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Berenbaum Presentation

  1. 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. 2. NCRC Overview 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
  3. 3. Impediments to Fair Housing Choice • National real estate & financial • Corporate responsibility and service conglomerates social justice. • One stop shopping - lender, • Community viability & fair appraiser, realtor, insurer - housing planning RICO & ethics issues • “Affinity” relationships • Economic justice & dismantling racism • Internet • Telemarketing • CRA modernization • Appraisal • Government services, tax equity & environmental racism
  4. 4. • Risk based pricing & equal • Traditional forms of access to products & services - discrimination – steering, Reg C availability, pricing & terms, all • Using consumer protection & relevant to predatory lending. civil rights statutes • Growth of product add-ons • Role of servicing & securitization • Reverse redlining • Tangible net benefit tests • Montgomery County Ordinance Issue
  5. 5. • HELOC, tax refund loans • Home Improvement Scams • Interest Only Loans • Adjustable Rate Loans • HELOCS
  6. 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. 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. 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. 9. Reg C - HMDA Changes • Does the provision of non-prime • Now required to identify HOEPA loans loans subject members of protected • Geographic location of higher cost loans classes to unequal access to credit? • Ability to geocode & correlate to HCL to • Is it a racial targeting technique? Census, LMI Communities • Claims of reverse redlining and targeting • Standards for proving fair lending • Ancillary UDAP claims and state FHA claims are now potentially much claims easier than traditional consumer • In the past, risk based credit issues were protection or predatory lending “individualized,” with new pricing data & cases. regulatory oversight will become • Intentional misconduct may be compliance issue. irrelevant • Defense burden may be formidable
  10. 10. Prime Home Loans by Minority Level of Neighborhood Washington-Arlington- Alexandria, DC-VA-MD-VW MD Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) Prime Home loans. One dot = 20 loans 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  11. 11. SubPrime Home Loans by Minority Level of Neighborhood Washington-Arlington- Alexandria, DC-VA-MD-VW MD Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) SubPrime Home loans. One dot = 20 loans 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  12. 12. Prime Home Loans by Minority Level of Neighborhood Montgomery County, MD Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) Prime Home loans. One dot = 5 loans 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  13. 13. SubPrime Home Loans by Minority Level of Neighborhood Montgomery County, MD Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) SubPrime Home loans. One dot = 5 loans 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  14. 14. Prime Home Loans by Minority Level of Neighborhood Prince George’s County, MD Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) Prime Home loans. One dot = 5 loans 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  15. 15. SubPrime Home Loans by Minority Level of Neighborhood Prince George’s County, MD Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) SubPrime Home loans. One dot = 5 loans 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  16. 16. Prime Home Loans by Minority Level of Neighborhood Fairfax County, VA Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) Prime Home loans. One dot = 5 loans 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  17. 17. SubPrime Home Loans by Minority Level of Neighborhood Fairfax County, VA Non-minority neighborhoods (<50% minority) Minority neighborhoods (>50% minority) SubPrime Home loans. One dot = 5 loans 2004 HMDA data. Neighborhoods are defined as census tracts National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  18. 18. Analysis of Home Lending Trends Washington-Arlington-Alexandria, DC-VA-MD-WV MD • 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 Lending Subprime Lending Total Count % Count % Washington, DC 281,230 251,711 89.50% 29,519 10.50% Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35% • Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods. National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  19. 19. Market Share Analysis by minority level of neighborhood Washington-Arlington-Alexandria, DC-VA-MD-WV MD Loans to Minority CTs Loans to Non-minority CTs Count % Count % Prime 72,060 82.69% 179,638 92.56% Subprime 15,086 17.31% 14,430 7.44% Total 87,146 100.00% 194,068 100.00% Home Lending in Washington Area by Minority Level of Census Tract 100% 2.50 2.33 Residents of minority neighborhoods 80% 2.00 were much more likely to receive 60% 1.50 subprime loans than residents of non- 40% 0.89 1.00 minority communities 20% 0.50 0% 0.00 Minority CTs Non-minority CTs % Prime Loans % Subprime Loans Prime Disparity Ratio (minority/non-minority) Subprime Disparity Ratio (minority/non-minority) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  20. 20. Market Share Analysis by income level of neighborhood Washington-Arlington-Alexandria, DC-VA-MD-WV MD Loans to LMI CTs Loans to MUI CTs Count % Count % Prime 45,546 83.93% 206,141 90.84% Subprime 8,718 16.07% 20,797 9.16% Total 54,264 100.00% 226,938 100.00% Home Lending in Washington Area by Income Level of Census Tract 100% 2.00 1.75 The percent of subprime loans was 80% 1.50 higher for residents from LMI census 60% 1.00 0.92 40% tracts than for residents of MUI 0.50 20% neighborhoods 0% 0.00 Loans to LMI CTs Loans to MUI CTs Prime Subprime Prime Disparity Ratio (LMI/MUI) Subprime Disparity Ratio (LMI/MUI) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  21. 21. Analysis of Home Lending Trends Prince George’s County, MD • 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. Prince George's Co vs Nation comparison Prime Lending Subprime Lending Total Count % Count % PG County 53,379 41,811 78.33% 11,568 21.67% Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35% • Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods. National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  22. 22. Market Share Analysis by minority level of neighborhood Prince George’s County, MD By minotity level of census tract Loans to Minority CTs Loans to Non-minority CTs Count % Count % Prime 34,268 76.91% 7,543 85.48% Subprime 10,287 23.09% 1,281 14.52% Total 44,555 100.00% 8,824 100.00% Home Lending in Prince George's Co by minority level of census tract 100% 1.80 Residents of minority neighborhoods 1.59 1.60 80% 1.40 were much more likely to receive 1.20 60% 1.00 subprime loans than residents of non- 0.90 0.80 40% 0.60 minority communities 0.40 20% 0.20 0% 0.00 Loans to Minority CTs Loans to Non-minority CTs Prime Subprime Prime Disparity Ratio (minority/non-minority) Subprime Disparity Ratio (minority/non-minority) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  23. 23. Market Share Analysis by income level of neighborhood Prince George’s County, MD By income level of census tract Loans to LMI CTs Loans to MUI CTs Count % Count % Prime 9,847 72.46% 31,964 80.33% Subprime 3,742 27.54% 7,826 19.67% Total 13,589 100.00% 39,790 100.00% Home Lending in Prince George's Co by income level of census tract 100% 1.60 The percent of subprime loans was 1.40 1.40 80% 1.20 higher for residents from LMI census 60% 1.00 tracts than for residents of MUI 0.90 0.80 neighborhoods 40% 0.60 0.40 20% 0.20 0% 0.00 Loans to LMI CTs Loans to MUI CTs Prime Subprime Prime Disparity Ratio (LMI/MUI) Subprime Disparity Ratio (LMI/MUI) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  24. 24. Analysis of Home Lending Trends Montgomery County, MD • 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. Montgomery Co vs Nation comparison Prime Lending Subprime Lending Total Count % Count % Montgomery Co 52,014 47,968 92.22% 4,046 7.78% Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35% • Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods. National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  25. 25. Market Share Analysis by minority level of neighborhood Montgomery County, MD By minotity level of census tract Loans to Minority CTs Loans to Non-minority CTs Count % Count % Prime 13,164 88.11% 34,804 93.88% Subprime 1,777 11.89% 2,269 6.12% Total 14,941 100.00% 37,073 100.00% Home Lending in Montgomery County by minority level of census tract Residents of minority neighborhoods 100% 2.50 were much more likely to receive 80% 1.94 2.00 subprime loans than residents of non- 60% 1.50 minority communities 40% 0.94 1.00 20% 0.50 0% 0.00 Loans to Minority CTs Loans to Non-minority CTs Prime Subprime Prime Disparity Ratio (minority/non-minority) Subprime Disparity Ratio (minority/non-minority) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  26. 26. Market Share Analysis by income level of neighborhood Montgomery County, MD By income level of census tract Loans to LMI CTs Loans to MUI CTs Count % Count % Prime 8,089 87.78% 39,879 93.18% Subprime 1,126 12.22% 2,920 6.82% Total 9,215 100.00% 42,799 100.00% Home Lending in Montgomery County by income level of census tract 100% 2.00 1.79 1.80 The percent of subprime loans was 80% 1.60 1.40 higher for residents from LMI census 60% 1.20 tracts than for residents of MUI 0.94 1.00 40% 0.80 neighborhoods 0.60 20% 0.40 0.20 0% 0.00 Loans to LMI CTs Loans to MUI CTs Prime Subprime Prime Disparity Ratio (LMI/MUI) Subprime Disparity Ratio (LMI/MUI) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  27. 27. Analysis of Home Lending Trends Fairfax County, VA • 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. Fairfax Co vs Nation comparison Prime Lending Subprime Lending Total Count % Count % Fairfax Co 63,894 60,554 94.77% 3,340 5.23% Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35% • Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods. National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  28. 28. Market Share Analysis by minority level of neighborhood Fairfax County, VA By minotity level of census tract Loans to Minority CTs Loans to Non-minority CTs Count % Count % Prime 10,113 91.53% 50,441 95.45% Subprime 936 8.47% 2,404 4.55% Total 11,049 100.00% 52,845 100.00% Home Lending in Fairfax County by minority level of census tract 100% 2.00 Residents of minority neighborhoods 1.86 80% were much more likely to receive 1.50 60% subprime loans than residents of non- 1.00 0.96 40% minority communities 0.50 20% 0% 0.00 Loans to Minority CTs Loans to Non-minority CTs Prime Subprime Prime Disparity Ratio (minority/non-minority) Subprime Disparity Ratio (minority/non-minority) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  29. 29. Market Share Analysis by income level of neighborhood Fairfax County, VA By income level of census tract Loans to LMI CTs Loans to MUI CTs Count % Count % Prime 4,025 90.39% 56,529 95.10% Subprime 428 9.61% 2,912 4.90% Total 4,453 100.00% 59,441 100.00% Home Lending in Fairfax County by income level of census tract 100% 2.50 The percent of subprime loans was 80% 1.96 2.00 higher for residents from LMI census 60% 1.50 tracts than for residents of MUI 40% 0.95 1.00 neighborhoods 20% 0.50 0% 0.00 Loans to LMI CTs Loans to MUI CTs Prime Subprime Prime Disparity Ratio (LMI/MUI) Subprime Disparity Ratio (LMI/MUI) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  30. 30. Analysis of Home Lending Trends District of Columbia County, DC • 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. DC Co vs Nation comparison Prime Lending Subprime Lending Total Count % Count % DC Co 27,043 24,767 91.58% 2,276 8.42% Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35% • Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non- minority neighborhoods. National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  31. 31. Market Share Analysis by minority level of neighborhood District of Columbia County, DC By minotity level of census tract Loans to Minority CTs Loans to Non-minority CTs Count % Count % Prime 15,898 88.19% 8,867 98.38% Subprime 2,129 11.81% 146 1.62% Total 18,027 100.00% 9,013 100.00% Home Lending in Washington DC County by minority level of census tract 100% 8.00 Residents of minority neighborhoods 7.29 7.00 80% were much more likely to receive 6.00 60% 5.00 subprime loans than residents of non- 4.00 minority communities 40% 3.00 2.00 20% 0.90 1.00 0% 0.00 Loans to Minority CTs Loans to Non-minority CTs Prime Subprime Prime Disparity Ratio (minority/non-minority) Subprime Disparity Ratio (minority/non-minority) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  32. 32. Market Share Analysis by income level of neighborhood District of Columbia County, DC By income level of census tract Loans to LMI CTs Loans to MUI CTs Count % Count % Prime 4,025 90.39% 56,529 95.10% Subprime 428 9.61% 2,912 4.90% Total 4,453 100.00% 59,441 100.00% Home Lending in Washington DC County by income level of census tract The percent of subprime loans was 100% 2.50 higher for residents from LMI census 80% 1.96 2.00 tracts than for residents of MUI 60% 1.50 neighborhoods 40% 0.95 1.00 20% 0.50 0% 0.00 Loans to LMI CTs Loans to MUI CTs Prime Subprime Prime Disparity Ratio (LMI/MUI) Subprime Disparity Ratio (LMI/MUI) National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
  33. 33. Reverse Redlining • Cap Cities Litigation • Toussie Litigation
  34. 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. 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. 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. 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. 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

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