Metropolitan Washington DC Lending Trends & Issues
Metropolitan Washington Council of Governments
Predatory Lending Conference
April 27th, 2006
Presented By
David Berenbaum
Executive Vice President
National Community Reinvestment Coalition
National Community Based MembershipPublications & Research; Policy PapersConsumer Rescue Fund - NCRC has identified numerous issues - role of broker, risk & pricing, servicing, increase in predatory lending to first time homebuyers, consumer loan origination issuesSub-Prime Fair Lending Mystery Shopping - NCRC Six Metro Area Audit ResultsAdvocacy & LitigationBest Practices - Can North Carolina, New Mexico & NJ Laws serve as discussion point for a responsible national standard?Financial Literacy & MBDC, & Community Express Programs
NCRC Overview
• National real estate & financial service conglomerates
• One stop shopping - lender, appraiser, realtor, insurer - RICO & ethics issues
• “Affinity” relationships
• Internet
• Telemarketing
• Appraisal
• Corporate responsibility and social justice.
• Community viability & fair housing planning
• Economic justice & dismantling racism
• CRA modernization• Government services, tax
equity & environmental racism
Impediments to Fair Housing Choice
• Risk based pricing & equal access to products & services - Reg C
• Using consumer protection & civil rights statutes
• Growth of product add-ons
• Role of servicing & securitization
• Reverse redlining
• Tangible net benefit tests
• Montgomery County Ordinance Issue
• Traditional forms of discrimination – steering, availability, pricing & terms, all relevant to predatory lending.
• HELOC, tax refund loans• Home Improvement Scams• Interest Only Loans• Adjustable Rate Loans• HELOCS
The Market
• Investors face pre-payment risk and interest rate risk. Sub-prime, credit constrained, idiosyncratic financing, and higher default rate.
• Adjustible Rate Loans, Interest Only Notes• Securitization factors: deal provisions; refusal to rate certain types
of loans; recourse provisions, indemnification; preservation of holder in due course status. Assignees can contract away risk - borrowers do not benefit.
• Special purpose vehicles – need purchase criteria, investigate originators; monitor performance to detect under achieving loans. Electronic screening plus random sampling. Require assignees to institute controls, limited liability of assignees who comply, full liability for those who do not. Net Effect: lower lit/compliance risk.
• Brokers, appraisers, realtors, developers, lenders, contractors, all play a role
Civil Rights & Consumer Protection Issues
• Unfair pricing / excessive points and fees• Broker conduct – 50% of referrals to NCRC remedial loan fund • Ancillary products (credit insurance) sales practices• Refinancing – “flipping” issues
• Debt to income ratios – “equity stripping” issue• Prepayment fees• Stated income loan programs – fraud risk• Balloon payments• Appraisers – property flipping risks• Deceptive advertising• Unfair collections practices• Different channels/different pricing – “referrals”• Servicing issues
Legal Tools
Federal Fair Housing ActTruth In Lending Act (TILA)
Equal Credit Opportunity Act (Reg B)Home Ownership & Equity Protection Act (HOEPA)
Home Mortgage Disclosure Act (Reg C)Community Reinvestment Act
Fair Debt Collection Practices Act Real Estate Settlement Procedures Act (RESPA).
State & Local Protections Fraud & Racketeering Arguments
FTC Act
Reg C - HMDA Changes
• Does the provision of non-prime loans subject members of protected classes to unequal access to credit?
• Is it a racial targeting technique?• Standards for proving fair lending
claims are now potentially much easier than traditional consumer protection or predatory lending cases.
• Intentional misconduct may be irrelevant
• Defense burden may be formidable
• Now required to identify HOEPA loans
• Geographic location of higher cost loans
• Ability to geocode & correlate to HCL to Census, LMI Communities
• Claims of reverse redlining and targeting
• Ancillary UDAP claims and state FHA claims
• In the past, risk based credit issues were “individualized,” with new pricing data & regulatory oversight will become compliance issue.
Prime Home Loans by Minority Level of Neighborhood
2004 HMDA data. Neighborhoods are defined as census tracts
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Non-minority neighborhoods (<50% minority)
Minority neighborhoods (>50% minority)
Prime Home loans. One dot = 20 loans
Washington-Arlington-Alexandria, DC-VA-MD-VW MD
SubPrime Home Loansby Minority Level of Neighborhood
2004 HMDA data. Neighborhoods are defined as census tracts
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Non-minority neighborhoods (<50% minority)
Minority neighborhoods (>50% minority)
SubPrime Home loans. One dot = 20 loans
Washington-Arlington-Alexandria, DC-VA-MD-VW MD
Prime Home Loans by Minority Level of Neighborhood
2004 HMDA data. Neighborhoods are defined as census tracts
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Non-minority neighborhoods (<50% minority)
Minority neighborhoods (>50% minority)
Prime Home loans. One dot = 5 loans
Montgomery County, MD
SubPrime Home Loansby Minority Level of Neighborhood
2004 HMDA data. Neighborhoods are defined as census tracts
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Non-minority neighborhoods (<50% minority)
Minority neighborhoods (>50% minority)
SubPrime Home loans. One dot = 5 loans
Montgomery County, MD
Prime Home Loans by Minority Level of Neighborhood
2004 HMDA data. Neighborhoods are defined as census tracts
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Non-minority neighborhoods (<50% minority)
Minority neighborhoods (>50% minority)
Prime Home loans. One dot = 5 loans
Prince George’s County, MD
SubPrime Home Loansby Minority Level of Neighborhood
2004 HMDA data. Neighborhoods are defined as census tracts
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Non-minority neighborhoods (<50% minority)
Minority neighborhoods (>50% minority)
SubPrime Home loans. One dot = 5 loans
Prince George’s County, MD
Prime Home Loans by Minority Level of Neighborhood
2004 HMDA data. Neighborhoods are defined as census tracts
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Non-minority neighborhoods (<50% minority)
Minority neighborhoods (>50% minority)
Prime Home loans. One dot = 5 loans
Fairfax County, VA
SubPrime Home Loansby Minority Level of Neighborhood
2004 HMDA data. Neighborhoods are defined as census tracts
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Non-minority neighborhoods (<50% minority)
Minority neighborhoods (>50% minority)
SubPrime Home loans. One dot = 5 loans
Fairfax County, VA
Analysis of Home Lending Trends Washington-Arlington-Alexandria, DC-VA-MD-WV MD
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
• Analysis of 2004 home lending in Washington-Arlington-Alexandria, DC-VA-MD-WV MD shows that 10.5% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.
Washington, DC vs Nation comparison
Prime Lending Subprime Lending
Total Count % Count %
Washington, DC 281,230 251,711 89.50% 29,519 10.50%
Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%
• Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non-minority neighborhoods.
Market Share Analysis by minority level of neighborhood
Washington-Arlington-Alexandria, DC-VA-MD-WV MD
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Loans to Minority CTs Loans to Non-minority CTs
Count % Count %
Prime 72,060 82.69% 179,638 92.56%
Subprime 15,086 17.31% 14,430 7.44%
Total 87,146 100.00% 194,068 100.00%
Residents of minority neighborhoods
were much more likely to receive
subprime loans than residents of non-
minority communities
Home Lending in Washington Area by Minority Level of Census Tract
0.89
2.33
0%
20%
40%
60%
80%
100%
Minority CTs Non-minority CTs
0.00
0.50
1.00
1.50
2.00
2.50
% Prime Loans
% Subprime Loans
Prime Disparity Ratio (minority/non-minority)
Subprime Disparity Ratio (minority/non-minority)
Market Share Analysisby income level of neighborhood
Washington-Arlington-Alexandria, DC-VA-MD-WV MD
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
The percent of subprime loans was
higher for residents from LMI census
tracts than for residents of MUI
neighborhoods
Loans to LMI CTs Loans to MUI CTs
Count % Count %
Prime 45,546 83.93% 206,141 90.84%
Subprime 8,718 16.07% 20,797 9.16%
Total 54,264 100.00% 226,938 100.00%
Home Lending in Washington Area by Income Level of Census Tract
0.92
1.75
0%
20%
40%
60%
80%
100%
Loans to LMI CTs Loans to MUI CTs
0.00
0.50
1.00
1.50
2.00
Prime
Subprime
Prime Disparity Ratio (LMI/MUI)
Subprime Disparity Ratio (LMI/MUI)
Analysis of Home Lending Trends Prince George’s County, MD
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
• Analysis of 2004 home lending in Prince George’s County, MD shows that 21.7% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.
• Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non-minority neighborhoods.
Prince George's Co vs Nation comparison
Prime Lending Subprime Lending
Total Count % Count %
PG County 53,379 41,811 78.33% 11,568 21.67%
Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%
Home Lending in Prince George's Co by minority level of census tract
0.90
1.59
0%
20%
40%
60%
80%
100%
Loans to Minority CTs Loans to Non-minority CTs
0.000.20
0.400.600.80
1.001.201.40
1.601.80
PrimeSubprimePrime Disparity Ratio (minority/non-minority)Subprime Disparity Ratio (minority/non-minority)
Market Share Analysis by minority level of neighborhood
Prince George’s County, MD
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Residents of minority neighborhoods
were much more likely to receive
subprime loans than residents of non-
minority communities
By minotity level of census tract
Loans to Minority CTs Loans to Non-minority CTs
Count % Count %
Prime 34,268 76.91% 7,543 85.48%
Subprime 10,287 23.09% 1,281 14.52%
Total 44,555 100.00% 8,824 100.00%
Home Lending in Prince George's Co by income level of census tract
0.90
1.40
0%
20%
40%
60%
80%
100%
Loans to LMI CTs Loans to MUI CTs
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Prime Subprime
Prime Disparity Ratio (LMI/MUI) Subprime Disparity Ratio (LMI/MUI)
Market Share Analysisby income level of neighborhood
Prince George’s County, MD
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
The percent of subprime loans was
higher for residents from LMI census
tracts than for residents of MUI
neighborhoods
By income level of census tract
Loans to LMI CTs Loans to MUI CTs
Count % Count %
Prime 9,847 72.46% 31,964 80.33%
Subprime 3,742 27.54% 7,826 19.67%
Total 13,589 100.00% 39,790 100.00%
Analysis of Home Lending Trends Montgomery County, MD
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
• Analysis of 2004 home lending in Montgomery County, MD shows that 7.8% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.
• Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non-minority neighborhoods.
Montgomery Co vs Nation comparison
Prime Lending Subprime Lending
Total Count % Count %
Montgomery Co 52,014 47,968 92.22% 4,046 7.78%
Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%
Home Lending in Montgomery County by minority level of census tract
0.94
1.94
0%
20%
40%
60%
80%
100%
Loans to Minority CTs Loans to Non-minority CTs
0.00
0.50
1.00
1.50
2.00
2.50
PrimeSubprimePrime Disparity Ratio (minority/non-minority)Subprime Disparity Ratio (minority/non-minority)
Market Share Analysis by minority level of neighborhood
Montgomery County, MD
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Residents of minority neighborhoods
were much more likely to receive
subprime loans than residents of non-
minority communities
By minotity level of census tract
Loans to Minority CTs Loans to Non-minority CTs
Count % Count %
Prime 13,164 88.11% 34,804 93.88%
Subprime 1,777 11.89% 2,269 6.12%
Total 14,941 100.00% 37,073 100.00%
Market Share Analysisby income level of neighborhood
Montgomery County, MD
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
The percent of subprime loans was
higher for residents from LMI census
tracts than for residents of MUI
neighborhoods
By income level of census tract
Loans to LMI CTs Loans to MUI CTs
Count % Count %
Prime 8,089 87.78% 39,879 93.18%
Subprime 1,126 12.22% 2,920 6.82%
Total 9,215 100.00% 42,799 100.00%Home Lending in Montgomery County
by income level of census tract
0.94
1.79
0%
20%
40%
60%
80%
100%
Loans to LMI CTs Loans to MUI CTs
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Prime Subprime
Prime Disparity Ratio (LMI/MUI) Subprime Disparity Ratio (LMI/MUI)
Analysis of Home Lending Trends Fairfax County, VA
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
• Analysis of 2004 home lending in Fairfax County, VA shows that 5.2% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.
• Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non-minority neighborhoods.
Fairfax Co vs Nation comparison
Prime Lending Subprime Lending
Total Count % Count %
Fairfax Co 63,894 60,554 94.77% 3,340 5.23%
Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%
Market Share Analysis by minority level of neighborhood
Fairfax County, VA
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Residents of minority neighborhoods
were much more likely to receive
subprime loans than residents of non-
minority communities
By minotity level of census tract
Loans to Minority CTs Loans to Non-minority CTs
Count % Count %
Prime 10,113 91.53% 50,441 95.45%
Subprime 936 8.47% 2,404 4.55%
Total 11,049 100.00% 52,845 100.00% Home Lending in Fairfax County by minority level of census tract
0.96
1.86
0%
20%
40%
60%
80%
100%
Loans to Minority CTs Loans to Non-minority CTs
0.00
0.50
1.00
1.50
2.00
PrimeSubprimePrime Disparity Ratio (minority/non-minority)Subprime Disparity Ratio (minority/non-minority)
Home Lending in Fairfax County by income level of census tract
0.95
1.96
0%
20%
40%
60%
80%
100%
Loans to LMI CTs Loans to MUI CTs
0.00
0.50
1.00
1.50
2.00
2.50
PrimeSubprimePrime Disparity Ratio (LMI/MUI)Subprime Disparity Ratio (LMI/MUI)
Market Share Analysisby income level of neighborhood
Fairfax County, VA
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
The percent of subprime loans was
higher for residents from LMI census
tracts than for residents of MUI
neighborhoods
By income level of census tract
Loans to LMI CTs Loans to MUI CTs
Count % Count %
Prime 4,025 90.39% 56,529 95.10%
Subprime 428 9.61% 2,912 4.90%
Total 4,453 100.00% 59,441 100.00%
Analysis of Home Lending Trends District of Columbia County, DC
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
• Analysis of 2004 home lending in District of Columbia County, DC shows that 8.2% of all-single family loans issued in 2004 were subprime. In comparison, nationwide, 13.4% of all single family loans were subprime.
• Market share analysis indicates that LMI and minority communities received disproportionate amount of subprime loans when compared to MUI and non-minority neighborhoods.
DC Co vs Nation comparison
Prime Lending Subprime Lending
Total Count % Count %
DC Co 27,043 24,767 91.58% 2,276 8.42%
Nation 11,821,307 10,384,767 87.85% 1,578,540 13.35%
Home Lending in Washington DC County by minority level of census tract
0.90
7.29
0%
20%
40%
60%
80%
100%
Loans to Minority CTs Loans to Non-minority CTs
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
PrimeSubprimePrime Disparity Ratio (minority/non-minority)Subprime Disparity Ratio (minority/non-minority)
Market Share Analysis by minority level of neighborhood
District of Columbia County, DC
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
Residents of minority neighborhoods
were much more likely to receive
subprime loans than residents of non-
minority communities
By minotity level of census tract
Loans to Minority CTs Loans to Non-minority CTs
Count % Count %
Prime 15,898 88.19% 8,867 98.38%
Subprime 2,129 11.81% 146 1.62%
Total 18,027 100.00% 9,013 100.00%
Home Lending in Washington DC County by income level of census tract
0.95
1.96
0%
20%
40%
60%
80%
100%
Loans to LMI CTs Loans to MUI CTs
0.00
0.50
1.00
1.50
2.00
2.50
PrimeSubprimePrime Disparity Ratio (LMI/MUI)Subprime Disparity Ratio (LMI/MUI)
Market Share Analysisby income level of neighborhood
District of Columbia County, DC
National Community Reinvestment Coalition * http://www.ncrc.org * 202-628-8866
The percent of subprime loans was
higher for residents from LMI census
tracts than for residents of MUI
neighborhoods
By income level of census tract
Loans to LMI CTs Loans to MUI CTs
Count % Count %
Prime 4,025 90.39% 56,529 95.10%
Subprime 428 9.61% 2,912 4.90%
Total 4,453 100.00% 59,441 100.00%
Reverse Redlining
• Cap Cities Litigation
• Toussie Litigation
Other Cases/Matters
• U.S. v. Old Kent Financial Corporation, U.S. v. Allbank, U.S.v. Blackpipe, - redlining matters
• U.S. v. Fairbanks, OTS/Ocwen• Attorney General Settlements - Household,
Ameriquest • Citifinancial/Associates• FTC v. First Alliance
Servicing Issues • Community groups considering the creation of borrowers servicer,
modeled upon buyers broker. • Pyramiding: Servicers are holding consumers’ checks with the intent to
tack on late fees and accelerate foreclosure• Failure to provide payoff statements• Forced place insurance• Cashiering & Escrow Issues• Coercing borrowers into E-Z Pay rather than cost free alternatives• Suspense account – misapplication of payments, related to pyramiding. • Improperly clouding (reporting payments) on credit reports, • Accelerated or costly foreclosure actions• Unprofessional customer service.• Selective & Accelerated Foreclosure• Equity Stripping
Recommendations
Legislative
Comprehensive anti-predatory legislation
Congress must pass a CRA modernization bill
Enhance the quality of HMDA data
Financial education critical, especially for populations lacking credit scores
Regulatory: Federal, State & Local agencies must step up enforcement of existing laws to promote full product choice and prevent product steeringHalt preemption of state anti-predatory and consumer protection law Federal reserve board must step up anti-discrimination and fair lending oversightIncrease fair lending enforcement of non-bank lendingCRA exams must scrutinize non-prime lending more rigorouslyFull disclosure of automated underwriting systems
Recommendations for Lenders, Community Groups, and Consumers: Lenders Must Adopt Risk-Based, Not Race-Based or Age-Based Pricing: Best Practices NeededCommunity Groups Must Advocate and Offer Financial Education and Counseling ProgramsConsumers Must Shop for Affordable Loans and Obtain Credit Reports, Credit Scores, and Pursue Inaccuracies