Title: The Effect of the Foreclosure Crisis on Asset-Building in Minority Communities
1The Effect of the Foreclosure Crisis on
Asset-Building in Minority Communities
Insight Center for Community Economic
Development Webinar
Paul Leonard November 13, 2008
2About CRL
- Nonprofit, nonpartisan research and policy
organization dedicated to protecting
homeownership and family wealth by working to
eliminate abusive financial practices. - Affiliated with Self-Help, one of the nations
largest community development financial
institutions.
3Overview
- African Americans and Latinos have
disproportionately received riskiest loans and
foreclosures concentrated in communities of color - Systemic failures at all points of the mortgage
process. - Dramatic need for stronger policy intervention to
increase modifications
4- African Americans and Latinos Disproportionately
Harmed by Subprime Lending and Foreclosures
5Background Race, Ethnicity and the Subprime
Market
- African-American and Latinos disproportionately
receive high-cost loans -
6Background Race, Ethnicity and the Subprime
Market
- CRLs Unfair Lending Report
- - Disparities cannot be explained by legitimate
risk characteristics - - Borrowers of color about 30 more likely to
receive higher cost loans than similarly-risky
white borrowers - Possible Causes of Price Disparities
- - Traditional discrimination
- - Market segmentation (e.g. marketing, targeting
of high-cost vs low-cost lenders)
7Neighborhood Demographics and Foreclosure
- What is the difference in the likelihood of
foreclosure for loans in neighborhoods with high
concentrations of minorities versus white
neighborhoods? -
Increased Odds of Foreclosure by Neighborhood
Type
All Loans With Subprime Control
High Minority 62 33
High African-American 176 100
High Latino 35 12
8Subprime Foreclosures
2005-2007 Subprime Loans Number of Originations Estimated of Foreclosures (as of 6/08) Estimated Foreclosure Rate
Total 6,126,750 989,368 16.1
Neighborhood Category
Low Minority (lt10) 1,607,803 219,373 13.6
Mod-Low (10-25) 1,461,226 209,521 14.3
Mod-High (25-50) 1,284,757 219,954 17.1
High (50) 1,749,313 337,171 19.3
Specific High Categories
High AA (50 AA) 513,182 119,734 23.3
High Latino (50 Latino) 456,636 74,815 16.4
Source CRL Calculations based on McDash and HMDA
9Cleveland Foreclosures Concentrated in
African-American Neighborhoods
10Estimated Total Foreclosures
2005-2007 Loans (Prime and Subprime) Number of Originations of Foreclosures (as of 6/08) Estimated Foreclosure Rate
Total 23,944,153 1,666,248 7.0
Neighborhood Category
Low Minority (lt10) 7,566,204 391,228 5.2
Mod-Low (10-25) 6,886,619 370,289 5.4
Mod-High (25-50) 4,828,205 377,087 7.8
High (50) 4,663,125 527,645 11.3
Specific High Categories
High AA (50 AA) 1,015,216 175,252 17.3
High Latino (50 Latino) 1,202,449 123,442 10.3
Source CRL Calculations based on McDash and HMDA
11Foreclosures in CA, April 2008
12Overall Impact
- CRL estimates 2.2 million subprime foreclosures
- 40.6 million surrounding homes will lose value as
a result of proximity to foreclosures - Total 352 billion in lost wealth to families
- Disproportionate impact on African-American and
Latino families and communities
13- Causes of the Subprime Mess
14 15CRA-Related Higher-Priced Lending, 2006
Only 6 of Subprime Loans Made by CRA Lenders in
their Assessment Areas
Banking institutions and affiliates Banking institutions and affiliates
Higher-priced Within CRA assessment area () Outside CRA assessment area () Independent mortgage company () Total ()
Non-lower-income 7 23 27 57
Lower- income 6 18 20 44
Total 13 41 47 100
Source Federal Reserve analsysis of HMDA data
16Current Market StructureLacks Accountability
- Brokers
- Lenders
- Wall Street
- Ratings Agencies
- Investors
- Servicers
17Regulations Havent Kept Pace with Market Changes
- Federal
- 1994 Weak Federal HOEPA law.
- Regulators strong capacity but limited will.
- States
- Some states have stronger laws
- BUT
- Regulators are understaffed
18What about the bailout?
- Bailout proposals ignore fundamental cause of
crisis, i.e. foreclosures and falling housing
prices - Need for bankruptcy reform and systematic loan
modifications - Need to drastically improve borrower protections
going forward
19Nationally, Loan Mods Dwarfed By Foreclosures
Delinquencies
20Increase Mods through TARP
- Require mandatory formulaic mods for loans owned
by any bank that gets cash infusion - Use TARP to guarantee modified loans conditioned
on sustainability standard - Buy loan servicing rights to break logjam
- Purchase 2nd mortgages
- Set goals issue detailed reporting
21Other Strategies to Increase Mods
- Change rules governing trusts so Treasury can
purchase whole loans - Amend TARP to give protections to servicers that
modify loans - Provide monetary incentives for servicers to
modify loans - Enact mandatory loss mitigation requirement
- Amend tax law so that homeowners dont get taxed
for loan mods
22Loan Mods in Bankruptcy
- Bankruptcy judges can modify all loans (incl. for
yachts, vacation homes, and for subprime lenders
in bankruptcy) but not for primary residences - Zero cost to taxpayers
- Could help 600,000 families keep their homes
- Narrowly targeted limited judicial discretion
- Incentive to servicers to modify outside
bankruptcy
23Dont Throw the Homeownership Baby Out with the
Foreclosure Bathwater
Median Total Change in Equity CAP Homes
Purchased Between 1998 2007
24 Contact
Paul Leonard California Director Center for
Responsible Lending Paul.Leonard_at_responsiblelendin
g.org 510-379-5500 www.responsiblelending.org