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Volume 11, Issue 2, 2011   Federal Reserve Bank of Dallas

Texas Housing and Mortgage Update

Texas and other areas in the Eleventh District did not experience a drastic home appreciation or expansion of exotic mortgages in the lead-up to the recent recession; therefore, the region did not get into a mortgage crisis as severe as in some other parts of the nation (Figure 1). However, the region has not been immune to the consequences of the financial system turmoil and the economic slowdown.

Figure 1
Seriously Delinquent Mortgages in the U.S. (December 2010)
Figure 1: seriously delinquent mortgages in the U.S.

NOTE: "Seriously delinquent mortgages" are loans 90 days past due or in foreclosure.
SOURCE: Lender Processing Services.

Although Texas' foreclosure rate as a percentage of total mortgages serviced has stayed lower than the national level since 2007, it increased throughout the recession (Figure 2). The foreclosure inventory exceeded 2 percent for Texas and 4.6 percent for the nation in first quarter 2010 and then dropped afterward, partially attributed to the demand surge with the homebuyer tax credit. The foreclosure inventory bounced back in fourth quarter 2010. The increase may be related to a seasonal drop in sales but suggests that foreclosure activities may not have peaked. The inventory has resumed growing since third quarter 2010.[1]

Figure 2
Foreclosure Inventory: Texas vs. U.S.
Figure 2: Foreclosure Inventory: Texas vs. U.S.

SOURCE: Mortgage Bankers Association/Haver Analytics.

Geographic Variations

Mortgage loan performance varies across Texas. Table 1 shows the volume of mortgages and delinquency rate for the 30 Texas counties with the largest numbers of prime loans being serviced in the Lender Processing Service database. These counties share a similar story: Subprime accounts for only a small percentage of total loans serviced, and the foreclosure rate for subprime is much higher than for prime loans. In the four large counties in North Texas—Dallas, Tarrant, Collin and Denton—over 24,400 prime and 6,100 subprime mortgages are seriously delinquent.

Table 1
Mortgage Delinquencies in 30 Texas Counties (December 2010)

Prime loans
Subprime loans
Total past
Total past
Harris 385,637   8.92   3.85   21,507   41.21   27.34  
Dallas 232,185   10.19   4.5   10,345   42.21   28.82  
Tarrant 205,748   8.96   3.94   6,577   41.37   28.3  
Bexar 174,901   9.26   3.62   6,218   40.4   24.96  
Travis 124,482   5.33   2.3   2,495   35.63   22.57  
Collin 114,093   5.9   2.65   2,354   41.08   29.14  
Denton 100,050   6.53   2.83   2,268   40.92   27.07  
Fort Bend 75,193   7.48   3.34   3,428   42.68   28.82  
Williamson 70,820   6.55   2.68   1,403   40.27   26.66  
El Paso 55,617   9.09   3.15   2,771   37.57   22.09  
Montgomery 55,175   6.48   2.66   1,677   38.64   23.91  
Bell 38,376   7.08   2.95   647   36.01   23.8  
Galveston 37,470   7.21   2.99   1,476   39.97   25.68  
Hidalgo 33,078   11.4   4.25   2,840   40.49   24.33  
Brazoria 32,194   7.94   3.51   1,268   45.58   29.18  
Nueces 27,560   9.07   3.39   1,146   40.23   23.65  
Lubbock 25,559   7.39   2.43   515   33.4   16.89  
Cameron 21,604   11.32   3.81   1,486   38.56   23.22  
Hays 20,798   7.37   2.94   487   41.68   26.28  
Ellis 17,365   11.45   4.95   737   41.93   26.73  
McLennan 17,310   7.4   2.69   491   38.9   20.57  
Comal 16,684   6.16   2.5   350   39.71   22.57  
Johnson 16,523   10.23   4.3   542   38.01   23.62  
Brazos 15,946   4.21   1.2   271   33.95   17.71  
Smith 15,209   7.05   2.68   435   45.75   28.97  
Guadalupe 14,843   6.27   2.31   266   39.47   22.93  
Webb 14,004   15.24   4.96   954   45.81   28.3  
Jefferson 13,336   10.21   3.76   620   40   24.84  
Rockwall 12,867   8.03   3.56   299   41.14   27.09  
Kaufman 12,685   11.79   5.17   474   44.73   30.59  
Source: Lender Processing Services Applied Analytics.

Figure 3 shows Texas home price appreciation from fourth quarter 2009 to fourth quarter 2010. Texas had a smaller decline in home prices than the nation did. Home appreciation in all major Texas metros is likely to turn positive later in 2011 or in early 2012 if the state has a strong economic recovery.

Figure 3
Home Appreciation in Texas Metros from 2009:Q4 to 2010:Q4
Figure 3: Home Appreciation in Texas Metros from 2009:Q4 to 2010:Q4

SOURCE: Federal Housing Finance Agency/Haver Analytics.

The composition of loans in earlier stages of default indicates how many are in the pipeline for foreclosure (Figure 4). The foreclosure rate has been trending up over the past four years for the whole nation. However, there were fewer loans delinquent for 90 days and above in December 2010 than in December 2009, which suggests that foreclosure activities are about to peak.

Figure 4
Mortgages in Default From December 2006 to December 2010
Figure 4: Mortgages in Default From December 2006 to December 2010

SOURCE: Lender Processing Services.

The same is true for Texas. In December 2009, serious delinquencies in the state reached almost 4 percent, but in December 2010 there were fewer loans about to foreclose. It is worth noting that in Texas foreclosures and serious delinquencies are less common than in the U.S., but the rates of 30-day and 60-day delinquencies have always been higher than in the nation. Texas borrowers seem to be more likely to miss one or two mortgage payments but are usually able to catch up in the third month. Although less detrimental than foreclosures, these delinquencies still impair borrowers' credit. A lower credit score will limit the borrower's future credit access and increase the cost of credit.

A major contributing factor to the increase in foreclosures during the earlier stage of the recession was the originations of risky mortgages—the nontraditional mortgages that extended credit at higher prices to borrowers whose mortgage applications may have been denied in the past because of poor credit or lack of down payment. These mortgages have financially overburdened some borrowers, leading to delinquencies and foreclosures. Subprime loans have the highest delinquencies among all mortgages. Figure 5 shows that at the late stage of the recession, serious delinquencies gradually increased among other types of mortgages as well.

Figure 5
Serious Delinquencies by Loan Type in Texas
Figure 5: Serious Delinquencies by Loan Type in Texas

*Not seasonally adjusted.
SOURCE: Mortgage Bankers Association/Haver Analytics.

The overall mortgage market performance mainly depends on the performance of loan types with large volumes. Figure 6 suggests that subprime loans did not have a large penetration in Texas, and the share has shrunk since the recession's beginning. A majority of loans being serviced are still conventional prime loans, but the share dropped from approximately two-thirds in 2007 to about 62 percent in fourth quarter 2010. The Federal Housing Administration (FHA) has expanded its share, although not substantially. According to the Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, FHA has been the most common financing method among all home sale transactions in Texas in the past two years. Texas real estate agents' participation in the national survey varies month to month, but the dominance of FHA financing has been persistent in the survey results.

Figure 6
Number of Mortgage Loans Serviced in Texas by Loan Type
Figure 6: Number of Mortgage Loans Services in Texas by Loan Type

SOURCE: Mortgage Bankers Association/Haver Analytics.

The delinquency rate for prime loans is the lowest among different loan types; however, it was closely trending with the subprime loans through the recession and went above 4 percent in early 2010 (Figure 7).[2] The deterioration of prime mortgage performance in Texas was likely caused by the broad impact of the economic recession, and in particular, the increase in unemployment.

Figure 7
Texas Prime Mortgage Delinquencies Trending With Subprime
Figure 7: Texas Prime Mortgage Delinquencies Trending With Subprime

NOTE: Total number of loans serviced as of December 2010: prime = 2,179,681; subprime = 79,755.
SOURCE: Lender Processing Services.


Texas Gathers Momentum for a Recovery

Texas has a relatively healthy economy compared with the nation. Texas' energy, high-tech and trade sectors have enabled the economy to outperform the nation in the recovery from the recession. Even with the population surge in Texas during the past decade, the state's unemployment rate has been lower than the nation's by an average of 1 percentage point since January 2007 (Figure 8).[3] Rising oil prices also benefit the state generally. Still, the recent jump in unemployment in Texas was the largest since the Great Depression. It will take significant time to bring the high unemployment rate down to the level before the recession.

Figure 8
Unemployment Rate (Age 16 and Over)
Figure 8: Unemployment Rate (Age 16 and Over)

*Seasonally adjusted.
SOURCE: Bureau of Labor Statistics/Haver Analytics.

The performance of the housing sector directly affects employment in the construction sector and the demand for housing-related commodities. Particularly in Texas, construction is sensitive to housing demand. The number of building permits in the state at the end of 2010 was half the number at the end of 2007.

Approximately 30 percent of home sales in Texas were distressed in January 2011. The share was significantly lower than in the nation as a whole, which approached 50 percent according to the Campbell/Inside Mortgage Finance Survey. The increasing foreclosure inventory, lack of demand and large share of distressed sales have pushed housing prices lower (Figure 9). Texas home values didn't experience an abrupt boom and bust—as occurred in the nation—but appreciated at a slower pace during the recession and started depreciating in 2009.

Figure 9
FHFA House Price Index Year-to-Year Change
Figure 9: FHFA House Price Index

*Not seasonally adjusted.
SOURCE: Federal Housing Finance Agency/Haver Analytics.

According to the CoreLogic Report on U.S. Housing and Mortgage Trends, the share of homes with negative equity is approximately 23 percent for the whole nation, and Las Vegas–Paradise in Nevada topped all core-based statistical area (CBSAs) with a share of more than 73 percent.[4] In Texas, far fewer homes have negative equity. The state overall had approximately 11 percent, and Dallas–Plano–Irving and Houston–Sugar Land–Baytown CBSAs had about 14 percent and 12 percent homes with negative equity, respectively. The decline in housing assets and housing liquidity affects consumers' ability to tap housing equity for consumption. Overall, the housing sector remains a drag on a full recovery despite several positive signs in Texas.

—Wenhua Di


  1. In the fall of 2010, several large loan servicers suspended foreclosures across the U.S. because of allegations of potential fraudulent practice in signing foreclosures. It is referred to as the "robo-signing debacle" because foreclosure proceedings were signed without careful verification of paperwork.
  2. Among the loans serviced in December 2010 in the Lender Processing Services (LPS) database, only about 3.5 percent are subprime loans. The share of subprime loans in LPS is much lower than that in the Mortgage Bankers Association (MBA). MBA divides the conventional sample between prime and subprime based on whether the servicer handles primarily prime or subprime loans. Hence, there are some prime loans in the subprime sample and some subprime loans in the prime sample.
  3. For more information, see "Texas Twist: Why Did State's Unemployment Fall Below Nation's?," by Anil Kumar, Federal Reserve Bank of Dallas Southwest Economy, Third Quarter, 2010.
  4. The Office of Management and Budget defines a core-based statistical area (CBSA) as an area based around an urban center of at least 10,000 people and adjacent areas that are socioeconomically tied to the urban center by commuting.

e-Perspectives, Volume 11, Issue 2, 2011

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