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									The Current Foreclosure Crisis –
Trends and Roadblocks to Recovery



American Planning Association
February 22, 2011

Geoff Smith | Senior Vice President
Woodstock Institute | Chicago, Illinois
gsmith@woodstockinst.org | www.woodstockinst.org




                                                   WOODSTOCK INSTITUTE | FEBRUARY 2011
Woodstock Institute

• Chicago-based non-profit research and policy organization working
  locally, nationally, and internationally to promote economic
  development in lower-income communities and communities of color
• Work with financial institutions, community organizations,
  foundations, government agencies, and others.
• Areas of expertise include CRA and fair lending policies, financial
  and insurance services, small business lending, community
  development financial institutions, and economic development
  strategies.
• Key program area: Housing Policy and Practice
    • Mortgage Lending
    • Foreclosures

                                                    WOODSTOCK INSTITUTE   |   MONTH YEAR
Mortgage Lending:
Growth of Subprime Lending


90.0%


80.0%                                                                                               76.5%
                                                     75.6%         76.7%        74.5%       75.5%
                            72.6%     73.8%
                  71.8%
70.0%
        69.0%
60.0%


50.0%


40.0%


30.0%


20.0%   19.7%     18.3%     18.1%     17.4%           15.6%                                 13.4%   13.6%
                                                                   12.6%       11.5%
10.0%   8.8%      7.8%      7.1%      6.5%                                                   8.0%    7.3%
                                                     5.6%        5.3%           10.4%
                                                                                                     2.6%
        2.4%       2.1%      2.4%      2.6%         3.4%           4.4%         3.6%        3.1%
0.0%
    1998        1999      2000      2001           2002          2003         2004        2005         2006

                                      FHA     VA      Subprime   Prime




                                                                           WOODSTOCK INSTITUTE | FEBRUARY 2011
Mortgage Lending:
Subprime Mortgages Target Borrowers of Color

      Higher Cost Lending Disparity Ratios by Race/Ethnicity and Income
      Level of Borrower in Chicago Six County Area, 2006

      3.50

                  2.87                  2.94
      3.00
                          2.71
                                 2.61
      2.50                                                                   2.32

                                                              1.92    1.99
      2.00                                             1.78

      1.50

      1.00

      0.50

      0.00
                   African American/White                     Latino/White

             Low-Income     Moderate-Income      Middle-Income       Upper-Income



                                                                 WOODSTOCK INSTITUTE | FEBRUARY 2011
Mortgage Lending:
Subprime Mortgages Concentrated in Communities of Color




                                      WOODSTOCK INSTITUTE | FEBRUARY 2011
Regional Quarterly Trends in Foreclosure Filings,
2005 to 2010

 28,000




 24,000




 20,000




 16,000




 12,000




  8,000




  4,000
       1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10




                                                                                         WOODSTOCK INSTITUTE | FEBRUARY 2011
   Patterns of Regional Growth in New Foreclosure Filing
   Activity, 2010

Chicago Six County Area – 2010

      •    79,986 residential properties with a foreclosure filings

      •    14.1% increase from 2009

Regional Growth Patterns – 2010

      •    McHenry County – 33% increase

      •    Will County – 21.4% increase

      •    Cook County – 10.6% increase

           •     Suburban Cook – 18.3% increase

                 –     Northwest Cook – 24.5% increase

           •     Chicago – 3% increase

                  –     Loop – 53.7% increase

                  –     Englewood – 20.3% decline

                  –     Grand Boulevard – 9.2% decline

                                                                      WOODSTOCK INSTITUTE | FEBRUARY 2011
    Emerging Issues – Condo Foreclosures in the Suburbs

Condo foreclosures continue to rise, expand to suburbs in 1H
     2010
      •        Increase from 1-3Q 2009:
           •        Region – 42.5%
           •        City of Chicago – 34.9%
      •        Share of total new foreclosure filings in 1-3Q 2010:
           •        Region - 19.5%
           •        City of Chicago – 26.6%
In certain suburban regions, a substantial share of newly filed
       foreclosures are on condos
      •     Northwest Cook – 43.1% of all new FC filings
            •       64.8% increase from 1-3Q 2010
      •     North Cook – 29.9%
            •       57.9% increase
      •     Southwest Cook – 23.4%
            •       59.4% increase
      •     DuPage County – 22.3%
            •       31.7% increase

                                                                      WOODSTOCK INSTITUTE | FEBRUARY 2011
WOODSTOCK INSTITUTE | FEBRUARY 2011
WOODSTOCK INSTITUTE | FEBRUARY 2011
WOODSTOCK INSTITUTE | FEBRUARY 2011
WOODSTOCK INSTITUTE | FEBRUARY 2011
        Accumulation of Foreclosure Activity in Communities
        of Color, 2006 to 1H 2010
30.0%
                                                                                       27.0%
                                                                                               26.3%
25.0%                                                                                                            24.4%
                                                                                                                                       23.2%



20.0%              19.0%


                                                                                                                         15.9%
                                            15.1%
15.0%
                                                                                                                                               12.8%
                                                                     10.9%
                                     9.7%
10.0%       8.7%
                                                              7.0%

 5.0%



 0.0%
        80% or greater African   50% or greater mixed     50% or greater Latino     20-49.9% minority          10-19.9% minority   Less than 10% minority
             American                 Minority

                                             Share of Properties      Share of Properties with Foreclosure Filings


                                                                                                           WOODSTOCK INSTITUTE | FEBRUARY 2011
WOODSTOCK INSTITUTE | OCTOBER 2010
WOODSTOCK INSTITUTE | OCTOBER 2010
WOODSTOCK INSTITUTE | OCTOBER 2010
WOODSTOCK INSTITUTE | OCTOBER 2010
WOODSTOCK INSTITUTE | OCTOBER 2010
   Patterns of Regional Growth in Completed Foreclosure
   Auction Activity, 2009 to 2010

Chicago Six County Area – 2010

      •    30,981 residential properties completed foreclosure process

      •    95.3% entered REO status

      •    25.2% increase in completed auctions from 2009



Regional Growth Patterns – 2009 to 2010

      •    Will County – 24.8% increase

      •    Cook County – 27.8% increase

           •     Suburban Cook – 37.4% increase

                 –     Northwest Cook – 66.1% increase

                 –     Southwest Cook – 41.9% increase

           •     Chicago – 19.9% increase




                                                                         WOODSTOCK INSTITUTE | FEBRUARY 2011
   Impacts of Foreclosure

Homeowner
     •   Loss of shelter
     •   Loss of assets
     •   Displacement
     •   Damaged credit
     •   Family Stress


Communities
     •   Blight
     •   Neighborhood instability
     •   Increases in violent crime
     •   Decreases in property values
     •   Increased costs for municipalities and decreased revenues to manage those costs and to improve
         neighborhoods



                                                                              WOODSTOCK INSTITUTE | FEBRUARY 2011
   Concentration of Unsold Properties in Communities of
   Color

Disparate Impact of Lender-Owned Properties


     •     Unsold REO Properties
           •     64% are concentrated in highly African
                 American communities


     •     Absorption Rate
           •     It will take 25% longer for REO properties in
                 highly African American communities to be
                 absorbed into the market.
     •     Value Declines
           •     Highly African-American communities saw
                 declines of 35.1%, while primarily white
                 communities saw declines of 17 percent.




                                                                 WOODSTOCK INSTITUTE | FEBRUARY 2011
    Communities of Color Hardest Hit by Vacant Properties


Vacant Properties Associated with Foreclosure
      •     Vacant Properties
            •     18,320 properties identified as vacant or
                  potentially vacant by the City of Chicago
            •     Nearly 70% of all vacant properties on the
                  Chicago Vacant Buildings Index are associated
                  with a foreclosure
      •     Red Flag Properties
            •     1,896 properties on the Index are “red flag”
                  properties, many of which may be lender
                  walkaways
            •     71% of red flag properties are located in highly
                  African American communities, compared to
                  only 6.5% in predominately white communities
      •     Impact
            •     Destabilize communities
            •     Burden to municipalities




                                                                     WOODSTOCK INSTITUTE | FEBRUARY 2011
    Roadblocks to Recovery


Weakness in Impacted Local Real Estate Markets
      •   Accumulation of vacant properties
           •      A foreclosure reduces a property’s value by 27 percent, on average
           •      A foreclosure reduces surrounding property values by .9 percent
      •   Inventory absorption
      •   Underwater Homeowners
           •      19.7 percent of Illinois mortgages underwater in 2Q 2010
Other Barriers
      •   Foreclosure process and disposition of foreclosed properties
      •   Disproportionately high unemployment
Credit Pullback
      •   Disproportionate lending declines
           •      68.8 percent decline in home purchase lending in 2008 in region’s African American communities,
                  compared to 54 percent regionally – 44 percent decline in predominately white communities
      •   Tighter underwriting and uncertain appraisals
      •   Credit scores and income issues
                                                                                    WOODSTOCK INSTITUTE | FEBRUARY 2011
Zip Codes with Highest and Lowest Credit Scores in
the Chicago Region – June 30, 2009

Zip Code             Area Name             Average   740+                Less than 580

 60621     Chicago - Englewood              598      11.9%                  52.6%

 60636     Chicago - W. Englewood           607      15.1%                  49.6%

           Chicago - W. Garfield Park/E.
 60624                                      603      12.7%                  49.1%
           Garfield Park

 60827     Riverdale                        605      13.5%                  47.2%

 60644     Chicago - Austin                 612      15.4%                  46.3%




 60043     Kenilworth                       772      91.7%                   0.0%

 60558     Western Springs                  751      82.2%                   3.4%

 60022     Glencoe                          751      79.2%                   2.6%

 60091     Wilmette                         754      78.3%                   2.3%

 60010     Barrington                       746      75.4%                   4.0%

                                                     WOODSTOCK INSTITUTE | FEBRUARY 2011
     Impact of Low Credit Scores – Access to Refinance
     Lending

         Change in Chicago Area Conventional Refinance Originations, 2008 to 2009

120.0%
              102.0%
100.0%
                               79.3%
80.0%

60.0%                                               50.9%

40.0%

20.0%                                                                    11.8%

 0.0%

-20.0%

-40.0%
                                                                                              -41.0%
-60.0%
              < 10%           10% - 19%           20% - 49%             50% - 79%          80% - 100%
                                          Percent Minority Population

                                                                        WOODSTOCK INSTITUTE | FEBRUARY 2011
Interventions:
Helping Homeowners
•   Home Affordable Modification Program (HAMP)
      • Projected to help 3-4 million
      • Fell short of goals, actually has helped a little more than .5 million helped
      • Challenges addressing emerging roadblocks
      • Limited mortgage servicer accountability

•   Proprietary modification
      • Servicers completed 696,992 proprietary modifications from 3Q 2009 to 3Q 2010
      • Lower monthly payments are not guaranteed as in HAMP
      • Limited oversight and transparency
      • Higher redefault rates (after six months - 22.8% for proprietary mods, 10.8% for HAMP mods)

•   Court mortgage foreclosure mediation programs: Philadelphia
      • Facilitates communication between borrower and lender
      • 30 percent of homeowners who participated in Philadelphia were able to reach a settlement

•   Foreclosure counseling
      • 45 percent of homeowners who complete counseling are able to stay in their homes
      • Serious gaps in counseling capacity in areas of high foreclosure activity

                                                                              WOODSTOCK INSTITUTE | FEBRUARY 2011
Interventions:
Helping Communities and Looking to the Future

•   Neighborhood Stabilization Program (NSP)
      • Illinois has received $362.8 million in NSP funds from three rounds of funding
      • Challenges: competing with investor purchases
      • Weak demand in re-sale market

•   Municipal response to vacant properties
     • Early warning databases, vacant property registry, liens and land banking
     • Increased servicer accountability around vacant properties

•   Boston Community Capital SUN program
      • Uses borrowed funds to purchases REO properties, sells back properties to original owners

•   CRA Modernization
      • Ensures access to credit
      • Updates CRA to reflect practices of the current financial landscape

•   Financial Reform
      • Foreclosure crisis has roots in discriminatory lending practices
      • Financial reform keeps bad products out of neighborhoods
                                                                              WOODSTOCK INSTITUTE | FEBRUARY 2011
The Current Foreclosure Crisis –
Trends and Roadblocks to Recovery



American Planning Association
February 22, 2011

Geoff Smith | Senior Vice President
Woodstock Institute | Chicago, Illinois
gsmith@woodstockinst.org | www.woodstockinst.org




                                                   WOODSTOCK INSTITUTE | FEBRUARY 2011

								
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