The document summarizes the state of lending in America and its impact on U.S. households. It discusses how the mortgage market evolved in the 2000s, with the rise of subprime and Alt-A loans, private label mortgage backed securities, and weak regulation of abusive lending practices. This led to a foreclosure crisis in the late 2000s that disproportionately impacted minority homeowners. The challenges going forward include protecting financial reforms, preventing unnecessary foreclosures, and preserving affordable homeownership opportunities.
4. Evolution of the Mortgage Market
Loans from Third Parties
In 2005—the
height of the
housing boom—
half of all
mortgages
and 71% of
subprime
loans
came through
brokers.
5. Evolution of the Mortgage Market
Private-Label Mortgage-Backed Securities
6. Evolution of the Mortgage Market
Fannie-Freddie Market Share Declines
Mortgage-Backed Securities Issued by Wall Street vs. GSEs
(“GSEs” = Fannie Mae and Freddie Mac, the government-sponsored enterprises)
(“Non-agency MBS” = private label mortgage-backed securities)
$2,500.00
$2,000.00
$1,500.00
Non-agency MBS
$1,000.00 GSEs MBS
$500.00
$0.00
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: FDIC
7. Factors that Led to the Crisis
Abusive Products
• “Exploding” adjustable rates
• Abusive prepayment penalties
• No income verification
• False promises - e.g.,
“you can always refinance”
8. Evolution of the Mortgage Market
Total Mortgage Market Volume and Market Share of Subprime and Alt-A Loans
2001-2006
$4,000 45.0%
$3,500 40.0%
$3,000 35.0%
30.0%
$2,500
25.0%
$2,000
20.0%
$1,500
15.0%
$1,000 10.0%
$500 5.0%
$0 0.0%
2001 2002 2003 2004 2005 2006
Subprime Market Share Alt-A Market Share Total Market Volume (in $billions)
Source: Inside Mortgage Finance
9. Factors that Led to the Crisis
Weak Regulation
Borrowers, state regulators
and consumer advocates
repeatedly raised concerns
about abuses in the subprime
market –but , for years,
nothing was done.
10. Factors that Led to the Crisis
Poor Loan Servicing
Servicers lacked the proper
technology, staff and systems
to handle the flood of
foreclosures produced by
massive loan failures.
12. Disparate Impact of the
Foreclosure Epidemic
Rates of Completed Foreclosures and Serious Delinquencies
by Race/Ethnicity
(2004 – 2008 Originations)
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Asian African-American Latino NH White Others
Completed Forclosures Seriously Delinquent
13. “Spillover” Costs of Foreclosure
CRL’s estimate of the spillover costs: nearly $2 trillion.
14. A Key Issue:
Fair, Affordable Access to Home Loans
Decline in Private Lender Mortgage Originations by Race/Ethnicity
Share of Government-Backed Originations, 2000-2010 (purchase loans, not refinances)
15. Challenges
1. Protect new financial reforms
2. Prevent unnecessary foreclosures
3. Preserve homeownership
opportunities for working families
16. For More Information
See all CRL research on Mortgage:
http://rspnsb.li/QMGYMa
Contact us:
Kathleen Day (DC): 202-349-1871
Graciela Aponte (CA): 510-379-5518
Ginna Green (SC): 510-866-5989
Hinweis der Redaktion
In spite of the housing crisis, homeownership is still central to the hopes and aspirations of many Americans. A home isn’t only shelter: it’sa key source of economic mobility and financial security.
Not all of the benefits of homeownership can be measured in dollars. Research suggests that children in home–owning households do better academicallyand are less likely to become teen parents. Homeownership benefits neighborhoods, too, since areas with high ownership tend to have higher property values and tax revenues,which can be used to support community assets like schools and parks.
In recent years, the mortgage market changed drastically. Two major developments stand out:First, lenders began to rely on mortgage brokers to originate loans. Lenders paid brokers based on the number of loans they sold and on how much they charged borrowers, not based on whether they were affordable.
Second, Wall Street financial companies began issuing their own mortgage–backed securities and selling them to investors. The mortgages purchased by private companies did not have to conform to the same standards as the loans purchased by Fannie Mae and Freddie Mac.
Thevolume of mortgage-backed securities issued by Fannie and Freddie (the government-sponsored enterprises, GSEs) went down in the early 2000s, while those by private Wall Street banks went up.
These mortgage developments meant that brokers, lenders and mortgage securitizers were often more interested in the volume of their mortgage business, not the performance of the loans. Many lenders and brokers aggressively marketed and originated mortgages without evaluating whether borrowers could pay them back. The market became inundated with dangerous mortgages.
As a result, the composition of the mortgage market changed dramatically. Between 2001 and 2006, the share of the overall mortgage market made up of subprime and other types of risky loans went from 10% to 39%.
No one stopped the proliferation of reckless lending. Many market participants, such a brokers and servicers, were virtually unregulated at the federal level. Where consumer protections did exist, the authority was fractured among several agencies. In some cases federal regulators actually hindered consumer protections that had been passed at the state level.
Once the foreclosure crisis began, the sheer volume of work completely overwhelmed the capacity of servicers, who were not equipped to handle large volumes of distressed loans.
Combined, all these factors produced the worst foreclosure epidemic in U.S. history. Since 2007, millions of homes have gone into foreclosure, and millions more remain in distress. The crisis has devastated families and communities across the country and continues to impair economic growth for our nation as a whole.
Foreclosures have affectedborrowers of all races and incomes, but the crisis has disproportionately affected borrowers of color. 11% of African–American borrowers and 14% of Latino borrowers have already lost their home to foreclosure – that’s compared to 8% of Asian borrowers and 6% of non–Hispanic whites. This disparity reflects that African–American and Latino borrowers were targeted by subprime lenders and were more likely to receive riskierloan products than white borrowers.
Unfortunately, foreclosure costs extend beyond the individual families losing their homes. Foreclosures decrease the values of surrounding properties, causing losses of wealth for neighboring families. We estimate that $1.95 trillion in home equity has been lost to property owners who happen to live near foreclosed homes. Our full report also includes state-by-state “spillover” costs.
The housing crisis has made mortgage loans harder to get, even for qualified families. As shown in this chart, the credit crunch would be even worse if the Federal Housing Administration had not stepped up its lending support.
The housing market is slowly recovering today, but we’re left with new challenges:One - the Dodd-Frank Financial Reform Act of 2010 will go a long way toward preventing the types of lending abuses that caused this crisis but there are ongoing efforts to weaken or repeal the law. Financial reforms must be protected. Two – we must stop preventable foreclosures. Every successful intervention helps the homeowner, their community, and our economy as a whole.Finally, policymakers must avoid creating a permanent “dual” mortgage market, where only the highest–wealth borrowers with near–perfect credit can gain access to mainstream mortgages.