A Lifetime of Assets Asset Preservation: Trends and Interventions in Asset Stripping Services and Products

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A Lifetime of AssetsAsset Preservation Trends
and Interventions in AssetStripping Services and
Products

• Josh Silver
• Vice President
• of Research and Policy
• National Community Reinvestment Coalition

Marva Williams, Ph.D. Senior Vice
President Woodstock Institute
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Disparities in Asset Development Implications
for Public Policy

• Income Disparities
• Low and stagnating wages
• Community Impacts Areas of concentrated poverty
• Adverse Public Policies
• Lack of tax advantages for lower-income consumers
• Inadequate Savings and Investment Products
• Poor Access to the Financial Mainstream
• Prevalence of High Cost Financial Services
• Significant Financial Management Skills Gap

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Lower-Income and Minority Consumers
Disproportionately Impacted by Asset Stripping
Products

• Predatory Consumer Loans
• Payday Loans
• Auto Title Loans
• Refund Anticipation Loans
• Overdraft Protection
• Credit Cards
• Subprime and Non-Traditional Loans

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Community Impacts

• Un- Or Under-Employment
• Less Disposable Income
• Foreclosures
• Decrease in Property Values

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NY and OH were among the first states in which
the Program originally operated.
Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State Distribution of Cases by State
State NY OH FL NC TX VA GA MD PA CA IL IN MA NJ NV TN WI N/A Total
Number 62 13 4 4 4 4 2 2 2 1 1 1 1 1 1 1 1 7 112
Percent 55.4 11.6 3.6 3.6 3.6 3.6 1.8 1.8 1.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 6.3 100
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2004 and 2005 had the most cases in the sample
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CRF sample included a disproportionately large
portion of borrowers residing in minority
neighborhoods
Distribution of Cases by Minority Level of Neighborhood Distribution of Cases by Minority Level of Neighborhood Distribution of Cases by Minority Level of Neighborhood

Minority Level of Neighborhood Number Percent
Not substantially minority 38 33.93
Substantially minority 62 55.36
N/A 12 10.71
Total 112 100.00
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Borrowers in LMI tracts were disproportionately
targeted by abusive lenders in the CRF sample
Distribution of Cases by Income Level of Neighborhood Distribution of Cases by Income Level of Neighborhood Distribution of Cases by Income Level of Neighborhood

Income Level of Neighborhood Number Percent
Low 7 6.25
Moderate 46 41.07
Middle 32 28.57
Upper 15 13.39
N/A 12 10.71
Total 112 100.00
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Great majority of CRF borrowers were
African-Americans
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The great majority of CRF borrowers were low- and
moderate- income people
Distribution of Cases by Income of Borrower Distribution of Cases by Income of Borrower Distribution of Cases by Income of Borrower

Income of Borrower Number Percent
less than 15,000 6 9.84
15,001-25,000 14 22.95
25,001-35,000 16 26.23
35,001-45,000 15 24.59
45,001-55,000 5 8.20
55,001-65,000 2 3.28
65,001-75,000 1 1.64
75,001-85,000 2 3.28
Total 61 100.00
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CRF program helped to- decrease average
mortgage rate by 3.8 percentage points- save on
average 276.5 a month, 3,318 yearly, 100,000
over life of loan- 1,000 CRF customers, 100
million in equity saved by CRF program
Analysis of loan terms before and after refinance Analysis of loan terms before and after refinance Analysis of loan terms before and after refinance Analysis of loan terms before and after refinance Analysis of loan terms before and after refinance Analysis of loan terms before and after refinance Analysis of loan terms before and after refinance Analysis of loan terms before and after refinance

  Principal Amount Prior Mortgage Rate New Mortgage Rate points difference Old Monthly Payment New Monthly Payment Savings
Average 156,986.2 9.58 5.74 3.84 1,198.4 922.0 276.5
         
Median 161,280.4 9.38 6.00 3.38 1,165.8 941.7 224.1
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Higher front-end and back-end ratios show that
loans were beyond the consumers ability to pay

  Front-end Ratio Back-end Ratio
Average 40.77 50.28
Median 35.43 49.78
Standard underwriting ratios 28 36
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Multiple Abuses on Abusive Loans

• Fraud
• Lack of Tangible Net Benefit
• Targeting/Discrimination
• Predatory Appraisal
• Balloon payment
• Equity stripping
• Home improvement scam
• Misrepresentation
• Stated income
• Yield spread premium
• Abusive servicing practices
• Unfair terms
• Fee packing
• Exotic mortgages (piggyback loans, risk layering)

• Asset-based lending
• Forced placed insurance
• HOEPA loan
• Mandatory arbitration
• Prepaid credit insurance
• Abuse of right to cancel
• Abusive collection practices
• Default interest rate
• Excessive prepayment penalties
• Insincere co-signers
• Loans made in excess of 100 LTV
• Negative amortization
• Flipping

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CRF Influence on Best Practices and Policy Reforms

• Servicing Best Practices and FTC Guidelines
• OTS AMTPA Rule No evading state laws on
  prepayment penalties
• Combating Appraisal Fraud
• Uncovering Broker Abuse and Discrimination

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Expansion of CRF Programs

• Participation of More than One Lender to Support
  100 LTV ratios
• Early Delinquency Intervention
• Home Preservation Counseling as Well as Home
  Buying Counseling
• Pennsylvanias HEMAP Program
• CRA credit for banks to participate in programs
  like CRF and HEMAP

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Contact Information

• NCRC
• [phone] http//www.ncrc.org
• Woodstock Institute
• [phone]
• http//www.woodstockinst.org