Monday, January 30, 2006

Easy Money Leads To Tennessee Defaults

The Nashville Business Journal reports on foreclosures in Tennessee. "Almost 1 percent of Middle Tennessee homes were foreclosed last year, topping the national average. Industry watchers say the popularity of exotic mortgages is partially to blame."

"'There are a lot of loans that were made anywhere from one to five years ago that have adjustable rates,' says Jane Moore, president of the Tennessee Mortgage Bankers Association. 'Those rates are adjusting upwards and making it difficult for some people.' Moore says the other historical contributor to foreclosure hikes is loan fraud. 'If lenders discover fraud, they're going to foreclose,' she says. She says the most common are appraisal fraud or straw buyers, where an individual uses another person's identity and credit with their permission in order to purchase a home."

"John Reed, chairman and CEO of (a) mortgage banking firm, says the large amount of the adjustable-rate loans were made because money was so inexpensive. 'When money is easy to get, you're naturally going to have more fallout,' he says."

"Reed says that, although he's sure Nashville is behind both Knoxville and Memphis, the majority of foreclosures are happening in the larger metropolitan statistical areas and on houses whose prices are between $250,000 to $500,000."

"Lower-income owners also have been leaving beyond their financial means. A little more than half the population in the Nashville area making 80 percent or below the median income are cost-burdened by their housing expense. In other words, they're spending more than one-third of their income to pay for their house or apartment. In Memphis, the percentage of cost-burdened residents is 54 percent, not that different from Nashville; but Moore says the overall lower income in West Tennessee likely is tipping the statewide foreclosure scales."

"Reed, who also serves as chairman of the national Mortgage Bankers Association residential loan production committee, says that, although the foreclosure rates are no cause for panic, the industry has been in 'responsive mode' for the past 12 months as signs arose that foreclosure would be going up."

"He says both payments and prepayments began slowing down earlier this year. And Reed says another tell-tale sign of rising foreclosures is a dip in home sales, which Nashville hasn't experienced."


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