Fair Credit and Fair Housing in the Wake of the Subprime and

Foreclosure Crisis

Fair Housing and Fair Lending ForumNorthwest Justice Project

October 30, 2009Seattle, WA

Christy RogersThe Kirwan Institute for the Study of Race and Ethnicity

The Ohio State University

AgendaMorning

Kirwan framing of fair housing and fair credit issues

Small group brainstorming sessionsReport out and discussions

LunchAfternoon

Kirwan presents King County “Opportunity Mapping” project

Training on affirmatively furthering fair housing

Background: National Initiative on Subprime Lending, Foreclosure and Race

Figure by Christopher L. Peterson, Univ. of Utah Law School

From Redlining to Reverse Redlining

Research takeawaysUnequal credit markets and segregated housing

happened together…Fair credit and fair housing (broadly defined) will only happen together.

Global finance has evolved against – and plays out in – racially and economically segregated neighborhoods.

Fair housing and fair credit is an issue for all of us, but attention needs to be targeted to marginalized communities.Otherwise, policies miss key opportunities and

challenges and miss those most affected by the crisis.

Three-pronged approachMake progress in fair housing in three areas:

Improve access to fair financial options Affirmative community revitalizationOpportunity-based housing

Ensure that programs and policies responding to the subprime crisis reach those most affected

Connect and engage diverse stakeholders for cross-cutting advocacy

The Future of Fair Credit and Fair HousingHow do we best tell the story that we know?

This is important because the framing of the problem shapes its solution.

How do we climb out of the subprime lending and foreclosure fiasco without worsening the already widening opportunity gaps for communities of color?Home ownership and mortgage lendingCredit access, debt, leverageBanking, savings

Research directionsCommissioned workInitial findingsEmerging areas of concern

Commissioned ResearchAccess to fair financial options (mortgage and

otherwise) Banks’ increasing reliance on fees…implications

for low-income customers and communities of colorDiscretionary pricing of financial productsConsumer credit for those coming out of

foreclosureConnect and engage diverse stakeholders

What might an advocacy strategy around fair credit and fair banking look like?

What’s the role for philanthropies?

Commissioned ResearchAffirmative community revitalization

How has the subprime crisis exacerbated fair housing and equitable community development challenges? (Minneapolis, Cleveland, Boston, Sacramento)

How has the subprime and foreclosure crisis affected immigrants, especially low-income and undocumented immigrant homeowners?

How might the homeowner/rental balance shift and affect rental markets?

Ensure that programs and policies responding to the subprime crisis reach those most affectedHow do we assess the current federal policy response with

respect to fair housing and civil rights goals? (TARP, NSP2)What has the impact been on the AI/AN population (data)?

Initial findings Properties in Foreclosure in North Minneapolis (Mark Ireland)No Home in Indian Country (Janeen Comenote)TARP Programs Must Affirmatively Further (DeeDee Swesnick)

Properties in foreclosureStudy of North Minneapolis Subprime lenders did disproportionate

lending in the areaVast majority of foreclosed mortgages issued

through mortgage broker (unregulated)CRL study: pay on avg. $35,000 more over life

of loan vs. sub-prime mortgage through retail lender

Prime lenders disproportionately absentForeclosed homeowners owed 4-5% more

than the original principal balance

Properties in foreclosureUnder-reported, disproportionate affect on

rental families with school-age childrenRental properties accounted for 61% of

foreclosures40% of foreclosed households had children in

Minneapolis public schools; 60% were African American

Yet most foreclosure policies directed to homeowners

Properties lose value and endanger neighborsAveraged ten months to sell at average loss of

$65K83% of properties had 911 calls post-Sheriff’s

Sale, with an average of 8 calls per property

No Home in Indian CountryOn-reservation populations

Federal government has legal and trust responsibility to provide housing for Native people

NAHASDA – Block grants to tribes and tribally designated housing entities Currently able to meet 5% of need for housing

Denial rate for conventional home purchase loans of 23% -- twice that of Whites

No Home in Indian CountryOff-reservation populations (majority of

AI/AN population in US)8-state study revealed the following barriers to

housing for urban Native people: credit checks, low income, lack of affordable housing stock, background checks, deposit/down payment requirements

Disproportionate number of Natives in homeless shelter care, but very few projects serving the Native community

Little known about barriers to fair credit

TARP’s duty to affirmatively furtherNational Fair Housing Alliance paper Federal programs designed to mitigate the

effects of the financial crisis must meet their obligations under the Fair Housing Act

TARP scope close to $ 3 Billion (OSIG Report)TARP funds relate to housing and urban

developmentTARP funds must be spent in a way to

affirmatively further fair housing

Fair Housing Act requirementsFederal programs designed to mitigate the

effects of the financial crisis must meet their obligations under the Fair Housing Act“All executive departments and agencies shall

administer their programs and activities relating to housing and urban development (including any Federal agency having regulatory or supervisory authority over financial institutions) in a manner affirmatively to further the purposes of this subchapter and shall cooperate with the Secretary [of HUD] to further such purposes.” – Sec. 808(d)

Example: Home Affordable Modification Program (HAMP)Funded by $75 Billion in TARP fundsIncentivizes mortgage loan modifications to

keep families in their homesCivil rights & consumer groups advocacy

resulted in the directive to collect and report data on race, ethnicity & sex of applicants for HAMP loan modifications

CAP report: TARP bank lending

CAP recommendations: No more TARP $$ until special inspector general for TARP “gives a passing grade on fair lending practices;” Pass CFPA

Emerging Areas of ConcernOverdraft feesRemittance market

Overdraft feesCongressional legislation coming…CFPA, or

specific overdraft legislation?Federal Reserve proposing opt-in, not opt-outSome banks offering to make some

concessions on fees…(BOA; J.P. Morgan Chase; etc.)

2009 fees: $38.5 billion; fees increased 4% this year; avg. overdraft fee $35; banks make more on overdraft fees than credit card fees

In 2006, overdraft fees were roughly 75% of total consumer fee income

Embarrassing fee factsHalf of overdraft fees are from small

ATM/debit purchases (the “$40 cup of coffee”)

Some banks include the overdraft allowance in the account balance shown at the ATM

In undercover visits, GAO officials often couldn’t get required disclosures detailing fees

A handful of consumers pay the lion’s share of fees (i.e. FDIC study showed that customers with 5 or more NSF transactions – 14% of customers -- accounted for 93.4% of total NSF fees)

Civil rights concerns[Tree] People who overdraft repeatedly are

more likely than the general population to be lower income, single, non-white, and renters Center for Responsible Lending. “Quick Facts on Overdraft

Loans.” April 9, 2009. http://www.responsiblelending.org/overdraft-loans/research-analysis/

[Forest] Incomes lag while housing, health care, and education costs skyrocket…more people get in more debt, but the picture is uneven.

Bank concernsIf overdraft ended overnight, one economist

estimated 1,000 banks and 2,000 credit unions would go under45% of banks and credit unions make more on

overdraft fees than they do in profits

Loan volumes are shrinking while transactional business increases, and transactions have a costWhat’s a sustainable profit model for banks

that builds wealth for consumers?

Remittance flowsWorldwide flows: $320 Billion in 2008Unrecorded flows through informal channels

are believed to be at least 50% more than recorded flows

In last five years, remittances have grown by 63% and now represent the largest source of income for many developing countries

On the horizon: mobile transfers (in developing countries, more people own mobile phones than have bank accounts)

Global flowsAfrica :Total remittances (US$ million)

38,611Asia and Oceania :Total remittances (US$

million) 113,055Europe: Total remittances (US$ million)

50,805Latin America and the Caribbean: Total

remittances (US$ million) 67,905Near East: Total remittances (US$ million)

28,449 Orozco, Manuel. “Sending Money Home: Worldwide

Remittance Flows to Developing and Transition Countries.” December 2007. Inter-American development Bank.

Inter-American Development Bank map

Remittance marketIn 2004, 5% of transfers were done via direct

deposit into accounts at financial institutions (40 million transactions/year)

Western Union and Money Gram charge $12-50 fee per transactionPeople are suspicious of bank pricing, don’t have

needed ID, or know of hand-to-hand alternativesBank of America has offered free remittance service

since 2005…banks want new customersIf banks are going to get new customers via the

remittance market, how do we ensure that they subsequently offer them sustainable options?

What’s next for us Similar policy feedback from small policy

roundtables: Austin, TX Detroit, MI Oakland, CA New Orleans, LA

Federal policy and advocacy consensus building meeting in Washington, DC (November 18)

Final policy and advocacy “blueprint” – all papers & blueprint publicly available (website coming)

Fair housing and fair lending

Group A: Barriers to / Best practices for access to fair financial options, mortgage and otherwise

Group B: Barriers to / Best practices for affirmative community revitalization

Group C: Barriers to / Best practices for opportunity-based housing

Save the date; March 11-13, 2010

ReferencesFees

Janneke Ratcliffe. “A Bridge to Somewhere: the road from predatory lending to good financial services for all Americans.” August 5, 2009. American Prospect.

GAO. “Federal Banking Regulators Could Better Ensure That Consumers Have Required Disclosure Documents Prior to Opening Checking or Savings Accounts.” January 2008. http://www.gao.gov/new.items/d08281.pdf

FDIC. “Study of Bank Overdraft Programs.” November 2008. http://www.fdic.gov/bank/analytical/overdraft/

Leverage data Changes in U.S. Family Finances from 2004 to 2007: Evidence

from the Survey of Consumer Finances. Federal Reserve Board, Survey of Consumer Finances, February 2009. Page A37.