Texas Community Reinvestment Update 2007

Appendix D:
Highlights of "A Study of Residential Foreclosures in Texas"

House Bill 1582, passed by the 79th Legislature, required a study of mortgage foreclosure activity in Bexar, Cameron, Dallas, El Paso, Harris and Travis counties. The Texas Department of Housing and Community Affairs (TDHCA) coordinated the study that evaluated:

  1. the extent to which the terms of mortgages are related to the foreclosure rate and whether such terms could be offered in a manner to reduce the likelihood of foreclosures;
  2. the socioeconomic and geographic elements characterizing foreclosures;
  3. the securitization of mortgages in the secondary market and its effect on foreclosures;
  4. consumer education efforts to prevent foreclosures; and
  5. recommendations to reduce foreclosures and the foreclosure rate across the state.

HB 1582 established an advisory committee (Committee) to direct the study. This committee included one representative from the Texas Housing Research Consortium at the University of Texas at Austin who also served as Chair, TDHCA's executive director; Texas Savings and Mortgage Lending (SML) Commissioner, four members assigned by TDHCA who represent community and consumer interest and four members appointed by SML that represent the mortgage lending industry.

Texas leads the nation in terms of the total number of foreclosures. Comparing foreclosure statistics by state from July 2005 to June 2006, Texas had 36,362 foreclosures. The committee also studied foreclosure rates for six counties in Texas: Bexar, Cameron, Dallas, El Paso, Harris and Travis. Harris County (6,119 foreclosures) ranked highest in the number of total foreclosures for the period June 2005 through May 2006. Dallas County had 6,107 foreclosures during this period, followed by Bexar (2,440), Travis (1,195), El Paso (476) and Cameron (354). The data comes from the Web site's reported number of real estate owned (REO) properties which were purchased by the mortgage holder following a foreclosure sale.[83]

According to the study, the number of pre-foreclosures and actual foreclosures varies among the states due to differences in individual state foreclosure process requirements and housing market conditions. The pre-foreclosure period can include the initial public default notice until the time that the property is sold at auction. Between states, the notification requirements and length of different foreclosure proceeding stages also vary.

Generally, Texas has lower residential property appreciation rates compared to California, Florida and Nevada where the number of foreclosed properties sold is below the number of posted foreclosures. According to the study, homeowners in California, Florida and Nevada have less difficulty selling properties in foreclosure to cure default and profit. Texans, however, have more difficulty selling property at a high enough price to successfully cure a mortgage default.

A borrower's ability to make mortgage payments or default on loans is usually the primary cause of delinquency. The study reported four primary factors contributing to the inability to meet monthly mortgage payments. The first factor involves changes in personal situation, including job loss or reduction in income and major uninsured medical crises. The second factor relates to the failure to comprehend or plan for mortgage obligations. A third factor includes being a victim of unlawful lending or unscrupulous mortgage practices including flipping, loan churning, excessive fees, lending without consideration of a borrower's ability to pay, fraud and abuse. The fourth factor involves a borrower who voluntarily participates in fraudulent activities to qualify for a loan or profit from a dishonest transaction.

Comparing estimated foreclosure timelines by state, the study committee found that Texas' foreclosure process is quick, short and simple compared to comparably sized states like California and Florida. Texas is a "power of sale" state that does not require a judicial foreclosure process. Foreclosures can occur without court involvement. States with a comparable foreclosure rate, but longer foreclosure periods include Colorado (166 days), Indiana (251 days), Michigan (90-425 days), Ohio (217 days) and Utah (138 days). Texas' non-judicial foreclosure process from delinquency to foreclosure sale can be as short as 41 days.[84]

The study described current foreclosure reduction strategies and laws in Texas, reviewed legislated procedures across the U.S., and summarized their effectiveness. The study group recommended areas needing further research and improvements to current foreclosure prevention efforts. Two common trends were identified in the study:

  • the correlation between high foreclosure rates and particular demographic data was found across five of the six counties evaluated. El Paso County's high concentrations of minority populations did not correlate to higher foreclosure rates, and
  • residential foreclosure rates are tied to lower income levels and increased use of higher rate loans.

The study recommended further analysis of Texas-specific data on the causes of foreclosure, including factors that result in defaults on loans. Analysis could be provided through funded academic research or the mandated data collection requirements. The study Committee suggested that the Legislature appropriate funds to:

  • fund enforcement of stronger fraud laws;
  • broaden multilingual education and outreach efforts to increase borrower awareness and options to settle delinquencies; and
  • provide financial support to expand buyer education programs and organizations to help buyers with the foreclosure process in Texas.

The study committee recommended that the Legislature:

  • adequately fund enforcement of stronger fraud laws in Texas;
  • expand multilingual education efforts for borrowers to work loan delinquencies; and
  • provide support for expanding homebuyer education initiatives and of organizations to counsel borrowers in the foreclosure process.