OPPORTUNITY BASED HOUSING: CHALLENGES AND OPPORTUNITIES IN THE WAKE OF THE SUBPRIME LENDING CRISIS GCAA 2010 SOUTHEASTERN ...
TODAY’S PRESENTATION <ul><li>What is home?  What is a house? </li></ul><ul><li>What do you mean by “opportunity”? </li></u...
WHAT IS A HOUSE? WHAT IS OPPORTUNITY?
WHAT IS HOME? It’s not just your house – it’s your  family, your friends, your  neighbors, your local school, your doctor,...
“ HOME” IS AN OPPORTUNITY ANCHOR Housing Childcare Employment Education Health Transportation Effective  Participation
OPPORTUNITY  MATTERS <ul><li>Opportunity structures are critical to opening pathways to success: </li></ul><ul><ul><li>Hig...
SOCIAL SCIENCE CONFIRMS… <ul><li>Neighborhoods don’t determine lives, but they shape and affect lives </li></ul><ul><li>Li...
LIVING IN LOW OPPORTUNITY… <ul><li>…  generates unhealthy levels of stress hormones in children, which impairs their  neur...
<ul><li>In  1960 , African-American families in poverty were  3.8  times more likely to be concentrated in high-poverty ne...
CONSEQUENCES FOR SEGREGATED NEIGHBORHOODS <ul><li>Lack of low-cost credit options </li></ul><ul><li>Few preventative care ...
RESISTANCE AND RESILIENCE <ul><li>Informal economies </li></ul><ul><li>Extended family networks </li></ul><ul><li>Politici...
WHAT IS AN OPPORTUNITY MAP? <ul><li>ATLANTA EXAMPLE </li></ul>
OPPORTUNITY COMMUNITIES PROGRAM
ATLANTA OPPORTUNITY INDICATORS <ul><li>EDUCATION   </li></ul><ul><ul><li>Educational attainment for total population  </li...
ATLANTA OPPORTUNITY INDICATORS CON’T <ul><li>HOUSING AND NEIGHBORHOODS   </li></ul><ul><ul><li>Property Values  </li></ul>...
 
 
 
 
 
FOCUS AREA: HOME AS WEALTH BUILDING ASSET <ul><li>… BUT NOT FOR EVERYONE: THE STORY OF UNFAIR HOUSING AND CREDIT MARKETS <...
A HOUSE IS ALSO AN ASSET <ul><ul><li>For every $1 in assets held by African Americans, Whites hold $9 </li></ul></ul><ul><...
LET’S TALK ABOUT HISTORY… Why bother? It’s the past! Fine…what happens to money over time?
MORTGAGE FINANCE EVOLUTION Post New Deal: The Three Party Mortgage Market Pre-Depression:  The Two Party Housing Market Th...
FEDERAL INVESTMENT TO INCENTIVIZE LENDING… <ul><li>Hoover Administration created 12 Federal Home Loan Banks (US gov’t loan...
TOOLS OF DISCRIMINATION: HOLC GRADES <ul><li>1933 Home Owners Loan Act had a neighborhood ranking system for credit-worthi...
HOLC REDLINING MAP OF PHILADELPHIA
TOOLS OF DISCRIMINATION: UNDERWRITING <ul><li>“ If a neighborhood is to retain stability, it is necessary that properties ...
TOOLS OF DISCRIMINATION:  RACIALLY RESTRICTIVE COVENANTS J. Hernandez shows how areas in Sacramento with racially restrict...
TOOLS OF DISCRIMINATION <ul><ul><li>The construction of segregated public housing </li></ul></ul><ul><ul><li>Urban renewal...
MEANWHILE, IN MORTGAGE FINANCE… <ul><li>1970s: Fundamentally new way of getting funding for mortgage loans –  securities <...
Source: Chris Peterson, U. of Utah Law School AFTER SECURITIZATION
EXPLOITING UNDERSERVED MARKETS (REVERSE REDLINING)
DID YOU KNOW…? <ul><li>CRL estimates that from 1998 – 2006, only 9% of all subprime loans went to first time homebuyers </...
WEALTH LOSS…. <ul><li>Estimated cost of subprime lending to all homeowners: $2.7 trillion </li></ul><ul><li>Loss of accumu...
2008 NATIONAL INITIATIVE ON SUBPRIME LENDING, FORECLOSURE AND RACE
RESEARCH TAKEAWAYS <ul><li>Unequal credit markets and segregated housing happened together. </li></ul><ul><ul><li>Fair cre...
FINDINGS FROM THE 2009 INITIATIVE <ul><li>AFTER THE SUBPRIME LENDING CRISIS…WHAT DO WE DO FROM HERE? </li></ul>
2009 FUTURE OF FAIR HOUSING AND FAIR CREDIT INITIATIVE  <ul><li>Summary Findings </li></ul><ul><ul><li>Fair housing and fa...
A. LOCAL DIFFERENCE: CREDIT EXAMPLE
LOCAL/REGIONAL RECOMMENDATIONS <ul><li>Recognize that the paths to fair credit and fair housing will differ according to r...
HOW SHOULD FEDERAL GOV’T SUPPORT LOCAL EFFORTS? <ul><li>Support the creation of a Consumer Protection Financial Agency and...
MESSAGING AND ADVOCACY RECOMMENDATIONS <ul><li>Contribute to a national communications effort around the danger of excludi...
WHY DID BROKERS ORIGINATE ALL THOSE SUBPRIME LOANS? <ul><li>Most loans came from unregulated mortgage brokers </li></ul><u...
FEES: EMBARRASSING NSF FEE FACTS <ul><li>Half of overdraft fees are from small ATM/debit purchases (the “$40 cup of coffee...
FEES:  CIVIL RIGHTS CONCERNS <ul><li>People who overdraft repeatedly are more likely than the general population to be low...
 
BIG PICTURE Source: Pastor et. al, Program for Environmental and Regional Equity “ the  whole financial system has been ri...
WHAT IS ECONOMIC AND FINANCIAL JUSTICE? “ our financial system has a  distinctly racial character,  one that requires a re...
Need for social movements for  financial equity “…  the focus should not be simply on foreclosure relief, but on a  new fi...
VISIT US IN MARCH…OR ON-LINE… http://www.KirwanInstitute.org www.facebook.com/kirwaninstitute www.twitter.com/kirwaninstit...
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Opportunity Based Housing: Challenges and Opportunities in the Wake of the Subprime Lending Crisis

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Opportunity Based Housing: Challenges and Opportunities in the Wake of the Subprime Lending Crisis

  1. 1. OPPORTUNITY BASED HOUSING: CHALLENGES AND OPPORTUNITIES IN THE WAKE OF THE SUBPRIME LENDING CRISIS GCAA 2010 SOUTHEASTERN COLLOQUIUM john a. powell, Executive Director Christy Rogers, Senior Research Associate The Kirwan Institute for the Study of Race and Ethnicity at the Ohio State University
  2. 2. TODAY’S PRESENTATION <ul><li>What is home? What is a house? </li></ul><ul><li>What do you mean by “opportunity”? </li></ul><ul><li>What is an “opportunity map”? </li></ul><ul><li>Focus area: home as wealth building asset – but not for everyone </li></ul><ul><ul><li>Denial…segregation….exclusion </li></ul></ul><ul><ul><li>Predation…foreclosure…asset stripping </li></ul></ul><ul><li>What’s on the horizon? </li></ul><ul><ul><li>Unfair (and fair) housing and credit are entwined </li></ul></ul><ul><ul><ul><li>Hearings on housing finance start March 2, 2010 </li></ul></ul></ul><ul><ul><li>Fee structures…debt…leverage…wealth extraction </li></ul></ul><ul><ul><li>What is a fair and just economic & financial system? </li></ul></ul>
  3. 3. WHAT IS A HOUSE? WHAT IS OPPORTUNITY?
  4. 4. WHAT IS HOME? It’s not just your house – it’s your family, your friends, your neighbors, your local school, your doctor, your favorite grocery store…and all these things shape lives, especially kids’ lives.
  5. 5. “ HOME” IS AN OPPORTUNITY ANCHOR Housing Childcare Employment Education Health Transportation Effective Participation
  6. 6. OPPORTUNITY MATTERS <ul><li>Opportunity structures are critical to opening pathways to success: </li></ul><ul><ul><li>High-quality education </li></ul></ul><ul><ul><li>Healthy and safe environment </li></ul></ul><ul><ul><li>Stable housing </li></ul></ul><ul><ul><li>Sustainable employment </li></ul></ul><ul><ul><li>Political empowerment </li></ul></ul><ul><ul><li>Outlets for wealth-building </li></ul></ul><ul><ul><li>Positive social networks </li></ul></ul>
  7. 7. SOCIAL SCIENCE CONFIRMS… <ul><li>Neighborhoods don’t determine lives, but they shape and affect lives </li></ul><ul><li>Living in a disadvantaged neighborhood as a child is the equivalent of losing a year of school </li></ul>Source: Sampson, R. J., P. Sharkey, et al. (2008). &quot;Durable effects of concentrated disadvantage on verbal ability among African-American children.&quot; Proceedings of the National Academy of Sciences (PNAS) 105(3): 845-852.
  8. 8. LIVING IN LOW OPPORTUNITY… <ul><li>… generates unhealthy levels of stress hormones in children, which impairs their neural development </li></ul><ul><li>… correlates with children having levels of lead in their blood 9 times above average; linked to ADD and irreversible loss of cognitive functioning </li></ul>… links to higher levels of violent offending among juveniles … is highly correlated with childhood aggression and social maladjustment
  9. 9. <ul><li>In 1960 , African-American families in poverty were 3.8 times more likely to be concentrated in high-poverty neighborhoods than poor whites. </li></ul><ul><li>In 2000 , they were 7.3 times more likely. </li></ul>OPPORTUNITY IS RACIALIZED
  10. 10. CONSEQUENCES FOR SEGREGATED NEIGHBORHOODS <ul><li>Lack of low-cost credit options </li></ul><ul><li>Few preventative care doctors </li></ul><ul><li>High-cost grocery stores that lack fresh produce </li></ul><ul><li>Concentrated poverty schools </li></ul>Policies need to both bring more sustainable choices to neighborhoods and allow people more choices on where they and their families live
  11. 11. RESISTANCE AND RESILIENCE <ul><li>Informal economies </li></ul><ul><li>Extended family networks </li></ul><ul><li>Politicization and organization </li></ul><ul><li>Community associations </li></ul>Policies must leverage resilient and effective community & neighborhood organizations
  12. 12. WHAT IS AN OPPORTUNITY MAP? <ul><li>ATLANTA EXAMPLE </li></ul>
  13. 13. OPPORTUNITY COMMUNITIES PROGRAM
  14. 14. ATLANTA OPPORTUNITY INDICATORS <ul><li>EDUCATION </li></ul><ul><ul><li>Educational attainment for total population </li></ul></ul><ul><ul><li>School poverty for neighborhood schools </li></ul></ul><ul><ul><li>Test scores (Math) for neighborhood schools </li></ul></ul><ul><ul><li>Test scores (Reading) for neighborhood schools </li></ul></ul><ul><ul><li>Teacher qualifications for neighborhood schools (or certified teachers) </li></ul></ul><ul><li>ECONOMIC OPPORTUNITY AND MOBILITY </li></ul><ul><ul><li>Unemployment Rates </li></ul></ul><ul><ul><li>Population on Public Assistance </li></ul></ul><ul><ul><li>Proximity to employment (jobs within 5 miles) </li></ul></ul><ul><ul><li>Employment competition (within 5 miles) </li></ul></ul><ul><ul><li>Economic Climate (change in no. of jobs from 2000-2005 w/in 5 miles) </li></ul></ul><ul><ul><li>Economic Climate (business creation from 2000 to 2005 within 5 miles)   </li></ul></ul>
  15. 15. ATLANTA OPPORTUNITY INDICATORS CON’T <ul><li>HOUSING AND NEIGHBORHOODS </li></ul><ul><ul><li>Property Values </li></ul></ul><ul><ul><li>Property appreciation and tax base </li></ul></ul><ul><ul><li>Housing Vacancy Rates </li></ul></ul><ul><ul><li>Housing Cost Burden </li></ul></ul><ul><ul><li>Crime Rates </li></ul></ul><ul><ul><li>Poverty Rates </li></ul></ul><ul><ul><li>Population Change 1990-2000 </li></ul></ul><ul><ul><li>Projected population change 2000 to 2005 </li></ul></ul><ul><ul><li>Foreclosures </li></ul></ul><ul><ul><li>Housing starts </li></ul></ul><ul><ul><li>Home Ownership </li></ul></ul><ul><ul><li>Proximity to toxic waste release sites </li></ul></ul><ul><li>TRANSPORTATION AND MOBILITY </li></ul><ul><ul><li>Mean Commute Time </li></ul></ul><ul><ul><li>Public transit access </li></ul></ul>
  16. 21. FOCUS AREA: HOME AS WEALTH BUILDING ASSET <ul><li>… BUT NOT FOR EVERYONE: THE STORY OF UNFAIR HOUSING AND CREDIT MARKETS </li></ul>
  17. 22. A HOUSE IS ALSO AN ASSET <ul><ul><li>For every $1 in assets held by African Americans, Whites hold $9 </li></ul></ul><ul><ul><li>This disparity is primarily due to differences in home equity </li></ul></ul>Source: “Net Worth and Asset Ownership 1998-2000”. Household Economic Studies. U.S. Census Bureau (2003)
  18. 23. LET’S TALK ABOUT HISTORY… Why bother? It’s the past! Fine…what happens to money over time?
  19. 24. MORTGAGE FINANCE EVOLUTION Post New Deal: The Three Party Mortgage Market Pre-Depression: The Two Party Housing Market This becomes very big business, i.e. F/F $800 Billion EACH portfolio in 2009
  20. 25. FEDERAL INVESTMENT TO INCENTIVIZE LENDING… <ul><li>Hoover Administration created 12 Federal Home Loan Banks (US gov’t loaned to them; eventually become member owned) </li></ul><ul><li>Roosevelt Administration </li></ul><ul><ul><li>1933 HOLC: uses taxpayer $ to buy and refinance troubled mortgages (uses infamous “grades”) </li></ul></ul><ul><ul><li>1934 FHA: (1) guaranteed insurance to lenders (2) sets underwriting criteria for loans they would purchase </li></ul></ul><ul><ul><li>1938: FNMA (later becomes Fannie Mae) to purchase FHA’s “non-conventional” loans [insured by federal gov’t] </li></ul></ul><ul><ul><li>1968: Fannie Mae splits into GNMA (Ginnie Mae) and “new” Fannie Mae (purchases conventional loans from private lenders; holds mortgages in portfolio) </li></ul></ul><ul><ul><li>1970: Freddie Mac (similar to Fannie) </li></ul></ul>
  21. 26. TOOLS OF DISCRIMINATION: HOLC GRADES <ul><li>1933 Home Owners Loan Act had a neighborhood ranking system for credit-worthiness of housing it financed: </li></ul><ul><ul><li>(1) New, homogenous, all-white neighborhoods </li></ul></ul><ul><ul><li>(2) Outlying Jewish and white working class neighborhoods </li></ul></ul><ul><ul><li>(3) Neighborhoods near an African-American neighborhood </li></ul></ul><ul><ul><li>(4) African-American neighborhoods (regardless of income of residents or age of dwellings) </li></ul></ul>
  22. 27. HOLC REDLINING MAP OF PHILADELPHIA
  23. 28. TOOLS OF DISCRIMINATION: UNDERWRITING <ul><li>“ If a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes. A change in social or racial occupancy generally contributes to instability and a decline in values.” </li></ul><ul><li>– Excerpt from the 1947 FHA underwriting manual </li></ul>
  24. 29. TOOLS OF DISCRIMINATION: RACIALLY RESTRICTIVE COVENANTS J. Hernandez shows how areas in Sacramento with racially restrictive covenants in the past had the fewest loan denials today…shows where prime credit was steered.
  25. 30. TOOLS OF DISCRIMINATION <ul><ul><li>The construction of segregated public housing </li></ul></ul><ul><ul><li>Urban renewal, which displaced and scattered families of color and their businesses </li></ul></ul>
  26. 31. MEANWHILE, IN MORTGAGE FINANCE… <ul><li>1970s: Fundamentally new way of getting funding for mortgage loans – securities </li></ul><ul><ul><li>GSE’s start issuing “mortgage backed securities” </li></ul></ul><ul><ul><ul><li>Provided ‘guaranteed’ income to investors </li></ul></ul></ul><ul><ul><li>1977 Private label mortgage backed securities issued </li></ul></ul><ul><ul><li>By 1990s, GSE’s losing market share to private MBS </li></ul></ul><ul><ul><li>After 1997, Fannie and Freddie buy more private label MBS (1998: purchased $25 B…2007: $267 B) </li></ul></ul><ul><ul><li>2003 ff…purchase more private subprime & Alt-A </li></ul></ul><ul><ul><li>Collapse hits private market and Fannie & Freddie </li></ul></ul><ul><ul><ul><li>Though private MBS small % of holdings, big risk </li></ul></ul></ul><ul><ul><li>Note: GSE-issued prime securities performing fine </li></ul></ul>
  27. 32. Source: Chris Peterson, U. of Utah Law School AFTER SECURITIZATION
  28. 33. EXPLOITING UNDERSERVED MARKETS (REVERSE REDLINING)
  29. 34. DID YOU KNOW…? <ul><li>CRL estimates that from 1998 – 2006, only 9% of all subprime loans went to first time homebuyers </li></ul><ul><ul><li>Majority were refinance loans </li></ul></ul><ul><ul><li>Refinance loans disproportionately marketed to African American neighborhoods </li></ul></ul><ul><ul><li>Photo and story credit: </li></ul></ul><ul><ul><li>Baltimore Finds Subprime Crisis Snags Women </li></ul></ul><ul><ul><li>--New York Times 1/15/08 </li></ul></ul>
  30. 35. WEALTH LOSS…. <ul><li>Estimated cost of subprime lending to all homeowners: $2.7 trillion </li></ul><ul><li>Loss of accumulated wealth in home equity over generations…???? </li></ul>WHAT WILL THE EFFECTS BE ON ALREADY LOW OPPORTUNITY NEIGHBORHOODS?
  31. 36. 2008 NATIONAL INITIATIVE ON SUBPRIME LENDING, FORECLOSURE AND RACE
  32. 37. RESEARCH TAKEAWAYS <ul><li>Unequal credit markets and segregated housing happened together. </li></ul><ul><ul><li>Fair credit and fair housing will only happen together. </li></ul></ul><ul><li>Global finance has evolved against – and plays out in – racially and economically segregated neighborhoods. </li></ul><ul><ul><li>Advocates need to know more about banking and finance </li></ul></ul><ul><li>Fair housing and fair credit is an issue for all of us, but attention needs to be targeted to marginalized communities. </li></ul><ul><ul><li>Otherwise, policies miss key opportunities and challenges and miss those most affected by the crisis. </li></ul></ul>
  33. 38. FINDINGS FROM THE 2009 INITIATIVE <ul><li>AFTER THE SUBPRIME LENDING CRISIS…WHAT DO WE DO FROM HERE? </li></ul>
  34. 39. 2009 FUTURE OF FAIR HOUSING AND FAIR CREDIT INITIATIVE <ul><li>Summary Findings </li></ul><ul><ul><li>Fair housing and fair credit are about local places, people, relationships, and histories </li></ul></ul><ul><ul><li>Federal policy must support (and not undercut) both anti-discrimination efforts and affirmative commitments to fair housing and fair credit </li></ul></ul><ul><ul><li>What is a fair and just 21 st Century economic system, and what kind of financial system is needed to support it? </li></ul></ul>
  35. 40. A. LOCAL DIFFERENCE: CREDIT EXAMPLE
  36. 41. LOCAL/REGIONAL RECOMMENDATIONS <ul><li>Recognize that the paths to fair credit and fair housing will differ according to regional context and local history. Take local impediments to fair housing and fair credit – racially discriminatory history, proliferation of predatory credit, resistance to mainstream institutions – seriously. </li></ul><ul><li>Assist local and regional fair housing and community reinvestment activists in their efforts to organize, mobilize, and lobby. </li></ul><ul><li>Promote local, multi-partner pilot projects that are mission driven to affirmatively promote fair credit (like the National League of Cities’ “Bank On Cities” initiative). </li></ul><ul><li>Connect fair housing, fair lending, community reinvestment, civil rights and other advocacy groups (financial reform, faith-based, labor, etc.) </li></ul>
  37. 42. HOW SHOULD FEDERAL GOV’T SUPPORT LOCAL EFFORTS? <ul><li>Support the creation of a Consumer Protection Financial Agency and give it adequate resources and enforcement power. </li></ul><ul><li>Promote regulatory reform of the product, rather than the institution. </li></ul><ul><li>Recognize and enforce the duty to affirmatively further fair housing in relevant federal agencies and programs. </li></ul><ul><li>Press for better and more comprehensive data for all federal spending programs, including stimulus funding. Expand HMDA data reporting requirements to include loan term information. </li></ul><ul><li>Enact a comprehensive, nationwide plan to protect renters from foreclosure. </li></ul>
  38. 43. MESSAGING AND ADVOCACY RECOMMENDATIONS <ul><li>Contribute to a national communications effort around the danger of excluding a majority of American workers from a solid financial future. </li></ul><ul><li>Explore the potential for fundamental changes to regulation and financial incentives. Current incentives are perverse – they promote credit products inherently more likely to fail or result in punitive fees to those least able to manage them. </li></ul><ul><li>Support the national networks of fair housing, community reinvestment, fair lending and financial reform movements. </li></ul>
  39. 44. WHY DID BROKERS ORIGINATE ALL THOSE SUBPRIME LOANS? <ul><li>Most loans came from unregulated mortgage brokers </li></ul><ul><li>Mortgage brokers only originated the loans, they did not hold them </li></ul><ul><li>Therefore they did not care about the long-term performance of the loans </li></ul><ul><li>They made their money when they sold the loan for a fee </li></ul><ul><li>Mortgage servicers collect fees as well… </li></ul><ul><li>The future isn’t plastics…it’s FEES </li></ul><ul><ul><li>Short term transactions, not long term investments </li></ul></ul><ul><ul><li>Credit cards…insufficient funds…remittances </li></ul></ul>
  40. 45. FEES: EMBARRASSING NSF FEE FACTS <ul><li>Half of overdraft fees are from small ATM/debit purchases (the “$40 cup of coffee”) </li></ul><ul><li>Some banks include the overdraft allowance in the account balance shown at the ATM </li></ul><ul><li>In undercover visits, GAO officials often couldn’t get required disclosures detailing fees </li></ul><ul><li>A handful of consumers pay the lion’s share of fees (i.e. FDIC study showed that customers with 5 or more NSF transactions – 14% of customers -- accounted for 93.4% of total NSF fees ) </li></ul>
  41. 46. FEES: CIVIL RIGHTS CONCERNS <ul><li>People who overdraft repeatedly are more likely than the general population to be lower income, single, non-white, and renters </li></ul><ul><ul><li>Center for Responsible Lending. “Quick Facts on Overdraft Loans.” April 9, 2009. http://www.responsiblelending.org/overdraft-loans/research-analysis/ </li></ul></ul><ul><li>Fees make things worse for people who are already behind </li></ul><ul><li>Incomes lag while housing, health care, and education costs skyrocket…more people get in more debt, but the picture is uneven. </li></ul>
  42. 48. BIG PICTURE Source: Pastor et. al, Program for Environmental and Regional Equity “ the whole financial system has been rigged against lower income communities in general and communities of color in particular ”
  43. 49. WHAT IS ECONOMIC AND FINANCIAL JUSTICE? “ our financial system has a distinctly racial character, one that requires a response rooted in racial and social justice” “ if we are going to turn the financial industry back into something that benefits the consumer … WE HAVE TO SHIFT THE UNDERLYING BALANCE OF POWER” Source: Pastor et. al, Program for Environmental and Regional Equity
  44. 50. Need for social movements for financial equity “… the focus should not be simply on foreclosure relief, but on a new financial frame that has at its heart the restoration of opportunity for all ”
  45. 51. VISIT US IN MARCH…OR ON-LINE… http://www.KirwanInstitute.org www.facebook.com/kirwaninstitute www.twitter.com/kirwaninstitute March 11-13, 2010
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