WOODSTOCK INSTITUTE. Using Research to Limit the Impacts of Foreclosures at the Local Level. Geoff Smith, Vice President Woodstock Institute

Transcription

1 WOODSTOCK INSTITUTE Using Research to Limit the Impacts of Foreclosures at the Local Level Geoff Smith, Vice President Woodstock Institute The Subprime Housing Crisis: Interdisiplinary Policy Perspectives University of Iowa October 10, 2008

2 Woodstock Institute Chicago-based non-profit research and policy organization working locally and nationally to promote economic development in lower-income communities and communities of color Work with financial institutions, policy makers, regulators, and community organizations to promote access to responsible mortgage products, small business loans, and other financial services and asset building tools for underserved communities Concerns around subprime mortgage lending and foreclosures have been key community development issue Research Policy Alternatives

3 Using Research to Limit Local Impacts Access in information on local mortgage lending and foreclosure activity has been key in helping stakeholders understand the local scale and scope of the foreclosure crisis Context - Local impacts of foreclosures Example Work Woodstock Institute has done in Chicago to inform local policy and foreclosure interventions Application - Developing research agenda to support local policy and foreclosure intervention strategies

4 Context Foreclosures and their impact on neighborhoods Number of distressed home owners and vacant properties continue to grow at an increasingly rapid rate Impact beyond home owner and financial institution Property Values Foreclosures and vacant properties impact the values of narby properties Crime Increases in foreclosure levels have relationship to increases in violent crime Municipal Costs Increased costs decreased revenues Rental Market Displaced tenants

5 Mortgage Lending Context Potential Problem Loans High risk loans are the foundation of the current problem and understanding their distribution is a key starting point Higher Cost Loans Problems with subprime, adjustable rate mortgages were leading cause of early spike in forelcousres Incentives to put borrowers into higher cost, less affordable loans Poor underwriting Fraud Defunct Subprime Lenders Concerns around lending practices More difficult work out problem loans Investment Properties Borrowers may be more likely to way away Impact on renters Junior Liens Indicator of low levels of equity More difficult acquisition

6 Mortgage Lending Context Potential Problem Loans Market Share Higher Cost Loans, 2006 Loans by Defunct Subprime Lenders, 2006 Source: Home Mortgage Disclosure Act data (2006)

7 Mortgage Lending Context Potential Problem Loans Percent Loans to Non-Owner Occupied Properties, 2006 Percent Home Purchase Loans with Junior Liens, 2006 Source: Home Mortgage Disclosure Act data (2006)

8 Foreclosure Trends in the Chicago Region Quarterly Changes in Chicago Area Foreclosure Starts, 2003 to H Source: Woodstock Institute analysis of data from Foreclosure Report of Chicago

9 Foreclosure Filings in the Chicago Region Chicago Six County Area 26,248 residential properties with foreclosure filings in H 53 Percent increase from H Chicago Six County Area 79.4 percent increase between 2005 and 2007 Niles 295.5% Westmont 255.6% Wheaton 240.0% Skokie 198.3% Flossmoor 183.3% Chicago Six County Area 16.8 filings per 1,000 properties South Cook 36.4 Chicago 24.4 Will County 16.6 West Cook 16.6 Kane County 16.0 McHenry County 13.2 Lake County 13.0 SW Cook County 11.2 Source: Woodstock Institute analysis of data from Foreclosure Report of Chicago

10 2007 Foreclosures in Chicago Impact on Rental Markets Foreclosures Impact Rental Market Rental Demand Former Owner Occupants Former Tenants Rental Supply Small Multi-Unit Buildings REO Stock Small Multi-Unit Buildings 35% of 2007 Foreclosure Filings in Chicago Community Areas Impacted West Garfield Park 86.6% North Lawndale 79.5% Lower West Side 79.3% East Garfield Park 78.0% New City 70.3% Source: Woodstock Institute analysis of data from Foreclosure Report of Chicago

11 Foreclosure Outcomes Possible Outcomes of Foreclosure Filing Negotiate loan modification or refinance Homeowner Negotiate short sale Third Party Buyer Deed in lieu of foreclosure REO Foreclosure goes to auction Legal completion of foreclosure process Outbid Third Party Buyer Lender REO Walkaway? Growing number of foreclosures going to auction , , % increase Growing number of auctions going to plaintiff percent percent H 97.8 percent

12 2007 Foreclosure Auctions in Chicago Region Chicago region - 12,894 Foreclosure Auctions went to Lender (REO) Regional REOs: Chicago 5,846 South Cook 2,102 Will County 978 West Cook 855 Kane County 751 DuPage County 707 NW Cook 639 Southwest Cook 436 McHenry County 332 North Cook 248 Lake County - NA Source: Woodstock Institute analysis of data from Foreclosure Report of Chicago

13 Disproportionate Impact on Communities of Color REO Auctions Compared to Mortgageable Properties by Neighborhood Minority Level, 2007 Source: Woodstock Institute analysis of data from Foreclosure Report of Chicago

14 Concerns about the Subprime Market

15 Concerns about the Subprime Market

16 Concerns about the Subprime Market

17 2007 Foreclosure Auctions in Chicago Region Aggregate Value Aggregate value of 2007 Chicago area REO foreclosure auctions - $2.55 billion Median - $168,329 Additional $2 billion H 2007 REO aggregate auction values ($ millions): Chicago $1,187 South Cook $275 DuPage County $190 Will County $188 West Cook $185 Kane County $162 NW Cook $138 Southwest Cook $92 North Cook $88 McHenry County $68 Lake County - NA Source: Woodstock Institute analysis of data from Foreclosure Report of Chicago

18 Application - How is this Research Used? Target outreach to troubled homeowners Housing counseling agencies Legal aid attorneys City agencies Community-based organizations Limit impact of vacant properties Municipal governments Block clubs Property acquisition Local and Regional Governments CDCs Financial institutions Public education Media Elected officials

19 Application - How Local Research Supports a Regional Agenda Regional HOPI (Home Owner Preservation Initiative) Neighborhood Housing Services Chicago Effort in Chicago area to replicate successful city model to region Housing Counseling Capacity Gaps in networks of service Refinance Lending and Mortgage Products Best practices Lending patterns Vacant Properties and REO Property Acquisition Targeting acquisition strategies Municipal vacant properties ordinances Challenges Resources Data

20 WOODSTOCK INSTITUTE Using Research to Limit the Impacts of Foreclosures at the Local Level Geoff Smith, Vice President Woodstock Institute 29 E. Madison, Suite 1710 Chicago, IL