1. http://www.responsiblelending.org Foreclosure Prevention Policy Options Paul Leonard December 9, 2008 EARN Conference Las Vegas, NV

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  Key drivers to crisis  Voluntary efforts falling short  Feds and States can pursue a variety of strategies

4. http://www.responsiblelending.org 4 Key drivers of foreclosure crisis  Wall Street demanded volume  Originators developed risky products, reckless underwriting, and incentives to push borrowers into unaffordable loans  Policymakers didn’t do enough to curb abuses

5. http://www.responsiblelending.org 5 What’s Needed Now  Bailout proposals ignore fundamental cause of crisis, i.e. foreclosures and falling housing prices  Need for bankruptcy reform and systematic loan modifications  Need to improve borrower protections going forward

6. http://www.responsiblelending.org 6 Voluntary Loan Mods Dwarfed By Foreclosures & Delinquencies

7. http://www.responsiblelending.org 7 Existing Obstacles to Voluntary Modifications  Insufficient Servicer Staffing/Technology  Misaligned Financial Incentives for Servicers  Risk of Investor Lawsuits  Limits of Pooling and Servicing Agreements  Piggyback Seconds

8. http://www.responsiblelending.org Federal Solutions

9. http://www.responsiblelending.org 9 Increase Mods through TARP  Require mandatory formulaic mods for loans owned by any bank that gets cash infusion  FDIC proposal: Systematic Modifications, Pay Servicers, Guarantee Modifications $25b to pay servicers and guarantee up to 2 million modified loans conditioned on sustainability standard.  Democratize Data Reporting: HMDA for Loss Mitigation

10. http://www.responsiblelending.org 10 Lift the Ban on Judicial Modifications  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

11. http://www.responsiblelending.org State and Local Solutions

12. http://www.responsiblelending.org 12 What Can States Do?  States control foreclosure process  States regulate servicers  Bring legal actions: State Attorneys General have track record of aggressive mortgage enforcement  NY: Spitzer and Cuomo  Countrywide settlement

13. http://www.responsiblelending.org 13 Mediation/Intervention  What: Require or encourage mediation to explore options for modifying loans  Why Greater foreclosure-prevention success by (1) ensuring communication and negotiation between the parties;  (2) leveling the playing field and formalizing the process by involving a judge, attorney, or other experienced third party;  (3) providing increased transparency

14. http://www.responsiblelending.org 14 Mediation/Intervention Examples  City of Philadelphia: Court-ordered mandatory mediation supervised by judges.  NY: Required 90-day pre-fc notice and mandatory settlement conference for certain proceedings  NC: 45-day pre-fc notice and creates subprime database to determine candidates for modifications  Others: NJ, MI(proposed), MN (AG prop), CT

15. http://www.responsiblelending.org 15 Deferment/Moratoria  Provides additional time to adopt new procedures, use new tools/market products, catch up to workload.  Requires minimum payments to continue

16. http://www.responsiblelending.org 16 Deferment/Moratoria Examples  Voluntary initiatives  Servicers: Fannie Mae, Freddie Mac, Countrywide, Citi  States: Florida  Mandatory  CA (prop): Safe harbor for servicers that adopt systematic FDIC-like proposal  MN: 1-year deferment, vetoed by Gov.  Federal: HR 6076 (Matsui): 9 month deferment, min. payment required

17. http://www.responsiblelending.org 17 Foreclosure Process Reforms  Proof of Ownership: NY, OH courts,  Extend Timelines  Require Loss Mitigation or Meetings  State Examples  MD: extend timeline from 15 to 150 days  PA: notice required 30 days before default for face-to-face meeting with servicer or counselor  CA: servicer due diligence protocol to contact/offer meeting

18. http://www.responsiblelending.org 18 Foreclosure Tax  NJ proposed $2,000 fee  Could fund counseling, mediation efforts

19. http://www.responsiblelending.org 19 For more details  State and Local Foreclosure Prevention Policy Options:  October 16, 2008 Testimony of Eric Stein on the Causes of the Foreclosure Crisis http://responsiblelending.org/policy/testimony/turmoil-in-the-u-s-credit- markets-the-genesis-of-the-current-economic-crisis.html http://responsiblelending.org/policy/testimony/turmoil-in-the-u-s-credit- markets-the-genesis-of-the-current-economic-crisis.html  November 13, 2008 Testimony of Martin Eakes on Solutions to the Crisis http://responsiblelending.org/policy/testimony/oversight-of-the- emergency-economic-stabilization-act-examining-financial-institution-use- of-funding-under-the-capital-purchase-program.htmlhttp://responsiblelending.org/policy/testimony/oversight-of-the- emergency-economic-stabilization-act-examining-financial-institution-use- of-funding-under-the-capital-purchase-program.html

20. http://www.responsiblelending.org 20 Contact Paul Leonard California Director Center for Responsible Lending Paul.Leonard@responsiblelending.org 510-379-5500 www.responsiblelending.org

21. http://www.responsiblelending.org Bonus Slides

22. http://www.responsiblelending.org 22 As Suprime Wave of Resets Concludes, Alt-A Wave Builds

23. http://www.responsiblelending.org 23 Background: Race, Ethnicity and the Subprime Market  African-American and Latinos disproportionately receive high-cost loans

24. http://www.responsiblelending.org 24 Cleveland Foreclosures Concentrated in African-American Neighborhoods