End of the American Dream? How Mortgage Defaults and Foreclosures Affect Families and Communities

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1 End of the American Dream? How Mortgage Defaults and Foreclosures Affect Families and Communities J. Michael Collins Assistant Professor, School of Human Ecology Director, Center for Financial Security University of Wisconsin Madison

2 Overview How did we get here? A look at Wisconsin and Dane county specifically Impacts on Families & Neighborhoods Policy responses Community efforts

3 Looking Back Historically Ownership = Good Mortgage has evolved dramatically The housing boom and mortgage explosion Income trends and home equity as consumption Subprime lending, predatory lending and the first wave of foreclosures - Unemployment and further waves - Roles of trigger events - health, income, 'shocks

4 Foreclosures Trending Back Up

5 Number of Foreclosure Filings State of Wisconsin Foreclosure Filings A 344% increase since ,725 28, , , , ,820 10,352 10,703 10,562 11,648 6, Based on filings reported in the Wisconsin Circuit Court Consolidated Court Automation Programs case management system.

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7 Number of Foreclosure Filings 1,800 Dane County Annual Foreclosure Filings 1,600 1,550 1,400 1,200 1,203 1, Based on filings reported in the Wisconsin Circuit Court Consolidated Court Automation Programs case management system.

8 Percent Change in Foreclosure Filings 12.0% 10.0% 9.6% Dane County State of Wisconsin 8.0% 6.0% 5.8% 5.2% 4.0% 2.0% 1.6% 0.0% 0.7% 0.2% 0.3% -2.0% Change Q to Q % Change Q to Q Change Q to Q Change Q1-Q to Q1- Q Based on filings reported in the Wisconsin Circuit Court Consolidated Court Automation Programs case management system.

9 Source: Dane County Foreclosure Task Force

10 Neighborhood Effects Less incentive to maintain or upgrade properties Properties may sit vacant, attracting vandalism and crime signaling that the neighborhood is in a state of decline Increase in the number of properties on the market at a given time Properties may sell at a discount, both at auctions or preforeclosure sales, affecting the price of comparables used to estimate neighboring property values

11 Milwaukee Foreclosed Homes

12 Jeff Becker Dane County Foreclosure Density

13 Jeff Becker Tract Foreclosure Rate Unemployment Rate Income % 10.8% $34, % 5.6% $42, % 8.5% $29, % 4.5% $44, % 5.9% $53,631

14 Dane County Home Price < Bubble $210,000 $214,000 $217,900 $215,000 $200,700 $200, Data courtesy of Wisconsin Realtors Association

15 Foreclosures and Unemployment % REO by Zip Code Unemployment rate ( 2010) <5% 5-10% 10-15% >15% All <5% 5-10% 10-15% >15% All

16 Common Themes of Interviews with People in Foreclosure Process School aged kids minimize disruption Relationship issues Pride management with family & peers Lack of trust in institutions Some exceptions for helpful counselors / agencies Communication / Education is challenge Lack internet, limited phone, time constrained Interest in budgeting (reformed spendthrifts)

17 Financially Strapped I am on unemployment and I am about ready to declare bankruptcy. I can t do consumer credit counseling b/c I am not employed. All my unemployment checks go toward paying my two mortgages. I am $19k in debt. I would like to save but I need to work in order to save. - married woman in 40s By late delinquency (180+ days) Tapped out family Cashed in / borrowed from 401k Austerity budgeting

18 Emotional Toll I had a job where I could work overtime when I wanted. So I bought a lot of toys (motorcycle, trucks, etc.). Then they got repossessed. I found it devastating. It was so embarrassing. Now I have one vehicle the one that is most practical and it is hard. I did not realize my unemployment would be so long. I did not think it would happen to me. male in 50s Unwilling to reveal extent of needs Not seeking advice in community

19 Hard to Reach / Not Accessing Information I have access to the internet through the library. I simply cannot afford it at home. There is a lot of waiting and stuff so it makes it difficult. I do have an internet account at work but limited so I can t really do a search at work. - Single mother in 30s Reaching people phone, mail, web all limited

20 When during the month are people looking for help? Referrals by Week 0 Week 1 Week 2 Week 3 Week 4 Source: MortgageKeeper.org, 2010 Referrals by Counselors

21 Most Common: Food, Job, Utilities Unemployment Assistance 3% Pharmaceutical Costs 7% Senior Citizen Services Home Repair 3% 3% Childcare 2% Legal Services 9% Services Referred Other 7% Food Assistance Programs 19% Job Training 18% National Hotlines 11% Heating/Utility Costs 18% Source: MortgageKeeper.org, Referrals by Counselors

22 Typology of Consumers in Distress (Negative Trigger Events) Income disruption, but potential to work Job loss/cutback (relocation options) Divorce (child support issues) Widow/er (may have limited work options) Disability Chronic (DI application process) Health crisis Acute or ongoing expenses (medical debt management) Investor (not all are speculators) tenant eviction issues subsidized units Small business failure (non-real estate) Sale / bankruptcy (special issues if farm) Strategic defaulters

23 Providing Services Prevention People not in default, but worried Early Intervention Missed 1-2 payments Late Intervention Missed 3+ payments Transitional Support Short sale or foreclosure auction

24 Foreclosure Prevention and Response Create a Foreclosure Prevention Hotline Relocation Assistance and Social Services Understand Why Foreclosures Matter Homeownership Education and Counseling Foreclosure Prevention Counseling Work with Lenders and Servicers for Better Loan Modifications Expanded Legal Services Low-Interest Refinance Loans Protections for Tenants Credit Repair for Former Homeowners BEFORE Mortgage Delinquency DURING Mortgage Delinquency AFTER Foreclosure Anti- Predatory Lending Laws Oversight of Mortgage Brokers and Lenders Monitor Downpayment Passthroughs Develop a Coordinated Response Strategy Short-Term Emergency Loans Moratorium or Other Extension Refinancing with Flexible Underwriting Requirements Secure and Maintain Foreclosed Properties Streamline Private Section Disposition of Vacant Properties Acquire, Rehab, and Manage Foreclosed Homes

25 Policy Responses Hope Now (2007) FHA Hope for Homeowners (2008) HAMP (2009) revised numerous times HARP (2009) Hardest Hit Funds (2010) AG Settlement (2012)

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28 Data for Wisconsin ommunityindicators/indicators_links.cfm#q2_ 2010

29 Local Resources Wisconsin Housing and Economic Development Authority Dane County Foreclosure Prevention Taskforce

30 Help Hotlines / Websites Credit Counseling: Mortgage Counseling: HOPE UW Extension: Wisconsin Department of Financial Institutions (800) Federal Deposit Insurance Corporation (FDIC) (877) ASK-FDIC ( ); Federal Trade Commission (877) FTC-HELP( );

31 GRAASKAMP CENTER FOR REAL ESTATE