Subprime Response

Self-Help Responds to the Subprime Mortgage Crisis

The consequences of reckless subprime lending have been a growing concern, and rightfully so.  One in five families with a subprime loan made from 1998 through 2006 have already lost, or will lose, their home to foreclosure in the next few years. These losses add up to as much as $164 billion in lost equity for families. As is usually the case with predatory lending products, people of color are being disproportionately affected: 53% of African-Americans who bought homes in 2006 received a subprime loan, and 42% of Latino families. By contrast, only 22% of white borrowers received these high-cost loans. Visit Self-Help affiliate Center for Responsible Lending for more information and a snapshot of the subprime crisis.

We view this growing foreclosure crisis as a direct threat to the people we serve and to our mission of creating and protecting ownership and economic opportunity for people of color, women, rural residents, and low-wealth families and communities.

Self-Help and Center for Responsible Lending (CRL), in collaboration with a network of partner organizations, are pursuing a range of policy and program options to address this crisis.  In addition to continuing to offer fair and affordable alternatives to predatory mortgage loans, we are actively working to help families already trapped in subprime loans, to help stabilize neighborhoods threatened by outbreaks of foreclosures, and to promote legislation to help curtail this type of reckless lending in the future. Our current initiatives include the following.

Direct Home Lending Self-Help offers qualified low-income borrowers in North Carolina and the Washington D.C. area fair mortgage loans at reasonable rates based on solid underwriting criteria. Self-Help has made more than 3,000 direct loans totaling over $228 million.

Self-Help Secondary Market Our national Secondary Mortgage Market program has financed more than $4 billion in loans to low-income borrowers nationwide. By purchasing these loans and packaging them for resale to Fannie Mae, Self-Help helps provide liquidity to 36 partner banks, credit unions and community development financial institutions that make fair and affordable loans to low-wealth families.  In order to be eligible for the program, loans must conform to responsible lending criteria including:

• Fixed-rate, fully amortizing loan terms
• Full documentation of income and demonstrated ability to pay the mortgage
• Escrows of taxes and insurance
• Full interior appraisals

Protecting vulnerable neighborhoods  Even American families NOT facing foreclosure will see the value of their homes decline by an estimated $265 billion. An average of more than $5,000 per home will be lost due to the negative impact on neighborhood property values caused by the high rate of foreclosures. For each foreclosure, a city can lose up to nearly $20,000 a year in lost property taxes and other expenses associated with abandoned properties. 

While we work hard to help our secondary market homeowners keep their homes, there are times when foreclosure is the only option. Where possible, we strive to minimize the impact of those foreclosures on the surrounding neighborhood by investing in the property and reselling it to a homeowner rather than an investor. Although this policy raises our losses on foreclosure, it preserves homeownership opportunities for working families and strengthens vulnerable neighborhoods. Reducing the number of foreclosed homes that fall into disrepair or the hands of opportunistic investors is critical for neighborhood preservation in low-income communities.

North Carolina Legislation
North Carolina lawmakers are standing up for homeowners by making it tougher to offer abusive home loans with the North Carolina Home Loan Protection Act (HB 1817). The new law offers stronger protections against dangerous subprime mortgages, weeding out questionable business practices on mortgage financing that are driving massive subprime foreclosures.  A key provision in the law requires lenders to verify that their customers have the ability to repay the loans they are offered.  This is particularly important for subprime mortgages with adjustable interest rates, since lenders must consider future rate increases before approving loans.

Preventing reckless lending in the future Recently the U.S. House of Representatives took bipartisan action to pass “The Mortgage Reform and Anti-Predatory Lending Act of 2007” (H.R. 3915), which includes long overdue protections to prevent predatory lending.  But the battle isn’t over yet.  CRL continues to have concerns about key weaknesses in H.R. 3915, and we join allies in urging the Senate to pass a stronger bill.  We must ensure that any final bill:

• Protects state laws
• Holds Wall Street accountable for buying abusive loans
• Provides meaningful remedies for homeowners when lenders break the law
• Prohibits lenders from offering inappropriate products, including certain adjustable-rate mortgages, to families already burdened with debt

Bankruptcy legislation CRL supports efforts to refine bankruptcy legislation to preserve homeownership. Congress can stand up for all homeowners by providing access to bankruptcy relief to those who are struggling with their mortgages.  Current bankruptcy law specifically prevents judges from changing the terms of home loans for primary residences—even though they are free to change loans for vacation homes and boats. The proposed changes could save approximately 600,000 households from foreclosure. Visit the CRL website for more information, and to take action in support of this legislation.

Legal Assistance for Families in Foreclosure Center for Responsible Lending recently announced that it will form the Institute for Foreclosure Legal Assistance to support groups giving legal representation to families facing foreclosure and financial ruin because of abusive subprime mortgages. The project will be administered by the National Association of Consumer Advocates, an organization that views access to quality legal services as an important step toward helping families stay in their homes.

The Institute, launched with a $15 million grant from an investment firm, will provide funding and training to organizations that help homeowners negotiate alternatives to foreclosure. The majority of the funds will be grants to support direct legal assistance through top non-profit legal aid groups and law school clinics.

We are by no means the only organization tackling this enormous challenge. Large and small groups from regional CDFIs to massive private-public collaborations are exploring ways to rescue families and prevent new abuses. If you’d like more information on any of our ongoing programs or have information to share on successful strategies you’ve seen, please email us.