Foreclosure facts

The Foreclosure Crisis

Today’s foreclosure problem is not limited to America’s coasts but extends deep into the heartland.  Foreclosures threaten individual homeowners, neighborhoods, the entire U.S economy and international capital markets.   Industry reports show that 2.5 million homeowners will see their mortgage payments increase – putting many at serious risk of losing their homes - their most valuable asset.  Foreclosure doesn’t just rob a family of an asset, it robs parents and children of their place to live, their chance of building wealth in the future, and may affect their ability to rent an apartment, buy insurance or get a job.   Neighboring homeowners face declining property values and may have trouble selling their homes in the future. Americans who are relying on the wealth stored in their homes and pension plans may see retirement resources diminished.  The rest of the economy is at risk as households spend less for other things to make up for rising mortgage payments.

The Numbers are Staggering

The number of Americans who may lose their home to foreclosure more than doubled in August from a year earlier as subprime borrowers with adjustable-rate mortgages saw their monthly payments rise.[1]  According to industry reports, the rate of American home loans that entered the foreclosure process in the third quarter of 2007 reached record numbers.[2]  Although the industry attempts to explain this increase as the consequence of a few troubled housing markets that saw a decline in property values (as seen in Nevada, Las Vegas, California and Florida) the fact is that communities across the country from Syracuse to Des Moines to Denver are experiencing an increase in foreclosures at staggering rates.  This is not a matter of a few housing markets with high foreclosure rates that are inflating the numbers.  The increase in foreclosures is real and it is being felt across the country. Reports estimate that 1 out of 5 (19%) subprime mortgages originated in the past two years (2005, 2006) nationally will end in foreclosure.[3]  For example, in the city of Cleveland, 5,116 foreclosures were filed between January 1, 2007 and September 14, 2007.[4] In another example, in Chicago, 55% of the newly filed foreclosures in 2006 were on loans less than 24 months old.[5]  Of these early defaults, 97% were identified as Adjustable Rate Mortgages.

How Did This Happen?

NTIC and community partners have been beating the subprime warning drum for nearly a decade.  The financial industry and the U.S. government have allowed the expansion of risky loan products in spite of these warnings.  Only when foreclosures began to impact Wall Street and middle- and upper-income neighborhoods did the media and policy-makers begin to take notice.  There is plenty of blame to go around from lenders, brokers, Wall Street investors, regulators and Members of Congress.  “Everyone’s fingerprints are on the gun.”[6] 

Each Foreclosure Represents Real People

The face of the subprime foreclosure crisis is represented in the Johnsons family of McKeesport, PA. The Johnsons were referred to NTIC through the Pittsburgh Community Reinvestment Group. Mr. Johnson works as a school bus driver and his wife works as well, and sells crafts on the side. They generate a modest income. After the Johnsons filled out a HOT SPOT Card^TM and NTIC brought their case to the attention of their servicer, it was discovered they had an Adjustable Rate Mortgage (ARM) that was set to skyrocket up to 13 percent. This increase came as a shock to the Johnsons and therefore, they were not prepared financially. Their home of 13 years was suddenly in severe jeopardy. Through NTIC’s partnership with Ocwen Financial, NTIC was able to have the house reappraised and modified at a fixed rate of 8 percent, making the loan affordable.  The Johnsons are very satisfied with the resolution and are now planning home improvements.

Common Sense Solutions to Protect America

“Save the American Dream” is calling for three critical solutions to end the foreclosure crisis.
 

1.         Keep Families in their Homes:  Right now we must keep families in their homes and prevent additional foreclosures.  Critical actions include: a two-year moratorium on ARM resets, a refinance loan product, a waiver of prepayment penalties so that borrowers can refinance into fixed rate loans, and $20 million for performance-based foreclosure prevention efforts.  Countrywide Mortgage and Wells Fargo, the two largest mortgage lenders and servicers in the country, must lead the way by implementing a two-year moratorium on ARM resets immediately to buy time to keep families in their homes.
 

2.         Stop Abusive Lending:  We must end predatory lending now. We must enact national regulations and clear criminal penalties on individual brokers and originators that knowingly engage in abusive lending practices.  Such practices include equity stripping, bait and switch tactics, steering and fraudulent appraisals.

3.         Build Homeownership on a Solid Foundation:  Homeownership benefits families only if they have a chance of succeeding.  Expanding homeownership with risky loan products and deceptive practices hurts families’ prospects of building wealth in the long run.  Currently there is very limited regulation of the mortgage industry.   We regulate milk quality and bank savings accounts, but don’t regulate lending that sets people up for failure.  Why not?  All mortgage companies and loan originators need the same regulation as banks by making sure they are covered by the Community Reinvestment Act. We need good loans for families, not just more loans.

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[1] Realty Trac, September 2007 [2] MBAA, 2007[3] Center for Responsible Lending, “Losing Ground”, December 2006 [4] Center on Urban Poverty and Community Development at the Mandel School of Applied Social Sciences[5] National Training and Information Center, Chicago Foreclosure Update 2007[6] Victoria Reider, Pennsylvania Department of Banking, Acting Secretary 

NTIC’s Chicago Foreclosure Report 

NTIC’s 2006 foreclosure report showed a 36% increase in Chicago foreclosures, the largest single year foreclosure increase in 15 years. Read the full report here:

NTIC 2006 Foreclosure Report