FAIR CREDIT AND FAIR HOUSING IN THE WAKE OF THE SUBPRIME

AND FORECLOSURE CRISIS

A New Day for HousingThe Annual Conference of the CT Housing

CoalitionOctober 7, 2009

Hartford, CT

Christy RogersThe Kirwan Institute for the Study of Race and Ethnicity

The Ohio State University

Takeaways

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 – African American, Latino, Immigrant, Native American…

National Initiative on Subprime Lending, Foreclosure and Race

What the Street knew…

Diagram courtesy of Chris Peterson, University of Utah Law School

Post-Depression FHA Era:

The Three Party Mortgage Market

Pre-Depression: The Two Party

Housing MarketHomebuyer

Party 1

Seller (and/or) Lending Institution

Party 2Homebuyer

Party 1

LendingInstitution

Party 2

Government Sponsored Institution purchases, insures or underwrites loan

Party 3

Based on research by Chris Peterson, University of Utah Law School

Prior to securitization…

After securitization

What the Civil Rights community knew…

8

The Footprint of History

“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.”

–Excerpt from the 1947 FHA underwriting manual

From Redlining to Reverse Redlining

The Future of Fair Credit and Fair Housing

How do we climb out of the subprime lending and foreclosure fiasco without worsening the already widening opportunity gaps in: Home ownership and mortgage lending Credit access, debt, leverage Banking, savings

Three-pronged approach

Make progress in fair housing in three areas Improve access to fair financial options

(mortgage and otherwise) 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

Commissioned Research

Access to fair financial options (mortgage and otherwise) Proliferation of non-bank financial institutions

(unregulated mortgage brokers; payday lending; refund anticipation loans)

Banks’ and non-banks’ increasing reliance on fees (overdraft, credit card, remittances)

Separation of risk origination from risk bearing …implications for low-income customers and

communities of color

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.

[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 What’s a sustainable profit model for banks?

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.

Inter-American Development Bank map

Remittance market

In 2004, 5% of transfers (of total 40 million per year) were done via direct deposit into accounts at financial institutions

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?

Commissioned Research

Affirmative community revitalization How has the subprime crisis exacerbated fair

housing and equitable community development challenges? (Mpls, Cleveland, Boston, Sacramento)

How has the subprime and foreclosure crisis affected immigrants, especially low-income and undocumented immigrant homeowners?

What has the impact been on the urban Indian population (data)?

How might the homeowner/rental balance shift and affect rental markets?

Properties in foreclosure

Study of North Minneapolis (M. Ireland) Subprime lenders did disproportionate

lending in the area Vast majority of foreclosed mortgages issued

through mortgage broker 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 foreclosure prevention only for 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

Commissioned Research

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)

Fair Housing Act

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)

TARP: AFFH

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

Example: Home Affordable Modification 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

NFHA: HAMP could be strengthened by…

Make greater use of principal reduction to achieve affordability

Make interest rates reductions permanent, not short term

Increase transparency of decision-making process w/r/t eligibility for loan modifications and the terms of those modifications

Expand program to all loans serviced/ owned by past, current, or future TARP recipients

NFHA: What else can be done?

Offer responsible, sustainable loans that enable people to choose where they want to live

Assure that homes are marketed without discrimination (including REO homes)

Sponsor foreclosure prevention efforts that affirmatively further fair housing and do not discriminate

Finance fair economic development and mixed-income housing

CAP report: TARP bank lending

CAP recommendations: No more TARP $$ until special inspector general for TARP “gives a passing grade on fair lending practices;” Pass CFPA

What’s next for us

Similar policy feedback from small policy roundtables: Seattle-Portland Austin, TX Detroit, MI Oakland, CA New Orleans, LA

Federal policy and advocacy consensus building meeting in Washington, DC (November)

Final policy and advocacy “blueprint” – all papers & blueprint publicly available (website coming)

Thank you! Save the dateNov. 12, 2009

Save the date; March 11-13, 2010

What needs to change to advance fair housing and fair credit in Connecticut

? ? ?

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/

Center for Responsible Lending. “Quick Facts on Overdraft Loans.” April 9, 2009. http://www.responsiblelending.org/overdraft-loans/research-analysis/

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.