The preventable foreclosure crisis

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Notes

¹ http://www.upi.com/Business_News/2010/02/16/Study-says-5-million-foreclosures-imminent/UPI-78201266333128/ [accessed April 21, 2010].

² http://cop.senate.gov/reports/library/report-041410-cop.cfm [accessed April 21, 2010].

³Warnings were too numerous to list. To provide just a few examples from a variety of sources: see Berner and Grow (2008) about State regulators' efforts to persuade federal regulators of the dangers of “irresponsible lending”; This report names Attorney General Roy Cooper of North Carolina, which became, in 1999, the first state to pass anti-predatory lending legislation; The Center for Responsible Lending website http://www.responsiblelending.org/policy/testimony/ records numerous testimonies made before House and Senate committees and regulators dating as far back as 2000; HUD called for “timely and concerted federal action … to protect subprime borrowers from the dangers of predatory lending” in a 2000 report (http://www.huduser.org/publications/fairhsg/unequal.html); even a former Federal Reserve Board Governor – Edward M. Gramlich – raised concerns in 2000 and throughout his tenure at the Fed (see for example, Paul Krugman “A (Subprime) Catastrophe Foretold” in the New York Times, October 26, 2007; http://www.spiegel.de/international/0,1518,513748,00.html.

⁴The final rule was issued on July 14, 2008. For newly defined “higher-priced mortgage loans” secured by principal residences, the new rule: requires verifying income and assets and assessing repayment ability (based on highest scheduled payment in the first seven years), limits prepayment penalties, and requires tax and insurance escrows. The rule also establishes additional protections for all loans secured by a consumer's principal dwelling, regardless of whether the loan is higher-priced. Board of Governors of the Federal Reserve System, Press Release, July 14, 2008 http://www.federalreserve.gov/newsevents/press/bcreg/20080714a.htm [accessed October 16, 2008].

⁵Center for Responsible Lending, Subprime Lending: A Net Drain on Homeownership, http://www.responsiblelending.org/pdfs/Net-Drain-in-Home-Ownership.pdf (p. 3, the share of refinances was 56–70 percent during 1998–2006).

⁶ http://www.brookings.edu/papers/2009/1118_wealth_bosworth.aspx [accessed April 21, 2010].

⁷Federal Reserve Flow of Funds Report Z.1, Table B.1: Balance Sheet of Households and Nonprofit Organizations, second quarter 2008. September 18, 2008. http://www.federalreserve.gov/releases/Z1/current/z1r-5.pdf [accessed October 16, 2008].

⁸ http://www.census.gov/hhes/www/housing/hvs/qtr208/q208tab5.html [accessed October 16, 2008].

⁹Mortgage Bankers Association of America Press Release – NDS. March 4, 2002. “Mortgage Delinquencies Fell and Foreclosure Inventory Rose in Fourth Quarter.” http://www.mortgagebankers.org/NewsandMedia/PressCenter/29354.htm [accessed October 16, 2008].

¹⁰Mortgage Bankers Association, Third Quarter 2009 National Delinquency Survey.

¹¹According to HMDA data, for example, among first lien, owner-occupied mortgages issued in 2005 and 2006, only 23 percent of white borrowers received subprime loans, while 48 percent of black borrowers and 38 percent of Hispanic borrowers received subprime loans and low income borrowers were 50 percent more likely to get a subprime loan than higher income borrowers. For a review of studies documenting the geographic concentrations of subprime loans in low-income and minority neighborhoods see Ding, Ratcliffe, Stegman, and Quercia (2008). Moreover, up to 15 percent of borrowers who received a subprime loan had credit scores high enough to receive traditional loans (Blanton 2005).

¹²Subprime and Alt-A purchases constituted about 14 percent of the GSE's new business in 2005 and about 33 percent in the first half of 2007 (Lockhart 2008).

¹³“Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent, according to data from Inside Mortgage Finance, a specialty publication” (Goldstein and Hall 2008); note, moreover, that the majority of the GSE subprime holdings are not in the form of loans but in the form of lower risky tranches of securities. As of the second quarter 2008, for example, Fannie held $8 billion in subprime loans and $28 billion in subprime securities.

¹⁴Fannie Mae 2008 Q2 10-Q Investor Summary, Fannie Mae, August 8, 2008 http://www.fanniemae.com/media/pdf/newsreleases/2008_Q2_10Q_Investor_Summary.pdf and Freddie Mac's Second Quarter 2008 Financial Results. August 6, 2008. http://www.marketwatch.com/news/story/freddie-mac-monthly-volume-summary/story.aspx?guid=%7BAB5D5343-6CAE-41E1-BEF7-6FC0A1AF5664%7D [both accessed October 16, 2008].

¹⁵ Ibid. Fannie Mae quarterly investment reports indicate a serious delinquency rate (loans 90 + days past due and in foreclosure) for Alt-A loans of 3.79 percent and for subprime loans of 9.08 percent; Freddie Mac reports Alt-A loan serious delinquency rate of 3.7 percent. LoanPerformance reporting institutions indicated serious delinquency rates of 10 percent of Alt-A and 21 percent of subprime loans. http://www.loanperformance.com/market_pulse/default.aspx [accessed October 16, 2008].