Still On Shaky Ground

Still on shaky ground
Another jump in foreclosures suggests more trouble for the region's homeowners [From our print edition in Monday's City Paper]
Print By E. Thomas Wood


06-29-2009 12:06 AM —
To the welter of recent economic indicators that show the national economy going up, down or sideways, add one more perplexing number for Nashville. In the past month, after an extended decline, the volume of foreclosure actions filed in Davidson County has abruptly risen to a new peak.

From June 1 through June 26, the Davidson County Register of Deeds recorded 425 of the notices normally filed to begin the process of foreclosure. At a rate of more than 21 per working day, the pace of these filings has increased by 34 percent over the rate seen in May, which saw 318 filings for the entire month.

The sudden jump comes after two consecutive months of decline. With two days left in June, Nashville has eclipsed the highest monthly tally previously on record, 409 filings, recorded in March of this year.

Lenders give notice of foreclosures through “appointment of substitute trustee” filings. A substitute trustee takes the place of the original trustee under a deed of trust, which pledges a real estate property to a lender as security for the loan. In Tennessee, such a filing is normally the first public notice that a loan is in default.

Some substitute-trustee filings involve either foreclosures on commercial properties or trustee substitutions made for reasons other than foreclosure. The vast majority, however, involve home foreclosures.

Differences in how various statisticians count foreclosure filings make it impossible to compare Davidson County’s recent experience with statewide and national data on home losses. But research by real estate data provider First American CoreLogic indicates high concentrations of pending foreclosures, as of April, in Nashville’s Bordeaux/Whites Creek area. Other concentrations (visible on the map on page 14) are seen in areas around Cross Plains in Robertson County, Pleasant View in Cheatham County, Bethpage in Sumner County and La Vergne at the border of Davidson and Rutherford counties.

Explaining the numbers

In a time when several economic indicators, locally and nationally, suggest better times for the economy, Nashville’s foreclosure surge is as jolting as it is mystifying. None of the experts contacted by The Post could offer a definitive reason why the increase is occurring now, but all cited possible contributing factors.

Several noted that foreclosures are a trailing economic indicator and that Nashville has so far suffered less economically than many other parts of the country. It could simply be that the financial contagion has finally spread to a critical mass of local property owners. Yet little other evidence points in that economic direction.

Plunging home prices, for instance, correlate with high foreclosure rates. The Federal Housing Finance Agency’s most recent House Price Index showed Greater Nashville with exactly zero price appreciation between the first quarters of 2008 and 2009. That figure placed the metro area 89th out of 294 U.S. housing markets in one-year home price gains — not a stellar result, to be sure, but zero growth is certainly preferable to the 15 to 30 percent declines posted by numerous cities in California and Florida that are among the nation’s foreclosure capitals.

The rise in filings seems to track with predictions by some observers that months of efforts by both the government and financial institutions to stem the tide of foreclosures might merely postpone the misery for many borrowers. (For some examples of recent local cases, click here.)


Lenders and those who represent them, however, don’t see things developing that way.

“The mortgage companies are really trying to salvage these loans,” says Memphis attorney Arnold Weiss, who has served as substitute trustee on hundreds of Nashville foreclosures. “They really are trying to work out agreements with the people who have these mortgages. They postpone foreclosures up to four or five months just to get a shot at trying to work something out.”

Weiss notes that the filing of an initial notice doesn’t necessarily mean foreclosure will happen. “A lot of times, they set it up for foreclosure, but they don’t go through with it,” he said. “They try to do modifications or extend the loan or something.”

Indeed, as The Washington Post reported last week, lenders nationwide are increasingly holding off on foreclosing even when the owner has abandoned the house. Often, they are simply overwhelmed by the number of properties they have to deal with; sometimes they still hope to work out less costly arrangements such as “short sales,” in which the borrower sells the home for less than its loan value and turns over the proceeds to the bank.

Another factor that a number of real estate and financial professionals cited is the possibility that an especially poorly underwritten batch of loans has met with an inevitable fate. As we all know by now, lenders got to be far too creative for their own good in the roaring middle years of this decade.

Suppose, hypothetically, that there was a fad among local mortgage brokers in the late winter of 2004 to sell 5/1 ARMs — adjustable-rate mortgages that begin with a five-year, interest-only term at a set rate, shifting after five years to an adjustable rate (usually higher) with required payment of principal along with the interest.

Early this year, those loans would have repriced. Borrowers who could not keep up would typically have faced foreclosure notices after 90 days in default.

And then there is the “kitchen sink” hypothesis. Perhaps banks that have been holding iffy mortgages for some time have chosen to write them off by the bucket-full before they report their results for the quarter ending June 30 — dump the whole kitchen sink, as it were. Many banks are posting tidy profits overall, so maybe they are choosing this moment to cut their losses.

Jim Schmitz, Middle Tennessee area president for Regions Bank, doubts that any of his peers are massaging their books in that manner. In the current regulatory environment, he says, there’s no leeway for such hijinks.

“We’re risk-rating and judging our portfolio on a very frequent basis,” Schmitz says. “That’s happening industry-wide. The examiners are far more involved today than before in talking with us on a regular basis to make sure we have things accurately classified.”