Friday, February 09, 2007

Defaults 15 - 20% Of Memphis' For-Sale Inventory

WREG Memphis reports from Tennessee. "Lenders' greed and borrowers' mistakes are breeding an epidemic of home foreclosures in Shelby County and Tennessee. Mortgage sources tell 3 On Your Side lenders promising loans under the prime interest rate with 100 percent financing and no money down are luring folks with bad credit or no credit into homes they cannot afford."

"They suck borrowers in, only to hit them six months later with adjustable rates that send their notes into orbit, with high pre-payment penalties that prevent the homebuyers from refinancing. The result is a Memphis housing market where 15 to 20 percent of the homes for sale are foreclosures."

"'(Lenders) should be underwriting those loans based on the worst-case scenario in terms of having that adjustable rate go up,' says Corky Neale, research and innovation specialist for the RISE Foundation, a non-profit that helps people in debt become credit-worthy and own their own homes. 'If the lender didn't consider their ability to repay as a part of underwriting that loan, then they get into really hot water when that interest rate bumps up.'"

"Memphis Daily News, the publisher of Shelby County's property records and the county's preeminent tracker of home foreclosures, conducted a study of foreclosure trends in 12 Shelby County zip codes over the last two years. It determined that Frayser's 38127 set a record pace for foreclosure notices: 962 in 2006."

"The Daily News says that zipcode also leads the county in bankruptcies. Cordova's 38016 holds the most startling trend: a 128 percent increase in foreclosure sales from '04 to '06."

"'The strength of hot markets like Cordova's is made possible, to some degree, by spreading the net wider to accommodate people who may not be 100 percent financially ready to own their own homes,' says David Yawn, associate publisher of Memphis Daily News."

"Broker/listing agent Walter Dunn markets foreclosures for 65 banks. He has seven foreclosures for sale in Cordova's Riverwood subdivision alone. He says one of the homes is 4,600-square feet. The couple who 'bought' it got in under a 'cash for keys' program, where they put just $750 down to get into the house. But they lost the house when they couldn't hold the note."

"'That's like putting up a deposit, and the notes are like renting, and the least little thing that happens, you're gone,' says Dunn. '(They) get in under these teaser rates, then all of a sudden, the note goes up $500-$600 a month.'"

"3 On Your Side talked to 11 'sub-prime' lenders who offer loans like these in Shelby County. Every one of them refused our requests for on-camera interviews. One of them, Fieldstone Mortgage, accepted our request, set an appointment, then stood us up when we arrived. Another lender, on the condition that she would not be identified, told us, 'Everyone's being greedy. Some lenders are not disclosing (terms and conditions of the loans) or counseling borrowers. If everyone had perfect credit (in Shelby County), we would have a lot of renters.'"

"Memphis lender Lisa Reid is the president of the Tennessee Mortgage Bankers Association. She says the state's predatory lending law requires lenders to disclose loan terms/conditions and to counsel borrowers on their credit-worthiness. They must put both in writing and make them available to the borrower."

"'It's unfortunate, though, sometimes if they don't take our advice, they go down the street, and someone will get them into a home one way or the other,' Reid says."

"'They'll look at that and go, 'You set them up to begin with. They had no way they could have made this payment,' she says. 'There's criminal liability, and there are civil penalties that go along with it.'"


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