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MORTGAGE FORECLOSURES AND PREDATORY LENDING IN ST

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MORTGAGE FORECLOSURES AND PREDATORY LENDING IN ST Powered By Docstoc
					MORTGAGE FORECLOSURES
AND
PREDATORY LENDING
IN ST. CLAIR COUNTY, ILLINOIS
1996-2000




Professor Lynne Dearborn
East St. Louis Action Research Project
University of Illinois at Urbana-Champaign

July 2003
This project was completed by the author under the auspices of the
East St. Louis Action Research Project (ESLARP). ESLARP is a
cooperatively managed community development and assistance
program of the University of Illinois at Urbana-Champaign
This project was funded by St. Clair County Intergovernmental Grants
Department. For more information on ESLARP and this report, please
see the ESLARP website at www.eslarp.uiuc.edu or contact:

Professor Lynne Dearborn
School of Architecture
College of Fine and Applied Arts
University of Illinois at Urbana-Champaign
611 Taft Drive, MC-621
Champaign, Illinois 61820-6921

dearborn@uiuc.edu      (217) 333 4331


For additional copies of this report, please contact:

East St. Louis Action Research Project
University of Illinois at Urbana-Champaign
326 Noble Hall, 1209 S. Fourth St.
Campus mail code: MC-549
Champaign, IL 61820, USA

Phone: 217-265-0202
Acknowledgements:



I would like to thank the staff in the following St. Clair County Offices: Circuit Clerk, Tax Assessor, Recorder
of Deeds, and Intergovernmental Grants, for their assistance during data collection for this study.

I also thank…

The St. Clair county residents who have experienced foreclosure and were willing to share their experiences
with us so that others might not have the same experience

Diane Thompson at Land of Lincoln Legal Assistance Foundation in East St. Louis for her insights and review
of various drafts of this report

Vicki Eddings and Deana Koenigs of ESLARP for logistical support on multiple fronts

Professor Varkki George Pallathucheril for his assistance with statistical analysis and interpretation of results
Professor Cynthea Geerdes for her assistance with effective interest rates for adjustable rate mortgages

The students who participated in this work:
Kate Crowley
Justin Placek
Donovan Finn
Amy Crowther
Reshmi Krishnan Theckethil




                                                    1
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County



TABLE OF CONTENTS


EXECUTIVE SUMMARY                                                                    5
INTRODUCTION                                                                         7
SECTION 1:             Background: Review of Relevant Literature                     8
                       Subprime Lending
                       Predatory Lending
                       Distinction between Subprime and Predatory Loans
                       Concentration of Subprime Lending in Distressed Communities
                       Property Flipping
                       Concern about St. Clair County and East St. Louis
                       Legal Context
                       Recommendations and Possible Remedies

SECTION 2:             Data Collection – Stage One                                   14
                       Circuit Clerk: Complaints to Foreclose
                       County Assessor and Treasurer: Assessments and Sales Prices
                       Recorder of Deeds: Tax Stamps and Document Records
                       Federal Reserve: H-15 Treasury Security Rates
                       United States Census Bureau
                       Limitations of the Data


SECTION 3:             Data Collection – Stage Two                                   18
                       Interviews
                       Limitations of the Data


SECTION 4:             Analysis - Stage One                                          19
                       Datasets
                       Overview of Data
                       Statistical Analysis
                       Geographic Analysis


SECTION 5:             Analysis - Stage Two                                          40
                       Personal Experience with Foreclosure
                       Individual Characteristics
                       Procedural Characteristics
                       Hindsight is 20-20




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County




SECTION 6:             Discussion, Recommendations & Suggestions for                  46
                       Further Research
APPENDICIES:           A: Methodology for Federal Reserve Board Treasury              48
                       Security Maturity Adjustments
                       B: Interview Guide for Service Providers                       49
                       C: Interview Guide for Victims of Foreclosure                  50
                       D: Mortgagees with More than 5 Suspect Cases in Sample         56
                       E: Mortgage Holders with More than 5 Suspect Cases in Sample   57
                       F: Results for Cities and Towns                                58
REFERENCES:                                                                           59




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County



LIST OF FIGURES



Figure 1:      Map of St. Clair County with Municipalities Identified                  6
Figure 2:      Map of Foreclosure Complaints by Census Block Group                     28
Figure 3:      Map of Judgments to Foreclosure by Census Block Group                   29
Figure 4:      Map of Suspect Loans by Census Block Group                              31
Figure 5:      Map of High LTV Loans by Census Block Group                             34
Figure 6:      Map of Suspect Loans by Municipality                                    37
Figure 7:      Map of High LTV Loans by Municipality                                   39




LIST OF TABLES



Table 1:       Sample and Estimated Data Set Totals                                    21
Table 2:       Overview of Sampled Data                                                22
Table 3:       Chronological Overview of Judgments to Foreclose                        23
Table 4:       Chronological Overview of High LTV Loans                                23
Table 5:       Overview of High LTV Loans with Judgments to Foreclose                  24
Table 6:       Correlation Analysis                                                    26
Table 7:       Characteristics of Census Block Groups with the Ten Highest Suspect     30
               Loans Relative to Owner Occupied Units
Table 8:       Characteristics of Census Block Groups with the Ten Highest Numbers     32
               of Suspect Loans
Table 9:       Characteristics of Census Block Groups with the Ten Highest High LTV    33
               Loans Relative to Owner Occupied Units
Table 10:      Characteristics of Census Block Groups with the Ten Highest Numbers     35
               of High LTV Loans
Table 11:      Characteristics of Ten Municipalities with Highest Number of Suspect    36
               Loans
Table 12:      Characteristics of Ten Municipalities with Highest Number of High LTV   38
               Loans




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County



EXECUTIVE SUMMARY


The Fair Housing Act of 1968 and the Equal Opportunity Act of 1974 were designed to eliminate “red-lining”
or the denial of credit to homeowners in low-income, predominantly minority or demographically shifting
neighborhoods. These laws resulted in the opening of the credit market to borrowers who had previously
been denied access to traditional means of credit. Through the “subprime” market, lenders are allowed
increased compensation because of the increased risk involved in making loans in these markets. However,
there is much concern that this very opening of credit to marginalized borrowers has resulted in a new form
of discriminatory lending where borrowers are allowed access to credit, but at a cost and under terms that
have been labeled “predatory,” and which increases the probability that an individual will default on their
mortgage and be stripped of the equity in their home. St. Clair County, Illinois, is home to many of the most
distressed communities in Illinois, and the county government has become increasingly concerned about the
effects of predatory lending on its low-income residents, as evidenced by a recent jump in home
foreclosures, and on the health of the county as a whole.

One of the hurdles facing researchers of abusive or predatory lending practices is that most of the
information necessary to differentiate between a predatory loan and a legitimate “subprime” loan is not
public record. Lenders in the “subprime” market may legally charge higher interest rates or levy extra fees
on borrowers who are above-average credit risks in order to cover the increased risk of default on these
loans. However, most of the information necessary to differentiate between “subprime” and predatory of
loans is sealed within bank or government documents and thereby not available to researchers.

This study collected mortgage foreclosure, loan term and property assessment data for St. Clair County from
1996 to 2000 in an attempt to develop proxies that would signal which of the mortgages that faced possible
foreclosure in the county from 1996 to 2000 were predatory in nature. Using statistics derived from these
proxies and comparing them to thresholds suggested in government and consumer protection reports,
suspected predatory loans were examined to highlight chronological and spatial trends in foreclosures and
lending and identify prominent lenders involved in this suspect set of foreclosures. Statistical correlations
were also examined between foreclosures, loan terms and Census demographic information.

This study also incorporated interviews with individuals who provide service to low- and moderate-income
homebuyers and homeowners in St. Clair County as well as low-income individuals in the county who have
experienced attempted mortgage foreclosure. The responses of these two groups of individuals concerning
their perceptions and personal experiences with mortgage lenders, mortgage brokers, and contractors in the
home buying and owning processes provide illustrations of the types of deceptive practices experienced by
low-income populations when they aspire to the American Dream of homeownership. This material also
provides a better understanding of the pervasive misunderstandings concerning credit and the
responsibilities of professionals in real estate transactions.

The report finds evidence that foreclosures and judgments to foreclose in St. Clair County increased from
1996-2000 and disproportionately effected geographic areas with concentrations of minority and low-income
individuals, a pattern that hampers community redevelopment efforts in areas where these borrowers reside.
The available statistical data cannot conclusively prove causality but it does show correlation between
primary race in a geographic area and indicators of predatory lending. The qualitative data suggests that
specific loans and practices in the lending process are designed to prey on minority and low-income
borrowers. This report suggests a number of possible avenues for future research, which will allow further
exploration of available data. In the absence of more data being made available, the report cites education
of minority and low-income borrowers and an increase in available lending avenues as likely the most
effective ways to combat predatory or abusive practices in the short term. To combat abuse in the long
term, tighter and better-enforced legislated curbs on unethical and predatory practices, and increased
documentation, reporting, and public availability of material are suggested to reduce abusive and illegal
practices.

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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County




Figure 1: Map of St. Clair County with Municipalities Identified



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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


INTRODUCTION


Predatory lending has become a substantial problem for low and middle-income communities in recent
years. Mortgage foreclosures have increased substantially due to the abusive loan terms and practices that
characterize predatory lending. These tactics strip victims of equity in their homes and undermine
community development efforts and successes within the neighborhood. These abusive loan practices are
frequently found in the subprime capital market due to limited regulation and the presence of financially
inexperienced borrowers. The subprime market provides individuals with poor credit histories access to
capital; an important service to distressed communities that prosper from the financial and social
contributions of new homeowners. Unfortunately, with this rapid increase in subprime lending emerges
predatory tactics that prey primarily on minority and low-income individuals.

Local government officials in St. Clair County, Illinois, an area with some of the most distressed communities
in the state, have been very concerned about predatory lending practices (documented by Fitzgerald, 2001).
In order to effectively target information dissemination and remedial action, the County needed answers to
key questions: How prevalent is predatory lending in St. Clair County? Are there specific areas or
populations within the county that are particularly vulnerable? With a grant from the federal government,
the County commissioned a study of loan terms and foreclosure trends over a five-year period (1996 to
2000).

St. Clair County is located in the southwest part of the State of Illinois, adjacent to the Mississippi River.
Within view of the City of St. Louis, Missouri, St. Clair County has some of the highest concentrations of low-
income households in the state. The northwest part of the county, adjacent to the Mississippi River is part
of a geologically distinct area known as the “Great American Bottoms”, the flood plain area for the
Mississippi River. The municipalities in the lowland part of the county include: Brooklyn, National City,
Madison, Fairmont City, Washington Park, East St. Louis, Sauget, Alorton, Centreville, Cahokia, East
Carondelet, and Dupo. Most of these towns have majority African American populations and concentrations
of low-income households. St. Clair County’s bluffs, the area on the highlands above the Mississippi, include
the municipalities of: Collinsville, Caseyville, Fairview Heights, O’Fallon, Swansea, Belleville, Millstadt,
Smithton, Freeburg, New Athens, Lenzburg, Marissa, St. Libory, Fayetteville, Mascoutah, New Baden, Scot
AFB, Shiloh, Lebanon, and Summerfield, as well as a large area of unincorporated land. These municipalities
tend to have a concentration of the county’s white and higher-income population.

To conduct this study, data was gathered on foreclosures, specific loan terms, and property assessments in
the county. This data allowed identification of chronological and spatial trends in foreclosures and lending.
Prominent lenders involved in foreclosures were determined, as were frequency of lending and the typical
loan terms. Property values prior to purchase were compared to the loan amounts in order to identify the
prominence and degree of excessively high loan-to-value ratios. Finally, to better provide a description of
potential victims, correlations were examined between foreclosure complaints, judgments to foreclosure, and
suspect loan conditions on the one hand, and several demographic variables on the other.

The second stage of this project included one-on-one interviews with individuals providing service to low-
and moderate-income homebuyers and homeowners in St. Clair County as well as low- and moderate-
income individuals who have gone through foreclosure in the county. The qualitative data collected in the
second stage of the study helps provide the human side to the study of the prevalence, conditions, and
outcomes surrounding sub-prime and potentially predatory lending practices in the county.

In reporting on this study, background information from the literature on predatory lending is first presented
and discussed. This is followed with a description of how data was collected, and the analyses performed on
this data together with the findings that emerged. The report concludes with discussion of the implications of
these findings for St. Clair County, recommendations for action, and suggestions for further research and
analyses that are suggested by the findings of this study.


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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


BACKGROUND: REVIEW OF RELEVANT LITERATURE


Subprime Lending


Beginning in the early 1990’s, a market for high interest rate lending to individuals with poor credit history
emerged in the credit industry. The rapid growth of this subprime market is largely due to competition in
the credit industry, new measures of credit risk, securitization of loans, and the Community Reinvestment
Act (CRA) (Litan, 2001).

The subprime market generally serves as a source of home-collateralized consumer credit. Interest rates
and origination costs are higher than the prime market, to account for increased risk associated with the
borrower’s poor credit history. The highest classifications of subprime borrowers generally obtain interest
rates about one-half of a percentage point above prime, and the lowest groups pay as much as four points
above prime. The loans are extended by non-depository institutions that have less oversight by state and
federal regulators, depository institutions obligated under CRA to meet credit needs in the community,
government sponsored enterprises, and institutional and individual investors involved with the securitization
of the loans (U.S. Department of Housing and Urban Development and U.S. Department of Treasury, 2000).
Due partially to the subprime market, homeownership in the United States is at a record high, and
communities are thriving from the financial and social benefits of increased homeownership.



Predatory Lending


Subprime lending provides an important service to distressed communities, but is also a breeding ground for
predatory lenders. No real definition of predatory lending exists, making it difficult to define and regulate
the abusive practices. Because of the limited regulation of the subprime market, predatory lenders can
engage in deception or fraud to take advantage of borrowers. Additionally, a lack of publicly available data
regarding loan terms and foreclosures makes research of deceptive and fraudulent loan terms difficult.

Predatory lending tactics fall into three general categories: fraudulent target marketing, abusive loan terms
and fraudulent lender behavior (Carr and Kolluri, 2001). Fraudulent target marketing is characterized by the
identification of potential borrowers based on vulnerability to lender’s aggressive or fraudulent behavior.
Lenders use HMDA (Home Mortgage Disclosure Act) data, U.S. Census data, or county registrar deeds to
identify customers based on race, ethnicity, age, gender, or other variables indicative of vulnerability (Engel
and McCoy, 2001). These customers are then targeted for the remaining two categories of abuse: abusive
loan terms and fraudulent behavior.

Abusive loan terms are items often included in the mortgage. While not necessarily predatory, abusive loan
terms can signal predatory practices when they are coupled with predatory intent of the professionals
involved. The most common abusive terms are listed below:

    •   Excessive fees and “packing” – fees are charged that exceed justification and provide more profit to
        the lender than the prime market would. Fees are also packed into the loan without the borrower’s
        understanding of the terms. Predatory loans routinely incorporate high fees at eight percent or
        more of the loan amount compared to the average one to two percent assessed by banks to
        originate loans non-predatory. Typically, the fees on home refinancing loans are kept just below
        eight percent in order to stay under the HOEPA (Home Ownership and Equity Protection Act) fee
        threshold established by federal law. When fees reach eight percent or more, consumer protections
        such as additional disclosures to the borrower are required.



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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


    •   Home equity lending – lending based on the borrower’s equity in their home, rather than on the
        ability to repay the loan. Often the monthly payments exceed 50 percent of the individual’s monthly
        income.

    •   Negative amortization – loan payments are structured so that monthly payments do not pay off
        accrued interest and the principal balance keeps increasing.

    •   Single-Premium Credit Insurance – lender requires an upfront single payment for credit insurance
        that must be financed, rather than the typical monthly charge.

    •   Mandatory Arbitration Clause – lender requires the borrower to engage in arbitration in the case of a
        dispute, capturing all legal redress.

    •   Prepayment Penalty – charges a fee to the borrower if all or portions of the loan are prepaid in a
        specified period. This becomes a substantial problem when coupled with loan flipping.

    •   Balloon Payment – requires a large portion of the principal to be paid at the end of the amortization
        period.

    •   Adjustable Rate – allows for periodic changes in the interest rate. Often based on a margin to a
        specific index, such as United States Treasury rates or London InterBank Offered Rates.

Fraudulent lender behavior is the third category of lender abuse. The common abuses are:

    •   Deceptive or high-pressure sales tactics used to persuade individuals to agree to fraudulent loans.

    •   Discouraging the borrower from seeking lower cost loans. Often the borrower may qualify for a
        prime-rate loan, but is unaware.

    •   Failure to explain the terms of the loan or providing obscure information.

    •   Loan flipping – refinancing the loans repeatedly, each time charging high fees and prepayment
        penalties.

    •   High Loan-to-value ratios - A ratio between the mortgaged value and the assessed value greater
        than 125 percent is abusive because it traps the homeowner into a mortgage debt greater than the
        resale value of their property.



Distinction between Subprime and Predatory Loans


The distinction between legitimate subprime loans and abusive predatory loans is difficult to define because
of variations in consumer credit history and lender practices. The subprime market is characterized by
higher interest rates and fees to account for the increased risk associated with the borrower’s poor credit
history. Predatory loans generate more profit to the lender than necessary to cover the increased risk.
Therefore, without knowing each borrower’s credit history, the line between legitimate and abusive loans is
unclear.

One way to identify abusive loans is to use the federal regulations developed to protect consumers from high
cost loans. The federal government protects consumers of refinance mortgages and home equity
installment loans with the Home Ow nership and Equity Protection Act (HOEPA) by requiring additional
disclosures to the borrower (Federal Trade Commission, 2002). The loans covered by HOEPA are


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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


determined with a number of thresholds, and any loan term exceeding a threshold is determined to be high
cost and protected by HOEPA. Although loans exceeding HOEPA guidelines are not necessarily abusive, they
are identified as potentially abusive and require additional disclosures to the borrower. These measures are
used also by the government-sponsored enterprises Freddie Mac and Fannie Mae to determine which loans
to purchase for the secondary mortgage market (Freddie Mac, 2002, Fannie Mae, 2002).

These guidelines are often perceived to be too lenient, contributing to the predatory lending problem that
plagues many parts of the country. The conclusions of the U.S. Department of Housing and Urban
Development and Department of the Treasury Joint Report (2000) are recommendations to Congress for
legislation to curb predatory lending. Most of these recommendations are alterations to HOEPA. The report
lists thresholds for loan terms, and recommends that any loan exceeding the threshold value is abusive.
The report found that by strengthening the HOEPA requirements and including more high cost loans, 20
percent of the subprime market would be included in the disclosures and protections that HOEPA provides.
Many of the recommendations made in the Joint Report are listed below:

    •   Interest rate – the APR threshold should be six percentage points above Treasury securities for first
        liens and eight percentage points for second liens.

    •   Adjustable rate mortgages – the interest rates for the life of the loan should not exceed the APR
        thresholds listed above.

    •   Excessive finance charges – maximum fees should be the greater of seven percent of the loan or
        $1000.

    •   Single premium credit insurance – credit insurance is prohibited except when offered on a monthly
        basis.

    •   Prepayment penalties – prohibited for prepayments more than 5 years after closing.

    •   Balloon payments – prohibited for loans with shorter than 15 year terms.

    •   Mandatory arbitration clauses – prohibited.

Another indicator, not included in the Joint Report, but important in identifying abusive and potentially
predatory lending is the loan-to-value ratio. A ratio between the mortgaged value and the assessed value
greater than 1.25 was determined to be abusive by ACORN (the Association of Community Organizations for
Reform Now) (2002).



Concentration of Subprime Lending in Distressed Communities


The lack of available documentation on loan terms and foreclosures limits the amount and types of data
available to study predatory lending. By defining the geographic areas and demographic groups that are
targeted for subprime lending, for which data are available, a consensus can be formed about predatory
lending.

A number of studies have been conducted which find that subprime lending is concentrated in minority and
low-income neighborhoods. These studies use HMDA data, which contain information on the race, sex,
income and location of the borrower. HMDA data are limited because they do not contain reports from all
lenders, and subprime lenders are especially underrepresented. Lenders in metropolitan areas with assets
under $10 million, independent mortgage companies that originate under 100 applications in metropolitan
areas, and lenders that only originate applications in non-metropolitan areas are not required to report


                                                      10
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


HMDA data (Scheessele, 1998). Additionally, loans from subprime and prime lenders are not separated from
each other. Due to the large scale of these prior studies, HMDA data were the necessary source as data
collection from individual county files would be impractical. To separate the HMDA data into subprime and
prime loans, the lenders and secondary market purchasers were examined. Loans sold by HUD sponsored
subprime lenders were included in the studies, and those sold to government-sponsored enterprises were
categorized as prime loans and excluded from the studies

The U.S. Department of Housing and Urban Development conducted a nationwide analysis of almost one
million mortgages reported in 1998 using HMDA data (U.S. Department of Housing and Urban Development,
2000). The key findings are listed below:

    1. From 1993 to 1998, the number of subprime refinance loans increased ten-fold.

    2. Subprime loans are three times more likely in low-income neighborhoods than in high-income
       neighborhoods.

    3. Subprime loans are five times more likely in black neighborhoods than in white neighborhoods.

    4. Homeowners in high-income black neighborhoods are twice as likely as homeowners in low-income
       white neighborhoods to have subprime loans.

The study demonstrates the concentration of subprime lending in minority and low-income neighborhoods.
Additionally, the Association of Community Organizations for Reform Now (2001) conducted a study that
concluded that subprime loans are heavily concentrated in Latino neighborhoods, as well as African-
American neighborhoods. When analyzed from a metropolitan perspective, the same racial and income
disparities are found (Bradford, 2002). A study in the New York Metropolitan Area also concluded that
minorities receive more subprime loans, pay higher fees and are more vulnerable to foreclosure (Schwartz,
2001). Because of the prevalence of predatory lending in the subprime market, it is likely that predatory
practices are also common in these same communities.

Concentrations of mortgage foreclosures and equity stripping in distressed communities are impediments to
community development efforts. These minority and low-income communities that are the targets of
predatory lending are also those most in need of neighborhood revitalization. The community development
efforts aimed at increasing home ownership and individual assets in these communities are undermined by
the effects of predatory lending (Weber and Smith, 2001). The subprime market has proven to facilitate
affordable housing and economic development (Wyly, et al., 2002), but concentrations of abusive loans have
the opposite effect on these already distressed communities.



Property Flipping


Another potentially fraudulent practice associated with home sales in distressed communities is the practice
of property flipping. Distinguishable from loan flipping, property flipping “… involves the purchase and quick
resale of homes at a huge price mark-up, often accompanied by little (or only cosmetic) work to improve the
properties, in order to create the false illusion of a robust real estate market through the use of phony
paperwork and deceptive sales pitches” (United States, Senate, Committee on Governmental Affairs, 2001).
The practice of buying a property, making repairs and quickly reselling the property at a substantial profit is,
in-and-of-itself, neither unethical nor illegal. Repairs to property that are substantial and address all
underlying structural and system deficiencies may warrant a substantial increase in property value in a short
period of time. Unethical and/or illegal property flipping includes setting the sales price far above the
property’s value and referring the buyer to a subprime lender or broker. As is all too often the case,
especially in distressed communities, property flipping involves little, if any property upgrading or repair.


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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Any repair which does occur is generally cosmetic in nature and may simply cover up more serious deficits in
the structure, leaving unsuspecting low-income buyers with a house requiring significant repair to remain
habitable as well as payment on a mortgage that is five, ten or more, times higher than the value of the
property. This type of property flipping involves unethical and often illegal activities such as, illegal
documentation, falsified mortgage applications, and falsely inflated appraisals (Anacker, 2002). It can have
serious consequences for municipalities where this practice is rife through increasing derelict properties and
also through inflated tax multipliers that increase tax bills overall in the municipality (Fitzgerald, 2001). This
makes the outcome doubly burdensome to low- and moderate-income homeowners.



Concern about St. Clair County and East St. Louis


Based on the conclusions of previous studies in distressed communities, concern about predatory lending is
justified in St. Clair County. According to 2000 Census data, 28.8 percent of the county is Black or African
American, compared to 15.1 percent for the state of Illinois. Over 14 percent of the county is living below
the poverty level, compared to 10.7 percent for Illinois. The median household income reported in the 2000
census is $7,442 below the state median ($39,148 in St. Clair County). Within the county, concern is
concentrated in the City of East St. Louis. According to the East St. Louis Action Research Project at the
University of Illinois, over half of the residents of this city live below the poverty level and unemployment is
around 30 percent.

An investigation conducted by the Belleville News Democrat has already pinpointed some abusive practices
taking place in the county. 1 Inflated values of homes and property flipping in East St. Louis have left victims
in financial distress. The county has requested state regulators to review appraisals and records of home
sales (Fitzgerald, 2001).



Legal Context


The Fair Housing Act (1968) and Equal Opportunity Act (1974) were intended to prohibit “redlining” or
discriminatory lending. These laws allowed minorities and low-income individuals access to credit by
requiring financial institutions to increase lending to these groups (Lexis, 2001). After the enactment of
these laws, discrimination in the credit market switched from denial of credit to abusive terms of credit
(Stein, 2001).

These new discriminatory tactics have been addressed with federal legislations, which have been successful
in curbing some of the predatory abuse. The specific statues are outlined below (U.S. Department of
Housing and Urban Development and U.S. Department of Treasury, 2000).

    •    Truth In Lending Act (TILA), 1968 - requires disclosure to the borrower of essential terms, including
         the finance charge, the finance charge expressed as an annual percentage rate, and the total of all
         loan payments.




1
  Two real estate appraisers have faced disciplinary action by the state for inflating property appraisals as a result of this
investigation. One seller of more than 80 homes, Marvis Bownes, who engaged in property flipping in those sales,
pleaded guilty to mail fraud and money-laundering and will be sentenced to as much as ten years in prison in late
September of 2003.


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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


    •   Home Ownership and Equity Protection Act (HOEPA), 1994 – requires additional disclosures to the
        borrower and restricts some loan provisions for a subset of refinancings and closed-end home equity
        loans that are particularly high-cost.

    •   Real Estate Settlement Procedures Act (RESPA), 1974 – requires disclosure of settlement costs, bars
        payments by settlement service providers for business referrals and unearned fees, limits amounts
        that can be held in borrower’s escrow accounts, and requires that borrowers be informed of
        mortgage servicing transfers and of lenders’ business arrangements with affiliated settlement service
        providers.



Recommendations and Possible Remedies


The greatest measure to curb predatory lending may be a comprehensive study of the specific tactics and
targets of the abuse, followed with strict regulations to restrict the predatory aspects of subprime lending
(Joint Center for Housing Studies of Harvard University, 1999). Increasing the availability of data on
financial service transactions would allow researchers to develop conclusions on which to base the new
legislation (Carr and Scheutz, 2001).

From the community level, an emphasis on education and counseling is imperative. Increased borrower
education to promote awareness of financial service options is the initial step to curbing the abusive and
predatory tactics. This can best be accomplished with loan counseling and education programs. Many cities
and states across the country have adopted programs to achieve these objectives. Additionally, increased
subprime and prime competition in these neighborhoods would allow borrowers to shop for the best loan
rates. Predatory lenders prey on the individuals with the least knowledge of home mortgage loans, and the
key to restricting the practice is educating these individuals and providing alternatives sources of capital.




                                                    13
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


DATA COLLECTION – STAGE ONE


In order to research predatory lending patterns in St. Clair County, foreclosure and assessment data was
collected from the St. Clair County Building in Belleville, Illinois. Because of the small scale of this study, it
was feasible to sample data from the County rather than rely on HMDA data, as used in previous
metropolitan and nationwide studies. Data on foreclosures from 1996-2000, the corresponding assessments
and related deeds were collected from the County Building. The data available from the county was
retrieved from three sources: the Circuit Clerk, the County Assessor, and the Recorder of Deeds. Additional
data was collected from the Federal Reserve website, and the United States Census Bureau.



Circuit Clerk: Complaints to Foreclose


The starting place for this study of predatory lending is an examination of the foreclosures in the county.
Each time a mortgage holder files a complaint to foreclose a mortgage, a file is created and held in the
Circuit Clerk’s vault. These files ideally contain the foreclosure complaint, the note and the mortgage. From
these documents, the mortgagor, mortgagee, mortgage holder, loan amount, interest rate, and specific loan
terms are available. The specific loan terms relevant to this study are adjustable rates, balloon payments,
mandatory arbitration agreements, prepayment penalties, and single premium credit insurance. Each of
these terms was identified and the relevant details included in the database. Additionally, the addresses and
tax parcel numbers of each property were recorded.

The foreclosure files in the Circuit Clerk’s office ranged from 250-600 annually. Due to resource constraints,
it was not possible to sample the entire volume of foreclosure complaints for the five-year period
(approximately 2,170 complaints). With the resources available, a random, 20 percent sample allowed
adequate investigation of trends throughout the period being studied. The 20 percent sample yielded a total
sample size of 434 foreclosure complaint cases. The sampling method used provided a random sample that
did not exclude geographic, demographic or temporal variables. The specific information extracted from the
foreclosure files is described below.

       •   Judgment to Foreclosure – each foreclosure case had a complaint to foreclose filed, but not all had
           judgments to foreclose. A database in the Circuit Clerk’s office indicated which of these cases was
           eventually foreclosed through a judgment to foreclose.

       •   Interest Rate – the interest rate used in this study was obtained from the mortgage note in the
           foreclosure file. 2

       •   Adjustable Rate – the mortgage in the foreclosure file should include any riders to the mortgage,
           including the adjustable rate rider if applicable. This rider discloses the details of an adjustable
           interest rate. Important details are the initial rate, frequency of adjustment, index upon which the
           rate is based, the margin added to the index, and the minimum and maximum rates for the life of
           the loan.

       •   Balloon Payments – a balloon payment rider should also be included in the mortgage document if
           applicable. This rider explains the details of a balloon payment. Important details are the length of
           time before the balloon payment is due and the options for refinancing the loan at that time.




2
    See limitations of the Data on page 17.


                                                       14
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


       •   Single Premium Credit Insurance – this predatory tactic is usually not included in mortgage
           document. It is unusual to find documentation of this predatory tactic in the pages of a foreclosure
           file. The examples found in this study were found at the end of the document and listed the price of
           the insurance.

       •   Mandatory Arbitration Clause – arbitration clauses are also not generally found in a mortgage
           document, but some examples were identified in the cases studied.

       •   Prepayment Penalties – these fees should be included in the mortgage document or note and
           explain the length of time for which the penalty applies and the amount of the penalty3.



County Assessor and Treasurer: Assessments and Sales Prices


In order to identify cases that could indicate property flipping and inflated property appraisals, the assessed
value of the property in the year prior to sale was compared to the sale price. Using the 434 cases that
were sampled from the foreclosure complaints, the assessments and sale prices were needed for the
corresponding tax parcels. Fifty of the foreclosure cases contained multiple parcels, and the assessment and
sale prices were collected for each individual parcel, totaling 536 parcels. After the data collection, the tax
assessments were aggregated for those cases with multiple parcels.

The tax assessor’s database provided the current assessed value (2001) of the individual parcels, as well as
indication if the property has become vacant since the foreclosure. Historical assessments were also
collected for the years prior to which the mortgage was issued and the deed recorded. The tax assessor’s
database provided this historical assessment beginning in 1997. The assessments for 1991-1997 were
available from the County Treasurer’s database. Assessments before 1991 were obtained from microfilm in
the County Treasurer’s office. In addition to the assessed value, the multiplier for each township was
collected in paper form. The multiplier is generated annually for each township to account for discrepancies
in the assessments. 4

Sale prices were obtained from the assessor’s database for transactions recorded after 1997. Sale prices are
recorded with the Real Estate Transaction Recordation Form, commonly known as a “green sheet”, and
entered into the database. Sale prices for transactions recorded before 1997 were obtained from the
Recorder of Deeds, as described in the corresponding section below.

The specific information used in the analysis is as follows:

       •   Estimated Property Appraisal – the assessment figure obtained from the County is the Estimated
           Assessed Value (EAV) of the property, or 1/3 of the assessed value. The EAV was multiplied by 3
           and the corresponding township multiplier to obtain the estimated property appraisal for the
           property.

       •   Sale Price - the sale price is either indicated in the Real Estate Transfer Recordation Form or from
           the Real Estate Transfer Tax stamp marked on the deed (from the Recorder of Deeds). Real Estate
           Transfer Recordation Forms are recorded when a property transaction occurs and the information is
           entered into the assessor’s database.




3
    See limitations of the Data on page 17.
4
    See limitations of the Data on page 17.


                                                      15
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Recorder of Deeds: Tax Stamps and Document Records


The Recorder of Deeds provided the remaining sale prices not available from the County Assessor, as well as
records of each mortgage and deed associated with the property. The county assessor’s database does not
contain sale prices for cases before 1997, as described above, and this information was extracted from the
deed. A stamp is marked in the deed recording a transfer tax that must be paid. This real estate stamp
gives a close approximation of the sale price or the reason for exemption from the tax. The deeds for years
after 1991 were available in the Recorder of Deeds database. Deeds before 1986 were available from
microfilm in the office. Some of the document history data collected from the Recorder of Deeds database
were not used for analysis in this study, but are important for future research.

The specific information collected is described below:

Sale Price – The real estate transfer stamp is marked on the deed. This stamp indicates the tax to be paid
based upon the sale price. ($1.50 taxed per $1000 sale price). If a property was exempt from the tax, the
reason for exemption is marked on the deed.

Document History - This information contains the grantor, grantee, date and type of document for each
transaction since 1986. The information for transactions before 1986 was not collected. A search by the
name of the grantee through the mortgage and deed books could provide this information.




Federal Reserve: H- 15 Treasury Security Rates


For purposes of evaluating interest rates, the treasury security daily maturity rates for the 15th day of the
month prior to the mortgage date were collected from Federal Government’s Statistical Release H-15 on the
Federal Reserve website. These rates are recorded by the day, month and year, and vary by the years to
maturity. Rates were missing for 20-year maturities from 1987-1993, and 30-year maturities before 1977 5.
The rates had to be compared to those of comparable maturity, and the methodology for this is included in
Appendix A.



United States Census Bureau


Demographic data from the United States Census Bureau was used to conduct the statistical analysis. This
data included 1990 6 Decennial data on race, income and age reported by block group.



Limitations of the Data


The data collected and calculated for analysis are based on available data in St. Clair County. Predatory
tactics are often illegal and not documented in mortgages or mortgage notes. Mandatory arbitration clauses
and single premium credit insurance agreements are usually not in mortgages. A lawyer working for the

5
    This impacted calculations for six cases and 16 cases respectively.
6
  Although the 2000 Census data on race, income, and age were available part way through this study, 1990 was used
for descriptive and comparative analysis because 77 percent of the sampled cases had mortgages originated in the
1990s.


                                                            16
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Land of Lincoln Legal Assistance Foundation in East St. Louis, Illinois, indicated that in the foreclosure cases
that they litigate, the rider documenting prepayment penalties, although legally part of the note, is included
in foreclosure complaints in only about half of those cases where it is applicable (Diane Thompson, personal
communication, May 2, 2003). Thus, one can assume that a significant number of these were missed given
the study’s data collection methods.

Many of the other indicators may be included in documents that are not available in public records. The
interest rates used in this study were obtained from the mortgage notes in the foreclosure files. Many
predatory tactics may not have been evident in this data due to the type of interest rate information
available in the foreclosure documents. The available interest rate is not the annual percentage rate (APR),
and may be equal to or lower than the APR as reported on the Truth-in-Lending disclosure statement.
However, the true APR can only be determined by an independent analysis of information contained in the
HUD-1 Settlement Statement to determine what fees are properly included in the APR. The impacts of many
of the fees that might be packed into a predatory loan are only completely visible by calculating the true APR
paid by the borrower. Neither the Truth-in-Lending Statement nor the HUD-1 Settlement Statement are
publicly available; they are best secured from the borrowers.

There may be other characteristics of publicly available data that incorporate an additional margin of error in
some of the calculations, for example using the property assessment in the year prior to purchase as a proxy
for a property appraisal at the time of sale. The assessed value in the year prior to sale multiplied by the
township multiplier for that year was used as a proxy for a legitimate property appraisal. There are
limitations to this substitution. However, given the context for this study it is the best indicator available. It
is important to note that in some cases, for example in an area that has experienced significant illegal
property flipping, the assessment and/or the multiplier may be inflated.

Finally, pieces of documentation may simply be missing or inaccurate in the public record. Adjustable Rate
Mortgage Files did not always contain all applicable information needed to calculate the effective interest
rate for the adjustable rate. Among other missing documentation, missing sales prices prevented the
analysis of 123 of the cases for indications of property flipping and high loan-to-value ratios. They were
missing from the records for various reasons: no exact mortgage date was listed (4 cases), Recorder of
Deeds transfer tax stamp unreadable (6 cases), Recorder of Deeds transfer tax stamp missing (13 cases),
pertinent documents missing (15 cases), pre-1986 deed not located in Recorder of Deeds books (29 cases),
post-1996 sale price not listed in assessor's database (56 cases). Missing or incorrect parcel identification
numbers prevented mapping of 10 foreclosure cases.

This study of predatory lending is based on known tactics that are available in public documents. This
analysis will provide an initial understanding of patterns in St. Clair County, but is certainly limited based on
available data. With each of these data limitation identified above, the results err on the conservative side.
This suggests that the results of this study may only begin to uncover more serious unethical and illegal
lending practices in the county.




DATA COLLECTION – STAGE TWO


Interviews


In order to better understand the prevalence, conditions, and outcomes surrounding sub-prime and
potentially predatory lending practices at the scale of the individual homeowner, the second stage of this
project included one-on-one interviews with individuals providing service to low- and moderate-income
homebuyers and homeowners in St. Clair County as well as low-income individuals who have gone through
foreclosure in St. Clair County. Qualitative data collected in the second stage of the study helps provide the


                                                      17
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


human side to the study of abusive and predatory lending practices aimed at low- and moderate-income
individuals and the impact of the resulting foreclosures and loss of residence.

A total of eight interviews have been completed in stage two at the time of this report. Four interviews with
individuals who are service providers have been completed; four interviews with low- and moderate-income
individuals who have gone through foreclosure have been completed.

Although somewhat open-ended in nature, each set of interviews follows an interview guide. The interviews
with service providers touch on the following topics: current and prior experiences with
homebuyers/homeowners, involvement with clients’ lending/foreclosure processes, perception of foreclosure
trends and possible reasons for trends, perception of extent of unethical/predatory practices, and their
proposals for solutions to the problems they perceive. The interviews with individuals who have gone
through foreclosure touch on the following topics: primary borrower demographic information, loan
application process, perception of credit record, mortgage and closing processes, knowledge about
cancellation rights, knowledge of specific aspects of the mortgage, consolidation of debt, refinancing,
knowledge about single premium insurances, post-foreclosure outcomes for interviewee and property. Each
of the interviewees who has gone through foreclosure is also asked to bring as much of the official
paperwork from her/his loan and foreclosure as possible to confirm details. The interview guide for service
providers is included in Appendix B; the interview guide for victims of foreclosure is included in Appendix C
at the end of this report.

Limitations of the Data


The main limitation of the current data results from the low number of interviews conducted to date.
Another limitation of data from interviews with those who have gone through foreclosure is that fact that
some interviewees lack complete official loan documentation against which to compare their memories and
perceptions. Interviews are an on-going part of the study. The final goals for interviewing are five service
providers’ interviews and 20 with individuals who have gone through the foreclosure process. Interviews will
be completed by December of 2003.




                                                    18
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


ANALYSIS - STAGE ONE


The data collected from St. Clair County and the Federal Reserve were used to create eight indicators of
abusive lending. The first four of these were taken straight from the mortgage, and the remaining four
required calculation. These indicators are listed and/or explained below.

    1. Single Premium Credit Insurance

    2. Mandatory Arbitration Clause

    3. Prepayment Penalties

    4. Balloon Payments

Calculation of the remaining four indicators:

    5. Interest Rate Spread – a comparable treasury security maturity rate (the treasury security rate for a
       security issued in the same month as the mortgage with a maturity date equal to the length of the
       mortgage) was subtracted from the interest rate.

    6. Adjustable Rate – Adjustable Rate Mortgages (ARMs) were analyzed to determine an effective
       interest rate over the life of the loan. To find the effective rate, an interest rate was calculated for
       each change period up until the maximum rate was reached, and then the average of those rates
       was found and amortized over the life of the loan 7. The Interest Rate Spread was then
       calculated for the effective interest rate.

    7. Sale Price Difference – the estimated property appraisal in the year prior to purchase was subtracted
       from the sale price; either obtained from the Real Estate Transaction Recordation Form or calculated
       from the stamp (multiplied by 1000 and divided by 1.5). See page 15 for further detail. This figure
       was divided by the sale price to obtain a percentage difference in value between sales and appraisal.

    8. Loan to Value Ratio (LTV) – the amount of the mortgage was divided by the estimated property
       appraisal for the year prior to purchase.



Datasets


Four datasets were developed from the collected data and an analysis was conducted for overall and
chronological trends. The datasets were also mapped in a Geographic Information System to view spatial


7
  Details of this calculation are as follows. The initial (“teaser”) interest rate was used to find the interest and principal
paid in the first term of the loan (as specified in the loan agreement, anywhere from one month to 10 years). At the end
of this term, the new rate was calculated using the index and additive factor outlined in the loan (for instance, LIBOR
rate plus 6%). The outstanding principal from term 1 was carried forward and interest and principal paid in term 2 were
calculated. For term 3, the additive factor was added to the rate calculated in term 2, and principal and interest
calculated yet again. This was done until the interest rate reached the maximum as outlined in the loan agreement and
that maximum rate was charged on the outstanding principal for the remainder of the amortization period. When all of
this calculation was complete, the result was a set of principal and interest payments for each term of the loan, each one
charged at a progressively higher interest rate. These payments were added and then averaged to determine the
effective interest rate charged over the amortization period of the loan.


                                                           19
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


trends in lending patterns. Additionally, these datasets were used to find statistical correlations with
demographic data obtained from the United States Census Bureau. The dataset are explained below:

    1. Foreclosure Complaints: the full set of 434 sampled cases

    2. Judgments to Foreclose: the 292 cases with judgments to foreclose

    3. High Loan to Value: the 221 cases with LTV greater than 1.258

    4. Suspect Loans: the 224 cases with suspect loan terms (methodology follows)

To develop the suspect loans dataset, each of the first seven indicators of abusive lending was given a
threshold value based on the Recommendations in the U.S. Department of Housing and Urban Development
and U.S. Department of the Treasury Joint Report, 2000. Any foreclosure case exceeding one of the
threshold indicators was flagged as suspect and retained in the suspect loan dataset. Of the 434 foreclosure
complaints, 224 cases had at least one indicator exceeding the threshold value. The thresholds for each
indicator are listed below.

    1. Single Premium Credit Insurance: prohibited except when offered on a monthly basis.

    2. Mandatory Arbitration Clause: prohibited

    3. Prepayment Penalties: prohibited for prepayments more than 5 years from closing.

    4. Balloon Payments: prohibited for loans with shorter than 15-year terms.

    5. Interest Rate Spread –the threshold was set at 6 percentage points above Treasury securities.

    6. Adjustable Rate - the threshold was set at 6 percentage points above Treasury securities.

    7. Sale Price Difference 9 –the threshold was set at a sale price greater than 25 percent over the
       estimated property appraisal.



Overview of Data


Based on the 20 percent sampling method, the estimated total number of foreclosures in St. Clair County for
the 5-year period is 2170, with 1460 judgments to foreclose, 1105 High LTV, and 1120 suspect loans. Table
1 below shows both the 20 percent sample totals and the estimated totals of foreclosures, judgments and
suspect loans for each year. A general trend of increasing foreclosures, judgments, high LTV, and suspect
predatory loans, is evident over the years, with a small reduction in 2000. Another interesting point is that


8
  These loan-to-value ratios should be examined with some caution because High LTV loans may result from unethical
practices but they may also result from legitimate transactions, for example a loan that has been made which
incorporates both purchase and rehab. Also a loan for a newly constructed home could potentially show as a High LTV
loan if construction was completed in a relatively short time frame.
9
  Missing sales prices prevented the analysis of 123 of the cases for various reasons: no exact mortgage date listed (4
cases), Recorder of Deeds transfer tax stamp unreadable (6 cases), Recorder of Deeds transfer tax stamp missing (13
cases), pertinent documents missing (15 cases), pre-1986 deed not located in Recorder of Deeds books (29 cases), post -
1996 sale price not listed in assessor's database (56 cases).



                                                        20
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


foreclosure complaints had nearly the same percentage of judgments to foreclose (67%) as the percentage
that suspect loans were of judgments (69%). Other general characteristics include:

    •   Over two-thirds of foreclosure complaints, during the five-year period, have judgments to foreclose.

    •   Just over half of foreclosure complaints, during the five-year period, have loan-to-value ratios above
        1.25.

    •   Over half of foreclosure complaints, during the five-year period, have characteristics which suggest
        predatory lending practices were employed



Table 1: Sample and Estimated Data Set Totals
                         1996          1997          1998          1999           2000          Total
                             Est.          Est.          Est.          Est.           Est.          Est.
                      20% total     20% total     20% total     20% total      20% total     20% total
Foreclosure
Complaints             50    250     65     325    88    440     123    615    108    540     434    2170
Judgments to
Foreclose              35    175     48     240    54    270     82     410     73    365     292    1460
High LTV Loans         21    105     30     150    41    205     70     350     59    295     221    1105
Suspect Predatory
Loans                  22    110     35     175    42    210     64     320     61    305     224    1120




Table 2 below displays an overview of the characteristics of all loans with foreclosure complaints in the
sample, while Table 3 below provides a chronological overview of judgments to foreclose using similar
descriptive characteristics to those outlined in Table 2. As can be seen from the Table 2 below, each of the
indicators of predatory and abusive lending was present in the foreclosures.

Other characteristics of note in Table 2:

    •   The average difference between interest rate and T-bill rate is slightly higher for loans that went to
        judgment (3.20%) than for all foreclosure filings (2.96%). This average difference for suspect loans
        is substantially higher (5.52%) than for either filings or judgments.

    •   While 26% of loans in all foreclosure filings and 27% of those loans with judgments had adjustable
        rates, 35% of suspect predatory loans had adjustable rates.

    •   Adjustable rate mortgages (ARMs) had generally higher effective interest rates than non-ARMs, 76%
        of ARMs had effective interest rates greater than 6% over comparable T-bill rates.

    •   Of the 112 ARMs with foreclosure complaints 78 (69.6%) had judgments. This is nearly 2.5%
        higher than the judgments in the whole sample of filings.

    •   Single premium credit insurance and mandatory arbitration agreements were identified in this study,
        but these indicators are not commonly found in mortgage documents. The summary statistics on
        these indicators must be viewed with caution because, although some examples were identified in
        the study, it is likely that many more of the loans contained these terms but were not revealed in
        the documents available for this study. Given that caution, it should be noted that two of the three



                                                    21
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


        loans identified with single premium credit insurance and nine of the thirteen with mandatory
        arbitration clauses had judgments against them.

    •   Both the average number of years (3.28) and the median number of year (2.07) between mortgage
        and foreclosure complaint are substantially lower for suspected predatory loans than for all
        foreclosure complaints (5.57 and 2.97 years respectively).




Table 2: Overview of Sampled Data
                                                       Foreclosure   Judgment to    Suspect     Suspect
                                                       Complaints     Foreclose      Loans     Loan with
                                                                                               Judgment
Number of Cases                                           434           292           225         156
Average Difference between Interest Rate and T -Bill     2.96%         3.20%         5.52%       5.48%
Fixed rate mortgages                                   74% (332)     73% (214)     65% (147)   65% (101)
Fixed mortgage rates more than 6% over T -Bill rates   14% (60)      14% (41)      27% (60)    26% (41)
Adjustable rate mortgages (ARMs)                       26% (112)     27% (78)      35% (78)    35% (55)
ARMs with rates more than 6% over T -Bill rates        14% (59)      14% (41)      26% (59)    26% (41)
ARMs with rates more than 6% over T -Bill rates as a   53% (59)      53% (41)      76% (59)    75% (41)
percent of all ARMs
Balloon payments                                        8% (36)       9% (25)      16% (36)    15% (24)
Single Premium Credit Insurance                         1% (3)        1% (2)        1% (3)      1% (2)
Mandatory Arbitration                                   3% (13)       3% (9)        6% (13)     6% (9)
Prepayment penalties                                    4% (16)       3% (9)        7% (16)     6% (9)
Sales price/assessment difference over 25%             26% (113)     28% (82)      50% (113)   60% (93)
Loan-to-value ratio >1.25                              51% (223)     53% (156)     68% (154)   72% (112)
Average number of years between mortgage and             5.57          5.60          3.28        3.01
foreclosure complaint
Median number of years between mortgage and                 2.97        2.77         2.07        1.94
foreclosure complaint



The chronological overview provided in Table 3 reveals the following trends in the sample of loans that went
to judgment:

    •   The number of judgments increased annually from 1996 through 1999 and then decreased slightly
        in 2000.

    •   The average difference between the average interest rate and the comparable T-bill rate increased
        between 1996 and 1999 during a period when the T-bill rate and the interest rate on prime loans
        was generally decreasing.

    •   The annual percentage judgments that had ARMs increased substantially from 11 percent in 1996 to
        32 percent in 1999.

    •   The percentage of ARMS with effective interest rates more than six percent over the comparable T-
        bill rate, suggesting they may be predatory, went from zero percent in 1996 to 58 percent in 1999.
        That percentage only went down to 55 percent in 2000. This indicates that caution is warranted
        when residents of St. Clair County consider ARMs.

    •   Sales prices greater than 25 percent over assessment increased from 20 percent in 1996 to 34
        percent in 1999.



                                                       22
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


      •   As a percentage of judgments, loans with High LTVs increased from 42% in 1996 to 63% in 2000.



Table 3: Chronological Overview of Judgments to Foreclose
                                                            1996            1997           1998          1999           2000

Number of Judgments to Foreclose                              35           48                54          82              73
Average Difference between Interest Rate and T -Bill        2.14%        2.96%             2.89%       3.75%           3.43%
Fixed rate mortgages                                       89% (31)     71% (34)          78% (42)    68% (56)        70% (51)
Fixed mortgage rates more than 6% over T -Bill rates        9% (3)       8% (4)           13% (7)     17% (14)        18% (13)
Adjustable rate mortgages (ARMs)                           11% (4)      29% (14)          22% (12)    32% (26)        30% (22)
ARMs with rates more than 6% over T -Bill rates             0% (0)      15% (7)           13% (7)     18% (15)        16% (12)
ARMs with rates more than 6% over T -Bill rates as a        0% (0)      50% (7)           58% (7)     58% (15)        55% (12)
percent of all ARMs
Balloon payments                                           11% (4)      10% (5)            7% (4)      9% (7)          8% (6)
Single Premium Credit Insurance                             0% (0)       0% (0)            2% (1)     22% (1)          1% (1)
Mandatory Arbitration                                       3% (1)       0% (0)            4% (2)      5% (4)          4% (3)
Prepayment penalties                                        3% (1)       0% (0)            2% (1)      1% (1)          8% (6)
Sales price/assessment difference over 25%                 20% (7)      19% (9)           35% (19)    34% (28)        26% (19)
Suspect Loans                                              40% (14)     48% (23)          56% (30)    57% (47)        56% (41)
Loan-to-value ratio >1.25                                  43% (15)     38% (18)          54% (29)    63% (52)        58% (42)
Average number of years between mortgage and                 5.55         8.23              5.72        4.53            5.01
foreclosure complaint
Median number of years between mortgage and                     4.1           4.56          2.39         2.03           2.06
foreclosure complaint




Table 4 below provides a chronological display of High LTV loans over the five year period and breaks the
loans into groupings that show the how high the ratio was above 1.25 suggesting the potential concern that
should be directed to these loans specifically. Most of the High LTV loans have ratios in the 1.26 to 2.99
range, although the number of High LTV loans increases over the five-year period. The percentage of High
LTV loans in this range increases from 66 percent in 1996 to 82 percent in 1998, and then decreases to 73
percent in 2000. This suggests that between 1996 and 2000 there was a slight increase in the percentage
of High LTV loans with very high LTV ratios.



Table 4: Chronological Overview of High LTV Loans
                   1996              1997               1998               1999                 2000                 Total
LTV               (n=50)            (n=65)             (n=88)            (n=123)              (n=108)              (n=434)
               Cases   Percent   Cases   Percent   Cases   Percent    Cases     Percent    Cases     Percent    Cases   Percent
>5.00            4      8%         7     11%         7       8%         9         7%         9        8%        36        8%
4.00 - 4.99      1      2%         3      5%         2       2%         3         2%         2        2%        11        3%
3.00 - 3.99      2      4%         1      2%         2       2%         7         6%         6        6%        18        4%
2.00-2.99        3      6%         6      9%         8       9%        19        15%        19       18%        55       13%
1.26-1.99       11     22%        12     18%        22      25%        32        26%        22       20%        99       23%
<1.25           19     38%        27     42%        36      41%        28        23%        37       34%        147      34%
Missing         10     20%         9     14%        11      13%        25        20%        13       12%        68       16%




                                                           23
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Table 5 below provides a chronological overview of the high LTV loans that had judgments to foreclose. Of
the high LTV loans with judgments, those with LTV ratios of three or greater were similar in 1996 and 2000
at 15 percent of the sample. The trends in the numbers in Table 4 above, examined in light of Table 5
suggest that substantially inflated appraisals may account for a large percentage of foreclosure judgments
between 1996 and 2000. More than 50 percent of foreclosure judgements might be explained by the
increase in inflated sales prices and high LTV loans during this period, that are identified in Table 3 above.




Table 5: Overview of High LTV Loans with Judgments to Foreclose
                  1996              1997              1998              1999              2000               Total
LTV              (n=35)            (n=48)            (n=54)            (n=82)            (n=73)            (n=292)
              Cases   Percent   Cases   Percent   Cases   Percent   Cases   Percent   Cases   Percent   Cases   Percent
>5.00           2      6%         2      4%         3       6%        6      7%         8     11%        21      7%
4.00 - 4.99     1      3%         2      4%         1       2%        3      4%         1      1%         8      3%
3.00 - 3.99     2      6%         0      0%         1       2%        6      7%         2      3%        11      4%
2.00-2.99       2      6%         5     10%         7      13%       16     20%        15     21%        45     15%
1.26-1.99       8     23%         8     17%        17      31%       21     26%        16     22%        70     24%
<1.25          16     46%        25     52%        19      35%       17     21%        21     29%        98     34%
Missing         4     11%         6     13%         6      11%       13     16%        10     14%        39     13%




Additional lending overviews were calculated for mortgagees, mortgage holders, and cities, and are included
in Appendices D, E and F. These lenders and cities were then summarized based on frequency of
foreclosures and individual indicators.




                                                          24
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Statistical Analysis




General Statistics Relating to Census Block-Groups
    •   Close to two-third of census block-groups in the county (172 out of 263) have seen foreclosure
        complaints.

    •   Just over half the census block groups in the county (145 out of 263) have seen judgments to
        foreclose.

    •   Close to half the census block groups in county (128 out of 263) have seen suspect loans made.

    •   Close to half the census block groups in the county (124 out of 263) have seen loans with high loan-
        to-value ratios.



Correlations
To better understand the variations in lending patterns, the foreclosure data was correlated to 1990 Census
demographic data. Each variable is described below and the results are displayed in Table 6 below.



Dependent:

    •   Foreclosure Complaint: the number of foreclosure complaints per census block group divided by the
        number of owner occupied housing units

    •   Judgment to Foreclose: the number of judgments to foreclose per Census block group divided by the
        number of owner occupied housing units

    •   Suspect Loans: the number of suspect loans (all seven categories) per Census block group divided
        by the number of owner occupied housing units

    •   Suspect Flipping Loans: the number of loans per Census block with sales price - assessment
        difference over 25 percent

    •   High LTV Loans: the number of high LTV loans per Census block group divided by the number of
        owner occupied housing units

Independent:

    •   White: the percentage of a Census block group that is white

    •   Black: the percentage of a Census block group that is black

    •   American Indian, Eskimo or Aleut: the percentage of a Census block group that is American Indian,
        Eskimo or Aleut

    •   Asian or Pacific Islander: the percentage of a Census block group that is Asian or Pacific Islander



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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


    •    Median Income: the median income for the Census block group

    •    Over 65: the percentage of the Census block group that is age 65 or over

The general literature and specific anecdotes related to predatory lending suggest that predatory tactics are
focused primarily on low- and moderate-income, minority, and elderly households. However, the results of
the correlation analysis displayed in Table 6 below shows a correlation only between the racial characteristics
of a block group and the number of loans with predatory characteristics relative to the number of owner
occupied units in the block group.

In the table below, foreclosures, judgments, suspect flipping cases, and loans with high loan-to-value ratios,
when expressed as a percentage of owner-occupied units in a census block-group, appear to be not related
to demographic variables (such as percent white, percent black, median income, and percent over 65) in a
way that is statistically significant. Suspect predatory loans, on the other hand, when expressed as a
percentage of owner-occupied units in a census block-group, appear to be related to percent white and
percent black. We can say with 95% confidence that block groups that have fewer white people and more
African-Americans are likely to see higher instance of loans with predatory characteristics. This suggests
that further research and citizen action should be targeted to the census block groups with the highest
percentage of black residents.



Table 6: Correlation Analysis
                                     Percent          Percent     Percent Suspect Percent Suspect Percent High
                                   Foreclosure      Judgment to      Predatory        Flipping        LTV
                                   Complaints        Foreclose
Percent White   Pearson               .040             -.031          -.150*          -.096          -.101
                Correlation
                Sig. (2-tailed)        .520             .618           .015           .120           .102
Percent Black   Pearson               -.043             .027          .148*           .091           .097
                Correlation
                Sig. (2-tailed)        .490             .658           .017            .143           .117
Median Income Pearson                  .071             .003          -.075           -.067          -.077
                Correlation
                Sig. (2-tailed)        .251             .955           .228            .279           .215
Percent Over 65 Pearson               -.074            -.097          -.016           -.048          -.075
                Correlation
                Sig. (2-tailed)        .233             .118           .798           .440           .223
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).


Other demographic characteristics, for example educational attainment, might show a statistically significant
correlation and could be tested in the future. There are so many factors interacting at the level of the entire
county that it is not realistic to expect to find a relationship with gross environmental measures as
represented by variables associated with the block group. The ideal way to establish a relationship between
demographic variables and loan characteristics would be to examine the demographic data associated with
each case. Absent that data, we must rely on census data at the block group level as the best proxy
available for this study of ‘historically’ available data. It is important to look at the hypothesized
relationships between demographic characteristics and loan characteristics in another way. Another type of
examination available is to look at a level where study is focused on small geographic areas and further at
the scale of the individual. Thus, next a geographic analysis will focus discussion on specific geographical
areas and finally analysis of interview responses will focus on the scale of the individual.


                                                         26
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Geographic Analysis

The four datasets (Foreclosure Complaints, Judgments, High LTV Loans, and Suspect Loans) were added to
a Geographic Information System to view geographic variations in foreclosure and lending patterns. The
cases were added to a parcel shape file generated by St. Clair County. Using parcel numbers to identify the
sampled cases, 424 of the 434 foreclosure complaints, 285 of the 292 cases with judgments, 221 of the 224
suspect cases, and 221 of the 221 High LTV cases were mapped. The remaining cases could not be mapped
due to missing or incorrect parcel numbers. The foreclosure data was then aggregated by census block
groups to create the maps and provide the data used in the subsequent statistical analysis. Because 77
percent of the sampled cases had mortgages originated in the 1990s, census block groups and data from
1990 were used.

The six maps below show the spatial variations for different datasets across the county. For census block
group comparisons, the mapped variable was calculated by aggregating the numbers of cases in each
dataset by block group, and multiplying by 5 (to account for 20 percent sampling) to obtain the estimated
total cases for each dataset. This figure was divided by the number of owner occupied housing units in the
corresponding block group. This variable represents the percentage of owner occupied housing units that
had a foreclosure complaint, a judgment to foreclose, a suspect loan, or a high LTV from 1996-2000.

St. Clair County is often broken up into the “bluffs” and the “bottoms” referring to a topological change in
the flatter northwest section of the county, where East St. Louis is located. The bottoms, the area northwest
of the bluff line, are geographically referred to as “The Great American Bottoms”. The towns to the
northwest of the bluff line include: Brooklyn, National City, Madison, Fairmont City, Washington Park, East
St. Louis, Sauget, Alorton, Centreville, Cahokia, East Carondelet, Dupo. Most of these towns have majority
African American populations.

Comparing the darkest blocks on both the maps in figures 2 and 3 it is clear that although the foreclosure
complaints are fairly evenly spread out over the county, the judgments to foreclose are somewhat
concentrated in the bottoms. This trend shows that more foreclosure complaints actually receive judgments
to foreclose in the bottoms. In eight of these census block groups, nearly ten percent of owner-occupied
housing is being foreclosed on. This may be due to differences in access to legal services or the specific
reasons for foreclosure. Similarly, the suspect loans are much more heavily concentrated in bottoms. This
suggests that the loans with suspect terms are targeted to the residents in this portion of the county,
perhaps because of an assumption of financial inexperience.

Block areas are spatially largest in the less built-up areas of the county. The map in Figure 3 shows
generally low levels of judgments as a percentage of owner occupied units in the less built-up parts of the
county.




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County




Figure 2: Map of Foreclosure Complaints by Census Block Group, 1996-2000, St. Clair County, Illinois



                                                   28
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County




Figure 3: Map of Judgments to Foreclosure by Census Block Group, 1996-2000, St. Clair County, Illinois


                                                   29
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County



Spatial Distribution of Suspect Loans and High LTV Loans, Comparing Census Block Group Characteristics
The map in figure 4 below displays the spatial distribution of Suspect Loans by Block Group. It is clear that
those census block groups with the highest percentage of suspect loans relative to owner occupied units are
located mostly in the lowland areas of St. Clair County. Table 7 below identifies the municipalities where
these census block groups are located: East St. Louis, Centreville, Alorton, Belleville and Cahokia.

Table 7 below provides characteristics of the ten census block groups with the highest number of Suspect
Loans relative to owner occupied units. This table corresponds to the spatial display in the map in figure 4
below. Those census block groups identified in this table are those identified in the map with the darkest
brown infill. The first seven in the list are census block groups with very high percentages of their
population being African American. The county median income from the 1990 census was $26,813. All but
three of the census block groups have median incomes significantly below that level, with one slightly below.
Two census block groups have median incomes above the county median. It is important to note that the
one census block group in Belleville identified in this table has almost one-third of its population over 65
years of age.



Table 7: Characteristics of Census Block Groups with the Ten Highest Percentages of Suspect Loans Relative
to Owner Occupied Units

Census       Municipality     Suspect      Number    Percent       Percent       Percent of    Median
Block                         Loans as a   of        Black in      White in      Age over 65   Income in
Group                         percentage   Suspect   Block Group   Block Group   years in      Block Group
                              of Owner     Loans                                 Block Group
                              Occupied
                              Housing
                              Unit
5025-4       Alorton             9.6%         1        100%           0.0%          7.0%         $7,476
5013-2       East St. Louis      9.5%         4        100%           0.0%          7.3%        $22,437
5010-7       East St. Louis      9.5%         2        100%           0.0%         17.2%        $14,241
5029-3       Centreville         9.5%         2        100%           0.0%         14.9%        $11,888
5029-2       Centreville         9.3%         3        99.4%          0.6%          7.5%        $25,337
5013-7       East St. Louis      8.5%         2        91.3%          8.7%         12.3%        $16,989
5029-1       Centreville         8.3%         3        97.7%          2.3%          9.3%        $28,056
5026.2-5     Cahokia             8.3%         2         0.0%         97.2%         10.8%        $36,500
5016.1-4     Belleville          8.2%         3         0.0%         98.8%         32.9%        $17,228
5011-5       East St. Louis      7.9%         1        92.7%          7.3%         20.2%         $9,799




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County




Figure 4: Map of Suspect Loans by Census Block Group, 1996-2000, St. Clair County, Illinois


                                                   31
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Table 8 below compares the census block groups with the ten highest absolute numbers of Suspect Loans.
Here again four of the identified census block groups are located in East St. Louis. Six have majority African
American populations. Five have median incomes substantially below the county median income. The one
identified census block group in Fairview Heights has over 16 percent of its population over 65 compared
with the county, which had 12.7 percent of its population over age 65 in 1990.




Table 8: Characteristics of Census Block Groups with the Ten Highest Numbers of Suspect Loans

Census       Municipality     Number    Suspect        Percent        Percent       Percent of    Median
Block                         of        Loans as a     Black in       White in      Age over 65   Income in
Group                         Suspect   percentage     Block Group    Block Group   years in      Block Group
                              Loans     of Owner                                    Block Group
                                        Occupied
                                        Housing Unit
5014-5       East St. Louis      7          1.2%            96.73%       2.4%          4.32%       $29,766
5017-6       Belleville          6          2.0%             8.48%      9.15%         13.12%       $21,726
5014-2       East St. Louis      5          2.6%            100.0%      0.00%          7.32%       $26,607
5013-2       East St. Louis      4          9.5%            100.0%      0.00%          7.34%       $22,437
5024.4-3     Caseyville          4          4.2%             77.63%     19.24%        13.36%       $25,870
5034.1-3     Fairview            4          4.1%              0.00%     98.02%        16.33%       $27,005
             Heights
5034.1-6     Collinsville        4         2.7%              2.63%      96.78%        12.00%       $29,222
5014-3       East St. Louis      4         1.6%             95.40%      4.60%          3.47%       $10,917
5017-1       Belleville          4          1.5             35.62%      63.82%         8.90%       $23,654
5030-2       Centreville         4         1.3%             91.48%       6.95%         8.22%       $12,228




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County



The map in figure 5 below displays the spatial distribution of High LTV Loans by Block Group. It is clear that
many of the census block groups with high percentages of High LTV Loans are again located in the “bottom”
of the county although there are a few concentrations of High LTV Loans in the bluffs area as well. The
municipalities with the highest concentrations of High LTV Loans relative to owner occupied units include:
Alorton, East St. Louis, Washington Park, Belleville, Swansea and Caseyville.

Table 9 below provides characteristics of the ten census block groups with the highest number of High LTV
Loans relative to owner occupied units. This table corresponds to the spatial display in the map in figure 5
below. Those census block groups identified in this table are most of those identified in the map with the
darkest brown infill. Six of these census block groups have majority African American populations. Two of
those with majority white populations, the census block group in Swansea and one in Belleville, have high
percentages of population over 65 (20.7% and 32.9% respectively compared with 12.7% for the whole
county). All but one of the census block groups identified here had median incomes substantially below the
county median of $26,813 in 1990.


Table 9: Characteristics of Census Block Groups with the Ten Highest Percentages of High LTV Loans
Relative to Owner Occupied Units

Census       Municipality     High LTV     Number    Percent       Percent       Percent of    Median
Block                         Loans as a   of High   Black in      White in      Age over 65   Income in
Group                         percentage   LTV       Block Group   Block Group   years in      Block Group
                              of Owner     Loans                                 Block Group
                              Occupied
                              Housing
                              Unit
5025-4       Alorton             9.6%         1        100.0%         0.0%          7.0%         $7,476
5013-2       East St. Louis      9.5%         4        100.0%         0.0%          7.3%        $22,437
5012-4       East St. Louis      8.4%         3        98.7%          1.3%          8.4%        $14,812
5024.1-6     Washington          8.3%         1        100.0%         0.0%          3.9%         $9,119
             Park
5016.1-4     Belleville         8.2%          3         0.0%         98.8%         32.9%        $17,228
5019-5       Belleville         7.8%          3         0.0%         100.0%        12.3%        $24,167
5022-3       Washington         7.4%          2        78.8%         19.4%          9.0%        $22,813
             Park
5033.1-3     Swansea            7.0%          2         3.5%         95.4%         20.7%        $20,947
5024.4-1     Caseyville         7.0%          3         0.0%         96.8%          7.7%         $9,801
5042.1-3     East St. Louis     7.0%          1        100.0%         0.0%          7.1%        $11,300




                                                     33
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County




Figure 5: Map of High LTV Loans by Census Block Group, 1996-2000, St. Clair County, Illinois




                                                   34
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Table 10 below compares the census block groups with the ten highest absolute numbers of High LTV
Loans. Seven of those identified in Table 10 have majority African American populations. The same census
block group in Fairview Heights (5034.1-3) that was identified with high number of suspected predatory
loans in Table 8 is again identified here with a high number of High LTV loans 10. This is the only census
block group in the table below with the percent of the population over 65 considerably above the county’s
percentage of 12.7. Half of the census block groups identified have median incomes substantially below the
county median of $26,813.


Table 10: Characteristics of Census Block Groups with the Ten Highest Numbers of High LTV Loans

Census        Municipality     Number      High LTV         Percent        Percent         Percent of      Median
Block                          of High     Loans as a       Black in       White in        Age over 65     Income in
Group                          LTV         percentage       Block Group    Block Group     years in        Block Group
                               Loans       of Owner                                        Block Group
                                           Occupied
                                           Housing Unit
5034.1-6      Collinsville         5           3.4%             2.63%         96.78%         12.00%          $29,222
5017-6        Belleville           5           1.7%             8.48%         9.15%          13.12%          $21,726
5022-7        Washington           5           1.5%            99.05%         9.50%          6.43%            $8,032
              Park
5013-2        East St. Louis       4           9.5%            100.0%         0.00%           7.34%          $22,437
5034.1-3      Fairview             4           4.1%             0.00%         98.02%         16.33%          $27,005
              Heights
5014-2        East St. Louis       4           2.1%            100.0%         0.00%            7.32%         $26,607
5014-3        East St. Louis       4           1.6%            95.40%         4.60%            3.47%         $10,917
5030-2        Centreville          4           1.3%            91.48%         6.95%            8.22%         $12,228
5029-2        Centreville          4           1.2%            99.39%         0.61%            7.52%         $25,337
5029-1        Centreville          4           1.1%            97.66%         2.34%            9.34%         $28,056




10
  This is one census block group that might warrant a spot check of physical conditions to verify specific details related
the geographic area and the specific cases located there.


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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County



Spatial Distribution of Suspected and High LTV Loans, Comparing Municipalities
The map in Figure 6 below identifies those municipalities with Suspect Predatory Loans. Those with Suspect
Predatory Loans are distributed across the county and include: East Carondelet, Dupo, Cahokia, Centerville,
Alorton, East St. Louis, Washington Park, Fairmont City, Caseyville, Collinsville, Fairview Heights, O’Fallon,
Lebanon, Swansea, Belleville, Mascoutah, New Athens, and Marissa. Those municipalities with the highest
numbers of Suspect Predatory Loans relative to owner occupied units include: Washington Park, East St.
Louis, Centerville, East Carondelet. Table 11 below displays the ten municipalities with the high number of
suspect loans. Three municipalities with high numbers of suspect loans, majority African American
populations, and median incomes significantly below the county median are: Washington Park, East St.
Louis, Centerville. Belleville, Fairview Heights, Swansea, Caseyville and Collinsville all have percentages of
their population over 65 which are higher than across the county as a whole.


Table 11: Characteristics of Ten Municipalities with Highest Number of Suspect Loans

Municipality       Number      Suspect Loans as   Percent        Percent        Percent of     Median
                   of          a percentage of    Black in       White in       Age over 65    Income in
                   Suspect     Owner Occupied     Municipality   Municipality   years in       Municipality
                   Loans       Housing Unit                                     Municipality
East St. Louis        48             3.64%           98.5%          1.6%           10.9%          $12,627
Belleville            40             1.80%           6.6%          92.1%           19.0%          $26,668
Cahokia               22             2.50%           4.9%          93.6%           10.2%          $26,147
Washington Park       18             7.80%           84.8%         14.3%             7.3%         $11,912
Centreville           13             4.60%           93.0%          6.6%           11.0%          $13,822
Fairview Heights       9             1.10%            8.1%         89.9%           14.8%          $34,898
O’Fallon               6             0.75%           10.9%         89.1%             8.8%         $36,041
Swansea                5             1.10%            5.2%         93.9%           16.0%          $31,152
Caseyville             4             1.50%            4.4%         94.6%           15.6%          $26,427
Collinsville           4             0.30%            3.3%         95.2%           15.8%          $30,659




                                                    36
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County




Figure 6: Map of Suspect Loans by Municipality, 1996-2000, St. Clair County, Illinois




                                                    37
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


The map in Figure 7 below identifies those municipalities with any High LTV Loans. Those High LTV Loans
are distributed across the county and include: East Carondelet, Dupo, Cahokia, Centerville, Alorton, East St.
Louis, Washington Park, Fairmont City, Caseyville, Collinsville, Fairview Heights, O’Fallon, Lebanon, Swansea,
Belleville, Mascoutah, and Marissa. Those municipalities with the highest numbers of High LTV Loans
relative to owner occupied units include: Washington Park, Centerville, Alorton, East Carondelet, East St.
Louis, and Cahokia. Table 12 below displays the ten municipalities with the highest number of High LTV
loans. The three municipalities with high numbers of High LTV loans have majority African American
populations and median incomes significantly below the county median are: Washington Park, East St. Louis,
Centerville. Belleville, Fairview Heights, Swansea, Caseyville and Collinsville all have percentages of their
population over 65, which are higher than across the county as a whole. Table 11 below is very similar to
Table 12 on page 37. The same municipalities are noted as having both the highest numbers of Suspect
Loans and the highest numbers of High LTV Loans. The only difference is that the order of the eight and
ninth entries in the table is reversed.



Table 12: Characteristics of Ten Municipalities with Highest Number of High LTV Loans
Municipality       Number      High LTV as a      Percent        Percent        Percent of     Median
                   of High     percentage of      Black in       White in       Age over 65    Income in
                   LTV         Owner Occupied     Municipality   Municipality   years in       Municipality
                   Loans       Housing Unit                                     Municipality
East St. Louis         42            3.18%           98.5%          1.6%           10.9%          $12,627
Belleville             41            1.90%           6.6%          92.1%           19.0%          $26,668
Cahokia                28            3.20%           4.9%          93.6%           10.2%          $26,147
Washington Park        21            9.10%           84.8%         14.3%             7.3%         $11,912
Centreville            18            6.40%           93.0%          6.6%           11.0%          $13,822
Fairview Heights       10            1.20%            8.1%         89.9%           14.8%          $34,898
O’Fallon                8            1.00%           10.9%         89.1%             8.8%         $36,041
Caseyville              3            1.10%            4.4%         94.6%           15.6%          $26,427
Swansea                 3            0.70%            5.2%         93.9%           16.0%          $31,152
Collinsville            3            0.30%            3.3%         95.2%           15.8%          $30,659




                                                    38
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County




Figure 7: Map of High LTV Loans by Municipality, 1996-2000, St. Clair County, Illinois



                                                    39
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County



ANALYSIS - STAGE TWO



Personal Experience with Foreclosure


The second phase of this project included one-on-one interviews with individuals providing service to low-
and moderate-income homebuyers in St. Clair County as well as low- and moderate-income individuals who
have gone through foreclosure in St. Clair County. This qualitative data collected in the second phase of the
study helps provide the human side to the study of the prevalence, conditions, and outcomes surrounding
sub-prime and potentially predatory lending practices in the county. Review of these interviews indicates
that both characteristics inherent to the individual and characteristics typical of the process tend to lead to
foreclosure. The following patterns emerged as respondents discussed their personal experiences:


Individual Characteristics


Demographics
More often than not the data collected in stage two of this study showed that the typical demographic
targeted for predatory lending tactics are single, African American women with children. Because they have
children, these women tend to want to have homes of their own to raise their families. One counselor
interviewed believes that predatory practices are pushed based on geography and race. Because St. Clair
County has a concentration of African Americans, “geography can be used as a proxy for race.” There is
little doubt that the geographic concentration of unfair lending practices makes education more difficult. Not
only are counselors spread thinly in terms of providing education, but also traditional word-of-mouth
contacts between residents, networks that often provide useful information in low-income minority
neighborhoods, are less likely to be helpful when the population seems to have a homogeneous
misunderstanding of the mortgage process and a similar lack of knowledge about any options that they
might have. A dishonest contractor drew one interviewee, who had gone through foreclosure, into a home
improvement scam. She was one of many in her neighborhood to have work completed by the company.
Because no one openly made charges against the contractor until the interviewee had extensive damage to
her home, he was able to sell his services to residents all over the neighborhood and get substantial
payments while doing virtually none of the work. “He’s figuring out a way to beat the system that’s all, and
that’s what he did. From the looks of it, he’s done a good job because it seemed like no one could touch
him.”

Economics and Education
By and large, the single mothers interviewed have a low-income and education levels ranging from high
school education to some college. Frequently, residents either perceive or actually have some flaws in their
credit. Because of this, they cannot, or think they cannot, get loans through traditional means at a bank and
turn to mortgage brokers for assistance. Historically, African Americans in St. Clair County have had a
difficult time getting credit despite the demand for decent and affordable housing for the area’s families. As
one counselor points out, “when offered the chance to own a home, they are vulnerable to unfair or illegal
tactics because they do not want to miss out on the opportunity to buy a house”. As gleaned from individual
interviews, residents do not typically go directly to the bank when first requesting a mortgage. Some
interviewees instead went to mortgage brokers, assuming that the company would search for a loan that
would give them, the homebuyer, the most advantageous terms. One interviewee illustrates her frustration
after learning more about her mortgage terms once the paperwork had already been signed, “If you’re
lending me money, the least you can do is let me know what all my options are. I didn’t learn half of it.”




                                                     40
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Experience
Borrowers are at a great disadvantage when they are getting their first mortgage and have never been
through the process before. The interviewees who had gone through foreclosure in this study all were first
time homebuyers who were getting a mortgage for the first time. They had no experience with the mortgage
process. Because they were unfamiliar with the process and the documentation, they did not know when
something out of the ordinary was taking place. One interviewee states, “I’m kind of smart about some
things but, you know, mortgage information and escrow and all that [shakes head in disagreement].”
Additionally, most resident participants did not seek or receive home buying counseling before committing to
a loan. Most times, either the real estate agent or the mortgage broker was very supportive of the purchase
and made it seem like a good deal. Another interviewee recalls:

                They basically said, you’re going to get your house. And it was my first
                time so I knew nothing about mortgages. I listened to what they said. They
                said it was a good one. Everything sounded right to me. It was what the
                people were selling the house asked for and it was actually a little less so
                that was a good thing for me. They helped to bring the mortgage
                down…So, I did all the paperwork.


Disposition
The disposition of buyers when seeking the loan was usually hurried or stressed. Whether it was because
they were in need of immediate home relocation or repair or they were very anxious to purchase a home,
they admittedly had little problem going through the loan process so quickly. One interviewee who had
gone through foreclosure admits when asked about considering home-buying counseling, “I don’t think I
would have listened…I would have thought about it but I wanted a home so bad.” Another interviewee
claims, “I was a little under stress trying to hurry and get my roof on so it didn’t start leaking. And they
were rushing the paperwork through because of this guy [the contractor].”

The swiftness with which the loan is processed alludes also to an element of trust. It is unlikely that people
would go through the loan process so briefly and so meagerly unless they trusted the people with whom
they were dealing. All of the respondents were very surprised about the outcome of their loans and some of
the details that were skimmed over when they were closing on their homes. Therefore, it seems to be a
combination of lender abuse, lack of borrower education and borrower trust that has caused the rise in
foreclosures. One counselor states that she can, “talk to people until [she is] blue in the face and they will
still sign on the dotted line when presented with the opportunity to own a home.”



Procedural Characteristics


Mortgage Brokers
All but one of the interviewees went through mortgage brokers. A few counselors noted that mortgage
brokers often are the culprits in writing “bad loans.” Counselors have also noted an increase in loans to low-
income residents. This problem results from several factors. First, these lenders do not calculate a debt-to-
income ratio properly. Miscalculation can offer the illusion of affordability when in reality the client does not
have the buying power that is assumed. Whether the lender is motivated by fees, commissions, or
foreclosure on the home, loans are willingly made to borrowers who cannot afford them, and the borrowers
ultimately end up in foreclosure. A counselor also notes that, “the clients think they can do just about
anything financially, when they can’t.” Despite the fact that both parties can convince each other that the
loan is feasible, the borrower ends up bearing the impact of the defaulted loan.




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Additionally, some lenders may utilize yield spread premiums. Yield spread premiums are rewards from
lenders to mortgage brokers for setting high interest, large fees or other profitable terms onto a borrower.
Many lenders rely on middlemen to organize poorly arranged home improvement financing and mortgages.
The counselors interviewed have observed that middlemen often tack on fees for mortgage documents that
are not included or for recording fees. Mortgage companies will also pay brokers for high interest rate
mortgages when the borrower would qualify for lower interest rates. This incentive for the middleman
provides no incentive to procure the best loan terms for their clients. Rather, it motivates middlemen to act
contrarily as they look for the deals that will provide the greatest benefit for themselves.

Failure to Emphasize and Explain the Loan’s Terms
Frequently, interviewees reported that the closing meeting for their homes went very hastily. Interviewees
often times did not know the professional role of the people present at the closing. Usually, some person at
the closing would direct their attention to certain terms, quickly explain them and then ask for signatures.
Many times major components to their mortgages were not mentioned or explained. One interviewee
described her closing this way:

                They told me what to read and I did…at first it seemed kind of rush, rush
                because people were late. It was getting late…they were telling me what
                page was what. There was no way I could have read all of that and gotten
                through the process as fast as we did.


The adjustable rate, in adjustable rate mortgages, was the most glossed over term. The interviewees who
had adjustable rate mortgages were neither aware of that expression nor aware of its inclusion in their
mortgage. One interviewee stated that the lender told her that she would have a rate that would increase
with inflation but that the rate was fixed. She was unaware of the six-month adjustment period on her rate
and the large changes that would result from the adjustments. After speaking with ACORN, she contacted
the lender and accused them of predatory lending. Soon afterwards, she received a notice stating that her
interest rate had decreased. Because the borrower had the power of information on her side, she was able
to protect herself.

Some interviewees did not understand the way that an escrow account functioned. One woman expressed
her confusion with her first house payment. She did not know that the payments would include her taxes
and homeowners insurance in addition to her principal and interest payment. When she challenged that
payment, she was directed back to her paperwork where the escrow literature was located. She claimed
that the escrow portion was never mentioned or explained to her. As a result, her payment was almost 25%
higher than she had expected it to be.

When residents requested terms for less than thirty years, they were not granted the request but neither
were they notified that the terms were set at thirty years. The interviewees who had asked for these terms
simply assumed that their request was considered when completing the paperwork.

No Attorney Consultation
None of the interviewees who had experienced foreclosure consulted attorneys before they searched for
homes nor did not bring an attorney to their closing. This lack of professional support advocating for them
coupled with their own lack of education about the mortgage process made them particularly vulnerable to
predatory tactics. Interviewees assumed that someone at the closing, possibly their real estate agent,
another attorney, or their mortgage agent, would be looking out for their best interests. One interviewee
describes the expectations she had of her real estate agent at her closing:

                [I thought] that she would just tell me or something if I would’ve needed to
                stop and read something, that she would have told me. He [The mortgage
                agent] asked me if there were any questions. He just went through it and


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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


                asked if there were any questions. And I looked at [the real estate agent]
                and she said everything’s fine. They didn’t show me everything with the
                mortgage person.


High Interest Rates
For all of the interviewees, interest rates were higher than the prime market rate. Subprime lenders charge
higher interest rates in order to defray the risk built into loans to borrowers with problematic credit.
However, this process can be abused and borrowers with no known credit problems or even just small
problems can be charged excessively high interest rates. During 1998, when most of the interviewees
purchased their homes, the thirty-year fixed rate in St. Clair County hovered around 7%. However, some
residents interviewed had rates around 10% while others had adjustable rates that could peak around 17%.
These interviewees perceived their own credit to have either few or no problems or they felt that they had
repaired their damaged credit prior to applying for their loan. None of the interviewees searched for better
rates from another company and stuck with the first rate that was offered to them, strengthening the notion
that residents were satisfied with the credit that was offered to them, even when they were skeptical about
the rate. One interviewee explains:

                [The mortgage broker] said they could finance the house at 9.5% and
                wasn’t able to find anyone else to do it any cheaper. And at the time, I
                didn’t know why the interest rate was so high because I didn’t owe anybody
                anything. Everything was paid up. Of course, she said it was the lowest rate
                she could get to do it.


Despite her misgivings about the rate and her later feeling that her mortgage broker was incompetent, she
accepted the offer from the first mortgage company. When asked why she did not inquire with other
companies, she stated that she did not feel that mortgage brokers were worthwhile and that she would
prefer to do business through a realtor in the future. Yet, she did not go through the real estate agent.
Borrowers need to be better educated about their options when seeking a loan and should be encouraged to
search around rather than accept their first offer as if it was their only or best offer.

Large Broker’s Fees
Brokers attached large fees at the closing that the residents were not aware of prior to their remittance.
Interviewees incurred broker fees ranging from $1,000 to $3,400. Often times, lenders may include these
fees into the loan in order to collect interest on the fees. After the documents are signed and the
cancellation period runs out, the borrower is locked into the terms, and large amounts of equity are taken
away as a result of the money they paid in broker’s fees.

Home Improvement Scams
Home improvement contractors may pursue low-income neighborhoods because people are looking to repair
their homes and because they are vulnerable to the contractor’s credit scam. Because many of these people
are unable to get credit, the contractor may arrange for the loan through a broker or lender with whom they
normally deal. The loans are typically arranged so that payments are sent directly to the contractor,
regardless of the quality or quantity of work that the contractor completes. This arrangement places power
into the contractor’s hands because in the absence of performance and payment bonds, the contractor may
not feel any obligation to finish the work or to complete the work professionally and the homeowner is stuck
with poor workmanship and a loan to pay off. One interviewee explains:

                He [contractor] told me he had done this type of work for 25 or close to 30
                years. And he had done several homes in the area…the only thing he was
                betting on was getting his hands on the money…One corner of the house
                was like Niagara Falls, so we had that patched up until we could get the


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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


                roof done… [My son] saw him working down the street and told him to stop
                by our house and that we would like to see about getting work done on our
                house. So, when he came by I figured he fixed and finished the job there. I
                thought he was a legit person… He did get a little information from me and
                talked to someone at [the mortgage company]…I talked to the guy [at the
                mortgage company] each day about the problem I was having with [the
                contractor]. I lived in my house with no roof for about two months. I almost
                froze. I had to go live in a shelter.


Failure to Notify Concerning Mortgage Sale or Payment Location Change
Late fees are often charged when payments to not arrive on time. Of particular concern is when payment
delays are the fault of the mortgage holder. When the mortgage is sold to another company or the payment
location is changed, it should be the responsibility of the mortgage company to notify homeowners of the
change. All of the residents that were interviewed were informed that their mortgages were sold to another
company. This change was particularly troublesome for a few of the interviewees. Mortgage companies did
not inform them that the change had occurred in a timely manner. They were notified only after hefty late
fees had accrued to their accounts because payments were not received on time. Payments notes were sent
months late and paperwork was not organized. One interviewee had her mortgage company change four
times in five years, with each change creating more problems for her. She believes that the new companies
would just start billing her for whatever they wanted without consideration of her loan’s terms. Notifications
were sent late; payments were lost; late fees piled up.

Similarly, another interviewee had the payment destination changed with the same mortgage company and
was notified only after five months of remitting to the wrong location. Late fees and lawyer fees were
tacked on to her account and she was forced to file for bankruptcy because she could not make the
payments. Despite her documentation through Western Union that her payments were sent on time, the
mortgage company upheld the fees.



Hindsight is 20-20


This section details concluding comments for the interviewees about their experience with predatory lending.

                The main thing, if you’re not too keen on (educated about) mortgages and
                loans, is these companies will know within the first three words that you
                utter…they will know when you are not educated on what you are doing.
                So, you’ll get eaten up right away. And you have been sold right there
                because they know that you don’t know what is going on…[In the future,] I
                would go through the legal system to see what is going on because going
                through this taught me a great deal… Mortgage companies should have
                demands on them and tell their clients to bring their legal help with them
                before signing any paperwork so that no one would have to be hurt.


                For first time homebuyers, read the fine lines. Know who you are dealing
                with and who may be involved in the process. Know where your payments
                go, try to get a fixed mortgage and not an adjustable one, preferably to a
                company who is not going to be selling your mortgage to another company.


                You can say that but I don’t think they’ll think about it…maybe smart people
                do, but I didn’t. I never thought of the cost of wanting to put wall border in


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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


               your living room… Being a homeowner you want to do it. You get it and it’s
               the American Dream. I want to do this and this and this… (When discussing
               the sometimes forgotten costs of maintenance and upgrade in the home)




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


DISCUSSION, RECOMMENDATIONS AND SUGGESTIONS FOR FURTHER
RESEARCH


Discussion


   •   Given the type of data available at the census block group level, race is the only factor that shows a
       statistical correlation with the geographic location of loans with predatory characteristics. Race did
       not correlate with foreclosure complaints, judgments, or loans with high LTVs. No other
       independent demographic variables correlate to any of the dependent variables.

   •   Spatial analysis shows that the racial, income, and in some cases age group concentrations are
       significant characteristics of census block groups where there are high numbers of both loans with
       predatory characteristics and High LTV relative to the number of owner occupied units and in
       absolute numbers. The unethical, and in some cases illegal, nature of these loan characteristics
       must be considered when one then looks at the data which shows that in many of these same
       census block groups, nearly ten percent of owner occupied housing is being foreclosed on. The age
       group concentration of those over 65 is especially important to evaluate in census block groups in
       places like Belleville and Fairview Heights.

   •   The individual demographic characteristic highlighted in the analysis of interviews with St. Clair
       County residents who had experienced foreclosure would suggest that because of the unique
       characteristics of their households and of the stressed and harried conditions of their daily life, low-
       income and minority single-mothers seem to be especially vulnerable to the predatory tactics
       employed by unethical mortgage brokers, real estate agents, and residential contractors.




Recommendations


   •   Increase use of available enforcement tools. The data presented here showing the high percentage
       of loans with high sales prices and high loan-to-value ratios suggests that inflated appraisals play a
       major role in the increase in foreclosure filings and judgments to foreclose in St. Clair County.
       Increased oversight of brokers, appraisers, and title companies could help to reduce the high
       number of inflated appraisals. Thereby reducing foreclosure filings and judgments.

   •   Create and aggressively market mortgage packages with reasonable credit and interest rates for
       those with impaired or no credit. There is a role for the State of Illinois in providing mortgage
       guarantees for these loans to make them more appealing to legitimate lenders in the county.

   •   Solicit mainstream lenders to take on higher-risk loans. Here also State of Illinois mortgage loan
       guarantees could facilitate this process.

   •   Enforce good practices on banks, mortgage brokers and mortgage companies through lawyers and
       local, state, and federal agencies.

   •   Require banks, mortgage brokers, and mortgage companies to consider when it may be best to
       counsel perspective homebuyers with impaired credit to spend time improving their credit rather
       than taking on very high interest and high fee mortgages.




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


   •   Offer Homebuyer Counseling Programs that specifically touch on predatory lending tactics and the
       need to be wary of and shop around for credit when it is necessary. Have homebuyer counselors
       available to accompany to closings, those first-time homebuyers and individuals involved in
       refinancing who request this service.

   •   Both from the borrowers’ and lenders’ perspectives encourage caution in the use of Adjustable Rate
       Mortgages. The teaser rates often mask much higher effective interest rates. The characteristics of
       these loans are complicated and often difficult to understand under the best circumstances. When
       procedures are rushed during loan closings it is difficult to grasp the full impact of the conditions of
       the adjustable rate.

   •   Encourage all parties to have their own attorneys or other knowledgeable professionals present,
       specifically stating to first-time homebuyers that attorneys and other professionals only look out for
       your best interests when they are contracted and paid to do so.



Suggestions for Further Research


   •   Gather information on the physical and social impacts of judgments, and abusive and predatory
       lending tactics.

   •   Study the short and long-term impacts of increased homebuyer and community education on
       foreclosure and judgment numbers.

   •   Gather more information on individual cases to increase the available demographic data for
       examining correlations between this data and loan characteristics.

   •   Given the caution of the High LTV calculations noted in the report, examine further specific details
       through spot checks of physical characteristics and of populations in some census block groups with
       high numbers of High LTV loans to better illuminate the validity of this as an indicator of predatory
       lending.

   •   Identify and purchase available mortgage foreclosure data for the county or specific municipalities
       identified in this report. This would allow a more comprehensive study of the character of these
       mortgages as well as a potentially more targeted approach to detailed investigation.




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


APPENDIX A: METHOD FOR FEDERAL RESERVE BOARD TREASURY SECURITY
MATURITY ADJUSTMENTS


Methodology for Federal Reserve Board Treasury Security Maturity Adjustments

Treasury Maturity Lengths in Years               Corresponding Amortization from Foreclosure Cases
1                                                1
2                                                2
3                                                3–4
5                                                5–6
7                                                7–8
10                                               10 – 12 – 13 – 15
20                                               20 – 23 – 25 – 28
30                                               30




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


APPENDIX B: INTERVIEW GUIDE FOR SERVICE PROVIDERS


   1.      Name:
   2.      Position:
   3.      Length of time in position:
   4.      Any prior experience with new homebuyers or homeowners in St. Clair County:

   5.      Describe your what you do in your current position.

   6.      Describe your involvement with clients’ lending and/or foreclosure processes.


   7.      Do you think there has been an increase over the past 10 years in the number of foreclosures or
           threats of foreclosure in St. Clair County?

   8.      If so, do you think the number of foreclosures is increasing now, or decreasing?

   9.      Do you think foreclosures have increased more in some parts of St. Clair County than in other?
           Where?

   10.     Why do you think that might be the case?

   11.     If so, do you think it has increased for some groups more than others?
           For which groups?

   12.     Why do you think that might be the case?

   13.     If yes, do you think the increase in foreclosures and/or threats of foreclosure is caused by banks
           willingness to make loans to low-income households?

   14.     Do you think the increase in foreclosures and/or threats of foreclosure has happened because of
           an increase in unethical or illegal conduct by those involved in selling, marketing, or those
           involved in making mortgage loans?

   15.     What types of abuses have you encounter? (Excessively high interest rates, refinancing
           schemes, flipping schemes, home repair scams?)

   16.     Generally, what are some possible solutions to the abuses you feel are the cause?

   17.     Do you specifically have a role in preventing foreclosures or abusive lending, and what strategies
           do you employ?

   18.     If you are in any way involved in homebuyer counseling, do you see the need to incorporate
           information on abusive loan terms, refinancing schemes, etc. in homebuyer counseling?




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County



APPENDIX C: INTERVIEW GUIDE FOR VICTIMS OF FORECLOSURE


General Information
Interviewer:
Date:

Borrower’s name:
Lender’s name:
Mortgage holder at time of foreclosure:
Date of foreclosure:

Current Address
Current street address:
City:                   State:                Zip:
Phone – Home:           Work:

Address of foreclosed home
Street address:
City:                       State:            Zip:


Borrower Information for Primary Borrower
    1.         Age:

    2.         Education level: (circle the highest level completed)
               Grade: 1 2 3 4 5 6 7 8 9 10 11 12
               College: 1 2 3 4 higher

    3.         Race/Ethnicity:   African-American    Asian    Hispanic      White   Other

    4.         Gender:    Male       Female

    5.         Ability to read English:   Not Able   Poor    Fair/Average     Above Average

    6.         Current Household Income:
               Household income at time of the loan application:

    7.         Why did you borrow the money? Choose from the following:
                  To purchase home
                  To pay other bills/consolidate debt
                  Improve cash flow
                  Refinance existing loan for a better rate
                  Refinance existing loan for a lower monthly payment
                  Home Improvements
                  Other:
               More Details:




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Loan Application Information
   8.      At the time of the loan, what was your perception of your credit record?
             Poor Few Problems Good Excellent
           Comments:

   9.      Did you first seek this loan from a traditional bank?   Yes   No
           If not, why didn’t you try a traditional bank?

   10.     If you sought the loan from a traditional bank, were you denied?   Yes     No
           What was the reason given for the denial?

   11.     If you were denied from a traditional bank, did you try another bank?
              Yes No
           If not, why didn’t you try another bank?

   12.     How did you choose your lender?
              Advertisement on TV, radio or newspaper
              Flyer
              Yellow pages ad
              Friend/acquaintance recommended
              Seller arranged financing
              Manufacturer arranged financing
              Loan broker (individual bringing together lender and buyer) contacted you:   phone call
              home visit
              Lender contacted you: phone call home visit
              Home improvement contractor arranged financing
              Other:

   13.     Did a loan broker arrange the loan?     Yes    No
           If yes, how was the broker chosen?

   14.     Did the broker say whom s/he represented?       Yes     No
           If yes, whom did s/he represent?

   15.     Describe the initial meeting with the broker/lender:
           How: phone in person
           Where:
           Date (Month/Year):
           Who was present:
           What happened:

Documentation
   16.     Review the documents and compare to check list for those present. Ask if missing documents
           are elsewhere or were not given to the interviewee. (Some definitions from www.mortgage-
           net.com)

                   Good Faith Estimate (An estimate of the settlement charges the mortgagor incurs at
                   closing. It is required by the Real Estate Settlement Procedures Act (RESPA). Mortgagor
                   should have received one when she applied for a mortgage loan.)




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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


                   HUD-1 Settlement Form (A closing document required by HUD that outlines the
                   settlement cost of a loan. The closing agent prepares this document and sends it to the
                   buyer upon closing.)

                   Federal Truth In Lending Form (A federal regulation requiring creditors to provide
                   full disclosure of the terms of a loan including the terms of the loan and the annual
                   percentage rate.)

                   Notice of Right to Rescind (A 3-day business period (72 hours), during which time
                   the borrower can cancel the transaction. In the mortgage industry applies to refinance
                   transactions only. During this period, funds cannot be disbursed pending the decision of
                   the borrower. This regulation is part of the Truth in Lending Act, Regulation Z. Under
                   certain emergency circumstances, this requirement may be waived.)

                   Adjustable Rate Mortgage (Also known as a variable rate mortgage. The interest
                   rate on these mortgages changes periodically.)

                   Balloon Payment (Usually a short-term fixed-rate loan which involves small payments
                   for a certain period of time and one large payment for the remaining amount of the
                   principal at a time specified in the contract.)

                   Credit Insurance (Insurance may be required to insure the mortgagee against default.
                   Financed, or single premium, may be abusive.)

                   Prepayment Penalty (Fees paid by the borrower if they pay the loan before its due
                   date.)

                   Mandatory Arbitration Clause (Clause which prevents mortgagor from taking legal
                   action against mortgagee.)

                   Other:

   17.     Where did the loan closing take place?
                  Lender’s office
                  Borrower’s home
                  Attorney’s office (name):
                  Title Company Office (name):
                  Other:

   18.     Who was present?

   19.     Was an attorney present? Yes No        Don’t Know
           How many?
   20.     Did you have your own attorney present? Yes No

   21.     Did you ever consult an attorney?   Yes        No

   22.     Who did you think the closing attorney represented?   You       Lender   Seller   You and lender
            You and seller    Seller and lender

   23.     Did you have any complaints about the attorney?     Yes   No
           Describe any complaints:



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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


    24.        Did you read the documents before signing them?       Yes     No
               If not, why didn’t you read the documents?
                   Inability to read
                   Didn’t have time
                   Didn’t know to read the documents
                   Instructed not to read the documents
                   Other:

    25.        Did you sign documents on more than one occasion?       Yes        No
               If yes, describe:

    26.        To your knowledge, was your signature forged on any documents?
                  Yes No
               If yes which ones?

    27.        To your knowledge, was anything falsified on your loan documents?
                 Yes No
               If yes, what?

    28.        Do you have a copy of all the documents you signed?         Yes    No

    29.        Were all documents completely filled out when you signed them?            Yes        No
               If not, describe what was not completed:

Cancellation
    30.        Were you told about having three days to cancel the contract?           Yes     No

    31.        Did you attempt to cancel the loan?   Yes   No
               If yes, describe what occurred:

Mortgage
    32.        Did you understand that your house could be foreclosed and taken if you were not able to repay
               the loan? Yes No
               If no, please explain:

    33.        Was the mortgage a first, second or third mortgage?     First      Second       Third

    34.        To whom were you making mortgage payments before foreclosure?




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   35.        What if any were different at loan closing? Fill in the chart below. If different what were the
              explanations for changes?

                                 Said Before Loan            Actual at Closing       Explanation given, if
                                 Closing                                             any
   Interest Rate
   Origination Fee
   Discount Points
   Broker Fees
   Term
   Two Mortgages Required
   Fixed Rate or Adjustable
   Balloon Payments
   Credit Insurance
   Prepayment Penalty
   Mandatory Arbitration


Debts
   36.        Were any debts paid off with this loan?    Yes      No
              If so which ones? Fill out this table:

   Creditor                Amount Paid           Interest Rate               Collateral (Yes or No),
                                                                             What?




Refinancing
   37.        How many times have you refinanced your home? 1 2 3 4 5 6 Other:

   38.        Reason for each refinancing?

                           First                   Second                  Third
   Lender
   Date of refinancing
   Reason for
   refinancing
   Were you behind on
   payments at the time
   of foreclosure?
   If there were more than 3 refinancings, please attach a separate sheet of paper.

   39.        Who initiated the refinancing? Please describe:

   40.        Were you promised any gifts for refinancing?        Yes   No
              If yes, please describe:


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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


Insurance
   41.      Did you purchase credit insurance? Check all that apply
                Life
                Property
                Mortgage guaranty
                Disability
                Unemployment
                Other:

   42.      Did you believe the credit insurance was required?   Yes   No
            If yes, why?

   43.      At the time of the loan, did you know that you had bought insurance?
               Yes No
            If no, when did you discover that you had?


   44.      To your knowledge, did the insurance policy cause any problems contributing to foreclosure?
              Yes No
            If yes, please describe:

   45.      If the loan had been refinanced, was the insurance premium refunded if full term coverage had
            not elapsed? Yes No Do Not Know


Post-Foreclosure
   46.      Do you know what happened to the property after the foreclosure?

   47.      Who took possession of the property?

   48.      Was the property used as a residence?

   49.      Was the property torn down?

   50.      Have you visited the property since?

   51.      If yes, what is the use/condition?

   52.      How often do you visit the property?




                                                    55
APPENDIX D: MORTGAGEES WITH MORE THAN 5 SUSPECT CASES IN SAMPLE


                                        Magna            Creve           First           Security          Delmar            Equicredit         Long             Mortgage          Norwest           Union
                                        Bank, N.A.       Couer           Financial       Financial         Financial         Corporation        Beach            America           Mortgage          Planters
                                                         Mortgage        Bank            and               Company           of Illinois        Mortgage         (IMC), Inc.       Inc               Bank
                                                         Associates                      Mortgage                                               Company
                                                         Inc.                            Corp.
Number of Cases                             9                 8              8                 7                6                     6              6                6                6                  6
Average Interest Rate and T-Bill         1.10%              6.65%          6.13%            1.40%            3.12%                 7.60%          6.67%            8.93%             0.03%             6.80%
Difference
Fixed rate mortgages                    67%        (6)   63%       (5)   63%       (5)   100%        (7)   67%         (4)   83%          (5)   17%        (1)   50%         (3)   83%         (5)   33%         (2)
Fixed mortgage rates more than 6%       0%         (0)   63%       (5)   13%       (1)   0%          (0)   0%          (0)   67%          (4)   17%        (1)   33%         (2)   0%          (0)   0%          (0)
over T-Bill rates
Adjustable rate mortgages (ARMs)        33%        (3)   38%       (3)   38%       (3)   0%          (0)   33%         (2)   17%          (1)   83%        (5)   50%         (3)   17%         (1)   66%         (4)
ARMs with rates more than 6% over       0%         (0)   25%       (2)   25%       (2)   0%          (0)   17%         (1)   0%           (0)   67%        (4)   50%         (3)   17%         (1)   0%          (0)
T-Bill rates
ARMs with rates more than 6% over       0%         (0)   67%       (2)   67%       (2)   0%          (0)   50%         (1)   0%           (0)   80%        (4)   100%        (3)   100%        (1)   0%          (0)
T-Bill rates as a percent of all ARMs
Balloon payments                        56%        (5)   38%       (3)   0%        (0)   0%          (0)   0%          (0)   17%          (1)   0%         (0)   0%          (0)   0%          (0)   33%         (2)
Single Premium Credit Insurance         0%         (0)   0%        (0)   0%        (0)   0%          (0)   0%          (0)   0%           (0)   0%         (0)   0%          (0)   0%          (0)   0%          (0)
Mandatory Arbitration                   0%         (0)   25%       (2)   0%        (0)   0%          (0)   0%          (0)   0%           (0)   0%         (0)   0%          (0)   0%          (0)   0%          (0)
Prepayment penalties                    0%         (0)   0%        (0)   0%        (0)   0%          (0)   0%          (0)   17%          (1)   0%         (0)   0%          (0)   0%          (0)   17%         (1)
Sales price/assessment difference       56%        (5)   25%       (2)   63%       (5)   100%        (7)   100%        (6)   17%          (1)   33%        (2)   67%         (4)   100%        (6)   66%         (4)
over 25%
Loan-to-value ratio >1.25               78%        (7)   50%       (4)   75%       (6)   100%        (7)   100%        (6)   83%          (5)   100      (6)     50%         (3)   100%        (6)   66%         (4)
                                                                                                                                                %
Missing key documents in file           22% (2)          50%     (4)     38%    (3)      0%          (0)   0%          (0)   0.5          (3)   50%      (3)     0%          (0)   0%          (0)   17%     (1)
Average number of years between           5.39              1.66           3.54               3.48              7.03               1.61             0.97              1.47              3.39            5.47
mortgage and foreclosure complaint
Median number of years between               3.7            1.39            3.46              3.23              5.55               1.25             0.86              0.92              3.43              5.64
mortgage and foreclosure complaint
APPENDIX E: PLAINTIFFS ON MORTGAGE FORECLOSURE COMPLAINTS WITH MORE THAN 5 SUSPECT CASES
IN SAMPLE


                                           Norwest            Union             Magna             The Bank           Contimortgage       Associates        Federal            United              IMC
                                           Bank               Planters          Bank              of New             Corporation         Finance           National           Companies           Mortgage
                                                              Bank                                York                                   Inc.              Mortgage           Lending             Company
                                                                                                                                                           Association        Corporation
Number of Cases                                   11              10                8                  8                       8                8                  7                   7                  6
Average Interest Rate and T-Bill                6.72%           4.23%            3.84%              8.20%                  6.19%%            7.40%              2.38%               7.06%              9.86%
Difference
Fixed rate mortgages                       45%          (5)   40%         (4)   75%         (6)   63%          (5)   63%           (5)   1           (8)   86%          (6)   57%           (4)   33%          (2)
Fixed mortgage rates more than 6% over     18%          (2)   0%          (0)   0%          0     50%          (4)   38%           (3)   1           (8)   0%           (0)   43%           (3)   17%          (1)
T-Bill rates
Adjustable rate mortgages (ARMs)           55%          (6)   60%         (6)   25%         (2)   38%          (3)   38%           (3)   0           (0)   14%          (1)   43%           (3)   66%          (4)
ARMs with rates more than 6% over T-Bill   55%          (6)   10%         (1)   13%         (1)   38%          (3)   38%           (3)   0           (0)   14%          (1)   29%           (2)   66%          (4)
rates
ARMs with rates more than 6% over T-Bill   100%         (6)   17%         (1)   50%         (1)   100          (3)   100%          (3)   0           (0)   100%         (1)   67%           (2)   100          (4)
rates as a percent of all ARMs                                                                    %                                                                                               %
Balloon payments                           27%          (3)   20%         (2)   63%         (5)   13%          (1)   13%           (1)   0           (0)   0%           (0)   0%            (0)   0%           (0)
Single Premium Credit Insurance            0%           (0)   0%          (0)   0%          (0)   0%           (0)   0%            (0)   38%         (3)   0%           (0)   0%            (0)   0%           (0)
Mandatory Arbitration                      0%           (0)   0%          (0)   0%          (0)   0%           (0)   0%            (0)   12%         (1)   0%           (0)   71%           (5)   0%           (0)
Prepayment penalties                       0%           (0)   10%         (1)   0%          (0)   0%           (0)   0%            (0)   12%         (1)   0%           (0)   0%            (0)   0%           (0)
Sales price/assessment difference over     64%          (7)   60%         (6)   63%         (5)   25%          (2)   63%           (5)   0           (0)   86%          (6)   71%           (5)   50%          (3)
25%
Loan-to-value ratio >1.25                  73%          (8)   70%         (7)   63%         (5)   63%          (5)   75%           (6)   62%         (5)   71%          (5)   86%           (6)   50%          (3)
Missing key documents in file              18%          (2)   30%         (3)   25%         (2)   50%          (4)   25%           (2)   62%         (5)   14%          (1)   29%           (2)   33%          (2)
Average number of years between                  1.91              5.68              6.09               1.63                2.24               2.7               8.87               2.57                0.87
mortgage and foreclosure complaint
Median number of years between                   1.49              4.23              3.45               1.58                2.42             1.82                6.31               2.07                0.9
mortgage and foreclosure complaint
APPENDIX F: RESULTS FOR CITIES AND TOWNS (5 WITH LARGEST NUMBER OF CASES IN SAMPLE)



                                                               Belleville           East St. Louis       Cahokia            Fairview Heights    Washington Park

Number of Cases                                                       118                  112                 8                  8                   8
Average Interest Rate and T -Bill Difference                          2.55                 4.06             3.84%              8.20%              6.19%%
Fixed rate mortgages                                            74%          (87)    78%          (87)    80%     (43)      62%     (16)        75%     (18)
Fixed mortgage rates more than 6% over T -Bill rates            11%          (13)    24%          (27)    6%       (3)       4%      (1)        38%      (9)
Adjustable rate mortgages (ARMs)                                26%          (31)    22%          (25)    20%     (11)      38%     (10)        25%      (6)
ARMs with rates more than 6% over T -Bill rates                 8%            (9)    19%          (21)    9%      (11)      15%      (4)        21%      (5)
ARMs with rates more than 6% over T -Bill rates as a percent    29%           (9)    84%          (21)    45%      (5)      40%      (4)        83%      (5)
of all ARMs
Balloon payments                                                14%          (17)    5%            (6)    6%          (3)    4%           (1)   13%           (3)
Single Premium Credit Insurance                                 2%            (2)    0%            (0)    2%          (1)    0%           (0)   0%            (0)
Mandatory Arbitration                                           3%            (4)    4%            (5)    0%          (0)    8%           (2)   0%            (0)
Prepayment penalties                                            3%            (4)    6%            (7)    0%          (0)    0%           (0)   8%            (2)
Sales price/assessment difference over 25%                      24%          (28)    21%          (24)    33%        (18)   27%           (7)   50%          (12)
Loan-to-value ratio >1.25                                       47%          (55)    50%          (56)    57%        (31)   42%          (11)   67%          (16)
Average number of years between mortgage and foreclosure              6.45                 8.02              6.32                 9.49                2.39
complaint
Median number of years between mortgage and foreclosure               3.66                 2.2                3.92                5.14                1.37
complaint
Study of Mortgage Foreclosures and Predatory Lending in St. Clair County



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Study of Mortgage Foreclosures and Predatory Lending in St. Clair County


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