Massive Foreclosures: Epicenter of the Economic Crisis

1. No End In Sight:The Foreclosure Crisis and Its Damage to the Credit Markets, Family Wealth, and the US EconomyPresentation at theNeighborWorks Strategies for Effective Outreach to Minority Homeowners Forum James H. CarrChief Operating OfficerNational Community Reinvestment CoalitionWashington, DC February 6, 2009

2. Massive Foreclosures:Epicenter of the Economic Crisis • Foreclosures continue to rise—8 million to 10 million expected over next 4 to 5 years. Loss severity also growing--now more than 60% for subprime loans 1 • House price declines (25% from peak with at least 10% more to go) destabilizing credit markets, destroying family wealth, sinking consumer confidence, and driving unemployment.2 A full $3.3 TRILLION in home equity erased in 2008 3 • Unemployment = more foreclosures. Every 100 newly unemployed workers translate into 40 additional foreclosures. Newly unemployed in January 2009 alone was 598,0004 (translates into 200,000 more possible foreclosures) 1 Credit Suisse, Foreclosure Update: over 8 million foreclosures expected, Fixed Income Research http://www.credit-suisse.com/researchandanalytics December 4, 2008 2 Christie, Les, Foreclosures dominate home sales CNNMoney.com February 3, 2009; 3 S&P Case-Shiller Home Price National Index 4 Andrews, Edmund; Economy Shed 598,000 Jobs in January , NY Times, February 6, 2009

3. Disproportionate Impact on Minorities • Blacks and Latinos were 2 to 3 times more likely to receive toxic subprime loans. More than 50% African Americans and 40% Latinos accessed subprime loans in recent years • Fall in homeownership rate for blacks from 49.1 (4th q 2004) to 46.8 (4th q 2008) is statistically significant. Loss of wealth to African Americans and Latinos could exceed $200 billion1 • Subprime loans to lower-income minorities were NOT provided to increase homeownership and not extended under CRA: According to Center for Responsible Lending, less than 10%of subprime loans between 1998-2006 were to first-time buyers.2 According to the Federal Reserve Board, only 6% of high-cost loans to low- and moderate-income borrowers were covered under CRA 1 US Census Bureau Reports on Residential Vacancies and Homeownership; 2 Subprime Lending is a Drain on Homeownership, Center for Responsible Lending, May 2007; 3 Federal Reserve Board, CRA and the Subprime Crisis Powerpoint, November 2008.

4. The Market Will Not Work Itself Out • With $7.2TRILLIONof federal investments and loans propping up the financial system, the notion that the markets can work “themselves” out is an idea at odds with reality1 • Voluntary measures are not working. Most loan modifications DO NOT REDUCE monthly payments and many modifications INCREASE payments.2 Almost no modifications reduce loan principal. Result: According to the OCC, more than half of loan modifications re-default within 6 months3 • Measures to increase homeownership without stemming foreclosures will not succeed 1 Goldman,David, CNNMoney.com January 6, 2009; 2 White, Alan M. Deleveraging American Homeowners: Update to August 2008 Report, Valparaiso University School of Law December 18, 2008; 3 OCC and OTS Mortgage Metrics Report (Third Quarter 2008), available at http://occ.gov/ftp/release/2008-150a.pdf

5. Broad-Scale Loan Modification Is Critical • A broad-based loan modification plan is needed now! Should address between 2 million to 3 million borrowers. Easier to modify a loan than to help a borrower find a new job • The National Community Reinvestment Coalition proposed in January 2008 a plan to purchase troubled loans at steep discounts (at current market values) from financial institutions using a reverse Treasury auction. Loans would be immediately modified using savings achieved from the purchase discounts. Many legal arguments support the federal government's ability to compel participation from reluctant servicers/investors. Compensation of servicers also important 1 • Use of non-profit mortgage advisors is essential for concentrated and effective outreach to consumers who are wary of financial institutions 1 NCRC, Recommendations to Establish HELP Now Submitted to the United States Senate Committee on Banking, Housing and Urban Affairs Thursday, January 31. 2008 ; 2 NCRC, Testimony of John Taylor, Priorities for the Next Administration Use of Tarp Funds Under EESA, Submitted to House Financial Services Committee, January 13, 2009

6. Align Economic Recovery Spending With Foreclosure Crisis • Economic recovery dollars should prioritize areas that meet three criteria: • Areas most negatively affected by the foreclosure crisis • Areas of highest unemployment • Areas with historically inferior or poorly maintained infrastructures (this will include infrastructure investments in environmental hazard remediation) • This prioritization would target funding at communities most directly and negatively affected by the foreclosure crisis and begin the process of neighborhood stabilization AND rebuilding

7. The National Community Reinvestment Coalition (NCRC) is an association of more than 600 community-based organizations that promote access to basic banking services including credit and savings, to create and sustain affordable housing, job development, and vibrant communities for America's working families. Our members include community reinvestment organizations, community development corporations, local and state government agencies, faith-based institutions, community organizing and civil rights groups, minority- and women-owned business associations, and local and social service providers from across the nation. • For more information: National Community Reinvestment Coalition 727 15th Street, NW, Suite 900 Washington, DC 20005 P: (202) 628.8866 F: (202) 628.9800 jcarr@ncrc.org www.ncrc.org