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Subprime Lending and Foreclosure Crisis Facts
 Center for Responsible Lending Overview
General Facts
U.S. Conference of Mayors Report
Top 10 Cities With Highest Foreclosure Rates
Center for Responsible Lending Overview
How did the crisis happen?
Reverse redlining and abusive subprime lending led to the current foreclosure crisis. In recent years, subprime lenders and brokers flooded the growing subprime market with dangerous mortgages, such as exploding adjustable interest rates, and now we are facing a massive foreclosure epidemic — it is estimated that 2.2 million will lose their homes to foreclosures with a total equity lost of 164 billion.
Current Subprime Stats
 7.5 million borrowers; $1.4 trillion loans outstanding
3 million subprime loans each year in 2005 and 2006
a. In 2005 and 2006, over 50% of all loans made to African-Americans and over 40% to Latinos were subprime compared to only 19% of white borrowers.
b. Steering: Wall Street Journal analysis says that 55% subprime loans went to borrowers with good credit, and data from a study by First American Loan Performance, a San Francisco research firm, says the proportion rose even higher by the end of 2006, to 61%.
1 in 5 subprime loans from 2005 and 2006 will end in a lost home.
57% of 2005 subprime loans are not bank-affiliated
72% of subprime are exploding ARMs (Lehman,2004)
Rates jump from 8% to 12%
Monthly payments up 30% or more in 3rd year
$600 billion rate reset in next two years
70% lack escrows, which leads to “flipping”
70% of subprime have prepay penalties; only 2% in prime
50% utilize stated income for “ability to repay”
50% of 2006 subprime were “80/20” LTV with piggyback 2nd liens
10% of Loans made in 2006 to first time home borrowers
Subprime Spillover Effect
American families not facing foreclosure will see the value of their homes decline by an estimated $265 billion.
A city can lose up to nearly $20,000 a year in lost property taxes and other costs for every property abandoned by foreclosure.
Solution to the Subprime Foreclosure Crisis
Modify the Bankruptcy Code
(This small change provides a consumer solution. Other industry based solutions don’t do enough.)
Need federal bankruptcy amendment to allow judicial modification of home loans, as it does for all other personal assets, including 2nd homes, farms, land, commercial real estate, boats, and furniture.
No cost to the US Treasury.
Narrowly targets families who would otherwise lose their homes.
Saves American families not facing foreclosure — $72.5 billion in wealth — by avoiding 600,000 foreclosures by their neighbors!
General Facts
2.2 million subprime home loans made in recent years have already failed or will end
in foreclosure.
These foreclosures will cost homeowners as much as $164 billion.
One out of five subprime mortgages originated during the past two years will end
in foreclosure.
African Americans are particularly harmed by unfair and deceptive practices in the mortgage market; the homeownership rate for African Americans has dropped a full 3.4 percentage points over the past three years
NCRC finds that the ten worst metropolitan statistical areas for racial
lending disparities are (in descending order) Charleston, SC; Bridgeport, CT; Omaha, NE; Milwaukee, WI; Springfield, MA; Minneapolis-St. Paul, MN; Philadelphia, PA; Trenton, NJ; Birmingham, AL; and Greenville, SC.
U.S. Conference of Mayors Report
“The Mortgage Crisis: Economic and Fiscal Implications for Metro Areas”
The foreclosure crisis alone will reduce home values by an additional $519 billion in 2008, bringing the total forecast of lost equity for the nation's homeowners to_$1.2 trillion.
Foreclosures will increase by at least 1.4 million in 2008; these homes represent a market value of $316 billion.
In 10 states, representing a cross section of the United States, the aggregate loss in tax revenue will equal $6.6 billion.
Home price declines across the United States will average 7% in 2008, ranging as high as 16% in California.
Housing starts will continue to decline until the second quarter of 2008, when the annual rate of housing starts will be less than 1 million.
Sales of existing homes also will continue to fall, by another 10% in 2008.
The foreclosure crisis will result in 524,000 fewer jobs being created in the next year and a potential loss of $6.6 billion in tax revenues alone in ten states.
The largest metropolitan area, New York, will lose over $10 billion in economic output because of the mortgage situation followed by Los Angeles ($8.3 billion), Washington, ($4.0 billion), and Chicago (3.9 billion.)
Top 10 Cities With Highest Foreclosure Rates
in 3rd Quarter, 2007 According to RealtyTrac
STOCKTON, CA 7,116 (1 in every 31 homes)
DETROIT/LIVONIA/DEARBORN, MI 25,708 (1 in every 33 homes)
RIVERSIDE/SAN BERNARDINO, CA 31,661 (1 in every 43 homes)
FORT LAUDERDALE, FL 16,595 (1 in every 48 homes)
LAS VEGAS/PARADISE, NV 14,948 (1 in every 48 homes)
SACRAMENTO, CA 15,479 (1 in every 48 homes)
CLEVELAND/LORAIN/ELYRIA /MENTOR, OH 16,332 (1 in every 57 homes)
MIAMI, FL 15,484 (1 in every 60 homes)
BAKERSFIELD, CA 3,947 (1 in every 64 homes)
OAKLAND, CA 13,245 (1 in every 71 homes)
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