The number of foreclosure filings increased in Monroe County throughout the 1990s. Complaints from homeowners were directed to the offices of elected officials, including the District Attorney and the Attorney General claiming they had been taken advantage of by builders, developers, lenders, appraisers, brokers and others. In April 2001, a Pocono Record series regarding possible real estate fraud, entitled “A Price Too High,” outlined concerns. The Office of Attorney General filed its first lawsuit against a developer in 2002 and a second lawsuit later that year. In the fall of 2003, Governor Rendell established a Monroe County Task Force to study the rise in foreclosures. The facts of this study, conducted by TRF, reveal:

The growth in foreclosure filings is real, outpaces housing unit growth in the County and is disproportionate to other counties in the Commonwealth. The number of mortgage foreclosure filings tripled in Monroe County from 1995 through 2003. In 1995, 388 foreclosures were filed. In contrast, by 2003, there were 940 filings. A total of 6,129 mortgage foreclosures were filed in the County from 1995 through 2003. Housing construction in the County also grew during this period, yet foreclosures filed as a percentage of occupied housing units rose from 1.8 to 2.3 between 2000 and 2002 -a rate of increase that is higher than in other counties in Pennsylvania for which comparable data are currently available. (Note: This study only examined initial foreclosure filings, not whether a person actually lost their home at a Sheriff ’s sale. In some cases, lenders or current owners or servicers of loans worked with consumers after an initial foreclosure filing to keep consumers in their homes.)

Monroe County’s rapid growth was fueled by the migration of families from New York and New Jersey. Monroe County is the second fastest growing county in the Commonwealth. Its population grew by 45% between 1990 and 2000 and by another estimated 11% between 2000 and 2003. New households in the area included large migrations from New York and New Jersey. Compared to existing Monroe County residents, these New York and New Jersey migrants are more likely to be married, have school age children, earn higher incomes, live in newly constructed housing and be African American or Hispanic.

Loans in foreclosure in Monroe County from 2000 through 2003 have different characteristics than the typical loan in Monroe County. Loans on the Monroe County Prothonotary’s foreclosure filing list from 2000 through 2003 more likely involved an inflated sale price than those not in foreclosure, are disproportionately subprime and went into foreclosure faster than other Pennsylvania counties for which comparable data was available.

Foreclosure filings are geographically concentrated. Foreclosure filings are not dispersed evenly throughout Monroe County, but are concentrated in five townships and twelve subdivisions.

What follows is a detailed report of the methodology employed and data collected. The data are summarized at varying “levels” - from the County, to the Township, to the Subdivision.

B. DESCRIPTION OF STUDY AND METHODOLOGY

This study represents an effort to provide state officials with a set of facts regarding foreclosure filings in Monroe County, Pennsylvania, during the four year period from 2000 through 2003 that may be used to make resource and policy decisions going forward in an effort to moderate the trend of foreclosure filings. The facts that follow in this report result from:

. an extensive quantitative analysis of the transaction histories of properties in foreclosure;

. a review of HUD-1 settlement sheets, appraisals and Homeowners Emergency Mortgage Assistance Program (HEMAP) applications so as to collect information about the characteristics and circumstances surrounding foreclosure filings.

DATA SOURCES AND METHODOLOGY

U.S. CENSUS DATA & CENSUS ESTIMATES 1990, 2000, 2002 - The U.S. Census Bureau 1990 and 2000 Summary Files 1 and 3 data permit a categorization of the County in terms of any number of relevant social, demographic and economic characteristics (e.g., racial composition, income level, housing value, owner occupancy rates, etc.). Census data is analyzed using statistical software known as The Statistical Package for the Social Sciences (“SPSS”) and GIS software known as ArcView. The U.S. Census also provides estimates of some of the characteristics for 2002.

U.S. CENSUS 2000 5-PERCENT PUBLIC USE MICRODATA SAMPLE (PUMS) FOR PENNSYLVANIA 

This is a compilation of a sample of individual Census forms collected by the Census. This form of the data allows for a very detailed and customized examination of the data. The trade-off for the ability to examine individual Census records is a loss of geographic specificity. However, because Monroe County is as populous as it is, TRF was able to isolate the part of the Pennsylvania sample resident in Monroe County – identified in the sample as Public Use Microdata Area 00700 – and conduct the necessary analyses.

FORECLOSURE FILINGS - TRF obtained an electronic listing of all mortgage foreclosures from the Prothonotary’s Office in Monroe County for the four year period from 2000 through 2003. The listing contained information regarding the plaintiff, defendant and mailing address of each foreclosure filing. The list represented 3,443 filings.

PROPERTY SPECIFIC SALE AND MORTGAGE DATA – To obtain specific information about the exact location, sales, mortgages and assignments associated with each property on the foreclosure filing list, TRF queried each foreclosure property in both RealQuest, by First American Real Estate Solutions, Inc., and LANDEX, by Optical Storage Solutions, Inc. These fee-based databases allowed TRF – where information was available – to document the transaction history on each property. Together, the two databases enabled TRF to record when the property was sold, at what price, and to whom; mortgages recorded against the property; mortgage companies involved; and the assessed value given the property by the County. Of the 3,443 recorded filings in the Prothonotary’s Office, at least 300 represented multiple filings on single properties and TRF was unable to find any information about another 398 filings. In the end, TRF found and recorded information regarding 2,745 properties from RealQuest and 2,500 properties from LANDEX.

HOMEOWNERS EMERGENCY MORTGAGE ASSISTANCE PROGRAM (HEMAP) – PHFA provided TRF with electronic information regarding every household that filed for HEMAP assistance in the County during these same four years. Additionally, TRF obtained hard copies of approximately 472 HEMAP applications (representing 403 unique households) that were submitted to the PHFA through the Consumer Credit Counseling Service of Northeastern Pennsylvania.

ONE-ON-ONE INTERVIEWS -TRF, Banking, and PHFA staff conducted face-to-face and telephone interviews with approximately 75 homeowners either in, or on the verge of, foreclosure. The main purpose of the interviews was to gather the kind of background information and documents necessary to properly comprehend the scope and nature of events in Monroe County. Interviews were conducted at the Pocono Township Firehall, a central location in Monroe County, during a weekend and on the phone during the course of this study. TRF asked questions designed to identify all of the realtors, mortgage brokers, lenders, appraisers and builders who participated in their home purchase or mortgage refinance; to assess the household’s financial situation at the time of the purchase or refinance; and to assess if the household believes that the loan they received and house they bought were consistent with what they had been told.

ATTORNEY GENERAL LAWSUITS - The Office of Attorney General has filed lawsuits against two developers in Monroe County: Raintree Homes and Keystone Development. TRF obtained copies of the complaints and exhibits in these cases for use in this study.

COMPILATION -TRF recorded all of the information obtained from the Prothonotary’s Office, RealQuest, LANDEX, and HEMAP into a single Access database – the Monroe Access Database. To the greatest extent possible, information gathered about each property was linked through an official Tax ID number.

C. PROFILE OF MONROE COUNTY COMPARED WITH PENNSYLVANIA

POPULATION: Between 1990 and 2000, the Commonwealth of Pennsylvania grew by 399,000 people (3.4%) ranking 48th out of 50 states in terms of percentage growth over that time period. Monroe County, however, grew by nearly 45% between 1990 and 2000 and was the second fastest growing county in Pennsylvania – next to Pike County. Between 2000 and 2003, the U.S. Census Bureau estimates that Pennsylvania grew by an additional 84,000 people (0.7%); Monroe County grew by an additional 16,000 people (11.4%).

25.0%

20.0%

5.0%

0.0% Pct Chge; 90-00 Pct Chg; 00-02

Period of Change

Percent Change in Pennsylvania

and Monroe County Population;

1990-2003

Percent Change

15.0%

10.0%

HOUSING UNITS: Consistent with growth in the population, the stock of housing units in the Commonwealth and in Monroe County also grew. Housing units across the Commonwealth grew by 390,000 units (7.8%) between 1990 and 2002. The number of housing units in Monroe County is estimated to have increased significantly faster, growing by 16,000 units (28.1%) between 1990 and 2002.

25.0%

20.0%

Percent Change in

Pennsylvania and

Percent Change

Monroe County

15.0%

Housing Units; 1990-

10.0%

2002

5.0% 0.0% Pct Chge; 90-00 Pct Chg; 00-02

Period of Change

N/A = Not available

the right.)

County / State of Origin for Persons Migrating to Monroe County, 1995-2000 [Counties from which 750 or more people migrated]

^{Kings
County, NYQueens
County, NYBronx
County, NY}Northampton County, PA^{Suffolk County, NYEssex County, NJMorris
County, NJBergen County, NJMiddlesex
County, NJ Philadelphia, PARichmond County, NYHudson
County, NJWarren County, NJNew
York County, NYLehigh County, PA}

County / State of Origin

COMPARISON OF NEW MONROE COUNTY RESIDENTS TO LONGER TERM RESIDENTS

Using Public Use Sample data from the U.S. Census Bureau, TRF summarized data for heads of households (and their respective households) and created four groups of new migrants (post1995) to Monroe County based on their state of origin. Those groups are migrants from: (a) Pennsylvania, other than Monroe County; (b) New York; (c) New Jersey; (d) other states.

MIGRANTS TO MONROE COUNTY 1995-2000

In relative terms, 53.8% of all migrants to Monroe County were from other parts of Pennsylvania, 19.1% from New York, 15.7% from New Jersey and 11.4% from other states combined.

The groups that moved into Monroe County from 1995 through 2000 had higher concentrations of minorities than the existing population of Monroe County.

Additionally, while not charted here, data from the U.S. Census Bureau indicate that migrants to Monroe County from both New York and New Jersey were slightly more likely to be married than existing residents. And, they were more likely to have one or more children.

* The U.S. Census Bureau considers Hispanic an ethnic group in which members can also be considered white or blackin terms of race. As a result, the racial composition in each state of origin adds up to more than 100%. “Other” includes additional races such as American Indian, Asian, Native Hawaiian, and those of more than two races.

Migrants to Monroe County from 1995 through 2000 were more likely to have more years of formal education than existing Monroe County residents.

In 2000, unemployment among existing Monroe County residents was higher (6.6%) than for any group moving into the County from 1995 through 2000. Using this same comparison, existing Monroe County residents were also less likely to be in the labor force.

Migrants to Monroe County from New York and New Jersey had higher median family incomes than existing Monroe residents - and substantially higher incomes than the median family from Pennsylvania who migrated to Monroe County.

In terms of housing, almost three times the percent of New Jersey migrants (32%) lived in renter housing in Monroe County compared to 11.1% of existing residents who lived in renter housing. That disparity was even more marked among residents from Pennsylvania, 46.4% of whom resided in renter housing.

In general, those migrating into Monroe County from New York and New Jersey were substantially more likely than existing residents to live in homes built during the 1990s. Migrants from Pennsylvania and other states were comparable to existing residents in terms of residence in older homes, but more likely to live in newer homes as well.

MINORITY POPULATIONS: Minority populations in the Commonwealth of Pennsylvania grew between 1990 and 2000, while the White population experienced a slight decline. In Monroe County, all population groupings grew with greatest growth among Blacks/African Americans, Hispanics and “other” racial minority group members. The racial composition of Monroe County remains predominantly White with a relatively smaller Black/African American population than the Commonwealth, but larger Hispanic and “other” concentrations.

Percent of Population

Racial and Ethnic Composition in Monroe County and Pennsylvania 1990 and 2000

100.0%

80.0%

60.0%

40.0%

20.0%

0.0%

Year

*The U.S. Census Bureau considers Hispanic an ethnic group in which members can also be considered white or black in terms of race. As a result, the racial composition in each column adds up to more than 100%. “Other” includes additional races such as American Indian, Asian, Native Hawaiian, and those of more than two races.

AGE OF POPULATION: The Commonwealth of Pennsylvania is aging. Its population over the age of 65 grew by 4.9% while its population of people under the age of 5 declined by 8.7%. Populations between the ages of 20 and 44 also declined in Pennsylvania, with a combined loss of 9.4%. Pennsylvania (with a median age of 38 years) is the 4^th oldest state in the country (behind West Virginia, Florida and Maine). In terms of the percent of its population 65 years or older, Pennsylvania (15.6%) is second only to Florida (17.6%).

In contrast, all age groups in Monroe County grew, with the strongest growth in the teen and younger years as well as the age category 45-54.

In 2000, Monroe County was home to larger percentages of school age children than it was in 1990 - and has a comparatively greater share of younger people than the Commonwealth.

Distribution of Age Groupings for Pennsylvania and Monroe County, 2000

Percent of TotalPopulation

30.0%
25.0%
20.0%
15.0%
10.0%

5.0% 0.0% Under 5 5-9 10-14 15-19 20-24 25-44 45-54 55-64 65 and Over

Age Grouping

Monroe 2000

PA 2000

AGE OF HOUSING STOCK: The housing stock in Pennsylvania was largely built prior to the 1970s (65.9%). Approximately 10% was added during the 1990s. Monroe County’s housing stock, however, was developed more recently. Construction during the 1980s (29%) and 1990s (24.6%) accounted for more than half (53.6%) of Monroe County’s total housing stock.

Percent of Units

Distribution of Housing by Period of Construction for Pennsylvania and Monroe County, 2000

100% 80% 60% 40% 20% 0% Monroe 2000 PA 2000

1995-March 2000 1990-1994

1980-1989

1970-1979

1969 or earlier

HOMEOWNERSHIP: In 2000, 71.3% of homes were owner-occupied in the Commonwealth of Pennsylvania. In Monroe County, 78.3% were owner-occupied.

HOME VALUES: Two sources were used to estimate the value of housing in Pennsylvania and Monroe County: (1) median mortgage amounts for originated mortgages in Monroe County and for the entirety of the Commonwealth from data available under the HMDA; and (2) existing home sale prices from data provided to the Department of Banking by the Pocono Mountains Association of Realtors (“PMAR”).

Average Price

HMDA data show that in inflation-adjusted terms, the median mortgage amount for Pennsylvania rose by 10.8% from 1998 through 2002. Monroe County median mortgage amounts were the same as the Commonwealth’s in 1998, but rose faster - by 13% - and exceeded the Commonwealth’s average in 2002.

Average Mortgage Amount and Sale Prices for Pennsylvania and Monroe County, 1998-2002

150,000

125,000

100,000

75,000

1998 2000 2002

Year

Existing single family home sale prices as reported by PMAR for the same time period show an average in 1998 of $103,136 rising to $131,536 by 2002. In inflation-adjusted terms, this represents a 17% increase between 1998 and 2002.

HOUSING COST BURDENS: In Pennsylvania, the percent of households in owner occupied housing units who were burdened by their cost of housing (defined by the Department of Housing and Urban Development as spending more than 35% of income on housing) rose from 11.6% to 15.2% between 1990 and 2000. In Monroe County, more households are increasingly burdened by housing costs than across the Commonwealth. In 1990, the percent of Monroe County households burdened by housing costs was 16.7%; that percent rose to 22.1% by 2000.

INCOMES: In 2000, the median household income in Pennsylvania was $40,106. In Monroe County, it was higher - $46,257. Median household income in Pennsylvania grew (in inflation-adjusted terms) by 0.7% between 1990 and 2000 while in Monroe County, it grew by 4%.

Similarly, median family income grew faster in Monroe County than in the rest of the Commonwealth. By 2000, the median family income in Monroe was $51,995; whereas, in the Commonwealth, it was $49,184.

Median Family Income

Median Family Income for Pennsylvania and Monroe County, 1990-2000

$60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0

1990 Year 2000

EDUCATIONAL LEVELS: Educational attainment is typically defined as the highest grade completed for the population 25 years of age and older. Across the Commonwealth, 5.5% of the population in the year 2000 had less than a high school degree; compared with 3.7% for Monroe County. The percents with a high school degree in Monroe County and across the Commonwealth are comparable at approximately 82%. A college degree is slightly more likely across the Commonwealth than it is in Monroe County (22.4% versus 20.5%).

LABOR FORCE: Labor force status is generally evaluated for persons 16 years of age or older. Relevant to a complete understanding is not only the percent of the labor force that is unemployed (or employed) but also the percent of persons 16+ years of age who are not in the labor force. Labor force status “not in the labor force” encompasses a range of activities including, but not limited to: people who are enrolled at an educational institution and are not looking for work and people who are without a job and are no longer looking for work (i.e., discouraged workers). Monroe County has a slightly higher labor force participation rate than the Commonwealth although rates for both have been stable over the last 10 years.

UNEMPLOYMENT: In 2000, the unemployment rate in Monroe County (6.6%) was significantly higher than in Pennsylvania (5.7%), the Nation (5.8%) and the Northeast region (5.9%). Additionally, unemployment rose faster in Monroe County than in Pennsylvania, the Nation or the Northeast region between 1990 and 2000.

JOURNEY TO WORK: According to the U.S. Census Bureau, the percent of people who live and work in Monroe County declined from 72.6% in 1990 to 64.0% in the year 2000. Counties “receiving” the largest number of Monroe County workers include Northampton (PA), Morris (NJ), New York (NY), Lehigh (PA) and Warren (NJ). The greatest percentage growth in numbers of workers between 1990 and 2000 was found in New York (NY), Lehigh (PA), Kings (NY), Carbon (PA), Lackawanna (PA) and Hudson (NJ).

SCHOOL ENROLLMENT: Data from the Pennsylvania Department of Education depicts enrollment in public, private and parochial schools, by county, across the Commonwealth. From the school year 2000/2001 to the school year 2002/2003, enrollment across the Commonwealth declined by 0.5%. Consistent with the rapid population growth in Monroe County, particularly among the school age groups, school enrollment over that same time period increased by 9.4%. (These net change figures may understate the level of turnover in Monroe County school districts.)

LOW INCOME ENROLLMENT: Data on the enrollment of children from low-income families is reported individually for the school districts that comprise Monroe County and for all Pennsylvania districts combined. The Monroe County school districts are: East Stroudsburg Area, Pleasant Valley, Pocono Mountain and Stroudsburg Area. Overall, 31.2% of children attending Pennsylvania School Districts are from low-income families, and the percentages have been relatively stable over the period 1998-2003. In Monroe County, all school districts have smaller percentages of low-income children than the state average. In 2002/2003, Pocono Mountain has the highest percentage where 29.2% of all children enrolled in the school district were low income. This was an 11% increase since the 1998/1999 school year.

HOUSING UNITS PER

PERCENT
UNEMPLOYED, 2000

PERCENT WORKING
OUT OF STATE, 2000

D. FORECLOSURE TRENDS: STATEWIDE AND IN MONROE COUNTY

PENNSYLVANIA

As a general matter, a mortgage foreclosure is a legal action that is defined in part as:

The process by which a mortgagor of real or personal property, or other owner of

property subject to a lien, is deprived of his interest therein. A proceeding in

equity whereby a mortgagee either takes title to or forces the sale of the

mortgagor’s property in satisfaction of a debt. Black’s Law Dictionary (6th ed. 1990)

At the most basic level, a mortgage foreclosure action is usually started after an individual has stopped making payments on their mortgage loan (voluntarily or involuntarily). Unless those payments begin again, an arrangement is made with the lender, a consumer is protected in bankruptcy, or some other extraordinary event occurs, the individual is going to lose their home. The loss of a home through foreclosure adversely affects the homeowner and community in which they live along with the lender or investor who holds the loan.

Data obtained from the Mortgage Bankers Association of America (MBAA) show that the trend in foreclosures for the Commonwealth of Pennsylvania has been on the rise. Looking back to 1979, the typical quarterly percent of conventional loans in foreclosure was less than one-half of one percent. That figure rose steadily during the decades of the 80s and 90s. Since the year2000, the percent of conventional loans in foreclosure rose from about one percent to one and one-half percent.

Percent Of All Conventional Loans In Foreclosure At The End Of The Quarter; Pennsylvania, 1979-2002

1978 1983 1988 1993 1998 2003

Year

According to the MBAA, Pennsylvania has a relatively typical percent of loans in foreclosure where the underlying loans are prime loans. By comparison, though, Pennsylvania’s percent of subprime loans in foreclosure – orders of magnitude higher than the percent of prime loans in foreclosure - typically ranks it among the top five or six states in the country. Pennsylvania’s foreclosure rate among prime loans has hovered around 0.8% while the subprime foreclosure rate has been as high as 12.1% in the 4^th quarter of 2002. By way of comparison, FHA-insured mortgages have had foreclosure rates in and around 4% over the same time period.

MONROE COUNTY

The number of foreclosures filed against properties in Monroe County has increased by 34% since the year 2000 and has gone up 242% since 1995. The Commonwealth’s HEMAP program saved 318 households from foreclosure from 2000 through 2003.

Foreclosure Filings Per Year in Monroe County, 1995-2003

925 940

1000

879
900
800
700
600

500
400
300
200
100
0

1995 1996 1997 1998 1999 2000 2001 2002 2003

In an effort to discern whether the rise in foreclosures in Monroe County is extraordinary in light of the substantial population and housing unit growth in the County, TRF used data from the U.S. Census Bureau to “standardize” the number of foreclosures against the number of housing units. To that end, the U.S. Census Bureau reports, on a county-by-county basis, the estimated number of housing units for 2002 (the most recent year for which data are available); these same data are available for the year 2000 based upon tabulations from the decennial Census. Using the county percentage of owner occupied properties in the year 2000 (the only year for which this information is available), TRF then estimated the size of the owner occupied housing stock in 2002.

For the years 2000 and 2002, TRF collected the number of foreclosure filings from a set of counties for which data were available. This set of counties is not presented as a random selection of counties in Pennsylvania, but simply represents those counties for which TRF was able to obtain consistent, reliable data. For each of these counties, the same estimations of the number of owner occupied housing units in 2000 and 2002 were derived. The formula used to standardize the foreclosure filings in each county is:

# foreclosures in year y ____________________________________

* 100 # of owner occupied housing units in year y These data show two things about Monroe County: (1) the number of foreclosure filings per 100 owner-occupied housing units was higher than for any other county for which data were available; (2) the rate of change in the number of filings per 100 owner-occupied housing units between 2000 and 2002 was greater in Monroe County than any other county for which data were available.

To be clear, these are not foreclosure rates like those reported by the MBAA and are, therefore, not comparable to the MBAA figures reported previously in this report. The rates reported by the MBAA require data on the totality of existing mortgages – data that is not available to TRF. However, by standardizing foreclosure filings, one can discern whether what happened in Monroe County is attributable purely to its growth, or some other factor. And, it permits a reasonable comparison to other parts of the Commonwealth.

E. PROFILE OF MONROE COUNTY FORECLOSURES

GEOGRAPHIC CONCENTRATION

More than half of all foreclosure filings are concentrated in five townships: Coolbaugh, Middle Smithfield, Chestnut Hill, Stroud and Tunkhannock. These townships are home to 44% of the housing units in the County – but 64% of the foreclosure filings over the last four years.

Top 5 Townships (account for 44% of housing units - but 64% of foreclosures)

^Note:Of the 3,443 properties for which a foreclosure filing was made between 2000 and 2003, approximately 300 were multiple filings on single properties. We were unable to find property details in RealQuest for another 398 which gave us a sample of 2,745 property details to analyze.

FORECLOSURES BY BLOCK GROUP 2000-2003

INFLATED SALE PRICES

The purpose of this section of the analysis is to estimate the extent to which sale prices on homes that went into foreclosure were reasonable given existing market conditions. The best way to accomplish this would be to conduct “as-of ” residential appraisals (i.e., estimating the market value of the property in foreclosure at the time of the initial purchase) on each property in foreclosure. Given the length of time and cost involved in that approach, TRF sought to use available data to develop an indicator of where properties were reasonably valued. While the following analysis cannot substitute for accurate appraisals, it does, however, point to properties where sale prices clearly seemed high and worthy of a deeper and more systematic inquiry.

Like other counties in Pennsylvania, Monroe County is responsible for assessing the value of all land and improvements in the county for tax purposes. The most recent such data available to TRF are assessments for Tax Year 2003. The Monroe County assessment ratio is .25, which means that if the County places an assessed value on the property of $25,000, its estimated market value (EMV) for that property should be $100,000.

Recognizing that tax assessments in Pennsylvania are not perfect, TRF undertook an analysis of properties sold in calendar years 1995 through 2003 to understand just how closely, in general, the EMVs relate to actual sale prices. To make the analysis more precise, TRF reduced the group of residential sales to exclude:

· sales valued under $25,000 and over $500,000 (as they represented quite extreme cases) · sales where there was incomplete information (i.e., a missing sale price or date in

the public record) · sales that did not include an improvement (i.e., just a land sale with no home) · sales that were not obviously arms-length (e.g., a lender or secondary mortgage

market entity – Fannie Mae or Freddie Mac – purchased the property)

What remained were approximately 28,000 sales. On an annual basis, the average sale prices of these properties were:

By way of comparison, the average of $124,875.42 in 2002 is just 5% below the average sale price for existing single family homes by the Pocono Mountain Association of Realtors for the year 2002.

When TRF then compared the EMV for each of these properties with its sale price, TRF found that higher valued properties had EMVs that were closer to the sale price than lower valued properties. In the lower valued properties, EMVs tended to be proportionately lower than in higher valued properties and represented a greater mismatch in sale price to EMV. Specifically, TRF observed the following:

When an EMV and sale price are the same, the ratio would be 1.0, with differences between the two reflected in ratios greater or less than 1.0.

Since the purpose of this analysis was to identify “the unusual” sale price, TRF focused on those properties where the ratio of sale price to EMV exceeded the 75^th percentile - and sale prices were likely too high. TRF further separated those instances where the price to EMV ratio was greater than the 90^th percentile – and sale prices were very likely too high.

Comparing ratios for properties not in foreclosure against those in foreclosure suggests that there are more properties among those in foreclosure whose prices were likely or very likely too high. Moreover, in several subdivisions where TRF had a sufficiency of cases with complete information to analyze, the percentages in each grouping suggest further overvaluation.

The chart on the following page shows: 1) the percent of properties not in foreclosure across Monroe County with sale prices that are likely or very likely too high; 2) the percent of properties in foreclosure across Monroe County with sale prices that are likely or very likely too high; and 3) the percent of properties in foreclosure in each subdivision with sale prices that were likely or very likely too high.

Estimation of the Frequency of Inflated Sale Prices

Percent of Properties

40.0

30.0

20.0

10.0

0.0

In all subdivisions for which TRF had sufficient data, higher percentages of foreclosure properties had sale prices that were either likely or very likely too high. For example, in Pocono Country Place (i.e., the subdivision with the greatest number of foreclosures), 22.9% of the properties had unusually high ratios of sale prices to EMVs and another 16.3% had very high ratios (i.e., ratios of sale price to EMV that are beyond the 90^th percentile).

It is important to reiterate that these data are not a substitute for accurate residential appraisals. The data do give guidance as to where sale prices are likely to be unusual and worthy of more systematic review. By the same token, it is important to note, as well, that there may be properties with excessive sale prices that are below the threshold values. That said, TRF believes the likelihood of a problem is greater at the higher ratios of sale price to EMV.

TYPES OF LOANS

The market distinction between prime and subprime lending is one that has taken on enhanced importance since the early to middle 1990’s. Practically, it is reasonable to understand the distinction between these two categories of borrowers as reflecting a market estimation that subprime borrowers represent a greater loss risk than prime borrowers. Accordingly, subprime borrowers pay a higher price to borrow money and that price is generally considered to be commensurate with the enhanced risk.

Nationally, subprime lending has grown considerably during the second half of the 1990s.¹ In comparison to prime borrowers, borrowers with subprime loans tend to have one or more of the following traits: lower-income;² FICO (Fair Isaac Corporation) scores below 620 – 660; high loan-to-value ratios;³ collateral property that fails to meet one or more critical appraisal standard; incomplete or unverifiable documentation of income, savings, down payment sources and/or employment; housing and other debt that exceeds 45% of monthly gross income.⁴ Borrowers with subprime loans are also more likely than borrowers with prime loans to have loan provisions that penalize refinancing, to end up in foreclosure and to be brought to default faster.⁵

Ideally, TRF would prefer to make absolute determinations about whether a particular loan, not lender, was either prime or subprime. Given the inability to view loan documentation for every loan in foreclosure, TRF employed a commonly used methodology that characterizes the lender as one that generally makes prime or subprime loans. The U.S. Department of Housing and Urban Development (HUD) publishes, annually, a list of lenders it identifies as those that specialize in subprime lending (see: www.huduser.org/datasets/manu.html). TRF recognizes and acknowledges the potential flaws in characterizing lenders rather than loans. Most notably, there are lenders that have a full array of loan products and on the list prepared by HUD end up being characterized as either prime or subprime. Moreover, all the loans originated by that lender regardless of whether they are prime or subprime, get characterized in whatever way the lender has been characterized. That said, the methodology employed here is a standard and

¹HUD (2000) reports dollar volumes of subprime refinance loans rose from $35 billion to $160 billion between 1994 and 1999. Courchane, et al. (2003) estimate subprime origination volume at $213 billion in 2002. Observed increases in the number and dollar volume of subprime loans occurred in tandem with a decline in the share of all loans that are prime. For example, Canner et al. (1999) report that in 1993 prime mortgage applications represented 89.6% of all applications for purchase money mortgages; that percent dropped to 65.9% by 1998. Nationally, the Center for Community Change (2002) reports that 25.31% of all conventional refinance loans are subprime.

²2001 HMDA data for the Commonwealth of PA show that 23.8% of prime borrowers compared to 38.7% of subprime borrowers have income below 80% of the MSA median. In Philadelphia alone, 51.7% of prime and 65.5% of subprime borrowers have income below 80% of the MSA median.

³Standard and Poor’s (2000) estimates that loans with LTVs of 95% are three times riskier than loans with loan-to-value ratios (LTV) of 80%; loans with LTVs of 100% are four times riskier than loans with 80% LTVs.

⁴Gramlich, Edward M. (May, 2004) “Subprime Mortgage Lending: Benefits, Costs and Challenges” Remarks at the Financial Services Roundtable Annual Housing Policy Meeting, Chicago, IL. http://www.federalreserve.gov/boarddocs/speeches/2004/20040521/default.htm

⁵ id., see also a recent survey by the Mortgage Bankers Association of America shows that the percent of all subprime loans in foreclosure at the end of 2002 was 7.97% versus 0.54% for prime loans. The percent of subprime loans that were 90 days or more past due was 3.31% versus 0.30% for prime loans.

widely accepted approach utilized and reported by the Federal Reserve, Harvard University’s Joint Center for Housing Studies, and well-respected scholars in prestigious universities publishing in professionally refereed journals.⁶

According to the data available, and using HUD’s classification of lenders, it is estimated that in 2001, in Monroe County, 21.1% of all home purchase loans that were originated or approved but not originated, were by subprime lenders. This percentage dropped to 18% in 2002. Using this same methodology, it is estimated that 66.6% of all loans in foreclosure from 2000 through 2003 were originated by subprime lenders. Another 16% were originated by lenders who can be categorized as either prime or subprime because of the varied nature of their business. (Note: There were approximatley 300 loans for which TRF could not determine the prime or subprime nature of the mortgage orginators. They are not included in this calculation.)

TIME TO FORECLOSURE

In general, the purpose of mortgage underwriting is to make the default on a loan a rare event. To do this, most lenders will take into consideration factors representative of the borrower’s ability to pay, willingness to pay, and the underlying collateral (i.e., the home). While rare and unforeseeable events may happen to borrowers triggering default on their loan soon after the loan was made, generally speaking it is considered problematic underwriting when loans go into default very soon after origination.

Among loans in foreclosure in Monroe County from 2000 through 2003, the median time lapse from origination to foreclosure was 2.8 years. By comparison, the median time lapse among loans in foreclosure in Montgomery County, Pennsylvania, during the same period of time was

3.9 years; and in Philadelphia, the median time lapse was 3.73.

Approximately 64% of the loans in foreclosure in Monroe County from 2000 through 2003 were obtained to purchase a home; the remainder represent home equity or refinance transactions.

We were also able to query the database to see how often a deed appeared on a property after the date of the foreclosure filing. These deeds represented a release or sale of the property to another owner, the Sheriff or the foreclosing entity and indicate that the original owner is no longer living in that property. As a result, TRF estimates that almost 42% of all properties having a foreclosure filing from 2000 through 2003 changed hands (voluntarily or involuntarily).

⁶See, for example:

Joint Center for Housing Studies of Harvard University. (2004). The State of the Nation’s Housing 2004. http://www.jchs.harvard.edu/publications/ markets/son2004.pdf

Apgar, William, Allegra Calder, Gary Fauth. (2004) “Credit, Capital and Communities: the implications of the changing mortgage banking industry for community based organizations. Report CCC04-1. http://www.jchs.harvard.edu/publications/communitydevelopment/ccc04-1.pdf

Calem, Paul S., Kevin Gillen, and Susan Wachter. (April, 2003). “The Neighborhood Distribution of Subprime Mortgage Lending.” University of Pennsylvania Law School, Institute for Law and Economics, Research Paper No. 03-39. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=478581

Pennington-Cross, Anthony. (2002). “Subprime Lending in the Primary and Secondary Markets.” Journal of Housing Research, 13(1), pp. 31-50.

ORIGINATING LENDERS

Of the 2,500 properties for which we were able to obtain detailed transaction histories in the LANDEX system, we were able to identify the originating lender of the loan in foreclosure for 1,828 (73%) of those properties. This was particularly challenging as most mortgages are sold and re-sold multiple times. The vast majority of loans were assigned to another lender at least once since origination – 15% were assigned at least three times in the three year period after origination.

TRF identified approximately 300 lenders that originated loans in Monroe County that were at one point in foreclosure over the last four years. The following 30 originated over 55% of the loans in foreclosure:

Alliance Funding Company/Superior Bank Ameriquest Mortgage Co Cendant Chapel Creek¹Chase Manhattan¹Citi Group²Countrywide/Americas Wholesale Lender³Eagle National Bank East Stroudsburg Savings Assoc Equity One First Union Mortgage Corp⁴Franklin First FT Mortgage Co FTM Mortgage Co GMAC Mortgage Corp Greenpoint Mortgage Corp Household/Beneficial Indymac Irwin Mortgage/Inland Long Beach Mortgage Co Mellon National City Mortgage⁵Nationscredit/Equicredit North American Mortgage Co/Washington Mutual⁶North Atlantic Mortgage Corp Norwest Mortgage/Wells Fargo Option One Parkway Mortgage PNC⁷Public Savings Bank

¹ Most of Chapel Creek’s mortgages were immediately assigned to Chase. ² Includes Citifinancial, Traveler’s, Commercial Credit, The Associates, and CitiGroup ³ Includes Countrywide, America’s Wholesale Lender and Full Spectrum Lending ⁴ Includes Corestates, Meridian and The Money Store ⁵ Includes National City, Merchants Bank, Integra, Eastern Mortgage Services, and Accubanc ⁶ Loans were predominantely North American Mortgage; a smaller number were Washington Mutual ⁷ Includes First Eastern and PNC

SELLERS/DEVELOPERS OF HOMES IN FORECLOSURE

Of the 2,745 properties with foreclosure filings between 2000 and 2003, TRF was able to track down the original developer or seller of the property for approximately 1,000 properties. Half of the properties (526) involved 9 sets of builders/developers; 14% (144) involved financial institutions and/or government entities and are likely distressed foreclosure sales. TRF grouped builders and developers which appear to have similar ownership as reported to the Pennsylvania Department of State Corporate Records searchable database.

The list provided here includes the names of those entities that were involved in at least two

SELLER/DEVELOPER

American Classic Homes/ Oakview Terrace LTS Enterprises Inc/ LTS Funding Lands Edge Enterprises Inc RPM Asset Management Inc/ Talanton Associates, Inc Don Len Enterprises Inc High Mountain Estates Indian Mountain Lake Development Corp June Corp Paragon Properties Ltd/ Pennbrook Home Builders Precision Home Builders Inc/ Ziggy Enterprises Fifth St Corp Pine Ridge Equities Inc Americorp Builders Inc Comfort Design Homes Inc/ Professional Management Inc Dellots Inc Greenwood Investment Inc JER Leisure Land Inc Monroe Mountainside LP (and Mountain Lake Reserve) Premier Group Inc RHFG Inc Romec Inc Simpson Glen Builders Inc Stillwater Lakes Civic Association Unidel Corp (and JIREH Marketing Services Inc) Vacation Break of America/ Serenity Homes Anderson Building Co Deltar Dev Inc Griffin-Whitmore Enterprises Inc/ Three Star Homes Houses Plus l (and MPS Group) Land Holding Corp of PA Liberty Land Inc Northland Dev Corp PHP Realty Inc Pocono Young Development Inc Royal Jordanian Contracting Co LLC Vintage Homes Inc Weir Mountain Acres Inc WHF Dev Corp

NUMBER OF PROPERTIES

DOMESTIC MIGRATION: The source of	COUNTIES SENDING MORE THAN 750 PERSONS TO MONROE COUNTY SINCE 1995
Monroe County’s population growth is			PERCENT
largely domestic migration. People moving into Monroe County from 1995 through 2000 were most frequently from the northern New Jersey and New York area. Specifically, Kings, Queens and	COUNTY	PERSONS TO MONROE COUNTY SINCE 1995	OF THE COUNTY'S MIGRANTS MOVING TO MONROE	MONROE'S RANK AS A DESTINATION IN THIS COUNTY
Bronx Counties in New York and Suffolk,	KINGS COUNTY, NY	2,256	1.29%	10th
Essex, Morris and Bergen Counties in	QUEENS COUNTY, NY	2,209	1.37%	8th
northern New Jersey sent thousands of people to Monroe County. According to	BRONX COUNTY, NY