dyllaAugSymp2004

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Neighborhood Reinvestment Corporation By Doug Dylla – August 11, 2004

Acknowledgements: 

Acknowledgements Many thanks to the following people for their help with this presentation: Mark Duda, research Allegra Calder, research Nancy McArdle, research Michael Collins, editing Jim Houghton, graphics

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Neighborhood Reinvestment Corporation Key Topics Review brief history of industry Discuss key trends in homeownership, lending and counseling Reflect on implications of these trends on our work

Brief History of Housing Counseling: 

Brief History of Housing Counseling 1968 - HUD establishes housing counseling program 1972 – HUD certifies housing counseling agencies 1977 – HUD funds housing counseling programs CRA and HMDA laws are passed 1989 - CRA and HMDA are amended 1992 - Affordable housing goals set for GSEs 1990s -Dramatic growth of partnerships with lenders 2001 – With recession, delinquencies rise 2002 - White House sets minority ownership goals

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2200 BC Egypt Indications that housing counseling occurred much earlier than previously thought

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1455 AD Mainz, Germany Johannes Gutenberg prints a second document after the Bible.

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1993 New research reveals the typical brain of the first-time homebuyer Feng Shui

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2001 The first empirical study demonstrating the impact of homeownership counseling by Abdighani Hirad and Peter Zorn of Freddie Mac on reducing loan delinquencies.

What We Know About Homeownership: 

What We Know About Homeownership Solid gains in homeownership – highest overall homeownership rates in U.S. history (69%) but still persistent racial gaps Historically-low interest rates Homeownership has been the key to asset-building for working families Minorities contribute heavily to household growth

HO Rate Slide: 

HO Rate Slide

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Homeownership Rates Across the World Note: China rate refers to urban areas only. Source: National Association of Realtors, U.S. Census Bureau, and Y.P Wang, Progress and Problems in Urban Housing Reform. Percent

Minority Ownership Rates Have RisenBut Still Greatly Lag White Rates : 

Minority Ownership Rates Have Risen But Still Greatly Lag White Rates Source: Joint Center for Housing Studies. Percent

Historically Low Mortgage Rates: 

Percent Source: NAR and Freddie Mac Historically Low Mortgage Rates

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Minority Renters Have Very Low Levels Of Net Wealth (Median Net Wealth: 2001) Source: Joint Center for Housing Studies tabulations of the 2001 Survey of Consumer Finance.

Minorities Contributed Heavily to Recent Growth in Owners: 

Minorities Contributed Heavily to Recent Growth in Owners Share of Net Increase in Owners 1994-1999 Total Net Growth = 6.9 Million Owners Source: Joint Center tabulations of the March Current Population Surveys.

Minority and Low-Income Ownership Growth Strong: 

Minority and Low-Income Ownership Growth Strong Notes: Blacks and Asians/others are non-Hispanic. Hispanics can be of any race. Low-income is defined as bottom quintile. Source: Joint Center tabulations of Current Population Survey, March Supplement 1994, 2001. Millions of home owners

Minorities Will Make Up A Substantially Larger Share of First-Time Buyers This Decade(Estimated Growth in First-Time Buyers): 

Minorities Will Make Up A Substantially Larger Share of First-Time Buyers This Decade (Estimated Growth in First-Time Buyers) Note: Assumes minority share of first-time buyers will increase at same rate in the 2000s as it did from 1991 to 2001. Source: Estimates based on analysis of the American Housing Surveys: 1993-2001, HUD’s US Housing Market Conditions, Fall 2001, “First-Time Homebuyers: Trends from the American Housing Survey,” and Homeownership Alliance’s “America’s Home Forecast.” Millions

Surging U.S. Immigration : 

Surging U.S. Immigration Source: INS

Homeownership Rate by Citizenship Status: 

Homeownership Rate by Citizenship Status Source: Harvard Joint Center Higher Rate for New Citizens

What We Know About Lending: 

What We Know About Lending Huge consolidation in the lending industry Technology advances Boom in low-income and minority lending Expansion of risk-based pricing and fringe financial services Growing personal debt loads in U.S. Weak economy straining many families as delinquencies and defaults rise

Technology Advances in Lending Industry: 

Technology Advances in Lending Industry Credit Scoring Automated Underwriting Move towards Electronic Mortgage Expedited Home Appraisal Explosion of Aggressive Mortgage Products Huge Growth of Mortgage Securitization

Lower-Income Lending Outpaces Others : 

Lower-Income Lending Outpaces Others Growth in lending (index 1993=100) Source: Joint Center report, “The 25th Anniversary of the Community Reinvestment Act: Access To Capital In An Evolving Financial Services System”, Released March 20, 2002. Note: Lower (higher) income borrowers have income of less than (at least) 80 percent of area median in that year. Represents loans for home purchase only.

Subprime Lending Growth, 1993-2001: 

Subprime Lending Growth, 1993-2001 percentage change Source: Harvard Joint Center, State of the Nation's Housing 2004.

The Dual Mortgage Market: 

The Dual Mortgage Market Share of Growth in Home Purchase Lending, 1993-2000 37% 26% 25% 12% Lower-Income Borrowers In Lower-Income Neighborhoods Prime Loans Subprime Subprime Govt. Loans Manufactured Homes

America’s Debt Challenge: 

America’s Debt Challenge Source: Federal Reserve

Subprime Lending Adds Costs and Reduces Wealth Building: 

Subprime Lending Adds Costs and Reduces Wealth Building Based on a loan amount of $80,000

What We Know About Counseling: 

What We Know About Counseling Fragmented, labor-intensive, decentralized industry - estimates of 2,000+ agencies across nation Highly dedicated counselors and trainers that have helped fuel the “homeownership boom” of the last decade Lack of standards has hurt industry – “counseling” can mean anything from a phone call to 40+ hours of one-on-one work Funding for work is piecemeal

The Benefits of Counseling: 

The Benefits of Counseling Reaching underserved markets Providing a “trusted advisor” to potential buyers in an increasingly complex process Helping families gain access to special mortgage financing and homes they can afford Informing potential buyers about the responsibilities of homeownership Helping consumers build better money management skills Reducing loan delinquencies and defaults

Classroom and Individual Pre-PurchaseCounseling Reduce Delinquency (Percentage by Which Counseling Lessens Likelihoodof Becoming 60 days Delinquent vs. No Counseling): 

Source: Hirad and Zorn, A Little Knowledge is a Good Thing: Empirical Evidence of Effectiveness of Pre-Purchase Homeownership Counseling, 2001. Classroom and Individual Pre-Purchase Counseling Reduce Delinquency (Percentage by Which Counseling Lessens Likelihood of Becoming 60 days Delinquent vs. No Counseling) Percent No Statistically Significant Effect

What’s Ahead?: 

What’s Ahead? Significant growth expected from 2005-2025 Households First-time homebuyers Minority and immigrant homebuyers Without more counseling capacity, a significant “counseling gap” will grown over next 20 years

Homeownership Continues to Grow Over the Next Two Decades: 

Homeownership Continues to Grow Over the Next Two Decades Estimated owner and renter households, 2000-2025 (millions) Note: Assumes constant homeownership rate of 69 percent over the entire period. Source: Estimated from household projections in Masnick and Di (2004).

First-Time Homeowners: 2004-2013NAR Estimates 16 million: 

Source: NAR Estimates Million Minority Total = 8.4 million First-Time Homeowners: 2004-2013 NAR Estimates 16 million

Projected First Time Buyer Levels Average Nearly 1.5 Million Annually: 

Projected First Time Buyer Levels Average Nearly 1.5 Million Annually Estimated net new owners and first time buyers, 2000-2025 (millions) Note: Assumes constant homeownership rate of 69 percent and ratio of 1.645 first time buyers for each net new owner over the entire period. Source: Estimated from household projections in Masnick and Di (2004) and first time buyers figures in Drew (2002).

Counseling Gap for First Time Buyers Exceeds One Million Annually: 

Counseling Gap for First Time Buyers Exceeds One Million Annually Estimated counseled and un-counseled borrowers, 2000-2025 (millions) Note: Assumes constant homeownership rate of 69 percent, ratio of 1.645 first time buyers for each net new owner over the entire period, and 15 percent share of new owners counseled over the entire period. Source: Estimated from household projections in Masnick and Di (2004) and first time buyers in Drew 2002.

Counseling Gap Concentrates among Minorities as White Share of 1st Time Buyers Declines: 

Counseling Gap Concentrates among Minorities as White Share of 1st Time Buyers Declines Estimated un-counseled borrowers, 2000-2025 (millions) Note: Assumes constant homeownership rate of NH White homeownership rate starts at 75 percent and increases 0.5 percentage points until 2020, assumes minority homeownership rate starts at 48 percent and increases 1.0 percentage points until 2025, assumes ratio of 1.645 first time buyers for each net new owner over the entire period, and 15 percent share of new owners counseled over the entire period. Source: Estimated from household projections in Masnick and Di (2004), first time buyers in Drew 2002.

Challenges to the Counseling Industry: 

Challenges to the Counseling Industry Consumers increasingly overwhelmed by options Technology and transaction speed may limit opportunities for counseling for many borrowers Riskier loans inherently mean higher levels of loan delinquencies and defaults Clustered foreclosures have significant negative impact on neighborhoods and communities Community services that extends beyond loan origination to servicing, loan workouts, loss mitigation and disposition practices

Opportunities for the Counseling Industry: 

Opportunities for the Counseling Industry Marketing the value of counseling directly to consumers Packaging incentives and discounts to attract consumers to counseling Embracing national standards and new technology to improve quality, reduce costs and broaden coverage across the U.S.

Opportunities for the Counseling Industry: 

Opportunities for the Counseling Industry Engaging with other key partners in the transaction, especially with Realtors®, lenders, mortgage insurers and loan servicers Working cooperatively to promote counseling as a standard part of first-time homebuyer process Partnering with schools, employers and churches to use financial education as the first step

Today’s Discussion Questions: 

Today’s Discussion Questions How can we build sustainable counseling capacity in the industry? How can we expand the coverage of high-quality counseling across the nation? How we make better use of technology and efficiencies of scale to reach more consumers and close the projected “counseling gap” in the decades ahead?

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2003 HomeSight in Seattle uses an aggressive marketing campaign to reach prospective buyers

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2005 The benefits of counseling are promoted directly to consumers along with incentives from partners such as free computers

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2006 Consumers are willing to pay directly for counseling and in turn, get incentives from partners

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2007 and Beyond Mortgage Application Fee $400 Appraisal Fee $300 Unexpected Home Repairs $3,500 The Value of Counseling … Priceless!