1. Foreclosure and Access to Mortgage Credit in Communities of Color
Cleveland State University
June 15, 2012 | Cleveland, Ohio
Tom Feltner | Vice President
Woodstock Institute | Chicago, Illinois
P x2028 | F
@tfeltner
@woodstockinst
WOODSTOCK INSTITUTE | June 2012

2. WOODSTOCK INSTITUTE | MONTH YEAR
In Chicago region and across the country, foreclosure filings have stabilized at new, higher levels
with robosigning settlement in place, we should see increase in completed #foreclosure auctions in 2012
New Foreclosure Filings
Completed Foreclosure Auctions
In most areas of the country, including Chicago which is shown above, foreclosure filing activity has stabilized at new, higher levels. Completed foreclosures tend to fluctuate based on court processing times in judicial states, concerns about process raised during the negotiations leading up to the robo-signing settlement. In Illinois, we expect twice the number of completed foreclosures in 2012 as we saw in 2012.
WOODSTOCK INSTITUTE | MONTH YEAR

3. WOODSTOCK INSTITUTE | June 2012
Local Impact of Foreclosure during the Economic Crisis is clear, communities of color disproportionately impacted
with robosigning settlement in place, we should see increase in completed #foreclosure auctions in 2012
2006
2007
2008
2009
Source: Woodstock analysis of data provided by Record Information Services
WOODSTOCK INSTITUTE | June 2012

4. WOODSTOCK INSTITUTE | June 2012
Local Impact of Foreclosure during the Economic Crisis is clear, communities of color disproportionately impacted
with robosigning settlement in place, we should see increase in completed #foreclosure auctions in 2012
2006
2007
2008
2009
Source: Woodstock analysis of data provided by Record Information Services
WOODSTOCK INSTITUTE | June 2012

5. WOODSTOCK INSTITUTE | June 2012
Local Impact of Foreclosure during the Economic Crisis is clear, communities of color disproportionately impacted
with robosigning settlement in place, we should see increase in completed #foreclosure auctions in 2012
2006
2007
2008
2009
Source: Woodstock analysis of data provided by Record Information Services
WOODSTOCK INSTITUTE | June 2012

6. WOODSTOCK INSTITUTE | June 2012
Local Impact of Foreclosure during the Economic Crisis is clear, communities of color disproportionately impacted
with robosigning settlement in place, we should see increase in completed #foreclosure auctions in 2012
2006
2007
2008
2009
WOODSTOCK INSTITUTE | June 2012

7. WOODSTOCK INSTITUTE | June 2012
Single-family Mortgages Entering Foreclosure in the Six County Chicago Region, by Period of Origination,
@tfeltner mortgages from the boom years of ‘05-07 continue to be overrepresented in new filings
Mortgages originated during the boom years of continue to be overrepresented in new filings, pre-2005 mortgages have remained constant. Unprecedented credit quality of demonstrated by relatively few defaults.
Source: Woodstock analysis of data provided by Record Information Services
WOODSTOCK INSTITUTE | June 2012

8. WOODSTOCK INSTITUTE | June 2012
Single Family Foreclosure in the Six County Chicago Region by Type of Mortgage,
% of #foreclosure filings on conv and FHA mortgages increased from ‘08-11
New foreclosure filings on conventional fixed rate prime and FHA mortgages have increased significantly since 2008, moving from a product driven crisis to a more prolonged unemployment and economic insecurity driven crisis
Source: Woodstock analysis of data provided by Record Information Services
WOODSTOCK INSTITUTE | June 2012

9. WOODSTOCK INSTITUTE | June 2012
Accumulation of Foreclosure Activity in Communities of Color, 2006 to 2010
foreclosure accumulation exceeds share of properties in communities of color
Source: Woodstock analysis of data provided by Record Information Services
WOODSTOCK INSTITUTE | June 2012

10. WOODSTOCK INSTITUTE | June 2012
Change in Prime Home Purchase and Refinance Lending in Communities of Color, 2006 to 2008
From ‘06-08, white communities saw a 43% decline in prime lending-communities of color saw a 69% decline
Ongoing financial distress drove down mortgage volume substantial, particularly in the early years of the crisis
Source: Home Mortgage Disclosure Act
WOODSTOCK INSTITUTE | June 2012

11. WOODSTOCK INSTITUTE | June 2012
Loan-to-value ratios of properties with mortgages in Chicago six county region, fourth quarter of 2011
Chicago
Large numbers of distressed properties and credit constraints have driven down property values, particularly in communities of color. In predominately AA communities, over 45% of homeowners are underwater or near underwater.
WOODSTOCK INSTITUTE | June 2012

12. WOODSTOCK INSTITUTE | June 2012
Average home equity and outstanding mortgage debt per property in the Chicago six county region, fourth quarter 2011
avg home equity in #chicago white communities is $108k, in African Am communities-just $7k #racialwealthgap
Source: June 30, 2009 sample of national credit bureau data
WOODSTOCK INSTITUTE | June 2012

13. WOODSTOCK INSTITUTE | June 2012
Title
In #Chicago, 82% of mortgage lending in communities of color is FHA/VA, in #cleveland – 85%
WOODSTOCK INSTITUTE | June 2012

14. Low Credit Scores Concentrated in Communities of Color
In Chicago, 54% of people in African Am communities have #creditscore < 620 #racialwealthgap
Source: June 30, 2009 sample of national credit bureau data
WOODSTOCK INSTITUTE | June 2012

15. There is Tremendous Polarization in Credit Score Distributions
In African Am communities just 18% have #creditscores > 740, in white communities 57% do #racialwealthgap
WOODSTOCK INSTITUTE | June 2012

16. Examples of Credit Tightening
Increasing cutoffs for #creditscores impacts access to mortgage and small business credit in communities of color
Federal Housing Administration (FHA) has implemented tighter credit score standards for FHA loans
Under the proposed rules, borrowers with less than a 500 credit score would no longer qualify for an FHA loan
Borrowers with credit scores between 500 and 579 would be required to make a minimum 10 percent down payment.
This policy change would impact 43 percent of people in African American communities, 23 percent in Hispanic communities
Borrowers with a credit score of 580 or better would be required to have only a 3.5 percent down payment.
Conventional
mortgage lending
In September 2009, Fannie Mae announced it was increasing its minimum credit score requirement from 580 to 620.
Eliminates conventional financing for 11 percent of African American communities and 8.5 percent of Hispanic communities.
This was in conjunction with other credit tightening changes designed to reduce the risk in Fannie Mae’s lending portfolio going forward.
WOODSTOCK INSTITUTE | June 2012

17. Credit scores take years to recover after foreclosure
subprime borrowers #creditscore recovers in ~5 years after #foreclosure-prime borrowers take up to 10
Source: Kenneth Brevoort, and Cheryl Cooper. Foreclosure’s Wake: The Credit Experiences of Individuals Following Foreclosure. Federal Reserve Board and the Urban Institute, Web. 13 June 2012.
WOODSTOCK INSTITUTE | June 2012

18. Reducing the Impact of Low Credit Scores on Communities of Color
accumulated #foreclosures, limited credit options, low #creditscores contribute to financial distress
Support efforts to build credit for credit-underserved populations. Resources and standard curriculum should be made available to credit counselors to help them reach individuals with low credit scores and help them build their credit.
Use additional data to build credit. Alternative data on repayment patterns can be utilized to capture the true default risk for individuals who have limited histories with traditional credit. Such variables might include on-time payments for utilities, cell phone bills, insurance premiums, rent, consumer loans, or health care.
Utilize manual, relationship-based underwriting. Some borrowers with low credit scores could benefit from manual underwriting in certain mortgage and small business lending transactions. Many community banks, credit unions, and community development financial institutions have, for years, worked closely with customers to make sure that borrowers who are good credit risks can still obtain responsible loans.
WOODSTOCK INSTITUTE | June 2012

19. Foreclosure and Access to Mortgage Credit in Communities of Color
Cleveland State University
June 15, 2012 | Cleveland, Ohio
Tom Feltner | Vice President
Woodstock Institute | Chicago, Illinois
P x2028 | F
@tfeltner
@woodstockinst
WOODSTOCK INSTITUTE | June 2012