Mortgage Market Transformations and
Foreclosure
A Report to the New Jersey Institute for Social JusticeRutgers University Community Development Studio
May 2006
Tuesday, January 10, 2012
Overview
• The Problem• Client• Research Methods• Findings• Recommendations
Tuesday, January 10, 2012
Key Questions
• Foreclosures: How substantial a problem and for whom?• What are the benefits and risks of recent mortgage market
transformations?• Is there a relationship between subprime lending and
foreclosure?• What are the roles and risks of NTMs?• What can be done to reduce the risks?• What are the unintended consequences of
homeownership policy?
Tuesday, January 10, 2012
Research Methods
• Quantitative Data Analysis – HMDA– Sheriff Sales– Mortgage Foreclosure Filings– U.S. Census
• Qualitative Data Analysis– Interviews– Literature Review
• GIS
Tuesday, January 10, 2012
Mortgage Market Transformations
• Policy– Advocates– GSE lending goals
• Markets– Securitization and secondary markets– Technology – Broker-originated loans– Subprime market – Nontraditional mortgages (NTMs)
Tuesday, January 10, 2012
Subprime Market
• Increased risk, increased rates, fees and points
• Racial Disparities– 50% of all loans in African American neighborhoods– 9% of all loans in white neighborhoods
Tuesday, January 10, 2012
Subprime Market
• Predatory Loans– Abusive features– Not beneficial to borrower– Equity stripping
• Subprime Lending and Foreclosure– Increased delinquency rates– High foreclosure rates
Tuesday, January 10, 2012
Subprime Market Share 1993-2004
Source: HMDA 1993-2004
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Loan Origination Year
Sub
prim
e Lo
ans
as a
Per
cent
age
of T
otal
Origi
nation
s
Essex
Newark
Irvington
East Orange
Tuesday, January 10, 2012
Nontraditional Mortgages
• Rise of NTMs– Historically low interest rates– Decline of “The Gold Standard” (30-year fixed-rate
mortgage)
• Types of NTMs– Adjustable rate mortgages—option ARMs– Interest-only mortgages– Others
Tuesday, January 10, 2012
Foreclosures
• What are Foreclosures?
• Measuring Foreclosures– Sheriff Sales
1991 - 2002– Mortgage Foreclosure Filings
January & February 2004
Tuesday, January 10, 2012
Sheriff Sales 1991-2002
Source: Sheriff Sales 1991-2002, TRF 2006
0
200
400
600
800
1000
1200
1400
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Sheriff Sale Year
Num
ber
of S
heriff S
ales
EssexNewarkIrvingtonEast Orange
Tuesday, January 10, 2012
Sheriff Sale Concentration 1991-2002
Tuesday, January 10, 2012
Subprime Originations 1993-2004
Tuesday, January 10, 2012
Census Tract CharacteristicsRace and Ethnicity
Tuesday, January 10, 2012
Census Tract CharacteristicsAge of Housing Stock
Tuesday, January 10, 2012
Homeownership and Income
Tuesday, January 10, 2012
Number of FHA Properties Sold at Sheriff Sale 1991-2002
Source: Sheriff Sales 1991-2002, TRF 2006
0
50
100
150
200
250
300
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Sheriff Sale Year
Num
ber
of F
HA L
oans
EssexNewarkIrvingtonEast Orange
Tuesday, January 10, 2012
FHA Loans as a Percent of Total Sheriff Sales 1991-2002
Source: Sheriff Sales 1991-2002, TRF 2006
0%
5%
10%
15%
20%
25%
30%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Year
FHA L
oans
as
Perc
ent
of T
otal
She
riff S
ales
EssexNewarkIrvingtonEast Orange
Tuesday, January 10, 2012
Mortgage Foreclosure Filings
• Mortgage Foreclosure Filings (MFF)– January & February of 2004– One-fifth of all 2004 filings– Provide additional details about the loan
Tuesday, January 10, 2012
Foreclosures
Source: Sheriff Sales data & State mortgage foreclosure filings
Tuesday, January 10, 2012
MFF Foreclosure Rate by Municipality
Source: Administrative Office of the Courts, New Jersey 2006
0%
1%
2%
3%
4%
5%
6%
7%
Newark
Irving
ton
East O
range
Orange
Wes
t Oran
ge
Bloomfie
ld
Bellev
ille
Montcl
air
Maplew
ood
South
Orange
Living
ston
Millburn
Caldwell
Verona
Nutley
Fairfie
ld
Rosela
nd
North C
aldwell
Glen R
idge
Municipalities
Fore
clos
ure
Rat
e
Tuesday, January 10, 2012
MFF: Short Time Between Origination and Foreclosure
Source: Mortgage Foreclosure Filings, Administrative Office of the Courts, New Jersey 2006
0
10
20
30
40
50
60
70
80
90
Pre-1990
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Mortgage Origination Year
Num
ber o
f Mor
tgag
e Fo
recl
osur
e Fi
lings
Tuesday, January 10, 2012
Increase in Subprime Loan Originations 1993-2004
Source: HMDA 1993-2004
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,0005,500
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004year
Num
ber
Tuesday, January 10, 2012
Percentage by Year of Loans in Foreclosure in January and February 2004
Source: Mortgage Foreclosure Filings, Administrative Office of the Courts, New Jersey 2006 and HMDA 1993-2004.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Fore
clos
ure
Rat
e
NewarkIrvingtonEast orangeEssex County
Tuesday, January 10, 2012
Essex County MFFs had Higher Interest Rates than National Average
Source:Freddie Mac; Administrative Office of the Courts, New Jersey 2006
0.00
2.00
4.00
6.00
8.00
10.00
12.00
1996 1997 1998 1999 2000 2001 2002 2003Year
Inte
rest
rate
NationalEssex Co.
Tuesday, January 10, 2012
Percentage of MFF Originations that are Subprime
Source: HUD and The Reinvestment Fund, 2006
Prime7%
Subprime47%
Both5%
Unknown41% Prime
SubprimeBothUnknown
Tuesday, January 10, 2012
MFF and Nontraditional Mortgages
• Few NTMs listed
• Why?•Too early•Reporting problems
Tuesday, January 10, 2012
Vailsburg
• Why is Vailsburg a target?– Neighborhood characteristics
• Why are foreclosures a problem?– Counteracts community development policy
• Description of foreclosure in Vailsburg– Volume, FHA, Subprime
Tuesday, January 10, 2012
Vailsburg: Demographic and Housing Characteristics
Source: Census 2000, Sheriff Sales 1991-2002, HMDA
Tuesday, January 10, 2012
Neighborhood Impacts
• Impacts of Concentrated Foreclosure– Neighborhood – Individual
Tuesday, January 10, 2012
Reasons For Foreclosures
• Life Events• Credit Industry Shifts• Mortgage Market Transformations• Financial Literacy• Aggressive Marketing• Abusive Loans
Tuesday, January 10, 2012
NTMs: Roles, Benefits and Risks
• Role – Increases Access to Home Ownership – Buys More House– Investment Tool
• Benefits – Short-term– Liquidity
• Risks– Negative Amortization– Payment Shock– Unclear Loan Terms
Tuesday, January 10, 2012
Payment Shock for a $200,000 Loan with an Adjustable Rate Mortgage
Tuesday, January 10, 2012
Recommendations
• Data• Loan Counseling• Consumer Education• Regulation
Tuesday, January 10, 2012
Conclusion
• Mortgage market transformations• Subprime lending and foreclosures• Sheriff sales and MFFs
– Increasing foreclosures– Neighborhood concentrations– Impacts - Vailsburg
• Future link between NTMs and foreclosure
Tuesday, January 10, 2012
Thanks
• Ken Zimmerman and Yahonnes Cleary, NJISJ• Brian Reagan• Class Speakers• Field interviewees
Tuesday, January 10, 2012
Authors
Erica Blake, Chivas Covert, Jeffrey Crum,
John Giancaspro, Shawn Kendrick, Gretchen
Minneman, Sarina Mohan, Elizabeth Nash,
Joseph Palazzolo, Juan Pino, Melissa Quaal,
Lena Ranieri, Naemah Sarmad
Tuesday, January 10, 2012
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