Address wealth disparities between black/Latino and whit

1
Investing in Community

• Non-Prime Lending and Alternative Products
  Conference
• May 23, 2006, Washington, D.C.
• EXPERIENCES FROM THE FIELD
• Mike Calhoun, Self-Help                  

2

• Wealth Disparities
•               Address wealth disparities between
  black/Latino and white families, which are
  roughly 101 (Pew 89,000 to 6,000 to 8,000)
•         How address?
• o       20-80 of lifetime wealth generational
  inheritance (Dalton Conley)
• o       Homeownership best option
•     

3

• Homeownership
•         2/3 low-income and minority family
  wealth in home equity
•         75 of whites own their homes vs.
  lt 50 AA and Latinos
•         12-1 wealth difference low-income
  homeowners vs. renters
•         Not only improves material condition,
  affects culture too
• o       As homeownership rates rise, neighborhood
  social indicators improve too

4

•                     Goal raise minority
  Homeownership rate to national average
•                     1/3 discrimination and
  remove barriers of access
•                     2/3 requires income
  subsidy
•                     Lots of barriers so lots of
  strategies are necessary, and weve tried most of
  them at Self-Help

5

• Creating Wealth Through Homeownership
•                     Direct home lending
•                     Started African American
  single mothers
•                     200 mil direct home loans
  to 3,000 families
•                     expanded underwriting

6

• Secondary Market Program
•                     Home loan secondary market
  program
•                     Why?
•                     Our direct lending has
  limited impact while banks have distribution
  networks and efficiencies of scale
•                     Banks are limited in their
  CRA lending without secondary market outlet

7

• Self-Helps Secondary Market Progrram
•                     Expanded NC program as Ford
  Foundation/Fannie Mae partnership
•                     Funded 4 bil in 45,000
  low-income and minority loans nationally

8

• Self-Help Housing Development
•         Houses purchased and rehabed in
  neighborhoods
•         Low-income borrowers purchase houses
  with conventional first mortgages and no- or
  low-interest seconds from State and City
•         Solves affordability problem for
  low-income homebuyers

9

• Homeownership tax credit proposal
•         1 billion in credits/year create
  500,000 homeowners over 10 year period
•         Private lenders do piggyback
  no-interest seconds, government pays the interest
  through tax credits
•         Deals with both wealth and income
  constraints to homeownership

10

• Protecting Wealth from Harmful Lending Practices
•     Started seeing customers come in the door
  with abusive loans
•       African American widow, working as an
  elementary school janitor husband bought house
  with VA loan (low-rate, forgiveness feature),
  died of wounds received in Vietnam
•       1997 - Refinanced with at 13 interest,
  10 fees 1998 - 6 months later - same company
  flipped (total 17,000 in fees)

11

•  
•        We saw one lender -- the Associates
  stripping more equity in a 1 year than wed been
  able to build up over 20
• Civil rights implications of predatory
  lending
•         88 of the wealth built up by both AA
  and Latino families who owned homes is in the
  form of home equity
• Ø      Weve come to realize that protecting
  wealth is as important as creating it

12

•  
•      Predatory lending is a component of
  subprime lending
•       Sub-prime has exploded, increasing from 34
  billion 1994 to 600 billion 2005
•          Not causing permanent rise in
  homeownership
•         primarily refinancings/debt
  consolidation
•         Higher risk of losing house

13

• Ø      What is predatory? 3 mostly legal
  components estimated at 9 bil/yr
•          Fee-based equity stripping
•          Rate-risk disparity
•          Foreclosures

14

• Equity Stripping
•  
•          Closing costs often exceed average
  median minority net worth
•          High prepayment penalties combined with
  rapid refinancings
•          Carrying cost of loan is shifted to
  fees and prepayment penalties

15

• Rate Disparity
• overcharging borrowers through interest
  rate steering
•         2004 HMDA shows over 3 times
  disparity blacks over white borrowers receiving
  high cost loans, disparity is reduced but does
  not go away upon further analysis
• 20 of subprime borrowers, according to Freddie
  Mac, should have received conventional loans

16

•         Mortgage brokers yield spread
  premiums
•          African Americans and Hispanics pay
  500 more than whites (Jackson study)
•          75 of YSP increases broker pay without
  benefiting borrower

17

•          Excessive foreclosure ultimate
  consequence of equity stripping and steering
•      Woodstock Institute study after
  controlling for neighborhood demographics and
  economic conditions, subprime loans foreclose at
  20x rate prime
•          Almost one in four subprime mortgage
  loans made in 2000 entered foreclosure  (22.9)
• ability to repay and payment shock