New CFPB Mortgage Rules: Why do we need them? Part 1

On Friday, January 10, 2014, new mortgage rules from the Consumer Financial Protection Bureau go into effect.  The rules address the affordability of a mortgage and also include common-sense rules that banks and loan servicing companies will have to follow.

The California Reinvestment Coalition has advocated on behalf of low-income communities and communities of color, including mortgage products.

Since 2001, CRC has been alerting elected officials and federal regulators to the problem of predatory lending through a series of reports, included below:

1. Stolen Wealth: Inequities in California’s Subprime Mortgage Market  (December 2001)

Ms. Bethany Gage is a 60-year-old white woman from San Diego. She wanted to refinance her home mortgage loan in order to reduce her interest rate and improve her cash flow. Despite reporting good credit after having seen her credit report, Ms. Gage’s credit application was denied by a bank. The bank referred her to a broker who did arrange a loan for her. She reported that her closing took place at a gas station and lasted a total of fifteen minutes. She was not able to read the documents, but instead skimmed them because she felt pressure and urgency from both the broker and the notary. She felt her loan had excessive points and fees at over $6,000. Ms. Gage’s $76,625.32 loan included a balloon payment of $66,000 after 15 years. Her loan had an interest rate of 9.125% as well as a prepayment penalty provision of 3 years, which she discovered at closing. Ms. Gage had to wait three years to refinance out of the loan that was made using what she described as “a classic bait and switch.”

2. Who Really Gets Higher-Cost Home Loans 2002  (November 2003)
CRC’s 10th Annual HMDA report; an analysis of mortgage lending to African-American and Latino borrowers in five California communities in 2003

CRC examined the lending records of 6 large financial corporations that own BOTH a low cost prime lender AND a high cost subprime lender: Citibank, Countrywide, H&R  Block, HSBC, National City, and Washington Mutual. In analyzing the lending patterns of these companies, CRC found a two-tier system of credit exists within large financial services corporations, with subprime mortgage  companies focusing more on African Americans and Latinos than their bank affiliates.

3. Who Really Gets Higher-Cost Home Loans 2003  (March 2005)
CRC’s 11th Annual HMDA report; an analysis of mortgage lending to African-American and Latino borrowers in five California communities in 2003

People of Color Pay More. In all five cities, higher cost subprime lenders were
twice as likely to lend to African American and Latino loan seekers as they were
to lend to white borrowers. Not surprisingly, African Americans and Latinos were
three times as likely get loans from the higher cost subprime lenders than from
their lower cost prime lending or bank affiliates. Yet up to half of all of these
borrowers with higher cost subprime loans could actually qualify for lower cost
loans that are offered within the same corporation.

4. Who Really Gets Higher-Cost Home Loans 2005  (December 2005)
CRC’s 12th Annual HMDA Report (50 pg. pdf)

Cities that can be characterized as “rural” had the highest rates of higher-cost
lending, with Delano, El Centro, Fresno, Modesto, and Yuba City having 25%
to 15% of all home loans coming at higher-cost.

5. Who Really Gets Higher-Cost Home Loans 2006  (December 2006)
CRC’s 13th Annual HMDA Report (57 pg. pdf)

Conservatively, people of color in California are paying more than $109 million
more per month – or more than $1.3 billion more per year – than they would if they
received higher-cost loans at the same rate as white borrowers.

6. Paying More for the American Dream I  (March 2007)
A Multi-State Analysis of Higher Cost Home Purchase Lending (21 pg. pdf)

Long Beach Mortgage accounted for 75.9 percent of all WaMu home purchase loans to African-Americans, and 64.7 percent of all WaMu home purchase loans to Latinos. In contrast, WaMu’s lower-cost prime lender, Washington Mutual Bank, accounted for more than 80 percent of all WaMu home purchase loans to whites.

7. Foreclosed: The Burden of Homeownership Loss on City of Oakland and Alameda County Residents  (December 2007)
A report by Housing and Economic Rights Advocates and CRC

There are five zip codes in Oakland that we refer to as “hotspots” because of significant homeownership rates combined with a significant presence of people of color as residents.

8. Paying More for the American Dream: Part II  (March 2008)
The Subprime Shakeout and Its Impact on Lower-Income and Minority Communities

All told, approximately $71 billion in housing wealth may be lost directly from foreclosures, $32 billion in wealth lost indirectly through resulting lower property values, and $917 million in property tax revenue lost to state and local governments that rely on such funds to provide basic services to residents.

9. Paying More for the American Dream III  (April 2009)
Promoting Responsible Lending to Lower-Income Communities and Communities of Color

Currently, banks have the option of including or excluding the lending activities of various affiliates in their CRA performance evaluations. This option has allowed banks to exclude from consideration lending affiliates that make higher risk, subprime mortgages. At the peak of the subprime lending era, many large bank holding companies had both national banks specializing in prime lending and affiliates specializing in higher-cost, risky subprime lending. As this report illustrates, CRA coverage affects lender behavior and indicates that it leads to fewer higher-cost loans. Extending CRA coverage to all holding company affiliates will lead to an improvement in the quality of loans originated by all entities within a bank holding company.

10. From Foreclosure to Re-Redlining: How America’s Largest Financial Institutions Devastated California Communities  (February 2010)

CRC’s original research, using lending and loan modification data, to see how banks acted in five California communities from 2007-2010.

We are witnessing one of the biggest losses in personal and community wealth in the U.S. today as a result of the crisis in our banking and housing finance system. Foreclosures have continued to rise since the mortgage crisis took off in 2007, with 2009 recording the highest numbers yet. About 2.8 million U.S. properties received foreclosure notices that year, up 21 percent from 2008 and up 120
percent from 2007.  Of the millions more households at risk of default on their mortgages and foreclosure, very few are getting successful loan modifications from financial institutions under the government’s current program for addressing this crisis.

11. Paying More for the American Dream IV: The Decline of Prime Mortgage Lending in Communities of Color (May 2010)
Examining the dramatic changes in prime mortgage lending in communities of color in the wake of the foreclosure crisis.

The report finds that, between 2006 and 2008, access to prime mortgage credit for both home purchase and refinance lending declined substantially in communities of color – more than twice as much as it did in predominantly white communities. Prime refinance lending dropped even more dramatically in communities of color – almost five times more than in predominantly white neighborhoods. The four largest bank holding companies also significantly reduced their prime refinance lending in communities of color, even though they increased their prime refinance lending in predominantly white communities, and notwithstanding their receipt of TARP funds.

12. Home Wreckers: How Wall Street Foreclosures Are Devastating Communities  (March 2011)
A publication of the RE-Fund California Campaign, a collaborative partnership between the Home Defenders League (a project of the Alliance of Californians for Community Empowerment), PICO CA (People Improving Communities Through Organizing), CRC, and SEIU Locals 100, 521, 721, and 1021. The report reveals the hidden costs of foreclosures to homeowners, neighborhoods, local governments, and the state.

13. The Wall Street Wrecking Ball: What Foreclosures are Costing Neighborhoods (September 15, 2011)
CRC joined with the Alliance of Californians for Community Empowerment (ACCE) to analyze the full impact of foreclosures on a local level in five cities– Los Angeles, Oakland, San Francisco, Sacramento, and San Jose. Foreclosures lead to decreased home values in neighborhoods, lost property tax revenues, and increased costs to local government. The reports include policy recommendations that would stop the wave of foreclosures and stabilize communities.
For a link to the Oakland report, click here.
For a link to the Los Angeles report, click here.
For a link to the San Francisco report, click here.
For a link to the Sacramento report, click here.
For a link to the San Jose report, click here.

14. Paying More for the American Dream VI: Racial Disparities in FHA/VA Lending  (July 19, 2012)
This is the 6th edition of the “Paying More for the American Dream” series, examining home purchase and refinance lending in communities of color in seven major metropolitan areas: Los Angeles, Boston, Charlotte, Chicago, Cleveland, New York City, and Rochester. The report finds that government-backed loans made up almost 67% of the home purchase loans and 27% of refinance loans made in communities of color. The lack of access to prime conventional loans raises fair housing concerns, and suggests redlining and steering of borrowers of color to FHA loans.

One thought on “New CFPB Mortgage Rules: Why do we need them? Part 1

  1. Pingback: ThrowBack Thursday: The Roots of the Mortgage Crisis | California Reinvestment Coalition

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