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VOL. 123 | NO. 10 | Tuesday, January 15, 2008

Q4 Non-Commercial Mortgages Drop 36%

By Eric Smith

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Q4 2007 Highlights

The total number of non-commercial mortgages - ones in which at least one borrower is an individual - dropped 35.5%, from 12,852 in Q4 2006 to 8,293 in Q4 2007.

More than a quarter of non-commercial mortgages were between $50,000 and $99,999 - 2,241 (27%) fell in that range.

The number of non-commercial mortgages for $500,000 or more dropped 54.6%, from 183 in Q4 2006 to 83 in Q4 2007.

Top residential lenders were Wells Fargo Bank NA (169 loans, $31.7 million) and First Tennessee Bank NA (159 loans, $26.1 million).
Source: The Daily News Online and Chandler Reports

Non-commercial mortgage filings tapered off throughout 2007, but they suffered their largest declines in December and during the fourth quarter.

Q4 2007 saw a 35.5 percent decline from Q4 2006. There were 8,293 mortgages filed in Shelby County between Oct. 1 and Dec. 31, 2007, compared to 12,852 in the same period a year earlier, according to The Daily News Online, www.memphisdailynews.com

December was particularly dismal as just 2,133 mortgages were filed compared to 3,826 in December 2006 for a 44.2 percent dropoff. The decline was further pronounced when compared to the 4,501 mortgages filed in December 2005, marking a 52.6 percent dropoff.

Non-commercial mortgages track the number of mortgages in which at least one borrower is an individual.

The final month and quarter of 2007 were simply the end result of myriad factors that snowballed as the year transpired.

Snowball effect

Rampant subprime lending practices in 2004 and 2005 put numerous homebuyers into adjustable-rate mortgages (ARMs) that featured low teaser interest rates and corresponding low monthly payments.

But, after two years, those loans reset to much higher rates and the borrowers could no longer afford their payments. Homeowners had no choice but to default and go into foreclosure.

At the same time, home values were escalating nationwide, especially in the coastal areas. The proverbial housing bubble coupled with this subprime fallout devastated residential real estate - even in Memphis - creating a wide array of housing woes that erupted in the summer of 2007.

Those woes included a credit crunch, tightening mortgage guidelines and shaky consumer confidence. By the time Q4 rolled around, the market had no chance of matching the record filings recorded in 2005 and 2006.

"If you look at the first seven months of the year, we were doing very well as an industry as a whole," said Chris Bowers, mortgage loan officer at Bank of America and president of the Memphis Mortgage Bankers Association. "It wasn't at the record numbers that we had been the previous couple of years, but at the same time the market was moving along well. August came along and you started seeing some of these subprime lenders struggling ... and then all of them started struggling."

Big fat headaches

A host of struggles from some larger players sent ripple effects throughout the housing market. In the end it negatively affected building permits, foreclosures and, of course, mortgage filings.

The top residential lenders in Q4 were Wells Fargo Bank NA (169 loans totaling $31.7 million) and First Tennessee Bank NA (159 loans totaling $26.1 million), according to real estate information company Chandler Reports.

Q4 saw a large number of non-commercial mortgages between $50,000 and $99,999 - 2,241 filings, or 27 percent, fell in that range, according to The Daily News Online. The number of non-commercial mortgages for $500,000 or more fell 54.6 percent, from 183 in Q4 2006 to 83 in Q4 2007.

That was because lenders either reduced the number of "jumbo loans" - anything more than $417,000 and therefore not guaranteed by federally chartered Fannie Mae or Freddie Mac - or raised interest rates on the product.

PROPERTY SALES 98 172 17,556
MORTGAGES 101 194 20,229
BUILDING PERMITS 223 349 36,295
BANKRUPTCIES 52 115 11,279