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VOL. 123 | NO. 117 | Monday, June 16, 2008

Despite National Application Increase, Local Mortgage Activity Falters

By Eric Smith

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Mortgage applications have increased nationwide, but mortgage loans in Shelby County continued their downswing in May as lenders grappled with tightened guidelines and weary consumers.

The Washington-based Mortgage Bankers Association last week released its weekly mortgage applications survey for the week ending June 6: It revealed a 10.9 percent increase in applications from the previous week across the U.S.

But the mortgage figures continue to lag locally. In May, lenders made just 887 mortgages in Shelby County, a 40.7 percent decline from the 1,495 in May 2007 and a 9.4 percent decline from the 979 in April 2008, according to the latest Lender Analysis data from real estate information company Chandler Reports, www.chandlerreports.com.

Pat Sandlin, president and CEO of Community Mortgage Corp., said the dropoff is a direct result of tightened credit, which was widely available until the subprime fiasco hit the housing market last year.

“We’re seeing a lot of people come in and apply for mortgages, and they’re not being granted,” Sandlin said. “In the older days – meaning the last two, three, four years – because of the subprime industry, they could get a loan no matter who they were. So we are turning more and more down. Our fallout ratio, application-wise, is a fairly high number. There are still quite a few people who want to buy. They just aren’t credit-quality at this time.”


In addition to fewer mortgages being made locally, the average mortgage amount and total dollar volume dropped in May. Local Mortgages averaged $149,668 in the month, down from the May 2007 average of $153,598 and also from the April 2008 average of $159,265.

Chandler Reports tracks mortgages taken at the time of sale, and counts do not include refinances.

And May’s total dollar volume of $132.8 million was down from the May 2007 total of $229.6 million and the April 2008 total of $155.9 million.

Greg Ellenburg, district manager for First Tennessee Home Loans and secretary-treasurer for the Memphis Mortgage Bankers Association, said part of the problem in the mortgage realm has been Realtors and builders reacting slowly to the change in lending.

“They got accustomed to people being able to buy homes without down payments and with bruised credit scores being a little more tolerated,” Ellenburg said. “The secondary markets contracted and changed that, so it’s natural that you’re going to see a loss of a certain segment of the population – call it 10 percent or call it whatever you want – that do not have the assets required for a 5 to 10 percent down payment, so they’re out of the market. We’ve seen a contraction because of that.”

Year to date, that contraction has been severe. Lenders issued 4,590 mortgages through May 31, a 34.8 decrease from the 7,039 mortgages issued during the same period of 2007. Also, the average mortgage amount has decreased from $151,656 year to date in 2007, to $147,463 year to date in 2008.

Hit rewind

Shelby County’s top five lenders for May in terms of dollar amount were First Tennessee Bank NA (57 mortgage loans totaling $9.5 million), Wells Fargo Ltd. (52, $9.42 million), Magna Bank, formerly known as 1st Trust Bank for Savings (49, $9.37 million), SunTrust Mortgage Inc. (40, $8.4 million), and Community Mortgage Corp. (53, $7.8 million).

Most lenders were down slightly from the previous month and from the same month a year ago, but mortgage bankers are quick to point out that the tightening of guidelines doesn’t mean mortgages can’t be made – only that they need to be done right.

“Everybody has to conform to the guidelines and there are no exceptions,” Sandlin said. “We are going through a period of readjustment – I won’t say ‘tight credit’; we’re really just back to the way it really was and was supposed to be to begin with. We’re just using the original guidelines that we were supposed to be using. It’s like turning the clock back 10 years. All these policies and procedures aren’t new ones; they’ve just been restated and reinforced. That’s it.”

Chris Bowers, mortgage loan officer at Bank of America and president of the MMBA, echoed those sentiments.

“We are going back five or 10 years and we are having to qualify folks more traditionally,” Bowers said. “It’s like someone hit a rewind button on the mortgage industry.”

PROPERTY SALES 51 328 20,960
MORTGAGES 58 387 24,132
BUILDING PERMITS 170 842 43,435
BANKRUPTCIES 50 288 13,468