tripled since 2001, according to Roddy. Yet the local economy has shrugged them off as a nonevent.
Unemployment remains low, there’s solid growth in jobs and population, and until recently, the housing market was on a tear.
When loans were easy and cheap, home builders kept adding volume in Texas, even as defaults climbed. The area lost 80,000 jobs in the 2002 recession, yet home starts continued to surge, notes Ted Wilson of Residential Strategies, a Dallas real estate research firm.
“By 2003, we thought there’d be a decline in housing starts,” Wilson says. “But builders said they could qualify anybody for a house, and they were making huge profits on the East and West Coasts. They wanted to use Texas to increase their unit counts.”
That strategy is over. Home builders have suffered crippling losses, and many subprime lenders have gone under.
Housing starts nationwide fell 6 percent in July to the lowest level in a decade. In the Fort Worth area, residential building permits dropped 34 percent in June; on the Dallas side, building-permit activity is running at levels last seen 10 years ago.
Wilson says that many local builders have laid off workers, and mortgage companies presumably have cut back, too. Nationwide, jobs in residential real estate have fallen, reflecting the decline in sales, starts and mortgage lending.
SOURCE: The Star-Telegram