Mortgage settlement could have impact on Cameron County

Texas homeowners will receive nearly $287 million to restructure existing mortgages as part of the $25 billion National Mortgage Settlement agreement that stemmed from a nationwide investigation into wrongdoing by the country’s five largest mortgage lenders.
While some critics say it’s a drop in the bucket compared to the magnitude of the injury, at least one local Realtor thinks the settlement could do some good in markets such as Cameron County, where home prices didn’t balloon as in states like California and Nevada. Texas, in general, has enjoyed relatively stable home prices during the housing bust, even if sales and some markets — such as Cameron County’s — remain fairly stagnant.
Besides helping some homeowners who are “underwater” — those whose homes are worth less than they owe on their mortgages — a portion of the $287 million will be paid to Texas homeowners whose homes were foreclosed on as the result of questionable practices by lenders. Those practices included “robo-signing,” a practice in which bank employees signed foreclosure documents without reading them; inadequate loan and improper record-keeping. The result is that scores of homeowners were kicked out of their houses improperly.
Texas was among eight states and four federal agencies that negotiated what is being touted as a landmark settlement. Texas will also receive $141 million for violations of state law by the five financial institutions: Bank of America, Wells Fargo & Company, JPMorgan Chase & Company, Citigroup, and Ally Financial Inc., formerly GMAC. Together, the five lenders service nearly 60 percent of the country’s mortgages.
“Today’s agreement imposes a variety of reforms that are intended to benefit homeowners, help the nation move past the housing crisis and provide certainty to aid our long-overdue national economic recovery,” Texas Attorney General Greg Abbott said in a prepared statement.
The White House announced the settlement agreement on Thursday. Officials’ hope is that the agreement, in addition to aiding homeowners and forcing a change in lenders’ habits, will inject some life into the moribund U.S. housing market, which is holding back the country’s economy recovery.
Among the details of the agreement, the five banks will commit at least $17 billion directly to borrowers through foreclosure relief effort options — including debt principal reduction for qualified borrowers. The principal reduction program will be aimed at homeowners struggling to make their current mortgage payments but who could handle the lower payments triggered by a reduced loan amount.
Also under the agreement, the five banks will commit $3 billion to the Underwater Mortgage Refinancing Program, created to help homeowners who owe more on their houses than the properties are currently worth. To qualify, borrowers must be current with their mortgage payments on a mortgage by one of the five banks. Underwater borrowers can get their loans reduced by up to $20,000.
The states collectively will get another $4.25 billion, including $1.5 billion for payments to borrowers who suffered servicing and foreclosure abuses by one of the five banks between Jan. 1, 2008, and Dec. 31, 2011.
By federal court order, the agreement also requires major changes in how the banks service mortgage loans and handle foreclosures. An independent monitor will be appointed to ensure compliance. The agreement also establishes several new consumer protections. Although it will take three years to execute the complete terms of the agreement, over the next six to nine months homeowners eligible for immediate cash payments, principal reduction and refinancing will be identified and contacted by mail. Homeowners may also contact the banks directly.
Mark Dotzour, chief economist with the Real Estate Center at Texas A&M University in College Station, said he doubts the settlement agreement’s provision aimed at underwater homeowners will have much impact on Texas.
“Our housing values have pretty much held their own throughout this housing bust,” he said. “We didn’t have the rampant price appreciation that some of the other markets saw in 2006 and 2008. I don’t know that we’ve got a significant amount of homes that are underwater in the state of Texas. The bill obviously wasn’t designed with Texas in mind.”
It’s true Texas foreclosure rates are nothing like those of states like California, Nevada, Arizona and Florida. According to data from RealtyTrac Inc. and the U.S. Bureau of Labor Statistics, Riverside County, Calif., saw a foreclosure rate of 1 in 130 homes in November 2011.
That’s compared to 1 in 4,592 for Cameron County during the same month. Other Texas counties are in worse shape in terms of foreclosures. In Harris County (Houston), for example, 1 in 621 homes underwent foreclosure in November 2011. In Travis County (Austin), it was 1 in 1,392 for the month.
“I don’t think it’s a bad idea,” Dotzour said. “It lowers (borrowers’) interest expense. By definition that raises their spendable income. In a way I can kind of see how that would help stimulate the economy and create a special class of borrower that would be able to refinance under this program.”
Even if the housing crisis didn’t hit here as hard as it did other parts of the country, foreclosures still occur here, and people are still struggling with their mortgage payments. So says Keith Cummins of Prudential Cummins and Balli Realtors in Brownsville.
“We see it happening all the time,” Cummins said. “One of things that I guess is a measure of it is we continue to get listings from people like Bank of America. That’s where a huge portion of our business comes from, selling foreclosures. That’s a sad state of affairs, but that’s where we are.”
He thinks the agreement’s provision that helps underwater borrowers by allowing up to $20,000 to be shaved off the amount of the loan could do some good in Cameron County, though he’s not so sure about places like Nevada.
“Down here where we didn’t have the severe run up (in prices), and where we have lower average values anyway, that would probably be some help,” Cummins said. “But in most parts of the country, if you paid $275,000 and you borrowed $225,000 of that but your house is now worth $125,000, then $20,000 isn’t going to do much.”
The local residential real estate market, meanwhile, still isn’t showing much sign of improvement, he said. Cummins said an uptick in sales in recent weeks, while welcome, wasn’t enough to declare a trend. One measure of how well homes are selling in a given market is how many months on average houses sit on the market before selling. It’s called “months inventory.”
According to A&M’s Real Estate Center, Brownsville had a months inventory of 12.4 months for December 2011. The figure for Harlingen was nearly twice that, at 24 months. South Padre Island’s months inventory clocked in at 37.4. By comparison, homes in Midland — perhaps the hottest real estate market in the state — were on the market a mere 3.3 months on average before finding a buyer.
Even though Cameron County’s residential real estate market continues to scrape bottom, Cummins said he’s encouraged by signs of improvement nationally — falling unemployment, for instance, and reports from the National Association of Realtors that pending sales are on the rise.
“I think the National Association of Homebuilders may be seeing some light at the end of the tunnel, too,” he said. “What encourages me locally is the new commercial construction that we’re seeing. When you see things like the medical clinics that have been built, H-E-B’s (expansion) and office parks, that’s what gives me encouragement.”