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Losing House and Home

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On Laurel Lake Drive, a suburban street in Southeast Shelby County, a five-bedroom, four-bath brick home sits empty. Built last year, it has a three-car garage and is a spacious 3,836 square feet.

But this is by no means a model home.

The property, located near the new Shelby County high school, is one of about 5,000 homes that were foreclosed on during the last quarter.

Last week, a risk management provider listed Memphis as one of the top five markets for mortgage risk and fraud, with very good reason. According to RealtyTrac, an online marketplace for foreclosure properties, there's one foreclosure for every 101 households in Memphis. Only Indianapolis, Atlanta, and Dallas fare worse.

"These are not only affordable, entry-level homes," says Beanie Self, executive director of the Southeast Memphis Community Development Corporation (CDC). "These are $200,000, $300,000, $400,000 houses."

The Southeast Memphis CDC is the only suburban CDC in Shelby County and was created, in part, after the University of Memphis identified a high number of foreclosures occurring in the Hickory Hill area.

"After the city annexed the area, there were a lot of significant problems," says Self. "Property values went down because people were leaving and crime was up. When the property values went down, the homes were upside down. They owed more on their homes than they were worth, and a lot of people just walked away."

Hickory Hill rivals Frayser for the most foreclosures, but since Self started tracking local foreclosures about three years ago, she's seen the number increase 20 to 25 percent each year.

"What we see happening is that folks end up getting into a bigger house than they can afford and a larger loan than they can handle," says Self.

As the former bankruptcy capital of the nation (read more in this week's cover story), it's not unheard of for Memphians to find themselves in financial trouble, but perhaps most telling is the scale of the current problem.

At the corner of Holmes and Hacks Cross, signs litter the roadways promising "New Homes! Zero Money Down!" But in neighborhoods still too new to be "mapquested," banks are already foreclosing on houses: a $235,000 home on Maids Morton, a $100,000 home on Busy, a $168,000 home on Briona Cove -- all foreclosures.

Because the housing market is saturated, many home builders offer special financing incentives. Mortgage brokers sell buyers on interest-only loans or Adjustable Rate Mortgages (ARMs) that can get them more house for the money, but it's not always the best deal in the long run.

"There might not be a down-payment or closing costs. Two months later," says Self, "the transmission goes out on the car and it's, 'Do I pay for that or the mortgage this month?'"

Residents can quickly find themselves owing more on their house than its market value, especially if they have an interest-only loan.

"Tennessee has been targeted by unscrupulous lending groups," says Self. "We have not had the kind of regulations in place to tackle predatory lending."

A new bill passed earlier this year will go into effect in January, but for some homeowners, it might be too late.

"Within the next year, it's going to be really significant," says Self. "Specifically with the ARMs or with the interest-only loans, when the principal payments kick in, it's going to be huge."

Not to burst your housing bubble, but this soap opera can have long-ranging effects.

The Southeast Memphis CDC is a HUD-approved housing provider, meaning it can buy foreclosed properties from the national department of Housing and Urban Development at a discount and then sell them to owner-occupants.

Only, other people are interested in the discounted property, too. "I can't compete with the investor market," says Self. "We have a very different cash flow."

When investors buy property, it generally becomes a rental unit. And, nothing against renters, but rental property can contribute to a decline in the neighborhood. Especially if -- as is often the case with rental houses -- the landlord is not on-site.

Owning a home is the American dream. We're a country that rewards citizens for buying a home with a tax break. Loans are available to help people buy a house who otherwise wouldn't be able to afford one. The latest economic upswing was predicated on the housing market.

But the number of local foreclosures -- and the variety of neighborhoods in which they occur -- should be an eye-opener. If this is the American dream, maybe it's time for Memphis to wake up.

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