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Title: Josh Nassar


1

Josh Nassar Overview of Mortgage Market How We
Got Here and Policy Responses July 23,
2008 Foreclosure Community Impact Summit Greater
Richmond Convention Center, Richmond, VA
2
Introduction
3
About 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.

4
Self-Help
  • Self-Help is a non-profit lender founded in 1980
    to increase and protect wealth and ownership
    opportunities for minorities, women, rural
    residents, and low-wealth families
  • Over 5 billion in home, small business and
    non-profit financing for more than 55,000 loans
    in 47 states and the District of Columbia
  • Serves borrowers who do not meet traditional
    underwriting criteria
  • 7 branches in NC plus a Washington, DC and
    Oakland, CA branch

5
Home Equity and Wealth
  • Wide gaps remain in wealth and homeownership
  • In 2004, the median net worth of households of
    color was only 17.6 of the median net worth of
    white households. (Federal Reserve Bulletin, Feb.
    2006)
  • Approximately 75 of white Americans own their
    homes. The figures are much lower for
    African-Americans (48.2) and Latinos (49.5).
    (US Census Housing Vacancy Survey, 2005)
  • Promoting homeownership for remains the most
    important tool for closing the wealth gap.

6
Home Equity and Wealth
  • Median value of home equity as share of
  • the net worth of homeowner households (2002)
  • Source Rakesh Kochkar, The Wealth of Hispanic
    Households 1996 to 2002 at 5, tbl. 1 (Pew
    Hispanic Center, 2004).

7
Prime v. Subprime
  • Prime Borrowers
  • Excellent credit history stable employment
    history meet traditional debt-to-income,
    payment-to-income, and loan-to-value ratio
    underwriting criteria
  • Subprime Borrowers
  • Credit blemishes (usually, less than A rating)
    insufficient or non-traditional credit history
    less stable employment history high
    debt-to-income, payment-to-income, or
    loan-to-value ratios

8
More Costly Credit
  • Subprime loans are priced higher, in theory to
    cover higher risk
  • However, many subprime borrowers could qualify
    for prime loans but are courted only by subprime
    lenders
  • Other subprime borrowers are charged more than is
    justified by risk. Origination fees are
    typically higher and prepayment penalties are
    more common

9
Growth of Subprime Market 1998-2006

10
Subprime Market Is Not Fair or Price Competitive
  • More than 70 of subprime home loans contain
    prepayment penalties can cost families
    thousands of dollars when they refinance or pay
    off their loans early
  • Prepayment penalties do not result in lower
    interest rates simply another method of
    stripping home equity
  • Yield spread premiums encourage brokers to make
    loans at interest rates higher than the rates for
    which borrowers qualify.

11
A Critical Issue
  • . . . Because of the concentration of
    subprime lending in low-income and black
    neighborhoods, there has been a growing concern
    that borrowers in these neighborhoods are
    vulnerable to a subset of subprime lenders, who
    engage in abusive lending practices, strip
    borrowers home equity, and place them at
    increased risk for foreclosure.
  • Randall M. Scheessele, Black and White
    Disparities in Subprime Mortgage Refinance
    Lending (U.S. Dept. of Housing and Urban
    Development, April 2002), at 1.

12
Losing Ground Foreclosures in the Subprime
Market and Their Cost to Homeowners
  • In one of the worst foreclosure crises in
    American history, subprime mortgages originated
    from 1998 through third quarter of 2006 will wipe
    out 164 billion in homeownership wealth for 2.2
    million American families. Research from the
    Center for Responsible Lendingthe first
    comprehensive, nationwide look at how subprime
    mortgages performshows

13
  • Alarming Rate of Home Losses For subprime loans
    made during the past two years one out of five
    (19) will fail.
  • Worse than Oil Patch These rates are far worse
    than the notoriously high rate of foreclosures
    during the Oil Patch disaster (14 percent) of the
    1980s.
  • Increasing in Most Areas As the housing market
    cools, subprime foreclosure rates will rise
    sharply in most major markets.

14
  • Driven by Lending Practices Subprime lenders
    are breeding foreclosures through bad
    underwriting combined with risky loans featuring
    adjustable rates, balloons, prepayment penalties,
    low-doc/no-doc. Pervasive 2/28s (exploding
    ARMs) dominate the current market and are very
    likely to make the loan unaffordable.

15
Example of 2-28, 200,000 ARM, No Change in Rates
Source CRL Calculations
16
How Did We Get Here?
  • Underwriting without regard for ability to repay
  • e.g. exploding ARMs, no docs, piggybacks
  • No escrow for taxes or insurance
  • Presumption of continued housing appreciation

17
  • Most Vulnerable Bear the Brunt African American
    and Latino families get a disproportionate share
    of subprime loans. Low-wealth families have the
    most to gain from homeownership, and the most to
    lose from foreclosure. It typically takes 10
    years to recover and buy another house many
    never recover.

18
Subprime Spillover Key Findings
  • We project that, nationally, foreclosures on
    subprime home loans originated in 2005 and 2006
    will have the following impact on neighborhoods
    and communities in which they occur
  • 40.6 million neighboring homes will experience
    devaluation because of subprime foreclosures that
    take place nearby.
  • The total decline in house values and tax base
    from nearby foreclosures will be 202 billion
  • Homeowners living near foreclosed properties will
    see their property values decrease 5,000 on
    average.

19
Impact of the Subprime Collapse
  • Foreclosures
  • - 2.2 million subprime loans will have ended in
    foreclosure
  • - 1 in 5 recent originations will end in
    foreclose
  • - Disproportionate impact on minority borrowers
    and communities
  • - Homeowners, not investors
  • Cost
  • - 164 billion direct equity loss to borrowers
  • - Billions in equity loss to surrounding
    homeowners
  • - Costs to lenders, local governments
  • - Impact on national and global economies

20
Impact of the Subprime Collapse
Projected Foreclosures Loans Originated
1998-2001
21
Impact of the Subprime Collapse
Projected Foreclosures Loans Originated 2006
22
Loan Features Carry Risk
  • Among subprime loans originated in 2000, after
    controlling for credit score
  • ARMs had 72 greater risk of foreclosure than
    FRM.
  • Balloons had 36 greater risk than FRM.
  • Prepayment penalties associated with 52 greater
    risk.
  • Low/no doc loans with 29 greater risk.
  • Purchase money with 29 greater risk than
    refinance.

23
Higher-Cost Home Loan Purpose
Source 2006 HMDA First Lien, Owner-Occupied
Conventional Mortgages
24
Higher cost 1st lien total loans2006 HMDA
  • Higher cost of total
  • African American 411,040 52.5
  • Latino 467,373 40.8
  • White 1,205,720 22.5

Source 2006 HMDA First Lien, Owner-Occupied
Conventional Mortgages
25
Higher cost 1st lien refi loans 2006 HMDA
  • Higher cost of total
  • African American 216,151 52.5
  • Latino 200,405 37.2
  • White 684,624 26.0

Source 2006 HMDA First Lien, Owner-Occupied
Conventional Mortgages
26
Higher cost 1st lien purchase loans2006 HMDA
  • Higher cost of total
  • African American 176,930 52.8
  • Latino 250,941 45.0
  • White 458,098 18.4

Source 2006 HMDA First Lien, Owner-Occupied
Conventional Mortgages
27
Subprime Homeownership a Net Loss
27
28
Baltimore Foreclosure Filings and Race
29
(No Transcript)
30
Payment Option ARMsThe Next Wave of Payment
Shocks
Another complex product that has put many
low-income families at risk is the payment option
adjustable-rate mortgage (POARM)  This product
allows people to make monthly payments that do
not cover principal and interest, which means
that the home experiences negative amortization
that is, the principal balance of the loan
grows larger during the period that the minimum
payment is being made.  Unfortunately, lenders
like Countrywide offered these loans to borrowers
for whom they were not suited, structured the
products so that the payments substantially
increase in five years or less when they hit
their negative amortization cap, used excessive
teaser rates, and failed to document income. 
Unlike 2/28s, the POARMs that were poorly
underwritten are largely Alt-A mortgages as
opposed to subprime.
31
Payment Option ARMsThe Next Wave of Payment
Shocks
The next wave of mortgage defaults will likely
result from the widespread use of a
nontraditional mortgage product known as
payment-option adjustable-rate mortgages, or
Payment Option ARMs (POARMs).  These
complicated financial products, which can lead to
increased debt and dramatic payment shocks, have
largely been overshadowed by the collapse of the
subprime market.  However, because of the
dangerous structure of POARMs and their
prevalence in certain markets, these mortgages
are likely to exacerbate the housing crisis over
the next few years. 
32
Payment Option ARMsThe Next Wave of Payment
Shocks
Double Whammy Negative Amortization Interest
Rate Shock Unlike traditional fixed-rate
mortgages, which require borrowers to pay a set
amount that covers both accumulated monthly
interest and a portion of the loan principal so
that the loan is paid down each month, POARMs can
actually lead to an increase in the loan balance
over time, leaving borrowers with greater debt
than they initially took on. These loans are
particularly pernicious because they usually
start off with a very low teaser rate that
quickly resets to a much higher rate.  This rate
reset, combined with a growing loan balance,
often results in an unaffordable payment shock
for borrowers. 
33
Payment Option ARMsThe Next Wave of Payment
Shocks
Negative Amortization Whereas traditional
fixed-rate loans are structured so that borrowers
pay a fixed amount each month that guarantees a
decrease in the amount owed over time, POARMs do
not.  Generally speaking, each month POARMs allow
borrowers to pay the fully-amortizing payment
amount (i.e. interest plus principal), an amount
equal only to the interest owed, or a minimum
payment that is actually less than the
accumulated monthly interest.  Because of this
third option, POARMs can, and often do, actually
lead to an increase in the balance of the loan or
negative amortization.  That is, these loans
are structured in such a way that borrowers may
become increasingly in debt over time.   Though
there generally is a limit on how high the loan
balance can go, once this limit is hit borrowers
lose payment options and face dramatic increases
in monthly payments. 
34
Payment Option ARMsThe Next Wave of Payment
Shocks
Interest Rate Shock As an added danger, these
loans often start out with a very low initial
teaser ratefrom one to three percentwhich are
in effect for a short time In fact, this low
starting interest rate can be in effect for as
little as one day to one month, after which the
interest rate resets (usually to seven to nine
percent)  and changes monthly.  The combination
of an adjustable interest rate with a growing
loan balance owed can lead to severe payment
shocks to borrowers.
35
Aftermath of ForeclosuresCrisis and Responses
36
  • Subprime production in the fourth quarter of 2007
    was less than half that of the previous quarter,
    which in turn produced half of the volume of the
    quarter before it.
  • According to Inside BC Lending, an estimated
    192.5 billion is subprime mortgages were
    originated in 2007. That was down a stunning
    67.9 percent from the previous year. And lenders
    originated a paltry 13.5 billion in subprime
    mortgages in the fourth quarter of 2007, the
    lowest quarterly production on a record.

37
  • FHA endorsement volume outpaced subprime
    originations in the fourth quarter of 2007 for
    the first time since 2001.
  • Seven of the top 20 subprime lenders in 2007 had
    zero subprime originations in the fourth quarter,
    either because they abandoned the products
    voluntarily or because they were out of business
  • The subprime share of total MBS issuance fell to
    a dismal 3.5 percent in the fourth quarter of
    2007, according to the Inside Mortgage Finance
    MBS Database. Thats well below the sectors
    21.6 percent share for 2005.

38
Loan Modification
  • Very few homeowners who cannot pay their
    mortgages will be able to sell or refinance.
  • Loan servicers who could modify loans to make
    them more affordable arent doing so in
    sufficient numbers A recent report by Moodys
    Investors Service (focusing on Jan-Mar 2008)
    found that loan servicers had only modified 9.8
    percent of mortgages that increased to higher
    rates, while the Dec 2007 survey reported only
    3.5 percent.
  • (The survey includes information from ten
    servicers with a total servicing volume of
    approximately 550 billion. These servicers
    constitute about 50 of the total US subprime
    servicing market)

39
The Moodys survey also reports that
  • There has been a relatively high rate of
    re-defaults on loans that were modified in 2007.
    The survey finds 42 of loans that were modified
    in the first half of 2007 were 90 days
    delinquent as of March 31, 2008.
  • Servicers continue to be extremely challenged by
    the unprecedented level of delinquencies and
    reduction in profitability.

40
Local Impact of Foreclosure Crisis
41
Local Impact of Foreclosure Crisis
Virginia Subprime Foreclosure Starts 2003-2007
42
Policy Responses
43
Snapshot of Housing Markets Distressing Trends
Based on HOPE NOW numbers recently released and
the most recent Mortgage Bankers Associations
National Delinquency Survey, released last month
  • Seriously delinquent loans are at a record high
    for both prime and subprime loans. 
  • The MBA survey shows over 16 percent of subprime
    loans were "seriously delinquent," that is
    90-days or more delinquent or in foreclosure, at
    the end of March.  This is double the 8 percent
    rate from one year earlier and the highest on
    record.
  • Furthermore, though defaults on subprime loans
    continue to drive the overall housing crisis,
    prime loans are also faltering, with the percent
    of seriously delinquent prime loans more than
    doubling from a year earlier.

44
Snapshot of Housing Markets Distressing Trends
  • The number of borrowers who lost their homes to
    foreclosure soared in May.   
  • HOPE NOW estimates that 85,000 families lost
    their homes to foreclosure in May, the highest
    one-month figure since the inception of the
    program. This represents a 35 percent increase
    over three months and more than double the number
    from July of last year. 
  • The total number of foreclosures since the
    program began last July is now estimated at
    almost 650,000.

45
Snapshot of Housing Markets Distressing Trends
  • The number of borrowers who received loan
    modifications is small compared to the number who
    lost their home or who are in danger of losing
    their home. 
  • While HOPE NOW reported 276,000 loans either
    entered or completed foreclosure in May, only
    70,000 received loan modifications during the
    month.  That is, almost four times as many
    families lost their home or are in the process of
    losing their home as received loan modifications
    from servicers. 
  • Furthermore, the data provided by HOPE NOW
    understates the number of loans in foreclosure,
    as it only includes those homes that entered
    foreclosure and those that completed foreclosure
    during the month, not the total number currently
    in the foreclosure process. In fact, 1.1 million
    families were in foreclosure at the end of March.

46
Snapshot of Housing Markets Distressing Trends
  • The number of families in danger of losing their
    homes continues to be near record highs.
  • According to the data released by HOPE NOW, an
    estimated 1,977,000 loans were 60-days or more
    delinquent or entered foreclosure in May, the
    second highest number since the program began
    reporting data last July.  This is an astonishing
    43 percent increase since July of last year. This
    trend is consistent with the new MBA study, which
    shows that more than 5 percent of all loans were
    at least 60-days delinquent or in foreclosure at
    the end of the first quarter of 2008, compared to
    just over 3 percent a year earlier.

47
The numbers show the problem is getting worse.
And the fact is that nothing is known about the
effectiveness of the loan modifications or
workouts that are being provided by servicers.
HOPE NOW gives little information on the types
of modifications being completed by industry or
on the performance of those newly modified loans.
HOPE NOW's data provides little insight into
whether its' members efforts are resulting in
long-term, sustainable solutions for homeowners.
48
Addressing the Foreclosure Crisis
Court-Supervised Loan Modifications Prevent the
Most Damage
  • Emergency Home Ownership and Mortgage Equity
    Protection Act (HR 3609) Helping Families Save
    Their Homes in Bankruptcy Act of 2007 (S 2136)
  • We could prevent up to 600,000 foreclosures by
    allowing courts to supervise loan modifications,
    effectively mediating between lenders and
    homeowners.  To do this, we don't need any public
    funding or a  new bureaucracywe can use the
    existing bankruptcy court system, which allows
    borrowers to modify all debts except loans
    against their personal residence. The remedy in
    HR 3609/S2136 would apply only to people who are
    now holding subprime or nontraditional loans and
    who are truly desperate, about to lose their
    house.  This proposal has passed both House and
    Senate Judiciary Committees and attracted
    bipartisan support (13 co-sponsors in the Senate
    and 86 in the House), but so far industry
    opposition has been successful in preventing this
    solution from moving forward.

49
The Impact of Court-Supervised Modifications on
Subprime Foreclosures in Virginia
Expected benefit of court-supervised
modifications for Virginia families
50
Addressing the Foreclosure CrisisH.R. 6076,
Rep. Matsui (D-CA)
Foreclosure Deferment Give Homeowners More Time
  • Home Retention and Economic Stabilization Act
    (HR 6076)
  • This bill would allow struggling homeowners who
    meet certain criteria to delay a foreclosure sale
    by up to nine months, so long as they make
    reasonable monthly mortgage payment to their
    lender and maintain the property responsibly. 
    Only subprime mortgages and mortgages with
    negative amortization are eligible.  The proposed
    timeout would benefit homeowners and industry in
    several ways
  • (1) Allows more time for homeowners to seek a
    solution through a loan modification, refinance,
    or home sale
  • (2) more time for servicers to work with
    troubled homeowners
  • (3) more time for new programs, such as an FHA
    expansion, to be implemented. 

51
H.R. 6076 Home Retention and Economic
Stabilization Act
Why is H.R. 6076 needed?
  • Approximately 20,000 subprime foreclosures are
    starting every week, and despite the efforts of
    voluntary programs like HOPE NOW, the situation
    is projected to get worse. Housing counselors
    and loan servicers are overwhelmed the common
    presence of piggy back second mortgages makes
    it virtually impossible for servicers to modify
    loans even when they want to and credit markets
    are jammed, making refinancing into more
    affordable loans especially difficult. Avoiding
    unnecessary foreclosures is urgently needed, not
    only for the sake of the families immediately
    impacted, but for the good of their neighbors,
    communities, state and local governments, and the
    housing market and the economy nationwide. A
    short-term delay in processing foreclosures will
    allow time for lenders and servicers to increase
    their capacities to meet current need, for credit
    markets to stabilize, and for legislative
    solutions, such as the FHA refinancing program
    under consideration in Congress, to take effect.

52
H.R. 6076 Home Retention and Economic
Stabilization Act
What does H.R. 6076 do?
  • H.R. 6076 allows struggling homeowners who meet
    certain criteria to delay a foreclosure sale by
    up to nine months, so long as they comply with
    the statutory obligation to make reasonable
    monthly mortgage payments, maintain the property
    responsibly, and respond to any reasonable
    requests from the lender. H.R. 6076 also
    preserves the ability of states to provide
    additional foreclosure protections to their
    residents.

53
H.R. 6076 Home Retention and Economic
Stabilization Act
Does H.R. 6076 permanently stop any foreclosures?
  • No. The bill only provides a nine-month
    deferment period to allow time for an alternative
    solution to be reached.

54
H.R. 6076 Home Retention and Economic
Stabilization Act
Does H.R. 6076 provide a windfall for wealthy
Americans?
  • No. Only consumers who live in their home and
    intend to remain there are eligible. Investors
    and speculators are not eligible. In addition,
    only homeowners with income below 200 of area
    median income are eligible.

55
H.R. 6076 Home Retention and Economic
Stabilization Act
Does H.R. 6076 help consumers in traditional
prime mortgages?
  • No. Only subprime and negative amortization
    mortgages, as defined by the bill, are eligible.
    Subprime mortgages are higher-cost mortgages.
    Negative amortization mortgages are those with
    the potential for the principal balance to
    increase over time.

56
H.R. 6076 Home Retention and Economic
Stabilization Act
Does H.R. 6076 help consumers who really dont
need help?
  • No. Consumers are only eligible if they have
    fallen 60 days delinquent on a subprime mortgage
    or when their original monthly payment either has
    increased or will soon increase because the rate
    has reset.

57
H.R. 6076 Home Retention and Economic
Stabilization Act
Does H.R. 6076 allow consumers to stop making
monthly payments?
  • No. The consumer must continue to make payments
    during the deferment period, equal to the lower
    of (i) the original minimum monthly payment,
    i.e., at the teaser rate or (ii) a payment
    based on a market interest rate plus a 1 risk
    premium applied to the principal owed.

58
H.R. 6076 Home Retention and Economic
Stabilization Act
Does H.R. 6076 forgive debt?
  • No. Any deferred amounts will be amortized and
    paid over the life of the loan at the end of the
    deferment period.

59
H.R. 6076 Home Retention and Economic
Stabilization Act
When does the deferment period start and end?
  • It starts when the consumer sends notice to the
    creditor or servicer that he/she is exercising
    his/her deferral right. It ends 270 days later.
    It will end sooner, however, if the consumer
    fails to satisfy its obligations, if the consumer
    enters into an affordable modification plan with
    the creditor/servicer, or by court order.

60
Addressing the Foreclosure Crisis
Focus on FHA Strengthen Oversight and Provide
More Resources
  • American Housing Rescue and Foreclosure
    Prevention Act of 2008 (HR 3221)
  • Both the House and Senate versions of this bill
    address a variety of issues related to the
    foreclosure epidemic.  Among the provisions (but
    not inclusive) expand the capacity of the
    Federal Housing Administration (FHA) to insure
    refinances on distressed mortgages fund state
    and local governments to redevelop foreclosed
    homes strengthen regulation of
    government-sponsored enterprises and the Federal
    Home Loan Bank system protect members of the
    military from foreclosures under certain
    conditions and protect mortgage servicers who
    modify loans from investor lawsuits.  In general,
    there is strong bipartisan support in Congress
    for this bill, though members continue to debate
    issues that involve timing and funding.
  • Overall, 3221 represents a positive step, but it
    continues to rely on voluntary industry efforts
    to modify loans.  We must do more to prevent
    unnecessary foreclosures by providing
    requirements or stronger incentives to servicers
    and holders of subprime mortgage debt to modify
    loans now held by struggling homeowners.   

61
Addressing the Foreclosure Crisis
FDIC Allow Treasury to Make New Loans
  • The FDIC is urging Congress to reduce
    foreclosures and stabilize the housing market by
    authorizing the Treasury Department to make loans
    to homeowners with unaffordable mortgages to pay
    down up to 20 of the principal loan amount.. 
    Treasury would sell debt to fund the plan at no
    cost to taxpayers.  The costs of repayment and
    financing would be borne by homeowners and loan
    investors.  Mortgage investors would apply to
    Treasury for funds and assume responsibility for
    restructuring loans that comply with the rules of
    the program (e.g., an interest rate cap, no
    prepayment penalties).  Treasury would guarantee
    repayment if a homeowner defaults on the new
    loan.   

62
Addressing the Foreclosure Crisis
FDIC Allow Treasury to Make New Loans
  • The FDIC is urging Congress to reduce
    foreclosures and stabilize the housing market by
    authorizing the Treasury Department to make loans
    to homeowners with unaffordable mortgages to pay
    down up to 20 of the principal loan amount.. 
    Treasury would sell debt to fund the plan at no
    cost to taxpayers.  The costs of repayment and
    financing would be borne by homeowners and loan
    investors.  Mortgage investors would apply to
    Treasury for funds and assume responsibility for
    restructuring loans that comply with the rules of
    the program (e.g., an interest rate cap, no
    prepayment penalties).  Treasury would guarantee
    repayment if a homeowner defaults on the new
    loan. 
  • While this approach is promising in many
    respectsthe FDIC estimates loan modifications
    for about 1 million unsustainable mortgagesit
    also includes some of the same drawbacks as
    proposed FHA legislation, since investors'
    participation would be voluntary, and it isn't
    clear how this program would remove obstacles
    posed by second mortgages attached to troubled
    loans.  

63
Better Loan Servicing
Improve Efforts to Work with Homeowners
  • Foreclosure Prevention and Sound Mortgage
    Servicing Act of 2008 (HR 5679) introduced by
    Rep. Waters (D-CA)
  • Amends the Real Estate Settlement Procedures Act
    of 1974 to require loan servicers to engage in
    reasonable loss mitigation activities before
    foreclosing.  If passed, this could help reduce
    foreclosures and increase constructive efforts to
    work with struggling homeowners. 

64
Focus on the Future
Prevent Another Cycle of Reckless Lending
  • Home Ownership Preservation and Protection Act
    of 2007 (S 2452)
  • This bill would help stop many abusive lending
    practices that led to the foreclosure crisis,
    including abusive prepayment penalties,
    yield-spread premiums (extra compensation paid to
    brokers that encourage them to overcharge
    borrowers), and lack of generally accepted
    underwriting practices by lenders.  Already a
    number of states have passed or are actively
    considering these types of protections to prevent
    more unnecessary foreclosures in the future.  A
    strong federal law would guarantee minimum
    protections nationwide that would help stop
    reckless lending practices that became
    commonplace during the subprime heyday. 

65
New Federal Reserve Rules
  • On July 14th the Federal Reserve adopted key
    protections for borrowers who receive subprime
    loans, including     
  • Addressing the most substantial cause of current
    foreclosures, lenders must carefully evaluate a
    borrowers ability to repay a subprime loan, and
    verify the income used to do so
  • Lenders cannot impose abusive prepayment
    penalties that trap borrowers in short-term
    subprime ARMs
  • Lenders must escrow for taxes and insurance.
  • The new rules do not cover nontraditional or
    exotic loans that had a major role in todays
    massive foreclosures, such as payment-option ARMs
    or interest only loans that dont meet the
    subprime definition.

66
Principles of Responsible Lending
  • Eliminate incentives for lenders to originate
    predatory loans
  • Create a fair, competitive market that
    responsibly provides credit to consumers
  • Guarantee access to justice for families caught
    in abusive loans
  • Preserve essential federal and state consumer
    safeguards

67
Policy Recommendations to Prevent Future Abuses
  • Require lenders and brokers to serve the
    interests of homeowners
  • Strengthen underwriting requirements
  • Make enforcement of existing laws count
  • Support laws and policies that reduce abusive
    lending while supporting a strong market

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What do we do now?
  • Help Current Homeowners
  • - Loss Mitigation
  • - Bankruptcy Reform
  • - Foreclosure assistance
  • Protect Future Borrowers
  • - Ability to repay
  • - Regulation of broker fees
  • - Broker duties
  • - Assignee liability

69
CRL Can Help
  • Research on borrowers and industry
  • Up-to-date information on industry trends
  • Links to other resources and organizations
  • Technical assistance in understanding the issues
  • Collaboration on meetings with industry

70
Any Other Questions?
  • Call CRL
  • (919) 313-8500
  • (202) 349-1850
  • Josh Nassar
  • Josh.nassar_at_responsiblelending.org
  • (202) 349-1865
  • Visit www.responsiblelending.org
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