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Foreclosure Prevention Policy Options

Foreclosure Prevention Policy Options . EARN Conference Las Vegas, NV. Paul Leonard December 9, 2008. About CRL. Nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices.

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Foreclosure Prevention Policy Options

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  1. Foreclosure Prevention Policy Options EARN Conference Las Vegas, NV Paul Leonard December 9, 2008

  2. About CRL • Nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. • Affiliated with Self-Help, one of the nation’s largest community development financial institutions.

  3. Overview • Key drivers to crisis • Voluntary efforts falling short • Feds and States can pursue a variety of strategies

  4. Key drivers of foreclosure crisis • Wall Street demanded volume • Originators developed risky products, reckless underwriting, and incentives to push borrowers into unaffordable loans • Policymakers didn’t do enough to curb abuses

  5. What’s Needed Now • Bailout proposals ignore fundamental cause of crisis, i.e. foreclosures and falling housing prices • Need for bankruptcy reform and systematic loan modifications • Need to improve borrower protections going forward

  6. Voluntary Loan Mods Dwarfed By Foreclosures & Delinquencies

  7. Existing Obstacles to Voluntary Modifications • Insufficient Servicer Staffing/Technology • Misaligned Financial Incentives for Servicers • Risk of Investor Lawsuits • Limits of Pooling and Servicing Agreements • Piggyback Seconds

  8. Federal Solutions

  9. Increase Mods through TARP • Require mandatory formulaic mods for loans owned by any bank that gets cash infusion • FDIC proposal: Systematic Modifications, Pay Servicers, Guarantee Modifications $25b to pay servicers and guarantee up to 2 million modified loans conditioned on sustainability standard. • Democratize Data Reporting: HMDA for Loss Mitigation

  10. Lift the Ban on Judicial Modifications • Bankruptcy judges can modify all loans (incl. for yachts, vacation homes, and for subprime lenders in bankruptcy) but not for primary residences • Zero cost to taxpayers • Could help 600,000 families keep their homes • Narrowly targeted; limited judicial discretion • Incentive to servicers to modify outside bankruptcy

  11. State and Local Solutions

  12. What Can States Do? • States control foreclosure process • States regulate servicers • Bring legal actions: State Attorneys General have track record of aggressive mortgage enforcement • NY: Spitzer and Cuomo • Countrywide settlement

  13. Mediation/Intervention • What: Require or encourage mediation to explore options for modifying loans • Why Greater foreclosure-prevention success by (1) ensuring communication and negotiation between the parties; • (2) leveling the playing field and formalizing the process by involving a judge, attorney, or other experienced third party; • (3) providing increased transparency

  14. Mediation/InterventionExamples • City of Philadelphia: Court-ordered mandatory mediation supervised by judges. • NY: Required 90-day pre-fc notice and mandatory settlement conference for certain proceedings • NC: 45-day pre-fc notice and creates subprime database to determine candidates for modifications • Others: NJ, MI(proposed), MN (AG prop), CT

  15. Deferment/Moratoria • Provides additional time to adopt new procedures, use new tools/market products, catch up to workload. • Requires minimum payments to continue

  16. Deferment/Moratoria Examples • Voluntary initiatives • Servicers: Fannie Mae, Freddie Mac, Countrywide, Citi • States: Florida • Mandatory • CA (prop): Safe harbor for servicers that adopt systematic FDIC-like proposal • MN: 1-year deferment, vetoed by Gov. • Federal: HR 6076 (Matsui): 9 month deferment, min. payment required

  17. Foreclosure Process Reforms • Proof of Ownership: NY, OH courts, • Extend Timelines • Require Loss Mitigation or Meetings • State Examples • MD: extend timeline from 15 to 150 days • PA: notice required 30 days before default for face-to-face meeting with servicer or counselor • CA: servicer due diligence protocol to contact/offer meeting

  18. Foreclosure Tax • NJ proposed $2,000 fee • Could fund counseling, mediation efforts

  19. For more details • State and Local Foreclosure Prevention Policy Options: • October 16, 2008 Testimony of Eric Stein on the Causes of the Foreclosure Crisis http://responsiblelending.org/policy/testimony/turmoil-in-the-u-s-credit-markets-the-genesis-of-the-current-economic-crisis.html • November 13, 2008 Testimony of Martin Eakes on Solutions to the Crisis http://responsiblelending.org/policy/testimony/oversight-of-the-emergency-economic-stabilization-act-examining-financial-institution-use-of-funding-under-the-capital-purchase-program.html

  20. Contact Paul Leonard California Director Center for Responsible Lending Paul.Leonard@responsiblelending.org 510-379-5500 www.responsiblelending.org

  21. Bonus Slides

  22. As Suprime Wave of Resets Concludes, Alt-A Wave Builds

  23. Background: Race, Ethnicity and the Subprime Market • African-American and Latinos disproportionately receive high-cost loans

  24. Cleveland Foreclosures Concentrated in African-American Neighborhoods

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