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MN Mortgage Foreclosure Prevention Association July 10, 2007

MN Mortgage Foreclosure Prevention Association July 10, 2007. Prentiss Cox Associate Professor of Clinical Law University of Minnesota Law School. Foreclosure and Subprime Lending. Foreclosure Rates Causes and Concerns Mortgage Practices Subprime Lending Alt-A Lending

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MN Mortgage Foreclosure Prevention Association July 10, 2007

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  1. MN Mortgage Foreclosure Prevention AssociationJuly 10, 2007 Prentiss Cox Associate Professor of Clinical Law University of Minnesota Law School

  2. Foreclosure and Subprime Lending • Foreclosure Rates • Causes and Concerns • Mortgage Practices • Subprime Lending • Alt-A Lending • Non-Owner-Occupied Lending • Consequences • Individuals • Communities • Geographic Concentration • Foreclosure and Vacancy • Financial Markets

  3. 1. Foreclosure Rates

  4. Data Source: Hennepin County Sheriff’s Office

  5. Data Source: Hennepin County Sheriff’s Office2007 is estimate based on Jan-Jun data

  6. Data Source: St. Paul Pioneer Press

  7. Source: Saint Paul Pioneer Press

  8. Data Source: Special Report of U S Senate Joint Economic Committee; First American Loan Performance

  9. 2. Causes and Concerns • Mortgage Practices Are Driving Foreclosures • Subprime Lending • Relation between foreclosure and subprime • Growth in subprime lending • Housing price boom delayed, magnified problem • Specific unfair subprime lending practices have grown and are related to foreclosure • Acceleration of Most Risky Practices • Non-Owner-Occupied Subprime Lending • Myth of Subprime Promoting Home Ownership • Alt-A Lending

  10. Data Sources: Data from Hennepin County Sheriff’s Office, US Bureau of Labor Statistics and Minnesota Department of Employment and Economic Development.Chart by Institute on Race and Poverty, U of Minnesota Law School

  11. Data Sources: Data from Hennepin County Sheriff’s Office and Federal Reserve Board Chart by Institute on Race and Poverty, U of Minnesota Law School

  12. Source of Graph: Jeff Crump, Subprime Lending and Foreclosure in Hennepin and Ramsey Counties: An Empirical Analysiswww.cura.umn.edu/reporter/05-Spr/Crump.pdf

  13. Source: Center for Responsible Lending

  14. Data Source: Hennepin Cty Sheriff’s Office; Office of Fedl Housing Enterprise Oversight Chart by Institute on Race and Poverty, U of Minnesota Law School

  15. Source: Center for Responsible Lending Housing Appreciation and Foreclosure Rate

  16. Deceptive, Imprudent and Unfair Lending • Above Market Costs • Yield Spread Premiums • High Fees By Originator • Rates in Excess of Risk • Deceptive Monthly Payment Quotes • PI (apples) and PITI (oranges)– escrow issues • Dischargeable debt versus debt secured by home

  17. Inflated Appraisals • Stated Income (and Low- Document) Loans • Adjustable Rate Products Predominate • 2/28 Loans (often with prepay penalty) • Teaser Rates • Interest only and negative amortization • Prepayment Penalties

  18. Source: Center for Responsible Lending

  19. Percent Increase in Foreclosure Risk with Certain Loan Features Source: Center for Responsible Lending

  20. Source: Center for Responsible Lending

  21. City of St. Paul Single Family Residential Homes in Foreclosure by Type of PossessionFor Period Jan 2005-September 2006Data Source: Saint Paul Council Research Center

  22. Source: Center for Responsible Lending

  23. ‘Alternatives’ Go Mainstream Industry origination market share by product type *First quarter only. Source: Amer. Banker and Inside Mortgage Finance

  24. Generic Option ARM Payment Shock ExampleFlat Interest Rate Environment, Originated on 1/1/05 7.5% 7.5% 38.64% payment shock after year 5 ($830 increase) 7.5% 7.5% Assumptions: Constant use of minimum payment option, $500,000 loan, 1% start rate, fully indexed accrual rate with 3.00 % margin, no changes in interest rates (rate as of 1/1/05). Source: Conference of State Bank Supervisors

  25. The Soup of Seconds Res Mtg Backed Securities (RMBS) Special Purpose Vehicles (2 levels) Investment Bank Carves Into Tranches With Cascading Risk Collaterized Debt Obligations (CDOs) Role of MERS What it Means For FPC Where’s my Tranche? Who services the loan? What are the limits on loan servicing? Amer. Securitization Forum Problem of Assignee Liability. Detour to Securitization Issues?

  26. 3. Consequences of Foreclosure A. Individuals/Families • Communities • Geographic Concentration • Foreclosure and Vacancy C. Broader Market

  27. Homes Currently in Foreclosure As Of December 2006 in North MinneapolisSource: Community Planning and Economic Development, City of Minneapolis

  28. Source: Saint Paul Council Research Center

  29. Source: Saint Paul Council Research Center

  30. Source: Saint Paul Council Research Center

  31. Source: Saint Paul Council Research Center: Citywide Outcomes, 1995-2006

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