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Posted: Tue May 22, 2007 4:05 pm

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Florida has highest real estate foreclosure rate
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March survey shows 17% increase in foreclosure properties nationwide
Friday, May 06, 2005

Inman News

Real estate properties in the process of foreclosure increased in March from the previous month, according to data released today from RealtyTrac.

"Our March data includes approximately 62,422 new properties in some stage of foreclosure – a 17 percent increase from February," said Jim Saccacio, CEO of RealtyTrac. "While some of this increase can be attributed to new counties in our coverage area, foreclosures clearly increased from February to March. We'll be watching the April numbers very carefully to see if this is the beginning of a trend, or a one-month aberration."

Five states constituted more than 45 percent of all March foreclosures – Florida, Utah, Georgia, Texas and Colorado, according to the report. These five states have the largest number of foreclosures, with more than twice the national average. Florida and Texas alone made up one-third of national foreclosures in March.

For the second month in a row, Florida had the highest rate of foreclosures, more than two and a half times the national average. Nearly 17 percent of all March foreclosures took place in Florida. There was one foreclosure for every 692 Floridian households.

In Texas, more than one third of March foreclosures took place in just two counties: Dallas, with 18 percent, and Tarrant, with 15.3 percent. In each of these counties, the foreclosure rate was more than three and one-half times the national average and over one and one-half times the average in Texas.

RealtyTrac publishes a national database of pre-foreclosure and foreclosure properties, with more than 550,000 properties in more than 1,900 counties across the country.

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Posted: Tue May 22, 2007 4:08 pm

Actually from the reports I have read, OH leads the states in the highest foreclosure rate. Not that that is something to be proud of.

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Posted: Tue May 22, 2007 4:10 pm

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The Federal Trade Commission v. Citigroup/The Associates ...

Excerpts from the Federal Trade Commission complaint against The Associates First Capital, now owned by Citigroup:

The Associates emphasized “upselling” homeowners to home equity loans. Through marketing and solicitation tools used to convince customers of the benefits of refinancing, The Associates induced customers to refinance their existing consumer credit debts into a single debt consolidation loan, typically a home equity loan, a practice known as “flipping.” marketing and solicitation tools repeatedly stressed that a debt consolidation loan would benefit customers, for example by lowering their monthly payments, requiring them to pay less interest, allowing them to own their homes sooner, and saving them money. These claims were often false. To dissuade customers from shopping around for a more affordable loan, The Associates trained its employees to “take [customers] out of the market” by assuring customers they will be approved for the proposed loan.

The Associates created and trained its employees to use the What If? and Equity Advantage Plan (“EAP”) programs, and similar solicitation tools, to compare the customer’s current debts with one or more Associates loan proposals and to demonstrate the “benefits” of consolidating the consumer’s debts with an Associates loan, typically a home equity loan. In many instances, The Associates used the consumer report in the customer’s current loan file for this purpose. The What If? program was most often initiated with a telephone call from an Associates employee, asking the customer, for example, “what if I could show you a way to … Save $XXX each month? … Save $XXXX in the total interest charges on your current debts? … Establish a savings account in the amount of $XXX….” If the customer showed interest, the employee typically met with the customer in person to present the EAP, a pre-printed worksheet comparing the customer’s current debts with The Associates’ proposed loan, and indicating the “Money Saved” with The Associates’ loan.

The What If? EAP, and similar solicitation tools, did not accurately compare a customer’s current debt load with The Associates’ debt consolidation home equity loan, and therefore the purported savings and other benefits were misleading. For example, in comparing the customer’s total monthly payments on his current debts with the monthly payment on the proposed loan, these solicitation tools assumed the same monthly savings over the full loan term, typically 15-20 years, even though customers’ current debts often included short term debts (e.g., personal installment loans, automobile loans, and credit card debts) that likely would be paid off within five years. These solicitation tools sometimes purported to show savings even where the consumer’s current debts had lower interest rates than the proposed loan. In addition, in representing the monthly savings from consolidating a customer’s first mortgage and other debts, the What If? and EAP programs failed to account for property taxes and homeowner’s insurance that The Associates’ customers were required to pay out of pocket. Most mortgage lenders include in a customer’s monthly payment an escrow amount for property taxes and homeowner’s insurance, but The Associates did not. The What If? And EAP programs calculated monthly savings from The Associates’ debt consolidation home equity loan without factoring in this out-of-pocket cost to consumers.

Source: Federal Trade Commission v. Citigroup Inc. et. al., Complaint for Permanent Injunction and Other Equitable Relief, filed in the U.S. District Court for the Northern District of Georgia, March 6, 2001.

... And Citigroup’s Response

After Citigroup failed to convince the Federal Trade Commission to drop its suit against its newly acquired subsidiary the Associates, it released this statement:

We regret that we have been unable to resolve the FTC claims regarding past practices of the Associates without litigation.

From the time we announced our intent to acquire Associates, we indicated our full commitment to resolve concerns that had been raised about their business. We have fulfilled that commitment by implementing CitiFinancial operations and compliance systems throughout the former Associates’ branches and establishing processes by which customers of the former Associates can have any issues addressed. To date, we have reached out to nearly a half million customers, including every Associates home loan customer, and we will continue these outreach efforts.

Further, we dedicated ourselves to implementing enhanced practices, procedures and compliance not only within former Associates operations but throughout our entire consumer finance business. We are proud of the progress we have made on these initiatives, which establish us as the best practices leader in the industry.

Consistent with this commitment we also have tried to resolve the FTC’s concerns about The Associates' past practices. We are hopeful that the FTC will come to recognize that its decision to pursue this case is counterproductive to our shared objective of ensuring access to credit for those who need it most according to consumer protection standards that lead the industry.

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Posted: Tue May 22, 2007 4:12 pm

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Predatory Lending: The Study and a Verdict
by Lucy Griffin, BOL Guru

There is predatory lending in Jefferson County, Kentucky. The Urban Studies Institute at the University of Louisville has completed a study for the Louisville Urban League. The findings are interesting - and clear. The entire financing industry should be concerned about predatory lending. Responsible financial institutions should take active steps to prevent predatory lending and to educate consumers. This is not a study that can be dismissed with allegations of bias. The study is carefully done. The results are clear. In short, it is convincing.

The Practices
The researchers identified specific lending practices that would be considered predatory. These include the familiar practices such as loan flipping and churning, packing loans with up-front costs such as credit life insurance, offering loans with low installments but large balloon payments, and high to excessive rates.

The study also included practices that have not been so frequently identified. One problem is the use of inflated appraisals to support making a loan that the borrower cannot afford and the property cannot support. Along with this practice is the question of inflating the applicant's income to make them appear to qualify for the loan.

The study also identified loans with prepayment penalties, particularly when the penalties are imposed on loans with high interest rates. Other practices fall into unfair or deceptive categories, such as misleading or fraudulent advertisements, aggressive marketing or sales practices, using pressure or intimidation, fraudulent home repair schemes, and forcing customers to sign notes with mandatory arbitration agreements.

The Methodology
After evaluating a series of practices and considering how to determine their frequency, the researchers honed in on several practices that, particularly when used in tandem, were measurable as well as causing consumer harm. These included loans with very high interest rates, loans with prepayment penalties combined with high interest rates, balloon payment loans, and high loan-to-value ratios. The researchers examined court records for foreclosures that resulted in auctions. The 1,555 records covered a three year period from January 2000 through December 2002. The theory behind the methodology was that predatory lending is likely to result in foreclosures and that therefore foreclosures produce material for the study.

In addition, there were plenty of foreclosures. The report noted that mortgage foreclosure rates have increased dramatically in the state. In Jefferson County, the locus of the study, foreclosures increased from 438 in 1995 to 1,262 in 2002.

The researchers used court records as the information source for the study. These documents provided information about interest rates, prepayment penalties, balloon payments, the principal amount of the loan, and the auction appraisal and sale prices.

This information was used to identify four indicators that suggest predatory loans. These measurements were very high interest rates defined as rates that make the loan subject to HOEPA, prepayment penalties combined with high interest rates, balloon payments, and high loan-to-value ratios. While not including all characteristics of predatory loans, each of these loan characteristics went to the heart of the matter: the ability of the borrower to repay based on loan pricing and underwriting.

The Findings The researchers used the selected predatory loan characteristics to identify the loans for analysis. Of the 1,555 foreclosures studied, 509 foreclosures were on loans with one or more predatory characteristics. Of these loans, which constituted almost a third of the loan pool studied, almost three quarters (73%) had prepayment penalties combined with high interest rates.

The study also found that 57% of the loans with high interest rates had prepayment penalties while only 19% of loans with lower interest rates had prepayment penalties. The conclusion is inescapable: lenders use prepayment penalties to make it difficult or expensive for a borrower to refinance to reduce the interest rate. In effect, if the borrower learns that the rate is unfairly or unnecessarily high, the borrower may also find that refinancing is too expensive because of the prepayment penalty. These are loans where the lender - or predator - is going to make a profit either way.

Of the loans identified as predatory, 29% had balloon payments, 10% had very high (HOEPA) interest rates, and 5% had high loan-to-value ratios. While significant, these numbers leave the high rate-prepayment penalty loans as the primary predatory product.

There's more
The analysis showed that the loans that went into foreclosure were relatively new loans. In most of the cases, the loans were only 2 - 4 years old. And it gets worse. The data showed that in 65% of the entire sample and 61% of the sample with predatory characteristics, the foreclosure purchaser was the original lender.

Finally, the researchers looked at geography. They found that homeowners with mortgages were more likely to experience foreclosure in areas where there were high poverty levels and minority population.

Who Are the Predators?
The report also names names. And there are a lot of bank names on the list. This is in part because the researchers used the bank name to represent the entire holding company. So if The Associates had made some of the loans that landed in the foreclosure study, the loans were put into the Citibank bucket. The named banks included Bank One, USBank, Banker Trust Company of California, and Citigroup. Together, these four institutions accounted for over 25% of all predatory foreclosure loans.

The report notes that while active subprime lenders such as the Kentucky Housing Corporation accounted for a large number of foreclosures, these lenders had relatively few foreclosures involving loans with predatory characteristics.

Rebuttal
Industry members studied do have some points in rebuttal. For example, some practices defined as predatory were not further analyzed. The existence of a prepayment penalty was treated equally, even though some penalties were clearly punitive while others were less significant.

From another angle, it is not unusual or atypical for the lender to be the primary bidder at the foreclosure auction. This kind of self-bidding is not necessarily evidence of a predatory practice. In fact, if the loan was made simply to make a profit on the property, the practice of self-bidding doesn't make sense. Moreover, this observation is made without any further analysis of what ultimately happened to the property.

ACTION STEPS

Take a hard look at your lending products. Look for products that could be considered predatory.
Now look at how these products are marketed. Take steps to upgrade the marketing if any information is withheld or the ads could be considered deceptive.
Analyze your lending, denial, and collection practices by loan product and geography. Look for any patterns or discrepancies that could be considered predatory.
Compare age of loans to foreclosures and collections to identify potential problem products or practices.
Give your lenders and your board the list of practices that are considered predatory and advise them to avoid the practices.
Find out about affordable housing loan programs in your market. Compare your loan products to a city, county or state affordable housing program.

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