The Foreclosure Crisis in NYC: Patterns, Origins, and Solutions. Ingrid Gould Ellen

Transcription

1 The Foreclosure Crisis in NYC: Patterns, Origins, and Solutions Ingrid Gould Ellen

2 Reasons for Rise in Foreclosures Risky underwriting Over-leveraged borrowers High debt to income ratios Economic downturn Job losses among borrowers Fall in house prices 2

3 Share of Loan Originations that Were High Cost United States and NYC, Home Purchase Loans Refinance Loans 35% 35% 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% % NYC U.S. NYC U.S. Source: Home Mortgage Disclosure Act (HMDA) 3

4 Piggyback Lending Number of Home Purchase Loans Originated in NYC 70,000 60,000 50,000 40,000 30,000 20,000 10, First Lien Junior Lien Source: Home Mortgage Disclosure Act (HMDA) 4

5 Piggyback Lending in U.S. In 2006, 24 percent of borrowers nationally used a piggyback loan. Rates are higher in high-priced markets like NYC. More than a third(37.3 percent) of California home purchase borrowers also used a piggyback mortgage in

6 Share of Home Purchase Loans that Were High Cost NYC by Race, 2006 U.S. New York City White 17.6% 10.7% Black 53.0% 50.7% Hispanic 44.9% 36.3% Asian 17.4% 15.8% 6

7 Racial Disparities in Piggyback Lending New York City, % of black home purchase borrowers obtained piggyback loans 46% of all Hispanic home purchase borrowers obtained piggyback loans 13% and 18% of white and Asian home purchase borrowers obtained piggyback loans 7

8 Jan-08 Jul-08 Jan-09 Unemployment Rate 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 8 Jan-07 Jul-07 Jul-06 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Source: Current Population Survey, Local Area Unemployment Statistics US NYC

9 Housing Prices: Booms and Busts Sources: NYC Department of Finance, Furman Center; Case-Shiller National Housing Price Index US NYC 9

10 Housing Prices: Booms and Busts US - Single Family NYC - Single Family NYC - Large Multi-Family Sources: NYC Department of Finance, Furman Center; Case-Shiller National Housing Price Index 10

11 Single Family Homes Authorized by New Building Permits, NYC Sources: NYC Department of Buildings, Furman Center Note: Due to changes in data collection, one should not compare data collected before and after

12 Percentage of Loans Past Due United States, by Loan Type 30% 25% 20% All Loans Prime Prime ARM Subprime Subprime ARM 15% 10% 5% 0% 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 Source: Mortgage Bankers Association, National Delinquency Survey, 2008Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 12

13 Percentage of Loans in Foreclosure United States, by Loan Type 30% 25% 20% All Loans Prime Prime ARM Subprime Subprime ARM 15% 10% 5% 0% 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 Source: Mortgage Bankers Association, National Delinquency Survey, 2008Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 13

14 Percentage of Loans Entering Foreclosure United States, 2004Q1 2008Q4 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 Source: Mortgage Bankers Association, National Delinquency Survey, 2008Q4 14

15 Percentage of 1-4 Family Properties Entering Foreclosure New York City, 2004Q1 2009Q1 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 2004Q1 2004Q2 2004Q3 2004Q4 2005Q1 2005Q2 2005Q3 2005Q4 2006Q1 2006Q2 2006Q3 2006Q4 Source: Public Data Corporation, NYC Department of Finance, Furman Center 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 15

16 Foreclosures in the US & NYC Lis Pendens Filings for 1 4 Family Buildings Bronx Brooklyn Manhattan Queens Staten Island New York City 6,069 6,086 8,723 13,231 13,305 U.S. (all foreclosures & property types) Source: Public Data Corporation and Realty Trac - 885,462 1,259,098 2,203,295 3,157,806 16

17 Foreclosures by Building Type New York City, Fam 2-4 Fam 5+ Fam Condo (units) Mixed use Source: Mortgage Bankers Association, National Delinquency Survey, 2008Q4 17

18 Concentration of Foreclosures In 2008, 76% of City s 15,000 foreclosure filings were located in Queens and Brooklyn. In 2008, 56 % of foreclosure filings took place in just 10 of the city s 59 community districts. Nine out of 10 of those community districts were over 85% non-white. 18

19 Foreclosures and Race in NYC 2007 Race Data (ACS) 2008 Foreclosures (Public Data Corporation & NYC Dept of Finance) 19

20 Collateral Costs of Foreclosures Neighboring properties The value of neighboring properties fall after foreclosure Renters More than half of the 31,600 households living in properties receiving foreclosure notices in NYC in 2008 were renters. Taxpayers Falling property values mean falling property tax revenues Children Children may suffer from moves to new schools and communities 20

21 Federal Policy Responses Foreclosure prevention Loan modifications and refinancing Foreclosure mitigation Communities Renters Regulatory restructuring and reform 21

22 Foreclosure Prevention: Modifications Carrots: Incentives for Loan Modifications Subsidize cost reductions from 38 DTI to 31 DTI Up front fee and pay for success awards to servicers for current loans; bonus for modifying current loans Rewards for borrowers able to stay current Sticks? Judicial Modifications of Mortgages During Bankruptcy Legal Protections: Establishing industry standards for modifications 22

23 Foreclosure Prevention: Refinancing Keeping mortgage rates low Provide access to low-cost refinancing for homeowners with conforming loans owned or guaranteed by Fannie Mae or Freddie Mac. Current borrowers Loans up to 105 LTV eligible New and improved Hope for Homeowners to provide refinancing option for other underwater borrowers. 23

24 Foreclosure Mitigation Communities Neighborhood Stabilization Program Incentives for Short Sales and Deed in Lieu Renters Homelessness Prevention Fund Helping Families Save Their Homes Act of 2009 (S. 896) now permits renters to stay in their apartments for term of lease and requires lenders to provide 90 days notice before eviction 24

25 Regulatory Reform Reforming GSEs Improving mortgage disclosures Rethinking mortgage regulation Change broker incentives Require brokers to be licensed Require lenders to offer 30-year, fixed mortgage as default Barney Frank: prevent lenders from securitizing the full value of their loan 25