From Dodd-Frank to Occupy & Everything In Between:Holding Wall Street Accountable to Protect Families &Communities
David Berenbaum, Chief Program Officer, NCRCApril 19th, 2012
National Neighbors First Alliance & Lehman Brothers • Car Salesmen “The Track” script • 1988 – 2003: 50.9 Million
National Neighbors Presentation Goals To focus on existing and emerging civil rights and consumer protection issues relating to mortgage-backed securities and securitization principles, including structures and prepayment issues, definitions & policy issues, and I will also concentrate on how we can be more proactive as a movement and explore how NCRC complaints and other legal precedent can serve as models for advocates.
National Neighbors Consumers, and many consumer groups & advocates, do not understand or differentiate between role of the servicer, securitizer, originator, etc. Securitization “un-bundles” the loan, lenders have information advantage over investors and there is a strong incentive to “pass off” bad paper by originators - placing Wall Street in the middle of the debate Securitization manages and prices loss, rather than seeking out bad loans. Industry trade associations and counsel were salivating at opportunity to undermine disparate impact standard in Magner v. Gallagher
National Neighbors Wall Street & secondary market provides liquidity to the housing market If credit is provided in a discriminatory manner, working families, minorities, and financially vulnerable consumers will not consistently receive, equal treatment in the credit markets. This is compounded by product or price steering, i.e., securitization of problematic, unsustainable or discriminatory loans, which has played a direct role in the current foreclosure crisis. NCRC & our members are exploring legal, as well other policy and programmatic ways to redress these actions.
National Neighbors What makes for a Healthy Community? Real Estate Revenue Jobs Schools Credit and Inf ras Com Capital tr u m erce ctu re are Police & Fire hC Environment alt He
National Neighbors Where once you had a prosperous, functional community, it now becomes dysfunctional. Commerce Commerce Real Estate Infrastructure Schools Revenue Jobs Jobs Health Care Health Care Police & Fire Environment
National Neighbors Tom Toles – Small Enough to Fail
National Neighbors The Color of Money – The Dual Lending Market Remains
National Neighbors Creating Asset Based Securities • A lender originates loans, such as to a homeowner or corporation. • The securitization structure is added. • The bank or firm sells or assigns certain assets, such as consumer receivables, to a special purpose vehicle. • The structure is legally insulated from management Credit enhancement and rating agency reviews. • The Special Purpose Vehicle (SPV) issues debt, dividing up the benefits (and risks) among investors on a pro-rata basis
National Neighbors “It’s a Wonderful Life” Thirty years ago, if you received a mortgage from a bank, it was very likely that the bank would keep the loan on its balance sheet until the loan was repaid. That is no longer true. Today, the party that you deal with in order to get the loan (the originator) is highly likely to sell the loan to a third party (the securitizer.)
National Neighbors Wall Street & the secondary market provides liquidity to the housing market If credit is provided in a discriminatory manner, working families, minorities, and financially vulnerable consumers will not consistently receive, equal treatment in the credit markets. This is compounded by product or price steering, i.e., securitization of predatory loans, which has played a direct role in the current foreclosure crisis. NCRC & our members are exploring legal, as well other policy and programmatic ways to redress these actions.
National Neighbors • Investors like volume which is sufficiently large and homogenous to facilitate statistical analysis. A stable history of rates, defaults, delinquencies, prepayments and so forth • Sufficient diversification--for example, geographic and socio-economic-- to reduce vulnerability to economic stresses • Basic lender’s credit quality standards that are capable of being evaluated and approved by rating agencies and specialized financial guaranty companies - often pay lip service to or do not include UDAP or fair lending. • Assets must be transferable and unencumbered
National Neighbors Industry’s position “The American Securitization Forum concludes that expanding the liability faced by secondary market participants for abusive loan origination practices is a misguided policy, and risks a broad contraction in the availability of mortgage credit to sub prime and other borrowers.”
National Neighbors NCRC Rating Agencies Complaints: Rating Agencies - Moodys, S&P, Fitch. In Securitizations, the rating agencies are active players that enter the game early and assist in structuring the transaction. In many instances they require structural changes, dictate some of the required opinions and mandate changes in servicing procedures. Howver, not so
National Neighbors FHA Fair Lending Analysis: Federal Reserve Data – In 2009 AA’s relied on FHA/VA 75% of the time & Latino’s 70% of the time. NCRC’s own analysis of FHA using LPS & HMDA mortgage data found that these loan programs disproportionately serve African American & Latino borrowers with credit scores between 580 and 620 in 2009. NCRC Also Documented Community Impact Utilizing NCRC & Industry Research
National Neighbors NCRC Investigation of FHA Residential Loan Program Lender FICO Requirements NCRC Fair Lending Audit Results
National Neighbors NCRC Challenge has resulted in 19 Lenders Abandoning Practice and 23 FHEO Complaints. Over 10,000 Loans Originated. Business Defenses: FHA Risk to Originator, i.e., Indemnification Requirements FHA Servicing & Foreclosure Costs Vintage performance Compare Ratios – See neighborhoodwatch.org Volume, production & systems Credit overlay defense Wall Street Investors & FHA Aggregators won’t purchase Reputational & Correspondent Lender Risk FHA Streamline loan product performance NCRC acknowledges that each lenders situation is unique.
THANK YOU!For more information:David Berenbaumdberenbaum@ncrc.org202-464-2731