VOL. 123 | NO. 37 | Friday, February 22, 2008
Banks, Trust Cos. Top Shelby Home Sellers
By Eric Smith
Of all the residential real estate storylines from the past year, perhaps the most intriguing was how trust companies and banks - not builders - wound up being the top home sellers in Shelby County.
Between February 2007 and January 2008, seven of the top 10 home sellers were trust companies or banks, according to the latest data from real estate information company Chandler Reports, www.chandlerreports.com.
As for the others, two were key governmental housing agencies - the U.S. Department of Housing and Urban Development, which came in first with 969 sales in the year ended January 2008, and Fannie Mae, which came in fifth - while just one, Bowden Building Corp., was a traditional homebuilder, and it ranked 10th.
This statistic parallels the foreclosure fiasco that dominated the latter half of 2007, when trustees and banks were forced to reclaim homes from defaulted borrowers and sell them back at auction sales, often at below-market prices.
And it bucks the recent trend of the equitable distribution among banks and builders as the county's top sellers.
Moreover, some unfamiliar names rose to the forefront of Memphis' housing woes. Deutsche Bank National Trust Co. - a division of Frankfurt, Germany-based Deutsche Bank AG - is Shelby County's second-leading home seller behind only HUD.
This anomaly is actually part of a legal process turned legal quagmire - a turn of events that has skewed the data and put trustee organizations in the spotlight.
Basically, organizations like Deutsche Bank National Trust act as the trustee for securitization trusts and, in some cases, as custodians for mortgage documents, said Deutsche Bank spokesperson John Gallagher, who explained the phenomenon.
"The function of the trustee is largely an administrative one; the trust company itself has no beneficial ownership stake or interest in the underlying loans of a securitization," Gallagher said. "As trustee, the trust company holds legal title to these loans for the benefit of mortgage securities investors. The trustee is not responsible for foreclosures or selling foreclosed property. Such decisions are made exclusively by the servicing companies, according to contracts for the different securitization trusts."
With foreclosures on the rise in Shelby County from 2006 to 2007, it makes sense that Deutsche Bank would see a 243.6 percent increase in its residential sales between February 2005 and January 2008, even if the sales had more to do with paperwork than property ownership.
The rise of bank and trust company sales is based on the simple premise that those institutions don't hold onto foreclosed homes.
"We don't want to be property managers," said Chris Bowers, mortgage loan officer at Bank of America and president of the Memphis Mortgage Bankers Association (MMBA). "We don't want to be the group of people that baby-sit a piece of real property and pay for its repairs and everything. We want to get it off the books and have somebody else own it."
Take this to the bank
Still, the number of residential sales by trust companies and banks is staggering. Topped only by HUD in sales count, Deutsche Bank tallied 615 sales between February 2007 and January 2008, up from 335 in the previous 12-month period and a mere 179 in the 12-month period before that.
Plenty of other trust companies and banks found their way onto the list of leading home sellers for the same reason.
After HUD, Deutsche Bank was followed by U.S. Bank NA with 346 residential sales, a 256.7 percent increase from the year ended January 2006.
Wells Fargo Bank NA was next, with 326 sales in the year ended January 2008, a 207.5 percent rise from the year ended January 2006. Rounding out the top five was Fannie Mae with 309 sales in the year ended January 2008, a 347.8 percent increase from the year ended January 2006.
Take away the complexities of mortgage-backed securities and the role of trustees in foreclosure activity, and the theme for 2007 was a staggering decline in home sales throughout the county. After the torrid pace of 2004, 2005 and 2006, it seemed only natural for sales to plateau and then dip last year as part of a typical real estate cycle.
But when subprime loans began resetting and resulting in a rise of foreclosures, and when mortgage guidelines tightened in response to previously lenient lending practices, the industry suffered a dropoff much worse than anyone suspected.
"It was definitely a year that we saw a change," Elsie Ward, broker for Crye-Leike Inc. and vice president of the Memphis Area Association of Realtors, told The Daily News last month. "We had been going, going, going; things had been going up almost monthly sometimes. When the subprime lending crisis occurred, it made last year unusual. I think this year we're getting over that crisis. We're trying to put that behind us."
Declines and more declines
That task won't be easy. Residential sales declined nearly 21 percent between February 2007 and January 2008 from the previous 12-month period, according to Chandler Reports. Residential sales include condominiums, duplexes and existing and new homes.
There were just 20,193 residential sales during the most recent 12 months, down from the 25,444 in the same span a year earlier. Also, the total sales dollars, average sales price, average square footage and average price per square foot all dropped from the year ended January 2007 to the year ended January 2008.
Total sales dollars fell from $3.96 billion to $3.01 billion; average sales price fell from $155,589 to $152,366; average square footage dipped slightly from 1,901 to 1,898; and the average price per square foot fell from $81.53 to $78.89.
All but one ZIP code in Shelby County suffered a decline in sales for the year ended January 2008. But that area, the 38105
ZIP of Greenlaw near Downtown, managed to match its previous year's total of 63 sales.
The most severe decline occurred in Downtown's 38103 ZIP, which suffered a 40.4 percent drop in sales from the previous 12-month period. From February 2006 through January 2007, the Downtown submarket saw 755 sales; the next 12 months had only 450.
Following Downtown in the greatest decline was Southeast Shelby County's 38125 ZIP (37 percent decline); Cordova North's 38016 ZIP (33.1 percent); Cordova South's 38018 ZIP (26 percent) and Arlington's 38002 ZIP (25.8 percent).
Meanwhile, the county's top builders all registered fewer sales than the previous year, hardly surprising when considering that 2007 reached 25-year lows for new home permits and closings.
Leading the way was Bowden, which sold 113 homes between February 2007 and January 2008 - but that marked a 56 percent drop in sales from the 257 a year earlier. Bowden was followed by Compass Point Properties (104 sales, 29.3 percent decline), Lenox Homes LLC (89 sales, 42.9 percent decline), Michael Matthews General Construction (84 sales, 74.9 percent decline) and Chamberlain & McCreery (83 sales, 32 percent decline).
Another noteworthy theme was the area's condominium sales, a bright spot in the city's real estate landscape the last few years. But condos dipped 25.8 percent from year ended January 2007 (1,453 sales) to year ended January 2008 (1,078 sales).
Downtown's 38103 ZIP - the highest density submarket of condos in the county - dropped 50.1 percent from the year ended January 2007 (472 sales) to the year ended January 2008 (235 sales).
All these numbers have thrown the real estate industry into a tailspin. Commissions are down for Realtors, who have employed new marketing and sales tactics for a tightened market in hopes of generating some kind of buzz and kick-starting consumer confidence.
Margarita LeBlanc is implementing a new idea this weekend when she launches her Foreclosure Bus Tour. LeBlanc, an affiliate broker at Crye-Leike Inc. in Olive Branch, will take prospective buyers on a tour of foreclosed homes in the metro area, showing them the value that can be found in these homes whether it's for occupancy or investment.
She saw the concept on a recent news program, and after running it by a colleague, decided to go forward with the tour.
"I'm thinking of other ideas, what are some other things I could do that would spark people's interest, and spark it rather quickly - because foreclosures are going to be gone quickly," said LeBlanc.
"Homes have been foreclosed upon for years; this is nothing new. However, we just seem have a little bit more than what we usually do."