Fair Credit and Fair Housing in the Wake of the Subprime and Foreclosure Crisis
Fair Housing and Fair Lending Forum Northwest Justice Project October 30, 2009 Seattle, WA Christy RogersThe Kirwan Institute for the Study of Race and Ethnicity The Ohio State University
Agenda Morning Kirwan framing of fair housing and fair credit issues Small group brainstorming sessions Report out and discussions Lunch Afternoon Kirwan presents King County “Opportunity Mapping” project Training on affirmatively furthering fair housing
Background: National Initiative on SubprimeLending, Foreclosure and Race
Research takeaways Unequal credit markets and segregated housing happened together…Fair credit and fair housing (broadly defined) will only happen together. Global finance has evolved against – and plays out in – racially and economically segregated neighborhoods. Fair housing and fair credit is an issue for all of us, but attention needs to be targeted to marginalized communities. Otherwise, policies miss key opportunities and challenges and miss those most affected by the crisis.
Three-pronged approach Make progress in fair housing in three areas: Improve access to fair financial options Affirmative community revitalization Opportunity-based housing Ensure that programs and policies responding to the subprime crisis reach those most affected Connect and engage diverse stakeholders for cross- cutting advocacy
The Future of Fair Credit and FairHousing How do we best tell the story that we know? This is important because the framing of the problem shapes its solution. How do we climb out of the subprime lending and foreclosure fiasco without worsening the already widening opportunity gaps for communities of color? Home ownership and mortgage lending Credit access, debt, leverage Banking, savings
Commissioned workInitial findingsEmerging areas of concern
Commissioned Research Access to fair financial options (mortgage and otherwise) Banks’ increasing reliance on fees…implications for low- income customers and communities of color Discretionary pricing of financial products Consumer credit for those coming out of foreclosure Connect and engage diverse stakeholders What might an advocacy strategy around fair credit and fair banking look like? What’s the role for philanthropies?
Commissioned Research Affirmative community revitalization How has the subprime crisis exacerbated fair housing and equitable community development challenges? (Minneapolis, Cleveland, Boston, Sacramento) How has the subprime and foreclosure crisis affected immigrants, especially low-income and undocumented immigrant homeowners? How might the homeowner/rental balance shift and affect rental markets? Ensure that programs and policies responding to the subprime crisis reach those most affected How do we assess the current federal policy response with respect to fair housing and civil rights goals? (TARP, NSP2) What has the impact been on the AI/AN population (data)?
Properties in Foreclosure in North Minneapolis (Mark Ireland)No Home in Indian Country (Janeen Comenote)TARP Programs Must Affirmatively Further (DeeDee Swesnick)
Properties in foreclosure Study of North Minneapolis Subprime lenders did disproportionate lending in the area Vast majority of foreclosed mortgages issued through mortgage broker (unregulated) CRL study: pay on avg. $35,000 more over life of loan vs. sub-prime mortgage through retail lender Prime lenders disproportionately absent Foreclosed homeowners owed 4-5% more than the original principal balance
Properties in foreclosure Under-reported, disproportionate affect on rental families with school-age children Rental properties accounted for 61% of foreclosures 40% of foreclosed households had children in Minneapolis public schools; 60% were African American Yet most foreclosure policies directed to homeowners Properties lose value and endanger neighbors Averaged ten months to sell at average loss of $65K 83% of properties had 911 calls post-Sheriff’s Sale, with an average of 8 calls per property
No Home in Indian Country On-reservation populations Federal government has legal and trust responsibility to provide housing for Native people NAHASDA – Block grants to tribes and tribally designated housing entities Currently able to meet 5% of need for housing Denial rate for conventional home purchase loans of 23% -- twice that of Whites
No Home in Indian Country Off-reservation populations (majority of AI/AN population in US) 8-state study revealed the following barriers to housing for urban Native people: credit checks, low income, lack of affordable housing stock, background checks, deposit/down payment requirements Disproportionate number of Natives in homeless shelter care, but very few projects serving the Native community Little known about barriers to fair credit
TARP’s duty to affirmatively further National Fair Housing Alliance paper Federal programs designed to mitigate the effects of the financial crisis must meet their obligations under the Fair Housing Act TARP scope close to $ 3 Billion (OSIG Report) TARP funds relate to housing and urban development TARP funds must be spent in a way to affirmatively further fair housing
Fair Housing Act requirements Federal programs designed to mitigate the effects of the financial crisis must meet their obligations under the Fair Housing Act “All executive departments and agencies shall administer their programs and activities relating to housing and urban development (including any Federal agency having regulatory or supervisory authority over financial institutions) in a manner affirmatively to further the purposes of this subchapter and shall cooperate with the Secretary [of HUD] to further such purposes.” – Sec. 808(d)
Example: Home AffordableModification Program (HAMP) Funded by $75 Billion in TARP funds Incentivizes mortgage loan modifications to keep families in their homes Civil rights & consumer groups advocacy resulted in the directive to collect and report data on race, ethnicity & sex of applicants for HAMP loan modifications
CAP report: TARP bank lendingCAP recommendations: No more TARP $$ until special inspector generalfor TARP “gives a passing grade on fair lending practices;” Pass CFPA
Overdraft fees Congressional legislation coming…CFPA, or specific overdraft legislation? Federal Reserve proposing opt-in, not opt-out Some banks offering to make some concessions on fees…(BOA; J.P. Morgan Chase; etc.) 2009 fees: $38.5 billion; fees increased 4% this year; avg. overdraft fee $35; banks make more on overdraft fees than credit card fees In 2006, overdraft fees were roughly 75% of total consumer fee income
Embarrassing fee facts Half of overdraft fees are from small ATM/debit purchases (the “$40 cup of coffee”) Some banks include the overdraft allowance in the account balance shown at the ATM In undercover visits, GAO officials often couldn’t get required disclosures detailing fees 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)
Civil rights concerns [Tree] People who overdraft repeatedly are more likely than the general population to be lower income, single, non-white, and renters Center for Responsible Lending. “Quick Facts on Overdraft Loans.” April 9, 2009. http://www.responsiblelending.org/overdraft-loans/research- analysis/ [Forest] Incomes lag while housing, health care, and education costs skyrocket…more people get in more debt, but the picture is uneven.
Bank concerns If overdraft ended overnight, one economist estimated 1,000 banks and 2,000 credit unions would go under 45% of banks and credit unions make more on overdraft fees than they do in profits Loan volumes are shrinking while transactional business increases, and transactions have a cost What’s a sustainable profit model for banks that builds wealth for consumers?
Remittance flows Worldwide flows: $320 Billion in 2008 Unrecorded flows through informal channels are believed to be at least 50% more than recorded flows In last five years, remittances have grown by 63% and now represent the largest source of income for many developing countries On the horizon: mobile transfers (in developing countries, more people own mobile phones than have bank accounts)
Global flows Africa :Total remittances (US$ million) 38,611 Asia and Oceania :Total remittances (US$ million) 113,055 Europe: Total remittances (US$ million) 50,805 Latin America and the Caribbean: Total remittances (US$ million) 67,905 Near East: Total remittances (US$ million) 28,449 Orozco, Manuel. “Sending Money Home: Worldwide Remittance Flows to Developing and Transition Countries.” December 2007. Inter-American development Bank.
Remittance market In 2004, 5% of transfers were done via direct deposit into accounts at financial institutions (40 million transactions/year) Western Union and Money Gram charge $12-50 fee per transaction People are suspicious of bank pricing, don’t have needed ID, or know of hand-to-hand alternatives Bank of America has offered free remittance service since 2005…banks want new customers If banks are going to get new customers via the remittance market, how do we ensure that they subsequently offer them sustainable options?
What’s next for us Similar policy feedback from small policy roundtables: Austin, TX Detroit, MI Oakland, CA New Orleans, LA Federal policy and advocacy consensus building meeting in Washington, DC (November 18) Final policy and advocacy “blueprint” – all papers & blueprint publicly available (website coming)
Fair housing and fair lending Group A: Barriers to / Best practices for access to fair financial options, mortgage and otherwise Group B: Barriers to / Best practices for affirmative community revitalization Group C: Barriers to / Best practices for opportunity- based housing
References Fees Janneke Ratcliffe. “A Bridge to Somewhere: the road from predatory lending to good financial services for all Americans.” August 5, 2009. American Prospect. GAO. “Federal Banking Regulators Could Better Ensure That Consumers Have Required Disclosure Documents Prior to Opening Checking or Savings Accounts.” January 2008. http://www.gao.gov/new.items/d08281.pdf FDIC. “Study of Bank Overdraft Programs.” November 2008. http://www.fdic.gov/bank/analytical/overdraft/ Leverage data Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances. Federal Reserve Board, Survey of Consumer Finances, February 2009. Page A37.