Although the worst of the subprime mortgage meltdown is confined to a few pockets of the country, its effects are being felt in Mississippi.
Years of subprime lending have spawned record numbers of foreclosures in Nevada, California and Florida, leaving entire subdivisions bare in some cases and causing sales of new homes to plummet and burying the median price of homes on the market. The ease with which some of those lenders originated mortgages — only to package the loans and sell them — has made it difficult for homebuyers to secure legitimate mortgages and made it hard to track the source of the questionable loan.
The crisis has not engulfed Mississippi like it has parts of the West Coast.
Subprime mortgages — loans made to homebuyers with less than ideal credit and little to no documentation of income — can decimate a housing economy. But they can serve a purpose, said John Allison, president of the Mississippi Bankers Association (MBA).
“Subprime itself is not a bad thing,” Allison said June 10 at the Mississippi Foreclosure Summit, a gathering of bankers and financial policy experts hosted by Gov. Haley Barbour. The overall poor economic conditions and the large number of subprime mortgages combined to create a “perfect storm,” Allison said.
Another perfect storm, Hurricane Katrina in 2005, exacerbated the mortgage delinquency rate in Mississippi. Barbour declared a two-year moratorium on foreclosures after the hurricane. Now that the moratorium has expired, foreclosures in Mississippi are going up.
But it’s not all doom and gloom, Barbour said.
“The economy (in Mississippi) is as strong as it’s ever been,” Barbour said, pointing to record employment levels and per capita income growth around the state. “But we’re not immune to what’s going on nationally.
“Mississippi’s biggest economic problems are not recessionary, but inflationary. Four-dollar gas does wicked damage to the poor and working class.”
According to figures from the FDIC, Mississippi had just fewer than 2,000 foreclosures in 2007, and 458 in the first quarter of 2008. The state’s mortgage delinquency rate in the fourth quarter of 2007 was 2.8%, highest in the nation. Gary Beasley, regional manager for the FDIC’s Division of Insurance and Research in Memphis, says that number is a skewed a bit because of the state’s relatively small population. A report issued last fall by the Joint Economic Committee of Congress says foreclosures through the end of 2009 will cost the state almost $235 million. Those costs include the loss in home value, neighboring property value and property tax revenues.
“Those numbers compound quickly,” Beasley said.
Higher-than-average mortgage delinquency rates are not uncommon for Mississippi, due to the state’s low per capita income levels, still among the lowest in the nation.
“We have a history of it,” said Bill Sones, president of the Bank of Brookhaven and president-elect of the Mississippi Bankers Association. “The subprime loans contribute most to our problem,” Sones said. With a large number of mortgages in the state delinquent 30 to 60 days — mortgages more than 90 days past due are considered seriously delinquent — Sones said the situation could worsen.
“This is a statewide problem,” Sones said.
He also said it is a cultural problem.
“Young people expect more than we did and they expect it earlier,” Sones said, adding an across-the-board recommendation to young couples applying for a mortgage that they get one with a term of no longer than 15 years.
“You build equity faster that way,” Sones said. “Equity is the foundation of a young family’s success. That is their best savings account.”
Sones told a story of a woman stopping him on the street recently and thanking him for insisting that she and her husband get a 15-year mortgage on their home. The woman told Sones that she and her husband had just made the last payment on their home.
“But she did say that she and her husband hated my guts the first two or three years,” Sones said, drawing laughter from the crowd.
A solution to the subprime problem, Sones said, is to make it tougher to get into the mortgage origination business.
“People get into it, (repackage and sell loans) and then get out,” Sones said. “It’s a private industry problem. It’s not so much a governmental problem.”
Contact MBJ staff writer Clay Chandler at clay.chandler@ msbusiness.com .