Debt Advizor

According to Steve Sailer’s website, the top ten states with the highest average consumer credit ratings are found among the people of:

South Dakota 710
Minnesota 707
North Dakota 706
Vermont 706
Massachusetts 703
New Hampshire 703
Montana 701
Iowa 700
Wisconsin 699
Maine 699

In contrast, the ten populations with the worst average consumer credit scores are:

Texas 651
Nevada 655
Arizona 659
New Mexico 663
Louisiana 663
South Carolina 665
Oklahoma 666
North Carolina 667
Arkansas 668
Mississippi 668

California (672) and Florida (673) are closer to the bottom than than the top.

Texas largely escaped the mortgage meltdown due to low land prices and high oil prices, but this suggests there might be trouble in Texas ahead if oil stays around $40 per barrel.

A record amount of commercial real estate loans coming due in Texas and nationwide the next three years are at risk of not being renewed or refinanced, which could have dire consequences, industry leaders warn. Without new lending, many malls, offices, warehouses and other properties could default or go bankrupt.

Texas has about $27 billion in commercial loans coming up for refinancing through 2011, ranking among the top five states, based on data provided by research firms Foresight Analytics LLC and Trepp LLC. Nationally, Foresight Analytics estimates that $530 billion of commercial debt will mature through 2011. Dallas-Fort Worth has nearly $9 billion in commercial debt maturing in that time frame.

If a loan is not paid off or refinanced when it matures, the lender can foreclose on the property. “This is a very serious problem, and it’s not going to go away very soon,” said Jeffrey D. DeBoer, chief executive of the Real Estate Roundtable, an industry group in Washington, D.C. “The issue is what happens when loans cannot be refinanced. The stress on the financial system itself would be quite acute, and the impact on local communities and jobs could be quite serious. All of this adds up to what we think is a compelling case for policymakers to restart the credit markets.”

In the last few years, lenders sold a record amount of real estate loans as securities to investors. Then the $900 billion commercial mortgage-backed securities market came to a standstill as the subprime housing debacle, Wall Street crisis and recession hit. The lack of credit weighs on the industry, considering the refinancings coming due.

Most of Texas’ $27 billion in loans maturing through 2011 – $18 billion – is held by financial institutions, according to Foresight Analytics. Texas also has $9 billion in commercial mortgage-backed securities, the third-largest amount after California and New York, according to Trepp.

“Banks are saying we have to pay them off or they’ll take the property back – that would be an unnecessary death knell for the industry,” said Steve Golding, president of Dallas-based developer Jackson-Shaw. “The banks are just going to have to be patient. If everyone is forced to sell, the banks are going to lose and the taxpayers are going to lose.”

In addition, little credit is available for new loans. Jackson-Shaw has $35 million to $40 million in construction loans coming due this year, half of which do not have extension options, Golding said. In those cases, the developer will try to negotiate extensions with its lenders or seek long-term commercial mortgages for the properties. In the past 18 months, Jackson-Shaw has built up a “war chest” of cash for such situations.

Texas Attorney General Greg Abbott on Wednesday said he is seeking legislation that would boost his statutory authority to help protect Texans from foreclosure rescue scams. Announced by the Republican attorney general and state Sen. Craig Estes, R-Wichita Falls, the proposal would, among other things, place new restrictions on foreclosure prevention consultants, and allow the attorney general to pursue bad actors under the Texas Deceptive Trade Practices Act.

“At a time when regulators, policy makers and stakeholders are working to help struggling families, unscrupulous operators are scheming to profiteer at homeowners’ expense,” Abbott said. “Too many scam artists attempt to target homeowners with large fees and the false promise that they could help Texans avoid foreclosure on their homes.”

Last week, the Mortgage Bankers Association said 11.5 percent of subprime loans in the Lone Star State had either started the foreclosure process or were more than 90 days in arrears. Nationwide, nearly 7 percent of homeowners were late on their house payments, the trade group said. The proposed Foreclosure Rescue Fraud Prevention Act would require foreclosure prevention consultants to provide consumers a plain language contract, obtain customers’ written consent before beginning any services or accepting any fees and require them to provide a disclosure statement instructing homeowners to contact an attorney or a housing counselor before signing mortgage rescue agreements.

“While most homeowners may never feel the threat of home foreclosure, it is an issue that can impact all of us when it strikes our neighbors, friends, and family,” Estes said. “We are here today to send a very clear signal that these actions by unscrupulous mortgage foreclosure consultants will not be tolerated.”

The attorney general’s announcement came on the heels of an enforcement action against Arizona-based Abell Mediation, Inc., and its president and vice-president, Elizabeth Cory and Michael Cory. They were charged with fraudulently claiming that their company could save homeowners from foreclosure. Their business cards claimed “Abell Mediation Inc. has saved over 7,000 homes from foreclosure,” and boasted about a “staff of highly trained loss mitigation specialists” with established relationships with mortgage lenders and banks. They promised to “achieve results that no one else can,” the attorney general’s office said. Under a settlement between the attorney general’s office and the defendants, they are permanently enjoined from conducting a foreclosure mitigation business. They are also required to pay a total of $1.55 million in fines, restitution and attorneys’ fees.

Q. My husband and I divorced in May 2007, and the divorce decree states that he was to sell our house by the end of 2007 and I would get half.But as of September 2008, he has not done so. He has not moved out or sold the house, and it doesn’t look like he has any plans to do so. Please let me know what I can do about this.

A. You should call your divorce attorney and request that he or she take steps to get your ex-husband moving on the sale. It is not clear from your question exactly what steps would need to be taken. If you are lucky, a call from your attorney to your ex-husband’s attorney may be all it takes. On the other hand, you may need to go back to court to move matters along. Your attorney may want to file a Motion to Compel in an attempt to force your ex-husband to follow through on the steps required of him in the decree. However, if your divorce decree was poorly written, and it lacked sufficient details describing the steps your ex-husband was required to take, then it may be necessary for your attorney to file a Motion to Clarify with the court. The court is not allowed to change the prior arrangement, but it can issue new orders providing more specificity. If all your divorce decree said was that your ex-husband was required to sell the home by the end of last year, then you may need the court to clarify the exact steps he is required to take. For instance, a well-drafted decree would have stated that your ex-husband was required to hire a listing agent by a specified date, to determine a sales price by a specified date, to sell the home by a specified date, to schedule the closing by a specified date and so on. In a worst-case scenario, if your husband continues to refuse to sell the home, the court may need to appoint a receiver to sell it. This means neither you nor your husband would control the sale, and neither of you would be able to approve or disapprove of the sales price or any of the other terms of the sale. Plus, the receiver would receive a fee, equal to a percentage of the sales’ price, for handling and arranging the sale.

Throughout the United States as well as on a local level, commercial real estate brokers are describing the “wait and see” attitudes of investors on the sidelines awaiting one thing: the market to bottom out. Their phones are still ringing off the hook, but it’s no longer offers they’re fielding, but investors wanting to be notified when properties ripe for foreclosure go back to lender.

“I get multiple calls every day from investors asking if I can please call them when a property goes back to lender,” said a senior vice president of investment properties. “I’ve got an actual list going here.”

According to the 2009 edition of Emerging Trends in Real Estate released in October by the Urban Land Institute and PricewaterhouseCoopers LLP, commercial real estate values are expected to find a bottom to the real estate bust in 2009.

The report, which surveyed more than 700 commercial real estate experts, stated overall, experts are bracing themselves for commercial real estate values falling by 15 percent to 20 percent from their mid-2007 peaks, with more severe declines for lesser-quality commercial properties in secondary and tertiary markets.

“Vulture” investors, as they are called, have raised billions of dollars in recent months in anticipation of opportunities to scavenge distressed assets and debt at discounted prices. Local real estate professionals say they have been in contact with many of the would-be investors, but no one is ready to buy until they feel the market has bottomed out. Instead, investors have circled and watched as the turmoil in the real estate and credit markets has worsened. But when desirable commercial properties begin to go back to the lender, experts expect the Dallas-Fort Worth market to be in a frenzy. The Texas market has withstood the real estate market fall-out considerably well, outperforming many states such as Florida, California and Arizona in both residential and commercial properties. Investors have their eye on Texas properties because they expect the market to bounce back quicker than most others.

Texas is a great place to be right now. When the recovery starts, there’s a lot of money salivating on the sidelines waiting, but ready to pounce when the time is right. Right now many investors are asking about deals and when I tell them we’re at eight cap rates, then they say to call them when caps reach nine. They want to make sure they are in front of us when deals start coming back from lenders.

Investors may pick up these properties for a fraction of their potential worth. But trying to make toxic loans work is time-consuming and labor-intensive, and carries huge risk of its own. People in repayment plans often default a second time. “Right now real estate is difficult to finance without anything approaching extensive leverage,” said Jim Gaines, research economist at the Texas A&M Real Estate Center. “You can probably get financing if you have about 60 percent of price now.” Gaines said those investors looking to pick up bargains may not see the kind of slashing they expect yet. “I think eventually the deals will be there to be had, but it’s going to be a while,” he said. “We are still a ways away from the point where investors lurking on the sidelines will see the kind of bargains they’re looking for.”

Despite the “vulture” label, brokers suggest there is a white knight aspect to the waiting investors. These bad loans are taken off bank balance sheets, where they can be re-assessed, re-priced and put back on market for going rates. The market is essentially digesting itself of the problem and that’s what needs to happen. There won’t be a full recovery until these properties are fully digested. That capital, which is not being invested at this time, includes money that has been allocated for real estate investment by pension funds and commingled funds and where the money raising has been completed.

Other brokers say that one thing that is drastically different in this real estate cycle than in any other he has witnessed has been the big influx of out-of-state money into North Texas commercial properties. When the nation’s real estate market was on track during the past few years, he said he saw amazing amounts of investment funds crossing state lines into Texas. A lot of investors in California, Florida, where the markets were becoming tapped, were buying outside of their wheelhouse here in Texas. As the nation’s real estate market has slowed to a halt, much of the local investor energy return to the North Texas real estate market. Even over the last 12 to 18 months more energy has come back to local players that for several years were being consistently out-bid by out-of-state investors. They’ve really started to re-engage in the last 12 months or so and, in that regard, it’s only going to get better. Are there going to be cents on the dollar deals out there? I’m sure there will be. The smart investor now is figuring out a way to de-leverage because in the market right now, cash is king. The advice to clients is not to bet on falling prices, but to take good deals when they come up in a market such as this one.

With rapidly increasing levels of foreclosure across the Sand States a growing number of cities across the country are aggressively forcing owners of foreclosed and abandoned properties to clean them up, Las Vegas is going after them with the help of a three-year-old ordinance that, until recently, wasn’t much needed. Under the law, Las Vegas’ Neighborhood Services Department oversees cleanups of decaying or ignored homes that generate neighborhood complaints. The city may water lawns or clean pools and go after the owners for the cost. If they don’t pay, they are slapped with $500-a-day fines.

Other cities, including Garland, Texas, a Dallas suburb of 223,000, are taking other approaches to the mounting foreclosure crisis. Garland requires owners of abandoned and distressed properties — often lenders that repossessed them — to pay the city $2,500 for upkeep, according to a USA Today report. Chicago has banned the use of plywood to board up homes after six months because of concerns that homes stigmatized by plywood attract squatters and crime. Cities in Nevada could enact such a measure, but the county probably couldn’t do so without the approval of Carson City. But there’s a good chance the county could follow Chicago’s lead and prohibit extended use of plywood on the windows of a home. It could be enforced as a misdemeanor or nuisance. The county, which governs the unincorporated parts of the valley, hopes to use about $17.3 million in federal dollars to buy and rehab foreclosed or abandoned single-family homes and rental units.

Anger over the blight caused by foreclosed and abandoned homes is evident in the number of complaints reported by the Southern Nevada Health District. Through Friday, the health district had received 2,772 complaints this year, compared with 1,624 in 2007. The 2007 figure had been a record, by more than 500. Local politicians suspect that local jurisdictions or the state may have to become more aggressive in their approaches, citing recent foreclosure data. In ZIP code 89074, which makes up much of her district, 965 properties are reported to be foreclosed, according to Bargain.com. But some in the real estate industry favor improved communication between them and local governments, versus fines, to address blight.

Mike Krien, president of the National REO Brokers Association and a Las Vegas Valley resident, thinks some cities are fining landowners as a means to raise revenue at a time when budget deficits are common nationwide. He prefers greater teamwork, noting that banks and lending institutions that repossess homes won’t approve spending money to fix homes unless the blight has been documented. If the cities have this proof, they could help expedite the process. The tag team approach is being pursued, too. Henderson recently held a forum to facilitate that, and Krien is working to schedule a summit with area homeowners associations in December.

In terms of legislation, politicians propose allowing homeowners associations to collect all past dues from the banks and lending institutions, versus just six months’ worth that the law now allows. The current law is problematic, HOA leaders say, because associations bear much of the burden to keep up abandoned homes. Accordingly, a community dotted with foreclosures probably will have depleted coffers to attend to the blight.

What is clear is that the seismic changes in the US economy are creating a real estate boom across the Sand States as foreclosures kick in. Consequently there are many real estate bargains still available. New members can search foreclosures free with a trial membership Click here for Bargain.com.. And if you see something of interest there is a five step process to follow:

• 1, Check your credit score, there is a great new program here Equifax Credit Watch Gold 3-in-1.
• 2, If there are problems with your credit have them fixed with Lexington.
• 3, The key to financial power lies in your credit rating. If you plan to get a home loan, save money and get better credit starting now .
• 4, See what kind of home loan you can qualify for at LendingTree.com.
• 5, Find a good Real Estate Lawyer, and you’re off to the races!

Even with a full-time job, Raul Garza had piled up a modest mountain of credit card debt. His Target store card was brimming every month. His American Express plastic was loaded up with $8,000 in charges, mostly for gas, groceries and household expenses. He bought a new Kirby vacuum from a door-to-door salesman – and charged it. By last spring, the tally had swelled to an uncomfortable $18,000.

Although the 55-year-old San Antonian says he was paying a little over the minimum payment each month, it was like chipping away with a teaspoon. Worried he’d never dig her way out of debt, Garza turned to one of the hundreds of “debt settlement” companies that promise, for a fee, to eliminate consumers’ unpaid bills by negotiating with their creditors.

In ads that blaze across TV screens, radio airwaves and computer screens, they promise results like “getting out of debt easy … while saving you thousands!” In Garza’s case, that’s not exactly how it turned out. After making $250-a-month payments since June to a San Antonio-area company, Garza says he’s financially worse off than when he started. Not only have his credit card bills not been whittled down but, by following the company’s advice to stop making payments, he says he’s now getting calls from creditors.

“I’m scared. I now owe them even more money because of late fees and interest,” said the state employee, who asked that his real name not be used. He’s one of thousands of consumers nationwide each year who sign up with so-called “debt settlement,” “debt relief” or “debt negotiation” companies. By whatever name, they can be risky. And – in an economy hobbled by layoffs, foreclosures and a credit crunch – they’re attracting more interest from overloaded consumers.

Stephen Cox, spokesman for the national Better Business Bureau, said there’s been a recent “spike” in inquiries from U.S. consumers asking about debt negotiation companies. Based on nearly 100,000 inquiries last year alone, he said, “our complaints will be up in 2008.” Gayle Weller, consumer protection analyst with the state Attorney General’s Office, said her office has seen a similar surge in calls. Some debt companies, she said, “play on people’s ignorance and their desperation.” Plenty of consumer groups warn consumers to be wary.

Folks in financial hot water can find themselves in “water that’s even hotter,” said Barry Goggin, president of the Better Business Bureau of Northeast California, based in West Sacramento. “Sometimes they’re grasping at life preservers without knowing who’s holding the other end.” In California, debt settlement companies are loosely regulated by the state Department of Corporations. Earlier this year, state Assemblyman Ted Lieu, D-Torrance, authored a bill to ramp up regulation of debt settlement companies, which he says have been “operating under a decades-old law not designed for the current environment.” His bill, designed to protect consumers from getting “scammed by a bad company,” would require more stringent licensing, caps on fees and more consumer disclosures. It passed the Assembly this year but died in a Senate banking committee. Lieu plans to revive it in 2009.

There are plenty of reputable companies out there to provide debt counseling and money management. To find the right one requires some homework. If you’re trying to get your debts reduced, try the do-it-yourself approach first, say Weller and other consumer advocates. Call your creditors directly and ask about better repayment terms and lower interest rates. If that’s not successful, look for a company that provides credit counseling. “If you need help managing your money, there are reputable credit counseling organizations that can advise you, help you develop a budget, and offer free educational materials and workshops. They can sit down with you and discuss your entire financial situation … to solve your money problems,” said Federal Trade Commission spokesman Frank Dorman.

A Debt Management Plan or DMP creates a payment plan to assist a client in full repayment of their debt. Therefore, the debts are not charged off, but instead paid in full. There is no negative impact to one’s FICO score because of repayment through a DMP, unless that client misses payments. Missed payments are equally negative whether the individual is on a DMP or repaying on their own. The concept that paying back the credit cards at reduced rates will harm one’s score is completely incorrect. In fact, the client’s score will likely improve due to the reduced debt load. This is a common misconception that prevents potential clients from seeking credit counseling.

Also be careful about jumping too quickly into a “debt management plan,” or DMP, where you pay a monthly fee to a company that pays down your debts, based on lowered rates it negotiates with your creditors. Even if your credit card debts get paid off at reduced rates, those charge-offs can cause long-term damage to your credit rating. As the BBB’s Goggin put it: “Your bad debts will drop your credit score like a ton of bricks.” For more tips on how to choose a debt settlement or credit counseling company, see accompanying box to the right.

So far, the mortgage meltdown hasn’t been as bad in Texas as in the four Sand States: California, Nevada, Arizona, and Florida. These are home to half of the country’s foreclosures and a large majority of the defaulted mortgage money. Why is that?

Partly this is due to the Oil Bubble, which now appears to be ending. Oil prices over $100 per barrel kept the Texas economy strong in 2008, allowing debtors to avoid foreclosure, and to keep employment levels high. Also, the enormous amount of land and the lack of environmental restrictions on home development in Texas means that when the federal government stimulates demand, the supply of housing increases quickly as well, keeping housing prices reasonable.

Texas seems to have a more established Hispanic community. Hardly surprising really!

Finally, what was most important was how different was Texas’s economic and immigration history over the last three decades relative to the seemingly similar Sand States. Due to OPEC’s oil price increases in the 1970s, Texas experienced a huge construction boom thirty years ago. That mostly attracted construction workers from the rest of the U.S. rather than from Mexico, because Mexico was simultaneously experiencing its own oil boom following massive new discoveries. When oil prices collapsed in 1982, the economies of Texas and Mexico slumped simultaneously. The big wave of post-1982 unemployed illegal aliens therefore headed for California rather than for Texas.

That’s why San Antonio had “surprisingly low levels” of immigration from 1965 to 2000, according to the important new book quantitatively comparing Mexican-Americans in San Antonio and Los Angeles in 1965 and 2000, Generations of Exclusion, by sociologists associated with the UCLA Chicano Studies Program. The 2000 Census found that California’s foreign-born population (26 percent of all residents) was almost twice as large as Texas’s (14 percent). As a result, unlike the other Sand States in 2000, Texas had a large but fairly well-rooted, stable, and assimilated Mexican-American population that had a reasonable potential to make enough money in resource-extraction or other blue-collar jobs to afford to buy Texas’s cheap houses.

In sharp contrast, California had a huge and mostly new, ill-educated, and unassimilated Mexican-American population that didn’t have even a chance of making enough money in Silicon Valley or Hollywood to afford California’s already expensive houses. And Nevada, Arizona, and Florida were more like California than they were like Texas.

So, who are the bad guys here: Texans or Californians? That’s what people always want to know: who’s the bad guy and who is the good guy? The point is that our country’s two biggest states are just very different, and much of that has its roots in their very different terrain. For example, everybody in California would prefer to live near the Pacific because the climate and scenery are so nice. In contrast, in Texas (and the other Gulf of Mexico coastal states), the threat of hurricanes means people tend to prefer to live inland. Galveston used to be the dominant port of Texas’s coast, until the hurricane of 1900 drowned 6000 people, after which Houston (45 miles inland and 45 feet above sea level) became the main metropolis. So, Affordable Family Formation works better in Texas than in California.

This doesn’t make Texans or Californians good or evil, it just makes them different. And because the two states between them account for 60 million people, it’s crucial that Americans get a better grip on the differences between the two states.

Maria Lopez is incredibly serious about avoiding debt. The 23-year-old customer-service representative for FedEx in Houston recently cancelled her credit card. Now she gets her entire paycheck deposited onto a prepaid debit card , which she uses for all her purchases. Since she can access only what’s in the account, Garcia no longer worries about breaking her budget: “I’m spending just what I need.”

This option is becoming increasingly popular for consumers reeling from a series of economic body blows. As a result debit cards are becoming the plastic of choice. Some use the cards, which pull money directly from a bank or other account, as a budgeting tool to limit spending. Others are embracing them out of necessity as banks clamp down on credit. All told, debit purchases are expected to climb 13% in 2008, to $1.2 trillion, according to The Nilson Report, an industry newsletter—compared with a 3% rise, to $1.9 trillion, for credit-card transactions. At Visa, the No. 1 card company, debit spending could surpass credit this year.

A mesa on the road side

There’s also a land grab for the so-called under banked, the roughly 80 million people who don’t have a bank or credit-card account. Dallas’ Comerica Bank won the right this year to issue debit cards to the estimated 4 million Social Security recipients who don’t have bank accounts. The government deposits the money onto a prepaid card. Visa and MasterCard offer prepaid debit cards that companies use to pay employees.

The aggressive push is paying off. These days, debit cards are as widespread as credit cards. At the upscale suburban Atlanta restaurant Aqua Blue, waitresses now bring diners a device that lets them swipe their debit card and enter their password to pay for meals. “Debit is becoming the payment card of choice for the American public,” says Red Gillen of consultancy Celent. But for consumers like Lopez who want to break free from the high fees and penalties of credit cards, debit cards may be the panacea.

The Dallas Morning News reports that Texas’ real estate foreclosure numbers are down in September and the third quarter, compared with both the prior month and quarter. According to the September report compiled by Irvine, Calif.-based RealtyTrac, 9,193 homes in Texas entered the foreclosure process in September— a 15.4 percent decline from the volume of filings posted in August 2008.

As part of RealtyTrac’s latest report, the firm ranked the top 100 metro foreclosure markets — based on the percentage of houses in a given city that were in foreclosure during the third quarter of this year. The higher a city’s ranking, the higher the percentage of homeowners who have received foreclosure notices. The greater Dallas area ranked No. 54 on the dubious Top 100 list, with 6,542 properties in foreclosure, which is actually down 20 percent when compared to the area’s foreclosure numbers last year. Even more impressive, the September 2008 numbers mark a 37.4 percent decline from the number of filings posted in Texas in September 2007.

Third-quarter results, however, were a little mixed. For the three months ended Sept. 30, 27,445 homes in Texas entered the foreclosure process — marking a 5.7 percent decline from the number of postings reported during the second quarter of this year. But on a year-over-year basis, third-quarter 2008 filings were up slightly — 2.5 percent — compared to the number of filings reported over the same three months in 2007.

RealtyTrac figures are based on filings for all three phases of foreclosure: default, auction and real estate owned. (Real estate owned, or REO, means that the property has been foreclosed on and is now owned by a lender.)