A Lifetime of Assets

Asset Preservation: Trends and Interventions in Asset

Stripping Services and Products

Josh SilverVice President

of Research and Policy

National Community Reinvestment Coalition

Marva Williams, Ph.D.

Senior Vice President

Woodstock Institute

Disparities in Asset Development: Implications for Public Policy

• Income Disparities– Low and stagnating wages

– Community Impacts: Areas of concentrated poverty

• Adverse Public Policies• Lack of tax advantages for lower-income consumers• Inadequate Savings and Investment Products• Poor Access to the Financial Mainstream• Prevalence of High Cost Financial Services• Significant Financial Management Skills Gap

Lower-Income and Minority Consumers Disproportionately Impacted by Asset Stripping Products:

• Predatory Consumer Loans

– Payday Loans– Auto Title Loans– Refund Anticipation Loans– Overdraft Protection– Credit Cards

• Subprime and Non-Traditional Loans

Community Impacts

• Un- Or Under-Employment• Less Disposable Income• Foreclosures• Decrease in Property Values

NY and OH were among the first states in which the Program originally operated.

Distribution of Cases by State

State NY OH FL NC TX VA GA MD PA CA IL IN MA NJ NV TN WI N/A Total

Number 62 13 4 4 4 4 2 2 2 1 1 1 1 1 1 1 1 7 112

Percent 55.4 11.6 3.6 3.6 3.6 3.6 1.8 1.8 1.8 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 6.3 100

2004 and 2005 had the most cases in the sample

Distribution of Cases by Year of Closing

1316

56

25

20

10

20

30

40

50

60

2002 2003 2004 2005 2006

Year

Nu

mb

er

of

Lo

an

s

CRF sample included a disproportionately large portion of

borrowers residing in minority neighborhoods

Distribution of Cases by Minority Level of Neighborhood

33.93%

55.36%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Not substantially minority Substantially minority

Distribution of Cases by Minority Level of Neighborhood

Minority Level of Neighborhood Number Percent

Not substantially minority 38 33.93%

Substantially minority 62 55.36%

N/A 12 10.71%

Total 112 100.00%

Borrowers in LMI tracts were disproportionately targeted by abusive lenders in the CRF sample

Distribution of Cases by Income Level of Neighborhood

13.39%

28.57%

6.25%

41.07%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Low Moderate Middle Upper

Distribution of Cases by Income Level of Neighborhood

Income Level of Neighborhood Number Percent

Low 7 6.25%

Moderate 46 41.07%

Middle 32 28.57%

Upper 15 13.39%

N/A 12 10.71%

Total 112 100.00%

Great majority of CRF borrowers were African-Americans

Distribution of Cases by Race of Borrower

African-American

77%

Caribbean3%

White17%

Hispanic3%

The great majority of CRF borrowers were low- and moderate- income people

Distribution of Cases by Income of Borrower

Income of Borrower Number Percent

less than $15,000 6 9.84%

$15,001-25,000 14 22.95%

$25,001-35,000 16 26.23%

$35,001-45,000 15 24.59%

$45,001-55,000 5 8.20%

$55,001-65,000 2 3.28%

$65,001-75,000 1 1.64%

$75,001-85,000 2 3.28%

Total 61 100.00%

CRF program helped to:- decrease average mortgage rate by 3.8 percentage points- save on average $276.5 a month, $3,318 yearly, $100,000 over life of loan- 1,000 CRF customers, $100 million in equity saved by CRF program

Analysis of loan terms before and after refinance

  Principal Amount

Prior Mortgage

Rate

New Mortgage

Rate% points

differenceOld Monthly

Payment New Monthly

Payment $ Savings

Average $156,986.2 9.58% 5.74% 3.84% $1,198.4 $922.0 $276.5

         

Median $161,280.4 9.38% 6.00% 3.38% $1,165.8 $941.7 $224.1

  Front-end Ratio Back-end Ratio

Average 40.77% 50.28%

Median 35.43% 49.78%

Standard underwriting ratios 28% 36%

Higher front-end and back-end ratios show that loans were beyond the consumer’s ability to pay

Multiple Abuses on Abusive Loans

• Asset-based lending• Forced placed insurance• HOEPA loan• Mandatory arbitration• Prepaid credit insurance• Abuse of right to cancel• Abusive collection practices• Default interest rate• Excessive prepayment penalties• Insincere co-signers• Loans made in excess of 100% LTV• Negative amortization• Flipping

• Fraud• Lack of Tangible Net Benefit• Targeting/Discrimination• Predatory Appraisal• Balloon payment• Equity stripping• Home improvement scam• Misrepresentation• Stated income• Yield spread premium• Abusive servicing practices• Unfair terms• Fee packing• Exotic mortgages (piggyback loans,

risk layering)

CRF Influence on Best Practices and Policy Reforms

• Servicing Best Practices and FTC Guidelines• OTS AMTPA Rule – No evading state laws on

prepayment penalties• Combating Appraisal Fraud• Uncovering Broker Abuse and Discrimination

Expansion of CRF Programs

• Participation of More than One Lender to Support 100% LTV ratios

• Early Delinquency Intervention• Home Preservation Counseling as Well as

Home Buying Counseling• Pennsylvania’s HEMAP Program• CRA credit for banks to participate in

programs like CRF and HEMAP

Contact Information

• NCRC

(202) 628-8866 http://www.ncrc.org

• Woodstock Institute

(312) 427-8070

http://www.woodstockinst.org