The Current Foreclosure Crisis – Trends and Roadblocks to Recovery

WOODSTOCK INSTITUTE | FEBRUARY 2011

American Planning Association

February 22, 2011

The Current Foreclosure Crisis –Trends and Roadblocks to Recovery

Geoff Smith | Senior Vice PresidentWoodstock Institute | Chicago, [email protected] | 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

2.4% 2.1% 2.4% 2.6%

8.0%10.4%

12.6%15.6%17.4%18.1%18.3%19.7%

7.3%

3.1%4.4%

5.6%6.5%7.1%

3.6%

8.8% 7.8%

2.6%

11.5%

5.3%

3.4%

13.4% 13.6%

72.6% 73.8% 75.6% 76.7% 74.5% 75.5%

69.0%

71.8%76.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

1998 1999 2000 2001 2002 2003 2004 2005 2006

FHA VA Subprime Prime


Mortgage Lending:Subprime Mortgages Target Borrowers of Color

2.87

1.78

2.71

1.92

2.61

1.99

2.94

2.32

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

African American/White Latino/White

Higher Cost Lending Disparity Ratios by Race/Ethnicity and Income Level of Borrower in Chicago Six County Area, 2006

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

• 19.7 percent of Illinois mortgages underwater in 2Q 2010

Other Barriers

• 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


American Planning Association

February 22, 2011

The Current Foreclosure Crisis –Trends and Roadblocks to Recovery

Geoff Smith | Senior Vice PresidentWoodstock Institute | Chicago, [email protected] | www.woodstockinst.org


The Current Foreclosure Crisis – Trends and Roadblocks to Recovery

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