A presentation to the NeighborWorks America

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Foreclosure Concentration and Predatory Lending
A review of the evidence in four Mid-Atlantic
cities
A presentation to the NeighborWorks America
Creating Hope Promoting Foreclosure Solutions
Conference June, 2007
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Profile of TRF
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opportunity for low-wealth communities and low
and moderate income individuals through the
promotion of socially and environmentally
responsible development. We achieve our mission
through the strategic utilization of

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For most middle- and lower-income Philadelphians,
if they have an asset at all, that asset is their
home. This is uniquely so for lower income
Philadelphians.
Source TRF analysis of Census PUMS data, 2000
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For most middle- and lower-income Philadelphians,
if they have an asset at all, that asset is their
home. This is uniquely so for lower income
Philadelphians. Foreclosures and predatory
lending take away the only asset.
Source TRF analysis of Census PUMS data, 2000
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• Where Foreclosures Happen

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Baltimore Foreclosure Filings 2000-2001
Baltimore Foreclosure Filings 2002-2003
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Foreclosures In Baltimore, MD

• NE Belair-Edison

• Areas with the highest concentrations of
  foreclosures average 90 African American
• Areas with the lowest concentrations of
  foreclosures average 24.8 African American

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Foreclosures In Philadelphia, PA
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Sheriff Sales in Philadelphia, PA
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Philadelphia Foreclosure DensityMeasuring the
impact of foreclosures on surrounding values
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Sheriff Sales In Newark, NJ
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• The Impact of Foreclosures

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How Does A Foreclosure Impact the Lender/Investor?

• Comptroller Dugan (Speech, April 24, 2007)
• The loss to lenders has been pegged at between
  40,000 and 50,000 per foreclosed home, and some
  lenders report losing 50 cents on the dollar.
  The loss to prospective homeowners who reach for
  their dream and maybe overreach is more
  profound.
• Foreclosure ? complete loss to the investor.
• Pricing (interest and fees/points) of loan
  compensates for risk
• Foreclosures are not always consummated
• In the case of subprime loans, although priced as
  subprime, a substantial portion of borrowers are
  prime borrowers
• Part of the debt is typically paid by the time of
  foreclosure

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How Does A Foreclosure Impact the Borrower?

• Monetary - Direct
• Net loss on downpayment and principal paid
• Penalties and fees charged by mortgage servicers
  during the period of delinquency
• Legal fees
• Monetary Indirect
• Future cost of borrowing as a result of damaged
  credit
• Moving expenses
• Nonmonetary
• Emotional distress
• Physical distress
• Psychological distress
• Adverse family impacts

Minnesota Family Fund (1998) estimates the cost
per household to be approximately 7,200 per
foreclosure
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How Does A Foreclosure Impact the Municipality?

• Costs associated with
• Increased policing
• Increased fire protection
• Increased demand for social services
• Demolition
• Inspection
• Legal Actions
• Tax Revenues
• Managing the foreclosure process
• Reputation
• Apgar (IL) estimates municipal costs to be
  34,000 Family Housing Fund (MN) estimates
  municipal cost to be 27,000
• (Apgar, 2005 Family Housing Fund, 1998)

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How Does A Foreclosure Impact the Community?

• Foreclosures can facilitate racial transition
  (Baxter and Lauria, 2000 Lauria and Baxter,
  1999)
• Foreclosure are associated with violent crime
  (Immergluck, 2005)
• Foreclosure can adversely impact property value
  (Immergluck and Smith, 2005 Cagan, 2005
  Pennington-Cross, 2004)
• Estimates of cost include Chicago (Apgar)
  17,000 to neighborhing properties Chicago
  (Immergluck Smith) 1.

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• Lost Values A Study Of Predatory Lending In
  Philadelphia
• How frequently does predatory lending play a
  role?

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Significant numbers of Philadelphia properties
had more than one indicator of predatory lending

• Of all properties in Philadelphia
• 22.3 had at least one of the three indicators of
  predatory lending
• 3.1 had two or more of the three indicators of
  predatory lending
• Of all properties with 3 liens in Philadelphia
• 50.9 had at least one of the three indicators of
  predatory lending
• 14.1 had two or more of the three indicators of
  predatory lending

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Comparing foreclosure properties to all
properties in Philadelphia shows that properties
in foreclosure are more likely to manifest
indicators of predatory lending
Area Rapid Refinancing Properties with 3 Liens or More to Their Owner and Rapid Refinancing Mortgages 5 Times Assessed Value Properties with 3 Liens to Owner, and Mortgages 5 Times Assessed Value Properties with Both Rapid Refinancing and Mortgages Five Times Properties with 3 Liens to Owner, and Both Rapid Refinancing and Mortgages 5 Times
Foreclosure Properties 12.81 51.91 29.78 31.74 4.56 18.00
All City Sample 4.62 19.05 18.17 31.22 2.09 8.20
Foreclosures in Middle/High Value Areas 12.63 50.60 14.34 13.63 2.14 7.84
All City in Middle/High Value Areas 5.46 18.25 15.82 20.07 2.06 6.20
Foreclosures in Low/Medium Value Areas 12.98 53.23 44.60 49.83 6.89 28.15
All City in Low/Medium Value Areas 3.59 21.15 21.05 60.58 2.13 13.46
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