Tennessee Mortgage Defaults Almost Equal to Home Sales

Tenensee mortgage lenders are pulling homes back into their possession at almost the same rate Realtors are selling residential property in Memphis.

The Memphis Area Association of Realtors reported 19,738 home sales for the Memphis MSA in 2006, marking a 4.5% increase from 18,881 home sales in 2005.

But there were 18,155 foreclosed properties in the Memphis housing market in 2006, according to year-end data from RealtyTrac, a national provider of foreclosed property data.

Those numbers represent one foreclosure for every 1.09 home sales in the Memphis MSA, with the bulk of the foreclosures occurring in troubled Memphis neighborhoods such as Hickory Hill.

John Gnuschke, director of the Sparks Bureau of Business and Economic Research at the University of Memphis, says foreclosures do impact the overall state of the Memphis housing market because the data speak to the local population.

“We have a large low- to moderate-income population group that tends to produce a large group of marginal home buyers,” Gnuschke says. “Any run-up in interest rates or additional costs associated with almost anything, including utilities, have a major impact on their cash flow.”

The foreclosure numbers, like bankruptcy statistics, reflect the fact that Memphis has a large population that struggles, he says.

Charles Ricketts, regional manager of BancorpSouth’s Memphis mortgage office, says rising numbers of foreclosures may be the mortgage industry’s own undoing.

Ricketts suspects that the number of borrowers receiving 100% financing likely contributes to the foreclosure picture. High loan-to-value loans have a higher rate of delinquency, he says, because borrowers have little incentive to make payments when they haven’t invested their own money in a home purchase.

Five years ago, there were only one or two bad credit home loans like that available; now there are literally dozens, he says.

“It’s not a good situation, but it’s probably not unexpected,” Ricketts says.

Much of the foreclosure activity in the Memphis MSA is in specific neighborhoods, where foreclosure tends to self-perpetuate.

“I think in certain areas where foreclosure rates are higher, it has a negative effect on that specific housing market,” says Neil Hubbard, president of MAAR. “But as a whole, Memphis has always been a very stable market with a minimum amount of risk.”

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