By DAVE MICHAELS / The Dallas Morning News
WASHINGTON – Even as banks streamline programs to renegotiate troubled mortgages, efforts to help Texas homeowners are being hindered by the state's fast-track foreclosure process, according to housing counselors and government officials.
In other states, foreclosure can take as long as four months, giving the borrower more time to negotiate a better loan or catch up with missed payments. But in Texas, the process starts sooner and may take as little as 41 days to complete – the quickest in the country, according to a 2006 study by the Texas Department of Housing and Community Affairs.
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"The biggest obstacle we have in Texas is we are a very fast foreclosure process state," said Linda Davis-Demas, assistant housing director for the Consumer Credit Counseling Service of Greater Dallas, which works with borrowers. "We are always up against the gun in regards to that."
Texas' foreclosure laws are so adverse to struggling homeowners that state Attorney General Greg Abbott plans to push the Legislature next month to lengthen the time homeowners have to "cure" a default, from 20 to 45 days.
Under state law, a homeowner who doesn't catch up on payments after receiving the 20-day notice can lose his or her home.
Mr. Abbott, who obtained a predatory-lending settlement against Countrywide Financial Corp. that could lead to more affordable loans for 30,000 Texans, said the 20-day window is far too short in the current economic environment.
"Twenty days, when you count the fact that people have things going on, that is just real short notice to get anything done," Mr. Abbott said in a phone interview. "Forty-five days more than doubles the length of time."
Texas' residential foreclosure laws haven't changed since 1984, after state lawmakers decided borrowers should be given 20 days before foreclosure could start, said Judon Fambrough, a lawyer and senior lecturer at Texas A&M University's Real Estate Center.
Texas mortgage bankers don't think the law needs to be changed now, said Larry Temple, general counsel for the Texas Mortgage Bankers Association. Mr. Temple said mortgage servicers are "anxious" to help struggling homeowners.
"We believe the time frames now are pretty fair and reasonable," Mr. Temple said. "It's after the borrower is in default and has failed to make a payment or two that they are given notice and are in default. If they don't [cure it], then comes the foreclosure.
"You put all of that together, and in most cases the borrowers are 90 or 100 days delinquent," he said.
Housing crisis
The housing crisis has been most acute in states such as California and Nevada, where many borrowers took on exotic loans to finance homes that always seemed to appreciate in value.
The foreclosure process takes longer there than in Texas, indicating that more time doesn't necessarily mean borrowers will find a way to save their homes.
Last week, the Mortgage Bankers Association reported that 11.5 percent of subprime loans in Texas had either started the foreclosure process or were more than 90 days behind in payments. The figure was 9 percent at the same point in 2007, according to the MBA, which says state foreclosure laws can complicate the loan-modification process.
Dallas-Fort Worth had more subprime loans than Houston and San Antonio combined, according to a study by the Federal Reserve Bank of Dallas. Many of the area's subprime borrowers got adjustable-rate mortgages, whose interest rates reset to much higher levels after two or three years.
Forrest Brannon of Dallas was one such borrower.
Mr. Brannon, a 78-year-old veteran, is running out of time to save his home after he got behind on his monthly payments, which almost doubled in recent months, from $379 to $700.
Mr. Brannon said his finances were imperiled when he and his wife had to spend more money on health care, including a $3,000 bill for dental work. He got behind on his mortgage, then received a notice his home would be sold about a month ago.
First Franklin Loan Services, his servicer, has agreed to work with him, Mr. Brannon said. But he has less than a month to find a solution, he said.
"I can't hardly write, and now I've got to send bank statements and fax forms," said Mr. Brannon, a former postal worker who lives off disability from an injury he sustained on the job. "I feel I should have more time to get these mortgage payments together. The thing about it is, I could pay a little extra and get caught up."
Bill Halldin, a spokesman for First Franklin, said he couldn't discuss Mr. Brannon's case specifically. But he said the company reaches out to borrowers "dozens of times" before initiating foreclosure. The information includes referrals to mortgage counseling services, he said.
"Unfortunately, often borrowers do not respond to our requests and in some instances [we] are unable to work out a solution," Mr. Halldin said.
Vexing problem
Mr. Brannon's experience illustrates a problem that is vexing lawmakers and housing experts. Despite widely publicized efforts to rescue troubled homeowners, foreclosures are rising, and experts are divided over whether loan workouts are working.
A report this week by federal regulators showed that more than half of borrowers whose loans were modified in the first half of 2008 have since fallen behind on payments.
"This raises questions ... about what modifications work and what ones don't work, and what else needs to be done," said Bryan Hubbard, a spokesman for the Office of the Comptroller of the Currency, which regulates national banks.
Federal Deposit Insurance Corp. chairman Sheila Bair, a leading advocate of loan modifications, said many servicers still aren't changing loans enough to make them affordable.
Sherry Randall, office director of housing for Acorn Housing in Dallas, agreed: "A lot of them are being stuck on repayment plans or given loan modifications, where there are changes but the payments are still high."
Some are tempting foreclosure even as they wait for new loans. That's because most servicers are modifying loans for only the most delinquent borrowers – those who are more than 90 days behind. By that time, the foreclosure process could have already started for some Texans.
JoAnn DePenning, statewide coordinator for the Texas Foreclosure Prevention Task Force, said Texas should push to include information about foreclosure-prevention resources with notices that are sent to delinquent borrowers. Mr. Abbott's recommendation "is the first very strong push to change our process," Ms. DePenning said. But "if you are just saying we are giving you longer and aren't changing any other part of the process, you are delaying the inevitable."
Staff writer Jessica Meyers in Dallas contributed to this report.
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