The Current Foreclosure Crisis – Trends and Roadblocks to Recovery

1. The Current Foreclosure Crisis –Trends and Roadblocks to Recovery American Planning Association February 22, 2011 Geoff Smith | Senior Vice President Woodstock Institute | Chicago, Illinois gsmith@woodstockinst.org | www.woodstockinst.org WOODSTOCK INSTITUTE | FEBRUARY 2011

2. 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

3. Mortgage Lending:Growth of Subprime Lending WOODSTOCK INSTITUTE | FEBRUARY 2011

4. Mortgage Lending:Subprime Mortgages Target Borrowers of Color WOODSTOCK INSTITUTE | FEBRUARY 2011

5. Mortgage Lending:Subprime Mortgages Concentrated in Communities of Color WOODSTOCK INSTITUTE | FEBRUARY 2011

6. Regional Quarterly Trends in Foreclosure Filings, 2005 to 2010 WOODSTOCK INSTITUTE | FEBRUARY 2011

7. 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 WOODSTOCK INSTITUTE | FEBRUARY 2011

8. 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 WOODSTOCK INSTITUTE | FEBRUARY 2011

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13. Accumulation of Foreclosure Activity in Communities of Color, 2006 to 1H 2010 WOODSTOCK INSTITUTE | FEBRUARY 2011

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19. 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 WOODSTOCK INSTITUTE | FEBRUARY 2011

20. 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 WOODSTOCK INSTITUTE | FEBRUARY 2011

21. 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. WOODSTOCK INSTITUTE | FEBRUARY 2011

22. 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 WOODSTOCK INSTITUTE | FEBRUARY 2011

23. 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 WOODSTOCK INSTITUTE | FEBRUARY 2011

24. Zip Codes with Highest and Lowest Credit Scores in the Chicago Region – June 30, 2009 WOODSTOCK INSTITUTE | FEBRUARY 2011

25. Impact of Low Credit Scores – Access to Refinance Lending Change in Chicago Area Conventional Refinance Originations, 2008 to 2009 WOODSTOCK INSTITUTE | FEBRUARY 2011

26. 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 WOODSTOCK INSTITUTE | FEBRUARY 2011

27. 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 WOODSTOCK INSTITUTE | FEBRUARY 2011

28. The Current Foreclosure Crisis –Trends and Roadblocks to Recovery American Planning Association February 22, 2011 Geoff Smith | Senior Vice President Woodstock Institute | Chicago, Illinois gsmith@woodstockinst.org | www.woodstockinst.org WOODSTOCK INSTITUTE | FEBRUARY 2011