One perspective on the Texas foreclosure crisis

Dr. James GainesView Dr. James Gaines presentation [it takes a couple minutes to begin playing] before the Texas House financial institutions committee on Texas home foreclosure data.

View the slides from his PowerPoint presentation.

Dr. James Gaines a research economist at Texas A&M’s Real Estate Center presented some interesting data in to the Texas House Financial Institutions Committee last week.

Dr. Gaines’ principal conclusion was that Texas had not been impacted to the same extent by the foreclosure crisis as a number of other states.

[It is unclear how this is to be reconciled with a June 14 Austin American-Statesman story indicating that foreclosure postings in Austin metro area are up 4e% over last year].

According to the data Dr. Gaines presented this is true He did not emphasize the fact that the numbers of Texans losing homes through foreclosure in Texas is still huge. It was disappointing that he did not provide a more detailed and nuanced portrait of the Texas foreclosure victims, but instead focused on a comparison of state foreclosure rates.

Yet the data in the presentation was in some ways more revealing than the analysis.

The current Texas foreclosure rate is just under 1.5%. This rate is approaching that achieved during the 1980s during the Texas real estate depression. Nationally, subprime loans are approaching a 20% delinquency rate and around 11% foreclosure rate. In Texas the subprime foreclosure rate is 6%. The number of foreclosure proceedings in Texas is running around 10,000 a month. One in every 809 households in Texas has some sort of foreclosure posting.

Dr. Gaines predicted that foreclosures would remain high in Texas through early 2010 because of scheduled ARM adjustments to both prime and subprime loans. “We are going back to the underwriting requirements of the 1990s,” Gaines said. “Borrowers actually have to have a job, they have to prove they have a job, they have income, and, Lord forbid, they might have to have some equity down payment.” He testified that to the extent there were declining home sale prices in Texas they were largely confined to the major metropolitan areas.

Dr Gaines says the factors leading to foreclosure tend to be life events such as divorces, major medical events, compounded by falling home prices that prevent people from being able to renegotiate their loans. A significant number of the foreclosures are non-owner occupied to investor loans with very high loan to value ratios. It’s estimated that as many as 20% of for closures may be non-owner occupants.

He hazarded a prediction that interest rates would reach 8% within a couple years.