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1.2.5 The Recent Foreclosure Crisis

The surge in mortgage delinquencies that began in mid-2007 soon grew into a foreclosure crisis. That crisis severely weakened the economic security of the United States and millions of its residents. It began when large numbers of homeowners defaulted on poorly underwritten or fraudulent subprime mortgage loans.117 As more and more homes went into foreclosure, the effects of this disaster triggered a broader financial crisis.118

The fallout from the flood of foreclosures and the resulting financial meltdown are still being felt and measured. Yet the effects to date have been staggering. At the macroeconomic level, as of the beginning of 2011, over twenty-six million Americans had no job, could not find full-time work, or had given up looking for work.119 At the same time, almost $11 trillion in household wealth had vanished, including retirement accounts and life savings.120 Foreclosures triggered a government bailout and takeover of the mortgage giants Fannie Mae and Freddie Mac starting in 2008.121 These government sponsored entities (GSEs) remain in receivership as of 2017.122 From 2008 through 2013, 489 banks failed, including Washington Mutual Bank—the largest bank failure in United States history.123 Credit rationing to consumers commenced almost immediately, making many forms of consumer credit scarce.124 The reason:

After taking record losses in the mortgage market meltdown, lenders now face greater risk of having to buy back loans that default and of paying much higher servicing costs for delinquent borrowers. As a result, they have overlaid their own more stringent credit requirements with even stricter standards for borrowers.125

As of 2013, purchase lending to applicants with low and even moderate credit scores was lower than in 2001.126 The share of mortgage loan originations made to low and moderate income borrowers rose to 28% by 2015, though this share is lower than it was from 2009–2013.127 The total dollar volume of mortgage originations in 2014 ($1.24 trillion) was the lowest since 2000 ($1.048 trillion).128 In 2015, however, the number of mortgage loan originations rose from 4.8 million to over 6 million.129 The share of home-purchase loans made to African-American (5.5%) and Hispanic (8.3%) borrowers rose in 2015 but remained well below their share of the total population.130 Most of the home-purchase loans made to these groups continued, as in previous years, to be government-insured transactions, rather than conventional loans.131

Beyond the shores of the United States, “the swift emergence of subprime contagion abroad was one of the shocking things about the early stage of the subprime crisis.”132 Banks and hedge funds in Germany, Australia, the Netherlands, Great Britain, Switzerland, and France suffered huge losses in the early days.133 Later, the credit ratings of sovereign nations in the European Union as well as the United States were downgraded.134 In 2011, the European Union itself became threatened when Germany, France, and Great Britain found themselves holding large amounts of debt from several other nations teetering on the brink of insolvency—these debtor nations included Greece, Ireland, Italy, Portugal, and Spain.135

As for individuals, homeowners and their neighbors, the picture has been bleak. By February 2011, 2.7 million homeowners who received loans between 2004 and 2008 had already lost their homes to foreclosure.136 Between 2007 and 2012 over 12.5 million homes went into foreclosure, even as homeowners struggled to hang on.137 By the end of 2015, the homeownership rate in the United States had dropped to its 1993 level: 63.7%.138 Nevada and Arizona experienced the highest concentration of neighborhoods with severe homeownership rate declines—close to 20%. Eleven other states and the District of Columbia followed with rates between 14% and 10%.139

African-American and Latino borrowers were almost twice as likely to have been impacted by the crisis.140 For example, the homes of 9.8% of African-American borrowers and 11.9% of Latino borrower were foreclosed on, compared to 5.1% of white borrowers.141 Moreover, “minority neighborhoods have lost or will lose $1.1 trillion in home equity as a result of spillover from homes that have started the foreclosure process, reflecting the high concentrations of foreclosures in neighborhoods of color.”142 Individual families living in minority neighborhoods stand to lose $40,297 or 16% of their home’s value on average.143 As of the end of 2015, the homeownership rate for minorities as a group remained 25.2% lower than the rate for whites.144 Over this same period, the share of white households owning homes dropped by 4% to 71.9%, the share of African-American households owning homes dropped 6.7%, to 43.0%, while the share of Hispanic households owning homes declined 2.5% to 45.6%.145 Mortgage lending to people of color on a national level through 2015 also remained depressed to a greater extent than lending to whites.146

As homeownership rates have declined, the demand for rental housing has risen. Rental vacancy rates have shrunk, resulting in rental price increases that outpace the rate of inflation.147 “[T]he number of renter households soared by nearly 9 million from 2005 to 2015—the largest increase over any 10-year period on record. Moreover, 2015 marked the largest single-year jump in net new renter households, up 1.4 million. . . .”148

Troubled government-insured mortgage loans not yet in foreclosure are being sold at significant discounts to private equity and hedge funds that, in turn, may be too quick to push homes into foreclosure or may be unhelpful in negotiating loan modifications. Some of these hedge funds, such as Lone Star Funds, are funded by public pension money and use it to buy Federal Housing Administration (FHA) mortgage loans at Department of Housing and Urban Development auctions.149 In the case of the FHA’s Distressed Asset Stabilization Program, the agency pays off the FHA insurance before the auction.150 Following the sale, homeowners are no longer entitled to any of the FHA loss mitigation options available during the time the FHA insurance was in effect, even though homeowners pay for the insurance. As of May 2016, the FHA had auctioned off 105,000 loans valued at $17 billion.151 The average percentage of the estimated outstanding principal balance remaining due on the loans received through these sales in 2014–2015 was only 52% to 66%.152 The secondary mortgage market giants, Fannie Mae and Freddie Mac, have followed the FHA’s example and auctioned off residential non-performing loans since 2014.153

In California, community groups have seen an explosion of Wall Street, institutional, and cash-investor bulk purchases of post-foreclosure, real-estate-owned properties, particularly in low-income neighborhoods of color that had experienced high rates of foreclosures.154 These bulk cash purchases are financed by banks, including Bank of America and JPMorgan Chase.155 The bank loans are secured by the purchased homes and the loans are, in turn, securitized. This lowers the cost of funds for the purchasers to buy in bulk. The new property owners then rent out these properties. The result in California has been the “transformation of the last vestiges of neighborhood ownership and wealth out of community residents and into the pockets of Wall Street firms, banks, hedge funds and other investor groups.”156 This trend has resulted in higher rents for renters and created obstacles for prospective first-time homebuyers who find it difficult to compete with all-cash investor offers.157 There are reports that these landlords charge higher than area median rents and do not adequately maintain some properties.158

Origination abuses were not the only cause of many foreclosures. In order to avoid foreclosures, homeowners turned to their loan servicers to negotiate workouts and get out of default. But the servicers were unprepared and overwhelmed. They often failed, refused, or felt they were unable to modify the terms of the mortgage due to various constraints—real and perceived. When loans had been securitized, servicers seemed particularly unsure as to their authority and often gave consumers inaccurate information. The financial incentives provided to mortgage servicers by lenders and trustees of the securitized trusts weighed against spending the time it would take to work with homeowners.159 In order to encourage servicers to engage in workouts with homeowners and to prevent foreclosures, President Obama launched the federal Home Affordable Modification Program (HAMP) in 2009.160 Later the Department of the Treasury created additional HAMP niche programs, such as the Second Lien Modification Program, Home Affordable Unemployment Program, Home Affordable Foreclosure Alternatives, Making Home Affordable Refinance Program, and the Treasury/FHA Second Lien Program.161 Regrettably, as of September 2016, HAMP and its related programs had assisted far fewer homeowners than initially projected.162 Moreover, December 31, 2016 was the last day that the program accepted new applications for loan modification.163

Servicing abuses unrelated to loan modifications also precipitated defaults and foreclosures. The attorneys general of forty-nine states and the District of Columbia, the federal government, and five of the largest mortgage servicers (Bank of America, JPMorgan Chase, Wells Fargo, Citi, and Ally/GMAC) reached an agreement on February 9, 2012, to settle claims regarding abuses in the servicing of loans in foreclosure. The settlement included monetary sanctions, mortgage servicing reforms, assistance to existing and former homeowners, creation of programs to refinance homeowners in loans that are underwater, and money to the states to fund foreclosure-related services. The settlement became effective April 5, 2012.164

The danger of foreclosure persists due to slowing home price appreciation, particularly in light of how many home equity lines of credit are scheduled to reset to higher interest rates between 2015 and 2018.165 As of the first quarter of 2015, 7.5 million homeowners were still underwater, meaning that the mortgage balances they owed were greater than the market value of their homes (also called negative equity).166 As of the third quarter of 2016, there were nearly 6.1 million homeowners seriously underwater, representing 10.8% of all homeowners with a mortgage.167 Borrowers are more likely to default when their homes are underwater, leading to further waves of foreclosures.168 At the community level, increased numbers of vacant properties, due to imminent and completed foreclosures, led to increased crime and blight.169 Local governments were hit hard due to the increased costs of policing and securing vacant homes and the reduction in tax revenue that followed the inevitable decline in property values.170 Between mid-2007 and the end of 2009 alone, state and local governments lost $917 million in property taxes.171 These consequences motivated several cities and counties to sue lenders that they alleged targeted minority neighborhoods.172

The rise of “zombie” properties or “shadow inventory” created similar problems. Zombie properties refer to homes left in a form of legal limbo when the foreclosing party intentionally delays or abandons the foreclosure.173 The homeowner may have abandoned the home, expecting the lender to complete the foreclosure, or the home may remain occupied by an owner or tenant who is reluctant or unable to maintain it. The effects of zombie properties are greatest in low and moderate income neighborhoods because servicers are less likely to maintain properties in these neighborhoods, whether owner-occupied or not.174 Stalling foreclosure “creates negative ripple effects on families and neighborhoods that exceed the bad effects of foreclosures in themselves.”175

Another significant result of the lending frenzy and the subsequent high volume of foreclosures has been the failure of foreclosing lenders and trustees to comply with the legal rules governing the transfer of mortgage loans. This behavior was widespread and has been reported in court rulings, by state attorney general and city recorder investigations, in studies by law professors, and in news articles, congressional testimony, and shareholder lawsuits.176 Consequently, large numbers of homeowners all over the country have faced the risk of losing their homes to the wrong party (leaving the risk that the correct party may try to sue them later). Some foreclosing parties or their agents resorted to forging indorsements or submitting fraudulent affidavits to courts in order to manufacture standing.177 These behaviors potentially threaten the integrity of the legal system and the clear title to foreclosed properties.178

Moreover, the use of the Mortgage Electronic Registration System (MERS) by about sixty percent of all residential mortgagees to track transfers of mortgages, as an alternative to public recordation systems, has caused turmoil due to the serious questions about the integrity of MERS and its system. A full discussion of MERS is beyond the scope of this subsection.179 Suffice it to say that the mere presence of MERS in a mortgage loan chain of title has increased the likelihood of legal challenges to the authority to foreclose and, potentially, to the clear title to real property throughout the United States.180

The foreclosure crisis caused a significant shift in the type of mortgages made, compared to pre-crisis sources of credit. For example, 5.9 million subprime mortgage loans were serviced at the end of 2006 compared to 2.78 million at the end of 2015. The number of Federal Housing Administration insured loans increased during the same period from 3 million to 6.46 million.181 Fannie Mae and Freddie Mac also stepped into the breach by backing roughly 60% of new mortgages between 2008 and 2013.182

Since 2014, non-bank lenders and riskier mortgage loans have begun to return to the market. For example, some non-bank lenders now control 64% of the FHA-insured and VA loan markets, up from 18% in 2010.183 Others make loans that do not meet the strict qualified mortgage underwriting standards set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act.184 Wall Street investors, such as private equity firms, hedge funds, and mutual fund companies, are buying subprime, Alt-A loans and interest-only loans and placing those loans into private funds that are sold to institutional investors and wealthy clients, thus creating a demand for these products.185 In the current environment of heightened underwriting standards, the use of land installment contracts (also known as contracts for deeds) to sell homes is on the rise.186 Land installment contracts are essentially a form of seller financing in which legal title remains in the seller’s name until all payments have been made. This type of contract is often described to low-income people as a way to acquire homeownership without needing to deal with a bank or get credit approval. But they subject buyers to considerably more risk than traditional mortgages because of the long delay in transferring legal title, and other abusive features.187

Footnotes

  • 117 {102} Fin. Crisis Inquiry Comm’n, The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States xv–xvi (2011), available at www.gpo.gov.

  • 118 {103} Kathleen C. Engel & Patricia A. McCoy, The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps 74–82 (2011).

  • 119 {104} Fin. Crisis Inquiry Comm’n, The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States xv (2011), available at www.gpo.gov.

  • 120 {105} Id. See also Michael S. Barr & Daniel Schaffa, Wash. Ctr. for Equitable Growth, Nothing Left to Lose? Changes Experienced by Detroit Low-and-Moderate-Income Households During the Great Recession (Sept. 2016), available at http://equitablegrowth.org (summarizing studies documenting the decline in household wealth nationally; regarding Detroit, finds employment fell by 10%, median unemployment duration increased by 4.3 months, median household income fell by $5000, mean home values fell by over $44,000, the number of underwater homes increased by 62%, mean mortgage payments increased by $164, gas or electric shutoffs increased by 6%, and disconnected phone lines increased by 20%, based on data collected between July 2005 and January 2006 and between October 2009 and March 2010).

  • 121 {106} Kathleen C. Engel & Patricia A. McCoy, The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps 99–100 (2011).

    GSE stockholders suffered “massive losses” from their investments in GSE stock. Fed. Deposit Ins. Corp. v. FBOP Corp., 2015 WL 1538802, at *2 (N.D. Ill. Mar. 31, 2015) (noting that four banks lost approximately $838 million, resulting in the closure of these banks).

  • 122 Fed. Hous. Fin. Admin., History of Fannie Mae and Freddie Mac Conservatorships, available at www.fhfa.gov.

    The FHFA’s 2014 Strategic Plan for the Conservatorships states three goals: “maintain, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced mortgages to foster liquid, efficient, competitive and resilient national housing finance markets; reduce taxpayer risk through increasing the role of private capital in the mortgage market; build a new single-family securitization infrastructure for use by the [GSEs] and adaptable for use by other participants in the secondary market in the future.” Ending the conservatorships is not specifically discussed. Fed. Hous. Fin. Admin., The FHFA’s 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac (May 23, 2014), available at www.fhfa.gov.

  • 123 {107} Fed. Deposit Ins. Corp., Failed Bank List, available at www.fdic.gov (showing, in contrast, that only twenty-seven banks failed during the period 2000–2007); Robin Sidel, David Enrich, Dan Fitzpatrick, WaMu is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History, Wall St. J. (Sept. 26, 2008), available at http://online.wsj.com.

  • 124 {108} Kathleen C. Engel & Patricia A. McCoy, The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps 81–82 (2011).

  • 125 Harvard Joint Ctr. for Hous. Studies, State of the Nation’s Housing 2015, at 22–23 (2015).

  • 126 Id. at 23. See also Laurie Goodman, Jun Zhu & Taz George, The Urban Inst., The Impact of Tight Credit Standards on 2009–13 Lending 5 (Apr. 2015), available at www.urban.org (according to Home Mortgage Disclosure Act (HMDA) data, first lien purchase loans peaked at 5.7 million in 2005 but dropped to 3.0 million in 2013, a 37% drop since 2001 and a 50% decline since the 2005 peak).

  • 127 Ctr. for Responsible Lending, 2016 Update: The Nation’s Housing Finance System Remains Closed to African-American, Hispanic, and Low-Income Consumers Despite Stronger National Economy in 2015 (Sept. 2016).

  • 128 Inside Mortg. Fin., Mortgage Market Statistical Annual 12 (2015 Yearbook).

  • 129 Ctr. for Responsible Lending, 2016 Update: The Nation’s Housing Finance System Remains Closed to African-American, Hispanic, and Low-Income Consumers Despite Stronger National Economy in 2015 (Sept. 2016).

  • 130 Id.

  • 131 Id. (70.2% of home-purchase loans made to African-American borrowers and 62.6% of home-purchase loans made to Hispanics were FHA, VA, and other government-backed loans; 36% of home-purchase loans made to white borrowers fell into these categories).

  • 132 {109} Kathleen C. Engel & Patricia A. McCoy, The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps 80 (2011).

  • 133 {110} Id.

  • 134 {111} Bill Marsh, It’s All Connected: A Spectator’s Guide to the Euro Crisis, N.Y. Times 7 (Oct. 23, 2011), available at www.nytimes.com.

  • 135 {112} Id.

  • 136 {113} Debbie Gruenstein Bocian, Wei Li & Carolina Reid, Ctr. for Responsible Lending, Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures 18–23 (Nov. 2011), available at www.responsiblelending.org.

  • 137 {114} Ctr. for Responsible Lending, 2013 Update: The Spillover Effects of Foreclosure 1 (Aug. 19, 2013).

  • 138 Harvard Joint Ctr. for Hous. Studies, State of the Nation’s Housing 2016, at 19 (2016).

  • 139 In order of the highest to lowest rates: the District of Columbia, Georgia, California, Colorado, Florida, Mississippi, Michigan, Texas, Ohio, South Carolina, Kentucky, and Tennessee. Harvard Joint Ctr. for Hous. Studies, State of the Nation’s Housing 2015, at 20 (2015).

  • 140 {115} Debbie Gruenstein Bocian, Wei Li & Carolina Reid, Ctr. for Responsible Lending, Lost Ground, 2011: Disparities in Mortgage Lending and Foreclosures 4 (Nov. 2011), available at www.responsiblelending.org (noting, however, that the majority of all affected borrowers have been white).

  • 141 {116} Id. at 5 (finding, in addition, that the rate of serious delinquency among these groups were: 14.2%, 13.7% and 6.8%, respectively).

  • 142 {117} Ctr. for Responsible Lending, 2013 Update: The Spillover Effects of Foreclosure 1 (Aug. 19, 2013).

  • 143 {118} Id. (noting these figures do not include “the total loss in home equity that has resulted from the crisis (estimated at $7 trillion), the negative impact on local governments (in the form of lost tax revenue and increased costs of managing vacant and abandoned properties) or the non-financial spillover costs, such as increased crime, reduced school performance and neighborhood blight.”). See also Nat’l Urban League, 2015 State of Black America 37 (2015), available at http://soba.iamempowered.com (reporting that in 2011 home equity for blacks was $50,000; whereas home equity for whites was $85,000; median wealth of blacks was $6314 compared to $110,500 for whites in the same year).

  • 144 Harvard Joint Ctr. for Hous. Studies, State of the Nation’s Housing 2016, at 19 (2016).

  • 145 Id.

  • 146 Ctr. For Responsible Lending, 2013 Home Mortgage Disclosure Act: Data Show People of Color Being Left Behind in Slowly Recovering Mortgage Market (Sept. 2014), available at www.responsiblelending.org (“People of color and low and moderate-income families continue to receive a far lower share of mortgage loans than they have historically and than would be expected based on the composition of the population. These borrowers are also more likely to be served by government-backed loan programs than by the conventional market.”); Laurie Goodman, Jun Zhu & Taz George, The Urban Inst., The Impact of Tight Credit Standards on 2009–13 Lending 9 (Apr. 2015), available at www.urban.org (from 2001 to 2013 mortgage loans to white borrowers declined 31% but declined 50% to African-American borrowers and 38% to Hispanic borrowers; whereas loans to Asian-American borrowers rose 8%). See also Jim Campen, Mass. Cmty. & Banking Council, Changing Patterns XXIII, Mortgage Lending to Traditionally Underserved Borrowers and Neighborhoods in Boston, Greater Boston, and Massachusetts 2014 i (Dec. 2016) (“Black and Latino borrowers in Boston, in Greater Boston, and statewide were much more likely to receive FHA loans in 2015 than were their white or Asian counterparts. For home-purchase loans in Greater Boston, FHA loans accounted for 38% of loans to blacks and 40% of loans to Latinos, but only 9% of loans to whites. In the City of Boston, FHA loans accounted for 42% of loans to blacks, 27% of loans to Latinos, and 3% of loans to whites.”); Sarah Wolff, Ctr. for Responsible Lending, The Drought Continues: Mortgage Credit Runs Dry for Californians of Color 7 (July 2016), available at www.responsiblelending.org (African-American and Latino borrowers combined received 25% of new home-purchase loans while making up nearly 40% of the population in California); Woodstock Inst., Her Longer Road Home: Disparities in Mortgage Lending to Women in the Chicago Region 5–7 (June 2015), available at www.woodstockinst.org (providing data from 2011 to 2013 showing that mortgage applications from women and women with co-applicants were less likely to be originated than mortgage applications from men and men with co-applicants in the Chicago region, controlling for loan-to-income ratios for both purchase and refinance loans, except in the case of low-income women).

  • 147 Harvard Joint Ctr. for Hous. Studies, State of the Nation’s Housing 2016, at 27–28 (2016) (the higher prices and inadequate supply of affordable housing placed severe strains on lower-income households).

  • 148 Id. at 25.

  • 149 Matthew Goldstein, As Banks Retreat, Private Equity Rushes to Buy Troubled Mortgages, N.Y. Times, Sept. 28, 2015, available at https://www.nytimes.com. See also Jay Youngdahl & Darwin BondGraham, California Teachers Have Been Financing Evictions, E. Bay Express, Oct. 7, 2015, available at https://www.eastbayexpress.com.

  • 150 Geoff Walsh, National Consumer Law Center, Opportunity Denied: How HUD’s Note Sale Program Deprives Homeowners of the Basic Benefits of Their Government-Insured Loans 11 (2016), available at www.nclc.org.

  • 151 Id. at 2.

  • 152 “Roughly two-thirds of the billions of dollars in FHA insurance claims paid out under the Distressed Asset Stabilization Program went to Bank of America, Wells Fargo, and JP Morgan Chase. Notably, these were three of the five servicers targeted by the 49 state attorney generals’ investigations during 2010–12. The involvement of these particular servicers goes a long way to explaining the extensive delays, averaging two and one-half years of delinquency, for the loans sold through DASP. It also explains the concentration of loans from judicial foreclosure states. These were the servicers most under scrutiny from courts and government agencies, a scrutiny that turned out to be well-founded.” Id. at 36.

  • 153 Brian Honea, Fannie Mae’s Largest Non-Performing Loan Sale Ever, DSNews, Feb. 10, 2016, available at www.dsnews.com; Brian Honea, Freddie Mac Kicks Off 2016 with Largest Ever Delinquent Loan Auction, DSNews, Jan. 22, 2016, available at www.dsnews.com; Aditi Sen, Ctr. for Popular Democracy & ACCE Inst., Do Hedge Funds Make Good Neighbors? How Fannie Mae, Freddie Mac & HUD Are Selling Off Our Neighborhoods to Wall Street (June 2015), available at https://www.housingwire.com.

  • 154 Cal. Reinvestment Coalition, REO to Rental in California: Wall Street Investments, Big Bank Financing, and Neighborhood Displacement 5–9 (June 2015), available at www.calreinvest.org .

  • 155 Id. at 2.

  • 156 Id. at 5. Nationally, investor purchasers have spent $25 billion buying more than 150,000 homes since 2015. Wall Street has issued more than $8 billion in securities backed by the stream of rental income from almost 60,000 homes owned by these companies, including Blackstone, Colony, and American Homes for Rent since 2013. Id.

  • 157 Id. at 1.

  • 158 Id. at 6.

  • 159 {119} See generally Diane E. Thompson, Foreclosing Modifications: How Servicer Incentives Discourage Loan Modifications, 86 Wash. L. Rev. 755 (2011) (describing these constraints and incentives in detail). See also Kathleen C. Engel & Patricia A. McCoy, The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps 129–133 (2011); Adam J. Levitin & Tara Twomey, Mortgage Servicing, 28 Yale J. on Reg. 1 (2011).

  • 160 {120} U.S. Dep’t of Treasury, Making Home Affordable, www.treasury.gov. See also Kathleen C. Engel & Patricia A. McCoy, The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps 127–128 (2011) (describing the initiation of HAMP and its purposes).

  • 161 National Consumer Law Center, Foreclosures and Mortgage Servicing § 5.8 (5th ed. 2014) (describing these programs in detail), updated at www.nclc.org/library.

    Fannie Mae and Freddie Mac implemented their own versions of HAMP. National Consumer Law Center, Foreclosures and Mortgage Servicing § 5.11.3 (5th ed. 2014), updated at www.nclc.org/library.

  • 162 {121} Compare U.S. Dep’t of Treasury, Making Home Affordable Program Performance Report Through Third Quarter 2016 at 4 (Dec. 9, 2016), available at www.makinghomeaffordable.gov (showing that 2,081,557 first lien permanent modifications had been started under the program to date, along with another 161,444 2MP modifications), and Office of the Special Inspector General for the Troubled Asset Relief Program, Quarterly Report to Congress (Oct. 26, 2016), available at https://www.sigtarp.gov (only 1.6 million homeowners received permanent modifications, far short of the projected 3–4 million permanent modifications; over 4 million homeowners that applied for HAMP were denied and about 500,000 homeowners have fallen out of the program), with Murray Jacobson, Obama’s Foreclosure Program Slammed Anew for Ineffectiveness, PBS Newshour (Mar. 2, 2011) (reporting that the Administration projected the program would prevent three to four million foreclosures). See also MFY Legal Services, Inc. & Am. Civil Liberties Union, Here We Go Again: Communities of Color, the Foreclosure Crisis, and Loan Servicing Failures 27 (Feb. 2015), available at https://www.aclu.org (reviewing complaints of New Yorkers filed with the Consumer Financial Protection Bureau between July 1, 2012 and May 31, 2014 about mortgage servicing and loan modifications by community type; finding “complaints about types of servicer misconduct that increase the likelihood of home loss make up a larger share of complaints from communities where people of color live than from predominately white communities”).

  • 163 United State Dep’t of the Treasury, Making Home Affordable Program, Program Purpose and Overview, available at www.treasury.gov.

  • 164 This settlement is reprinted in National Consumer Law Center, Foreclosures and Mortgage Servicing Appx. C (5th ed. 2014), updated at www.nclc.org/library.

  • 165 RealtyTrac.com, 56% of 3.3 Million HELOCs Scheduled to Reset With Higher Rates in Next Four Years Are on Underwater Homes (Mar. 5, 2015), www.realtytrac.com (3,262,036 HELOCs with an estimated total balance of $158 billion that originated during the housing price bubble between 2005 and 2008 are still open and scheduled to reset between 2015 and 2018; of these, 1,834,588 are on residential properties that are seriously underwater, meaning the combined loan-to-value ratio of all outstanding loans secured by the property is 125 percent or higher; states with the most upcoming HELOC resets are California, Florida, Illinois, Texas, and New Jersey—those covering the highest percentage of underwater homes are Nevada, Arizona, and Florida).

  • 166 Michela Zonta & Sarah Edelman, Ctr. For Am. Progress, The Uneven Housing Recovery 5 (Nov. 2, 2015), available at https://www.americanprogress.org (providing negative equity data by county and metropolitan statistical areas for each state).

  • 167 Daren Blomquist, Realty Trac, Seriously Underwater Homes Heat the Map, www.realtytrac.com (Nov. 28, 2016). “Seriously underwater” is a subset of all mortgage loans underwater and is defined as loans with balances at least twenty-five percent greater than the estimated market value of the home.

  • 168 Michela Zonta & Sarah Edelman, Ctr. For Am. Progress, The Uneven Housing Recovery 6–7 (Nov. 2, 2015), available at https://www.americanprogress.org (discussing other consequences of negative equity, such as: cuts in local government spending due to drops in or stagnation of property values and tax revenue; decline in property maintenance and upkeep; and reduced spending on consumer goods and services affecting economic growth and employment).

  • 169 {122} U.S. Gov’t Accountability Office, Pub. No. GAO-11-93, Mortgage Foreclosures: Additional Mortgage Servicer Actions Could Help Reduce the Frequency and Impact of Abandoned Foreclosures 29–37 (Nov. 2010). See also Kathleen C. Engel & Patricia A. McCoy, The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps 142–146 (2011); Cheryl L. Wade, How Predatory Mortgage Lending Changed African American Communities and Families, 35 Hamline L. Rev. 437, 442–444 (2012) (describing the impact on neighborhoods in Baltimore).

  • 170 {123} U.S. Gov’t Accountability Office, Pub. No. GAO-11-93, Mortgage Foreclosures: Additional Mortgage Servicer Actions Could Help Reduce the Frequency and Impact of Abandoned Foreclosures 29–37 (Nov. 2010).

  • 171 {124} Kathleen C. Engel & Patricia A. McCoy, The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps 145 (2011).

  • 172 For a discussion of these cases, see § 6.3.4, infra.

  • 173 Linda E. Fisher, Shadowed by the Shadow Inventory: A Newark, New Jersey, Case Study of Stalled Foreclosures and Their Consequences, 4 U.C. Irvine L. Rev. 1265, 1268 (2014) (defining “shadow inventory”); Judith Fox, The Foreclosure Echo: How Abandoned Foreclosures Are Re-Entering the Market Through Debt Buyers, 26 Loy. Consumer L. Rev. 25 (2013) (describing the increased presence of debt buyers in the buying of mortgage loans and the collection of deficiency foreclosure judgments, and the problems this poses for homeowners); Woodstock Inst., Unresolved Foreclosures: Patterns of Zombie Properties in Cook County 3 (Jan. 2014), available at www.woodstockinst.org (using the phrase “zombie property” to refer to a property with an unresolved foreclosure for more than three years).

  • 174 Woodstock Inst., Unresolved Foreclosures: Patterns of Zombie Properties in Cook County 12 (Jan. 2014), available at www.woodstockinst.org (“Zombie properties that are poorly maintained and become blighted threaten the desirability and stability of the surrounding neighborhood. The estimates show that less affluent neighborhoods are more likely to have higher numbers of zombie properties than more affluent neighborhoods. Lower-income neighborhoods, therefore, face a more serious threat of being negatively impacted by poorly maintained zombie properties than higher-income neighborhoods.”).

  • 175 Linda E. Fisher, Shadowed by the Shadow Inventory: A Newark, New Jersey, Case Study of Stalled Foreclosures and Their Consequences, 4 U.C. Irvine L. Rev. 1265, 1292 (2014).

    These effects include: declines in home prices and new construction, positive correlation with vacancies, deterioration in the appearance and integrity of the neighborhood, and increases in crime and fires due to the presence of squatters in the vacant homes. Id. at 1271–1272.

  • 176 {125} Elizabeth Renuart, Property Title Trouble in Non-Judicial Foreclosure States: The Ibanez Time Bomb?, 4 Wm. & Mary Bus. L. Rev. 111, 119–128 (2013) (detailing the scope of this problem).

  • 177 {126} Elizabeth Renuart, Uneasy Intersections: The Right to Foreclose and the U.C.C., 48 Wake Forest L. Rev. 1205, 1206–1207 (2013).

  • 178 {127} Elizabeth Renuart, Property Title Trouble in Non-Judicial Foreclosure States: The Ibanez Time Bomb?, 4 Wm. & Mary Bus. L. Rev. 111, 171–180 (2013).

  • 179 {128} MERS is described in detail in National Consumer Law Center, Foreclosures and Mortgage Servicing § 7.12 (5th ed. 2014), updated at www.nclc.org/library.

  • 180 {129} For a few of the many articles identifying the issues raised by the use of MERS in mortgages, see generally Donald J. Kochan, Certainty of Title: Perspectives After the Mortgage Foreclosure Crisis on the Essential Role of Effective Recording Systems, 66 Ark. L. Rev. 267, 284–296 (2013); Christopher L. Peterson, Two Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory, 53 Wm. & Mary L. Rev. 111 (2011) (discussing whether naming MERS as a mortgagee satisfies traditional conveyance requirements); David E. Woolley & Lisa D. Herzog, MERS: The Unreported Effects of Lost Chain of Title on Real Property Owners, 8 Hastings Bus. L.J. 365 (2012) (analyzing the effects of MERS’s electronic recording system on traditional recorded property rights in the United States).

  • 181 Mortg. Bankers Ass’n, National Delinquency Survey Q4 (2006); Mortg. Bankers Ass’n, National Delinquency Survey Q4 (2015).

  • 182 Jason Lange, Fannie Mae, Freddie Mac to Lose Market Share to Private Capital: CBO (Dec. 16, 2014), www.reuters.com.

  • 183 James Rufus Koren, After Subprime Collapse, Nonbank Lenders Again Dominate Riskier Mortgages, Los Angeles Times, Nov. 30, 2015, available at www.latimes.com (noting that the lenders highlighted in the article are all run by former executives of Countrywide Financial).

  • 184 Alexis Leondis & Jody Shenn, Western Asset Bespoke Mortgages Feeding Non-Agency Demand, Bloomberg (June 9, 2014), www.bloomberg.com (identifying Caliber Home Loans, Inc. as one such lender). Cf. Rachel Witkowski, Underwriting Standards Loosened to Precrisis Levels, OCC Warns, Am. Banker, Dec. 9, 2015, available at www.americanbanker.com (noting OCC concerns about more lax underwriting standards in the indirect consumer loan (bank loans to finance the purchase of goods) and credit card contexts).

  • 185 See, e.g., Kirsten Grind, Crisis-Era Mortgage Attempts a Comeback, Wall St. J., Feb. 1, 2016 (discussing investor appetite for Alt A low-documentation loans); Arleen Jacobius, Firms Resurrect Non-Agency RMBS Market, Pensions & Investments, Sept. 19, 2016, available at www.pionline.com; Alexis Leondis & Jody Shenn, Western Asset Bespoke Mortgages Feeding Non-Agency Demand, Bloomberg, June 9, 2014, www.bloomberg.com (discussing investor appetite for interest-only loans with higher debt-to-income ratios).

  • 186 Alexandra Stevenson & Matthew Goldstein, Wall Street Veterans Bet on Low-Income Home Buyers, N.Y. Times, Apr. 18, 2016, at B1.

  • 187 For an in-depth discussion of these contracts, see Ch. 12, infra.