Homeowners at risk of foreclosure

Don Currie used to see no more than two people a month walk through his doors, seeking advice on how to handle the pending foreclosure of their home.

Last month, Currie, who is the executive director of the Community Development Corporation of Brownsville, has seen walk-ins quintuple as an increasing number people have begun defaulting on their loans.

The trend is going up in Brownsville, Currie said, and it has been for some time.

“As these exotic loans begin to reset or homeowners fail to make their payments, they become a risk for foreclosure,” Currie said. “I expect to see this continue for some time.”

Families that had either poor or no credit in Brownsville bought homes through a variety of high-risk loans, such as the widely publicized subprime loan.

Buyers are lured by the favorable interest rate on the front end, but generally are unaware of the specifics of their loan. When their loan payments reset after a year, they are caught unprepared.

Monthly payments in some cases double, and if the homeowner failed to put aside money for taxes and insurance, which frequently happens, the family suddenly owes thousands of dollars.

Within a couple months debt has accumulated and payment is no longer possible.

And yet, delinquency and foreclosures are actually down 8 percent in Texas compared to 58 percent nationwide in the first half of 2006, according to Realty Trac, a California firm that gathers data on foreclosures nationwide.

But the housing market in Brownsville and indeed much of the Rio Grande Valley does not necessarily reflect the rest of the state, said Jim Gaines of the Real Estate Center at Texas A&M University.

Texas has avoided ails plaguing the California, Florida and Arizona housing markets, Gaines said, because the state never experience the housing bubble and the economy has remained relatively strong.

In addition, Texas has relied less on “funny money,” such as the subprime loans, as did other states, Gaines added.

While that may be the rule across most of the state, Brownsville would be the exception. Home construction in Brownsville has been funded largely through “exotic” loans, Currie said.

And since the market has all but dried up, companies like Obra Homes, KB Home and D.R. Horton have left the county due to the limited availability of credit in the area.

Single-family building permits have also suffered a sharp decline. Building permits have declined every month since December 2006, dipping into the double digits each of the last six months.

Statewide there were 10,252 foreclosures, 4,241 preforeclosures and 19,875 bankruptcies compared to 101, 108 and 373 respectively in Cameron County.

But those numbers might not reflect how widespread the problem has become, according to Ernesto Aguilar, a counselor with Consumer Credit Counseling of South Texas.

He said people show up on his doorstep desperate, looking for a way to prevent, if possible, foreclosure. He begins by analyzing their income and liabilities, but six out of 10 eventually are forced to leave their home.

In many cases he certifies people for bankruptcy, delaying foreclosure and giving families time to make other arrangements.

“People wait, unfortunately, hoping against hope that a miracle will occur and they won’t have to sell their home,” Aguilar said.

Aguilar puts less stock in predatory lending, emphasizing instead an overall lack of education on the part of homebuyers.

“The lender is under no obligation to explain anything,” Aguilar said. “And the buyer has never had to deal with this before and they have no idea what they are getting themselves into. When they find out they are crushed.”

The concept is known as caveat emptor, which basically states that a homebuyer buys at his or her own risk.

For his part, Currie and CDCB does its part to put low-income families in homes. The same families that would otherwise seek a high-risk loan.

Last year, they had 135 homes built. Families sign fixed-rate loans, typically with a seven-percent interest rate. So far they have not had any problems, Currie said.

“Our clientele know exactly what they are paying every month for the next 30 years,” he said.

Before a family is even allowed to buy, it has to go through an eight-hour homebuyer education course.

The housing market downturn has only begun to be felt in Brownsville, Currie said.

“This will definitely have a broader impact on the local economy,” he said. “How much could be a shock to everybody.”