foreclosure report - pa

8/7/2019 Foreclosure Report - PA

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A Study by TheRein vestment .Fundfa r the Pennsylvan ia

Depa1rtm,!'Mt of .B.anking

Mortgage F o r e c l o s u r Filings in Pennsyluania

T ire R eln vestm cm F un d' i i J D " ' U ' '''1~',';'",m'I{IM D . t J J i r


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MORTGAGE FORECLOSURE FILINGS IN PENNSYLVANIA:A Study by The Reinvestment Fund for the Pennsylvania Department of Banking

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ABOUT THE REINVESTMENT FUND

The Reinvestment Fund (TRF) is aleading innovator in the financing ofneighborhood and economic revitalization.Central to its mission is a commitment toput capital and private initiatives to workfor the public good. TRF is a developmentfinance corporation with a wealth-build-ing agenda for low- and moderate-incomepeople and places through the strategic use ofcapital, knowledge and innovation.TRF manages $217 million in assets fromover 900 individual and institutional inves-tors. It uses these assets to finance affordablehousing, community facilities, businesses,renewable energy projects, and public policyresearch. TRF also provides human resourceservices to many of the companies it financesto help create quality job opportunities forlow- and moderate income people.To date, TRF has made more than $379million dollars in loans and investmentsacross its lines of business. TRF invest-ments have created or preserved over 10,100housing units, more than 10,800 child-care slots and 11,800 charter school slots.While much of its lending occurs within theGreater Philadelphia region, its market areaextends across the entire Commonwealth ofPennsylvania and into the states of Delaware,Maryland and New Jersey.TRF's Policy Group has an expandingportfolio of projects and publications and hasdeveloped a solid reputation for its housing-related policy research.

TRF investigated the sharp increase inforeclosures in Monroe County for theCommonwealth of Pennsylvania andanalyzed the rate of African Americanhomeownership in Pittsburgh forHousing Opportunities, Inc. and theHeinz Endowments.

TRF is working with the PennsylvaniaGovernor's office to develop theprinciples and strategies of a statewidehousing strategy - as recommended inTRF's Choices in Pennsylvania report.

TRF has developed nationally recognizedmethodologies to identify and estimatethe extent to which predatory lendingoccurs within an area. The methodologyand preliminary results have served aseffective testimony in legal action againstpredatory lending.

TRF developed an innovative GIS-based methodology for analyzing urbanreal estate markets and has advocatedfor neighborhood-based data to drivepublic and private developmentdecisions, paying particular attention topreservation within our communities.TRF is now active in the implementationof such a data-driven investment strategyin Philadelphia and in Camden, NewJersey with the significant support of theFord and William Penn Foundations.


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II


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TABLE OF CONTENTS

I. Executive summary 1II . Introduction 3III. The Problem 7IV. Findings - What the Data and Research Suggest 17V. The Likely Causes 71

Bibliography 87Appendix 93

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IV


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I. EXECUTIVE SUMMARY

Pennsylvania now has some of thehighest mortgage foreclosure ratesin the nation. The prime foreclosure rateat .85% is the 9th highest in the nation;the subprime rate, which is orders ofmagnitude higher at 11.9% ranks 4th '.While economic factors and "triggers"traditionally used to explain foreclosurerates are relatively predictive of the primerate in Pennsylvania, they are less so of thesubprime rate. A more detailed analysis offoreclosure filings in Pennsylvania revealsthat it is the subprime foreclosure rate that isdriving rising foreclosure filings around theCommonwealth.In sum, this study finds: In 2002,9.9% of all loans originated in

Pennsylvania were made by subprimelenders. Yet, sixty to seventy-five percentof all sampled loans in foreclosure wereoriginated by subprime lenders.

If traditional factors alone were drivingthe subprime rate, Pennsylvania's,compared to other states, would be atleast 3 percentage points lower.

Growing foreclosure filings do not appearto be simply the result of an expandingmortgage market, as filings are outpacingany gains in homeownership or housingdevelopment.

Foreclosures are typically concentrated inthe modest income areas of Pennsylvania,as well as areas that are disproportionately

minority. As a result, foreclosureshave a disproportionate effect on thesecommunities.

Loans in foreclosure are an even mix ofpurchase money mortgages and refinances.The typical homeowner in foreclosurebetween 2000 and 2003 in Pennsylvaniapurchased their home in the mid-to-late1990s.

Data, interviews with subject matter experts,and a review of foreclosure literature suggestthat the combined impact of a set of factors,some of which are unique to Pennsylvania, isdriving the trend.National factors include: Increased consumer access to mortgage

products which allow for lower downpayments, lower savings balances, higherloan-to-value ratios and lower creditscores to buy a home may make long-termhomeownership unsustainable.

Borrowers and potential borrowers lackinformation about alternatives to high costloans.

Many borrowers lack financial educationranging from understanding the economicsof interest rates to the importance of payingbills on time.

Securitization of the residential mortgagemarket makes higher foreclosure ratesacceptable to investors throughproper pricing.

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Consumer expenditures on health carecosts have risen faster than the growthin incomes. Subject matter expertsconsistently suggested that householdsare choosing to pay medical costs - at theexpense of making mortgage payments.

Pennsylvania specific factors include: Regulations in Pennsylvania are not

protecting homeowners as originallyintended.

The costs of homeownership inPennsylvania are rising including costsassociated with maintaining an olderhousing stock, property taxes and energycosts.

Abusive lending practices are evident insegments of the mortgage industry.

Mortgage markets in Pennsylvania needto flourish. To do so, the Commonwealthmust balance its interest in ensuring thesemarkets work well with concern for theimpact of these markets on consumers andcommunities. Any strategy to do this willlikely need to attack more than just oneof the eight causes identified here, but at aminimum should ensure that: 1) laws andregulations in Pennsylvania are designedand enforced to protect consumers fromabusive lending practices, while not limitinglegitimate lending and 2) consumers (andfuture generations of consumers) havethe financial education necessary to makeinformed decisions about debt and personalfinances. TRF hopes this study can help theCommonwealth and its legislature form sucha strategy.

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II. INTRODUCTION

IJuly of 2003, the Legislature of Penn-sylvania took official notice of thegrowing mortgage foreclosure rate in Penn-sylvania and passed House Resolution No.364, which called upon the Secretary ofBanking "to study residential lending prac-tices in Pennsylvania, to identify trends inforeclosures and to document lending prac-tices which are disadvantageous to Pennsyl-vania's consumers and submit a report to theGeneral Assembly." 1To understand what was driving the growingforeclosure rate in Pennsylvania, the Secretaryof Banking hired The Reinvestment Fund togather as much data as possible about fore-closures in Pennsylvania and systematicallyanalyze trends and potential causes. Simulta-neously, the Secretary convened an AdvisoryGroup of representatives from the mortgageindustry, legal services, advocacy groups andstate government to provide the Secretarywith guidance during the course of the study.

ipAH.R.364, 2003.

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The fundamental goals of this study pre-sented are to understand how Pennsylvaniaforeclosure trends compare to other places;develop a set of facts regarding overall fore-closure trends in Pennsylvania; and conducta detailed analysis of foreclosure activityin communities across Pennsylvania uponwhich the Secretary of Banking can rely tomake (or propose) requisite changes to law,regulation and policy. To do this, TRF: Conducted literature reviews of issues re-

lated to foreclosures, including traditionaltriggers of mortgage foreclosure, abusivelending, loss mitigation, and efficacy ofhousing counseling.

Analyzed how traditional economic indi-cators affect foreclosure rates in Pennsyl-vania and across the nation.

Collected and analyzed recorded informa-tion regarding the last four years of mort-gage foreclosure filings in Pennsylvania.

Conducted one-on-one interviews andfocus groups with industry representa-tives, representatives of relevant countyoffices and housing assistance providers.

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DATA SOURCES AND METHODOLOGY

u.s . Census Data &Census Estimates1980, 1990, 2000, 2003 - The U.S. CensusBureau 1990 and 2000 Summary Files 1 and3 data permit a categorization of countiesin terms of any number of relevant social,demographic and economic characteristics(e.g., income level, housing value, owner oc-cupancy rates, etc.). Census data is analyzedusing statistical software known as The Statis-tical Package for the Social Sciences ("SPSS")and GIS software known as ArcView. TheU.S. Census also provides estimates of someof the characteristics for 2003.u.s . Census 1980, 1990 and 2000 5-Percent Public Use Microdata Sample(PUMS) for Pennsylvania - PUMS is acompilation of a sample of individual Censusforms collected by the Census. This form ofthe data allows for a very detailed and cus-tomized examination of the data.Property Specific Sale and MortgageData- TRF developed a methodology em-ployed in studies of both Philadelphia andMonroe County foreclosure activity. Un-like methods used in most studies of loansin foreclosure which look only at the loanin foreclosure, this technique allows TRF totrace a foreclosure filing back to the originat-ing loan and lender and review the transac-tional history of a property in foreclosure.This distinction is important as most loans- particularly subprime loans - are not heldby originating lenders anymore, but soldoftentimes more than once, in the secondarymarket.To obtain this data, TRF queried each fore-closure property studied in the First Ameri-

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can Real Estate Solutions (FARES) database.This database allows TRF - where propertyinformation is available - to document thetransaction history on each property. Thedatabase records when a property was sold,at what price, and to whom; recorded liens;lenders or mortgage lenders involved; andthe assessed value given the property by theCounty. This data allows TRF to determinethe types of lenders involved in originatingloans now in foreclosure, if the owner owesmore on the house than it is likely worth,how long people in foreclosure have livedin their home, how much of the foreclosureactivity is associated with loans to purchase ahouse or refinance an existing loants) and thegeographic concentration of foreclosures.A fuller study of Pennsylvania's foreclosureactivity is constrained, however, by thenumber of counties reflected in the FARESdatabase. At this time, 14 of Pennsylvania's67 counties have property specific informa-tion in the database (s ee M a p 1fo r the lo catio nsif th e 14-co un!J stu 4J ar ea). These counties do,however, represent all or part of the largermetro areas in the Commonwealth andtogether account for almost 60% of the oc-cupied housing units (homeowners) in theCommonwealth.1) Philadelphia, Bucks, Chester, Montgom-

ery and Delaware Counties (SoutheasternPA)

2) Allegheny and Washington Counties(Southwestern PA)

3) Erie County (Northwestern PA)4) Berks, Lehigh and Northampton Coun-

ties (Southeasten PA)5) Dauphin and Lancaster Counties (South-

central PA)6) Monroe County (Northeastern PA)

(TRF recently completed a study of fore-closure activity in Monroe. A copy of


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that study can be downloaded from theDepartment of Banking's web site at http:/ /www.banking.state.pa.us )

Foreclosure Filings - For the 14 areas withFARES coverage, TRF obtained listings of allmortgage foreclosure filings for the four yearperiod from 2000 through 2003, inclusive.This represented a time consuming processas there is no centrally located office in theCommonwealth that collects filing data-instead, Prothonotary Offices in each countydo. Complicating the effect is the fact thatdifferent counties capture different pieces ofinformation regarding filings and, while some

Map 1: 14-County Study Area

INTRODUCTION

counties were able to provide filing dataelectronically to TRF, others have paper-based record keeping processes. The sheervolume of paper required TRF to systemati-cally analyze only a sample of filings in someof these counties.Home Mortgage Disclosure Act(HMDA) - TRF analyzed HMDA data forthe period 1998-2002. These data, togetherwith the Census data, allowed an examina-tion of the types of mortgage loans made andthe characteristics of areas in which theyare made.

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Homeowners' Emergency Mortgage As-sistance Program Applicant Data - TRFacquired a full state set of data on applicantsto the Commonwealth's Homeowners' Emer-gency Mortgage Assistance Program (here-after, "HEMAP") covering the last severalyears. Each record contains a date of appli-cation as well as the foreclosing lender anddisposition by HEMAP. TRF analyzed allHEMAP applications, spatially and statisti-cally, to reveal trends, geographic concentra-tions within the state and reason for eachhomeowner's mortgage crisis.Focus Groups and One-on-One Inter-views - All TRF studies use interview orfocus group results to inform and comple-ment findings revealed by data analysis. Datafindings can many times be confirmed orbetter understood by learning from practi-tioners and those who are experiencing first-hand what we observe statistically. TRF helda number of focus groups and interviews forthis project including those with the follow-ing: Prothonotary and Sheriff Offices Mortgage industry representatives (local nd national) Pennsylvania realtors Housing counselors Attorneys representing lenders and con-sumers Consumers over the last two years for thisand related studies

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Literature Review - TRF conducted a lit-erature review to outline what is working inother parts of the country or in other indus-tries to address problem trends identified inthe analysis. Some of the following areas arediscussed in this report: Causes of foreclosure Efficacy of housing counseling Mortgage loss mitigation programs Predatory lending laws and other laws

designed to address abusive lending prac-tices

Analysis - TRF collected and analyzed allof the above data - statistically and spatially- in an effort to produce a set of findingsabout why households are facing foreclosurein Pennsylvania, and where residents havebeen affected. The result of these analyses isthe subject of this report and includes: Maps of foreclosures and HMDA analy-

sis;Complete database of information regard-ing the 4-year foreclosure list;Written analysis of findings;Fact-based findings upon which theCommonwealth can act;Legislative, administrative and legal rem-edies revealed by the literature reviews,focus groups, and task force recommen-dations that relate to the causes of fore-closure in Pennsylvania.


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III. TH E PROBLEM

Over the past few years, a variety ofdata began to signal expandingfinancial trouble for homeowners inPennsylvania. Foreclosure rates weregrowing, Sheriff Offices around theCommonwealth were overwhelmed bythe volume of transactions, the numberof applications to the state for HEMAPassistance was increasing, bankruptcy rateswere rising and more owners were cost-burdened (paying more than 30% of theirincome for housing costs) than ever before.FORECLOSURE RATES STATEWIDEPennsylvania's foreclosure rates continueto grow. In 2003, Pennsylvania had the9th highest foreclosure rate among primeloans; and the 4th highest rate among sub-prime loans.

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As a general matter, a mortgage foreclosure isa legal action that is defined in part as:The process by which a mortgagor ofreal or personal property, or other ownerof property subject to a lien, is deprivedof his interest therein. A proceeding inequity whereby a mortgagee either takestide to or forces the sale of the mortgag-or's property in satisfaction of a debt.Black's Law Dictionary (6th ed. 1990)

At the most basic level, a mortgage fore-closure action is usually started after an in-dividual has stopped making payments ontheir mortgage (voluntarily or involuntarily).Unless those payments begin again, an ar-rangement is made with the lender, a con-sumer seeks and receives bankruptcy

in Conventional Loan Foreclosures; Pennsylvania 1979-2003

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I-Conventional Loans inForeclosure atEnd ofatr, Pennsylvania I

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Figure 111-2: Prime ForeclosureRate by State

Percent in Foreclosure1.431.341.321.230.980.960.910.890.850.84

Figure 111-3: SubprimeForeclosure Rate by State

15.1613.9012.4311.9411.5811.4411.4310.3610.3510.19

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protection, or some other extraordinary eventoccurs, the individual is going to lose theirhome. The loss of a home through foreclo-sure adversely affects the homeowner andcommunity in which they live along with thelender or investor who holds the loan.Data obtained from the Mortgage BankersAssociation of America (MBAA) show thatthe trend in foreclosures for the Common-wealth of Pennsylvania has been on the rise.Looking back to 1979, the typical quarterlypercent of conventional loans in foreclosurewas less than one-half of one percent. Thatfigure rose steadily during the decades ofthe 80s and 90s. Since the year 2000, thepercent of conventional loans in foreclosurerose from about one percent to one and one-half percent (se e F igu re III-I: Tre nd in C on-v en tio n al L o an F o r ec lo s u re s)'According to the MBAA, Pennsylvania'spercent of prime loans in foreclosure was.85% in 2003 and ranked the state as havingthe 9th highest prime foreclosure rate in thenation ( se e F ig u re 1 11 -2 : P r im e F o r ec lo s ur eR ate b y State )' By comparison, though, Penn-sylvania's percent of subprime loans in fore-closure - orders of magnitude higher thanthe percent of prime loans in foreclosure at11.9% - ranks it among the top four states inthe country (s ee F ig ur e 1 11 -3 : S ub pr im e F o re -c lo su re R ate b y S ta te )' FHA-insured mortgag-es had a foreclosure rate in 2003 of 4.5% ( seeM a p s 2, 3 and 4: N atio nal M a ps o f F or eclo su reR ate s b y S ta te )'


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THE PROBLEM

National Maps of ForeclosureRates by State

Map 2:Percent of Prime Loansin Foreclosure

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Map 3:Percent of FHALoans in Foreclosure

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Map 4:Percent of SubprimeLoans in Foreclosure

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SHERIFF SALESIn just the last three years, an estimated55,163 homes have been lost to SheriffSale in Pennsylvania.Sheriff Offices report increases in thenumbers of properties being exposed toand sold at Sheriff Sales across the Com-monwealth. Data from 43 of the Common-wealth's 67 counties indicates that 35,980properties were sold at sheriff sale during thelast three years. This represents an increase ofover 14% during this three year period.By comparing the total number of housingunits in each reporting county with theiractual number of properties sold at SheriffSale, TRF estimated the number of proper-ties likely sold in the non-reporting countiesand found that a total of55,163 propertieswere likely sold in all 67 counties duringthis time period. This exceeds by some 20%the number of households in the City of Al-lentown (Pennsylvania's 3rd largest city belowPhiladelphia and Pittsburgh).An even greater number of properties havebeen exposed to sheriff sale, but not actuallysold. Sheriff Offices report that many aresimply not equipped to handle the volume ofproperties being brought to auction ( s e eMap s5,6 and 7" S he r iff S ale s C o m ple te d ).

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Map 5:Sheriff SalesCompletedin 2001

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FORECLOSURE FILINGS BYCOUNTY

In just the last four years, the number offoreclosure filings in the 14-county studyarea grew from 15,610 in 2000 to 20,737in 2003 - an increase of 33%.TRF collected foreclosure filing informationfrom Prothonotary offices in 14 countiesthroughout the Commonwealth for the fouryear period, 2000 through 2003. (Whileforeclosure filings are known to have beenrising for years before 2000, this four yearperiod was the point of time analyzed for thisstudy.)Filing numbers indicate that, without excep-tion, the number of foreclosure filings hasrisen in each county during the four-yearperiod. Foreclosure filing increases weremost dramatic in Erie, Washington and Al-legheny counties where the number of filingsFigure 111-4: Filings by County

grew by over 60% ( s e eF ig u r e 111-4: Fil ings byCoun t y ) .HEMAP APPLICATIONSIn 1996, almost 5,700 households appliedto the Commonwealth for mortgage assis-tance. In 2003,8,881 did so.The Pennsylvania Housing Finance Agency(PHFA) operates a program called the Ho-meowner's Emergency Assistance Program(HEMAP). Designed to help homeownerskeep up with mortgage payments duringperiods of unemployment or illness, theHEMAP program is one of the most laudedhousing programs in the state.' Applicationsfor mortgage assistance have almost doubledsince 1996 and growth has been relativelyeven across the Commonwealth. The fourmaps shown here are standardized to showapplications per 1,000 owner occupiedhousing units. ( s e eMa p s 8, 9, 10 and 11:H EM A P App lica t io ns O ve r T im e).

Forclosure Filings by County in Study Area2000 2001 2002 2003 Total Percent Increase

Allegheny 2,567 3,202 4,003 4,115 13,887 60.3%Berks 855 962 1,026 1,081 3,924 26.4%Bucks 886 1,053 1,077 1,002 4,018 13.1%Chester 515 594 704 668 2,481 29.7%Dauphin 776 793 1,569Delaware 1,246 1,543 1,533 1,700 6,022 36.4%Erie 361 448 631 778 2,218 115.5%Lancaster 734 861 884 958 3,437 30.5%Lehigh 702 863 829 825 3,219 17.5%Monroe 699 879 925 940 3,443 34.5%Montgomery 1,142 1,204 1,295 1,309 4,950 14.6%Northampton 438 583 509 579 2,109 32.2%Philadelphia 5,112 5,977 6,361 6,292 23,742 23.1%Washington 353 477 516 587 1,933 66.3%Total 15,610 18,646 21,069 21,627 76,952 38.5%2 Interviews with the North Carolina Secretary of Banking revealed that they are in the process of adopting a REMAP like program inNorth Carolina based on Pennsylvania's program.

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Map 8:HEMAPApplicationsPer 1000OwnerOccupiedHousing Units1996-1997

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THE PROBLEM

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Additionally, between 2000 and 2003,4,222 households were approved forREMAP assistance. Simply put, the pres-ence of REMAP saved (or postponed)4,222 households from being subject toforeclosure and likely underestimates thetrue numbers of households in seriousmortgage- related distress in the Common-wealth.As the chart here shows, 2,527 residentswithin the 14-county study area and 4,222residents in the Commonwealth as a wholeremained homeowners as a result of HEMAP( se e F i gu r e 111-5: HEM A P Appro vals by Year) .The success of HEMAP can contribute to anunderstatement of the total number of failingloans within the Commonwealth. If a resi-dent with a delinquent mortgage is approvedfor HEMAp, a foreclosure will not be filed.The number of foreclosure filings reported in

Figure 111-5: HEMAP Approvals by Year

THE PROBLEM

this study would actually be higher were itnot for the HEMAP program.BANKRUPTCY FILINGSBankruptcy filings in Pennsylvania havegrown at one of the fastest rates in thecountry over the last 10 years.Research suggests that changes in the per-sonal bankruptcy filing rate tend to mirrorchanges in the risk of default to a household.The logic is that the same set of consumerburdens which make a household more likelyto default on a mortgage loan are the sameburdens which make them more likely todeclare bankruptcy. Personal bankruptcyfilings nationally continue to be uniquelyhigh and economists are debating its cause.One side of that debate believes a signifi-cant share of the rise in filings is due to thecurrent law and to a lessening of the stigmaassociated with filing for bankruptcy.

15 28 37 66 146Bucks 19 11 25 44 99Lancaster 17 31 28 55 131Lehigh 7 13 22 56 98Montgomery 18 28 42 59 147Philadelphia 128 117 198 239 682Dauphin 20 17 34 34 105Erie 8 14 32 32 86Northampton 8 9 15 25 57Delaware 21 23 45 50 139Monroe 23 44 45 76 188Chester 12 17 19 27 75ashington 15 15 25 40 95

14-county Study Area 362 456 714 995 2,527ia 565 800 1,189 1,668 4,222

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The other side of the debate argues that therise primarily reflects an increase in financialdistress within the consumer sector,'Bankruptcy filings in Pennsylvania havegrown exponentially. Between 1990 and2001, the number of bankruptcy filings inPennsylvania grew by over 200% - the 5thfastest rate in the country (s e e F i gu r e 1 1 1- 6'C hange in th e N um be r o f Bankru ptcy F ilings ).HOUSING COST BURDENSMore homeowners are paying over 30% oftheir income for housing costs.According to the u.s. Census Bureau, 16.7%of all homeowners were paying more than

Figure 111-6Change in Number ofBankruptcy Filings, 1990-2001

450.00%

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50.00%

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they could afford to own a home in 1990; by2000 20.8% were. 7.3% of all homeownersare most severely burdened (paying over 50%of income) in 2000. Lower income house-holds are far more likely to face housing costburdens than any other income group.Together, these data suggest that more homeowners are financially distressed. More areapplying to the state's HEMAP program forhelp in paying their mortgage, more are filingfor bankruptcy, more are facing foreclosureand more are losing their home to SheriffSale. Understanding the nature and poten-tial causes of this problem in Pennsylvania isthe subject of this report.

3"Personal Bankruptcy: A Literature Review," Congressional Budget Office, September 2000.

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IV. FINDINGS - WHAT THE DATA ANDRESEARCH SUGGEST

Finding 1: Traditionalfactors alone do not explainPennsylvania's high foreclosurerate. If they did, the subprimeforeclosure rate, in particular,would be at least3percentagepoints lower.TRF reviewed a significant amount of theresearch conducted to date on foreclosuresacross the country and found a broad set ofeconomic indicators that researchers suggestaffect mortgage delinquency and subsequentforeclosure rates. Early foreclosure studiesfocused on two sets of factors that play keyroles in mortgage default and foreclosure:the risk attached to the asset underlyingthe interest secured by the mortgage (homevalue), and the risk exhibited by the mort-gagor. While these two factors continue tobe primary focuses of much research, morerecent work includes a look at homeowner-ship rates, home appreciation, loan-to-valueratios, securitization in the mortgage indus-try, consumer debt, subprime activity, mort-gage terms, share of FHA originations andfinancial distress caused by certain "triggerevents" such as divorce, unemployment andmedical catastrophes. (A bibliography of theresearch reviewed for this study is included inthe Appendix.)A look at the indicators in Pennsylvaniareveals a rather murky picture. Loan to value

ratios are increasing, home prices are appreci-ating slowly, and Pennsylvania's already highhomeownership rate has risen even further.At the same time, Pennsylvanian's save morethan their state counterparts, carry a higheraverage credit score, are less likely to be un-employed than their national counterparts,and divorce less frequently. In the end, someof these indicators may suggest reasons whythe rate is growing - but they do not fullyexplain why Pennsylvania's rate is so muchhigher than other states around the nation.A REVIEW OF THE INDICATORSLoan-to-value ratios are increasing inPennsylvania.Loan-to-value ratios are likely one factorin the Commonwealth's growing foreclo-sure rate. Data from the Federal HousingFinance Board indicates that in 2003, theaverage conventional single family mortgageloan in Pennsylvania had a loan-to-price ratioof76.9%.4 This was somewhat higher thanthe nation (73.5%). More importantly, theloan-to-price ratio in Pennsylvania has tradi-tionally been lower than that in the nation.In 1994, however, the ratio in Pennsylvaniabegan to exceed that of the nation and hasremained higher. This is likely the result ofthe huge growth in subprime originationswhich began in the early nineties.TRF's research review suggests that higherloan-to-value ratios increase the likelihoodof default because borrowers have less in-vested in the property. It is also true that

4Loan-to-value represents the amount of a home mortgage compared to its value. Loan-to-price is essentially the same ratio and is basedon the amount of a borrower's loan at the time of settlement compared to the purchase price of the home.

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high loan-to-value ratios increase the likeli-hood that the borrower will be in a negativeequity situation during the early years ofthe loan. Higher loan-to-value ratios alsosuggest that borrowers have less savings.Were more savings available, they wouldlikely have put more money down at closingin order to obtain better loan products andpricing. These borrowers may lack the neces-sary cushion to keep up mortgage paymentsduring a time of financial crisis, further in-creasing the likelihood of foreclosure.Some studies have further suggested that theh ighe r pe rce ntage o f lo ans w ith o ve r 90% lo an-to -v alu e r atio s, t he h ig he r t he r at e o f fo r ec lo su r e.Nationally, the Federal Housing FinanceBoard estimates that 20% of all conventionalloans in 2003 had an LTV of90% or more.5In Pennsylvania, 23% exceeded 90%. Thatsaid, almost half of the states in the nationhad higher percentages than Pennsylvania.

Figure IV-1: Home Values

Generally, Pennsylvania horne valuesare appreciating at slower rates than thenation.Our research review suggests that non-ap-preciating real estate markets tend to havehigher foreclosure rates for two reasons.When faced with an economic hardship, aborrower living in an appreciating marketmay: 1) tap the equity in their home untilthe financial hardship passes; or 2) sell thehome and walk away with some moneyinstead of losing their home to foreclosure.Either of these may be a rational economicchoice in an appreciating market. For theborrower in a non-appreciating market,without equity, the "choice" is foreclosure.According to the u.S. Census, the medianhome value in the nation in 2000 was$119,600 and represented an 18% increasesince 1990, after adjusting for inflation. InPennsylvania, the median home value was$97,000 in 2000 - an appreciation of only5.2% since 1990. Compared to neighboringstates,

Home Values in Pennsylvania and Surrounding States, 1990-2000

iiii20,000~ 100,000+-~==-----lEoJ: 80,000c.

1 1 60,000:;:40,00020,000

Pennsylvania New Jersey Delaware

.1990-2000 Median Home Value Gain1990 Median HomeValue

Maryland New York Ohio

5The Board only repor ts on the characteristics of conventional loans to purchase single family homes. As homes financed with FHA orVA mortgages are lower priced than those financed with conventional mortgages, the reported house prices should not be interpreted asapplying to all single-family homes.

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IV. FINDINGS - WHAT THE DATA AND RESEARCH SUGGEST

Pennsylvania had the lowest home value in2000 (seeFigure IV-1: Home Values).More recent data from the Federal HousingFinance Board indicates that the trend hascontinued through 2003. The median homesale price of all conventional mortgages madein 2003 in Pennsylvania was $179,900.All of Pennsylvania's neighboring stateshad higher sale prices - as did the nation($197,900).Not surprisingly, sales have not been robuststatewide. Data from the National Associa-tion of Realtors indicate that, in Pennsylva-nia, home sales for the year 2003 increased10.6% since 2001. During the same timeperiod, the sale volume across the nation in-creased by 15.8%; Pennsylvania had the 11 thslowest growing sale volume in the nation.Pennsylvania has one of the highesthomeownership rates in the nation.

Research suggests that much of the rise inthe nation's homeownership rate is due tothe expansion of credit within the mortgagemarkets. In particular, the expansion ofthe subprime mortgage market has allowedborrowers who would normally have beenturned down by traditional lenders to obtaincredit. These borrowers tend to be lower-income and many are minorities. So, in onesense the expansion has resulted in a growingnumber of households now poised to ac-cumulate wealth as a result of owning theirown home. The negative side effect of thisgrowth, however, is the associated rise in de-linquencies and foreclosures that arise fromriskier subprime products.6Governor Edward Gramlich, 2004.

l~"_"""'1!ll( ,. . "........ ~xlnvuul1~m. _- _ '.' I undJm. .a .r . . .~~~t.

"Overall homeownership rates have gonefrom 64 percent to more than 68 percentover this period. Nearly 9 million morehouseholds own their home now than justnine years ago. A major portion of this ex-pansion in homeownership seems clearly at-tributable to the increased access to creditafforded by expansions in prime and sub-prime mortgage lending."?Pennsylvania's homeownership rate is partic-ularly high. 71.3% of all households ownedtheir own home in Pennsylvania in 2000;compared to 68 % nationwide.Unemployment in Pennsylvania is lowerthan it is in the nation and is currentlyincreasing at a slower rate than most otherstates. Nonetheless, unemployment is themost often cited cause of financial distressby homeowners at risk of losing homes toforeclosure.

Unemployment or job loss, logically, makesit more difficult for households to affordtheir mortgage payments and increases thelikelihood of default and foreclosure. InPennsylvania, the unemployment rate in2003 was 5.6% - a rise of 1 percentage pointsince 1998. Nationally, however, the ratewas 6% - a rise of 1.5% since 1998.While Pennsylvania's unemployment ratecontinues to be lower than the nationalaverage, it is rising. As a result, it is likely acontributing factor to Pennsylvania's risingforeclosure rate. Although the unemploy-ment rate does not explain why the rate isso high, it may at least partially explain whythe foreclosure rate is growing. For example,

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Personal savings rate data is not available atthe state level, so TRF used Current Popula-tion Survey (CPS) data to calculate an esti-mate of non-housing wealth for householdsin each state and nationwide. CPS data arecollected monthly by the Census Bureauand Bureau of Labor Statistics and is avail-able nationally for a sample of households.The March survey (called the Annual Dem-ographic Survey) contains information onthe various sources of income received byeach household. Among the various sourcesare income received from interest and divi-dends. TRF's procedure to estimate "wealth"was to assume a typical savings interest ratefor the period and multiply that times theamount of interest received during the year.That provided an estimate of the amount ofsavings available to the household.

7Experian uses a representative sample of consumers to calculate credit profiles in each of the 50 states.8Vice Chairman Roger Ferguson, Jr., 2004.

of the applicants who were approved forHEMAP assistance in 2000, 53.3% cited"layoff-loss of income" as their cause for fi-nancial distress; by 2003, 62.8% had.The average credit score in Pennsylvania is696 and is one of the highest in the nation.Credit scores generally range from 300 to800. Lower scores generally represent higherrisk consumers who carry a greater possibil-ity of default and foreclosure. According toExperian, a repository of consumer creditinformation, the average credit score inPennsylvania in December 2004 was 696- the 11 th highest score among the 50 statesin the nation. Unlike Pennsylvania, the other10 states with high credit scores do not havehigh foreclosure rates. That consumers inPennsylvania have a higher than averagecredit score and a high foreclosure rate iscounterintuitive. (S ee F ig ur e IV -2 : S ta te s w ithH ig he s t C r e dit S co r e s .)

Figure IV-2: States with HighestCredit ScoresStates with Average ConsumerCredit Scores above 690- - --9South Dakota 71 0Minnessota 70 7Vermont 70 7North Dakota 70 5Massachussetts 70 3New Hampshire 70 3Montana 70 2Iowa 69 9Maine 69 8Wisconsin 69 8Pennsylvania 69 6Connecticut 69 4Nebraska 69 4New Jersey 69 3Rhode Island 69 3

20

Pennsylvanians appear to be saving morethan the average household nationwide.

"Personal saving, as measured by the Com-merce Department's Bureau of EconomicAnalysis, is essentially the amount of after-taxincome left after household bills are paid.From the end of the Second World War untilthe early 1980s , the personal saving rate--per-sonal saving expressed as a percentage of dis-posable income--gradually trended up. To besure, the saving rate showed considerable vol-atility from year to year, and in some periods,such as the second half of the 1970s , itsupward drift stalled for a time. But overall,the picture was that of a fairly steady rise inthe personal saving rate, from about 7-1/2percent in the early 1950s to around 10-112percent in the early 1 980s . S in ce th at t im e,h o we ve r , t he h o u se ho ld s av in g r at e h as d ec lin edp re cip ito u sly and , in th e las t co u ple o f y e ar s, ith as a ve r ag ed o nly a bo u t 1-112 perc en t . "


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Similarly, TRF applied the same procedure todividends received using a typical S&P divi-dend yield for the appropriate time period.That too provided an estimate of the value ofsecurities available to the household. Theseare obviously imperfect estimates, but takentogether provide a guide as to the relativeamount of savings and non-housing invest-ments households have available. Moreover,for purposes of comparing Pennsylvania toother states, there is no reason to suspect thatthe measure is more perfect (or imperfect)in any statets). And as most other studiesof household wealth suggest, these estimatestoo are related to household income such

that higher income households tend to havegreater amounts of wealth.This data reveals that Pennsylvania house-holds may, in fact, be saving more thantheir national and in some cases, regionalcounterparts. In 2004, for example, the datasuggests that 44.1% of all households in thenation lacked any non-housing "wealth". Bycomparison, only 38.8% of Pennsylvania'slacked wealth. Similarly, only 24.8% ofhouseholds nationwide have estimatedwealth exceeding $50,000; in Pennsylvania,27.6% do (seeFigure IV-3: Wealth Estimates byState and Nation).

Figure IV-3: Wealth Estimates by State and Nation

Estimationsof Wealth inRegional States and Nation, 2004

40+------~otn~ 35u.s:~ 30s :c~ 25]~~ 20I's~ 15~~D.. 10

Delaware Maryland New JerseyI .NoWeal th .


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Research suggests that lower savings ratescan be a factor in rising foreclosure rates asborrowers lack the financial cushion whena financial hardship occurs. Given Pennsyl-vania's favorable position compared to thenation and others, this may not be a substan-tial factor in Pennsylvania's rising foreclosurerate.Mortgage terms in Pennsylvania tend to besimilar to states across the nation.Some studies suggest that those states whereaverage mortgage rates, fees and terms arehigher may have higher foreclosure rates asthe loans are more expensive to the borrower.Data from the Federal Housing FinanceBoard, however, suggest that rates in Pennsyl-vania do not differ much from those aroundthe nation. In 2003, the average mortgageinterest rate nationwide was 5.67%; in Penn-sylvania it was slightly higher at 5.84%. In2003, the average term to maturity of mort-gage loans was 26.8 years; it was the same forPennsylvania. In 2003, an estimated 18% ofall mortgages had adjustable rate mortgages;in Pennsylvania only 9% did.Originations in Pennsylvania are notdisproportionately FHA.Some studies argue that part of the rise inforeclosure activity is due to the growingconcentration of FHA loans in a state. Theycontend that FHA loans are comprised ofriskier borrowers who tend to be first-timehomebuyers, lower income and have littlemoney for down payments - characteristicswhich make these loans more likely to gointo foreclosure.A review of FHA origination data, indicate,however, that this is likely not a factor in

22

Pennsylvania's rising foreclosure activity.As will be discussed later, many of the fore-closure filings analyzed for this study areFHA, but originations in Pennsylvania arenot disproportionately FHA. In 2002, forexample, an analysis of HMDA data revealthat 15.3% of all conventional, purchasemoney mortgages in the nation were FHAloans. In Pennsylvania, only 13.2% were.By comparison, FHA purchase originationsin some states are close to or over one-quarter of all originations. These include:Indiana (23.2%), Arkansas (27.6%), Colo-rado (25.4%), Utah (28.8%) and PuertoRico (32.6%).The FHA share of refinance origination ismuch smaller, both nationally (3.9%) andin Pennsylvania (2.5%).Pennsylvania continues to have one of thelowest divorce rates in the nation.One of the most often cited triggers offoreclosure is divorce. Studies suggest thatdivorce, with the accompanying loss ofincome, increases the likelihood of foreclo-sure. In 2001, however, the divorce rate inPennsylvania was 3.2%. This rate is lowerthan the national rate of 4%, is one of thelowest in the nation, and has declined since1990 when the rate was 3.3%. (The rate isreported annually by the Division of VitalStatistics, National Center for Health Sta-tistics, CDC). (Se e F igu re IV -4 : D ivo rce R ateby State) 'In the end, Pennsylvania's subprimeforeclosure rate, compared to other states,is likely 3.2 percentage points too high.TRF performed a multiple regression analy-sis as part of an exploratory analysis to see


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Figure IV-4: Divorce Rate by State 2001Nevada

ArkansasWyomingIdaho

DC Delaware ~hiOMassachusetts 1 1ew JerseyMontana Pennsylvania I

North Dakota 1 1I

c:0. ,'":;Q00..00~ 4

Q ;Q~'"'"

how Pennsylvania's conventional prime andsubprime foreclosure rates compare to otherstates. TRF found that: 1) both the prime andsubprime foreclosure rates in Pennsylvania aresubstantially higher than one might expectstatistically and 2) traditional economic indi-cators are more predictive of the prime fore-closure rate than of the subprime foreclosurerate. These suggest that something else is atwork with regard to the subprime rate.Each of the following characteristics were as-sociated with both the prime and subprimeforeclosure rates for the 50 states and the Dis-trict of Columbia:1. Percent of the occupied housing units thatwere owner occupied in 2000;

2. Real (i.e., inflation-adjusted) appreciation

State

in home values between 1990 and 2000;3. Median household income;4. Median housing value in 2000;5. Average loan-to-price ratio in 2003;6. Average credit score in 2004;7. Unemployment rate in 2003;8. Type of foreclosure process (i.e., judicial

v. non-judicial);9. Percent change in population from

1990-2000;10. Percent of the population in 2000 that is

aged 65 and older.The multiple regression analysis deter-mines not only if each is related, but if eachcharacteristic is related independent of theothers, and how well all of the indicatorstaken together explain the foreclosure rate."

9Ordinarily, a test of statistical significance is prepared for each characteristic test taken separately. In this instance, wi th just 51 cases(i.e. , the 50 states plus the District of Columbia), tests of statistical significance are less meaningful and given less consideration. Moreimportant is the magnitude of the effect of each characteristic which is described. Indicators for which the standardized regressioncoeff icient did not exceed +/- .10 are therefore not reported separately.

l~"_"""'1!ll( ,. . "........~xlnVUUl1~m. _- _ '.' I undJm. .a .r . . .~~~t. 23


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With respect to the prime foreclosure rate,the regression analysis reveals: States with higher rates of owner occu-

pancy have higher prime foreclosure rates; States with real estate that is appreciating

at higher rates tend to have higher primeforeclosure rates;

States with lower median household in-comes tend to have higher prime foreclo-sure rates;

States with lower loan-to-price ratios tendto have higher prime foreclosure rates;

States with lower average credit scoreshave higher prime foreclosure ratesr'"

States with a judicial foreclosure processhave higher prime foreclosure rates;

States with a lower percent of the popula-tion aged 65 and older had higher primeforeclosure rates;

The calculated impact of home values,unemployment rates and proportionatepopulation change have little indepen-dent impact on the prime foreclosurerate;

Taken together, the variables explain astatistically significant and substantialportion (R2 = .595) of the variation ob-served across states with respect to theprime foreclosure rate.

With respect to the subprime foreclosurerate, the regression analysis reveals: States with higher rates of owner occu-

pancy have higher sub prime foreclosurerates;

States with appreciating home values tendto have higher sub prime foreclosure rates;

24

States with lower median household in-comes tend to have higher subprime fore-closure rates;

States with lower average credit scoreshave higher subprime foreclosure rates;

States with a judicial foreclosure processhave higher subprime foreclosure rates;

States that have experienced higher (posi-tive) population change have lower sub-prime foreclosure rates;

The calculated impact of median homevalue, loan-to-price ratio, unemploymentrate and percent aged 65 and over havelittle independent impact on the sub-prime foreclosure rate;

Taken together, the variables explain astatistically significant and substantialportion (R2 = .453) of the variation ob-served across states with respect to thesubprime foreclosure rate.

By statistically weighting each of the relevantcharacteristics in each state, TRF estimatedwhat the prime and subprime foreclosurerates should be based on its unique constella-tion of characteristics. Both the actual primeand subprime foreclosure rates are higher inPennsylvania than the regression-predictedrate would project. In fact, Pennsylvania'sprime foreclosure rate of .85 is approximately.19 higher than we would expect based onthe above referenced indicators. Pennsyl-vania's subprime foreclosure rate of 11.94 isapproximately 3.89 higher than its expectedvalue of 8.05. There is something dif-ferent about the foreclosure situation inPennsylvania above and beyond theseeconomic factors that is producing astatistically unusual (i.e., higher) rate ofhome mortgage foreclosures (se e M aps 13and 14: S ta nd ar d iz e d D iff er e nc e s B e tw e e n Obs e rv e da nd P r e d ic te d R a te s if Forec lo s u re ) .


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Maps 13 Standardized Difference Between the Observed PrimeForeclosure Rate and the Regression-Predicted Rate

'_Ov~'.100_..;J.",..,. - o . s o

,~4ili ..D 1CM.o.OII .0 111_l.l1~W_l~1-U1_~!1.00

Maps 14 Standardized Difference Between the Observed SubprimeForeclosure Rate and the Regression-Predicted Rate

_Q!m''~1l!_"'J'i\1""l'~~.0 ~~ , ~ 111

n~!Il'9f1to_IHOW_~~~U_o.,ro,1r.;1

25


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Additionally, the explanatory power of thisbasic set of characteristics is greater for theprime foreclosure rate than it is for the sub-prime foreclosure rate. This means that theprime foreclosure rate is more predictableusing these economic factors than is thesubprime foreclosure rate. This gives rise tothe notion that the prime mortgage marketfollows a more traditional approach to bor-rower risk (and loss) than does the subprimemarket.

lOThis does not mean that having a judicial foreclosure process in a state causes there to be more mortgage foreclosures. Moreover,one cannot deduce from this equation that absent the judicial process there would be fewer mortgage foreclosures. One possibleinterpretation of this resul t is that foreclosures in states with a judicial foreclosure process take longer to conclude and thus the higherrates is an art ifact of things staying in foreclosure longer. From a purely statistical perspective though, the stat istical inclusion of thisfactor is important because anything that varies across states and reasonably relates to the foreclosure process i tself should be considered.

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Finding 2: Sixty to se ve nty -five pe rce nt o f a ll sam ple d lo ansin fo r e clo s u r e w e r e o r ig in ate dby su bp r im e le nde rs . Th is isd is pr o p o rtio n ate t o th e p e rc e nta geo fs u bp rim e lo a ns a ctu a llyo r ig ina te d in P e nnsy lvania . In2002, 9.9% o f a ll lo a ns o r ig in ate din P e nnsy lvania w er e m ade bysu b pr im e le nde r s.Subprime lending has grown dramaticallyboth nationally and in Pennsylvania. "Sub-prime mortgage loan originations rose bythe whopping rate of 25 percent per yearover the 1994-2003 period, nearly a ten-fold increase in just nine years. Even primemortgage lending grew by the strong annualrate of nearly 18 percent, reflecting many ofthe same trends" 11 ( se e F ig ur e IV -5 : S ub pr im eOriginations).

Figure IV-5: Subprime Originations~ ~[.Iil ill iF.'iiTifia." 1 J 1 ' . J . I I : ~. 1 e i 1 - .. . I~~I . - .Year Subprime Total Subprime as a

Originations Originations percent of total1994 35 773.1 4.51995 65 635.8 10.21996 96.5 785.3 12.31997 125 859.1 14.51998 150 1,430.00 10.51999 160 1,275.00 12.52000 138 1,048.00 13.22001 173 2,100.00 8.22002 241 2,780.00 8.72003 332 3,760.00 8.8

Accordingly, subprime borrowers pay ahigher price to borrow money and that priceis generally considered to be commensuratewith the enhanced risk.

In comparison to prime borrowers, borrow-ers with subprime loans tend to have one ormore of the following traits: lower-incorne.PFICO (Fair Isaac Corporation) scores below620 - 660; high loan-to-value ratios;13 collat-eral property that fails to meet one or morecritical appraisal standard; incomplete or un-verifiable documentation of income, savings,down payment sources and/or employment;housing and other debt that exceeds 45%of monthly gross income.14 Borrowers withsubprime loans are also more likely than bor-rowers with prime loans to have loan provi-sions that penalize refinancing, to end upin foreclosure and to be brought to defaultfaster. 15

The market distinction between prime andsubprime lending is one that has taken onenhanced importance since the early tomiddle 1990's. Practically, it is reasonable tounderstand the distinction between these twocategories of borrowers as reflecting a marketestimation that subprime borrowers representa greater loss risk than prime borrowers.11Gramlich, 2004122001 HMDA data for the Commonwealth of PA show that 23.8% of prime borrowers compared to 38.7% of subprime borrowers haveincome below 80% of the MSA median. In Philadelphia alone, 51.7% of pr ime and 65.5% of subpr ime borrowers have income below80% of the MSA median.13Standard and Poor 's (2000) estimates that loans with LTVs of95% are three times r iskier than loans with loan- to-value ratios (LTV) of80%; loans with LTVs of 100% are four times riskier than loans with 80% LTVs.

l4Gramlich,2004.15 . . .. . .Ibid, see also a recent survey by the Mortgage Bankers Association of Amenca shows that the percent of all subpnme loans IIIforeclosure at the end of 2002 was 7.97% versus 0.54% for pr ime loans. The percent of subprime loans that were 90 days or more pastdue was 3.31 % versus 0.30% for prime loans.

l~ ........~:l~wuul1cm11~lundJm. .a .r . . .~~~t. 27


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Figure IV-6: Originations by County, Prime vs. Subprime

50000

Mortgage Originations by County, 2002

- -- ---

r-r- -f-- -r-r-f-- r-

r-r- r--C : : : : - =f-- - f-- f-- - f--~ r-f-- - f-- - f-- - f-- f-- - f-- - f-- -

,

45000

40000

35000..1 30000'0,~ 25000"0~ 20000z

15000

10000

5000

. Pu rchase P rime .RefiPrime DRefiSubprime

Demographically, subprime borrowers aredisproportionately minority, lower income,older, less well-educated, less financially so -phisticated and less likely to shop interestrates. 16Data from the Home Mortgage DisclosureAct (HMDA) for 2002 indicate that 9.9%of all loans originated in Pennsylvania weremade by subprime lenders. HMDA data cansimilarly indicate what percentage of loansoriginated in each of the 14-county studyarea were prime and subprime ( se e F i gu r eIV -G O rig ina tio ns by C ou nty , P r im e vs . Su b-pr ime ) .By tracking back to the originating lendersl6Howard Lax, Michael Manti, Paul Raca and Peter Zorn, 2004.

28

DPurchase Subprime

for loans on the foreclosure filing list andidentifying those lenders as either prime,subprime or both, TRF was able to comparethe types of loans originated to the types ofloans in foreclosure in each county.Given the varying nature of data available ineach county, TRF was able to track back tothe originating lender for almost all of theloans in foreclosure between 2000 and 2003for Monroe, Montgomery and Philadelphiacounties; and for a sample of loans in Al-legheny, Berks, Bucks, Delaware, Lancaster,Lehigh, and Dauphin. For the remainingcounties, TRF was unable to use the dataprovided from the Prothonotary offices totrack back to originating lender.


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For the nine counties with originating lenderdata, a comparison of the types of lendersoriginating by county and the types oflenders foreclosing reveals: Without exception, every county had a

significantly higher percentage of sub-prime loans in foreclosures than sub-prime originations.

Berks, Allegheny, Lehigh and Bucks hadthe highest shares of subprime foreclo-sures, each with more than 70%.

Monroe, Philadelphia, Allegheny andBerks counties, however, had the highestrates of subprime originations.

Methodology for Identifying OriginatingLender and Characterizing its "Type":The method used by TRF to identify andcharacterize the originating lenders of loansin foreclosure is a two-step process:1) Depending on the data provided by theProthonotary in each of the 14-countiesstudied, TRF searched the Real Quest data-base for the owner's name, address or tax-idof the house in foreclosure. If found in Re-alQuest, transaction information about thatproperty was downloaded and analyzed. Ifenough transaction information was avail-able on a property, TRF was able to identifywhen the loan was made, for what amount,and who the originating lender was. TRFdid this for all filings in Philadelphia andMontgomery counties and for a statisticallysignificant sample in the remaining studyarea counties.2) TRF then characterized the originatinglender as either one that predominantly does

prime or subprime business or that does amix of both. Ideally, TRF would prefer tomake absolute determinations about whethera particular loan, not lender, was either primeor subprime. Given the inability to view loandocumentation for every loan in foreclosure,TRF employed a commonly used methodol-ogy that characterizes the lender as one thatgenerally makes prime or sub prime loans.The u.s. Department of Housing andUrban Development (HUD) publishes, an-nually, a list of lenders it identifies as thosethat specialize in subprime lending (see:www.huduser.or Idatasetsl manu.html).TRF recognizes and acknowledges the po-tential flaws in characterizing lenders ratherthan loans. Most notably, there are lendersthat have a full array of loan products andon the list prepared by HUD end up beingcharacterized as either prime or subprime.Moreover, all the loans originated by thatlender regardless of whether they are prime orsubprime, get characterized in whatever waythe lender has been characterized. To amelio-rate this, TRF modified the list published byHUD to identify some lenders, that do bothprime and subprime business, as "both". TRFalso modified the list to include lenders thatwere involved in loans in foreclosure but werenot on the HUD list. That said, the method-ology employed here is a standard and widelyaccepted approach utilized and reported bythe Federal Reserve, Harvard University'sJoint Center for Housing Studies, and highlyrespected scholars at prestigious universitiespublishing in professionally refereed journalsand economic research commissioned by theNational Home Equity MortgageAssociation. 17

17 . .. .See, for example: Jomt Center for Housmg Studies, 2004., Apgar, Calder and Fauth, 2004., Ca1em, Gil len and Wachter, 2003. ,Pennington-Cross, 2002., and SMR Research Group, 2000.

l~ ........~:l~wuullcm11~lundJm. .a .r . . .~~~t. 29
http://www.huduser.or/http://www.huduser.or/


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PHILADELPHIA AND MONTGOMERYCOUNTIES - A CLOSER LoOKProthonotary offices in Montgomery andPhiladelphia counties document substantialinformation about foreclosure filings in theirjurisdictions. TRF was able to obtain this in-formation electronically and, as a result, wasable to track back to many more foreclosurefilings. In Philadelphia County, 15,592 filings(of 23,742) were connected back to originalloan information, including lender names,loan amounts, loan types and originationdate. In Montgomery County, 4,240 fore-closure filings (of 4,950) were connected tooriginal loan information. A closer look atthe types of lenders and their involvement inthe foreclosure filing list reveals:Almost 40% of subprime loans originatedin Philadelphia in 1998 were in foreclosureat some point between 2000 and 2003. InMontgomery County, 20% were.

TRF was able to identify when most of theloans in foreclosure between 2000 and 2003were originated and by whom. TRF was alsoable to obtain the number of loans origi-nated by type of lender in each county fromHMDA starting in 1998. Comparing thetypes of loans originated in 1998 with thetypes of loans in foreclosure that were madein 1998 reveals that a lmo s t 4 0% if a ll s u bpr imel o an s o r ig in at e d i n P h il ad e lp hi a i n 1998 w e r e inf o rec lo s u re during the study period of 2000and 2003. In Montgomery County, 20%were. Similarly, in 1999) 40.9% if a l l s u bpr imel o an s o r ig in at e d i n P h il ad e lp hi a w e r e in f o re c lo s u red u r in g t he s tu 4 J p e rio d ; 19.7% in MontgomeryCounty were. (These numbers are a statisti-cal estimate of the lending health in a countyand exclude FHA and VA originations.) In

contrast, 2.8% of all prime loans originatedin Philadelphia in 1998 were in foreclosureduring the study period; 2.58% in 1999. InMontgomery County, .3% of 1998 primeoriginations were in foreclosure; in 1999 and.38% were.18

Subprime loans originated post 1994appear to be driving the rising numbers offoreclosure filings.

The two charts below track 2000-2003 fore-closures back to the year of their origina-tion, and classify the loans by the "type" oflender: prime, subprime or lenders that doboth types of lending. As the charts dem-onstrate, loans in foreclosure between 2000and 2003 that were made before 1994 wereoriginated by an even mix of prime and sub-prime lenders. By 1994/1995, the numberof originated subprime loans in foreclosurebegan to outnumber prime loans in foreclo-sure. Since that time, subprime foreclosureshave outnumbered prime foreclosures inboth counties ( se e F i g u re IV -7 : P h il ad e lp hiaF o r ec lo su r e F ilin gs a nd F ig u re IV -8 : M o n t go m e ryCoun t y F o r e c l o su r eF i l ing s) .Refinancing patterns in Philadelphia varyby the type of loan being refinanced and thevalue of the home.

One of the benefits often told to borrowersof a subprime loan is that if their credit isflawed, they can get a subprime loan, makepayments, and then refinance that loan intoa less expensive prime loan. Based on arandom sample of properties in the City ofPhiladelphia, it appears that this is somewhattrue. Among those properties that startedout with a prime loan and had that loan

18~~rl FHAan~ VA loans, the corresponding Philadelphia estimates are 15.3% and 16.8 % for 1998 and 1999 respectively For FHA doans III ontgomery County, the corresponding estimates are 5.1%and 7.7% for 1998 and 1999 respe;tively. an

30


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Figure IV-7: Philadelphia Foreclosure FilingsPhiladelphia County

Foreclosure Fil ings 2000-2003 by Type of Lender and Year Loan Made

3000

500

. . . . . . .(///

~ --:;:::;;;--- - -

2500

2000

1500

1000

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999-Prime Lenders-Subprime Lenders-Lenders thatdoboth

Figure IV-8: Montgomery County Foreclosure FilingsMontgomery County

Foreclosure Filings 2000-2003 by Type of Lender and Year Loan Made

600

100

////~ /' -~ ~- -

500

400

300

200

o1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Lende rs tha t do both Pr ime Lenders Subprime Lenders I

31


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refinanced, 66.6% refinanced into a primeloan; 27.9% refinanced into a subprime loan;5.6% refinanced with a lender that couldnot readily be identifiable as either prime orsubprime (i.e., these lenders did both sortsof lending). Among those properties thatstarted with a subprime loan and refinanced,29.0% ended up with a prime lenders, 66.7%ended up with a subprime lender and 4.3%ended up with a lender that did both sorts oflending.The refinance pattern is very different de-pending upon the value of homes in the sur-rounding area. For example, the likelihoodof a prime to subprime refinance in a lowerprice area (i.e., 34.8%) is substantially higherthan in higher price range areas (12.5%).The refinance pattern reflective of "creditrepair" (i.e., subprime to prime loan refinanc-es) is far more prevalent in higher value areas(42.9%) than in lower value areas (20.7%) ( s eeF ig u re IV -9 : R e fin an ce P a tte r ns by Cen su s T r ac ta nd F ig u re IV -1 0 R e fin an ce P a tt er ns by Area).

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Figure IV-9: Refinance Patterns by Census TractRefinance Patterns of Loans By Census Tract Housing Values

~cro~40+---0::~.s:~a 30e0..

10

opo p p-s s.s SO p Other

Refinance Pattern

Low/Mod

Figure IV-1 0: Refinance Patterns by AreaLikelihood of a Specified Refinance Pattern By Area Housing Value

0.9

0.8

0.7'"lu!: 0.6ro!:~0:: 0.51i.. .!:Ql 0.4Ql0..

0.3

0.2

0.1

0Low/Mod Med High

Area Housing Value

I P=Prime S=Subprime I I.PIOP DPloS DSloP .SloS I

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Finding 3: Growing f o r ec l o s u r efilings do no t appe ar to bes im ply the r e su lt o f an e xpandingmo r tg ag e ma rk et , a sfilin gsar e o u tpacing any gains inh omeowne r s h i p .Some have argued that the growth inforeclosure filings is outweighed by thegrowth in the number of people whonow own their own home. In an effortto discern whether the rise in foreclosurefilings is disproportionate to this increasedhomeownership activity, TRF used datafrom the U.S. Census Bureau to standardizethe number of foreclosure filings againstthe number of housing units in each of the14 counties. To that end, the U.S. CensusBureau reports, on a county-by-county basis,the estimated number of housing units for2003 (the most recent year for which data areavailable); these same data are available forthe year 2000 based upon tabulations fromthe decennial Census. Using the countypercentage of owner occupied propertiesin the year 2000 (the most recent year forwhich this particular piece of informationis available), TRF then estimated the size ofthe owner occupied housing stock in eachcounty in 2003.

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For the years 2000 through 2003, TRF col-lected the number of foreclosure filingsfor each of the 14 counties studied. Theformula used to standardize the foreclosurefilings in each county is:

# foreclosures in year y_______________________ *100# of estimated owner occupied housing

units in year y

These data show: In all counties sampled, the number offoreclosure filings rose faster than theestimated number of owner-occupiedhousing units (homeowners);

The rate is most extreme in MonroeCounty - where a separate investigation,in fact, took place earlier this year;

After Monroe, counties with the highestrates in 2003 include Philadelphia, Dau-phin and Allegheny; and

Erie County experienced the greatest in-crease in its rate between 2000 and 2003.

( Se e F ig u re IV -1 1: E st im a te d F o r e clo s u re F ilin gsp er 1 )000 O wn er O cc up ie d Ho u sin g U nits an dF igu r e IV -1 2: E stim ate d R ate if For e c l o s u r eF ilin gs p e r 1 )0 00 O wn e r O cc u pie d U nit s.)To be clear, these are no t foreclosure rateslike those reported by the MBAA and are,therefore, not directly comparable to theMBAA figures reported previously in thisreport. The rates reported by the MBAArequire data on the totality of existing mort-gages - data that is not available to TRF.


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Figure IV-11: County Foreclosure Filings Each Year per 100 Owner-Occupied Households.Estimated Foreclosure Filings Per 1,000 Owner Occupied Housing Units;

2000-200325

>>.i-->:--

20III'"c: : : : looo.: 15:; ;c.III'"ii:e 10"IIoueou,

5

o2000 2001 2002 2003

Year-Montgomery -Alegheny-Bucks ~Berks

PhiladelphiaMonroe -Lancaster -Lehigh Washington Chester-Delaware -Northampton -Erie -Dauphin

Figure IV-12: Estimated Rate of Foreclosure Filings per 1000 Owner-Occupied Units

County 2000 2001 2002 2003 Change in "Rate"Allegheny 7.12 8.89 11.11 11.42 0.60Berks 8.14 9.07 9.56 9.95 0.22Bucks 5.22 6.13 6.22 5.72 0.10Chester 4.26 4.83 5.63 5.24 0.23Dauphin 11.40 11.57 N/ADelaware 8.39 10.35 10.22 11.31 0.35Erie 4.89 5.71 8.49 9.08 0.86Lancaster 5.99 6.96 7.06 7.56 0.26Lehigh 8.35 10.17 9.67 9.53 0.14Monroe 17.95 22.08 22.78 22.68 0.26Montgomery 5.42 5.66 6.04 6.06 0.12Northampton 5.86 7.73 6.66 7.47 0.32Philadelphia 14.62 17.11 18.23 18.07 0.24Washington 5.63 7.54 8.08 9.12 0.62

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Finding 4: Fo r e c l o s u r e sa r ety p ic ally c on ce ntr ate d in a re asw ith lo we r th an ave rage ho u singva lu e s, lo w e r th an a ve ra ge fa milyinco m es , h ig he r th an ave ra geB lack o r A fr ican A me ricanh ou se ho lds and h ig he r th ana ve r a ge p e r ce n ta g e s o f H is p an icho u s eho l d s .Data on each foreclosure filing for whichTRF was able to obtain data (representingthe universe of filings in some instances andsamples in others) were geocoded with infor-mation related to the Census Block Groupin which the property in foreclosure waslocated. The foreclosures were then aggre-gated (or combined) so that for each BlockGroup a total number of foreclosures wasidentified. In each county there were varyingnumbers of Block Groups identified by theCensus (e.g., as few as 71 in Monroe Countyand as many as 1,816 in Philadelphia); manyof the Block Groups had no foreclosures,some had many.From the Census Bureau's Summary File 3(2000), TRF extracted a few fields of infor-mation related to each Block Group's:

median home value in 1999; median family income in 1999; percent of households headed by a Blackor African American person;

percent of households headed by a per-son of Hispanic origin.

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The foreclosure filing information was thencombined with the Census information.This approach allowed TRF to determinewhether places with no (or few) foreclosureslook different with respect to this Censusinformation than places where foreclosureswere more densely clustered.Overall, the pattern of differences acrosscounties is fairly consistent - ar eas w ith m or eh ig hlY clu st er ed fo re clo su re s te nd t o b e a re as w it hlo we r t ha n a ve ra ge h ou sin g values, lo we r t ha n a ve ra ge

fam ilY in com e s) h ig he r t ha n a ve r ag e p e r ce nt ag e sB lack o r A fr ican Am er ican and highe r than ave ragep e r c entage s H ispani c. Although the magnitudeof differences changes quite a bit based onthe widely differing demographics of thecounties identified, the pattern is consistent.The exception to this pattern isMonroeCounty which, as noted earlier, tended tobe experiencing a somewhat different set offoreclosure dynamics.The samples sizes in Philadelphia and Mont-gomery Counties were large enough for TRFto geographically distinguish whether theloan that went into foreclosure was likelyof a prime or subprime character. Thisis because much more complete informa-tion was available for each filing. Lookingat all foreclosures without differentiatingprime and subprime, the general patternobserved for the other counties held (i.e.,that clustered foreclosures occurred in areasthat were of lower home values and familyincomes than average and higher percentagesBlack or African American and Hispanic).However, the pattern for where there wereclustered foreclosures that were prime versussubprime was quite different.

In Montgomery County, there are no BlockGroups with 11 or more prime foreclosures.Additionally, where the concentration offoreclosures is greatest, the subprime clus-ters tend to occur in areas with even lowermedian home values and median familyincome, higher percentages Black or AfricanAmerican and higher percentages Hispanicthan areas with the more densely clusteredprime foreclosure filings.In Philadelphia County, that pattern is par-tially reversed. Areas with clusters of sub-prime foreclosures in comparison to areaswith clusters of prime foreclosure tend tobe areas with higher average median familyincomes and home values. Conversely, areaswith clusters of subprime foreclosures incomparison to areas with clusters of primeforeclosures are higher in average percentBlack or African American but lower inpercent Hispanic ( se e F ig u re IV -1 3A& B:Characteris tics if B lo ck G ro up s by Number ifForec losures ) .

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Figure IV-13A: Characteristics by Block Groups by Number of ForeclosuresMedian Home Value Median Family Income Percent Black1 ~ ~ rm l6 j , 1 ~ ~ r m l6 j , ~

Alleghenyo Foreclosures $155,930 $138,700 $59,257 $52,750 17.34 3.60 0.95 0.301-2 Foreclosures $136,076 $109,400 $64,691 $57,143 6.72 1.15 1.13 0.003-5 Foreclosures $110,937 $93,500 $58,445 $53,644 6.57 1.10 0.65 0.006-10 Foreclosures $81,960 $75,500 $48,218 $46,875 11.20 1.82 0.62 0.0011+ Foreclosures $61,683 $56,300 $41,629 $40,536 20.98 6.38 0.65 0.00All Block Groups $87,751 $74,500 $49,906 $46,042 13.27 2.34 0.69 0.00

Berkso Foreclosures $117,273 $114,850 $57,155 $56,010 1.77 0.00 2.64 0.361-2 Foreclosures $105,375 $106,400 $53,550 $53,889 2.88 0.00 5.79 1.163-5 Foreclosures $79,957 $83,350 $46,425 $47,786 5.32 2.39 13.17 2.886-10 Foreclosures $53,981 $44,150 $37,447 $36,211 7.44 6.03 18.53 14.6511+ Foreclosures $38,050 $38,050 $33,990 $33,990 11.20 11.20 23.15 23.15All Block Groups $96,788 $99,500 $51,034 $52,083 3.69 0.80 8.12 1.44

Buckso Foreclosures $182,586 $172,000 $70,576 $70,310 2.57 1.40 2.15 0.001-2 Foreclosures $181,868 $170,900 $72,689 $68,194 2.55 0.00 1.45 0.003-5 Foreclosures $181,112 $165,550 $72,499 $67,090 1.73 0.00 1.31 0.356-10 Foreclosures $150,918 $134,250 $66,188 $63,725 2.63 0.17 1.59 0.6211+ Foreclosures $124,417 $110,700 $58,234 $57,833 5.50 1.18 2.59 1.56All Block Groups $163,210 $155,400 $68,184 $64,969 2.88 0.64 1.70 0.54

Dauphino Foreclosures $98,779 $96,900 $49,641 $48,854 12.85 2.85 2.71 1.531-2 Foreclosures $94,766 $92,250 $48,859 $46,027 19.48 6.09 3.11 1.343+ Foreclosures $76,768 $63,800 $45,077 $40,291 38.54 25.16 5.71 2.33All Block Groups $94,521 $93,800 $46,780 $47,109 18.66 6.09 3.23 1.50

Delawareo Foreclosures $188,759 $163,200 $77,484 $74,494 6.36 1.13 0.99 0.001-2 Foreclosures $131,453 $118,850 $62,646 $60,635 15.30 2.50 1.28 0.003-5 Foreclosures $88,289 $85,400 $50,223 $49,706 25.52 7.73 1.20 0.006-10 Foreclosures $73,629 $70,400 $45,446 $45,168 27.78 15.34 1.49 1.4411+ Foreclosures $62,871 $60,700 $43,283 $43,220 23.52 20.22 1.03 1.28All Block Groups $135,713 $119,200 $63,347 $60,153 15.51 2.45 1.18 0.00

Erieo Foreclosures $97,521 $89,500 $47,067 $46,905 2.73 0.00 0.77 0.001-2 Foreclosures $91,016 $90,300 $47,641 $46,146 3.46 0.00 1.16 0.003+ Foreclosures $62,424 $58,100 $36,691 $36,974 11.54 4.92 2.94 1.61All Block Groups $87,433 $83,100 $45,198 $44,722 4.86 0.00 1.39 0.00

Lancastero Foreclosures $144,038 $134,200 $49,957 $48,500 0.96 0.00 0.60 0.001-2 Foreclosures $130,906 $129,100 $54,704 $52,913 1.07 0.00 2.74 0.003-5 Foreclosures $132,449 $129,950 $56,481 $55,037 1.21 0.00 2.53 0.736-10 Foreclosures $116,389 $119,950 $50,917 $51,594 2.81 0.88 4.80 1.0911+ Foreclosures $92,158 $92,500 $45,677 $45,149 6.55 2.50 10.99 3.12All Block Groups $117,483 $119,700 $51,258 $51,417 3.07 0.51 5.38 1.20

Lehigho Foreclosures $124,000 $58,520 $58,906 1.77 1.40 1.34 0.001-2 Foreclosures $144,200 $62,239 $62,143 0.94 0.00 1.77 0.003-5 Foreclosures $118,600 $58,195 $55,913 1.38 0.00 2.64 0.696-10 Foreclosures $107,400 $53,993 $53,529 1.47 0.00 3.99 1.3111+ Foreclosures $73,400 $41,886 $37,778 5.29 3.76 17.41 13.02All Block Grou $1 50 $51 2.70 0.91 7.97 1.95

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Figure IV-13B: Figure IV-16: Characteristics by Block Groups by Number of ForeclosuresMedian Home Value Median Family Income

CountMonroeo Foreclosures1-2 Foreclosures $96,300 $96,300 $41,116 $41,1163-5 Foreclosures $115,120 $119,700 $51,934 $46,6076-10 Foreclosures $122,969 $124,450 $47,897 $50,33611+ Foreclosures $126,015 $126,900 $52,502 $52,500All Block Groups $121,949 $122,000 $50,982 $51,250

Northamptono Foreclosures $115,853 $118,100 $51,739 $53,7131-2 Foreclosures $118,688 $116,350 $53,660 $62,9673-5 Foreclosures $124,702 $123,500 $56,976 $57,4456-10 Foreclosures $85,843 $78,350 $41,602 $41,35011+ Foreclosures $74,575 $74,300 $41,382 $40,552All Block Groups $114,260 $114,100 $52,293 $51,944

Montgomery Totalo Foreclosures $266,538 $210,100 $94,906 $82,6601-2 Foreclosures $205,787 $173,400 $83,960 $76,729

3-5 Foreclosures $200,469 $163,000 $83,170 $74,9316-10 Foreclosures $155,544 $142,000 $69,624 $66,17611+ Foreclosures $127,251 $119,800 $61,679 $60,147All Block Groups $178,131 $152,950 $75,829 $70,443

Montgomery Primeo Foreclosures $189,453 $161,300 $79,594 $74,6051-2 Foreclosures $165,915 $142,750 $72,600 $68,0023-5 Foreclosures $134,586 $132,700 $64,570 $60,9726-10 Foreclosures $145,978 $124,700 $65,753 $63,50011+ ForeclosuresAll Block Groups $171,249 $150,100 $74,345 $69,179

Montgomery Subprimeo Foreclosures $208,428 $167,300 $82,997 $75,4191-2 Foreclosures $197,202 $166,200 $82,004 $75,7113-5 Foreclosures $159,441 $147,700 $71,415 $68,4616-10 Foreclosures $134,171 $128,300 $62,940 $58,65011+ Foreclosures $109,672 $115,900 $58,424 $56,953All Block Groups $171,249 $150,100 $74,345 $69,179

Philadelphia Totalo Foreclosures $93,895 $45,100 $47,327 $34,7721-2 Foreclosures $92,652 $70,900 $46,825 $42,2063-5 Foreclosures $69,613 $61,600 $39,386 $35,0006-10 Foreclosures $59,266 $55,000 $37,781 $36,25011+ Foreclosures $50,414 $47,850 $34,840 $33,864All Block Groups $63,319 $51,300 $38,475 $35,278

Philadelphia Primeo Foreclosures $70,868 $48,400 $40,272 $33,6251-2 Foreclosures $62,851 $55,300 $38,871 $36,6353-5 Foreclosures $54,689 $52,700 $36,799 $36,5346-10 Foreclosures $45,277 $45,700 $31,103 $29,21911+ Foreclosures $36,777 $34,500 $26,384 $25,619All Block Groups $63,320 $51,300 $38,475 $35,278

Philadelphia Subprimeo Foreclosures $94,636 $72,100 $46,842 $41,8401-2 Foreclosures $70,400 $60,700 $40,750 $38,7503-5 Foreclosures $56,826 $50,600 $36,233 $33,1256-10 Foreclosures $51,022 $48,000 $35,540 $35,09811+ Foreclosures $46,079 $43,850 $33,447 $31,635All Block Grou $51 8

~11" lj rin "'l II l< n ,. .' . '.' I undJm. .a .r . . .~~~t.

1 ~ ~ r m l 6 j ,3.74 3.74 4.844.61 5.15 3.363.51 3.06 3.064.12 3.35 4.383.95 3.38 3.96

2.35 0.00 7.791.89 0.00 4.531.71 0.85 3.454.51 1.78 8.969.70 10.89 13.542.46 0.57 5.59

2.39 1.47 1.353.83 1.58 0.963.12 1.73 0.956.83 3.19 1.5817.54 6.17 2.947.42 2.59 1.59

2.70 2.55 1.144.07 3.17 1.815.37 3.47 2.425.96 4.89 2.04

3.70 2.80 1.61

3.62 1.76 0.973.67 1.87 1.026.84 2.52 1.4617.33 5.51 2.7317.42 10.83 3.897.81 2.66 1.61

33.42 14.82 7.7837.44 17.88 9.0442.94 26.65 9.7647.23 43.18 6.1254.32 55.84 7.9647.50 40.48 7.92

51.72 51.87 6.9751.25 52.29 5.4437.68 22.80 10.2226.44 20.08 17.9323.75 22.51 33.0047.50 40.48 7.92

30.79 11.16 7.7838.58 19.35 10.7248.55 42.51 7.1157.60 73.08 6.4466.12 85.46 6.4147.50 40.47 7.92

Percent Black

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Finding 5: Loans in foreclosureare an even mix of purchasemoney mortgages and refinances.The typical homeowner inforeclosure between 2000 and2003 in Pennsylvania is not along-term homeowner. Theytend to have purchased theirhome in the mid-to-late 1990sand took out the loan currentlyin foreclosure just afew yearsearlier.As mentioned earlier, by linking Prothono-tary lists to information contained in theFirst American Real Estate Solutions, Inc.database, TRF was able to collect, analyzeand map a significant amount of informa-tion regarding all of the loans in foreclosurebetween 2000 and 2003 for Monroe, Mont-gomery and Philadelphia counties; and for asample of loans in Allegheny, Berks, Bucks,Delaware, Erie, Lancaster, Lehigh, andNorthampton. In Dauphin County, only asample of loans in foreclosure from 2003 wasavailable for analysis. No detailed informa-tion was available for Chester and Washing-ton counties.

l~. _ .. The. . ... ~xlnvuul1~m. _- _ I undJm. .a .r . . .~~~t.

In all, information for approximately 22,979loans on the foreclosure filing lists was ana-lyzed. The purpose of that analysis was toanswer the following questions: How have foreclosure filings increased in

each county? What types of lenders originated the

loans in foreclosure? Were the loans in foreclosure mortgages

that were used to purchase a home orwere they refinance/home equity loans?

How long ago did the borrowers in fore-closure purchase their home? Are bor-rowers on the foreclosure filing list long-term homeowners or did they recentlybuy a home?

For those loans in foreclosure that werepurchase money mortgages, how long agodid the homeowner buy their home andfor how much?

How long ago did the borrower take outthe loan that is in foreclosure?

Where the data was available, TRF wasable to answer each of these questions on acounty-by-county basis. The most strikingobservation about the county-by-countyanalysis that follows is how similar the char-acteristics of the loans in foreclosure areacross counties.

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ALLEGHENY COUNTYForeclosure Filing Numbers: Between 2000and 2003, 13,887 mortgage foreclosureswere filed in Allegheny County. This repre-sents an increase of 60.3% during the fouryear period - one of the highest increasesamong counties studied for this report. In2000, 2,567 foreclosures were filed; in 2003,4,115 were. The "rate" per 1,000 owner oc-cupied housing units also rose, from 7.13 per1,000 owner occupied housing units in 2000to 11.42 per 1,000 owner occupied housingunits in 2003.Types of Lenders: Foreclosure filings between2000 and 2003 are disproportionately sub-prime. In 2002, 12% of all conventionalloans originated in Allegheny County wereconsidered subprime. Yet, 71% of the loans

in foreclosure sampled in this study weresubprimeLength of Ownership: The typical householdin foreclosure bought their home in 1995.Of all households in foreclosure between2000 and 2003, 68% bought their homeafter 1991.Time from Origination to Filing: Thetypical household took out the loan in fore-closure 2.8 years prior to the foreclosurefiling. 19Purchase Money Mortgagevs. Refinance Loans:The majority of loans in foreclosure in Al-legheny County (60%) were refinance loans.Of the 40% that were purchase money mort-gages, the typical homebuyer bought theirhome in 1999 and paid $54,000.

Allegheny CountyForeclosure Filings Per 1,000 Owner Occupied Housing Units; 2000-2003

>->~

14

12

10

wQ_'"!u ::4

2

o2000 2001 2002 2003

Year19Mortgage recording dates are only available in Allegheny County start ing with 1995 originations. This may skew data towards a fastertime-to-foreclosure calculation.

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..Curti~ville..",Russellton

".'Midway

Foreclosure Filings 2000-2003Sampled Foreclosure Fil ingsAll Other Foreclosure Fil ings

Median Home Value, Census 2000Less than $48,500; Less than 50% of PA Median$48,501 - $77,600, 50 - 80% of PA Median

_ $77,601 - $97,000; 80 -100% of PA Median_ $97,001 - $116,000; 100 - 120% of PAMedian_ $116,001 - $145,000; 120 -150% of PAMedian_ $145,001 - $194,000; 150 - 200% of PAMedian_ More than $194,001; More than 200% of PA Median

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foreclosure report - pa

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