MORTGAGE FORECLOSURES MORTGAGE FORECLOSURES & &

PREDATORY LENDING PREDATORY LENDING IN ST. CLAIR COUNTY IN ST. CLAIR COUNTY

1996-20001996-2000

Assistant Professor Lynne DearbornEast St. Louis Action Research Project

University of Illinois at Urbana-Champaign

Study Questions

• How prevalent is predatory lending in St. Clair County?

• Are there specific areas or populations within the county that are particularly vulnerable?

Data Collected

• Circuit Clerk’s Foreclosure Files

• Assessments and Sales Prices

• Tax Stamps and Document Records

Estimated 5-Year Totals Foreclosure Complaints = 2170Judgements to Foreclose = 1460

Foreclosures in St. Clair County 1996-2000

0

20

40

60

80

100

120

140

1996 1997 1998 1999 2000

20%

Sa

mp

le ForeclosureComplaints

Judgements toForeclose

8 Indicators of Abusive Lending

1. Single Premium Credit Insurance 2. Mandatory Arbitration Clause 3. Prepayment Penalties 4. Balloon Payments 5. Interest Rate Spread 6. Adjustable Rate 7. Sale Price Difference 8. High Loan to Value Ratio

Loans with Abusive Characteristics

0

10

20

30

40

50

60

70

80

1996 1997 1998 1999 2000

Nu

mb

er

in 2

0% S

am

ple

High LTV

Suspect PredatoryLoans

Estimated 5-Year Totals Suspect Predatory Loans = 1120High Loan to Value Loans = 1105

Comparison of Judgements

0

10

20

30

40

50

60

70

80

90

1996 1997 1998 1999 2000

Nu

mb

er

of

Ju

dg

em

en

ts

Adjustable RateMortgages

Fixed Rate Mortgages

• Number of Judgements Increases• ARMs Increase as Percentage of Judgements

ARMs are More Likely in Judgements and Suspect Predatory Loans

Overview of Sampled Foreclosures

0%

20%

40%

60%

80%

100%

ForeclosureComplaints

(N=434)

Judgementsto Foreclose

(N=292)

SuspectPredatory

Loans(N=225)

SuspectLoans with

Judgements(N=156)

Adjustable RateMortgages

Fixed Rate Mortgages

Average Difference Between Interest Rate T-Bill Among Judgements

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

1996 1997 1998 1999 2000

Average Difference between Mortgage Interest Rate and T-Bill Rate Increases from 2.14% to 3.43% During a Time Period when Interest Rates were Generally Declining

Judgements with Interest Rates More Than 6% Over T-Bill

0%

10%

20%

30%

40%

50%

60%

70%

1996 1997 1998 1999 2000

% o

f M

ort

gag

e T

ype

Fixed Mortgagerates more than6% over T-Bill

ARMs w/ ratesmore than 6%over T-Bill

Among Judgements, the Percentage of ARMs with Interest Rates More than 6% over the T-Bill Rate is Significantly Greater than the Percentage of Fixed Mortgage Rates at more than 6% over the T-Bill Rate

1. Close to 2/3 of census block-groups in the county (172 out of 263) have seen foreclosure complaints.

2. Just over 1/2 the census block groups in the county (145 out of 263) have seen judgments to foreclose.

3. Close to 1/2 the census block groups in county (128 out of 263) have seen suspect loans made.

4. Close to 1/2 the census block groups in the county (124 out of 263) have seen loans with high loan-to-value ratios.

General Statistics Relating to Census Block-Groups

Geographical Analysis - Complaints

Map of Foreclosure Complaints by Census Block Group 1996-2000

Geographical Analysis - Judgements

Map of Judgements to Foreclose by Census Block Group 1996-2000

Geographical Analysis - Suspect Loans

Map of Suspect Predatory Loans by Census Block Group 1996-2000

Geographical Analysis - High LTV Loans

Map of High LTV Loans by Census Block Group 1996-2000

Geographical Analysis - Comparing Municipalities

Map of Suspect Loans by Municipality 1996-2000

Geographical Analysis - Comparing Municipalities

Map of High LTV Loans by Municipality 1996-2000

Summary

• Racial, income, and in some cases age group concentrations figure prominently in the geographic distribution of loans with both predatory characteristics and high LTV ratios.

• Individual demographic characteristics highlighted in interviews with individuals who have experienced foreclosure suggest low-income single-mothers are particularly vulnerable to predatory tactics.

Recommendations

• Provide alternative sources of sub-prime lending.

• Increase the use of available enforcement tools.

• Employ caution in the use of Adjustable Rate Mortgages.

A more comprehensive description of the study will be available soon at http://www.eslarp.uiuc.edu