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VOL. 123 | NO. 12 | Thursday, January 17, 2008

Breaking Point

Foreclosures could signal 'crisis' in '08 - and suburbs far from immune

By Andy Meek

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IN THE THICK OF IT: Foreclosures, one of the most persistent economic woes plaguing Shelby County, represent a constant challenge for Webb Brewer, an attorney with Memphis Area Legal Services who helps homeowners grappling with mortgage-related problems.
-- Photo By Andy Meek

Over the last few months, the finishing touches have been put on a settlement agreement covering a series of companion lawsuits that Memphis Area Legal Services recently brought against defendants including appraisers, brokers, closing agents and others.

The plaintiffs were homeowners who, for various reasons, were stuck in mortgages they couldn't afford and shouldn't have been granted in the first place. Webb Brewer, a lawyer for MALS who represents homeowners struggling to overcome mortgage-related problems, said he hopes to be able to announce details as early as today surrounding what's expected to be a settlement cumulatively worth $3 million.

MALS worked on behalf of 17 plaintiffs in the various cases. If anything, those cases reflect the fact that unaffordable mortgages remain one of Shelby County's most toxic economic woes.

And the most recent quarterly and yearly data makes clear that the consequence of that problem - skyrocketing foreclosures - will probably get worse in 2008.

All not well in suburbs

The number of first-run foreclosure notices, which are an early indicator of homes in danger of being sold at a foreclosure auction, climbed 14.4 percent from 2006 to 2007, according to The Daily News Online, www.memphisdailynews.com. The number of first-run notices grew from 10,619 in 2006 to 12,147 last year.

The number of Shelby County homes sold at foreclosure auctions was up 12.2 percent in 2007, going from 5,777 sales in 2006 to 6,480 in 2007.

The count of first-run foreclosure notices is higher than the number of foreclosure sales because not every property that enters foreclosure proceedings actually is sold at auction.

"In the first quarter of 2008, we're probably going to see another spike," said Beanie Self, executive director of the Southeast Memphis Community Development Corp. "I think it's just going to be crazy in 2008."

It might come as a surprise, but based on the numbers from 2006 and 2007, it's apparent that foreclosures are multiplying the fastest on Memphis' suburban fringe, in communities also thought of as hotbeds of construction and home-buying activity. The three ZIP codes that encompass Bartlett, Cordova and Arlington all saw the largest percentage jumps in the number of foreclosure sales among sales for which a ZIP code was listed.

The hardest hit was Cordova. The 38016 ZIP code covering that area saw the largest percentage increase in foreclosure sales in 2007 - a whopping 70.1 percent - when compared with the previous year. Cordova's foreclosure sales climbed from 164 in 2006 to 279 in 2007.

In the 38133 ZIP code that includes parts of Bartlett and Brunswick, foreclosure sales got a 50.7 percent bump, going from 69 in 2006 to 104 in 2007. In the Arlington/Lakeland ZIP code of 38002, foreclosure sales spiked 43.4 percent, from 83 in 2006 to 119 in 2007.

Scary times

Predictions for 2008 vary, but some experts such as Brewer say the situation Shelby County soon will face is nothing short of frightening.

The county can expect 12,000 to 13,000 foreclosures in 2008, according to data from the Center for Community Building and Neighborhood Action at the University of Memphis. Brewer said he thinks that number could reach 15,000.

"The incredible thing, to me, is I've got a study that shows - it's not a local study, but a national one - that the average cost of a foreclosure to local governments is about $20,000 in lost revenue," Brewer said. "Clearly, something's really broken.

"And there needs to be some legislative action to try to help distressed borrowers who, with a little bit of assistance, could work out a mortgage and be able to perform on it and stop the bleeding on some of these foreclosures."

Over the past year, 6,153 residential properties were foreclosed, according to real estate information company Chandler Reports, www.chandlerreports.com. That's up 11 percent from the 5,541 residential foreclosures in 2006.

However, year-over-year foreclosures on condominiums - which, along with single-family homes, duplexes and other residences are included in the residential category - dropped from 124 in 2006 to 112 in 2007.

As for mortgage types, 1,519 conventional adjustable-rate mortgages, commonly known as ARMs, were foreclosed in 2007, up from 1,120 in 2006, according to Chandler Reports. And 1,114 conventional fixed-rate mortgages were foreclosed in 2007, compared to 1,012 in 2006.

Eighty-four Federal Housing Administration ARMs and 792 FHA fixed-rate mortgages were foreclosed in 2007. That was a decline from 96 FHA ARMs and 884 FHA fixed-rate mortgages foreclosed in 2006.

Both VA adjustable-rate and fixed-rate mortgages saw declines in 2007 as well, according to Chandler Reports data. Six VA ARMs and 151 VA fixed-rate mortgages were foreclosed in 2007, down from seven VA ARMs and 201 VA fixed-rate mortgages foreclosed the previous year.

However, a count of foreclosures for instances in which borrowers take out two mortgages at the time of purchase jumped year-over-year, from 399 in 2006 to 762 in 2007. The practice typically is a way for buyers to finance 100 percent of the purchase price, allowing them to buy a home with no down payment. Sometimes, the loans slightly exceed 100 percent of the purchase price, allowing the buyers' closing costs to be financed over the period of the loan.

"It's really frightening what may come this year," Brewer said. "We've got information that says there (are) as many as 15,000 foreclosures in Shelby County coming in 2008. I don't want to be engaged in hyperbole, but I really think (that) to say that's a crisis is not hyperbole if that's anywhere close to true."

PROPERTY SALES 85 205 21,165
MORTGAGES 76 206 24,338
BANKRUPTCIES 46 90 13,558