Mortgage Crisis Summit

Transcription

1 Mortgage Crisis Summit Hosted by Michigan Credit Union League January 10, 2008

2 Instructions to Access Summit For the Web portion go to: nsched.jsp?confld= When prompted, you can select either the Full or Light version. Either will work. For the telephone portion call Toll-Free: Enter Conference ID:

3 Agenda Welcome and Opening Remarks Economic Impact of the Housing/Mortgage Crisis Dave Adams Legislative Proposals Patrick La Pine Possible CU Industry Responses Dave Adams Open Forum Facilitated by Dave Adams Closing Remarks and Next Steps

4 Welcome and Opening Remarks

5 Economic Impact of the Housing/Mortgage g g Crisis Presented by Dave Adams

6 Michigan s Housing Crisis January, Foreclosures and Auction Sales Source: RealtyTrac ½ of these are in the Detroit metro area 140, % of all 6.63% 63% of all 124,561 national sales national sales 120, , ,919 80,000 Filings 60,000 35,635 Homes Sold 40,000 14,961 In 2008, if 20,000 1,108 8,475 foreclosures increase to '11/07 200,000, a 15% sales rate would 3% of filings 10% of filings 12% of filings equal 30,000 go to auction go to auction go to auction homes sold Up 127% Up 68%

7 The Housing Bubble?... Over the past five years, the national home appreciation rate (excluding MI) was 46.9%. In fact, every other state had double-digit increases. Florida (85.9%), Arizona (85.3%), Nevada (84.3%), and California (80.4%) had the most appreciation and accounted for more than half the national rise in foreclosures in the past year. Speculators and investors suffered as home prices began to soften. In contrast, Michigan ranked last in home appreciation over the past five years at only 6.6%. Michigan did not experience such a speculative frenzy in home prices. Instead, Michigan foreclosures osu es are primarily the result of household o economic problems. Source: Office of Federal Housing Enterprise Oversight (OFHEO)

8 Michigan s Economic Woes Michigan s foreclosure problems are closely intertwined with the state s economic downturn. The downturn has been led by a decline in the domestic auto industry. According to the Department of Labor, the November unemployment rate for Michigan was 7.4%, the highest in the nation. The loss of auto jobs is leading the way. In fact, in the five year period ending in August, state auto-related jobs have fallen 34% from 275,200 to 181,100. Most see a long road ahead for real improvement in the Michigan economy. U of M forecasts predict that the state will lose another 51,000 jobs in 2008, boosting the unemployment rate to nearly 8.0%.

9 Depression in Home Prices The average Michigan home price declined 7.6% from $153,300 in 2005 to $141,600 in 21 months between 12/05 and 9/07 according to the Michigan Association of Realtors (MAR). Metro Detroit (Detroit/Livonia/Warren) fell even more, an average of 12.6% during the same period. (Standard & Poor s/case Shiller Housing Price Index) Third worst drop among the 20 metropolitan areas included in the index (despite the lack of price appreciation enjoyed outside Michigan) Nationally, prices fell an average 3.5% during the same period (S & P s/case Shiller Home Price Index)

10 Dramatic Rise in Foreclosures The Mortgage Bankers Association reports that as of 9/07, MI s 1.6 million mortgage loans had an 8.34% past-due rate and a 3.07% foreclosure rate, nearly double national averages of 5.81% and 1.69%. This represents approximately 50,000 homes in foreclosure as of 9/30/07. Michigan ranks second-worst on past-due loans and third-worst on foreclosure rates. RealtyTrac estimated over 80,000 homes in some stage of foreclosure during 2006 with that number growing to 120,000 in 07. However, due to the many stages of foreclosure, some homes may be double-counted. Some experts predict a doubling of foreclosure rates in 2008 due to the sub prime effect. Michigan has 212,000 sub prime mortgages, of which 22% are past-due and 11% are in foreclosure. This is the worst delinquency rate in the nation. Source: RealtyTrac

11 Foreclosures vs. Home Loss Lenders have great motivation to control their costs by helping borrowers avoid foreclosure. Personal bankruptcy filings are also soaring again; another reason for the leveling of home sales. According to the Detroit News, Chapter 7 bankruptcy filings in Detroit s federal bankruptcy court jumped 63 percent during RealtyTrac estimates t the number of homes lost due to foreclosure to be approximately 10,000 per year in Mihcigan. With the 212,000 sub prime mortgages in Michigan, approximately 80 percent have adjustable rate features, many with low teaser rates and are scheduled to re-set in 08 and 09. Some experts predict further significant rises in foreclosure rates as a result. It is reasonable to expect as much as a 50% increase in home losses in 08 and 09 as a result.

12 The Effect of Sub-prime Mortgages According to RealtyTrac, there were some 14,900 foreclosure sales in Michigan year-to-date t through h November The average sale price was $92,247. This equals some $1.3B in real estate sold at auction. Annualized, this would be approximately $1.5B. Much of the increase in foreclosure filings and home losses will be attributed to sub-prime mortgages g in 08 and 09. However, Michigan job losses will also account for a significant portion (1/3 rd according to a 10/31/07 GAO study). Michigan financial institutions may need some regulatory relief from both state and federal regulators to help absorb risks associated with Michigan s weak economy and the added stress brought on by the subprime mortgage problems.

13 Other Economic Considerations The mortgage crisis is starting to reverberate throughout the economy as well as for credit unions specifically. Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country s last recession in Credit card accounts are entering delinquency at a faster rate, with serious delinquencies growing at the highest rate. The greatest increases were reported for accounts more than 90 days overdue. This deterioration of household credit is being directly linked by experts to the sub prime mortgage crisis.

14 State and Federal Legislative Proposals Presented by Patrick La Pine

15 State Legislative Proposals Mortgage Broker Licensing Act MSHDA Refinancing Home Loan Protection ti Act Residential Mortgage Fraud Act One Page Mortgage Disclosure

16 State Legislation Mortgage Broker Licensing Act (SB ) 833) This 8 bill bi-partisan package creates registration requirements and penalties for mortgage brokers. It requires registration for all loan officers which includes: individual employed by a mortgage broker, mortgage lender, or mortgage service company. It requires that each registrant provide an affidavit that he/she h had not been denied d a similar il registration ti in another jurisdiction and disclose any criminal convictions. Creates the Mortgage Industry Advisory Board and requires the Board to report to OFIS with concerns pertaining to the residential mortgage industry. The MCUL successfully negotiated an exemption for credit unions and other depositories to the registration requirement. The bills have passed the Senate and are waiting action before the House Banking Committee.

17 State Legislation MSHDA Refinancing g( (HB ) The bills would allow the Michigan State Housing Development Authority (MSHDA) to offer mortgage refinancing for single-family homeowners. MSHDA primarily deals with first-time homebuyers, so the legislation makes changes to definitions to facilitate refinancing. The Save the Dream program is meant to help people who had trouble paying their adjustable rate mortgage get back into a 30-year fixed rate mortgage. The way the program works is that a financial institution offers an individual a refinance loan, the FI approves it, sends it to MSHDA for review and approval, then the FI closes the loan and MSHDA purchases it. The bills have passed the House and await action before the Senate Banking Committee.

18 State Legislation Home Loan Protection Act (HB ) This 10 bill package was introduced by the House Democrats. It would make regulated entities that are currently exempted from the Consumer Protection Act (including credit unions) subject to the CPA. It prohibits practices rather than products, such as steering ; pre-payment penalties; accelerating loans. It also requires that any refinancing provide borrower with a net tangible benefit. It would allow individual private right of action but would prohibit class action certification. The legislation is currently before the House Banking Committee and Chairman Andy Coulouris (D-Saginaw) has confirmed that depositories will be given a blanket exemption from the package.

19 State Legislation Residential Mortgage Fraud Act (HB 4409/4410) Creates the crime of residential mortgage fraud and establishes penalties. It is designed to provide for additional and harsher penalties for those that inflate appraisal values to fraudulently secure loans larger than the actual value of the property. It also creates severe penalties for underwriters or loan officers that threaten or coerce appraisers into providing fraudulent home values. The legislation is currently before the House Banking Committee awaiting action.

20 State Legislation One Page Mortgage Disclosure (SB 924) Amends the Consumer Mortgage Protection Act by requiring that lenders furnish a one-page mortgage disclosure statement t t to borrowers. The statement, in plain English would define all contract & note terms. The bill sets forth general guidelines for the statement s appearance and the form would not replace any existing loan documentation. Following introduction, the MCUL sought comment from member credit unions on this potential additional requirement. All credit unions that responded to the comment call were opposed in varying degrees to the additional requirement.

21 Federal Legislative Proposals The Mortgage Forgiveness Debt Act The Mortgage Reform and Anti-Predatory Lending Act Home Ownership and Mortgage Equity Protection ti Act Fannie Mae/Freddie Mac Reform The Homeownership Preservation and Protection Act

22 Federal Legislation Mortgage Forgiveness Debt Act (H.R. 3648) The recently passed legislation creates a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. Under current law, if the value of the home declines, and the lender forgives a portion of the mortgage, the IRS Tax Code treats the amount forgiven as taxable income. The Act also increases incentives for borrowers and lenders to work together to refinance loans and allow consumers to secure lower mortgage payments without facing higher taxes. While the measure is anticipated to reduce taxes of some strapped homeowners by $650 million, the cost to the government would be offset in part by limiting a tax break available on the sale of second homes.

23 Federal Legislation The Mortgage Reform and Anti Predatory Lending Act (H.R. 3915) H.R would establish a federal duty of care and prohibit steering. Require licensing and registration of mortgage originators, including brokers and depository loan officers. Create a licensing system for residential mortgage loan originators Set a minimum standard for all mortgages which states that borrowers must have a reasonable ability to repay. Attach limited liability to secondary market securitizers who package and sell interest in home mortgage loans outside of these standards. In November the House passed HR 3915 by a vote of It awaits action by the U.S. Senate.

24 Federal Legislation Home Ownership and Mortgage Equity Protection Act (H.R. 3609) HR 3609 would allow a mortgage holder to ask a bankruptcy judge to reduce the interest rate and extend the length of a mortgage if the foreclosure process has been started. The markup for H.R began on November 7 but was quickly postponed when a compromise fell apart. Many lenders have stated that changing existing mortgage terms would cause mortgage premiums to increase as much as 2% because lenders would have to factor these potential losses into future mortgage loans. Lenders also argue that secondary mortgage market investors may flee from these investments if loan terms can be changed at a judge s discretion. The legislation also removes requirement that homeowners undergo credit counseling before they file for bankruptcy.

25 Federal Legislation Fannie Mae/ Freddie Mac Reform (H.R. 3838) HR 3838 requires the Department of Housing and Urban Development (HUD) to lift existing caps to provide additional financing to curb foreclosures by allowing for additional refinancing of at-risk sub-prime borrowers. It would also require an increase in the mortgage g portfolio limitations of both enterprises by at least 10%; and to use of 85% of such increase for refinancing sub-prime mortgages at risk of foreclosure. The bill has been referred to the House Financial Services Committee.

26 Federal Legislation Homeownership Preservation & Protection Act (S. 2452) S would prohibit brokers from steering prime borrowers to more expensive sub-prime loans and create a fiduciary duty for mortgage brokers towards borrowers, and provide for a duty of good faith and fair dealing toward borrowers for all lenders. Establish protections for sub-prime borrowers and borrowers who get nontraditional mortgages by requiring a "real analysis" of the borrowers' ability to repay the loan. It would allow state attorney generals to enforce the provisions of the law and does not preempt state law. Provides for limited liability for holders of a mortgage made in violation of law and allows borrowers to go directly to the current mortgage holder for a cure. The bill was introduced on December 12 and awaits Senate action.

27 Possible Industry Responses Presented by Dave Adams

28 Home Saver Loan Program (HSLP) Under this new program, developed in conjunction with the Michigan Bankers Association and Michigan Mortgage Credit Union League, credit unions and banks would seek to make approximately $1.5 billion available to assist borrowers facing foreclosure and/or foreclosure-related l home loss. The target would be approximately 10,000 borrowers who fall in the second of three risk tiers (too risky for unassisted loan modifications but capable of making payments if loan terms are modified. Loans would be fixed-rate balloons at near-prime rates. A private mortgage insurance solution and/or excess risk pool would help cover risks associated with 20% of the loan. Approximately 50% of the funding for this would come from state funds and the balance from a shared risk pool by participating lenders. Discussions are taking place with MCUL/MBA representatives, MSHDA, the Granholm Administration and state lawmakers.

29 Community Outreach Efforts Coordinated industry Mortgage HOTLINE and website to provide tips to consumers on how to avoid foreclosure, as well as HSLP referrals to participating FIs. Additionally, the Helpline would refer borrowers to affiliated credit counseling agencies (ACCEL). This Helpline could be provided by CU industry exclusively or in coalition with one or more outside organizations such as the United Way s 211 initiative. Coordinated adult financial education seminars sponsored by local banks and credit unions across the state. Also expand FI counseling services such as Greenpath s ACCEL program. The use of public service announcements to promote all activities ities of the coalition.

30 Financial Institution Regulatory Relief While certain legislative reforms are necessary for controlling predatory lending and for assisting borrowers, some regulatory relief remedies may also be needed for financial institutions. All depository institutions face new, extraordinary risks associated with their existing consumer, business and mortgage loan portfolios. These risks include more specific housing-related risks for first and second mortgage g loans held in a financial institution s own portfolio. The Coalition will explore possible legislative and regulatory recommendations for assisting FIs with the appropriate (safe and sound) relaxing of regulatory requirements in order to reduce costs associated with loan defaults and foreclosures. The Coalition will also explore innovative ways to improve the housing market in conjunction with realtors (i.e., disposal of REOs, reduced costs for sellers, etc.)

31 Public/Private Partnerships The Coalition will look to expand its structure and membership to include non-profit, consumer and public entities that share the objective of improving Michigan s housing and mortgage market as well as the Michigan economy in general. Examples: The United Way, state and federal regulators, FHLMC, MSHDA, Center for Responsible Lending, etc.

32 Open Forum Facilitated by Dave Adams

33 Closing Remarks and Next Steps