Transcript A presentation to: Moody’s Investors Service

“MARYLAND RESPONDS”
Maryland Cooperative Extension
December 2, 2008
University of Maryland
College Park
1
National
2
National
3
National
4
Sub-Prime Share of All Mortgage Loans: Maryland and
the US
’07Q2
MD: 12.8%
US: 14.0%
16%
14%
12%
10%
‘03Q4
MD:3.2%
US: 4.2%
8%
’08Q2
MD: 11.1%
US: 12.2%
6%
4%
2%
0%
Q
00
1
Q
00
3
Q
01
1
Q
01
3
Q
02
1
Q
02
3
Q
03
1
MD
Q
03
3
Q
04
1
Q
04
3
Q
05
1
Q
05
3
Q
06
1
Q
06
3
Q
07
1
Q
07
3
Q
08
1
US
5
Sub-Prime Delinquency and Foreclosure Rates
in Maryland
2 5.0 %
Del: 20.9%
For: 9.1%
2 0 .0 %
15.0 %
Del: 7.6%
For: 1.7%
10 .0 %
5.0 %
0 .0 %
'0 5Q1
'0 5Q2
'0 5Q3
'0 5Q4
'0 6 Q1
'0 6 Q2
Delinquency
'0 6 Q3
'0 6 Q4
'0 7Q1
'0 7Q2
'0 7Q3
'0 7Q4
'0 8 Q1
'0 8 Q2
Foreclosures
6
Home Price Inflation in Maryland
Jan ’00Jun ’07
$350,000
+128.4%
$300,000
Jun ’07Aug ’08
$250,000
-6.5%
$200,000
$150,000
$100,000
'00
'01
'02
'03
'04
'05
'06
'07
'08
7
Economic Costs of Foreclosures
per Foreclosed Property
Homeowner1
Lender2
$7,200
$58,759
Direct Loss of Home Value (Foreclosure Discount Rate)3
22.0%
Percent Loss of Home Value within One-Eight of a Mile Radius4
Community Median Income Greater than 80% of AMI
0.9%
Community Median Income Less than 80% of AMI
1.5%
1.
Includes administrative and legal fees, loss of equity, tax losses. From Anne Moreno’s study in
Minneapolis.
2.
Includes opportunity costs of principal and interest not yet received; and servicing, legal, maintenance
and property disposition costs. From Craig Focardi’s 2002 study.
3.
From Anthony Pennington-Cross’ 2004 study for the Federal Reserve Bank of St. Luis.
4.
From Immergluck and Smith’s 2006 study of the Chicago area foreclosures.
8
Property Foreclosure Costs in Maryland,
Millions of 2007 Dollars
Jurisdiction
House Price
Reduction
Property Tax
Reduction
Owner
Costs
Lender
Costs
Total Cost
Cost
% of MD
Prince George's
$775.9
$7.4
$29.0
$236.6
$1,049.0
23.6%
Montgomery
$798.4
$6.5
$16.9
$137.9
$959.7
21.6%
Baltimore
$425.1
$4.7
$13.8
$112.9
$556.5
12.5%
Baltimore City
$256.2
$5.9
$18.2
$148.9
$429.2
9.6%
Anne Arundel
$292.3
$2.7
$9.2
$75.2
$379.3
8.5%
Frederick
$137.4
$1.3
$4.3
$34.8
$177.7
4.0%
Howard
$124.8
$1.3
$3.2
$25.9
$155.2
3.5%
Harford
$111.0
$1.2
$4.4
$36.0
$152.7
3.4%
Charles
$105.7
$1.1
$4.4
$35.8
$147.0
3.3%
$51.8
$0.5
$3.3
$26.7
$82.3
1.8%
$3,310.1
$34.6
$120.5
$983.1
$4,448.2
100.0%
Washington
Maryland
Source: RealtyTrac and DHCD, Office of Research
9
10
Extent of Problem in Maryland
• Number of foreclosure events continue to increase dramatically:
• Foreclosure activity in Maryland has continued to decrease from
9,453 foreclosures in the 2nd quarter of 2008 to 7,974 in the 3rd
quarter.
• Compared with the 3rd quarter of 2007, foreclosure events in the 3rd
quarter of 2008 increased by 13.9.
• Prince George’s County continues to be most severely afflicted by the
foreclosure crisis, with 2,789 events this quarter (35% of the State’s total).
Other jurisdictions follow:
• Montgomery County – 14.1%
• Baltimore City – 11.0%
• Baltimore County– 9.5%
11
Extent of Problem in Maryland
• Foreclosure activity in Maryland decreased by 15.6% from
2nd quarter 2008 to 3rd quarter.
• Compared to 2007, foreclosures have increased in all
jurisdictions except Caroline and Dorchester counties.
• The highest percentage increases were in Queen Anne’s
(↑637.5%), Worcester (↑ 535.3%), Garrett (↑ 500%) and Kent
(↑366.7%) counties.
• Prince George’s County, with 2,789 events, continues to be
the most affected.
• Some counties have noticed a slight drop in foreclosure rates
from the 1st quarter of 2008 to 2nd quarter, due to the new
State law (effective 4/4/08) that effectively increased the
foreclosure period from an average of two weeks to 135 days.
12
Losses
• It was recently reported that the number of vacant
homes nationally is the highest it has been since 1954.
(2.2%).
• Everyone loses in foreclosure: the homeowner, the
lender ($50,000- $80,000), and the neighborhood,
where property values can decrease and vacant,
boarded-up houses are seen.
• There has been a loss of $1.7 trillion dollars in the U.S.
economy in the first quarter of 2008.
13
Mortgage Conditions 2007 Maryland
• ALT A
•
•
•
•
28.3 loans per 1,000 households
31.1% low or no documentation
41.8% resetting in 12 months
50.5% late payments in last 12 months
• Sub-Prime
•
•
•
•
19.5 loans per 1,000 households
69.1% low or no documentation
4.7% ARMS resetting in 12 months
20.6% late payments in last 12 months
Federal Reserve Bank of New York January 2008
14
Subprime Loans and Race in Maryland
• Data shows that minority homeowners are more likely to have
subprime loans:
• 54% of African Americans have subprime loans *
• 47% of Hispanics have subprime loans *
• 18% of Whites have subprime loans*
• 70% of loans in Maryland were originated by Brokers
• Of 90 Banks in Maryland Reviewed for CRA only 1 has an
unsatisfactory rating.
*Data Source: Presentation by the Department of Labor, Licensing and Regulation, January 3, 2008
15
Percent Subprime Annually Maryland
Year
Share all loans
2008
9.1%
Q2 2007
12.8%
2006
12.2%
2005
11.2%
2004
9.1%
2003
3.6%
2002
2.1%
2001
1.5%
2000
1.625%
Source: Mortgage Bankers Association, National Delinquency Survey
16
Mortgage Loans in Maryland
Chart 1. Mortgage Loan Inventory in Maryland, June 2008
Sub-Prime Fixed
43,033
5%
Prime ARM
123,429
15%
Sub-Prime ARM
31,830
4%
Prime Fixed
630,377
76%
(Data Source: McDash)
17
Mortgage Delinquencies in Maryland
Chart 2. Mortgage Loan Delinquencies in Maryland, June 2008
Sub-Prime ARM
9,588
20%
Prime Fixed
21,504
44%
Sub-Prime Fixed
9,912
20%
Prime ARM
7,985
16%
(Data Source: McDash)
18
Mortgage Foreclosures in Maryland
Chart 3. Mortgage Loan Foreclosures in Maryland, June 2008
Sub-Prime ARM
5,572
33%
Prime Fixed
4,607
28%
Prime ARM
4,028
24%
Sub-Prime Fixed
2,458
15%
(Data Source: McDash)
19
Mortgage Resets in 2008
4,000
3,500
3,000
2,500
2,000
1,500
1,000
Jan
Loans 1,911
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
1,946
2,593
2,547
2,955
3,219
3,040
3,531
3,112
2,954
2,633
2,576
20
Property Foreclosure Rate
• The property foreclosure rate represents the intensity
of foreclosures in a community.
• Measures the number of home owner households per
foreclosure event.
• For the first quarter of 2008 there was one foreclosure
per 129 households statewide.
• Prince George’s County has a rate of one foreclosure
per 58 households.
• Baltimore City and Charles County are second (78)
and third (99).
21
Notices of Mortgage Loan Default Issued in MD
Chart 5. Notices of Mortgage Loan Default Issued in Maryland
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Q1_07
Q2_07
Q3_07
Q4_07
Q1_08
Q2_08
22
Cost of Foreclosure
• 652,461 properties in 2007 were within a 1/8 mile radius of the
13,460 properties reporting foreclosure events, leading to a
decline in property values of neighboring homes.
• Total direct loss in housing wealth in Maryland for 2007 was
more than $3 billion:
• $902.3 million lost directly in housing wealth,
• $2.2 billion lost in reduced home values for area surrounding
foreclosed properties.
• Other foreclosure-related losses in 2007:
• $32.3 million lost in unpaid taxes, $22.9 million for neighboring
properties.
• Additional $96 million lost in administrative costs.
• $790 million in losses to banks that have led to repercussions in
financial institutions and overall economy.
23
Maryland’s Response
HOPE Hotline
• Over 10,000 people have been referred to Servicers,
Counseling agencies, Lenders, National HOPE
Hotline for intervention
Refinance products: $27,000,000
• Lifeline
• HomeSaver
• Bridge to Hope
Counseling
• 9,800 people have been served; 40% secured
positive outcomes
• $2,900,000 from DHCD-- now funding 32
organizations
24
Maryland’s Response
• Governor’s Servicing Initiative
• Efficient, transparent response by Servicers
• Bankers Consortium/Maryland Housing Fund
• Legislative Changes
• Some of the most progressive laws in the country
• Outreach
• 680,000 letters to most heavily affected
• PSE announcements, MTA bus advertising, billboards
• Hope Website
• 53,000 visits in the last year
• Pro-Bono Attorney Initiative
• Over 600 attorneys throughout the State volunteer to assist
25
The Lifeline Refinance Program
•The Lifeline Refinance mortgage program allows CDA to offer
refinancing options to Marylanders who may be facing
financial difficulties after purchasing a home with an “exotic”
mortgage.
(An exotic mortgage is defined as any type of adjustable rate
mortgage (ARM), balloon payment loan, negative amortization
loan or other unsuitable loan type.)
26
The Homesaver Refinance Program
• The Homesaver Refinance Mortgage Program allows CDA
to offer another refinance option to Marylanders who have
sub-prime or exotic mortgages and are experiencing
difficulties as a result of:
• mortgage default,
• low credit scores and/or,
• a mortgage greater than the current value of their home.
27
Bridge to HOPE
•
A loan mitigation strategy approved by the existing
lender where housing payment and monthly debt
does not exceed 45% of the borrower’s gross
income.
•
•
•
B2H can provide a non-interest, non-amortizing loan
of up to $15,000.
Can include both a lump sum payment and monthly
subsidy with pay outs up to 24 months.
Borrower must continue contact with the counseling
agency.
28
MHF Homesaver Mortgage Insurance
• 105% max LTV; (MHF’s 2.75% upfront mortgage
insurance premium may be financed)
• 110% max CLTV with all 2nd mortgages, including
forgivable grants
• DTI not to exceed 50%
• Minimum credit score 550
• Mortgage(s) may not be more than two months past
due at time of loan application
29
Governor O’Malley’s Servicer Initiative
30
Governor O'Malley's Servicer Initiative
• Governor’s initiative calls together mortgage services
for loss mitigation collaboration:
• Goal: To establish a model framework for
streamlined, transparent and timely loss mitigation
process.
• Maryland has created and will expand its foreclosure
prevention assistance network to integrate housing
counselors and others into the loss mitigation process
with servicers.
• Each servicing company will dedicate staff to work
with housing counselors and staff from Maryland.
31
Governor O'Malley's Servicer Initiative
• Create a uniform, transparent set of guidelines for loss
mitigation.
• Agree to accept HOPE Housing Counseling agencies as
partners in solving this problem.
• Identify a representative from each servicer who is
assigned to Maryland to help solve each case.
• Agree to a quick and efficient process to make a decision
and bring relief.
• Create a process to evaluate those cases that do not fit in a
set of standard guidelines.
32
Governor O'Malley's Servicer Initiative
• First meeting held on Tuesday February 26, 2008;
Second meeting on March 20, 2008.
• One on One meetings with participants ongoing.
• Servicers are participating in teleconference training
sessions with counselors.
• GMAC, Countrywide, CitiFinancial, Ocwen, Option 1,
Mortgage Bankers Association, PHH Mortgage, E-WIZ
Mortgage, Wells Fargo, EMC, Litton Servicing,
• Wilton, Litton Chase, FNMA, and FHLMC.
33
Maryland Department of Labor,
Licensing and Regulation:
Recent Legislation
34
Legislative and Regulatory Reforms
• SB 217/HB 360 - Real Property - Maryland Mortgage Fraud Protection Act - Creating
a comprehensive mortgage fraud statute with criminal penalties and giving prosecutors a
robust tool to prohibit mortgage fraud schemes. Expands authorization to include
Attorney General, State's Attorney, and the Commissioner of Financial Regulation.
Allows victims to bring private action against violators.
• SB 216/HB365 - Real Property - Recordation of Instruments Securing Mortgage
Loans and Foreclosure of Mortgages and Deeds of Trust on Residential Property –
Improving the foreclosure process to provide greater opportunities for homeowners to
avoid foreclosure and preserve their home; will lengthen the time before a foreclosure
sale, which was as short as 15 days, and after change will increase to 135 to 150 days.
Offers other protections to homeowners including personal service at least 45 days prior
to action, and the right to Cure up to the day before foreclosure.
• SB 218/HB 361 - Protection of Homeowners in Foreclosure - Prohibition on
Foreclosure Rescue Transactions - Enforcement - Preventing foreclosure rescue
scams by banning conveyance of real property in the foreclosure rescue context.
35
Legislative and Regulatory Reforms
• SB 270/HB 363 - Credit Regulation - Mortgage Lending and
Other Extensions of Credit – Correcting questionable underwriting
practices and defective mortgage products. The Act creates
meaningful licensing and increased regulatory oversight. Reforms
include a ban on pre-payment penalties for sub-prime loans,
requires verification of ability to repay and ensure clearer standards
and accountability for all players in the mortgage industry.
• SB 533/1242– Task Force to Sturdy Improvement of Financial
Literacy in the State
Creates the Financial Literacy Task Force to explore the issue of
financial concepts and literacy education in public schools.
36
Foreclosure Timeline –
New Maryland Requirements
37
Governor O’Malley’s Quote:
“We are not here to fix blame. We
are here to fix the problem!”
38
Website
www.mdhope.org
Product information on:
Lifeline Refinance Program
Homesaver Refinance Program
Bridge to Hope Program
HOPE HOTLINE: 1-877-462-7555
DLLR: 1-888-784-0136
39
What is MDHousingSearch.org?
• Statewide service helping
landlords and potential tenants
to find each other.
• Increases access to affordable
housing information – FREE to
search and list.
• Available online 24-7 and
supported by a toll-free,
bilingual call center,
M-F 9 a.m. to 8 p.m.
40