VOL. 122 | NO. 192 | Wednesday, October 10, 2007
Like a Scythe
By Eric Smith
DESPERATE MEASURES: Mortgage filings for homes such as this one with a reduced price on South Perkins Road declined almost 23 percent in the third quarter compared to the same period last year. -- Photo By Eric Smith
No one knows when the mortgage industry will reach the end of the housing slump, but when the dust finally settles, the survivors of this subprime storm likely will be companies that drastically changed their business practices during 2007.
Already, lenders have made news nationwide for tightening application guidelines to reduce exposure and for shedding underperforming loan officers to reduce expenses.
Those tacks have worked for local companies as well. For example, First Tennessee Home Loans, a division of First Horizon National Corp., cut its mortgage sales force in half last month in reaction to the slumping market.
Greg Ellenburg, district manager at First Tennessee Home Loans, said he thinks that cutback was a vital move in these trying times.
"We took an aggressive posture and downsized people whose production was, honestly, below four units a month," he said. "If you weren't doing four loans a month, then we took a pretty hard look at you and determined that economically it's not good for them and economically it's not good for us."
Economically, not much was good for the mortgage industry during the third quarter. Just 12,380 mortgages were filed in Shelby County, according to the most recent data from real estate information company Chandler Reports, www.chandlerreports.com.
That's a 22.4 percent decline from the same period in 2006, which recorded 15,963 filings, and a staggering 29.7 percent decline from the same period in 2005, which recorded 17,607 filings.
The September 2007 totals were especially bleak, with only 3,461 filings, marking a 32.7 percent decline from the same month in 2006 and 37.1 percent drop from 2005.
August filings totaled 4,500 (down 19.9 percent from 2006 and 34.8 percent from 2005); and July filings totaled 4,419 (down 15 percent from 2006 and 15.1 percent from 2005).
Clearly, the subprime fallout - in which foreclosures continue to skyrocket and mortgage applicants with marginal credit scores continue to be denied - is still wreaking havoc on the mortgage world as numbers dwindle.
"I still think we're feeling those effects," said Meribeth LaBarreare, vice president and senior loan officer for Magna Bank, and a Memphis Mortgage Bankers Association (MMBA) board member. "Because more people are trying to buy houses, but less people qualify, the competition between the mortgage companies is tremendous right now."
The competition also has increased because fewer companies are operating. Many have gone under or eliminated a host of products, reshaping the mortgage landscape for years to come.
"It creates opportunity margins for those people that are still in the business, going out and making the calls and doing what you need to do to generate business," Ellenburg said.
Something to appreciate
Despite the soft numbers, local mortgage experts suspect that things could be much worse, as they are in places such as the East and West coasts, where grossly overvalued homes have put some markets in a world of hurt.
"I think we're still in the mess as far as the industry is concerned, but I think the impact in the Southeast - and more specifically in Tennessee and North Mississippi - is minimized a little bit," Ellenburg said. "There is less exposure and less risk than the rest of the country because our values have been stable here more so. We haven't had the large swings in appreciation."
First Tennessee Home Loans registered a decent quarter with 247 mortgages totaling a county-high $51.7 million. It was followed by Bank of America NA with 325 loans totaling $43.9 million, and Countrywide Home Loans with 242 totaling $42.4 million.
Meanwhile, Countrywide and Merrill Lynch Credit Corp led the county in commercial loans, each notching two for a total of $10.5 million. They were followed by Merchants & Farmers Bank, which closed one loan for $8.6 million.
Ellenburg estimates the larger, more-established companies will continue to see business generated simply because of the mortgage entities that have imploded.
"Are we seeing some impact? Yes, we are," Ellenburg said. "But we have been able to pull through that by picking up some opportunity in the market from companies that have closed down or either downsized their sales force."
The biggest changes mortgage companies are making is in the application guidelines. It's harder to buy a home now because credit score requirements increased, and the ability to skate by with stated income has all but disappeared unless the applicant has plentiful assets.
Fewer mortgage filings are one result of these widespread changes, but ultimately it might be good for the industry now that it's begun to clean up its act.
But the question remains: As mortgage companies continue to see smaller numbers each quarter, will they begin to ease up once again on their guidelines to get more people into homes? After all, that was the scenario that prompted the rise of subprime lending a few years ago, and it can stimulate the economy.
"It is truly a pendulum, a cycle kind of thing," said Carol McConkey, senior vice president for Paragon National Bank and MMBA board member. "We're seeing everyone go 180 degrees. After a period of time, we'll see it come back a little bit. I think it's going to be a while, or at least I hope it's going to be a while, before everyone forgets the lesson they learned in this go-around."
Whether history repeats itself remains to be seen. Still, mortgage company officials said they are hopeful that Memphis will get back on track, even if it's not until next year.
"Our market will rebound sooner than the national market," Ellenburg said, "but clearly it's going to be 2008 before the pendulum starts swinging the other way."