Exploring the Dimensions of Foreclosure in the Context of Neighborhood Housing Markets. Michael Barndt Todd Clausen Jeff Arp Nonprofit Center of Milwaukee

Parsing Context Not all mortgages are alike Not all neighborhoods are alike Time trends and relative trends matter Neighborhood context matters Race still matters Solutions need to match the local circumstance Solutions need to address the variation in the problem Solutions need to include a neighborhood scale component

Foreclosure 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 – Sheriffs Sale Disposition of Foreclosure

Data 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 – Sheriffs Sale – FORECLOSURE LIST Disposition of Foreclosure – OWNER/ CODE VIOLATIONS

Changing Industry Trends

Percent High Cost Loans

Our 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.

Neighborhood Effects Shift to high cost loans was substantially Extractive After normalizing by the number of loans originated we mapped total extra dollars per loan.

Added cost/loan

Distribution of High Cost Loans 2006 Applications: 24,998 Originations: 10, % High Cost: 4, % Average Loan Amount: $123,400 High Cost White: 26.5% High Cost Black: 72.1% High Cost Hispanic: 55.7%

Foreclosure Patterns

Sheriffs Sales 1992 to 2007 Green outline surrounds blocks within the city of Milwaukee which are greater than 75% African American Foreclosure Hot Spots

Foreclosure Rate 1992 to 2007 Red outline surrounds blocks within the city of Milwaukee which are greater than 75% African American Foreclosure Rates For single/duplex parcels

Loan Pattern Matches Foreclosure

A Neighborhood Perspective…

Westside Academy Attendance District Foreclosure Rates For single/duplex parcels

West Side Academy – Housing Value

West Side Academy – Home Ownership

Parcel View Foreclosure Events by parcel

Underlying Point Data Foreclosure Hot Spots

Foreclosure Rate 1992 to 2007 Foreclosure Rates For single/duplex parcels

Tenure 2007 A high mobility neighborhood on the western edge of the district with a mix of owner- occupied and investor owned properties.

Tenure Change 1995 to 2007 Ownership Change For single/duplex parcels

Tenure Change 1995 to 2007 Points indicate the locations of Sheriffs Sale Foreclosures 1992 to 2007

Matching Foreclosure to Parcel Trends

Other dimensions of our research Neighborhood level trends and impacts Foreclosure trends and distribution Results of foreclosure sales – short and long term owner patterns Investor owner patterns – effects on rental market Changing patterns in length of owner occupancy

A Typology of the Mortgage System

Not all mortgages are alike CHARACTERISTICS OF BUYERS CHARACTERISTICS OF MORTAGE \\Unqualified buyerMarginal buyerQualified buyer Inappropriate Mortgage High cost/ High risk Mortgage Traditional mortgage

CHARACTERISTICS OF BUYERS CHARACTERISTICS OF MORTAGE \\Unqualified buyerMarginal buyerQualified buyer Inappropriate Mortgage High cost/ High risk Mortgage Traditional mortgage Factors Owner occupant/ Investor/ Speculator/ Absent Time frame for Adjustable Rate Mortgages Relationship of Market to Mortgage Value Household Financial Changes Health/ Employment Investor Role Industry business model Conservative/ Speculative/ Extractive/ Absent

Situational Matrix CHARACTERISTICS OF BUYERS CHARACTERISTICS OF MORTAGE \\Unqualified buyerMarginal buyerQualified 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

Parsing Context Not all mortgages are alike Not all neighborhoods are alike Time trends and relative trends matter Race still matters Neighborhood context matters Solutions need to match the local circumstance Solutions need to address the variation in the problem Solutions need to include a neighborhood scale component

Michael Barndt Nonprofit Center of Milwaukee National Neighborhood Indicators Partnership Urban.org/NNIP Center for Housing Policy Foreclosure-Response.Org