The Foreclosure Debacle and Why Minorities Are Disproportionately Affected Presented to The Houston Real Estate Association Maurice Jourdain-Earl Thursday, April 7, 2011 ©2011 CLC Compliance Technologies, Inc.

Why Minorities Were So Affected? CLEAR DIFFERENCES IN THE DISTRIBUTION OF LOAN TYPES BY RACE AFRICAN-AMERICANS AND LATINOS HAVE INCREASINGLY LESS ACCESS TO PRIME LOANS THAN WHITES COLLAPSE OF SUBPRIME GREATER INCREASE IN GOVERNMENT LOANS WITH WHITES MORE SO THAN WITH AFRICAN-AMERICANS AND LATINOS

Why Minorities Were So Affected? Loan type differences has a direct affect on the Cost of Credit and Loan Performance, thus a disproportionate impact with foreclosures

Houston MSA

Year WhiteBlackHispanicAsian Native Amer.HawaiianTotal ,3598,77619,7967, , ,0405,59914,8516, , ,0485,34914,3606, , ,3395,41715,0956, , ,3742,4967,2675, , ,6522,0125,3766, , ,81229,64976,74538,5721,3101,343435,470 Houston MSA Conv. Prime 1st Lien OO Home Purchase and Refinance 1-4 Family

YearWhiteBlackHispanicAsian Native Amer.HawaiianTotal ,7727,1549, , ,15910,92214,4441, , ,49811,30714,8571, , ,5664,3777, , , , , , ,998 53,04434,92649,8864, ,882 Houston MSA Conv. Subprime 1st Lien OO Home Purchase and Refinance 1-4 Family

YearWhiteBlackHispanicAsian Native Amer.HawaiianTotal 20047,6643,4244, , ,5562,2053, , ,2921,7372, , ,7902,0532, , ,1593,8045, , ,2694,8437,6871, ,100 50,73018,06625,4082, ,292 Houston MSA Government 1st Lien OO Home Purchase and Refinance 1-4 Family

Loan Type Percent with a payment 90+ days past due Percent in foreclosure Prime*2.3%1.2% Subprime**12.9%5.9% Government***1.0%2.5% TEXAS PERCENT DEFAULT AND FORECLOSURE (November, 2010) Source: Federal Reserve Bank of New York, First American CoreLogic and Lender Processing Service (LPS)

Houston MSA 2004 Subprime Disparities by Race ComplianceTech RaceLoans Loans w/Spread FrequencySDI Avg. Spread AHSDI White74,13110, % Black15,9307, % Hispanic29,2619, % Asian8, % Native Am % Hawaiian % MultiRace % Unk16,4084, % NA % Invalid000.00%0.00 Total146,04532, % *Conv. 1 st Lien, OO, Home Purchase and Refi, 1-4 Family

RaceLoansLoans w/Spread FrequencySDIAvg. Spread AHSDI White64,19915, Black16,52110, Hispanic29,29514, Asian7,4871, Native Am Hawaiian MultiRace Unk12,5084, NA Invalid Total130,99246, Houston MSA 2005 Subprime Disparities by Race ComplianceTech*Conv. 1 st Lien, OO, Home Purchase and Refi, 1-4 Family

RaceLoans Loans w/Spread FrequencySDI Avg. Spread AHSDI White58,54614, Black16,65611, Hispanic29,21714, Asian7,2041, Native Am Hawaiian MultiRace Unk14,3225, NA Invalid Total126,88947, Houston MSA 2006 Subprime Disparities by Race ComplianceTech *Conv. 1 st Lien, OO, Home Purchase and Refi, 1-4 Family

Houston MSA 2007 Subprime Disparities by Race RaceLoans Loans w/Spread FrequencySDI Avg. Spread AHSDI White51,9057, Black9,7944, Hispanic22,6567, Asian6, Native Am Hawaiian MultiRace Unk11,6362, NA Invalid Total103,79122, ComplianceTech *Conv. 1 st Lien, OO, Home Purchase and Refi, 1-4 Family

RaceLoans Loans w/Spread FrequencySDI Avg. Spread AHSDI White35,6753, Black3, Hispanic10,0362, Asian5, Native Am Hawaiian MultiRace Unk7, NA Invalid Total62,1008, Houston MSA 2008 Subprime Disparities by Race ComplianceTech *Conv. 1 st Lien, OO, Home Purchase and Refi, 1-4 Family

Houston MSA 2009 Subprime Disparities by Race ComplianceTech *Conv. 1 st Lien, OO, Home Purchase and Refi, 1-4 Family RaceLoans Loans w/Spread FrequencySDI Avg. Spread AHSDI White44,4001, Black2, Hispanic6, Asian6, Native Am Hawaiian MultiRace Unk9, NA Invalid Total69,8873,

Supply Side Impediments Reactionary –Backing away of third-party originations –Collapse of subprime –Credit tightening –More conservative appraisals –Closing of bank branches in communities of color –Appears to be a change in the mindset on National Housing Policy Legislative –Restrictions on compensation of brokers –Licensing and training requirements of SAFE ACT (barriers to entry) unequal playing field favoring banks. –QRM –Greater regulatory cost as a result of new regulations from CFBP

Outlook 1.Outlook for borrowers and communities of color are bleak. 2.Access to credit for minorities is not good. 3.Loss of wealth. 4.Risk management efforts will have a disproportionate impact on borrowers of color and communities of color.

Recommendations ESTABLISH laws for the public disclosure of default and foreclosure data on the same basis as HMDA data. Require lenders/servicers to report the demographic and geographic characteristics of loans in default and foreclosure and the disposition of short sales and loan modifications. ENCOURAGE FHA to study the potential of adverse effects of the new risk management policies. IMPLEMENT Dodd-Frank in a way that promotes sustainable diverse lending. ENFORCE the fair lending laws more vigorously with particular emphasis on approval/denial disparities, pricing disparities and redlining.

27 Maurice Jourdain-Earl For More Information: