VOL. 122 | NO. 96 | Thursday, May 24, 2007
Up, Up and Not Away
By Eric Smith
GOING ONCE: Attorney Bren Olswanger (second from left) holds a foreclosure sale Wednesday afternoon on the steps of the southwest corner of the Shelby County Courthouse as Tom Michael (from left), Thomas Hewgley and Michael Hewgley listen. -- Photo By Eric Smith
Homeownership is supposed to be the American dream, but Steve Lockwood knows this isn't always the case - especially for those who seek counseling services at the Frayser Community Development Corp., where he serves as executive director.
"To some degree, it's become the American nightmare," Lockwood said. "The last few years, homeownership has not always been the way to build wealth for families. It's supposed to be a savings account for low-income families and it hasn't worked out like that lately."
Indeed it hasn't.
For the third consecutive year, home foreclosures rose sharply in Shelby County. Foreclosure sales numbered 6,064 in the year between May 2006 and April 2007, according to The Daily News Online, www.memphisdailynews.com. First-run foreclosure notices, or a bank's public notice that it will sell a home if debts are not settled, totaled 10,993 during the same period.
And Lockwood understands why Frayser's 38127 led all ZIP codes with 956 foreclosure notices and 642 foreclosure sales in that timeframe: These numbers come on the heels of another alarming statistic in which Frayser leads the way.
"It's no coincidence that Frayser suffers from the highest rate of predatory and subprime loans," he said. "This is the fruit coming to bear on that problem."
But Frayser's numbers weren't the only stats that raised eyebrows.
The North Memphis community followed on the list of the highest number of foreclosure notices and sales by the Westwood ZIP of 38109 with 872 notices and 498 sales; the Raleigh ZIP of 38128 with 738 and 389; and the Parkway Village ZIP of 38118 with 678 and 383.
A foreclosure notice means the bank or mortgage company is telling the homeowner it intends to sell the house if payments are not made. A foreclosure sale means the house actually has been sold at a foreclosure auction.
Numerous factors play a role in the county's foreclosure rate, and one of the biggest stems from subprime lending, which is typically offered to homebuyers with sub-par credit.
In this scenario, a homebuyer is put into more home than they can afford through an adjustable-rate mortgage (ARM) - the kind of financing that allows for a low monthly payment but comes with a high interest rate.
Often, these mortgages begin with fixed rates and then change to variable rates after two years. When the rates change, the monthly payment is adjusted beyond what the homeowner can afford.
This loan product has been increasingly popular over the last few years, with a surging number of them occurring in 2004.
"Here we are a couple of years later," said Michael Wiegert, vice president of Wachovia Mortgage Corp. and president of the Memphis Mortgage Bankers Association. "I'm sure there are people who got into that type of loan, and now the payment's too high for them. If they've got poor credit and can't refinance, or if their house price has stagnated or decreased in value and they don't have enough equity to refinance, then they're struck either trying to sell or they lose the house."
Cutting losses cuts everyone
With a huge inventory of homes on the market already, losing a house is the more probable scenario.
And it affects more than just the homeowner who was foreclosed and forced to move, likely back to an apartment. The ripple effect of so many foreclosures reaches far into the immediate and surrounding neighborhoods.
"It hurts the psyche of the community and it creates empty houses," Lockwood said, "but it very concretely hurts the value of surrounding houses."
How, exactly, does it do this? Wiegert noted that banks are not in the business of property management, so they try to sell foreclosed houses as quickly as possible, often reducing the price to rock-bottom levels to get them off the books.
"When there are multiple foreclosures in the neighborhood and the bank has to sell them at below-market value, (it) has a negative effect on everybody's value in that neighborhood," Wiegert said. "So even someone with a perfectly manicured yard and fully updated house still is not going to get full market value because other homes in the area sold for below full market value.
"Ultimately, the main goal is to sell the property with the minimal loss as possible."
With this in mind, banks and mortgage companies tend to focus on foreclosures of higher-priced homes, which is why the city's ZIP codes with lower-priced homes tend to be overlooked, said Corky Neale, director of research and innovation at the RISE Foundation (Responsibility, Innitiative, Solutions and Empowerment).
"From a lender's perspective, they're much more interested in foreclosures in Cordova than they are in Frayser," Neale said. "It's logical, because in terms of value-per-loan, they're losing a lot (more) in Cordova. Some of the inner-city neighborhoods, they're just going to write those things off."
Eastern 'burb not immune
In spite of this, Cordova has seen skyrocketing foreclosure rates during the past year. Foreclosure notices in the Cordova ZIP 38016 topped the list of year-over-year increases at 101.1 percent, from 185 notices in the year ended April 2006 to 372 in the year ended last month.
38016's high increase in notices was followed by the Poplar-Perkins ZIP 38117 with a 122 to 169 (38.5 percent) rise; Arlington/Lakeland's 38002 with 149 to 203 (36.2 percent); and the Southeast Shelby County ZIP of 38125 with 491 to 652 (32.8 percent).
And among foreclosure sales, 38016 again saw the greatest increase, with a 64.6 percent jump from 127 in the year ended in April 2006 to 209 in the past year. Other high increases were seen in Hickory Hill's 38141, from 209 to 343 (64.1 percent) and Cordova's 38018, from 100 to 161 (61 percent).
Beanie Self is executive director of the Southeast Memphis Community Development Corp. (CDC), which oversees an area from Getwell Road to Hacks Cross Road, and from Bill Morris Parkway down to the state line.
Through programs such as community workshops and seminars, Self and her staff counsel people in areas like Hickory Hill and Parkway Village who are facing foreclosure.
Though Self knows awareness of the problem is rising, predatory lenders are still luring prospective homebuyers with promises of low monthly payments despite warnings plastered all over the news media.
"The problem is a lot of these people are marginalized and don't necessarily subscribe to the paper or aren't at home during news time," Self said. "They don't have time to sit down and watch the news. We need to have some kind of major campaign."
Self said the neighborhoods of her community also have been dealing with other side effects of foreclosure - private investors swooping in to snag foreclosed properties at bargain prices and turning them into rentals, further dropping home values and driving people out.
"It impacts our entire community," she said.
Brighter days ahead?
What will happen to foreclosures during the next 12 months?
Most experts agree that tightened lending laws will reduce the number of homebuyers who end up with an unfavorable mortgage loan, but that there are still plenty of people coming out of ARMs who could face foreclosure if not paired with a reputable lender to refinance.
With fewer and fewer people being suckered by predatory lenders, the numbers should start to swing the other way.
"Once that all shakes out, we should get back to a more normal level when it comes to defaults and foreclosures," Wiegert said. "But it's going to be a jolt here at first. Yes, it probably has to get a little worse before it gets better, and I don't know if by worse that means right now or if it's going to get even worse than this.
"The market conditions are going to dictate it and play out. Then, hopefully we'll be back on track."