David Berenbaum | Wall Street Workshop

From Dodd-Frank to Occupy & Everything In Between: Holding Wall Street Accountable to Protect Families & Communities

David Berenbaum, Chief Program Officer, NCRCApril 19th, 2012

National Neighbors

• Car Salesmen “The Track” script • 1988 – 2003: 50.9 Million

First Alliance & Lehman Brothers

National Neighbors

To focus on existing and emerging civil rights and consumer protection issues relating to mortgage-backed securities and securitization principles, including structures and prepayment issues, definitions & policy issues, and

I will also concentrate on how we can be more proactive as a movement and explore how NCRC complaints and other legal precedent can serve as models for advocates.

Presentation Goals

National Neighbors

Consumers, and many consumer groups & advocates, do not understand or differentiate between role of the servicer, securitizer, originator, etc.

Securitization “un-bundles” the loan, lenders have information advantage over investors and there is a strong incentive to “pass off” bad paper by originators - placing Wall Street in the middle of the debateSecuritization manages and prices loss, rather than seeking out bad loans.

Industry trade associations and counsel were salivating at opportunity to undermine disparate impact standard in Magner v. Gallagher

National Neighbors

Wall Street & secondary market provides liquidity to the housing marketIf credit is provided in a discriminatory manner, working families, minorities, and financially vulnerable consumers will not consistently receive, equal treatment in the credit markets.

This is compounded by product or price steering, i.e., securitization of problematic, unsustainable or discriminatory loans, which has played a direct role in the current foreclosure crisis.

NCRC & our members are exploring legal, as well other policy and programmatic ways to redress these actions.

National Neighbors

Real Estate

SchoolsJobs

Commerce

Revenue

Infrastructure

Police & FireHealth

CareEnvironment

What makes for a Healthy Community?

Credit and Capital

National Neighbors

Where once you had a prosperous, functional community, it now becomes dysfunctional.

Real EstateSchools

Jobs

Commerce

Revenue

Infr

astr

uctu

re

Police & Fire

Health C

are

Environment

Real EstateSchools

Jobs

Commerce

Revenue

Infr

astr

uctu

re

Police & Fire

Health C

are

Environment

National Neighbors

Tom Toles – Small Enough to Fail

National Neighbors

The Color of Money – The Dual Lending Market Remains

National Neighbors

1. A lender originates loans, such as to a homeowner or corporation. 2. The securitization structure is added. 3. The bank or firm sells or assigns certain assets, such as consumer

receivables, to a special purpose vehicle. 4. The structure is legally insulated from management Credit

enhancement and rating agency reviews. 5. The Special Purpose Vehicle (SPV) issues debt, dividing up the

benefits (and risks) among investors on a pro-rata basis

Creating Asset Based Securities

National Neighbors

Thirty years ago, if you received a mortgage from a bank, it was very likely that the bank would keep the loan on its balance sheet until the loan was repaid. That is no longer true. Today, the party that you deal with in order to get the loan (the originator) is highly likely to sell the loan to a third party (the securitizer.)

“It’s a Wonderful Life”

National Neighbors

Wall Street & the secondary market provides liquidity to the housing market

If credit is provided in a discriminatory manner, working families, minorities, and financially vulnerable consumers will not consistently receive, equal treatment in the credit markets.

This is compounded by product or price steering, i.e., securitization of predatory loans, which has played a direct role in the current foreclosure crisis.

NCRC & our members are exploring legal, as well other policy and programmatic ways to redress these actions.

National Neighbors

• Investors like volume which is sufficiently large and homogenous to facilitate statistical analysis. A stable history of rates, defaults, delinquencies, prepayments and so forth

• Sufficient diversification--for example, geographic and socio-economic-- to reduce vulnerability to economic stresses

• Basic lender’s credit quality standards that are capable of being evaluated and approved by rating agencies and specialized financial guaranty companies - often pay lip service to or do not include UDAP or fair lending.

• Assets must be transferable and unencumbered

National Neighbors

“The American Securitization Forum concludes that expanding the liability faced by secondary market participants for abusive loan origination practices is a misguided policy, and risks a broad contraction in the availability of mortgage credit to sub prime and other borrowers.”

Industry’s position

National Neighbors

National Neighbors

• Declining Markets/REO• Valuation & Appraisal Issues – Use of Automated Valuation Models• Minimum Loan Amounts• Loan Level Price Adjusters – FHFA as GSE Conservator • Credit Overlays (NCRC’s Challenge of 40+ Lenders)• Portfolio /Servicing Risk Management • Regulatory Issues – Qualified Residential Mortgages & QM

Standards• Down Payment Requirements• New Forms of Redlining & Reverse Redlining – Pricing• Disparate Impact Issues

Emerging Discriminatory Practices

National Neighbors

Minimum Loan Amount Impact

National Neighbors

Rating Agencies - Moody's, S&P, Fitch.

In Securitizations, the rating agencies are active players that enter the game early and assist in structuring the transaction. In many instances they require structural changes, dictate some of the required opinions and mandate changes in servicing procedures. Howver, not so

NCRC Rating Agencies Complaints:

National Neighbors

Federal Reserve Data – In 2009 AA’s relied on FHA/VA 75% of the time & Latino’s 70% of the time.

NCRC’s own analysis of FHA using LPS & HMDA mortgage data found that these loan programs disproportionately serve African American & Latino borrowers with credit scores between 580 and 620 in 2009.

NCRC Also Documented Community Impact Utilizing NCRC & Industry Research

FHA Fair Lending Analysis:

National Neighbors

NCRC Fair Lending Audit Results

NCRC Investigation of FHA Residential Loan Program Lender FICO Requirements

National Neighbors

FHA Risk to Originator, i.e., Indemnification RequirementsFHA Servicing & Foreclosure CostsVintage performance Compare Ratios – See neighborhoodwatch.org Volume, production & systemsCredit overlay defenseWall Street Investors & FHA Aggregators won’t purchase Reputational & Correspondent Lender Risk FHA Streamline loan product performance NCRC acknowledges that each lenders situation is unique.

NCRC Challenge has resulted in 19 Lenders Abandoning Practice and 23 FHEO Complaints. Over 10,000 Loans Originated.

Business Defenses:

THANK YOU!

For more information:David [email protected]