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option for refinancing in Texas. Besides, creative loan products like interest-only loans and option ARMs are being offered to those looking for higher priced homes.

Texas reverse mortgage
The mortgage market in Texas has been able to develop a large base for reverse mortgage borrowers especially those looking for the HUD insured HECMs. The entire volume of reverse mortgages originated in Texas accounts for 5.7% of the total volume of such loans offered throughout United States. For the past few years, the largest number of reverse mortgage originations has taken place at Dallas in Texas. However, the amount of HECM insured by the HUD is restricted to each county in the state. This is known as the 203b limit.

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Subprime market With the shakeout in the subprime mortgage business nationwide, tougher lending standards are expected to follow and this is likely to affect Texas home buyers at a time when home sales are already on a slowdown. Increasing defaults and delinquencies in the subprime market have resulted in foreclosures in large numbers. Almost half of the current home foreclosures in Texas are due to the origination of subprime loans. Most of the subprime loans in default are adjustable rate mortgages on which borrowers failed to continue

the payments due to variation in interest rates. It is expected that owners of entry-level homes may not go for higher priced homes due to lesser number of buyers being available in the market. Besides, borrowers being reluctant to go for higher prices, lenders are also not ready to approve loans until and unless enough documentation is being submitted.

Housing market scenario
In order to prevent loans from going into defaults, big mortgage companies are offering home loans on the basis of more upfront cash, higher income level, and better credit scores. On one hand, these changes can minimize the number of defaults and foreclosures while on the other hand, it will result in fewer home sales in Texas, especially in the northern region. Besides, there being a lack of 100% financing, home sales are likely to get affected further. As of now, sales on low and moderate income home buyers in some areas of Texas (like Dallas) have declined by more than 20% in the past few years.

Due to the disturbance in the subprime market and the decline in home sales, builders who initiated new loan products have abandoned them. They are also concerned over the consequences of tightening lending standards on home sale activities. Home builders have slashed the new home starts by nearly 28% during the first quarter of the year compared to the same period last year. However, in spite of fewer home starts, closings of newly constructed homes are still on the rise.

Mortgage rates ahead
Currently the economy in the state looks strong and consumer spending is expected to improve by the steady growth of employment and increase in household wealth. As such there is a possibility that the Fed may again raise interest rates in order to curb inflation.