Foreclosures bitting more homeowners / Number so far this year in county is alre

Billy Addison could soon join the thousands of area homeowners who've catapulted Harris County foreclosures past last year's numbers.

As of Oct. 3, the county had 7,339 foreclosures, which eclipses last year's total of 7,132, according to Woodlands-based Foreclosure Information & Listing Service.

That's 23 percent higher than the same period last year.

The reasons, according to experts, include overextended borrowers, lax lending practices and rising interest rates.

Addison finds himself in over his head two years after buying a two-story, three-bedroom home in Houston's Northridge Park West for $165,856.

The 27-year-old contractor, who was recently notified that his lender had begun foreclosure proceedings, stopped making mortgage payments in March because rising property taxes made the home unaffordable.

He now hopes to sell the home before the foreclosure becomes final.

"I bought a home because I wanted to see my money go into something I would own," said Addison, who was also attracted by a big backyard and a 100 percent financing option. "Now that I see the other side of it, I kind of think maybe I shouldn't have."

Although foreclosures are mounting, experts don't see any major effect on the local economy. But they do say the rising numbers could affect housing prices and make it harder to sell homes.

First-time buyers

Foreclosures tend to happen to first-time buyers like Addison who don't always realize what they're getting into, real estate experts said.

Houstonians aren't alone. The Mortgage Bankers Association said foreclosures in Texas are slightly above the national average.

In the state, five of every 1,000 mortgages entered foreclosure through the end of the second quarter of 2006, compared with 4.3 of every 1,000 mortgages nationally.

In recent years, borrowers have had access to an unprecedented variety of products: low or no down-payment loans, interest only loans, adjustable rate mortgages, low documentation loans and 100 percent financing.

All opened the door for many first-time buyers, according to a study released last month by the Texas Department of Housing and Community Affairs.

"In most cases they could get a home regardless of their credit," said Wilfred Broussard Jr., a real estate broker in Houston who constantly gets calls from financially strapped homeowners trying to sell their residences. "Often these people probably weren't educated enough about homeownership and loans and terms. They just dream the American dream to buy a home."

Property tax crunch

That dream became a nightmare for those who watched monthly payments swell as interest rates rose or those who saw tax bills jump after their first year in a new house.

Addison was no exception.

At closing, Addison's monthly payment was $1,489 on a fixed-rate loan with an interest rate of 6.5 percent. But the next year, his property taxes jumped and his monthly payment reached $2,314.

At the time of sale, the Harris County Appraisal District valued only the land on which his newly built home sat. But the next year, an updated appraisal included the home, and Addison had to pay for both the current year and previous year, which pushed his monthly payment up by $800.

Addison signed a document at closing acknowledging his payments could go up, he said, but he wasn't told it could be that much.

"If I knew it was going to go up that much, I would never have bought it," he said. "No one ever explained anything to me."

Addison said his agent, De'Andre Burgs, didn't come to the closing, and no one explained his taxes could increase dramatically.

Burgs, president of The- NewHomeShop.com, said he can't remember if he went to Addison's closing, but he said he is certain he always discloses everything to all his clients.

"It was a long time ago, so I can't recall everything or every conversation. But a lot of times buyers want the homes so bad, and then they get into a situation and they realize how hard it is to be a homeowner and this happens," Burgs said. "They're getting in by the hair of their chinny chin chin. I'm quite sure everyone disclosed the information, but when the situation changes, they get upset."

Because mortgage companies often underestimate the taxes on new homes, Burgs, 29, said he usually advises his clients to put extra money aside.

"I used to work for a builder and saw the tricks of the trade. It just didn't register well with me," he said. "I'm a minister, so I don't try to hurt people and get them into homes when they can't afford them."

But even if Addison's taxes hadn't gone up, he may never have been able to afford the house. A review of the mortgage application that he provided the Chronicle shows he made $3,316.25 a month, a third of that coming from overtime. However, his monthly debt, including the underestimated mortgage payment, totaled $2,118 - putting his debt-to-income ratio at 64 percent.

The ratio tells lenders how much of an applicant's income will go to pay debts.

While lenders use different ratios for different kinds of loans, the Federal National Mortgage Association, which buys loans from lenders, uses a benchmark ratio of 36 percent. It considers loans with ratios of 45 percent or higher to be at a significantly higher risk of default.

KH Financial, the lending arm of Kimball Homes, approved Addison's loan. Kurt Geist, Texas regional manager for KH Financial, said privacy laws prevent the company from talking about any individual borrower's loans.

Little time

Like Addison, borrowers may try to sell the home before it's lost.

But Texas' quick foreclosure process, compared to that of other states, leaves little time for borrowers to save their homes.

It could take as little as 41 days after a default for a homeowner to receive a notice of foreclosure from the lender. It takes an average 21 days after that to lose the home, according to the state's study.

Homes facing foreclosure can also be hard to sell if a homeowner doesn't have enough equity in the home to attract investors. And the selling price tends to include closing and commission costs, which can often push prices above the home's market value.

Houston, like much of Texas, has had appreciation rates of 2 to 3 percent over the last four years, said Barton Smith, a University of Houston professor of economics.

"What we've got is a market in which people have overextended themselves in a housing market that's not providing them the ability to bail out," said Smith, who predicts foreclosure rates to rise at least through next year. "When they get into trouble, the only way to get out is to walk or come up with extra money to close the gap."

Addison is trying to sell his home for far below what he paid to avoid foreclosure and salvage his credit.

His home has been on the market since March, and he has had to steadily drop his asking price from $148,900 to $129,000, as he watches others around him walk away from their homes or succumb to foreclosure - pushing home prices in the neighborhood down.

With the help of a new real estate agent, Addison found a home to lease when his home is sold or foreclosed.

"I'm ready. I've prepared myself to lose this home," he said. "I've been preparing myself since I put it on the market in March."