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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



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Recent Foreclosure Trends
   Foreclosures in U.S. by Loan Type: 2006 – 2008




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




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Recent Foreclosure Trends
   Percentage of Foreclosures in U.S. by Loan Type: 1Q 2008




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



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Foreclosure Outlook: Rate Resets
      Monthly Mortgage Rate Resets (in billions of dollars)




     Source: Credit Suisse



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Foreclosure Outlook: Declining Prices
      Annual Housing Price Appreciation in the U.S., 1Q 2008




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




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Foreclosure Outlook: Declining Credit
         Home Loan Originations in the U.S.: 1990–2009 (estimated)




         Source: HUD, Fannie Mae estimates (1998 forward), Fannie Mae forecast




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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)




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High Costs of Foreclosure




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




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Intervention Timeline


Pre-Purchase Origination Default                                Foreclosure Auction      REO
                                                                   Start




                        Prevention                                  Defense           Stabilization




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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


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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

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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


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Foreclosure Defense: Strategies

    Legal representation
      Loss mitigation

      Foreclosure defense



    Legal reform
      Settlement conferences and mediation

      Moratoria

      Bankruptcy courts


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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)



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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



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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




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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


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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
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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”

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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.

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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?



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