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Just Thoughts is the blog of the Empire Justice Center, New York’s statewide, multi-issue, multi-strategy public interest law firm focused on changing the “systems” within which poor and low income families live. Here staff and guest authors will share stories, announcements and perspectives on timely issues related to our work.    



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Principal Reductions in Mortgage Workouts are Essential to Reducing the Discriminatory Impact of Foreclosures


“Preserving an affordable home, in a stable neighborhood, for all Americans”—this phrase summarizes three key aspects of housing opportunity and the realization of the American dream.  The foreclosure crisis and the resulting recession, however, have undercut every aspect of this vision. 

Access to an affordable home with sustainable payments is out of reach for many more people today than before the crisis.  Millions of homeowners have already lost their home through foreclosure, are still at risk of foreclosure, or are stuck underwater with unaffordable mortgages as a result of the decline in housing values or lost income.  New York State alone currently has 122,544 mortgages in some stage of foreclosure, and another 197,507 that are seriously delinquent. [1] 

Moreover, due to stricter underwriting guidelines and other changes in the mortgage industry, the lower-income minority borrowers who are the potential purchasers most likely to help stabilize neighborhoods of color now have less access to affordable mortgages.

Our neighborhoods are at risk of instability and blight.  Worse yet, the neighborhoods that have seen the highest concentrations of foreclosures, resulting in higher numbers of vacant properties, are now seeing the steepest declines in housing values, putting many of these neighborhoods into a spiral of increasing instability and blight.

Rust-belt cities, like Rochester, Buffalo and Syracuse, which already had high numbers of vacant properties before the foreclosure crisis, are experiencing sharp declines in their tax bases, and may soon have to adopt triage strategies to stop the spread of blight.

The foreclosure crisis has had a disparate impact on African American and Latino homeowners and communities.   Foreclosures have not affected all homeowners and communities equally.  Since foreclosures are disproportionately concentrated in minority neighborhoods, and since all of homeowners living in those neighborhoods are impacted by foreclosures, African American and Latino homeowners are suffering disproportionately.  That’s because we live today with patterns of segregation that were established decades ago.  Because we live in segregated communities, African American and Latino homeowners are several times more likely than White, non-Latino homeowners to live in the areas most impacted by foreclosures. 

Minority homeowners either in foreclosure, or living in neighborhoods impacted by foreclosures, are suffering disproportionately from declines in housing values and neighborhood instability.

To get neighborhoods of color back on track, so they can share in the economic and housing recovery, we need to keep as many homeowners as possible in their homes.  This is especially true for the homeowners in the neighborhoods most impacted by foreclosures.

Principal reductions based on true value assessments are fair.

Requiring mortgage servicers to do principal reductions – based on the true (i.e., reduced) value of homes in impacted areas – will help us get back on track by keeping more owners in their homes, reducing  foreclosure-associated vacancies, stabilizing impacted neighborhoods, and thus reducing  the disproportionate impact of foreclosures and foreclosure-related vacancies on African American and Latino homeowners and neighborhoods.  Banks and servicers wouldn’t be losing anything, they’d just be recognizing the lost value of their assets that had already occurred.

Principal reductions must factor in the effect that HIGHER CONCENTRATIONS of foreclosures have on property values.  

True value assessments done in conjunction with principal reductions would result in a greater number of successful loan modifications and keep more owners from losing their homes.  But to do true value assessments, the impact of higher concentrations of foreclosures must be taken into account.  Neighborhoods with high concentrations of foreclosures [2] can be readily identified [3] and property valuations can be adjusted fairly.  If we fail or refuse to do principal reductions that take into account the greater drops in home values created by concentrations of foreclosures, it will be African American and Latino homeowners and minority neighborhoods as a whole who suffer. [4]

We can address the problem of concentrated foreclosures by urging federal policy makers to act.  The Federal Housing Finance Agency, the agency that oversees Fannie Mae and Freddie Mac, needs to begin to not only allow, but to require mortgage servicers to do principal reductions.  Congress needs to pass legislation requiring principal reductions and true value assessment.

Let’s make minority homeowners and communities of color equal participants in the nation’s housing recovery.


End Notes:
 [1] Empire Justice Center estimate using data from the CoreLogic, “National Foreclosure Report,” December 2013, as found at http://www.corelogic.com/research/foreclosure-report/national-foreclosure-report-december-2013.pdf.
 [2] Note, however, that zip code foreclosure totals alone are not sufficiently accurate for this purpose. For example, a suburban zip code with 350 foreclosures is not impacted as severely as an urban zip code with the same number of foreclosures, but which is 1/43 the size. (This is an actual example based on zip codes 14619 and 14580 in Monroe County, NY). Instead, the rate of foreclosures and geographic density should be taken into account. That can readily be done at the census tract level.
 [3] Empire Justice Center did this on Long Island. See our report.
 [4] These findings are based upon a data analysis conducted by the Empire Justice Center in New York State which included an evaluation of all foreclosures initiated in Rochester NY since January 1, 2009, mapping the foreclosures and linking the court records for each property to the city’s property information database, as well as census demographics for minority homeowners, in order to evaluate the characteristics of properties in foreclosure including location, concentration, case status, vacancy status and changes in ownership. 



Tags: foreclosure | minority homeowners | African American | Latino | neighborhoods of color | principal reductions | housing opportunity | FHFA





It Looks Like Payday Lending Bill Is Off the Table in New York; Consumers Can Breathe a Sigh of Relief…For Now

Issue Area: Consumer

Last week I drafted a piece on the mounting evidence that payday lending is bad for consumers.  I am happy to say that I had to throw that piece in the recycle bin.

On Monday, Superintendent Ben Lawsky sent a letter to NYS Assembly Speaker Sheldon Silver saying that the NYS Department of Financial Services opposes the “short-term financial services loan act” (A.1113-A/S.3999-A), legislation that would permit licensed check cashers in New York to make small dollar loans. 

Lawsky’s letter states, “The bill creates an exception to New York's criminal usury law for licensed check cashers.  By setting a 25 percent cap on interest rates, the bill obscures the true impact of these loans.  In fact, when taking into account all of the fees permitted by the bill, the actual annualized interest rates consumers would pay balloon into the triple digits.  The payday loans envisioned by the bill are the types of loans that the current 25% criminal usury cap was designed to keep out of New York.”

The Albany Times Union and the New York Daily News suggest that this strong stance taken by the Cuomo administration has essentially killed the legislation.

This comes on top of actions taken last week by federal regulators in proposing stronger guidance around deposit advance products.  The standards proposed by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) would, among other things, require the banks they regulate to take into account the borrower’s ability to repay the loan and to limit the number of loans made to a borrower to six per year.

Also last week, the Consumer Financial Protection Bureau (CFPB) released a study showing that payday or deposit advance loans trap consumers into a cycle of debt, leading to ruined credit for the borrower and billions of dollars in wealth being stripped from low and moderate income communities and neighborhoods of color.

According to the CFPB, “Lenders often do not take a borrower’s ability to repay into consideration when making a loan.  Instead, they may rely on ensuring they are one of the first in line to be repaid from a borrower’s income.  For the consumer, this means there may not be sufficient funds after paying off the loan for expenses such as for their rent or groceries – leading them to return to the bank or payday lender for more money.”

This likely defeat of New York’s Short Term Financial Services Loan Act is a huge victory for consumers in New York.  Nevertheless, as noted in a NY Daily News editorial, we need to continue to be vigilant in keeping usurious payday lending and deposit advance products out of New York.

To see the most recent news and articles on payday lending, click here.



Tags: payday lending | check cashers | usury | CFPB | deposit advance loans | DFS | small dollar loans | OCC | FDIC





Still working on that sunlight


In my last post, I talked about the need for better data to increase transparency and accountability in the mortgage lending market.  This week I have a great opportunity to make my case.  I am one of several consumer advocates from across the country who will be talking with staff at the Consumer Financial Protection Bureau (CFPB) about what information would be most useful to the public, regulators and policy makers, and how this information can be efficiently collected from mortgage lenders and servicers.

We will be talking with the CFPB about data-related issues, all of which are part of Dodd-Frank [1] and are critical to shedding more light on mortgage lending and servicing in this country:

(1) data enhancements to the Home Mortgage Disclosure Act (HMDA) dataset,
(2) the establishment of a default and foreclosure database and
(3) the public availability of the Home Affordable Modification Program (HAMP) loan modification data.

Maybe I’m just really curious, but when homeowners default on their mortgage loans, I want to understand what led these homeowners to default while other homeowners continue to pay and stay current on their loans.  Specifically, were borrowers with certain loan terms more likely to default than other borrowers?  And were the borrowers who defaulted able to get affordable loan modifications?  Using data from these databases, we should be able to point to the answers.

However, these datasets are three separate entities, collected at different points in time and often from two or more different reporting entities.  So we need a way to easily connect the data from one database to the other. This is why during our meeting with the CFPB this week I am going to be the champion of the “universal loan identifier,” or universal loan ID.  Are you still with me?  I hope so, because this is important.

The universal loan ID would first be used by the lender when it reports the loan under HMDA.  The ID would then follow the loan to the servicer and, if needed, be used when reporting any defaults, foreclosures or modifications related to that loan.  This relieves the servicer from collecting and reporting a variety of borrower and loan-related data pieces, including borrower income, race/ethnicity, gender, age and credit score, loan amount, term, APR and mortgage channel.  Regulators, policy makers and the public would already have access to this information in the HMDA data via the universal loan ID.

I believe the universal loan ID is the key to increased transparency and accountability, without sacrificing efficiency.

End Note:
 [1] See Sections 1094, 1447 and 1483 of the Dodd-Frank Wall Street Reform and Consumer Protection Act for the language pertaining to these datasets.



Tags: HMDA | Consumer Financial Protection Bureau | CFPB | mortgage lending | defaults | foreclosures | loan modifications





The need for more sunlight on the mortgage lending marketplace


Why do borrowers and communities of color get FHA and other government-backed mortgage loans disproportionately more often than white borrowers and communities? This is the question I’ve been hearing and grappling with since the recent publication of our multi-state collaborative report “Paying More for the American Dream VI: Racial Disparities in FHA/VA Lending.” I, too, want to understand why this is happening. More specifically, why did FHA/VA loans make up over 86 percent of the home purchase loans in Rochester’s communities of color in 2010? And why were only 14 percent of the borrowers in these communities able to get conventional mortgages?

 

The data we have available, or the lack thereof, make it difficult to answer these questions. Other than borrower income, the public has little information about the borrower that might shed some light on how lenders make underwriting decisions. If I had information about the borrower’s credit history/credit score, her debt-to-income ratio, the property’s loan-to-value ratio, the loan’s APR, I might begin to know why a borrower obtained the loan she did. Right now, however, I am left wondering.

 

I don’t want to wonder or guess; I want to understand. That is why I am disappointed that the Consumer Financial Protection Bureau recently published a delay in its rulemaking to implement enhancements, like those listed above, to the publicly available data. These enhancements were in the Dodd-Frank financial reform legislation that became law two years ago. It now looks like the earliest we’ll have a rule is April 2013,[1] so we’ll probably have to keep guessing until at least the fall of 2015 when the 2014 data are released.

 

I want to trust that when a borrower walks through the doors of any lender, he or she has full choice of the range of conventional and government-backed mortgage products available from that lender. And I want to see that lenders are putting borrowers into the most affordable loan that fits their individual financial circumstances. Along with vigorous enforcement of our fair lending laws and other regulatory improvements, this increased transparency will improve our understanding of and trust in the process. As Justice Brandeis said, "Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman."[2] Too bad we have to wait a bit longer for the sun to shine.



[1] The CFPB’s regulatory schedule notes that the “CFPB expects further action” as of April, 2013. See p.7 of schedule at: http://files.consumerfinance.gov/f/201204_cfpb_semiannual-regulatory-agenda_2012-spring.pdf.

[2] As found at: http://www.brandeis.edu/legacyfund/bio.html under Louis D. Brandeis quotes.



Tags: mortgage lending | lending | HMDA | Dodd-Frank | FHA | lending disparities | redlining | discrimination | fair lending | paying more