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Exploring the Dimensions of Exploring the Dimensions of Foreclosure in the Context of Foreclosure in the Context of
Neighborhood HousingNeighborhood HousingMarkets.Markets.
Michael BarndtTodd Clausen
Jeff ArpNonprofit Center of [email protected]
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Parsing ContextParsing Context
Not all mortgages are alikeNot all neighborhoods are alikeTime trends and relative trends matterNeighborhood context mattersRace still mattersSolutions need to match the local circumstanceSolutions need to address the variation in the
problemSolutions need to include a neighborhood scale
component
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““Foreclosure” is not just an eventForeclosure” is not just an event
Purchase Mortgage Adjustment in loan – ARMs Refinanced Mortgage Sale to capture appreciation Home Equity Loan Financial changes for mortgage holder Transfer of Paper Payment experience Les Pendens “Short sale” Foreclosure – “Sheriff’s Sale” Disposition of Foreclosure
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Data is scattered and often unavailableData is scattered and often unavailable
Purchase – SALES/ OWNER// LAND CONTRACT ?? Mortgage – REGISTRATION OF DEED// HMDA // CREDIT SCORE ?? Adjustment in loan – ARMs - ?? Refinanced Mortgage – REGISTRATION// HMDA Sale to capture appreciation Home Equity Loan - ?? Financial changes for mortgage holder – COUNSELING
AGENCIES Transfer of Paper - ?? Payment experience – LOAN PERFORMANCE – FED. RESERVE Les Pendens - COURT “Short sale” – LINK SALES/ ASSESSED VALUE Foreclosure – “Sheriff’s Sale” – FORECLOSURE LIST Disposition of Foreclosure – OWNER/ CODE VIOLATIONS
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Changing Industry Trends
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Percent High Cost Percent High Cost LoansLoans
Percent
under 10%
10 to 25%
25 to 33%
33 to 50%
50 to 75%
Over 75%
<5 loans
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Percent High Cost Percent High Cost LoansLoans
Percent
under 10%
10 to 25%
25 to 33%
33 to 50%
50 to 75%
Over 75%
<5 loans
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Percent High Cost Percent High Cost LoansLoans
Percent
under 10%
10 to 25%
25 to 33%
33 to 50%
50 to 75%
Over 75%
<5 loans
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Percent High Cost Percent High Cost LoansLoans
Percent
under 10%
10 to 25%
25 to 33%
33 to 50%
50 to 75%
Over 75%
<5 loans
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Our Data StrategyOur Data Strategy
Use HMDA loan data. We had doubts about whether the HMDA file had enough info.
Create amortization schedules.◦payment amount, interest paid, principle paid.
Compare loan costs for actual interest rates to costs for the same loans if they had a prime rate.
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Neighborhood EffectsNeighborhood Effects
Shift to high cost loans was substantially “Extractive”
After normalizing by the number of loans originated we mapped total extra dollars per loan.
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Added cost/loan
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Added cost/loan
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Added cost/loan
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Distribution of High Cost Distribution of High Cost LoansLoans
2006 Applications: 24,998 Originations: 10,921 43.7% High Cost: 4,979 45.6% Average Loan Amount: $123,400 High Cost White: 26.5% High Cost Black: 72.1% High Cost Hispanic: 55.7%
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Foreclosure Patterns
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Sheriffs Sales Sheriffs Sales 1992 to 20071992 to 2007
Green outline surrounds blocks within the city of Milwaukee which are greater than 75% African American
Foreclosure Hot Spots 1992- 2007
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Foreclosure Rate Foreclosure Rate 1992 to 20071992 to 2007Red outline surrounds blocks within the city of Milwaukee which are greater than 75% African American
Foreclosure RatesFor single/duplex parcels 1992- 2007
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Loan Pattern Matches ForeclosureLoan Pattern Matches Foreclosure
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A Neighborhood Perspective…
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Westside Academy Westside Academy Attendance Attendance DistrictDistrict
Foreclosure RatesFor single/duplex parcels 1992- 2007
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Area CityPersons Per Block 97 --Young Children (0-4) Per Block 11 --Percent Family Income Under $10,000 32% 11%PercentYoung Children (0-5) in Poverty 53% 21%Number of Young Children in Poverty 585 18,863Percent of Married Couple Housholds 27% 57%Percent Adults Without High School Diploma 50% 25%Percent Working 37% 58%
Summary Profile -- Westside Academy
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West Side Academy – West Side Academy – Housing ValueHousing Value
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West Side Academy – Home West Side Academy – Home OwnershipOwnership
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Parcel ViewParcel ViewForeclosure Events by parcel1992- 2007
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Underlying Point Underlying Point DataData
Foreclosure Hot Spots 1992- 2007
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Foreclosure Rate Foreclosure Rate 1992 to 20071992 to 2007Foreclosure Rates
For single/duplex parcels 1992- 2007
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Tenure 2007Tenure 2007A high mobility neighborhood on the western edge of the district with a mix of owner-occupied and investor owned properties.
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Tenure ChangeTenure Change1995 to 20071995 to 2007Ownership Change
For single/duplex parcels 1995- 2007
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Tenure ChangeTenure Change1995 to 20071995 to 2007
Points indicate the locations of Sheriffs Sale Foreclosures 1992 to 2007
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Matching Foreclosure to Parcel TrendsMatching Foreclosure to Parcel Trends
Owner Occupancy - Before and After ForeclosureSingle and Duplex Parcels - City of Milwaukee
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
% O
wn
er O
ccu
pan
t
Before Foreclosure After Foreclosure All Properties
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Other dimensions of our researchOther dimensions of our research
Neighborhood level trends and impactsForeclosure trends and distributionResults of foreclosure sales – short and
long term owner patternsInvestor owner patterns – effects on rental
marketChanging patterns in length of owner
occupancy
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A Typology of the Mortgage System
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Not all mortgages are alikeNot all mortgages are alike
CHARACTERISTICS OF BUYERS
CHARACTERISTICS OF MORTAGE \\ Unqualified buyer Marginal buyer Qualified buyer
Inappropriate Mortgage
High cost/ High risk Mortgage
Traditional mortgage
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CHARACTERISTICS OF BUYERSCHARACTERISTICS OF MORTAGE \\ Unqualified buyer Marginal buyer Qualified buyer
Inappropriate Mortgage
High cost/ High risk Mortgage
Traditional mortgage
FactorsFactorsOwner occupant/ Investor/ Speculator/ AbsentOwner occupant/ Investor/ Speculator/ AbsentTime frame for Adjustable Rate MortgagesTime frame for Adjustable Rate MortgagesRelationship of Market to Mortgage ValueRelationship of Market to Mortgage ValueHousehold Financial Changes Household Financial Changes Health/ Employment Health/ Employment Investor Role Investor RoleIndustry business modelIndustry business model Conservative/ Speculative/ Extractive/ Absent Conservative/ Speculative/ Extractive/ Absent
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Situational MatrixSituational Matrix
CHARACTERISTICS OF BUYERS
CHARACTERISTICS OF MORTAGE \\ Unqualified buyer Marginal buyer Qualified buyer
Inappropriate Mortgage
Inevitable loss Quick sale in strong markets Foreclosure in weak markets
Likely major change in cost later in the mortgage Vulnerable to health and employment changes
Occurs in exploited communities
High cost/ High risk Mortgage Like B2, less likely
Change in cost later in the mortgage Vulnerable to health and employment changes
Occurs in low income weak-market communities
Traditional mortgage
Buyer rejected Lower home ownership in neighborhoods segregated by income
Down payment requirements shield from limited market downturn
Generally stable unless market changes dramatically
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Parsing ContextParsing Context
Not all mortgages are alikeNot all neighborhoods are alikeTime trends and relative trends matterRace still mattersNeighborhood context mattersSolutions need to match the local
circumstanceSolutions need to address the variation in the
problemSolutions need to include a neighborhood
scale component
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Michael BarndtNonprofit Center of [email protected]
National Neighborhood Indicators PartnershipUrban.org/NNIP
Center for Housing PolicyForeclosure-Response.Org