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 jmcollins@wisc.edu 608.262.0369
Overview How did we get here? A look at Wisconsin and Dane county specifically Impacts on Families & Neighborhoods Policy responses Community efforts
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
Foreclosures Trending Back Up http://www.clevelandfed.org/research/commentary/2010/2010-15.cfm
Number of Foreclosure Filings State of Wisconsin Foreclosure Filings 2000-2011 A 344% increase since 2000 35000 30000 28,725 28,453 25000 23,263 20000 19,223 15000 15,231 10000 8,820 10,352 10,703 10,562 11,648 6,407 5000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Based on filings reported in the Wisconsin Circuit Court Consolidated Court Automation Programs case management system.
Number of Foreclosure Filings 1,800 Dane County Annual Foreclosure Filings 1,600 1,550 1,400 1,200 1,203 1,000 800 687 819 600 400 282 355 408 429 400 454 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Based on filings reported in the Wisconsin Circuit Court Consolidated Court Automation Programs case management system.
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 Q1 2009 to Q1 2010-1.1% Change Q2 2009 to Q2 2010 Change Q3 2009 to Q3 2010 Change Q1-Q3 2009 to Q1- Q3 2010 Based on filings reported in the Wisconsin Circuit Court Consolidated Court Automation Programs case management system.
Source: Dane County Foreclosure Task Force
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
Milwaukee Foreclosed Homes
Jeff Becker Dane County Foreclosure Density
Jeff Becker Tract Foreclosure Rate Unemployment Rate Income 1 1.867% 10.8% $34,000 2 0.671% 5.6% $42,800 3 4.274% 8.5% $29,375 4 1.080% 4.5% $44,667 5 1.156% 5.9% $53,631
Dane County Home Price < Bubble $210,000 $214,000 $217,900 $215,000 $200,700 $200,000 2006 2007 2008 2009 2010 2011 Data courtesy of Wisconsin Realtors Association
Foreclosures and Unemployment % REO by Zip Code Unemployment rate ( 2010) <5% 5-10% 10-15% >15% All <5% 5-10% 10-15% >15% All
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)
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
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
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
When during the month are people looking for help? 9000 8000 7000 6000 5000 4000 3000 2000 1000 Referrals by Week 0 Week 1 Week 2 Week 3 Week 4 Source: MortgageKeeper.org, 2010 Referrals by Counselors
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, 2009-2010 Referrals by Counselors
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
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
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 http://www.foreclosure-response.org/policy_guide/
Policy Responses Hope Now (2007) FHA Hope for Homeowners (2008) HAMP (2009) revised numerous times HARP (2009) Hardest Hit Funds (2010) AG Settlement (2012)
http://fyi.uwex.edu/whpe/
Data for Wisconsin http://www.uwex.edu/ces/cced/economies/c ommunityindicators/indicators_links.cfm#q2_ 2010
Local Resources Wisconsin Housing and Economic Development Authority www.wisconsinforeclosureresource.com Dane County Foreclosure Prevention Taskforce www.daneforeclosurehelp.org
Help Hotlines / Websites Credit Counseling: http://www.debtadvice.org/ Mortgage Counseling: www.995hope.org/ 888-995-HOPE UW Extension: www.uwex.edu/ Wisconsin Department of Financial Institutions http://www.wdfi.org/ (800) 452-3328 Federal Deposit Insurance Corporation (FDIC) (877) ASK-FDIC (925-4618); www.fdic.gov. Federal Trade Commission (877) FTC-HELP(382-4357); www.ftc.gov. http://www.consumerfinance.gov/
GRAASKAMP CENTER FOR REAL ESTATE