1. http://www.responsiblelending.org The Effect of the Foreclosure Crisis on Asset-Building in Minority Communities Paul Leonard November 13, 2008 Insight Center for Community Economic Development Webinar

2. 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.

3. http://www.responsiblelending.org 3 Overview  African Americans and Latinos have disproportionately received riskiest loans and foreclosures concentrated in communities of color  Systemic failures at all points of the mortgage process.  Dramatic need for stronger policy intervention to increase modifications

4. http://www.responsiblelending.org 4 African Americans and Latinos Disproportionately Harmed by Subprime Lending and Foreclosures

5. http://www.responsiblelending.org 5 Background: Race, Ethnicity and the Subprime Market  African-American and Latinos disproportionately receive high-cost loans

6. http://www.responsiblelending.org 6  CRL’s “Unfair Lending” Report: - Disparities cannot be explained by legitimate risk characteristics - Borrowers of color about 30% more likely to receive higher cost loans than similarly-risky white borrowers Possible Causes of Price Disparities: - Traditional “discrimination” - Market segmentation (e.g. marketing, targeting of high-cost vs low-cost lenders) Background: Race, Ethnicity and the Subprime Market

7. http://www.responsiblelending.org 7 Neighborhood Demographics and Foreclosure What is the difference in the likelihood of foreclosure for loans in neighborhoods with high concentrations of minorities versus white neighborhoods? All LoansWith Subprime Control High Minority62%33% High African- American 176%100% High Latino35%12% Increased Odds of Foreclosure by Neighborhood Type:

8. http://www.responsiblelending.org 8 Subprime Foreclosures 2005-2007 Subprime Loans Number of Originations Estimated # of Foreclosures (as of 6/08) Estimated Foreclosure Rate Total6,126,750989,36816.1% Neighborhood Category Low Minority (<10%)1,607,803219,37313.6% Mod-Low (10-25%)1,461,226209,52114.3% Mod-High (25-50%)1,284,757219,95417.1% High (50%+)1,749,313337,17119.3% Specific High Categories High AA (50%+ AA)513,182119,73423.3% High Latino (50%+ Latino)456,63674,81516.4% Source: CRL Calculations based on McDash and HMDA

9. http://www.responsiblelending.org 9 Cleveland Foreclosures Concentrated in African-American Neighborhoods

10. http://www.responsiblelending.org 10 Estimated Total Foreclosures 2005-2007 Loans (Prime and Subprime) Number of Originations # of Foreclosures (as of 6/08) Estimated Foreclosure Rate Total23,944,1531,666,2487.0% Neighborhood Category Low Minority (<10%)7,566,204391,2285.2% Mod-Low (10-25%)6,886,619370,2895.4% Mod-High (25-50%)4,828,205377,0877.8% High (50%+)4,663,125527,64511.3% Specific High Categories High AA (50%+ AA)1,015,216175,25217.3% High Latino (50%+ Latino)1,202,449123,44210.3% Source: CRL Calculations based on McDash and HMDA

11. http://www.responsiblelending.org 11 Foreclosures in CA, April 2008

12. http://www.responsiblelending.org 12 Overall Impact  CRL estimates 2.2 million subprime foreclosures  40.6 million surrounding homes will lose value as a result of proximity to foreclosures  Total $352 billion in lost wealth to families  Disproportionate impact on African-American and Latino families and communities

13. http://www.responsiblelending.org 13 Causes of the Subprime Mess

14. http://www.responsiblelending.org 14 It Wasn’t CRA

15. http://www.responsiblelending.org 15 CRA-Related Higher-Priced Lending, 2006 Banking institutions and affiliates Higher-priced Within CRA assessment area (%) Outside CRA assessment area (%) Independent mortgage company (%) Total (%) Non-lower- income 7232757 Lower- income 6182044 Total 134147100 Only 6% of Subprime Loans Made by CRA Lenders in their Assessment Areas Source Federal Reserve analsysis of HMDA data

16. http://www.responsiblelending.org 16 Current Market Structure Lacks Accountability  Brokers  Lenders  Wall Street  Ratings Agencies  Investors  Servicers

17. http://www.responsiblelending.org 17 Regulations Haven’t Kept Pace with Market Changes  Federal  1994: Weak Federal HOEPA law.  Regulators: strong capacity but limited will.  States:  Some states have stronger laws BUT  Regulators are understaffed

18. http://www.responsiblelending.org 18 What about the bailout?  Bailout proposals ignore fundamental cause of crisis, i.e. foreclosures and falling housing prices  Need for bankruptcy reform and systematic loan modifications  Need to drastically improve borrower protections going forward

19. http://www.responsiblelending.org 19 Nationally, Loan Mods Dwarfed By Foreclosures & Delinquencies

20. http://www.responsiblelending.org 20 Increase Mods through TARP  Require mandatory formulaic mods for loans owned by any bank that gets cash infusion  Use TARP to guarantee modified loans conditioned on sustainability standard  Buy loan servicing rights to break logjam  Purchase 2 nd mortgages  Set goals & issue detailed reporting

21. http://www.responsiblelending.org 21 Other Strategies to Increase Mods  Change rules governing trusts so Treasury can purchase whole loans  Amend TARP to give protections to servicers that modify loans  Provide monetary incentives for servicers to modify loans  Enact mandatory loss mitigation requirement  Amend tax law so that homeowners don’t get taxed for loan mods

22. http://www.responsiblelending.org 22 Loan Mods in Bankruptcy  Bankruptcy judges can modify all loans (incl. for yachts, vacation homes, and for subprime lenders in bankruptcy) but not for primary residences  Zero cost to taxpayers  Could help 600,000 families keep their homes  Narrowly targeted; limited judicial discretion  Incentive to servicers to modify outside bankruptcy

23. http://www.responsiblelending.org 23 Don’t Throw the Homeownership Baby Out with the Foreclosure Bathwater Median Total Change in Equity: CAP Homes Purchased Between 1998 & 2007

24. http://www.responsiblelending.org 24 Contact Paul Leonard California Director Center for Responsible Lending Paul.Leonard@responsiblelending.org 510-379-5500 www.responsiblelending.org