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Slide 1 - GRIPelements - Web-based Publishing

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									Philanthropic Responses to the
Subprime and Foreclosure Crisis




                                             Solomon Greene
                                          Open Society Institute
                                                       Presentation at
                   Kirwan Institute for the Study of Race & Ethnicity
                 Convening on Subprime Lending, Foreclosure & Race

                                                      October 2, 2008
Overview

    Recent foreclosure trends and outlook

    Interventions - emerging models, challenges and
     opportunities

    Role of philanthropy



Open Society Institute, Neighborhood Stabilization Initiative   2
Recent Foreclosure Trends
   Foreclosures in U.S. by Loan Type: 2006 – 2008

                                  12



                                  10
      % of Loans in Foreclosure




                                  8



                                  6



                                  4



                                  2



                                  0
                                  1Q06   2Q06   3Q06        4Q06         1Q07              2Q07        3Q07      4Q07   1Q08

                                                 Subprime      FHA          VA             All Loans     Prime

  Source: Mortgage Bankers Association, National Delinquency Survey, First Quarter 2008.




Open Society Institute, Neighborhood Stabilization Initiative                                                                  3
Recent Foreclosure Trends
   Percentage of Foreclosures in U.S. by Loan Type: 1Q 2008

                                  18.00

                                  16.00

                                  14.00
      % of Loans in Foreclosure




                                  12.00

                                  10.00
                                                                                                 FRM
                                                                                                 ARM
                                   8.00

                                   6.00

                                   4.00

                                   2.00

                                   0.00
                                          All         Prime                    Subprime    FHA
                                                               Type of Loan



   Source: Mortgage Bankers Association, National Delinquency Survey, First Quarter 2008



Open Society Institute, Neighborhood Stabilization Initiative                                          4
Foreclosure Outlook: Rate Resets
      Monthly Mortgage Rate Resets (in billions of dollars)




     Source: Credit Suisse



Open Society Institute, Neighborhood Stabilization Initiative   5
  Foreclosure Outlook: Declining Prices
                                         Annual Housing Price Appreciation: USA
            Annual Housing Price Appreciation in the U.S., 1Q 2008
14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
         1998




                     1999




                                  2000




                                               2001




                                                            2002




                                                                        2003




                                                                                     2004




                                                                                               2005




                                                                                                      2006




                                                                                                             2007




                                                                                                                    2008
-2.00%
         Source: Year-on-Year Housing Price Appreciation; OFHEO housing price index, 1Q 2008




  Open Society Institute, Neighborhood Stabilization Initiative                                                     6
Foreclosure Outlook: Declining Credit
                 Mortgage Originations On the Decline
         Home Loan Originations in the U.S.: 1990–2009 (estimated)
          Billions of Dollars

        4,000                    Re fis
                                 Purchas e
        3,500
        3,000
        2,500
        2,000
        1,500
        1,000
           500
               0
                            1992 1994 1996                        2000
                   1990 HUD, Fannie Mae estimates (19981998 Fannie Mae f2002 2004
                    Source:                            f orward),        orecast
                                                                                    2006   2008
         Source: HUD, Fannie Mae estimates (1998 forward), Fannie Mae forecast




Open Society Institute, Neighborhood Stabilization Initiative                                     7
Foreclosure Outlook: Declining Credit
          % Change in Home Purchase Loan Activity (2006 - 2007), by Race



                                 White                                              -19.1%

                                 Asian                                              -22.6%

                                 Black                                              -38.1%

                                 Hispanic                                           -43.7%

              Source: NYU Furman Center for Real Estate and Urban Policy analysis of HMDA 2006 and 2007 data (forthcoming)




Open Society Institute, Neighborhood Stabilization Initiative                                                                8
High Costs of Foreclosure




  Source: “Sheltering Neighborhoods from the Subprime Foreclosure Storm.” Special Report from the Joint Economic Committee. April 2007.




Open Society Institute, Neighborhood Stabilization Initiative                                                                             9
Intervention Timeline


Pre-Purchase Origination Default                                Foreclosure Auction      REO
                                                                   Start




                        Prevention                                  Defense           Stabilization




Open Society Institute, Neighborhood Stabilization Initiative                                         10
Foreclosure Prevention: Strategies
    Education and Outreach
          Financial literacy, consumer awareness and anti-predatory lending campaigns
          Call centers and hotlines
    Homeownership Counseling
          Pre-purchase (credit counseling, financial counseling)
          Post-purchase (refinance, loss mitigation)
    Legal Representation (pro-bono, low-bono, legal services)
          Counsel and advise
          Predatory lending suits
    Policy Advocacy & Reform
          Anti-predatory lending laws
          Industry regulation and oversight
    Financial products
          Refinance products
          Rescue funds or bridge loans


Open Society Institute, Neighborhood Stabilization Initiative                            11
Foreclosure Prevention: Challenges

       Insufficient counseling capacity

       Servicer bottleneck
            Capacity constraints
            First- v. second-lien holders
            Competing tranches
            Sustainability of loan modifications

       “Under water” properties - debt exceeds value
            Difficulty underwriting refinances or loan modification
            Inability to dispose of property through pre-foreclosure sale

Open Society Institute, Neighborhood Stabilization Initiative            12
Foreclosure Prevention: Emerging Models

    Early warning systems – Bel-Air Edison
     Neighborhoods Inc. & Community Law Center

    Coordinated service delivery – Center for New York
     City Neighborhoods

    Technological solutions – Consumer Credit
     Counseling Services


Open Society Institute, Neighborhood Stabilization Initiative   13
Foreclosure Defense: Strategies

    Legal representation
      Loss mitigation

      Foreclosure defense



    Legal reform
      Settlement conferences and mediation

      Moratoria

      Bankruptcy courts


Open Society Institute, Neighborhood Stabilization Initiative   14
Foreclosure Defense: Challenges
       Timeline: balance between foreclosure
        proceedings that are “too fast” and “too slow.”

       Representation: Extremely low rates of legal
        representation for foreclosed borrowers, even in
        judicial foreclosure states.

       Negotiation: Difficulty identifying party with legal
        authority to negotiate (i.e., securitized loans, MERS)



Open Society Institute, Neighborhood Stabilization Initiative   15
Foreclosure Defense: Emerging Models

       Court-ordered mediation and diversion –
        Ohio; Queens, NY; Philadelphia, PA

       Pro bono mobilization and training – Civil
        Justice & Maryland Pro Bono Resource Center

       Standing challenges - Ohio cases



Open Society Institute, Neighborhood Stabilization Initiative   16
Community Stabilization: Strategies

    Minimize Displacement
      “Graceful exit” strategies

      Eviction defense

      Relocation assistance



    REO Property Reuse
      Code enforcement and taxation of vacant properties

      Acquisition and rehabilitation for resale, affordable rental
       housing, or adaptive reuse
      Land banks and land trusts

      Rent-to-own and leaseback programs




Open Society Institute, Neighborhood Stabilization Initiative         17
Community Stabilization: Challenges
       Tension between tenants’ rights and property
        disposition goals
       Difficulty valuing properties
       Lack of funds and expertise in acquiring and managing
        scattered-site properties
       High holding costs
       Title problems
       Ensuring pipeline of credit-ready homebuyers


Open Society Institute, Neighborhood Stabilization Initiative   18
Community Stabilization: Emerging Models

       Acquisition and rehabilitation of REO pools –
        HANDS, Inc. (Essex County, NJ)

       Bulk negotiation and transfer – National
        Community Stabilization Trust

       Mission-driven broker - Neighborhood Housing
        Services of NY

       “Rescue” funds – New York Times Foundation’s
        Neediest Cases Fund
Open Society Institute, Neighborhood Stabilization Initiative   19
New Opportunities
    State and federal anti-predatory lending legislation
    Frank-Dodd bill:
      $300 billion credit facility within FHA to purchase non-performing
        loans
      $3.9 billion in CDBG funds dedicated to neighborhood stabilization

      Tax credit for homeowners buying foreclosed properties

    Increased willingness of servicing industry to discount REO properties
    Court reform initiatives
    Increased awareness around renters’ issues and passage of local
     legislation to protect tenants’ rights in foreclosure
    Linking REO reuse to workforce development, affordable housing and
     other community revitalization goals
    Treasury “bailout”

Open Society Institute, Neighborhood Stabilization Initiative            20
Role of Philanthropy

    Fund direct services (education and outreach,
     counseling, legal services).
    Fund efforts at structural/policy change (organizing,
     policy research, impact litigation, etc.)
    Leverage private-sector capital (PRIs, credit
     enhancement).
    Serve as resource for generating critical information and
     sharing best practices (research, convenings, etc.).
    Convene stakeholders, develop task forces and
     coalitions.

Open Society Institute, Neighborhood Stabilization Initiative   21
Big Picture
    How can foundations help government and community groups
     overcome the “servicer bottleneck” to promote more and better
     loss mitigation and REO disposition strategies?

    How can foundations support innovative models that
     demonstrate sustainable and affordable homeownership is viable
     and essential component of wealth building for communities of
     color?

    How can foundations help eliminate racial disparities in credit
     markets and strengthen fair lending practices to avoid repeat of
     crisis?



Open Society Institute, Neighborhood Stabilization Initiative           22

								
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