Boom Is Over : Houston--Foreclosure City, U.S.A.

Jerome Price and his wife, Veronica, have always worked hard. When they bought their house six years ago, it never occurred to them that it would come to this--that they would be trying to work out a deal with the mortgage company to avoid losing their home.

Price, a machinist, never expected the work to dry up, never dreamed that he would have too little money coming in to make the mortgage payment.

“Having the house foreclosed is the last resort,” he said. “This is the time in our lives when we are supposed to be doing well. I never expected to have to be struggling to feed and clothe my two little girls.

‘Terrible Strain’

“This kind of thing puts a terrible strain on our marriage. Veronica and I will stay together, but I can tell you a lot of other people around here haven’t been able to. I can walk down the street and see 10 or 12 houses where people just boarded them up and walked out.”

In Houston, with its economy scraping bottom and little hope for recovery soon, there are hundreds of Jerome Prices. They are people who have always thought of themselves as solid citizens--people who pay their taxes and expect an honest day’s pay for an honest day’s work. Many of them, facing the humiliation and financial trauma of having their homes posted for foreclosure, have decided their only way out is to walk away from the single largest investment most families ever make.

Houston, which has always taken great pride in its boom town reputation, takes no pleasure in its new role: Foreclosure City, U.S.A, where people are losing their homes at an unparalleled rate.

Foreclosures Unrivaled

No single agency, either governmental or private, monitors the number of foreclosures on a city-by-city basis. But none of the financial experts interviewed by The Times could even suggest a city that rivals Houston--the fourth largest city in the country--in the sheer number of houses going on the auction block as mortgage companies attempt to salvage what they can of their outstanding loans.

The Federal National Mortgage Assn., the country’s largest supplier of money for home loans, has set up a special office in Houston just to deal with the volume of foreclosures, roughly one-sixth of all its foreclosed properties nationwide. Nowhere else has that been necessary.

Last weekend, the federal lender held a foreclosure auction here for 150 homes. Bob Engelstad, who conducted the auction, said that Houston has the highest foreclosure rate in the country.

A comment by Barton Smith, the director of the University of Houston’s Center for Public Policy, is typical: “I can’t imagine anyplace where it could be worse.”

Huge Jump in Homes Lost

The Foreclosure Listing Service of Houston reports that 2,486 buildings, most of them homes, were posted for foreclosure in September. By comparison, there were only 434 foreclosures in Houston for the same period in 1980. (Los Angeles County had 882 foreclosures for August, the most recent figures available.)

“In the ‘60s and ‘70s, a man’s wealth was tied to his home equity,” said Smith, whose center recently completed a housing study of the city. “In some cases, you’re talking about a family’s wealth that has been wiped out.”

He also said that, while foreclosures in Houston are approaching epidemic proportions, it could be much worse.

“The only thing holding some people back (from walking away) is the stigma and the fear of what it will do to their future credit,” he said.

Not Limited to Houston

The increase in home foreclosures is not unique to Houston. Instead, the city is just the most striking example of record high mortgage defaults. Houston’s rival city to the north, Dallas, had 797 postings for September, more than twice the number for the previous year.

The Federal National Mortgage Assn., known in the trade as Fannie Mae, instituted stricter national guidelines for loans in early August because of the rapidly increasing number of cases of home buyers going into foreclosure. The move will make it much more difficult for first-time buyers to purchase a home because the guidelines call for larger down payments and less of the “creative financing” that became popular when interest rates skyrocketed in the late ‘70s.

But in Houston, it appears to be too late to stem the foreclosure epidemic, because a combination of factors have come together at the wrong time. Among them are:

--An economic slump that is all the worse because it follows the oil boom years in which freewheeling spending lured many into thinking their fortunes could only grow.

--The unraveling of many creative financing plans. For example, those who bought homes under plans in which interest payments were artificially low in early years and then higher later on, now find themselves with rising payments at a time when they cannot afford an increase.

--The slowdown of inflation, causing home values to remain stagnant at best and, in many cases, to decrease.

Little Relief in Sight

With forecasts that the economy will not revitalize until the 1990s, there appears to be little relief in sight.

“The problem we see in an area like Houston is, in the context of that economy, there isn’t any sign that it’s going to be coming back,” said Roger Lister of the Chase Econometrics forecasting firm, based outside Philadelphia. “The shakeout process is under way. We are pessimistic in terms of bringing foreclosures down.”

That is extremely bad news in a city where “For Sale” signs are as common as lizard-skin boots. Sellers whose houses have now been on the market for several years are finding that they paid too much for their homes in the first place, when it was taken as absolute that inflation would allow them to make a profit even if their own personal finances forced them to sell. And for all the generalities about Houston’s headlong dive, it is the personal stories that give it meaning.

Steven Husky is 30. During the height of the boom years of the late ‘70s and early ‘80s, he was taking home $800 a week from the oil patch. He and his wife, Lynette, bought a home, and their course seemed set. But then came the bust, which began in 1981, and his salary has now shrunk to $200 a week. When the family could not make ends meet, the house was posted for foreclosure.

‘I’m So Embarrassed’

“I never thought to plan for anything like this,” he said. “I’m so embarrassed. I never thought anything like this would happen to me. I guess you could call it ignorance. I was blind to anything like this happening.”

Husky soon realized he would have to sell the house or face the prospect of sinking even deeper in debt. He put the house on the market but found no buyers. The mortgage company balked at working out a deal.

“I worry so much about being able to take care of my kids,” he said. “I only hope things get better.”

Karl Kuenning and his wife bought a house 3 1/2 years ago, and, together, their income seemed more than enough to make the house payments. But their marriage crumbled at about the same time that the real estate market began its long decline. Making the monthly $1,100 payments became more difficult, because Kuenning worked on commission selling electronic equipment, another business that suffered as Houstonians cut back on buying non-essentials.

“I never fell behind on the payments, but I was borrowing money each month to make them,” he said. “I tried to sell the house twice. I tried to refinance it twice. But the house wouldn’t appraise for anything close to the loan balance. Finally, it came to the point where I wasn’t going to pay any more money to keep the house going.

“I walked the house,” he said. “I just decided I couldn’t handle it any more. I never counted on getting divorced. I never counted on the economy going down the toilet.”

Hoping to Make a Deal

Kuenning has leased a less expensive house in Houston and is still trying to work out a deal with the mortgage company. But he faces another problem because his father co-signed the original note. All he can do, he said, is hope the lawyer he has hired can work out a deal with the mortgage company so that his father is not hurt.

Greg Candelaria had another kind of problem. Six years ago, he bought a home in Houston. Two years ago, he decided to move to a new one.

He put his first home on the market and, like so many others, found no one interested in buying. He rented it, but his tenants stayed only for short periods before moving out. Finally, he just stopped making payments nine months ago.

“To be honest, I thought it would be easy to sell,” he said. “But I could no longer justify a $640 payment on that house. It got to the point where the capital outlay was more than the tax benefits.”

Declining Values

The bad news is that there will be more Jerome Prices and Steven Huskys and Karl Kuennings and Greg Candelarias. Pat O’Neill, the director of property management for Fannie Mae, estimates that Houston has about 100,000 more homes, town houses and apartments than it needs, which means that their values will continue to decline.

“You get some very solid citizens who have lost their source of employment,” he said. “It’s just been horrid. And as more and more homes come on the market, it decreases the value even more.

“I think what’s needed is patience and a little bit of time,” he said.

Ray Brody, who deals with foreclosures for the Veterans Administration in Houston, agreed.

“I’ve seen it before. It’ll work out, but it will take time,” he said.

Researcher Joanne Harrison assisted in the preparation of this article.