http://www.responsiblelending.org

Aracely Panameño

202-349-1875Aracely.panameno@responsiblelending.org

Mi Casa es Mi CasaPreserving Latino Homeownership Viable

throughoutthe Foreclosure Crisis

June 12, 2008

http://www.responsiblelending.org 2

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 nation’s largest community development financial institutions.

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2007 Foreclosure Rates2.2 Million FC Filings

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Local Anti-Immigrant Ordinances: PASSED

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57 Ordinances Passed

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Who Knew What When?

“It is also possible that liberalized underwriting, while opening homeownership opportunities for many, poses additional risks not only to lenders and investors, but also to households with high debt ratios and limited initial equity. The risks faced … raise the issue of sustainability... The case studies suggest that the mortgage finance industry is doing much more to attract historically underserved households and qualify them for mortgages than it is to ensure that they remain in their homes.”

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Answer

David Listokin is Professor at the Rutgers University Center for Urban Policy Research and Elvin K. Wyly is Assistant Professor in the Department of Geography and the Center for Urban Policy Research at Rutgers University.

The research on which this article is based built on an earlier study funded by the U.S. Department of Housing and Urban Development. The report on that study, published in 1998, is titled, "Successful Mortgage Lending Strategies for the Underserved". (volume 1: Industry Strategies and Volume 2: Case Studies.)

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Higher cost 1st lien total loans2005 HMDA

# Higher cost% of total

African American 388,471 52% Latino 375,889 40% White 1,214,003 19%

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2006 Key Subprime Facts

45% of Latinos who purchased a home did so with a subprime loan (HMDA 2006)

61% of 2006 subprime borrowers qualified for prime (The Wall Street Journal)

40% of 2006 suprime borrowers qualified for better subprime terms than what they received (CFAL, 2007)

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Other Key Subprime Facts

57% of 2005 subprime loans were HUD supervised

$600 billion rate reset in next two years 72% of subprime as exploding ARMs (Lehman,2004)

Rates jump from 7% to 12% Monthly payments up 50% or more Lack of escrows causes flipping

70% of subprime have prepayment penalties 40+% utilize stated income for “ability to repay”

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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.

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Sings of Predatory Lending

Excessive Fees Abusive Prepayment Penalties Yield Spread Premiums Loan Flipping Unnecessary products Mandatory Arbitration Steering and Targeting

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Certain Lost Equity

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

0 2 4 6 8 10

Time in Loan (Years)

30-Yr. FRM

2-28 ARM

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Subprime Homeownership: a Net Loss

-800

-600

-400

-200

0

200

400

98 99 00 01 02 03 04 05 06

# ho

meo

wne

rs (0

00s)

Newhomeowners

Projectedforeclosures

NetHomeownershipLoss

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Policy Issues

Ability to pay Suitable loans Broker duties Independent appraisals Fair servicing & workout programs Fair loan modifications with fair terms Home preservation programs vs. foreclosure

“rescue” scams

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Recommendations to Communities

Ask Congressional delegation to act promptly on legislative solutions to FC crisis (US Capitol Switchboard 202-224-3121).

Establish a FC task force. Demand that financial institutions and servicers work with

families in the modification of abusive loans to responsible sustainable ones.

Conduct FC intervention/avoidance clinics & information dissemination campaigns to help families keep their homes. Be sure to include HUD certified counselors w post purchase experience & legal aid.

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Recommendations to Communities (cont)

Actively seek partnerships with financial institutions and servicers (other initiatives) to reach out & provide assistance to families.

Hold subprime lenders accountable for abusive & predatory lending. Investigate lending practices and bring to justice those who engage in wrong-doing.

Pass an anti-predatory lending law to keep predatory lenders out going forward.

Ask for change in foreclosure procedures at the state level. Recommend a moratoria on foreclosures to give

consumers the opportunity to find a solution.

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Recommendations to Communities(cont)

Fannie Mae, Freddie Mac, lending institutions and servicers know exactly who are the at-risk borrowers. Ask them to be in partnerships with the county, city or locality.

Be sure to have appropriate network of service providers for communities you seek to assist.

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US Census: Homeownership by Race/Ethnicity 2005-2008