1. Metropolitan Washington DC Lending Trends & Issues Metropolitan Washington Council of Governments Predatory Lending Conference April 27th, 2006 Presented By David Berenbaum Executive Vice President National Community Reinvestment Coalition dberenbaum@ncrc.org

2. National Community Based Membership Publications & Research; Policy Papers Consumer Rescue Fund - NCRC has identified numerous issues - role of broker, risk & pricing, servicing, increase in predatory lending to first time homebuyers, consumer loan origination issues Sub-Prime Fair Lending Mystery Shopping - NCRC Six Metro Area Audit Results Advocacy & Litigation Best Practices - Can North Carolina, New Mexico & NJ Laws serve as discussion point for a responsible national standard? Financial Literacy & MBDC, & Community Express Programs NCRC Overview

3. National real estate & financial service conglomerates One stop shopping - lender, appraiser, realtor, insurer - RICO & ethics issues “Affinity” relationships Internet Telemarketing Appraisal Corporate responsibility and social justice. Community viability & fair housing planning Economic justice & dismantling racism CRA modernization Government services, tax equity & environmental racism Impediments to Fair Housing Choice

4. Risk based pricing & equal access to products & services - Reg C Using consumer protection & civil rights statutes Growth of product add-ons Role of servicing & securitization Reverse redlining Tangible net benefit tests Montgomery County Ordinance Issue Traditional forms of discrimination – steering, availability, pricing & terms, all relevant to predatory lending.

5. HELOC, tax refund loans Home Improvement Scams Interest Only Loans Adjustable Rate Loans HELOCS

6. The Market Investors face pre-payment risk and interest rate risk. Sub- prime, credit constrained, idiosyncratic financing, and higher default rate. Adjustible Rate Loans, Interest Only Notes Securitization factors: deal provisions; refusal to rate certain types of loans; recourse provisions, indemnification; preservation of holder in due course status. Assignees can contract away risk - borrowers do not benefit. Special purpose vehicles – need purchase criteria, investigate originators; monitor performance to detect under achieving loans. Electronic screening plus random sampling. Require assignees to institute controls, limited liability of assignees who comply, full liability for those who do not. Net Effect: lower lit/compliance risk. Brokers, appraisers, realtors, developers, lenders, contractors, all play a role

7. Civil Rights & Consumer Protection Issues Unfair pricing / excessive points and fees Broker conduct – 50% of referrals to NCRC remedial loan fund Ancillary products (credit insurance) sales practices Refinancing – “flipping” issues Debt to income ratios – “equity stripping” issue Prepayment fees Stated income loan programs – fraud risk Balloon payments Appraisers – property flipping risks Deceptive advertising Unfair collections practices Different channels/different pricing – “referrals” Servicing issues

8. Legal Tools Federal Fair Housing Act Truth In Lending Act (TILA) Equal Credit Opportunity Act (Reg B) Home Ownership & Equity Protection Act (HOEPA) Home Mortgage Disclosure Act (Reg C) Community Reinvestment Act Fair Debt Collection Practices Act Real Estate Settlement Procedures Act (RESPA). State & Local Protections Fraud & Racketeering Arguments FTC Act

9. Reg C - HMDA Changes Does the provision of non-prime loans subject members of protected classes to unequal access to credit? Is it a racial targeting technique? Standards for proving fair lending claims are now potentially much easier than traditional consumer protection or predatory lending cases. Intentional misconduct may be irrelevant Defense burden may be formidable Now required to identify HOEPA loans Geographic location of higher cost loans Ability to geocode & correlate to HCL to Census, LMI Communities Claims of reverse redlining and targeting Ancillary UDAP claims and state FHA claims In the past, risk based credit issues were “individualized,” with new pricing data & regulatory oversight will become compliance issue.

10. Prime Home Loans by Minority Level of Neighborhood 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) Prime Home loans. One dot = 20 loans Washington-Arlington- Alexandria, DC-VA-MD-VW MD

11. SubPrime Home Loans by Minority Level of Neighborhood 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) SubPrime Home loans. One dot = 20 loans Washington-Arlington- Alexandria, DC-VA-MD-VW MD

12. Prime Home Loans by Minority Level of Neighborhood 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) Prime Home loans. One dot = 5 loans Montgomery County, MD

13. SubPrime Home Loans by Minority Level of Neighborhood 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) SubPrime Home loans. One dot = 5 loans Montgomery County, MD

14. Prime Home Loans by Minority Level of Neighborhood 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) Prime Home loans. One dot = 5 loans Prince George’s County, MD

15. SubPrime Home Loans by Minority Level of Neighborhood 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) SubPrime Home loans. One dot = 5 loans Prince George’s County, MD

16. Prime Home Loans by Minority Level of Neighborhood 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) Prime Home loans. One dot = 5 loans Fairfax County, VA

17. SubPrime Home Loans by Minority Level of Neighborhood 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) SubPrime Home loans. One dot = 5 loans Fairfax County, VA

18. Analysis of Home Lending Trends Washington-Arlington-Alexandria, DC-VA-MD-WV MD National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Analysis of 2004 home lending in Washington-Arlington-Alexandria, DC-VA-MD- WV MD shows that 10.5% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime. Washington, DC vs Nation comparison Prime LendingSubprime Lending TotalCount% % Washington, DC281,230251,71189.50%29,51910.50% Nation11,821,30710,384,76787.85%1,578,54013.35% Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods.

19. Market Share Analysis by minority level of neighborhood Washington-Arlington-Alexandria, DC-VA-MD-WV MD National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Loans to Minority CTsLoans to Non-minority CTs Count% % Prime72,06082.69%179,63892.56% Subprime15,08617.31%14,4307.44% Total87,146100.00%194,068100.00% Residents of minority neighborhoods were much more likely to receive subprime loans than residents of non- minority communities

20. Market Share Analysis by income level of neighborhood Washington-Arlington-Alexandria, DC-VA-MD-WV MD National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 The percent of subprime loans was higher for residents from LMI census tracts than for residents of MUI neighborhoods Loans to LMI CTsLoans to MUI CTs Count% % Prime45,54683.93%206,14190.84% Subprime8,71816.07%20,7979.16% Total54,264100.00%226,938100.00%

21. Analysis of Home Lending Trends Prince George’s County, MD National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Analysis of 2004 home lending in Prince George’s County, MD shows that 21.7% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime. Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods. Prince George's Co vs Nation comparison Prime LendingSubprime Lending TotalCount% % PG County53,37941,81178.33%11,56821.67% Nation11,821,30710,384,76787.85%1,578,54013.35%

22. Market Share Analysis by minority level of neighborhood Prince George’s County, MD National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Residents of minority neighborhoods were much more likely to receive subprime loans than residents of non- minority communities By minotity level of census tract Loans to Minority CTsLoans to Non-minority CTs Count% % Prime34,26876.91%7,54385.48% Subprime10,28723.09%1,28114.52% Total44,555100.00%8,824100.00%

23. Market Share Analysis by income level of neighborhood Prince George’s County, MD National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 The percent of subprime loans was higher for residents from LMI census tracts than for residents of MUI neighborhoods By income level of census tract Loans to LMI CTsLoans to MUI CTs Count% % Prime9,84772.46%31,96480.33% Subprime3,74227.54%7,82619.67% Total13,589100.00%39,790100.00%

24. Analysis of Home Lending Trends Montgomery County, MD National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Analysis of 2004 home lending in Montgomery County, MD shows that 7.8% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime. Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods. Montgomery Co vs Nation comparison Prime LendingSubprime Lending TotalCount% % Montgomery Co52,01447,96892.22%4,0467.78% Nation11,821,30710,384,76787.85%1,578,54013.35%

25. Market Share Analysis by minority level of neighborhood Montgomery County, MD National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Residents of minority neighborhoods were much more likely to receive subprime loans than residents of non- minority communities By minotity level of census tract Loans to Minority CTsLoans to Non-minority CTs Count% % Prime13,16488.11%34,80493.88% Subprime1,77711.89%2,2696.12% Total14,941100.00%37,073100.00%

26. Market Share Analysis by income level of neighborhood Montgomery County, MD National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 The percent of subprime loans was higher for residents from LMI census tracts than for residents of MUI neighborhoods By income level of census tract Loans to LMI CTsLoans to MUI CTs Count% % Prime8,08987.78%39,87993.18% Subprime1,12612.22%2,9206.82% Total9,215100.00%42,799100.00%

27. Analysis of Home Lending Trends Fairfax County, VA National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Analysis of 2004 home lending in Fairfax County, VA shows that 5.2% of all- single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime. Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods. Fairfax Co vs Nation comparison Prime LendingSubprime Lending TotalCount% % Fairfax Co63,89460,55494.77%3,3405.23% Nation11,821,30710,384,76787.85%1,578,54013.35%

28. Market Share Analysis by minority level of neighborhood Fairfax County, VA National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Residents of minority neighborhoods were much more likely to receive subprime loans than residents of non- minority communities By minotity level of census tract Loans to Minority CTsLoans to Non-minority CTs Count% % Prime10,11391.53%50,44195.45% Subprime9368.47%2,4044.55% Total11,049100.00%52,845100.00%

29. Market Share Analysis by income level of neighborhood Fairfax County, VA National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 The percent of subprime loans was higher for residents from LMI census tracts than for residents of MUI neighborhoods By income level of census tract Loans to LMI CTsLoans to MUI CTs Count% % Prime4,02590.39%56,52995.10% Subprime4289.61%2,9124.90% Total4,453100.00%59,441100.00%

30. Analysis of Home Lending Trends District of Columbia County, DC National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Analysis of 2004 home lending in District of Columbia County, DC shows that 8.2% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime. Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods. DC Co vs Nation comparison Prime LendingSubprime Lending TotalCount% % DC Co27,04324,76791.58%2,2768.42% Nation11,821,30710,384,76787.85%1,578,54013.35%

31. Market Share Analysis by minority level of neighborhood District of Columbia County, DC National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 Residents of minority neighborhoods were much more likely to receive subprime loans than residents of non- minority communities By minotity level of census tract Loans to Minority CTsLoans to Non-minority CTs Count% % Prime15,89888.19%8,86798.38% Subprime2,12911.81%1461.62% Total18,027100.00%9,013100.00%

32. Market Share Analysis by income level of neighborhood District of Columbia County, DC National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866 The percent of subprime loans was higher for residents from LMI census tracts than for residents of MUI neighborhoods By income level of census tract Loans to LMI CTsLoans to MUI CTs Count% % Prime4,02590.39%56,52995.10% Subprime4289.61%2,9124.90% Total4,453100.00%59,441100.00%

33. Reverse Redlining Cap Cities Litigation Toussie Litigation

34. Other Cases/Matters U.S. v. Old Kent Financial Corporation, U.S. v. Allbank, U.S.v. Blackpipe, - redlining matters U.S. v. Fairbanks, OTS/Ocwen Attorney General Settlements - Household, Ameriquest Citifinancial/Associates FTC v. First Alliance

35. Servicing Issues Community groups considering the creation of borrowers servicer, modeled upon buyers broker. Pyramiding: Servicers are holding consumers’ checks with the intent to tack on late fees and accelerate foreclosure Failure to provide payoff statements Forced place insurance Cashiering & Escrow Issues Coercing borrowers into E-Z Pay rather than cost free alternatives Suspense account – misapplication of payments, related to pyramiding. Improperly clouding (reporting payments) on credit reports, Accelerated or costly foreclosure actions Unprofessional customer service. Selective & Accelerated Foreclosure Equity Stripping

36. Recommendations Legislative Comprehensive anti-predatory legislation Congress must pass a CRA modernization bill Enhance the quality of HMDA data Financial education critical, especially for populations lacking credit scores

37. Regulatory: Federal, State & Local agencies must step up enforcement of existing laws to promote full product choice and prevent product steering Halt preemption of state anti-predatory and consumer protection law Federal reserve board must step up anti-discrimination and fair lending oversight Increase fair lending enforcement of non-bank lending CRA exams must scrutinize non-prime lending more rigorously Full disclosure of automated underwriting systems

38. Recommendations for Lenders, Community Groups, and Consumers: Lenders Must Adopt Risk-Based, Not Race-Based or Age-Based Pricing: Best Practices Needed Community Groups Must Advocate and Offer Financial Education and Counseling Programs Consumers Must Shop for Affordable Loans and Obtain Credit Reports, Credit Scores, and Pursue Inaccuracies