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Stabilizing Home Ownership in a Post-Foreclosure Environment

Stabilizing Home Ownership in a Post-Foreclosure Environment. Implications for Lenders, Homebuyers and Neighborhoods Based on findings from the 2008 Home Mortgage Disclosure Act analysis and other housing market research. June 2010.

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Stabilizing Home Ownership in a Post-Foreclosure Environment

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  1. Stabilizing Home Ownership in a Post-Foreclosure Environment Implications for Lenders, Homebuyers and Neighborhoods Based on findings from the 2008 Home Mortgage Disclosure Act analysis and other housing market research. June 2010

  2. Presented by CBANA in collaboration with the Community Development CouncilSupported by the City of Memphis Division of Housing and Community Development Phyllis Betts, Director Center for Community Building and Neighborhood Action University of Memphis pbetts@memphis.edu Carol Gothe, Project Research Assistant cgothe@memphis.edu

  3. Integrating Information to Create Actionable Knowledge Home Mortgage Disclosure Act Register of Deeds: sales, mortgages, foreclosures Memphis Daily News and Chandler Report CBANA-HCD Neighborhood by Neighbor Survey HUD Market Reports Census, Internal Revenue Service, and other government data

  4. Key Issues I. Subprime Lending Dries Up: the new demographics of lending, borrowing, and homeownership in the wake of the 2008 mortgage meltdown. II. Disparate Impact on Aspiring Homeowners: borrowers, Memphis demographics, and the future of African American homeownership. III. Homeownership Erosion: emerging business model for local and non-local lending and impact on homeownership in Shelby County. IV. Changing Character of Neighborhoods: Foreclosures, investors, and neighborhood stability. V. Action Planning: What resources do we already have and what do we need to implement homeownership restoration and neighborhood housing market stabilization policies? What do we need from local banks? From policy-makers?

  5. Shelby County Zones

  6. I. Subprime Lending Dries Up Applications down 39% 2007→ 2008 39,526 applications→ 17,239 originations Originations down but approval about the same as last year at 43% Approvals dropped 2006→ 2007 Local banks capture majority market share of diminished market: 54% Local lending dominated by Zone 3 and investor loans in Zones 1 and 2

  7. Loan Dollars Originated By Local and Non-Local Lenders 2008 54% Local Lenders Non-Local Lenders and Mortgage Companies 46%

  8. Post-Subprime Lending Landscape Subprime purchase lending↓ 2007: 21% 2008: 13% Subprime refinance lending↓ 2007: 31% 2008: 18% Piggyback purchase↓ 2005 high: 39% 2008: 2%

  9. Post-Subprime Lending Landscape Low-moderate buyers↓ African American buyers↓ Female-headed households ↓ Zones 1,2, 4 homeowner purchases↓ Zones 1,2, 4 refinancing↓ Zone 3 proportionate share of market activity ↑ 55% of market activity in 2008 9,536 originations Investor Loans ↑

  10. Total Number of All Applications 2008By Zip Code

  11. II. Disparate Impact Demise of non-local lending and subprime lending Approvals disproportionately down for African Americans in Shelby County Buyer and borrower profile shifts toward white borrowers and white neighborhoods Lending in predominantly African American neighborhoods shifts to investors

  12. 51% of all 2008 Shelby County mortgage applications were from minority applicants 32% of all 2008 Shelby County originated loans were to minority applicants Disparate Approval

  13. Percent African-American Owner-Occupied Purchase Applications (1st Lien) 2008 by Zip Code

  14. Approval Rates For Black and White Applicants, Shelby County 2005 - 2008

  15. African American 29% subprime loans 41% applicants low income <80%AMI 43% single female applicants 18% >3:1 loan-to-income ratios or higher Median loan value $90,000 62% applications Zone 2 Application and Lending Profiles • White • 10% subprime loans • 19% applicants low income <80%AMI • 22% single female applicants • 17% >3:1 loan-to-income ratios or higher • Median loan value $141,000 • 66% applications Zone 3

  16. Role of Local Lenders? Local Lenders 41% of all applications were from minority applicants 31% of all mortgages were to minority borrowers 36% of minority applications were denied Non-Local Lenders and Mortgage Companies 57% of all applications were from minority applicants 42% of all mortgages were to minority borrowers 52% of minority applications were denied

  17. Reasons For Denial By Race

  18. Denial Rates By Race and Income Category

  19. III. Homeownership Erosion • Foreclosure notifications up 4% 08-09 • 4/100 single family homes in 2009 • 13,327 notifications • Zone 2 still high but decreasing • Zone 3 up: Pushing the envelope foreclosures • But completed foreclosures down 16% • 6,391 • 2008 foreclosures still bank owned: 24% • REO inventory appears to hold steady and influence pace of completed foreclosures

  20. Foreclosure Notifications 2009 by Zip Code

  21. Shelby Co Assessor, Memphis Daily News Data

  22. Meltdown-driven Recession:Secondary Effects on Homeownership Credit for business investment↓ Employment and earnings↓ Household formation↓ Residential development↓ Stagnant real estate market↓

  23. Market Realities Memphis: immigrants maintain population growth since 2000 “Baseline” poverty: 20% + or – “Top ten” bankruptcy, credit ratings and delinquency, use of tax refund anticipation loans, disability payments, and labor force drop-outs One of two families with children are low income**up to 200% federal poverty line, which is typically less than the 80% AMI guideline for low-income Virtual no growth scenario Shelby Co

  24. Potential Homeowners? Typical White: nuclear family with two children @ 120% of AMI attempting to buy in Zone 3 Typical Black: female-headed (extended family) with two children @ =<80% AMI attempting to buy in Zone 2 or 3

  25. Applicant Characteristics African American and White 2008

  26. Market Sheds Potential Homeowners • Memphis down 7000 homeowners since 2005 • Shelby county down 4000 • Foreclosures and failure of new households to form • Memphis down 17000 households since 2005 • Shelby county down 7500

  27. Investors Take Up Slack • 59% 2008 foreclosure bank sales to investors • Bank sales 24% of county-wide market 2009 • HMDA data: 19% investor loans • Baseline ~10% 2004 • Excludes cash sales and underestimates package deals • Wide Zone and zipcode variation • Growing vacancy in Zone 1 into Zone 2

  28. Shelby Co Assessor Data

  29. Percent Investor Purchase Originations (1st Lien) 2008 by Zip Code

  30. Number Owner Occupied Purchase Originations (1st Lien) 2008 by Zip Code

  31. IV. Changing Character of Neighborhoods Zone 1 neighborhoods increasing vacancy and population loss Zone 2 neighborhoods increasingly shifting to rental with clustered increases in vacancy Foreclosures/investor-owned properties associated with blight in Zone 2

  32. USPS Percent Vacancies By Tract 12/31/2009

  33. Shelby Co Assessor Data

  34. Foreclosures and Blight • Foreclosures much more likely to be vacant • Vacant properties more likely to be neglected • Do foreclosures “drive” blight? • Depends on the neighborhood . . .

  35. Binghamton: Zone 1 • 2007/08 Foreclosures: 95 • Blight Rate: • All residential properties: 38.2% • Foreclosures: 67.4% • Vacancy Rate: • All residential properties: 6.8% • Foreclosures: 36%

  36. Fox Meadows: Zone 2 • 2007/2008 Foreclosures: 115 • Blight Rate: • All residential properties: 18.5% • Foreclosures: 60.8% • Vacancy Rate: • All residential properties: 2.5% • Foreclosures: 35.7%

  37. Selected Shelby County Foreclosure Notifications, 2000 – 2009 HUD-LISC High Foreclosure Risk Zipcodes Zone 1 Zone 2 Mixed Zone Source: Memphis Daily News, Shelby County Assessor Files, 2009

  38. Neighborhood Housing Market Trends Race, and Income Indicators

  39. Neighborhood Home Ownership, Race and Vacancy

  40. V. Action Planning • Where do we stand with local lenders? • Zone 3,4 model for homeownership • Higher income white homebuyers and limited number of black homebuyers (~16% of total) • Weaker Zone 2 model for black homebuyers • Zone 2 model for white investors • Zone 1 -2 model for African American investors

  41. Stabilizing Homeownership and Restoring Neighborhoods: Critical Considerations • Racial disparities remain in local lending • 44% of local lending to African Americans • higher local than non-local approval but still lower than for white applicants • African American (Hispanic?) borrowers growing share of potential borrowers • Marginal buyers account for disappearing homeownership demand with high impact in Zone 2 and potential impact in Zone 1 redevelopment • Marginal buyers supported Zone 2 market activity • New realities of investor-driven markets

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