Housing divide widens
Smaller mortgages falling to foreclosures as high-end sales climb
12:00 AM CST on Saturday, January 21, 2006
By BRENDAN M. CASE, STEVE BROWN and IEVA M. AUGSTUMS / The Dallas Morning News
In a healthy local housing market, a sign of trouble has appeared: More people are losing their homes to foreclosure than at any time since the Texas real estate bust of the 1980s.
The causes run from bad luck to bad financial decisions: job loss, divorce, a health crisis, skyrocketing energy bills, out-of-control credit card debt or a mortgage payment that turned out to be unaffordable.
But there also seems to be a sharpening contrast between real estate markets at either end of the economic ladder.
As residential foreclosures jumped 30 percent from a year ago in North Texas, the average mortgage on foreclosed houses fell to $129,000, compared with almost $146,000 a year ago.
Meanwhile, home sales set records last year, with a strong 20 percent increase in sales of homes priced over $400,000.
But there was a 4 percent decrease in sales of homes priced below $110,000.
"What we're seeing develop in the marketplace is the haves and the have-nots," said Craig Jarrell, who heads up the Dallas operations of Pulaski Mortgage Co.
"Either you've got money and you've got a job and you're buying a new house and you're rocking along," he said. "Or you're underwater and can't buy a new house, and can't afford the one you're in and you're going into foreclosure."
Newer mortgages, too
That's not the whole picture, of course. The foreclosure hammer also recently fell on an Addison home valued at $1.5 million, a North Dallas house valued at nearly $870,000 and a Coppell property worth about $430,000.
But Connie Zetterlund, a Coldwell Banker Residential agent who specializes in foreclosed property sales, says she's noticed increasing signs of trouble at lower-priced properties.
"The price ranges are a little lower than last year," she said. "There are a ton of foreclosures out there right now."
That's not the only trend. Ms. Zetterlund has also noticed more trouble among newer mortgages, the ones acquired after the economic downturn earlier this decade.
"I'm seeing a lot of properties bought in 2004 and already going to foreclosure," she said.
In a fix
Consumer Credit Counseling Service of Greater Dallas has seen an influx of people coming in with housing concerns.
"With the low interest rate, people are biting off more than they can chew," said Gail Cunningham, the company's vice president of business relations. "They've been extended a loan that really eats up a significant part of their income."
Even some mortgage lenders, worried about rising foreclosures, warn would-be homebuyers against borrowing too much.
"People a lot of times are getting themselves way overextended, and they're taking some nontraditional products," said Gary Akright, a mortgage broker in Dallas with Dominion Mortgage Corp.
One reason is the range of newfangled offerings such as interest-only mortgages and certain kinds of adjustable rate mortgages. Designed to hold down costs in the early years, payments on such loans can rise sharply later.
Proponents of such mortgages say they help homebuyers in places where home values are rising quickly, or people who plan to live in a home for just a few years.
But think hard about future costs before taking out a mortgage, says Bonnie Peterson, the director of education and marketing at Consumer Credit Counseling Service of North Central Texas, which serves Collin County.
Ms. Peterson, who is having a house built in the Collin County town of Princeton, recently went through the mortgage application process and found that lenders were eager to provide her with more money than she wanted to borrow.
"I was qualified for more, but I didn't think I could afford it," she said. "I want to have enough money to live the life I want to live."
More than half the potential foreclosure victims Ms. Peterson sees at work are able to save their homes, especially when they seek financial advice early, she says.
"A lot of people don't want to talk to anyone, or they wait too long," she said.
Bankruptcy option
Another option is bankruptcy, even though a new law that took effect last year made bankruptcy proceedings more onerous. Filing a Chapter 13 bankruptcy gives debtors up to 60 months to repay some or all of their debts. It stops the foreclosure process and gives them a way to make their payments.
"If they want to keep their home, bankruptcy is the way to go," said Richard Venable, a consumer bankruptcy lawyer in Bedford.
The last time local foreclosures were so high was during the Oil Patch recession of the late 1980s and early 1990s.
The good news is that today's foreclosures make up a much smaller percentage of the overall housing market because the residential base in North Texas has more than doubled.
Areawide problem
Another difference: Back then, home defaults were often clustered in specific neighborhoods. These days, they're all over.
George Roddy, whose Foreclosure Listing Service Inc. has tracked North Texas foreclosures for more than 20 years, said, "I remember there were subdivisions in the late 1980s that had huge numbers of foreclosures.
"Today we are not seeing that, and it's so spread out that it doesn't focus on a subdivision or neighborhood," he said.
And while in the '80s most people owed more than what their houses were worth, the latest stats show that foreclosed homeowners have at least some equity.
In the last foreclosure boom, lenders dumped houses and it wasn't uncommon to see property values fall by 30 or 40 percent in a neighborhood, Mr. Roddy said.
Now, some real estate investors are looking at the Dallas-Fort Worth area as a place where bargains can be had for lender sales. So far, however, lenders are seeking top dollar for such homes, even if that means keeping them on the market longer, realtors say.
"We certainly haven't seen the value loss like we had in the 1980s," Mr. Roddy said. "But if the foreclosure numbers hold up like we've seen for February, it could be pretty scary."
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