The Lone Star State was the scene of the original land rush back in the 1800s and now, more than two hundred years later it is no different. Beachfront properties, ranches and lakeside homes are being snapped up in the great State of Texas where house prices have kept a steady if somewhat slowed growth and foreclosures have risen but nowhere anything like the rest of the continental USA.

So what’s up? Why is Texas so different?

Well, for starters it is big and it is popular and it has everything. It has lakeside properties, beachfront, mountains and plains, rivers and creeks. It seems you name your ideal kind of property and Texas has it.

Because of this variety Texas is a litmus test for the health of real estate in the rest of the country. Variety and the quality of properties on offer have meant that Texas home prices rose in a more steady, sustainable manner than in the rest of the country. At the same time supply has kept pace with demand and the number of foreclosures experienced across the Lone Star State have been relatively low given the number of home sales.

It is precisely because of this even mix that Texas has highlighted that we can see that the state of the real estate market across the country will soon be in a phase of recovery which will need to a natural upswing.

This means that the foreclosures we are seeing are part of the natural correcting mechanism that is built into the real estate market and is intended to release the necessary, frozen capital needed to revitalise the market and allow first time buyers to get their foot on the property ladder.

With foreclosures beginning to release a fresh batch of reasonably priced homes lenders are beginning to loan money to new owners, at better terms, thereby injecting a new momentum in the real estate market which will start to pick up steam again and expand as rapidly as it had before the current credit crunch with the sub-prime mortgage sector began to bite.

It is highly likely that the picture of gloom we are seeing at the moment is part of the natural inertia of the system which is slow to show recovery and better home sale figures. It is definite however that, as the foreclosed properties are released, sold and bought, a fresh batch of home owners will inject much needed cash into the market and there will start again the steady rise in the confidence of buyers and investors in real estate and the inevitable creep of house prices, elements of which we already see in many areas of Texas. 

As foreclosures begin to get a lot of press coverage, inevitably, what comes under scrutiny is the lending practice, criteria and even advertising methods of some of the lenders in the real estate market.

A recent news item on CNN, for example, highlighted the fact that many borrowers in trouble were pulled in by deceptive ads such as LowerMyBills.com. The ads featured dancing figures, apparently happy about low-loan rates. One ad claimed a “$145,000 mortgage for under $499 a month!” Few, if any, borrowers actually scrolled to the bottom to see payments actually double over time.

It is exactly this kind of advertising practice and the fact that very recently a top level mortgage broker publicly admitted that they were under pressure to meet tough monthly targets by practically helping self-certified borrowers fill-in mortgage application forms in a way that would make it possible for the borrower to apply for a much higher loan than would otherwise have been possible.

With practices like this it is no wonder that borrowers caught in the hard world of the sub-prime mortgage market are in trouble, nor is it any wonder that lenders are over-exposed. Lawmakers and cynics are already talking about greed being the undoing of the lenders but that, right now, is beside the point.

What is required here are two distinctly different forms of action, none of which has anything to do with the knee-jerk reaction of banning sub-prime mortgages, as some have been calling for in the news.

The first, is already been taken, President Bush and members of Congress as well as 37 State Prosecutors have began to pressure lenders to be a little less eager to foreclose on properties and actually work with struggling home owners to resolve the issue where possible.

The second, and probably the hardest to implement, is the enactment of regulation which will safeguard, in future, borrowers from exactly the kind of sharp practice they have been exposed to this time round. Whether this is a self-regulatory or a legislatively-driven kind of regulation is, at this stage, immaterial. We clearly need something in place if we are to preserve the healthy growth in home ownership figures and the fact that the existence of sub-prime mortgages gives the opportunity to borrowers who would not otherwise be able to buy a house, to benefit from the great American Dream.

The state of our economy is only bolstered from home ownership and to contemplate anything that negatively affects that is clearly a short-sighted, knee-jerk reaction which will do more harm than the foreclosure and mortgage debt problems it tries to avoid.

The moment the US government under President Bush, members of Congress and no fewer than 37 top State Prosecutors pile pressure on lenders to communicate with struggling home owners rather than simply pull the plug and automatically foreclose on a property the owner of which has missed a number of payments you know that just because a home owner’s finances have taken a bad turn it does not mean that nothing can be salvaged.

Let’s look at the facts that usually govern a situation about to go to foreclosure: 1. The homeowner has missed a number of payments and is facing some financial difficulty. But he was able, prior to that to actually make payments and keep things together so there is a good chance that given some leeway he can do it again.

2. The lender is following an in-house process which flags up a property for foreclosure. There is a built-in safety margin in this process which varies from lender to lender but times are tough and lenders these days are afraid that if they wait any longer and house prices dip they will lose even more money as the homes they have foreclosed on fetch a lot less than they might fetch now.

3. For a lender to foreclose on a property and decide to take possession and sell it on marks a certain desperation. Lenders are not really geared up to sell houses. Foreclosed properties are always less than perfect and even a prime example in a really good location usually fetches up to 40% below its market value, many times far less.

You will ask, quite naturally, why are there foreclosures then? Well, because it is the only tool left to lenders after borrowers fail to make a number of payments that ensure that they get some of their money back and send a strong message to other home owners regarding making their payments on time.

The point here is that with lenders under pressure from official channels to be a little less quick to foreclose on properties, struggling homeowners now have the opportunity to fight to keep their property by talking to the lender and seeing if they can come to some arrangement.

The rules here are: be honest, be creative and be prompt. Do not wait until the eviction agents are at the door to ring your lender. Call or write. Explain the problem in detail and, above all, offer a solution. In the foreclosure stakes Officialdom, for once, is very much on your side so make sure you capitalize on it and keep the communication channels open. After all it is your home that is at stake.