The Economic Crisis. A Report on Memphis Real Estate, the Mortgage Meltdown and the Impact on the Local Economy

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1 The Economic Crisis A Report on Memphis Real Estate, the Mortgage Meltdown and the Impact on the Local Economy December 2, 2008 The FedEx Institute of Technology at The University of Memphis

2 Chandler Reports Who We Are Premier provider of real estate information and analysis for Memphis, Shelby County and all of Tennessee. Comprehensive property and sales database. Public real estate data plus private, independently produced information. The Daily News Exclusive aggregator of a wide set of public records. Court filings, property information, business filings and other local economic data. News of business, politics and the public records. The Memphis News The weekly edition of The Daily News. Includes in-depth cover story, editorial and opinion page, and sampling of data.

3 The Housing Crisis Together, our data offers a detailed and unique window on trends in the local real estate market, especially as it relates to the impact of the current poor real market conditions and the escalating mortgage and foreclosure crisis on local property values.

4 Key Positive Indicators in 2005 Shelby County 2005 No. of New Home Sales 3,700 $ Amount of New Home Sales $925 million* No. of New Home Permits 4,900 $ Amount of New Home Permits $875 million * * Record Level

5 Key Positive Indicators in 2005 (cont d) Shelby County 2005 No. of Existing Home Sales 19,900 $ Amount of Existing Home Sales $2.8 billion Average Loan To Value (All home sales at the time of sale) 86%

6 The Fall Off No. of Residential Sales Residential Sales Amount No. of New Home Permits $ Amount of New Home Permits (Est.) Diff % 23,500 23,700 19,500 15,500-8,000-34% $3.7 billion $3.7 billion $3.0 billion $2.1 billion -$1.6 billion -43% 5,000 4,500 2,600 1,000-4,000-81% $873 million $819 million $487 million $224 million -$650 million -74%

7 The Fall Off (cont d) (Est.) Diff % No. of Foreclosures 3,800 5,400 6,000 6,500 2,600 68% Avg. Tax Appraisal $86,000 $90,000 $99,000 $102,000 $15,100 17% No. of Bank Sales 3,400 4,100 5,000 5,800 2,400 71% Avg. Discount to Tax Appraisal -26% -23% -28% -37% -11% 42%

8 Number of New Home Permits 2001 to 2008 (Est.) 6,000 5,000 4,000 3,000 2,000 1,000 New home permits have fallen well below 2001 levels. Estimated (Est.)

9 $ Amount of New Home Sales 2001 to 2008 (Est.) $1,000,000,000 $900,000,000 $800,000,000 $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $- New home sales fell $300 million from 2006 to 2007, a 32% decline. Estimated (Est.)

10 $ Amount of Home Sales By Quarter and 2008 (Est.) $1,000,000,000 $900,000,000 $800,000,000 $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $ The total amount of home sales fell nearly $200 million from Q to Q4 2007, a 30% decline. Estimated Q1 Q2 Q3 Q4

11 No. of Home Sales Involving Multiple Loans* 2001 to 2008 (Est.) 6,000 * Loans taken at time of sale. 5,000 4,000 3,000 Home sales involving multiple loans at the time of sale spiked in 2005 and In 2005, fully 25% of all home sales involved multiple loans. 2,000 1,000 - Estimated (est)

12 No. of Bankruptcies 2002 to 2008 (Est.) 30,000 25,000 20,000 15,000 Estimated 10,000 5,000 - Bankruptcies dropped by nearly 50% from 2005 to 2006 as a result of changes in the bankruptcy laws (est)

13 No. of Foreclosures 2002 to 2008 (Est.) 7,000 6,000 Estimated 5,000 4,000 3,000 2,000 1,000 - The foreclosure rate shot up before the subprime fallout hit the news, in part because of changes in the bankruptcy laws (Est.)

14 $120,000 Average Appraised Value of Foreclosed Homes 2002 to 2008 (Est.) $110,000 $100,000 $90,000 The average tax appraised value of home foreclosures has risen nearly 20% since Estimated $80,000 $70,000 $60, (Est.)

15 $ Amount of All Home Mortgages* 2001 to 2008 (Est.) $3,500,000,000 * Loans taken at time of sale. $3,000,000,000 $2,500,000,000 $2,000,000,000 $1,500,000,000 $1,000,000,000 $500,000,000 Home mortgages* are on track to fall nearly 45% from 2005 to present. Estimated $ (est)

16 Bank vs. Non-Bank Sales Residential Sales Home sales by banks and trusts are on track to account for more than a third of residential sales in 2008.

17 $ Amount of Commercial Sales By Quarter and 2008 (Est.) $1,000,000,000 $900,000,000 $800,000,000 $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $ The total amount of commercial sales fell nearly $600 million from Q to Q4 2007, a 66% decline. Estimated Q1 Q2 Q3 Q4

18 The Impact on Tax Revenue The total value of residential sales fell 20% in 2007 compared to 2006, with the average home sales price falling $5,000. Average sales prices may fall $18,000 by end of Shelby County is in the midst of a tax reappraisal right now, with new values finalized by May What s the potential impact of the housing declinces on tax revenue?

19 Foreclosures - Top 20 Zip Codes Full year, ranked by total number in 2008 Area (Est.) Increase % Increase Frayser % Raleigh % Westwood % Southeast Shelby County % Oakhaven/Parkway Village % Hickory Hill South % West Person/Elvis Presley % Hickory Hill North % University % Cordova-North % Whitehaven % Defense Depot % Cordova-South % Berclair % Bartlett % North Memphis % Jackson/Farmville % Bartlett/Ellendale % Rhodes College % Arlington %

20 Foreclosures - Top 20 Zip Codes Full year, ranked by greatest increase from 2005 to Area (Est.) Increase % Increase Downtown % Arlington % Cordova-South % River Oaks % Cordova-North % Collierville % Bartlett/Ellendale % Southeast Shelby County % Hickory Hill South % South Memphis % Raleigh % Quince/Ridgeway % Bartlett % Bartlett/Brunswick % Oakhaven/Parkway Village % Hickory Hill North % Midtown % Whitehaven % Defense Depot % Frayser %

21 One Neighborhood 2008 * Jan 1, 2008 to Nov 25, 2008

22 Another Neighborhood 2008 * Jan 1, 2008 to Nov 25, 2008

23 The Face of Foreclosure - Part Red Oak, Bought in 2005 for $17,000 with a $49,000 rehab loan. 304 Red Oak, Sold to California investors in 2007 for $51,000 with a loan from Long Beach Mortgage Company, one of the nation s leading wholesale subprime lenders.

24 The Face of Foreclosure - Part Green Oaks, 38017, Collierville Bought for $430,000 in 2006 using two loans, 100% financing. Foreclosed on by the bank in July Resold for $298,000 in September 2008.

25 Foreclosure Profile Jan. to Oct No. of Residential Foreclosures 5,300 Avg. No. Years Property Owned 7.7 Avg. Loan to Value Ratio (At Time of Original Sale) Avg. Loan Amount (At Time of Original Sale) 101% $98,000 No. Resold Already 2,400 Avg. Difference (Original Sale Amount to Resale Amount) -$31,000

26 Foreclosures By Type of Loan* Jan. to Oct * Loans taken at the time of sale.

27 Foreclosures By Lender - Top 20* Jan. to Oct Original Lender No. of Loans % of All Foreclosures First Franklin Financial 233 5% Community Mortgage Corp 211 5% Long Beach Mortgage Co 172 4% Union Planters National Bank 123 3% Wells Fargo 117 3% Decision One Mortgage Co 116 3% Homecomings Financial Network 102 2% First Tennessee Bank 100 2% New Century Mtg Corp 97 2% WMC Mortgage Corp 91 2% Seller 82 2% Americas Wholesale Lendor 64 1% Argent Mortgage Co 63 1% Countrywide Home Loans 63 1% First Nlc Financial Svs 61 1% First Trust Mortgage 56 1% Southstar Funding 55 1% Option One Mtg Corp 52 1% First Commercial Mortgage 51 1% Bank Of America National 50 1% * Loans taken at the time of sale.

28 Cordova - Foreclosures Market Effect A single foreclosure can have a 1.3% negative effect on the value of every home within just 1/8th of a mile of the foreclosure. Multiple foreclosures create a compounding effect Cordova No. of Homes 11,500 Median Property Value $156,000 Total Appraised Value $2.1 billion Cordova 2008 to date Last 2 Years No. of Foreclosured Homes Cumulative Homes Effected: 1/8 Mile 13,800 25,600 Cumulative Homes Effected: 1/8-1/4 Mile 21,400 38,300 Potential Market Effect -$52 million -$97 million Possible Change in Tax 4% -$533,000 -$990,000

29 Foreclosure Effect One Home in Frayser

30 Foreclosure Effect One Home in Cordova

31 Foreclosure Discount - Top (Jan. to Oct.) Owner Name No. of FC $ Amt. Sold Discount vs. Appraisal % Deutsche Bank 755 $48,867,444 $28,656,556-37% Housing And Community Development 646 $30,298,543 $22,507,757-43% US Bank 522 $35,370,713 $20,180,887-36% Wells Fargo 402 $23,699,375 $16,082,825-40% Fannie Mae 389 $26,587,870 $12,337,780-32% Bank Of New York 368 $26,206,360 $14,734,540-36% HSBC Bank 244 $19,338,961 $9,659,839-33% Lasalle Bank 142 $8,922,793 $5,236,207-37% Veterans Affairs 138 $9,209,109 $4,594,491-33% Freddie Mac 128 $7,984,479 $4,025,421-34% Household Bank FSB 105 $6,698,936 $3,782,764-35% National Capital Properties Inc 69 $5,492,129 $2,546,271-32% CIT Group Consumer Finance Inc 63 $2,988,123 $2,487,077-45% JP Morgan Chase 60 $3,261,055 $2,502,645-43% First Horizon Home Loan Corp 58 $5,184,669 $1,693,131-25% Wachovia Bank 58 $4,591,336 $2,689,564-37% Tennessee Housing Development Agency 45 $1,582,865 $1,441,035-48% Nationstar Mortage LLC 45 $1,810,411 $1,624,089-47% Washington Mutual Bank 40 $3,251,137 $1,750,363-35% Suntrust Bank 39 $2,035,300 $1,349,500-40% Total 4,316 $273,381,608 $159,882,742-42%

32 Foreclosure Inventory - Top (As of Oct. 31.) Owner Name No. - Current Inventory $ Amt. - Current Inventory Deutsche Bank 481 $50,477,900 Housing And Community Development 379 $29,084,800 US Bank 307 $29,372,500 Wells Fargo 218 $20,923,600 Fannie Mae 522 $51,125,000 Bank Of New York 246 $28,465,900 HSBC Bank 136 $15,394,500 Lasalle Bank 109 $12,947,300 Veterans Affairs 123 $11,347,700 Freddie Mac 103 $9,869,400 Household Bank FSB 53 $6,238,600 National Capital Properties Inc 43 $4,262,900 CIT Group Consumer Finance Inc 62 $4,551,000 JP Morgan Chase 30 $3,735,100 First Horizon Home Loan Corp 39 $4,633,500 Wachovia Bank 36 $2,711,800 Tennessee Housing Development Agency 56 $3,862,900 Nationstar Mortage LLC 26 $2,011,000 Washington Mutual Bank 14 $1,244,900 Suntrust Bank 30 $4,096,900 Total 3,013 $296,357,200

33 Top 20 Sellers (Jan. to Oct.) Seller No. of Sales Avg. Sale Amount Total Housing And Urban Development 979 $51,114 $50,040,969 Bowden Building Corp 285 $150,060 $42,767,014 Mark Matthews Development LLC 170 $164,025 $27,884,213 Reeves-Williams LLC 160 $148,367 $23,738,679 Perennial Building Group LLC 135 $133,265 $17,990,728 Summit Homes LLC 124 $166,160 $20,603,896 Chamberlain & McCreery Inc 118 $214,814 $25,348,031 Vintage Homes LLC 94 $220,898 $20,764,398 Veterans Affairs 89 $77,952 $6,937,697 Bank One 89 $51,373 $4,572,183 Citifinancial Mortgage Co Inc 85 $51,932 $4,414,205 Fannie Mae 84 $90,611 $7,611,288 Mark Matthews Development Co 79 $162,952 $12,873,213 Crossmann Communities Of Tenn 68 $145,877 $9,919,635 Bank Of New York 67 $57,722 $3,867,403 Reid Homes Inc 65 $216,868 $14,096,451 Island View LLC 61 $172,970 $10,551,161 Lenox Homes LLC 61 $163,796 $9,991,564 Hallmark Builders Inc 60 $232,595 $13,955,708 Kemmons Wilson Inc 59 $177,938 $10,498,335

34 Top 20 Sellers (Jan. to Oct.) Seller No. of Sales Avg. Sale Amount Total Deutsche Bank National Trust 745 $63,943 $47,637,567 Housing And Urban Development 702 $44,547 $31,271,969 U S Bank National 550 $66,251 $36,438,308 Fannie Mae 372 $68,488 $25,462,702 Bank Of New York 358 $67,356 $24,113,304 Walls Fargo Bank 316 $59,286 $18,734,514 HSBC Bank 213 $79,268 $16,884,147 Lasalle Bank 141 $66,391 $9,361,093 Freddie Mac 133 $60,668 $8,068,779 Veterans Affairs 128 $66,517 $8,514,196 Household Financial Center Inc 104 $67,489 $7,018,900 H & J Properties LLC 93 $50,628 $4,708,450 Barry Watson Homes LLC 70 $159,424 $11,159,656 Compass Pointe Homes LLC 59 $146,590 $8,648,787 National City Bank 55 $81,875 $4,503,147 Citifinancial Mortgage Co Inc 51 $49,304 $2,514,518 Prudential Relocation Inc 50 $251,253 $12,562,640 Soleil Properties LLC 50 $46,540 $2,327,000 CIG Investments LLC 49 $54,697 $2,680,150 Philip Dooley 49 $57,675 $2,826,078

35 Commercial Real Estate to 2008 Top 20 Categories - Oct. to Jan. Property Type No. of Sales Avg Sq Ft 2007 Year-To-Date 2008 Year-To-Date Percent Change Total Sales Avg Price Per Sq Ft No. of Sales Avg Sq Ft Total Sales Avg Price Per Sq Ft No. of Sales Avg Sq Ft Total Sales Avg Price Per Sq Ft Vacant land over 1 acre ,300 $170,310,000 $ $89,723,000-22% -47% Warehouse ,200 $400,855,000 $ ,000 $68,529,000 $25-35% -71% -83% -7% Apartment ,100 $383,554,000 $ ,900 $130,963,000 $40-37% -24% -66% -26% Neighborhood single tenant 43 31,300 $25,357,000 $ ,400 $13,207,000 $54 30% -86% -48% 187% Office Building 67 37,200 $190,729,000 $ ,500 $71,984,000 $65-30% -37% -62% -15% Vacant land under 1 acre 22 - $4,173, $4,420,000 45% 6% Neighborhood shopping center 35 16,100 $47,930,000 $ ,000 $54,033,000 $76-11% 43% 13% -11% Office Condominium 45 4,600 $17,065,000 $ ,100 $6,409,000 $118-42% -55% -62% 44% House converted to Commercial 26 2,900 $4,149,000 $ ,300 $5,232,000 $91-4% -20% 26% 65% Garage (service type) 25 5,500 $7,244,000 $ ,400 $9,889,000 $53-12% 54% 37% 1% Car wash 6 5,100 $8,017,000 $ ,800 $7,181,000 $ % -46% -10% -38% Church 34 15,500 $18,342,000 $ ,200 $11,292,000 $58-53% -67% -38% 26% Traditional Restaurant 23 5,200 $23,261,000 $ ,100 $11,162,000 $147-35% -3% -52% -24% Daycare center 11 2,800 $1,633,000 $ ,500 $2,435,000 $41 18% 63% 49% -23% Service Station 22 3,000 $15,828,000 $ ,000 $5,615,000 $248-45% -33% -65% 5% Industrial or Manufacturing 16 58,100 $18,310,000 $ ,500 $8,485,000 $14-44% 20% -54% -2% Car dealer 8 13,000 $4,419,000 $ ,900 $16,371,000 $93 0% 69% 270% 103% Doctor s Office 20 10,500 $24,095,000 $ ,900 $7,434,000 $94-60% -6% -69% -18% Motel or hotel 15 84,800 $134,787,000 $ ,700 $46,872,000 $71-47% -2% -65% -33% Community or regional shopping 14 82,000 $130,353,000 $ ,500 $70,687,000 $72-50% 70% -46% -36%

36 Commercial Lending* to 2008 Top 20 Lenders - Oct. to Jan. Lender Name 2007 Year-To-Date 2008 Year-To-Date Percent Change No. of Mortgages Total $ Amount No. of Mortgages Total $ Amount % % Regions Bank 27 $21,800, $31,500,000-19% 44% Wells Fargo 3 $10,100,000 6 $19,100, % 90% U S Bank National Association n/a n/a 3 $19,100,000 Wachovia Mortgage Fsb 10 $45,600,000 3 $13,200,000-70% -71% PNC Mortgage Corp n/a n/a 1 $12,800,000 Suntrust Bank 10 $13,800, $11,200,000 10% -18% Seller 59 $20,600, $10,800,000-22% -47% First Tennessee Bank 35 $22,700, $10,000,000-14% -56% GMAC Mortgage Corp n/a n/a 2 $9,700,000 Bancorpsouth Bank 15 $15,100, $8,800,000 7% -42% Banktennessee 4 $3,100,000 4 $5,800,000 0% 89% Sunshine Mortgage Corp 2 $2,500,000 3 $5,500,000 50% 117% Triumph Bank 2 $2,700,000 8 $5,400, % 102% Commercial Bank & Trust 6 $2,100,000 7 $5,300,000 17% 150% First State Bank Of Arkansas 1 $800,000 4 $4,200, % 444% Paragon National Bank 12 $8,500,000 5 $4,100,000-58% -51% Trust One Bank 8 $4,400,000 8 $3,900,000 0% -10% Landmark Community Bank 2 $1,300,000 3 $3,500,000 50% 182% Magnolia Fed Bank For Savings 3 $40,000,000 1 $3,500,000-67% -91% Boatman's Bank 3 $4,700,000 4 $3,300,000 33% -31% * Loans taken at time of sale.

37 Residential Lending* to 2008 Top 20 Lenders - Oct. to Jan. Lender Name 2007 Year-To-Date 2008 Year-To-Date Percent Change No. of Mortgages Total $ Amount No. of Mortgages Total $ Amount % % Community Mortgage Corp 560 $94,600, $80,800,000 3% -15% Wells Fargo 690 $131,200, $93,700,000-22% -29% First Tennessee Bank 370 $77,200, $91,800,000 44% 19% Bank Of America National 860 $115,800, $69,600,000-45% -40% Suntrust Mortgage Inc 560 $93,700, $74,000,000-23% -21% Magna Bank 220 $39,300, $70,200,000 76% 79% Countrywide Home Loans 700 $130,100, $53,000,000-54% -59% Regions Bank 320 $58,300, $45,000,000-13% -23% Patriot Bank 280 $42,300, $38,200,000-11% -10% Bancorpsouth Bank 160 $34,500, $43,400,000 40% 26% Pulaski Mortgage Co n/a n/a 200 $32,500,000 Financial Federal Savings Bk 230 $59,500, $39,100,000-28% -34% Bartlett Mortgage 220 $35,400, $28,200,000-26% -20% Wachovia Mortgage Fsb 340 $44,000, $22,300,000-58% -49% Delta Trust Mortgage Corp 200 $31,000, $20,400,000-33% -34% Evolve Bank & Trust 110 $19,200, $15,800,000 10% -17% Seller 140 $8,600, $8,200,000-19% -5% Oakland Deposit Bank 110 $7,700, $9,400,000-7% 22% Homecomings Financial Network 410 $49,700, $10,700,000-78% -78% USAA Federal Savings 140 $28,100, $14,600,000-40% -48% * Loans taken at time of sale.

38 Where Are We Now Jan-Oct 2007 Jan-Oct 2008 Difference % Residential Lending (Loans at time of sale) No. of Mortgages 14,100 9,400-4,700-33% Avg. Mortgage Amount $154,700 $150,500 -$4,200-3% Total $2.1 billion $1.4 billion -$773 million -35% Existing Non-Bank Home Sales No. of Sales 11,200 7,500-3,700-33% Avg. Sale Amount $163,900 $160,000 -$3,900-2% Total $1.8 billion $1.2 billion -$636 million -35% New Home Sales No. of Sales 1,900 1, % Avg. Sale Amount $296,200 $276,100 -$20,100-7% Total $563 million $306 million -$257 million -46% Commercial Sales No. of Sales 1, % Total $1.9 billion $709 million -$1.3 billion -64%

39 Where Are We Going Jan-Oct 2007 Jan-Oct 2008 Difference % New Home Permits No. of Permits 2, ,600-67% Avg. Permit Amount $242,700 $238,300 -$4,400-2% Total Permit Amount $442 million $183 million -$259 million -59% Residential Foreclosures Final Foreclosures 5,000 5, % Avg. Appraisal $97,300 $101,500 $4,200 4% No. of Banks Sales 4,300 5, % Homes Starting Foreclosure 9,900 10,900 1,000 10% Ratio of Notices to Foreclosures 51% 50%

40 Where Are We Going (cont d) Jan-Oct 2007 Jan-Oct 2008 No. Sales Involving Multiple Loans* 1, % of All Loans* 14% 3% Loan to Value Ratio on Single Loans 89% 89% Jan-Oct 2007 Jan-Oct 2008 No. of FHA Loans* 800 2,500 % of All Residential Loans* 5% 30% Loan to Value Ratio 98% 98% Wells Fargo - No. of FHA Loans* *Loans taken at time of sale.

41 Contact Information Eric Barnes Publisher