The Current Foreclosure Crisis Trends and Roadblocks to Recovery

The Current Foreclosure Crisis Trends and Roadblocks to Recovery American Planning Association February 22, 2011 Geoff Smith Senior Vice President Woodstock Institute Chicago, Illinois gsmith@woodstockinst.org www.woodstockinst.org

Woodstock Institute Chicago-based non-profit research and policy organization working locally, nationally, and internationally to promote economic development in lower-income communities and communities of color Work with financial institutions, community organizations, foundations, government agencies, and others. Areas of expertise include CRA and fair lending policies, financial and insurance services, small business lending, community development financial institutions, and economic development strategies. Key program area: Housing Policy and Practice Mortgage Lending Foreclosures WOODSTOCK INSTITUTE MONTH YEAR

Mortgage Lending: Growth of Subprime Lending 90.0% 80.0% 70.0% 69.0% 71.8% 72.6% 73.8% 75.6% 76.7% 74.5% 75.5% 76.5% 60.0% 50.0% 40.0% 30.0% 20.0% 19.7% 18.3% 18.1% 17.4% 15.6% 12.6% 11.5% 13.4% 13.6% 10.0% 8.8% 7.8% 7.1% 6.5% 5.6% 5.3% 10.4% 8.0% 7.3% 2.4% 2.1% 2.4% 2.6% 2.6% 3.4% 4.4% 0.0% 3.6% 3.1% 1998 1999 2000 2001 2002 2003 2004 2005 2006 FHA VA Subprime Prime

Mortgage Lending: Subprime Mortgages Target Borrowers of Color Higher Cost Lending Disparity Ratios by Race/Ethnicity and Income Level of Borrower in Chicago Six County Area, 2006 3.50 3.00 2.50 2.87 2.71 2.61 2.94 2.32 2.00 1.78 1.92 1.99 1.50 1.00 0.50 0.00 African American/White Latino/White Low-Income Moderate-Income Middle-Income Upper-Income

Mortgage Lending: Subprime Mortgages Concentrated in Communities of Color

Regional Quarterly Trends in Foreclosure Filings, 2005 to 2010

Patterns of Regional Growth in New Foreclosure Filing Activity, 2010 Chicago Six County Area 2010 79,986 residential properties with a foreclosure filings 14.1% increase from 2009 Regional Growth Patterns 2010 McHenry County 33% increase Will County 21.4% increase Cook County 10.6% increase Suburban Cook 18.3% increase Northwest Cook 24.5% increase Chicago 3% increase Loop 53.7% increase Englewood 20.3% decline Grand Boulevard 9.2% decline

Emerging Issues Condo Foreclosures in the Suburbs Condo foreclosures continue to rise, expand to suburbs in 1H 2010 Increase from 1 3Q 2009: Region 42.5% City of Chicago 34.9% Share of total new foreclosure filings in 1 3Q 2010: Region 19.5% City of Chicago 26.6% In certain suburban regions, a substantial share of newly filed foreclosures are on condos Northwest Cook 43.1% of all new FC filings 64.8% increase from 1 3Q 2010 North Cook 29.9% 57.9% increase Southwest Cook 23.4% 59.4% increase DuPage County 22.3% 31.7% increase

Accumulation of Foreclosure Activity in Communities of Color, 2006 to 1H 2010

WOODSTOCK INSTITUTE OCTOBER 2010

Patterns of Regional Growth in Completed Foreclosure Auction Activity, 2009 to 2010 Chicago Six County Area 2010 30,981 residential properties completed foreclosure process 95.3% entered REO status 25.2% increase in completed auctions from 2009 Regional Growth Patterns 2009 to 2010 Will County 24.8% increase Cook County 27.8% increase Suburban Cook 37.4% increase Northwest Cook 66.1% increase Southwest Cook 41.9% increase Chicago 19.9% increase

Impacts of Foreclosure Homeowner Loss of shelter Loss of assets Displacement Damaged credit Family Stress Communities Blight Neighborhood instability Increases in violent crime Decreases in property values Increased costs for municipalities and decreased revenues to manage those costs and to improve neighborhoods

Concentration of Unsold Properties in Communities of Color Disparate Impact of Lender Owned Properties Unsold REO Properties 64% are concentrated in highly African American communities Absorption Rate It will take 25% longer for REO properties in highly African American communities to be absorbed into the market. Value Declines Highly African American communities saw declines of 35.1%, while primarily white communities saw declines of 17 percent.

Communities of Color Hardest Hit by Vacant Properties Vacant Properties Associated with Foreclosure Vacant Properties 18,320 properties identified as vacant or potentially vacant by the City of Chicago Nearly 70% of all vacant properties on the Chicago Vacant Buildings Index are associated with a foreclosure Red Flag Properties 1,896 properties on the Index are red flag properties, many of which may be lender walkaways 71% of red flag properties are located in highly African American communities, compared to only 6.5% in predominately white communities Impact Destabilize communities Burden to municipalities

Roadblocks to Recovery Weakness in Impacted Local Real Estate Markets Accumulation of vacant properties A foreclosure reduces a property s value by 27 percent, on average A foreclosure reduces surrounding property values by.9 percent Inventory absorption Underwater Homeowners Other Barriers 19.7 percent of Illinois mortgages underwater in 2Q 2010 Foreclosure process and disposition of foreclosed properties Disproportionately high unemployment Credit Pullback Disproportionate lending declines 68.8 percent decline in home purchase lending in 2008 in region s African American communities, compared to 54 percent regionally 44 percent decline in predominately white communities Tighter underwriting and uncertain appraisals Credit scores and income issues

Zip Codes with Highest and Lowest Credit Scores in the Chicago Region June 30, 2009 Zip Code Area Name Average 740+ Less than 580 60621 Chicago Englewood 598 11.9% 52.6% 60636 Chicago W. Englewood 607 15.1% 49.6% 60624 Chicago W. Garfield Park/E. Garfield Park 603 12.7% 49.1% 60827 Riverdale 605 13.5% 47.2% 60644 Chicago Austin 612 15.4% 46.3% 60043 Kenilworth 772 91.7% 0.0% 60558 Western Springs 751 82.2% 3.4% 60022 Glencoe 751 79.2% 2.6% 60091 Wilmette 754 78.3% 2.3% 60010 Barrington 746 75.4% 4.0%

Impact of Low Credit Scores Access to Refinance Lending Change in Chicago Area Conventional Refinance Originations, 2008 to 2009

Interventions: Helping Homeowners Home Affordable Modification Program (HAMP) Projected to help 3 4 million Fell short of goals, actually has helped a little more than.5 million helped Challenges addressing emerging roadblocks Limited mortgage servicer accountability Proprietary modification Servicers completed 696,992 proprietary modifications from 3Q 2009 to 3Q 2010 Lower monthly payments are not guaranteed as in HAMP Limited oversight and transparency Higher redefault rates (after six months 22.8% for proprietary mods, 10.8% for HAMP mods) Court mortgage foreclosure mediation programs: Philadelphia Facilitates communication between borrower and lender 30 percent of homeowners who participated in Philadelphia were able to reach a settlement Foreclosure counseling 45 percent of homeowners who complete counseling are able to stay in their homes Serious gaps in counseling capacity in areas of high foreclosure activity

Interventions: Helping Communities and Looking to the Future Neighborhood Stabilization Program (NSP) Illinois has received $362.8 million in NSP funds from three rounds of funding Challenges: competing with investor purchases Weak demand in re sale market Municipal response to vacant properties Early warning databases, vacant property registry, liens and land banking Increased servicer accountability around vacant properties Boston Community Capital SUN program Uses borrowed funds to purchases REO properties, sells back properties to original owners CRA Modernization Ensures access to credit Updates CRA to reflect practices of the current financial landscape Financial Reform Foreclosure crisis has roots in discriminatory lending practices Financial reform keeps bad products out of neighborhoods