by Amanda Sheldon Roberts, Enterprise Community Partners
NHC invites guest blog posters to write on important housing topics. The views expressed by guest posters do not necessarily reflect those of NHC or its members.
The National Mortgage Settlement is an historic joint state-federal initiative that settles claims that the five largest loan servicers (each affiliated with a major bank) engaged in a number of servicing abuses and improperly foreclosed on thousands of borrowers around the country. In the aggregate, the settlement will cost the servicers approximately $25 billion. Of that total, $17 billion will not be cash payments, but rather credit to the servicers for various activities, including principal reduction and loan modifications. Less appreciated in discussions thus far is that up to 12% of that $17 billion in credit may go toward anti-blight activities.
According to the settlement, servicers can get credit for:
- Forgiveness of principal associated with a property where the servicer does not pursue foreclosure
- Cash costs paid by the servicer for demolition of property
- REO properties donated to accepting municipalities or nonprofits or to disabled servicemembers or relatives of deceased servicemembers
That means over $2 billion could potentially be used around the country to stabilize neighborhoods—paid for by servicers. Indeed, it is financially attractive for servicers to engage in these activities because they will receive a full $1-for-$1 credit for demolition and donations (they will receive $0.50-on-the-dollar credit for the forgiveness of principal). Relative to other activities, such as short sales, these are lucrative credit terms. Therefore, the hope is that servicers will proactively seek to engage in anti-blight activities because it will get them more credit.
The key is that banks need to work with local jurisdictions and nonprofits to ensure that these anti-blight activities align with current neighborhood stabilization efforts. Imagine how impactful it could be if the servicers teamed up with local NSP grantees to target select neighborhoods to donate properties and pay for demolition that coordinated with rehabilitation of other properties and foreclosure prevention. Conversely, this money would do little to stabilize neighborhoods if the servicers demolished and donated properties in scattered geographies and without coordinating with local officials and nonprofits. Think of one donated home on a block with four other vacant and deteriorating homes.
However, the settlement is still new and neither servicers nor communities fully understand how it will be implemented. Therefore, it is critical that the dialogue begin now. Local jurisdictions should capitalize on their existing NSP relationships with servicers to communicate how they would like the funds used. National organizations like NHC and Enterprise can facilitate this dialogue. After all, our shared goal is to ensure that this $2 billion reduces blight in ways that renew and strengthen neighborhoods.
Amanda Roberts is the Housing Director, Public Policy at Enterprise Community Partners, a member of the National Housing Conference’s Leadership Circle. For 30 years, Enterprise has introduced solutions through public-private partnerships with financial institutions, governments, community organizations and other partners to create opportunity for low- and moderate income people through affordable housing in diverse, thriving communities.