Fair Credit and Fair Housing after the Subprime Lending and Foreclosure Crisis
Fair Credit and Fair Housing after theSubprime Lending and Foreclosure Crisis Mapping Inequity, Visioning Change: A Forum on Fair Housing and Fair Lending December 11, 2009 New Orleans, LA Hosted by the Greater New Orleans Fair Housing Action Center Christy Rogers The Kirwan Institute for the Study of Race and Ethnicity The Ohio State University
This afternoon’s agenda Purpose To engage you and learn more about the nature of fair housing and fair credit challenges in New Orleans To incorporate your feedback into our broader “blueprint” for the future of fair housing and fair credit Agenda Support for this the Short framing talk: The “Future of Fair Housing & Kirwan Institute’s Fair Credit” “Future of Fair Housing” initiative is Small group brainstorming sessions provided by the W.K. Report out and discussion Kellogg Foundation
About Kirwan Multidisciplinary applied research institute Our mission is to expand opportunity for all, especially for our most marginalized communities Founded in 2003 by john powell Opportunity Communities Program Opening pathways to opportunity for marginalized communities through investments in people, places and supporting linkages Opportunity mapping
Background: National Initiative onSubprime Lending, Foreclosure and Race
What happened? -Lack of loan information or More than Just understanding for Foreclosures and a consumers in many of Few Bad Borrowers: these communities Understanding theCredit Crisis Impact inCommunities of Color -Communities were historically starved ofWhy Were Subprime credit Loans Concentrated in These -Mortgage Neighborhoods? securitization and the growth of the subprime industry created incentives to target new markets with mortgages
On the reverse side of thecoin, J. Hernandez shows howareas in Sacramento with raciallyrestrictive covenants in the pasthad the fewest loan denialstoday…shows where prime creditwas steered.
Securitizationadded layers ofcomplexity …and feddemand fromcredit marketsfor bundledloans.Figure byChristopher L.Peterson, Univ. ofUtah Law School
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. We need to know more about banking and finance 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.
Kirwan Goals and Objectives 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
Key Questions Moving Forward 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
Kirwan Initiative Design What? Understand new/current challenges and necessary pathways to success Provide a comprehensive view of changes needed Provide resources and spark action among advocates How? Input from advisory board Commissioned research from national experts Regional convenings (obtaining local expertise and insight) Collaboration & policy consensus building with national advocacy organizations
Activities Similar policy feedback from regional policy meetings in Seattle, Detroit, and Austin (October – November) Federal policy and advocacy consensus building meeting on fair credit co-hosted by Kirwan, PRRAC, National Council of La Raza, Center for Responsible Lending, and National Community Reinvestment Coalition (Washington, DC -- November 18) The perspective on fair credit and fair housing, particularly on consumer protection advocacy, from the West Coast (Oakland, CA – December 18) Final policy and advocacy “blueprint” – publicly available (website & materials available early 2010)
Research directionsCommissioned workInitial findingsEmerging areas of concern
Commissioned Research (Ex’s) 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 (Ex’s) 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 low-income and undocumented immigrant homeowners? 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)
Commissioned Research: UpNext The Future of Fannie Mae and Freddie Mac Note, very little momentum around this in DC; advocates busy with CFPA Act and CRA …is it slipping out of advocates’ sights? Korman paper explores the (now-called) “regulated entity” housing goals and the duty to serve underserved markets through the lens of furthering fair housing, both prior to and after HERA. Stanton paper explores how Fannie and Freddie might support the mortgage market as government corporations, i.e. funding new mortgages with lower borrowing costs, improving consumer protection for borrowers, supporting other government housing programs, especially the FHA.
Early findingsProperties in Foreclosure in North Minneapolis (MarkIreland)No Home in Indian Country (Janeen Comenote)TARP Programs Must Affirmatively Further (DeeDeeSwesnick)
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 affirmativelyfurther National Fair Housing Alliance advocacy argument: 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 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 had to advocate for the collection and reporting of data on race, ethnicity & sex of applicants for HAMP loan modifications
DC Policy Roundtable:Emerging Areas ofConcernOverdraft feesRemittance market
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.
Remittance market Remittance transfers are segregated from other financial services Remittances are largest interactions between immigrants and the financial sector, yet the vast majority (80-95%) goes through non-bank entities. Results: Weak consumer protections (Appleseed working to get into CFPA) Lack of access to other banking products Waste of asset building opportunities “Cash motivated” violence against immigrants High fees (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
Fair housing and fair credit in NewOrleans 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
Appendix: Results from othercitiesDetroit, Seattle, and Austin
Topic Detroit (MI Roundtable) Seattle (Northwest Justice Project) Austin (Green Doors) Unemployment / lack ofSustainable education on financial optionsCredit Barriers 1 (tie) Banks profit from subprime loans Access to information Lack of relationships with 2 citizen-bankers Complexity of transactions Education (including immigrant) Intentional bank discrimination and targeting / Lack of responsibility from Discrimination/lack of 3 banks for crisis (tie) People dont trust banks/ racism alternative options (tie) Intermediary at communitySutainable Alternative models of credit level to ensure equal treatmentCredit Solutions 1 mapped to community needs Legal enforcement of existing laws of similarly situated borrowers Partership between health insurers, housing (connection Opportunity with Detroit Smaller/local banks (micro-banks, between bankruptcy and health 2 housing stock at low prices non-profits, credit unions) insurance status) 3 Local lending / micro-credit Enforce usury law Collaborations (city, NPOs)
Topic Detroit (MI Roundtable) Seattle (Northwest Justice Project) Austin (Green Doors) City planning process / lack of local resources (i.e. few local affordable housing developers;Neighborhood weak philanthropicRevitalization Racism and history (job Lack of inclusion of residents in community)/ lack of residentBarriers 1 segregation, etc.) process education and trust (tie) Different neighborhood types need different approaches/ Lack of access to public policy what is community "Spatial mismatch" (jobs not leaders; minority aspiration?/Austin reality/ lack 2 in neighborhoods of need) underrepresentation of affordable housing (tie) Lack of investment in Detroit Fragmentation of similar interest (risk aversion) / cost of rehab groups/ revitalization is not 3 > cost of demolition (tie) creating new local jobs N/ANeighborhoodRevitalization Stakeholder involvement early in Integrated vision for planningSolutions 1 Education planning process and development Education opportunities / Employment / Re-think CRA Cultivate community leaders at inclusive housing, smart 2 (tie) grassroots level housing policies (tie) Robust civic engagement/ more Lack of people of color in Dedicated organizations to local funding & resources/ solutions (foundations, generate collaborative action leadership innovation / 3 development assistance) (move past niche limits) stronger civic organizations
Topic Detroit (MI Roundtable) Seattle (Northwest Justice Project) Austin (Green Doors) Lack of inclusionary Higher cost in high-oppyOpportunity- developments / Lack of neighborhoods / NIMBYism /Based Housing knowledge of available units High-oppy neighborhoodsBarriers 1 (tie) Discrimination -- all levels given "free ride (tie) Housing prices, rents in high- opportunity areas/ lack of People dont think there is a enforcement of existing law / Affordable housing not 2 market for market-rate homes housng search suport barriers (tie) reaching intended market Low-income people pushed out of city / "Micro-inflation" from Austin boom / affordable housing is clustered in low- Lack of affordable units in oppy areas / govt housing 3 suburbs N/A programs are inadequate (tie)Opportunity-Based Housing New economic/ financial Be more deliberate in housing Aggressive legal methods -- sueSolutions 1 toolbox "site" methods the City and State Come to terms w/ "gated community, Disneyland" phenomenon / Spend more $$ on affordable housing in high oppy areas / prioritize public Make housing more central in owned land for affordable Create inclusionary community planning (approach as housing / link job oppys with 2 dialogues/agendas regional issue) housing oppys Affordable housing targets for each neighborhood in city / Promote more "sweat-equity" models / enforce existing fair housing statutes / educate Separate out issues to break people on integration / "sue 3 out interests N/A the ba***rds" (tie)