1. Stabilizing Home Ownership in a Post-Foreclosure Environment Implications for Lenders, Homebuyers and Neighborhoods Based on findings from the 2008 Home Mortgage Disclosure Act analysis and other housing market research. June 2010

2. Presented by CBANA in collaboration with the Community Development Council Supported by the City of Memphis Division of Housing and Community Development Phyllis Betts, Director Center for Community Building and Neighborhood Action University of Memphis pbetts@memphis.edu Carol Gothe, Project Research Assistant cgothe@memphis.edu

3. Integrating Information to Create Actionable Knowledge Home Mortgage Disclosure ActHome Mortgage Disclosure Act Register of Deeds: sales, mortgages, foreclosuresRegister of Deeds: sales, mortgages, foreclosures Memphis Daily News and Chandler ReportMemphis Daily News and Chandler Report CBANA-HCD Neighborhood by Neighbor SurveyCBANA-HCD Neighborhood by Neighbor Survey HUD Market ReportsHUD Market Reports Census, Internal Revenue Service, and other government dataCensus, Internal Revenue Service, and other government data

4. Key Issues I. Subprime Lending Dries Up: the new demographics of lending, borrowing, and homeownership in the wake of the 2008 mortgage meltdown. II. Disparate Impact on Aspiring Homeowners: borrowers, Memphis demographics, and the future of African American homeownership. III. Homeownership Erosion: emerging business model for local and non- local lending and impact on homeownership in Shelby County. IV. Changing Character of Neighborhoods: Foreclosures, investors, and neighborhood stability. V. Action Planning: What resources do we already have and what do we need to implement homeownership restoration and neighborhood housing market stabilization policies? What do we need from local banks? From policy-makers?

5. Shelby County Zones

6. I. Subprime Lending Dries Up Applications down 39% 2007 2008Applications down 39% 2007 2008 39,526 applications 17,239 originations39,526 applications 17,239 originations Originations down but approval about the same as last year at 43%Originations down but approval about the same as last year at 43% –Approvals dropped 2006 2007 Local banks capture majority market share of diminished market: 54%Local banks capture majority market share of diminished market: 54% Local lending dominated by Zone 3 and investor loans in Zones 1 and 2Local lending dominated by Zone 3 and investor loans in Zones 1 and 2

7. Loan Dollars Originated By Local and Non-Local Lenders 2008 54% Local Lenders Non-Local Lenders and Mortgage Companies 46%

9. Post-Subprime Lending Landscape Subprime purchase lendingSubprime purchase lending –2007: 21% –2008: 13% Subprime refinance lendingSubprime refinance lending –2007: 31% –2008: 18% Piggyback purchasePiggyback purchase –2005 high: 39% –2008: 2%

10. Post-Subprime Lending Landscape Low-moderate buyersLow-moderate buyers African American buyersAfrican American buyers Female-headed householdsFemale-headed households Zones 1,2, 4 homeowner purchasesZones 1,2, 4 homeowner purchases Zones 1,2, 4 refinancingZones 1,2, 4 refinancing Zone 3 proportionate share of market activityZone 3 proportionate share of market activity –55% of market activity in 2008 –9,536 originations Investor Loans Investor Loans

11. Total Number of All Applications 2008 By Zip Code

14. II. Disparate Impact Demise of non-local lending and subprime lendingDemise of non-local lending and subprime lending Approvals disproportionately down for African Americans in Shelby CountyApprovals disproportionately down for African Americans in Shelby County Buyer and borrower profile shifts toward white borrowers and white neighborhoodsBuyer and borrower profile shifts toward white borrowers and white neighborhoods Lending in predominantly African American neighborhoods shifts to investorsLending in predominantly African American neighborhoods shifts to investors

15. 51% of all 2008 Shelby County mortgage applications were from minority applicants51% of all 2008 Shelby County mortgage applications were from minority applicants 32% of all 2008 Shelby County originated loans were to minority applicants32% of all 2008 Shelby County originated loans were to minority applicants Disparate Approval

16. Percent African-American Owner-Occupied Purchase Applications (1 st Lien) 2008 by Zip Code

18. Approval Rates For Black and White Applicants, Shelby County 2005 - 2008 Year African American White 2005 2005 58% 58% 77% 77% 2006 2006 56% 56% 77% 77% 2007 2007 47% 47% 75% 75% 2008 2008 43% 43% 74% 74% Source: 2005 – 2008 HMDA Data

19. African AmericanAfrican American –29% subprime loans –41% applicants low income <80%AMI –43% single female applicants –18% >3:1 loan-to-income ratios or higher –Median loan value $90,000 –62% applications Zone 2 Application and Lending Profiles WhiteWhite –10% subprime loans –19% applicants low income <80%AMI –22% single female applicants –17% >3:1 loan-to-income ratios or higher –Median loan value $141,000 –66% applications Zone 3

20. Role of Local Lenders? Local LendersLocal Lenders –41% of all applications were from minority applicants –31% of all mortgages were to minority borrowers –36% of minority applications were denied Non-Local Lenders and Mortgage CompaniesNon-Local Lenders and Mortgage Companies –57% of all applications were from minority applicants –42% of all mortgages were to minority borrowers –52% of minority applications were denied

21. Reasons For Denial By Race Primary Reason For Denial African American White Debt-to-income ratio 61217%33916% Employment history 311%251% Credit history 1,33837%48423% Collateral71820%54826% Insufficient cash 752%412% Unverifiable information 1193%914% Credit application incomplete 3239%36517% Mortgage insurance Denied 181%80% Other35810%23811% Total3,5922,139 Source: 2008 HMDA data.

22. Percent of HUD Median Income African American White Difference CompleteApplications Denial Rate Completed Applicat ions Denial Rate 30% and below 34574%10869%5% >30% and 30% and <= 60%2,56164%97044%20% >60% and 60% and <= 80%2,52657%1,53630%27% >80% and 80% and <= 120%3,61159%2,97230%29% 120% and above 3,95052%8,42122%30% Total12,99358%14,00726%32% Source: 2008 HMDA data. Denial Rates By Race and Income Category

23. III. Homeownership Erosion Foreclosure notifications up 4% 08-09Foreclosure notifications up 4% 08-09 –4/100 single family homes in 2009 –13,327 notifications –Zone 2 still high but decreasing –Zone 3 up: Pushing the envelope foreclosures But completed foreclosures down 16%But completed foreclosures down 16% –6,391 2008 foreclosures still bank owned: 24%2008 foreclosures still bank owned: 24% –REO inventory appears to hold steady and influence pace of completed foreclosures

24. Foreclosure Notifications 2009 by Zip Code

26. Shelby Co Assessor, Memphis Daily News Data

27. Meltdown-driven Recession: Secondary Effects on Homeownership Credit for business investmentCredit for business investment Employment and earningsEmployment and earnings Household formationHousehold formation Residential developmentResidential development Stagnant real estate marketStagnant real estate market

28. Market Realities Memphis: immigrants maintain population growth since 2000Memphis: immigrants maintain population growth since 2000 Baseline poverty: 20% + or –Baseline poverty: 20% + or – Top ten bankruptcy, credit ratings and delinquency, use of tax refund anticipation loans, disability payments, and labor force drop-outsTop ten bankruptcy, credit ratings and delinquency, use of tax refund anticipation loans, disability payments, and labor force drop-outs One of two families with children are low income** up to 200% federal poverty line, which is typically less than the 80% AMI guideline for low-incomeOne of two families with children are low income** up to 200% federal poverty line, which is typically less than the 80% AMI guideline for low-income Virtual no growth scenario Shelby CoVirtual no growth scenario Shelby Co

30. Potential Homeowners? Typical White: nuclear family with two children @ 120% of AMI attempting to buy in Zone 3Typical White: nuclear family with two children @ 120% of AMI attempting to buy in Zone 3 Typical Black: female-headed (extended family) with two children @ =<80% AMI attempting to buy in Zone 2 or 3Typical Black: female-headed (extended family) with two children @ =<80% AMI attempting to buy in Zone 2 or 3

31. Applicant Characteristics African American * White * Count Percent/ Summary Statistic CountPercent/ Summary Statistic Total Applications 15,642--16,459-- Low Income: = < 80% AMI 6,28641%2,97219% Very Low Income: = < 50% AMI 2,08914%6924% Poor/Near Poor: = < 30% AMI 3813%1331% Moderate Income: 81- 120% AMI 4,30128%3,43922% High Income: over 120 AMI 4,62330%9,53360% Median Borrower Income --$49,000--$77,000 Male w/ Female Coapplicant* 2,27315%5,63235% Female w/ No Coapplicant * 6,65343%3,61522% Owner-Occupied 13,73988%13,78684% Zone 1 - Distressed Neighborhoods 3,16920%9296% Zone 2 - Vulnerable Neighborhoods 9,68362%4,35926% Zone 3 - Stable Neighborhoods 2,69517%10,92766% Zone 4 - Uptrending Neighborhoods 951%2472% Source: HMDA 2008 data * Percentages exclude cases for which data were not available. Applicant Characteristics African American and White 2008

32. Market Sheds Potential Homeowners Memphis down 7000 homeowners since 2005Memphis down 7000 homeowners since 2005 –Shelby county down 4000 Foreclosures and failure of new households to formForeclosures and failure of new households to form Memphis down 17000 households since 2005Memphis down 17000 households since 2005 –Shelby county down 7500

33. Investors Take Up Slack 59% 2008 foreclosure bank sales to investors59% 2008 foreclosure bank sales to investors –Bank sales 24% of county-wide market 2009 HMDA data: 19% investor loansHMDA data: 19% investor loans –Baseline ~10% 2004 –Excludes cash sales and underestimates package deals Wide Zone and zipcode variationWide Zone and zipcode variation Growing vacancy in Zone 1 into Zone 2Growing vacancy in Zone 1 into Zone 2

34. Shelby Co Assessor Data

35. Percent Investor Purchase Originations (1 st Lien) 2008 by Zip Code

36. Number Owner Occupied Purchase Originations (1 st Lien) 2008 by Zip Code

37. IV. Changing Character of Neighborhoods Zone 1 neighborhoods increasing vacancy and population lossZone 1 neighborhoods increasing vacancy and population loss Zone 2 neighborhoods increasingly shifting to rental with clustered increases in vacancyZone 2 neighborhoods increasingly shifting to rental with clustered increases in vacancy Foreclosures/investor-owned properties associated with blight in Zone 2Foreclosures/investor-owned properties associated with blight in Zone 2

38. USPS Percent Vacancies By Tract 12/31/2009

39. Shelby Co Assessor Data

40. Foreclosures much more likely to be vacantForeclosures much more likely to be vacant Vacant properties more likely to be neglectedVacant properties more likely to be neglected Do foreclosures drive blight?Do foreclosures drive blight? –Depends on the neighborhood...

41. 2007/08 Foreclosures: 952007/08 Foreclosures: 95 Blight Rate:Blight Rate: All residential properties: 38.2%All residential properties: 38.2% Foreclosures: 67.4%Foreclosures: 67.4% Vacancy Rate:Vacancy Rate: All residential properties: 6.8%All residential properties: 6.8% Foreclosures: 36%Foreclosures: 36%

42. 2007/2008 Foreclosures: 1152007/2008 Foreclosures: 115 Blight Rate:Blight Rate: All residential properties: 18.5%All residential properties: 18.5% Foreclosures: 60.8%Foreclosures: 60.8% Vacancy Rate:Vacancy Rate: All residential properties: 2.5%All residential properties: 2.5% Foreclosures: 35.7%Foreclosures: 35.7%

46. Selected Shelby County Foreclosure Notifications, 2000 – 2009 HUD-LISC High Foreclosure Risk Zipcodes Zone 1 Zone 2 Mixed Zone Zip Code 200020012002200320042005200620072008 Substitute Trustee Deeds 2008 2009 Substitute Trustee Deeds 2009 % Increase Notifications 08-09 % Increase Sub Trust 08-09 38106235272358366373453509507550388338200-39%-48% 38109385392501603625654829904836504679339-19%-33% 3811128331938639744939146949051132359029315%-9% 38114206238297347272352433464437293391205-11%-30% 38115292260310322364385548634584346572281-2%-19% 38116256226360371396430541581604324600245-1%-24% 38118338329462488499527710753806455800405-1%-11% 38125138199258319381477576834948468 1,06 9 35813%-24% 38127452449563691714731969980999672964575-4%-14% 38128310342459463494529669871940552898470-4%-15% 381412713104354034284575927097664217913633%-14% Shelby County 4,6165,0566,6827,2967,6248,24110,51511,92212,8557,59113,3276,3914%-16% Source: Memphis Daily News, Shelby County Assessor Files, 2009

47. Zip Codes % African American, 2000 2 % Purchase Apps That Are Low Income, 2008 1 % All Purchase Apps Originated, 2008 1 % Purchase Apps With African American Applicant, 2008 1 % Purchase Apps With Hispanic Applicant, 2008 1 % Originated Purchase Loans That Are Investor Purchases, 2008 1 % Tax Returns, EITC Credit, 2006 3 % Tax Returns, Income Below $20,000, 2006 3 3810697%68%37%89%1%35%55%60% 3810996%49%46%90%0%43%48%50% 3811145%35%72%20%1%22%31%43% 3811495%46%40%75%0%38%52%58% 3811560%45%49%75%3%39%42%43% 3811691%53%48%89%1%24%44%47% 3811876%43%49%81%3%25%47%48% 3812541%42%51%81%3%22%20%28% 3812772%49%48%71%2%62%53%55% 3812859%48%46%73%3%33%43%45% 3814161%61%43%82%4%37%34%33% Total49%30%63%41%3%17%29%39% Neighborhood Housing Market Trends Race, and Income Indicators

48. Zip Codes % African American, 2000 2 % Owner Occupied Housing Units, 2000 2 Single Family Home Ownership Rate, 3/2010 5 % Single Family Parcels w/ FC Notices, 2009 4,5 % 2008 FCs Still Bank Owned, 3/2010 5 % 2008 FCs Sold Now Investor Owned, 3/2010 5 % Res Bank Sales, 2009 4,5 Vacancy Rate, 3/2010 6 3810697%56%59%2.7%38%62%29%19.2% 3810996%76%71%3.4%29%52%35%11.9% 3811145%58%64%3.4%28%80%14%10.4% 3811495%51%60%3.4%30%79%49%21.8% 3811560%35%72%6.4%26%70%37%9.9% 3811691%48%83%5.2%25%46%32%12.3% 3811876%56%71%6.3%28%88%26%12.2% 3812541%88%89%7.6%13%44%40%4.7% 3812772%65%61%5.9%31%69%43%14.4% 3812859%60%71%6.4%18%75%42%7.2% 3814161%89%80%8.2%18%80%46%5.0% Total49%63%77%3.6%23%59%24%9.1% Neighborhood Home Ownership, Race and Vacancy

49. V. Action Planning Where do we stand with local lenders?Where do we stand with local lenders? Zone 3,4 model for homeownershipZone 3,4 model for homeownership –Higher income white homebuyers and limited number of black homebuyers (~16% of total) Weaker Zone 2 model for black homebuyersWeaker Zone 2 model for black homebuyers Zone 2 model for white investors Zone 2 model for white investors Zone 1 -2 model for African American investorsZone 1 -2 model for African American investors

50. Stabilizing Homeownership and Restoring Neighborhoods: Critical Considerations Racial disparities remain in local lendingRacial disparities remain in local lending –44% of local lending to African Americans –higher local than non-local approval but still lower than for white applicants –African American (Hispanic?) borrowers growing share of potential borrowers Marginal buyers account for disappearing homeownership demand with high impact in Zone 2 and potential impact in Zone 1 redevelopmentMarginal buyers account for disappearing homeownership demand with high impact in Zone 2 and potential impact in Zone 1 redevelopment –Marginal buyers supported Zone 2 market activity –New realities of investor-driven markets

51. Summary Considerations Bottom line: excess supply compared to effective demandBottom line: excess supply compared to effective demand Building and homeownership demand will rebound in Zones 3 and 4Building and homeownership demand will rebound in Zones 3 and 4 Homeownership outreach and support system for marginal buyers key to stabilization and restoration in Zone 2 and affordable redevelopment in Zone 1Homeownership outreach and support system for marginal buyers key to stabilization and restoration in Zone 2 and affordable redevelopment in Zone 1 Rental quality assurance key in Zone 1 pending ground up redevelopmentRental quality assurance key in Zone 1 pending ground up redevelopment

52. Local Strategy Implications Rethinking products for lower income buyersRethinking products for lower income buyers –Emerging products? –Alternative financing pools? Loans with strings attachedLoans with strings attached –Pre-purchase counseling –Credit repair and building New options with lease purchaseNew options with lease purchase Incentives for local investors toward rental quality assurance: entrepreneurship development?Incentives for local investors toward rental quality assurance: entrepreneurship development?

53. Promising Practices Home Ownership Preservation: Lease-Purchase and CDFI financing Community Land Trust Network at www.cltnetwork.orgCommunity Land Trust Network at www.cltnetwork.org www.cltnetwork.org National Housing Trust at www.nhtinc.orgNational Housing Trust at www.nhtinc.orgwww.nhtinc.org Community Development Law Center (Portland) at www.cdlcweb.orgCommunity Development Law Center (Portland) at www.cdlcweb.orgwww.cdlcweb.org

54. Promising Practices Rental Quality Assurance: Entrepreneurship and best practices for property owners Enterprise Community Partners at www.enterprisecommunity.orgEnterprise Community Partners at www.enterprisecommunity.org www.enterprisecommunity.org Neighborworks Real Estate Programs and Asset Management training at www.nw.org/network/neighborworksprogsNeighborworks Real Estate Programs and Asset Management training at www.nw.org/network/neighborworksprogs www.nw.org/network/neighborworksprogs