Town Hall on Economic Crisis & Foreclosure;

Interfaith Vigil for Workers, Homeowners & Tenants

Sponsored by Jobs for Justice - Columbus, Ohio - October 1, 2009

THE HOUSING CRISIS: OPPORTUNITY, COMMUNITY AND RACE

Jason Reece

Senior Researcher

Opportunity Communities Initiative

Kirwan Institute for the Study of Race & Ethnicity

The Ohio State University

The Housing Crisis

Where are we? A Crisis: for the nation, out state and our

neighborhoods How did we get here?

What happened? What needs to happen?

The three “R’s” Rescue, Revitalization and Reform

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An Epidemic

Foreclosures in Ohio were a pressing issue well before they became a national epidemic. 

Foreclosure filings have increased every year since 1995.[1]

As of June 2009, there was one foreclosure in Ohio for every  449 houses, and Ohio ranked 8th in the nation in foreclosure activity.[2]

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[1] Rothstein, David and Sapna Mehta. “Foreclosure Growth in Ohio 2009.” PolicyMatters Ohio, March 2009. Page 6.[2]Realtytrac, Accessed July 23, 2009 at http://www.realtytrac.com/trendcenter/default.aspx

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Ohio Foreclosure Totals: 1995-2008

Density of foreclosure filings, January 2003-March 2004

Slides Obtained from The Columbus United

Way, Prepared by Community Research

Partners

Density of foreclosure filings, January 2007-March 2008

Slides Obtained from The Columbus United

Way, Prepared by Community Research

Partners

Density of properties at Sheriff’s Sale, Jan 2005-Mar 2008

Slides Obtained from The Columbus United

Way, Prepared by Community Research

Partners

Density of properties with high rate mortgage*, June 2008

* Mortgage loans with interest rate of 8%+

Density of properties with ARM or balloon loan*, June 2008

* Among mortgage loans with interest rate below 8%

Slides Obtained from The Columbus United

Way, Prepared by Community Research

Partners

The Impact of Concentrated Foreclosures in a neighborhood

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Foreclosures pull wealth/equity and assets out of the neighborhood

Widespread displacement of renters, homeowners which rips the neighborhood’s social fabric and creates instability for school age children

The growth of vacant property encourages crime, disinvestment and public safety risks

Challenges which eventually ensnare all residents (even those who were never foreclosed upon)

What Happened?

How did we get here? A changing system (broken system) Vulnerable communities struck first

The Miner’s Canary Race, Credit, Lending and Foreclosure

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Post-Depression FHA Era:

The Three Party Mortgage Market

Pre-Depression: The Two Party

Housing MarketHomebuyer

Party 1

Seller (and/or) Lending Institution

Party 2Homebuyer

Party 1

LendingInstitution

Party 2

Government Sponsored Institution purchases, insures or underwrites loan

Party 3

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

Prior to securitization…

After securitization

Subprime Loans

About half of all subprime loans went to African American and Latino borrowers.

People of color were 30% more likely to receive subprime, even after factoring out financial differences.

30% of subprime borrowers qualified for prime loans

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More than Just Foreclosures and a

Few Bad Borrowers:

Understanding the Credit Crisis Impact in Communities of

Color

Why Were Subprime Loans Concentrated in

These Neighborhoods?

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Why is the growing foreclosure problem causing problem in communities of color?

-Lenders targeted communities of color with subprime loans

-Lack of load information or understanding for consumers in many of these communities

-Communities were historically starved of credit

-Mortgage securitization and the growth of the subprime industry created incentives to target new markets with mortgages

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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

Institutionalized Disinvestment: Redlining Map of Philadelphia

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From Redlining to Reverse Redlining:A historical view of redlining zones in

Philadelphia and areas of foreclosure in minority

communities.

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The Subprime Lending and Foreclosure Crisis: The Baltimore Experience – The City of Baltimore v. Wells Fargo

“We just went right after them,” said Ms. Jacobson, who is white and said she was once the bank’s (Wells Fargo) top-producing subprime loan officer nationally. “Wells Fargo mortgage had an emerging-markets unit that specifically targeted black churches, because it figured church leaders had a lot of influence and could convince congregants to take out subprime loans.”From the NY Times. June 6th 2009. “Banks accused of pushing mortgage deals on Blacks”

Cleveland: Subprime Loans and Foreclosure

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Maps: Produced and adapted from Charles Bromley, SAGES Presidential Fellow, Case Western University

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What Needs to Happen? (3 R’s) Rescue

House Bill 3 Loss of income/job driving new wave of

foreclosures Avoid challenges with existing initiatives

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Half of borrowers fall behind again despite home-loan helpThursday,  October 1, 2009 3:20 AMBY ALAN ZIBELASSOCIATED PRESS

WASHINGTON -- Lenders are ramping up efforts to avoid home foreclosures, but a report by bank regulators says that more than half of borrowers who get help fall behind again.

More than 50 percent of homeowners with loans modified in the first half of last year had missed at least two months of payments a year later, the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision said yesterday.

But the results were better among those whose payments dropped substantially. About one in three borrowers whose monthly payments were reduced by 20 percent or more had fallen behind again within a year. Among borrowers whose loan payments were left unchanged or increased, more than 60 percent had fallen behind again.

The report highlights a significant challenge for the Obama administration's plan to tackle the foreclosure crisis, backed by $50 billion in money from the financial-industry bailout fund.

The administration's effort got off to a slow start, but it has picked up speed in recent months. As of last month, about 360,000 borrowers, or 12 percent of those eligible, have signed up for three-month trial modifications. They are supposed to be extended for five years if the homeowners make their payments on time. There is no data yet on redefaults within the plan.

Traditionally, most lenders have offered payment plans that allowed borrowers to catch up on missed payments. But those modifications often do not involve an interest-rate reduction, so they result in a higher monthly payment.

What Needs to Happen? (3 R’s) Revitalization

Not just neighborhood stabilization – need long term reinvestment to revitalize hard hit neighborhoods Reinvestment, land banking

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What Needs to Happen? (3 R’s) Reform: Economic empowerment for all

must progress on multiple fronts Fair and sustainable housing -- integration

into opportunity Fair and sustainable access to credit

(manage debt) Fair banking and financial products (build

assets) Ensure that programs and policies

responding to the subprime crisis reach those most affected

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Questions or Comments?

For more information about the racial impacts of the foreclosure crisis, visit our convening web site at:

http://www.kirwaninstitute.org/events/archive/subprime-convening/index.php

To Learn More about the Kirwan Institute: www.kirwaninstitute.org