Exploring the Dimensions of Exploring the Dimensions of Foreclosure in the Context of Foreclosure in the Context of

Neighborhood HousingNeighborhood HousingMarkets.Markets.

Michael BarndtTodd Clausen

Jeff ArpNonprofit Center of Milwaukeembarndt@nonprofitcentermilwaukee.org

Parsing ContextParsing Context

Not all mortgages are alikeNot all neighborhoods are alikeTime trends and relative trends matterNeighborhood context mattersRace still mattersSolutions need to match the local circumstanceSolutions need to address the variation in the

problemSolutions need to include a neighborhood scale

component

““Foreclosure” is not just an eventForeclosure” is not just an event

Purchase Mortgage Adjustment in loan – ARMs Refinanced Mortgage Sale to capture appreciation Home Equity Loan Financial changes for mortgage holder Transfer of Paper Payment experience Les Pendens “Short sale” Foreclosure – “Sheriff’s Sale” Disposition of Foreclosure

Data is scattered and often unavailableData is scattered and often unavailable

Purchase – SALES/ OWNER// LAND CONTRACT ?? Mortgage – REGISTRATION OF DEED// HMDA // CREDIT SCORE ?? Adjustment in loan – ARMs - ?? Refinanced Mortgage – REGISTRATION// HMDA Sale to capture appreciation Home Equity Loan - ?? Financial changes for mortgage holder – COUNSELING

AGENCIES Transfer of Paper - ?? Payment experience – LOAN PERFORMANCE – FED. RESERVE Les Pendens - COURT “Short sale” – LINK SALES/ ASSESSED VALUE Foreclosure – “Sheriff’s Sale” – FORECLOSURE LIST Disposition of Foreclosure – OWNER/ CODE VIOLATIONS

Changing Industry Trends

Percent High Cost Percent High Cost LoansLoans

Percent

under 10%

10 to 25%

25 to 33%

33 to 50%

50 to 75%

Over 75%

<5 loans

Percent High Cost Percent High Cost LoansLoans

Percent

under 10%

10 to 25%

25 to 33%

33 to 50%

50 to 75%

Over 75%

<5 loans

Percent High Cost Percent High Cost LoansLoans

Percent

under 10%

10 to 25%

25 to 33%

33 to 50%

50 to 75%

Over 75%

<5 loans

Percent High Cost Percent High Cost LoansLoans

Percent

under 10%

10 to 25%

25 to 33%

33 to 50%

50 to 75%

Over 75%

<5 loans

Our Data StrategyOur Data Strategy

Use HMDA loan data. We had doubts about whether the HMDA file had enough info.

Create amortization schedules.◦payment amount, interest paid, principle paid.

Compare loan costs for actual interest rates to costs for the same loans if they had a prime rate.

Neighborhood EffectsNeighborhood Effects

Shift to high cost loans was substantially “Extractive”

After normalizing by the number of loans originated we mapped total extra dollars per loan.

Added cost/loan

Added cost/loan

Added cost/loan

Distribution of High Cost Distribution of High Cost LoansLoans

2006 Applications: 24,998 Originations: 10,921 43.7% High Cost:      4,979 45.6% Average Loan Amount: $123,400 High Cost White:   26.5% High Cost Black:  72.1% High Cost Hispanic:   55.7%

Foreclosure Patterns

Sheriffs Sales Sheriffs Sales 1992 to 20071992 to 2007

Green outline surrounds blocks within the city of Milwaukee which are greater than 75% African American

Foreclosure Hot Spots 1992- 2007

Foreclosure Rate Foreclosure Rate 1992 to 20071992 to 2007Red outline surrounds blocks within the city of Milwaukee which are greater than 75% African American

Foreclosure RatesFor single/duplex parcels 1992- 2007

Loan Pattern Matches ForeclosureLoan Pattern Matches Foreclosure

A Neighborhood Perspective…

Westside Academy Westside Academy Attendance Attendance DistrictDistrict

Foreclosure RatesFor single/duplex parcels 1992- 2007

Area CityPersons Per Block 97 --Young Children (0-4) Per Block 11 --Percent Family Income Under $10,000 32% 11%PercentYoung Children (0-5) in Poverty 53% 21%Number of Young Children in Poverty 585 18,863Percent of Married Couple Housholds 27% 57%Percent Adults Without High School Diploma 50% 25%Percent Working 37% 58%

Summary Profile -- Westside Academy

West Side Academy – West Side Academy – Housing ValueHousing Value

West Side Academy – Home West Side Academy – Home OwnershipOwnership

Parcel ViewParcel ViewForeclosure Events by parcel1992- 2007

Underlying Point Underlying Point DataData

Foreclosure Hot Spots 1992- 2007

Foreclosure Rate Foreclosure Rate 1992 to 20071992 to 2007Foreclosure Rates

For single/duplex parcels 1992- 2007

Tenure 2007Tenure 2007A high mobility neighborhood on the western edge of the district with a mix of owner-occupied and investor owned properties.

Tenure ChangeTenure Change1995 to 20071995 to 2007Ownership Change

For single/duplex parcels 1995- 2007

Tenure ChangeTenure Change1995 to 20071995 to 2007

Points indicate the locations of Sheriffs Sale Foreclosures 1992 to 2007

Matching Foreclosure to Parcel TrendsMatching Foreclosure to Parcel Trends

Owner Occupancy - Before and After ForeclosureSingle and Duplex Parcels - City of Milwaukee

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

% O

wn

er O

ccu

pan

t

Before Foreclosure After Foreclosure All Properties

Other dimensions of our researchOther dimensions of our research

Neighborhood level trends and impactsForeclosure trends and distributionResults of foreclosure sales – short and

long term owner patternsInvestor owner patterns – effects on rental

marketChanging patterns in length of owner

occupancy

A Typology of the Mortgage System

Not all mortgages are alikeNot all mortgages are alike

CHARACTERISTICS OF BUYERS

CHARACTERISTICS OF MORTAGE \\ Unqualified buyer Marginal buyer Qualified buyer

Inappropriate Mortgage      

High cost/ High risk Mortgage      

Traditional mortgage      

CHARACTERISTICS OF BUYERSCHARACTERISTICS OF MORTAGE \\ Unqualified buyer Marginal buyer Qualified buyer

Inappropriate Mortgage      

High cost/ High risk Mortgage      

Traditional mortgage      

FactorsFactorsOwner occupant/ Investor/ Speculator/ AbsentOwner occupant/ Investor/ Speculator/ AbsentTime frame for Adjustable Rate MortgagesTime frame for Adjustable Rate MortgagesRelationship of Market to Mortgage ValueRelationship of Market to Mortgage ValueHousehold Financial Changes Household Financial Changes Health/ Employment Health/ Employment Investor Role Investor RoleIndustry business modelIndustry business model Conservative/ Speculative/ Extractive/ Absent Conservative/ Speculative/ Extractive/ Absent

Situational MatrixSituational Matrix

CHARACTERISTICS OF BUYERS

CHARACTERISTICS OF MORTAGE \\ Unqualified buyer Marginal buyer Qualified buyer

Inappropriate Mortgage

Inevitable loss                                    Quick sale in strong markets      Foreclosure in weak markets

Likely major change in cost later in the mortgage    Vulnerable to health and employment changes

Occurs in exploited communities

High cost/ High risk Mortgage Like B2, less likely

Change in cost later in the mortgage                               Vulnerable to health and employment changes

Occurs in low income weak-market communities

Traditional mortgage

Buyer rejected                                   Lower home ownership in neighborhoods segregated by income

Down payment requirements shield from limited market downturn

Generally stable unless market changes dramatically

Parsing ContextParsing Context

Not all mortgages are alikeNot all neighborhoods are alikeTime trends and relative trends matterRace still mattersNeighborhood context mattersSolutions need to match the local

circumstanceSolutions need to address the variation in the

problemSolutions need to include a neighborhood

scale component

Michael BarndtNonprofit Center of Milwaukeembarndt@nonprofitcentermilwaukee.org

National Neighborhood Indicators PartnershipUrban.org/NNIP

Center for Housing PolicyForeclosure-Response.Org