Foreclosure Response
Boston, Mass.
In the fall of 2009, Boston Community Capital, a community development finance agency, launched the Stabilizing Urban Neighborhoods (SUN) initiative to purchase homes at foreclosure sale and resell them to their current residents (whether a renter or the former homeowner) with a 30-year fixed-rate mortgage. This process helps eligible homeowners or renters stay in their home at payments they can afford and stabilizes neighborhoods by ensuring that foreclosed homes remain occupied and in productive use.
The SUN initiative works with homeowners and renters who are going through the foreclosure process but have not yet been displaced from their homes. Clients are referred to SUN by partner organizations that offer housing counseling and legal aid. If clients qualify for the program and have sufficient income to repurchase and maintain the property, SUN initiative staff will make an offer to the lender or servicer to buy the home with cash at market value. Along with the offer, they include data on comparable distressed home sales to show that they are offering a fair price. Between October 2009 and April 2010, the SUN initiative successfully negotiated the purchase of over 60 homes at an average discount of 53 percent off the original mortgage. SUN initiative then resells the home back to its clients at market rate. For former owners but not renters, the resale terms include a shared-appreciation second mortgage equal to the difference between the owner’s original mortgage and the repurchase price. Any appreciation above the repurchase price is divided between the owner and Boston Community Capital to ensure that the SUN initiative does not lead to a windfall if home prices rise sharply in the future.
Boston Community Capital has raised almost $50 million for this initiative, all from private investors, which is estimated to finance up to 2,000 housing units over five years. Around 800 families at risk of losing their homes have qualified to participate in the program to buy them back.
Cleveland, Ohio
Northeast Ohio Community and Neighborhood Data for Organizing (NEO CANDO) uses property data to help manage foreclosed properties and hold banks and investors accountable for the management of foreclosed properties. It is a free and publicly accessible social and economic data system of the Center on Urban Poverty and Community Development, a research institute housed at Case Western Reserve University’s Mandel School of Applied Social Sciences. Cleveland faced enormous code enforcement challenges in dealing with foreclosed properties, including properties being sold to out-of-town buyers, bank-owned (REO) properties being sold at distressed prices to investors and foreclosure-related abandonment.
Some applications of NEO CANDO data included:
- Operation Prevent – Operation Prevent was an initiative that used NEO CANDO to hold banks and flippers/investors accountable for the adequate upkeep of their properties. The activities of Operation Prevent and NEO CANDO included developing a weekly updated tracking system of properties entering and leaving REO status, linking banks to REO properties and resulting city expenses, linking purchases on the secondary market with foreclosure filings, establishing code enforcement partnerships with CDCs, tracking vacancies, collecting data on code enforcement complaints and using data to inform community outreach efforts.
- First Suburbs Consortium – First Suburbs NEO CANDO data collection project was developed as a joint system for tracking code complaints and vacant properties within participating cities and for providing an early warning system.
The City of Cleveland also used NEO CANDO to inform Neighborhood Progress Inc.’s nuisance abatement lawsuit against Deutsche Bank and Wells Fargo – two of the top holders of REO properties in the area. Some of the city’s code enforcement strategies for foreclosed properties included trying banks and investors in absentia, seizing money from an investor’s bank accounts to pay for city expenses using federal Neighborhood Stabilization Program (NSP) money to increase demolition activity and engaging in nuisance abatement to bring properties up to code more quickly.
Kent County, Mich.
Kent County is a mid-size county of 600,000 in western Michigan. While its foreclosure problems were not as bad as in some other parts of Michigan, community leaders recognized that foreclosures were a growing problem. During 2008, over 3,500 homes went into foreclosure in Kent County, bringing the five-year total to nearly 12,000 homes. About half of the foreclosures were in the city of Grand Rapids, where the five-year total of 5,755 foreclosed homes represented 10.4 percent of the city’s housing, but smaller towns in the county had even higher rates of foreclosure.
The Kent County coalition, named Foreclosure Response, connected residents with a variety of community resources and advocates for policy changes to prevent foreclosures, stabilize neighborhoods and promote reinvestment. The network involved more than 40 groups, including nonprofit housing and service agencies, neighborhood organizations, foundations, city and county governments, legal aid resources, financial institutions and real estate professionals throughout Grand Rapids and Kent County.
The Foreclosure Response coalition grew out of an initial meeting convened by the Grand Rapids Urban League in December 2007 to discuss what actions needed to be taken to address the growing foreclosure problem in their county. One of its first courses of action was to create a comprehensive list of services for households facing foreclosure and to better coordinate housing counseling services. The nonprofit organization Home Repair Services was chosen to provide a single entry-point for all homeowners seeking help.
In early 2008, Sold Short: Residential Foreclosures in Kent County, 2004 – 2007, an exploration of the patterns, causes and consequences of residential foreclosure in the county published by the Community Research Institute (CRI) at Grand Valley University, gave the coalition the evidence to make the case that foreclosures were a problem in the county. Since then, CRI has published periodic data updates analyzing more recent foreclosure data.
Beginning in July 2008, the Dyer-Ives Foundation and the Ford Foundation provided funding for a full-time staff member to support and connect members of the Foreclosure Response coalition, organize neighborhood outreach in heavily impacted areas and launch a social marketing campaign. In November 2008, both the City of Grand Rapids and surrounding Kent County used CRI’s foreclosure density indicator (total foreclosures as a percentage of total parcels) to identify areas in need of intervention for the county’s Neighborhood Stabilization Program.
The Dyer-Ives Foundation also funded an environmental scan to broaden the local thinking from helping individual homeowners to encouraging a systemic approach to the crisis. The resulting report, The Foreclosure Crisis in Kent County: A Call for a Comprehensive Response, was released in February 2009 and included background on the causes of the crisis, a description of local response activities and highlights of best practices around the country.
Through the coalition, Foreclosure Response achieved many successes for families and communities in Kent County and even in the state as a whole, including the following:
- Between January 2008 and June 2009, nearly 2,000 households received counseling and more than 750 avoided foreclosure.
- The coalition joined with other organizations in Michigan to successfully push for state legislation that allowed homeowners to postpone foreclosure proceedings for 90 days after receiving a notice of foreclosure by meeting with a housing counselor and their lender or servicer. The law also gave homeowners the right to take their cases to court if a lender did not cooperate on a loan modification plan – an important step in Michigan, which is normally a non-judicial foreclosure state. Eligibility for loan modifications was determined by a “means test,” a formula devised by the Federal Deposit Insurance Corporation that determines home affordability. The program contained no mandates for lenders: if they cannot work out a loan restructuring with the homeowner, they can proceed with foreclosure after the 90 days are up.
- Under the leadership of Kent County Treasurer Kenneth Parrish and with the support of former Grand Rapids Mayor George Heartwell, the county developed a land bank authority based on the Genesee County model but adapted to local market conditions.
- The coalition advocated for the state attorney general’s office to put $750,000 of its countywide settlement money into local foreclosure response programs, with $500,000 distributed competitively in summer 2009 through a committee co-chaired by staff from the Dyer-Ives Foundation and the Heart of West Michigan United Way. Prior to the coalition’s advocacy, all of the settlement funds had been set aside for parks in neighborhoods virtually unaffected by foreclosures.
Ohio
Between 2005 and 2006, foreclosure filings in Ohio increased by more than 23 percent and interest-rate resets on adjustable-rate mortgages were expected to lead to even more foreclosures in the coming years. In response to the state’s rise in foreclosures, the governor of Ohio created the Ohio Foreclosure Prevention Task Force in early 2007.
The task force was led by the director of the Ohio’s Department of Commerce (who also served as chair of the Ohio Housing Finance Agency) and included representation from state, federal and local government; lenders and nonprofit organizations. Task force members met every other week between April and September 2007 and were divided into five committees: Community Outreach and Community Education, Responsible Lender Options, Legal, Housing Options and Legislative.
The task force report, released in September 2007, offered 27 recommendations grouped into the following categories:
- Encourage borrowers to get help early,
- Expand housing counseling and intervention services,
- Work with lenders and servicers to maximize alternatives to foreclosure,
- Provide options for homeowners to refinance or restructure their mortgages,
- Improve Ohio’s foreclosure process,
- Strengthen protections for homeowners, and
- Help communities recover from the aftermath of foreclosures
The task force helped Ohio develop and enhance its foreclosure prevention programs. For example, as a result of task force efforts, the Opportunity Loan Refinance Program developed more flexible underwriting requirements so that more families could qualify and avoid foreclosure. Similarly, Ohio instituted Borrower Outreach Days that helped facilitate communication between borrowers and lenders, provide opportunities for loan modifications and connect families with nonprofit foreclosure prevention education and counseling.
To supplement existing legal aid resources and provide pro bono legal assistance to families facing foreclosure, the state recruited over 1,000 attorneys. In addition to expanding the number of attorneys that provide free legal assistance, the state also developed a hotline that families could call to be screened for eligibility and connected with a pro bono attorney in their area.