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The Foreclosure Debacle and Why Minorities Are
Disproportionately Affected
Presented to
The Houston Real Estate Association
Maurice Jourdain-Earl
Thursday, April 7, 2011
©2011 CLC Compliance Technologies, Inc.
Why Minorities Were So Affected?
• CLEAR DIFFERENCES IN THE DISTRIBUTION OF LOAN TYPES BY RACE
• AFRICAN-AMERICANS AND LATINOS HAVE INCREASINGLY LESS ACCESS TO PRIME LOANS THAN WHITES
• COLLAPSE OF SUBPRIME
• GREATER INCREASE IN GOVERNMENT LOANS WITH WHITES MORE SO THAN WITH AFRICAN-AMERICANS AND LATINOS
Why Minorities Were So Affected?
Loan type differences has a direct affect on the Cost of Credit and Loan Performance, thus a disproportionate impact with foreclosures
Houston MSA 2004-2009
Year White Black Hispanic AsianNative Amer. Hawaiian Total
2004 63,359 8,776 19,796 7,918 416 367 102,6362005 49,040 5,599 14,851 6,331 214 245 78,2852006 44,048 5,349 14,360 6,081 188 241 72,2732007 44,339 5,417 15,095 6,372 217 220 73,6672008 32,374 2,496 7,267 5,068 129 147 49,4892009 42,652 2,012 5,376 6,802 146 123 59,120 275,812 29,649 76,745 38,572 1,310 1,343 435,470
Houston MSA 2004-2009Conv. Prime 1st Lien OO Home Purchase and Refinance 1-4 Family
Year White Black Hispanic AsianNative Amer. Hawaiian Total
2004 10,772 7,154 9,465 746 211 74 30,426
2005 15,159 10,922 14,444 1,156 114 108 43,908
2006 14,498 11,307 14,857 1,123 91 96 43,978
2007 7,566 4,377 7,561 611 54 52 22,228
2008 3,301 909 2,769 323 8 26 9,344
2009 1,748 257 790 179 8 7 4,998
53,044 34,926 49,886 4,138 486 363 154,882
Houston MSA 2004-2009Conv. Subprime 1st Lien OO Home Purchase and Refinance 1-4 Family
Year White Black Hispanic AsianNative Amer. Hawaiian Total
2004 7,664 3,424 4,010 257 82 65 17,5062005 5,556 2,205 3,054 196 33 32 13,0812006 4,292 1,737 2,229 165 26 36 10,4912007 4,790 2,053 2,613 170 33 24 11,6902008 11,159 3,804 5,815 571 49 57 23,4632009 17,269 4,843 7,687 1,148 61 83 33,100 50,730 18,066 25,408 2,507 284 297 97,292
Houston MSA 2004-2009Government 1st Lien OO Home Purchase and Refinance 1-4 Family
Loan TypePercent with a payment 90+ days past due
Percent in foreclosure
Prime* 2.3% 1.2%
Subprime** 12.9% 5.9%Government*** 1.0% 2.5%
TEXASPERCENT DEFAULT AND FORECLOSURE (November, 2010)
Source: Federal Reserve Bank of New York, First American CoreLogic and Lender Processing Service (LPS)
Houston MSA 2004 Subprime Disparities by Race
ComplianceTech
Race Loans Loans
w/Spread Frequency SDI
Avg. Spread
AHSDI
White 74,131 10,772 14.53% 1.00 4.21 1.00
Black 15,930 7,154 44.91% 3.09 4.37 1.04
Hispanic 29,261 9,465 32.35% 2.23 4.30 1.02
Asian 8,664 746 8.61% 0.59 4.01 0.95
Native Am. 627 211 33.65% 2.32 4.25 1.01
Hawaiian 441 74 16.78% 1.15 4.18 0.99
MultiRace 316 78 24.68% 1.70 4.19 1.00
Unk 16,408 4,270 26.02% 1.79 4.45 1.06
NA 267 50 18.73% 1.29 4.48 1.06
Invalid 0 0 0.00% 0.00 0.00 0.00
Total 146,045 32,820 22.47% 1.55 4.30 1.02
*Conv. 1st Lien, OO, Home Purchase and Refi, 1-4 Family
Race Loans Loans w/Spread
Frequency SDI Avg. Spread
AHSDI
White 64,199 15,159 23.61 1.00 4.87 1.00
Black 16,521 10,922 66.11 2.80 5.07 1.04
Hispanic 29,295 14,444 49.31 2.09 4.84 0.99
Asian 7,487 1,156 15.44 0.65 4.66 0.96
Native Am. 328 114 34.76 1.47 4.97 1.02
Hawaiian 353 108 30.59 1.30 4.93 1.01
MultiRace 290 99 34.14 1.45 5.06 1.04
Unk 12,508 4,414 35.29 1.49 5.03 1.03
NA 11 1 9.09 0.39 4.01 0.82
Invalid 0 0 0.00 0.00 0.00 0.00
Total 130,992 46,417 35.43 1.50 4.92 1.01
Houston MSA 2005 Subprime Disparities by Race
ComplianceTech *Conv. 1st Lien, OO, Home Purchase and Refi, 1-4 Family
Race LoansLoans
w/SpreadFrequency SDI
Avg. Spread
AHSDI
White 58,546 14,498 24.76 1.00 5.11 1.00
Black 16,656 11,307 67.89 2.88 5.55 1.09
Hispanic 29,217 14,857 50.85 2.15 5.21 1.02
Asian 7,204 1,123 15.59 0.66 5.00 0.98
Native Am. 279 91 32.62 1.38 5.24 1.03
Hawaiian 337 96 28.49 1.21 5.30 1.04
MultiRace 316 97 30.70 1.30 5.26 1.03
Unk 14,322 5,179 36.16 1.53 5.41 1.06
NA 12 1 8.33 0.35 3.97 0.78
Invalid 0 0 0.00 0.00 0.00 0.00
Total 126,889 47,249 37.24 1.58 5.28 1.03
Houston MSA 2006 Subprime Disparities by Race
ComplianceTech *Conv. 1st Lien, OO, Home Purchase and Refi, 1-4 Family
Houston MSA 2007 Subprime Disparities by Race
Race LoansLoans
w/SpreadFrequency SDI
Avg. Spread
AHSDI
White 51,905 7,566 14.58 1.00 4.58 1.00
Black 9,794 4,377 44.69 3.07 5.06 1.10
Hispanic 22,656 7,561 33.37 2.29 4.64 1.01
Asian 6,983 611 8.75 0.60 4.32 0.94
Native Am. 271 54 19.93 1.37 4.44 0.97
Hawaiian 272 52 19.12 1.31 4.64 1.01
MultiRace 268 59 22.01 1.51 4.73 1.03
Unk 11,636 2,383 20.48 1.40 4.82 1.05
NA 6 0 0.00 0.00 0.00 0.00
Invalid 0 0 0.00 0.00 0.00 0.00
Total 103,791 22,663 21.84 1.50 4.71 1.03
ComplianceTech *Conv. 1st Lien, OO, Home Purchase and Refi, 1-4 Family
Race Loans Loans w/Spread
Frequency SDI Avg. Spread
AHSDI
White 35,675 3,301 9.25 1.00 4.02 1.00
Black 3,405 909 26.70 2.89 4.53 1.13
Hispanic 10,036 2,769 27.59 2.98 4.08 1.01
Asian 5,391 323 5.99 0.65 3.79 0.94
Native Am. 137 8 5.84 0.63 3.98 0.99
Hawaiian 173 26 15.03 1.62 4.23 1.05
MultiRace 204 22 10.78 1.17 5.53 1.38
Unk 7,067 694 9.82 1.06 4.23 1.05
NA 12 2 16.67 1.80 3.73 0.93
Invalid 0 0 0.00 0.00 0.00 0.00
Total 62,100 8,054 12.97 1.40 4.11 1.02
Houston MSA 2008 Subprime Disparities by Race
ComplianceTech *Conv. 1st Lien, OO, Home Purchase and Refi, 1-4 Family
Houston MSA 2009 Subprime Disparities by Race
ComplianceTech *Conv. 1st Lien, OO, Home Purchase and Refi, 1-4 Family
Race Loans Loans w/Spread
Frequency
SDI Avg. Sprea
d
AHSDI
White 44,400 1,748 3.94 1.00 --- ---
Black 2,269 257 11.33 2.88 --- ---
Hispanic 6,166 790 12.81 3.25 --- ---
Asian 6,981 179 2.56 0.65 --- ---
Native Am. 154 8 5.19 1.32 --- ---
Hawaiian 130 7 5.38 1.37 --- ---
MultiRace 230 8 3.48 0.88 --- ---
Unk 9,538 294 3.08 0.78 --- ---
NA 19 1 5.26 1.34 --- ---
Invalid 0 0 0.00 0.00 --- ---
Total 69,887 3,292 4.71 1.20 --- ---
Supply Side Impediments
• Reactionary– Backing away of third-party originations
– Collapse of subprime
– Credit tightening
– More conservative appraisals
– Closing of bank branches in communities of color
– Appears to be a change in the mindset on National Housing Policy
• Legislative– Restrictions on compensation of brokers
– Licensing and training requirements of SAFE ACT (barriers to entry) unequal playing field favoring banks.
– QRM
– Greater regulatory cost as a result of new regulations from CFBP
Outlook
1. Outlook for borrowers and communities of color are bleak.
2. Access to credit for minorities is not good.
3. Loss of wealth.
4. Risk management efforts will have a disproportionate impact on borrowers of color and communities of color.
Recommendations
• ESTABLISH laws for the public disclosure of default and foreclosure data on the same basis as HMDA data. Require lenders/servicers to report the demographic and geographic characteristics of loans in default and foreclosure and the disposition of short sales and loan modifications.
• ENCOURAGE FHA to study the potential of adverse effects of the new risk management policies.
• IMPLEMENT Dodd-Frank in a way that promotes sustainable diverse lending.
• ENFORCE the fair lending laws more vigorously with particular emphasis on approval/denial disparities, pricing disparities and redlining.
www.compliancetech.com
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Maurice Jourdain-Earl
202-842-3800
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