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VOL. 121 | NO. 186 | Thursday, September 21, 2006

Frayser Foreclosures Revealed

New report gives more insight into area's housing issues

By Andy Meek

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RIPPLE EFFECT: A report by the Frayser Community Development Corp. sheds more light on why the area, which falls within the 38127 ZIP code, is plagued by foreclosures.

Looking out the group's office window at 3394 Overton Crossing St., staffers of the Frayser Community Development Corporation (FCDC) can see a title/payday loan office, a pawn shop and a company that buys foreclosed homes.

There's a laundry list of reasons why the struggling Frayser community - found in Memphis' 38127 ZIP code - is propelling home foreclosures in Shelby County to four times the national rate. Or why foreclosures abound in Frayser more so than anywhere else in Memphis.

Some of those reasons are spelled out in a new publication by the FCDC, the group's 2005 foreclosure report for Frayser. And some of them can be found simply by looking out the window, where ominous signs of the community's collective misfortune continue to show up on one corner, then another, and yet another.

The poor get poorer

Developed in the post-war boom of World War II, Frayser once was a model suburban neighborhood of middle-income industrial workers. Today, the FCDC's new report suggests, Frayser's negative housing data indicates a community that's in danger of mortgaging its future and being held hostage to an unwieldy mix of low-value homes and shady mortgage lenders.

"Over the last five years, one in four households in the city of Memphis has experienced some kind of foreclosure notice. The American Dream is home ownership, and one of the things that concerns me is - while the dream is wonderful - we are not really prepared for it."
- Beanie Self
Frayser-area civic leader

"I still don't necessarily claim to understand the whole problem," said Steve Lockwood, executive director of the FCDC. "There's a lot of information in the report, and half the time it brings up other questions.

"That being said, we do know some things. Like, the actual foreclosure numbers are up from '04 to '05, and we were already pretty alarmed about that. That's the real concrete thing."

On the one hand, borrowers nationwide generally appear to be staying on top of their mortgage payments. The Mortgage Bankers Association (MBA) earlier this year released data showing that delinquencies - loans that are 30 days past due - were down slightly from late 2005.

Douglas Duncan, chief economist for the MBA, was quoted in the New York Times in July as saying housing prices are expected to rise by about 6 percent this year. That, he said, would give a large number of home-
owners the wiggle room they need to avoid any financial squeeze.

'A house of cards'

Meanwhile, the FCDC report indicates that certainly isn't the case in Frayser - and that even Memphis proper has cause to worry.

First, even though home sales prices rose 11.5 percent per square foot in Frayser last year, equity levels there remain dangerously low, according to the report.

Frayser leads the Memphis area in rates of subprime loans, which are loans that charge borrowers high interest and other fees. Those are distinguished from predatory loans, which generally have unreasonably high fees and often are structured so borrowers have a difficult time paying off the loan.

2005 Foreclosure Report
By: Frayser Community Development Corp.

Where: A link is available at www.memphiscommunitydevelopment.com

Major finding: Frayser ZIP code 38127 had the highest rate of foreclosures in the Memphis area in 2005

The mortgage situation in Frayser, in effect, is a house of cards - and it's likely one reason why Memphis showed up recently on a list of the top 10 cities with refinanced home loans with high costs attached to them.

"There's just a limited source of funding for low- to moderate-income folks right now, so a lot of times people in that range will go someplace they shouldn't go," said Fran Warner, sales manager at First Tennessee Home Loans. "They don't know what they're getting, they just know they're getting into a house right now, no money down, and the payments will be this."

Upside down ... and out

Memphis landed in a top spot on a recent survey by the Association of Community Organizations for Reform Now, or ACORN, which ranked the top metro areas at risk for "rate adjustment shock" - the term ACORN used to describe a proliferation of adjustable rate mortgages due to be reset at higher interest rates this year.

Especially in Frayser, many homeowners have gotten "upside down" on their loans, meaning they owe more than their homes are worth.

In 2005, Frayser's 38127 ZIP Code had 477 actual foreclosures, up from 267 in 2004, according to the report. With a total of 9,868 owner-occupied homes in the community, last year's figure put Frayser's foreclosure rate at 4.8 percent.

By comparison, the MBA's first quarter 2006 National Delinquency Survey showed the percentage of loans in the foreclosure process was 0.98 percent.

Dreams and nightmares

Yet there are still large tracts of undeveloped land in the community of about 46,000 residents, with strong social ties to local churches, schools and civic groups. The FCDC also is trying to make some headway in educating area homeowners who fall into the abyss of foreclosure, and by making sure others avoid the trap altogether.

"We are, for various reasons, just a center for subprime and predatory lending, and that is a phenomenon that could and should change," Lockwood said. "That's partly just a public education thing. There is also credit available even to folks with some pretty poor credit scores.

"If you talk to the prime lenders, they are dipping down into some pretty low scores to loan really decent mortgage rates to folks. But that sure beats them taking out high-risk, high-interest loans with balloon payments after five years and prepayments and lots of other things that make it riskier."

The FCDC's report, then, offers a significant glimpse at a social problem that not only pervades the community of Frayser.

"Over the last five years, one in four households in the city of Memphis has experienced some kind of foreclosure notice," said Beanie Self, a longtime civic leader in the area. "The American Dream is home ownership, and one of the things that concerns me is - while the dream is wonderful - we are not really prepared for it.

"People don't realize you have a real estate industry, an appraisal industry, a mortgage industry now that can really push to put people into houses that a lot of times they really can't afford."

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