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Fair Credit and Fair Housing in the Wake of the Subprime and Foreclosure Crisis

Fair Credit and Fair Housing in the Wake of the Subprime and Foreclosure Crisis . A New Day for Housing The Annual Conference of the CT Housing Coalition October 7, 2009 Hartford, CT Christy Rogers The Kirwan Institute for the Study of Race and Ethnicity The Ohio State University.

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Fair Credit and Fair Housing in the Wake of the Subprime and Foreclosure Crisis

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  1. Fair Credit and Fair Housing in the Wake of the Subprime and Foreclosure Crisis A New Day for Housing The Annual Conference of the CT Housing Coalition October 7, 2009 Hartford, CT Christy Rogers The Kirwan Institute for the Study of Race and Ethnicity The Ohio State University

  2. 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…

  3. National Initiative on Subprime Lending, Foreclosure and Race

  4. What the Street knew… Diagram courtesy of Chris Peterson, University of Utah Law School

  5. Prior to securitization… Pre-Depression: The Two Party Housing Market Post-Depression FHA Era: The Three Party Mortgage Market Based on research by Chris Peterson, University of Utah Law School

  6. After securitization

  7. 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

  9. From Redlining to Reverse Redlining

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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)

  15. 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.

  16. 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?

  17. 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)

  18. 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.

  19. Inter-American Development Bank map

  20. 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?

  21. 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?

  22. 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

  23. 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 sellat average loss of $65K • 83% of properties had 911 calls post-Sheriff’s Sale, with an average of 8 calls per property

  24. 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)

  25. 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)

  26. 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

  27. 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

  28. 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

  29. 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

  30. 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

  31. 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)

  32. Thank you! Save the dateNov. 12, 2009

  33. Save the date; March 11-13, 2010

  34. What needs to change to advance fair housing and fair credit in Connecticut • ? • ? • ?

  35. 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.

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