Metropolitan Washington DC Lending Trends & Issues Metropolitan Washington Council of Governments...

Metropolitan Washington DC Lending Trends & Issues

Metropolitan Washington Council of Governments

Predatory Lending Conference

April 27th, 2006

Presented By

David Berenbaum

Executive Vice President

National Community Reinvestment Coalition

[email protected]

National Community Based MembershipPublications & Research; Policy PapersConsumer Rescue Fund - NCRC has identified numerous issues - role of broker, risk & pricing, servicing, increase in predatory lending to first time homebuyers, consumer loan origination issuesSub-Prime Fair Lending Mystery Shopping - NCRC Six Metro Area Audit ResultsAdvocacy & LitigationBest Practices - Can North Carolina, New Mexico & NJ Laws serve as discussion point for a responsible national standard?Financial Literacy & MBDC, & Community Express Programs

NCRC Overview

• National real estate & financial service conglomerates

• One stop shopping - lender, appraiser, realtor, insurer - RICO & ethics issues

• “Affinity” relationships

• Internet

• Telemarketing

• Appraisal

• Corporate responsibility and social justice.

• Community viability & fair housing planning

• Economic justice & dismantling racism

• CRA modernization• Government services, tax

equity & environmental racism

Impediments to Fair Housing Choice

• Risk based pricing & equal access to products & services - Reg C

• Using consumer protection & civil rights statutes

• Growth of product add-ons

• Role of servicing & securitization

• Reverse redlining

• Tangible net benefit tests

• Montgomery County Ordinance Issue

• Traditional forms of discrimination – steering, availability, pricing & terms, all relevant to predatory lending.

• HELOC, tax refund loans• Home Improvement Scams• Interest Only Loans• Adjustable Rate Loans• HELOCS

The Market

• Investors face pre-payment risk and interest rate risk. Sub-prime, credit constrained, idiosyncratic financing, and higher default rate.

• Adjustible Rate Loans, Interest Only Notes• Securitization factors: deal provisions; refusal to rate certain types

of loans; recourse provisions, indemnification; preservation of holder in due course status. Assignees can contract away risk - borrowers do not benefit.

• Special purpose vehicles – need purchase criteria, investigate originators; monitor performance to detect under achieving loans. Electronic screening plus random sampling. Require assignees to institute controls, limited liability of assignees who comply, full liability for those who do not. Net Effect: lower lit/compliance risk.

• Brokers, appraisers, realtors, developers, lenders, contractors, all play a role

Civil Rights & Consumer Protection Issues

• Unfair pricing / excessive points and fees• Broker conduct – 50% of referrals to NCRC remedial loan fund • Ancillary products (credit insurance) sales practices• Refinancing – “flipping” issues

• Debt to income ratios – “equity stripping” issue• Prepayment fees• Stated income loan programs – fraud risk• Balloon payments• Appraisers – property flipping risks• Deceptive advertising• Unfair collections practices• Different channels/different pricing – “referrals”• Servicing issues

Legal Tools

Federal Fair Housing ActTruth In Lending Act (TILA)

Equal Credit Opportunity Act (Reg B)Home Ownership & Equity Protection Act (HOEPA)

Home Mortgage Disclosure Act (Reg C)Community Reinvestment Act

Fair Debt Collection Practices Act Real Estate Settlement Procedures Act (RESPA).

State & Local Protections Fraud & Racketeering Arguments

FTC Act

Reg C - HMDA Changes

• Does the provision of non-prime loans subject members of protected classes to unequal access to credit?

• Is it a racial targeting technique?• Standards for proving fair lending

claims are now potentially much easier than traditional consumer protection or predatory lending cases.

• Intentional misconduct may be irrelevant

• Defense burden may be formidable

• Now required to identify HOEPA loans

• Geographic location of higher cost loans

• Ability to geocode & correlate to HCL to Census, LMI Communities

• Claims of reverse redlining and targeting

• Ancillary UDAP claims and state FHA claims

• In the past, risk based credit issues were “individualized,” with new pricing data & regulatory oversight will become compliance issue.

Prime Home Loans by Minority Level of Neighborhood

2004 HMDA data. Neighborhoods are defined as census tracts

National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866

Non-minority neighborhoods (<50% minority)

Minority neighborhoods (>50% minority)

Prime Home loans. One dot = 20 loans

Washington-Arlington-Alexandria, DC-VA-MD-VW MD

SubPrime Home Loansby Minority Level of Neighborhood





SubPrime Home loans. One dot = 20 loans

Washington-Arlington-Alexandria, DC-VA-MD-VW MD







Montgomery County, MD














Prince George’s County, MD














Fairfax County, VA







Fairfax County, VA

Analysis of Home Lending Trends Washington-Arlington-Alexandria, DC-VA-MD-WV MD


• Analysis of 2004 home lending in Washington-Arlington-Alexandria, DC-VA-MD-WV MD shows that 10.5% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.

Washington, DC vs Nation comparison

Prime Lending Subprime Lending

Total Count % Count %

Washington, DC 281,230 251,711 89.50% 29,519 10.50%

Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%

• Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non-minority neighborhoods.

Market Share Analysis by minority level of neighborhood

Washington-Arlington-Alexandria, DC-VA-MD-WV MD


Loans to Minority CTs Loans to Non-minority CTs

Count % Count %

Prime 72,060 82.69% 179,638 92.56%

Subprime 15,086 17.31% 14,430 7.44%

Total 87,146 100.00% 194,068 100.00%

Residents of minority neighborhoods

were much more likely to receive

subprime loans than residents of non-

minority communities

Home Lending in Washington Area by Minority Level of Census Tract

0.89

2.33

0%

20%

40%

60%

80%

100%

Minority CTs Non-minority CTs

0.00

0.50

1.00

1.50

2.00

2.50

% Prime Loans

% Subprime Loans

Prime Disparity Ratio (minority/non-minority)

Subprime Disparity Ratio (minority/non-minority)

Market Share Analysisby income level of neighborhood

Washington-Arlington-Alexandria, DC-VA-MD-WV MD


The percent of subprime loans was

higher for residents from LMI census

tracts than for residents of MUI

neighborhoods

Loans to LMI CTs Loans to MUI CTs

Count % Count %

Prime 45,546 83.93% 206,141 90.84%

Subprime 8,718 16.07% 20,797 9.16%

Total 54,264 100.00% 226,938 100.00%

Home Lending in Washington Area by Income Level of Census Tract

0.92

1.75

0%

20%

40%

60%

80%

100%


0.00

0.50

1.00

1.50

2.00

Prime

Subprime

Prime Disparity Ratio (LMI/MUI)

Subprime Disparity Ratio (LMI/MUI)

Analysis of Home Lending Trends Prince George’s County, MD


• Analysis of 2004 home lending in Prince George’s County, MD shows that 21.7% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.


Prince George's Co vs Nation comparison



PG County 53,379 41,811 78.33% 11,568 21.67%

Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%

Home Lending in Prince George's Co by minority level of census tract

0.90

1.59

0%

20%

40%

60%

80%

100%


0.000.20

0.400.600.80

1.001.201.40

1.601.80

PrimeSubprimePrime Disparity Ratio (minority/non-minority)Subprime Disparity Ratio (minority/non-minority)








By minotity level of census tract


Count % Count %

Prime 34,268 76.91% 7,543 85.48%

Subprime 10,287 23.09% 1,281 14.52%

Total 44,555 100.00% 8,824 100.00%

Home Lending in Prince George's Co by income level of census tract

0.90

1.40

0%

20%

40%

60%

80%

100%


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

Prime Subprime

Prime Disparity Ratio (LMI/MUI) Subprime Disparity Ratio (LMI/MUI)







neighborhoods

By income level of census tract


Count % Count %

Prime 9,847 72.46% 31,964 80.33%

Subprime 3,742 27.54% 7,826 19.67%

Total 13,589 100.00% 39,790 100.00%

Analysis of Home Lending Trends Montgomery County, MD


• Analysis of 2004 home lending in Montgomery County, MD shows that 7.8% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.


Montgomery Co vs Nation comparison



Montgomery Co 52,014 47,968 92.22% 4,046 7.78%

Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%

Home Lending in Montgomery County by minority level of census tract

0.94

1.94

0%

20%

40%

60%

80%

100%


0.00

0.50

1.00

1.50

2.00

2.50











Count % Count %

Prime 13,164 88.11% 34,804 93.88%

Subprime 1,777 11.89% 2,269 6.12%

Total 14,941 100.00% 37,073 100.00%







neighborhoods



Count % Count %

Prime 8,089 87.78% 39,879 93.18%

Subprime 1,126 12.22% 2,920 6.82%

Total 9,215 100.00% 42,799 100.00%Home Lending in Montgomery County

by income level of census tract

0.94

1.79

0%

20%

40%

60%

80%

100%


0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

Prime Subprime

Prime Disparity Ratio (LMI/MUI) Subprime Disparity Ratio (LMI/MUI)

Analysis of Home Lending Trends Fairfax County, VA


• Analysis of 2004 home lending in Fairfax County, VA shows that 5.2% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.


Fairfax Co vs Nation comparison



Fairfax Co 63,894 60,554 94.77% 3,340 5.23%

Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%


Fairfax County, VA








Count % Count %

Prime 10,113 91.53% 50,441 95.45%

Subprime 936 8.47% 2,404 4.55%

Total 11,049 100.00% 52,845 100.00% Home Lending in Fairfax County by minority level of census tract

0.96

1.86

0%

20%

40%

60%

80%

100%


0.00

0.50

1.00

1.50

2.00


Home Lending in Fairfax County by income level of census tract

0.95

1.96

0%

20%

40%

60%

80%

100%


0.00

0.50

1.00

1.50

2.00

2.50

PrimeSubprimePrime Disparity Ratio (LMI/MUI)Subprime Disparity Ratio (LMI/MUI)


Fairfax County, VA





neighborhoods



Count % Count %

Prime 4,025 90.39% 56,529 95.10%

Subprime 428 9.61% 2,912 4.90%

Total 4,453 100.00% 59,441 100.00%

Analysis of Home Lending Trends District of Columbia County, DC


• Analysis of 2004 home lending in District of Columbia County, DC shows that 8.2% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.


DC Co vs Nation comparison



DC Co 27,043 24,767 91.58% 2,276 8.42%

Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%

Home Lending in Washington DC County by minority level of census tract

0.90

7.29

0%

20%

40%

60%

80%

100%


0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00



District of Columbia County, DC








Count % Count %

Prime 15,898 88.19% 8,867 98.38%

Subprime 2,129 11.81% 146 1.62%

Total 18,027 100.00% 9,013 100.00%

Home Lending in Washington DC County by income level of census tract

0.95

1.96

0%

20%

40%

60%

80%

100%


0.00

0.50

1.00

1.50

2.00

2.50

PrimeSubprimePrime Disparity Ratio (LMI/MUI)Subprime Disparity Ratio (LMI/MUI)


District of Columbia County, DC





neighborhoods



Count % Count %

Prime 4,025 90.39% 56,529 95.10%

Subprime 428 9.61% 2,912 4.90%

Total 4,453 100.00% 59,441 100.00%

Reverse Redlining

• Cap Cities Litigation

• Toussie Litigation

Other Cases/Matters

• U.S. v. Old Kent Financial Corporation, U.S. v. Allbank, U.S.v. Blackpipe, - redlining matters

• U.S. v. Fairbanks, OTS/Ocwen• Attorney General Settlements - Household,

Ameriquest • Citifinancial/Associates• FTC v. First Alliance

Servicing Issues • Community groups considering the creation of borrowers servicer,

modeled upon buyers broker. • Pyramiding: Servicers are holding consumers’ checks with the intent to

tack on late fees and accelerate foreclosure• Failure to provide payoff statements• Forced place insurance• Cashiering & Escrow Issues• Coercing borrowers into E-Z Pay rather than cost free alternatives• Suspense account – misapplication of payments, related to pyramiding. • Improperly clouding (reporting payments) on credit reports, • Accelerated or costly foreclosure actions• Unprofessional customer service.• Selective & Accelerated Foreclosure• Equity Stripping

Recommendations

Legislative

Comprehensive anti-predatory legislation

Congress must pass a CRA modernization bill

Enhance the quality of HMDA data

Financial education critical, especially for populations lacking credit scores

Regulatory: Federal, State & Local agencies must step up enforcement of existing laws to promote full product choice and prevent product steeringHalt preemption of state anti-predatory and consumer protection law Federal reserve board must step up anti-discrimination and fair lending oversightIncrease fair lending enforcement of non-bank lendingCRA exams must scrutinize non-prime lending more rigorouslyFull disclosure of automated underwriting systems

Recommendations for Lenders, Community Groups, and Consumers: Lenders Must Adopt Risk-Based, Not Race-Based or Age-Based Pricing: Best Practices NeededCommunity Groups Must Advocate and Offer Financial Education and Counseling ProgramsConsumers Must Shop for Affordable Loans and Obtain Credit Reports, Credit Scores, and Pursue Inaccuracies

Date post:	12-Jan-2016
Category:	Documents
Upload:	janel-carr
View:	224 times
Download:	2 times

Metropolitan Washington DC Lending Trends & Issues Metropolitan Washington Council of Governments...

Documents