McAllen largely avoiding home foreclosures - but for how long?

McALLEN — Hidalgo County has the highest rate of subprime mortgages in the country, according to one research company.

Another says McAllen has the second highest mortgage delinquency rates in the entire nation.

But despite all the signs that subprime lending could be wreaking havoc on area residents and forcing thousands to lose their homes, local foreclosure rates are still among the lowest in the country — primarily thanks to a growing economy, dropping unemployment and a real estate market that continues to defy the national trend.

“Foreclosure listings are actually down from what they had been,” said Steve Radle, an Edinburg appraiser who compiles foreclosure listings for real estate firms and other investors.

“It really has never gone up that much.”

Many blame subprime lending for much of the nation’s real estate bubble burst last year.

Subprime is a type of loan given to someone with poor credit. Those loans either have high interest rates or adjustable rates, which cause payments to balloon several years into the loan.

Subprime naysayers say the loans help people buy homes they otherwise couldn’t afford. The loans, they say, put buyers at high risk of losing the home when they can’t keep up with payments as interest kicks in.

Avoiding crisis?

Analysts and foreclosure watchers point to subprime and delinquency statistics as the first signs of a foreclosure meltdown.

More than 27 percent of all of McAllen’s loans are subprime, according to LoanPerformance, a lending research company in California.

Additionally, McAllen has the second highest mortgage delinquency rate in the entire country at 6.78 percent in the second quarter of 2007, according to a Wall Street Journal report earlier this month.

But bad loans and late payments haven’t been enough to make area residents give up their homes.

The area’s foreclosure rate has been among the lowest in the country during the last 18 months, according to Realtytrac.

If the startling statistics were new to the area, area experts would say the area’s foreclosure rate was ready to skyrocket.

However, delinquencies and subprime are standard to the market here and area residents have avoided the foreclosure steps since the nationwide crisis began in early 2006.

Delinquencies have increased less than 1 percent over the same period last year.

Strong market

In June, 513 homes started the legal foreclosure process.

However, with Texas’ lengthy legal process to foreclose a home, owners have plenty of time to look at other options before they lose their investments. Few homeowners who enter the foreclosure process finish it, Radle said.

Often, those owners refinance or sell their homes and they escape a credit-damaging foreclosure.

The reason homeowners here and in some select parts of the economy have been able to avoid foreclosure is a strong real estate market, which is a result of a strong economy, said Bob Visini, president of marketing for LoanPerformance.

Among subprime borrowers in McAllen, 11.15 percent are delinquent by 60 days on their mortgage, about 3 percent of the entire market, Visini said.

“When unemployment rates are good and the economy is strong, people can avoid foreclosing because home values hold up,” Visini said.

“Tip of the iceberg”

In this area, home prices have steadily increased and home sales are actually stronger than last year, in terms of both sales and values.

When people can sell or refinance their homes, they can avoid losing their home for nothing, said Janie Alegria, head of the Rio Grande Valley region for Consumer Credit Counseling of South Texas.

However, not everyone is confident that Valley homeowners will remain unscathed by subprime lending.

Since the start of summer, Alegria has seen a deluge of people looking for help with their subprime mortgages.

She thinks the problem is likely to get much worse as more people see their mortgage payments increase.

“We are just getting the tip of the iceberg,” she said.

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Kyle Arnold covers business, the economy and general assignments for The Monitor. You can reach him at (956) 683-4410. For this and more on local stories, visit www.themonitor.com.