Spotlight: Texas Subprime Mortgages - Southwest Economy, First

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					  SpotLight                                         Texas Subprime Mortgages
                                                    Metros Vary on Risky Loans—and Delinquencies

The metros in exposure to subprimeTexas’
      Dallas–Fort Worth area leads                about 15 percent, and Austin–Round Rock among Texas cities. It was as low as 24 per-
                                                                                                   cent in Laredo and as high as 47 percent in
major                              mort-          had 14 percent.
gages—the high-risk loans that triggered the          Looking at the smaller metros, the data Victoria. ARMs accounted for about 40 per-
global financial crisis.                          show Wichita Falls led the state with about cent of total subprime mortgages in Texas
     In second quarter 2008, the two North 20 percent of subprime loans in serious de- metros, but Abilene had as high as 48 per-
Texas cites and their suburbs, with 29 per- linquency, while Odessa had the lowest pro- cent and San Antonio just 34 percent.
cent of the state’s metro housing units, ac- portion, with less than 10 percent.                          The current financial crisis has brought
counted for 37 percent of Texas’ metro sub-           Overall, Texas relied more than the na- a severe decline in subprime mortgage lend-
prime mortgages (Chart 1).                        tion on commercial subprime mortgages ing. Like the nation, Texas and its metros still
     The Houston area had about 24 percent from mid-2003 to mid-2007—the period have exposure to existing loans. Housing
of the subprime mortgages, a share slightly when such lending flourished. Yet in second prices, unemployment and overall economic
less than its 27 percent of housing units. quarter 2008, the state had less-severe prob- activity will play a significant part in deter-
                                                                                                   mining how many of them run into trouble.
Like Houston, Austin–Round Rock had few- Falls DFW with delinquencies Land Tyler Beaumont–Port Arthur Brownsville–Harlingen McAllen–Edinburg–Mission Sherman–Denison
                                          Wichita lems Laredo Waco Houston–Sugar and foreclosures                                                                                                     Corpus Chri
er subprime mortgages relative to housing than the nation did. Key to these trends were                                      —Wenhua Di and Anil Kumar
units. San Antonio had a share of subprime Texas’ higher ratio of homeowners’ equity in
mortgages almost equal to its share of Texas’ subprime loans and lower shares of highly
housing units, while El Paso had a slightly risky adjustable-rate mortgages (ARMs) and Notes
higher subprime share relative to housing cash-out refinancings.2                                  1
                                                                                                     For metro-level analysis of subprime mortgages in Texas,
units.                                                These factors vary widely among Texas also see “Subprime Mortgage Performance by Metro
     We classify mortgages as seriously de- metros. Loan-to-home-value ratios ranged Area,” by Wenhua Di, Federal Reserve Bank of Dallas
linquent when they’re more than 60 days from 82 percent in Austin–Round Rock to e-Perspectives, vol. 8, no. 2, 2008, dallasfed.org/ca/
past due or in foreclosure. Dallas–Fort Worth 88 percent in Odessa, with most metros re- epersp/2008/2_3.cfm.
led the major metros with about 19 percent porting average home equity just shy of 85 2 See “Why Texas Feels Less Subprime Stress than U.S.,”
of its subprime loans seriously delinquent, percent.                                               by Anil Kumar, Federal Reserve Bank of Dallas Southwest
closely followed by Houston–Sugar Land                The share of subprime loans includ- Economy, no. 6, 2008.
with 18 percent (Chart 2).1 San Antonio had ing cash-out features was about 38 percent




   Chart 1                                                                                            Chart 2
   Subprime Mortgages Highest in Dallas–Fort Worth                                                    Metros Differ in Subprime Delinquency Rates
   Percent                                                                                            Percent
   40                                                                                                 20


   35                              Share of Texas metro housing units
                                   Share of Texas metro subprime mortgages
                                                                                                      15
   30


   25
                                                                                                      10

   20


   15                                                                                                  5


   10
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    SOURCE: First American LoanPerformance data from Federal Reserve Board, April 2008; Texas metro
                                                                                                       SOURCE: First American LoanPerformance data from Federal Reserve Board, April 2008; authors’
    housing units from 2007 American Community Survey 1-Year Estimates; authors’ calculations.
                                                                                                       calculations.




                                            	            FEDERA L	RES ERV E	BANK	OF	DALL AS	•	FIRST	QUARTER	2009                7      SouthwestEconomy