1. MN Mortgage Foreclosure Prevention Association July 10, 2007 Prentiss Cox Associate Professor of Clinical Law University of Minnesota Law School

2. Foreclosure and Subprime Lending 1.Foreclosure Rates 2.Causes and Concerns A.Mortgage Practices B.Subprime Lending C.Alt-A Lending D.Non-Owner-Occupied Lending 3.Consequences A.Individuals B.Communities 1.Geographic Concentration 2.Foreclosure and Vacancy C.Financial Markets

3. 1. Foreclosure Rates

4. Data Source: Hennepin County Sheriff’s Office

5. Data Source: Hennepin County Sheriff’s Office 2007 is estimate based on Jan-Jun data

6. Data Source: St. Paul Pioneer Press

7. Source: Saint Paul Pioneer Press

8. Data Source: Special Report of U S Senate Joint Economic Committee; First American Loan Performance

9. 2. Causes and Concerns A.Mortgage Practices Are Driving Foreclosures B.Subprime Lending 1.Relation between foreclosure and subprime 2.Growth in subprime lending 3.Housing price boom delayed, magnified problem 4.Specific unfair subprime lending practices have grown and are related to foreclosure 5.Acceleration of Most Risky Practices 6.Non-Owner-Occupied Subprime Lending 7.Myth of Subprime Promoting Home Ownership C. Alt-A Lending

10. Data Sources: Data from Hennepin County Sheriff’s Office, US Bureau of Labor Statistics and Minnesota Department of Employment and Economic Development. Chart by Institute on Race and Poverty, U of Minnesota Law School

11. Data Sources: Data from Hennepin County Sheriff’s Office and Federal Reserve Board Chart by Institute on Race and Poverty, U of Minnesota Law School

12. Source of Graph: Jeff Crump, Subprime Lending and Foreclosure in Hennepin and Ramsey Counties: An Empirical Analysis www.cura.umn.edu/reporter/05-Spr/Crump.pdf www.cura.umn.edu/reporter/05-Spr/Crump.pdf

13. Source: Center for Responsible Lending

14. Data Source: Hennepin Cty Sheriff’s Office; Office of Fedl Housing Enterprise Oversight Chart by Institute on Race and Poverty, U of Minnesota Law School

15. Source: Center for Responsible Lending Housing Appreciation and Foreclosure Rate

16. Deceptive, Imprudent and Unfair Lending Above Market Costs –Yield Spread Premiums –High Fees By Originator –Rates in Excess of Risk Deceptive Monthly Payment Quotes –PI (apples) and PITI (oranges)– escrow issues –Dischargeable debt versus debt secured by home

17. Inflated Appraisals Stated Income (and Low- Document) Loans Adjustable Rate Products Predominate –2/28 Loans (often with prepay penalty) –Teaser Rates –Interest only and negative amortization Prepayment Penalties

18. Source: Center for Responsible Lending

19. Percent Increase in Foreclosure Risk with Certain Loan Features Source: Center for Responsible Lending

20. Source: Center for Responsible Lending

21. City of St. Paul Single Family Residential Homes in Foreclosure by Type of Possession For Period Jan 2005-September 2006 Data Source: Saint Paul Council Research Center

22. Source: Center for Responsible Lending

23. ‘Alternatives’ Go Mainstream Industry origination market share by product type *First quarter only. Source: Amer. Banker and Inside Mortgage Finance

24. Generic Option ARM Payment Shock Example Flat Interest Rate Environment, Originated on 1/1/05 38.64% payment shock after year 5 ($830 increase) 7.5% Assumptions: Constant use of minimum payment option, $500,000 loan, 1% start rate, fully indexed accrual rate with 3.00 % margin, no changes in interest rates (rate as of 1/1/05). Source: Conference of State Bank Supervisors 7.5%

26. Detour to Securitization Issues? The Soup of Seconds Res Mtg Backed Securities (RMBS) Special Purpose Vehicles (2 levels) Investment Bank Carves Into Tranches With Cascading Risk Collaterized Debt Obligations (CDOs) Role of MERS What it Means For FPC Where’s my Tranche? Who services the loan? What are the limits on loan servicing? Amer. Securitization Forum Problem of Assignee Liability.

27. 3. Consequences of Foreclosure A. Individuals/Families B. Communities 1.Geographic Concentration 2. Foreclosure and Vacancy C. Broader Market

28. Homes Currently in Foreclosure As Of December 2006 in North Minneapolis Source: Community Planning and Economic Development, City of Minneapolis

29. Source: Saint Paul Council Research Center

32. Source: Saint Paul Council Research Center: Citywide Outcomes, 1995-2006