Subprime Loans Should Be Classified as Economic Meth

The subprime implosion is rolling across our city and county. The implications on our financial stability are just starting to realized. Here is a series of maps that show the progression of the crisis. The first map is a reference zip code locations and boundaries.

Memphis was in a bad state before the general public became aware of the subprime crisis. While just about everyone knew we lead the nation in bankruptcies in 2000, it wasn't commonly known that we had almost 5000 homes foreclosure notices issued that same year. We were ranked 3rd in the nation for foreclosures in 2003. But subprime lending really took off in 2004 even though these lending companies knew Memphis was a risky market. In 2004, there were almost 8000 foreclosure notifications here. Amazingly, that was only up slightly from the 7500 in 2003.
Now when subprime loans were issued in 2004, it took about 46 months for them on average to go into 60 day delinquencies. Here's the map with the total number of subprime loans issued in each zip code here in Shelby county. Notice Frayser, Raleigh, Whitehaven, and Hickory Hill were targeted.

Well if you thought 2004 was bad, here's 2005. When these subprime loans were issued it took about 34 months on average for the them to go into 60 days delinquencies. The foreclosure notices in Shelby County that year were over 8000. Almost ever zip code in Shelby County saw a substantial increase in the number of subprime loans issued.

The absolute numbers of subprime loans are high but to get an idea of what percentage of loans were subprime look at this. Surprise Surprise, the "C" was getting raped. 62% of all loans in Frasyer were subprime. 69% in Whaitehaven, 56% in Raleigh, 70% in South Memphis.

But hey, these were just poorer people. It didn't matter that much because people have money in their pockets and the rising property values across the city and county were helping our tax revenues. Times were good and they always will be.

Oh, speaking of tax revenues. Over the past decade Memphis has become more and more dependent on property tax revenue. In the late 1990's, property taxes accounted for around 28% of City tax revenue. Today it's 40%. There is a similar trend with the County tax revenues as well.

So why do I bring up tax revenues. Look at the progression of foreclosure notices in these next three maps.

AAAAHHH! We're screwed! There were almost 11000 foreclosure notices in 2006. There are projected to be 12000 to 13000 in 2008. Subprime loans issued in 2006 take only 23 months to go into 60 day delinquency. Those in 2007, 12 months. 2008 will be the crest of subprime foreclosure wave. Unfortunately, the full economic affect takes a while to be felt. The real estate market will not bottom out until 2009-10. Plus, we're entering a recession. What's going to happen to the tax base out in the county when the Alt-A loans start going into foreclosure as well. What are we going to do for tax revenue? Did I mention that foreclosure costs the City and County money. It ranges anywhere from an ideal foreclosure ($300 to $400) with minimal affects on government (mostly paper work and court costs) to a blight creating, crime magnet, burning, abandoned house with costs up to $30,000 a piece for fire, police, and code enforcement services.

So our tax revenues will fall at the same time our expenses will rise. But don't trust me, go read the studies about foreclosures in Memphis and Shelby County here. http://cbana.memphis.edu/


Its like we were rolling on economic meth for a 10 day bender not paying attention. When we finally fell asleep it was on the railroad tracks last summer. We're waking up just in time to realize we're getting hit by a freighttrain.

Can anyone say payroll tax?