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Friday, November 21, 2014

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Foreclosure Mitigation Toolkit for Communities

The Federal Reserve views the high rate of mortgage foreclosures as an urgent problem. Using its expertise and extensive network of national and regional relationships, the Fed is collaborating with other regulators, community groups, policy organizations, financial institutions, and public officials to identify solutions to prevent unnecessary foreclosures and their negative effects.

The goal of this toolkit is to provide resources to assist communities in addressing the current turmoil in the housing market and minimize the impact of foreclosures on neighborhoods. Web links and local resources are included. For more information, contact the Federal Reserve Bank Community Development Studies and Education Office in your region.

The resources in this toolkit are presented as a four-step process:

Step One: Assess the Foreclosure Situation

The first step in any community effort is assessing the foreclosure situation in your community. This will also enable you to target limited resources to foreclosure hotspots.

Data and Maps

U.S. Credit Conditions in the United States

Nonprime Mortgage Conditions in the United StatesThe New York Fed maintains a website with dynamic maps and data showing credit conditions by county across the U.S. These maps External Link show delinquency rates for various types of credit including auto, bank cards and student loans in addition to mortgage loans. The maps may assist community groups in targeting financial counseling and other resources to at-risk homeowners. Policymakers can also use the maps and data to develop plans to lessen the direct and spillover impacts that delinquencies and foreclosures may have on local economies. Local governments may use the data and maps to prioritize the expenditure of their resources for these efforts.

Visit your Reserve Bank's website for research reports, data, and practical information, or contact your Bank’s Community Development Studies and Education Office with specific requests.

National Delinquency Survey

The Mortgage Bankers Association (MBA) provides quarterly reports on delinquency and foreclosure rates of loans at the national, regional, and state levels. The MBA’s National Delinquency Survey External Link, conducted since 1953, covers 80 to 85 percent of all first-lien residential mortgage loans outstanding in the United States. Delinquency and foreclosure measures are broken out into various loan types (prime, subprime, VA, and FHA) and fixed- and adjustable-rate products.

Regional and Local Data Resources

State laws require that notices of intent to foreclose real estate be posted for public view, although the exact posting process varies from state to state. These pre-foreclosure notices, along with actual foreclosure sales data, are compiled regularly by various companies who make the information available for sale. Some counties make maps and listings of property addresses available during the “publication” period prior to the foreclosure sale date. Contact a local title company in your community to get more information on the best local sources for pre-foreclosure and foreclosure sales reports.

Foreclosure Laws

Foreclosure laws and regulations are important to consider and can vary significantly across states. In some states with a judicial foreclosure process, the lender must take the borrower to court to seize the property. In other states, a nonjudicial foreclosure process requires no court action.

Sources for State Laws on Foreclosure

Step Two: Reach Troubled Homeowners

Raise Awareness

Surveys show External Link many at-risk homeowners often fail to seek help. They may be embarrassed or don’t know where to turn. Stress can make dealing with credit problems even harder. Community leaders serve a crucial role by helping consumers find quality housing counselors at the first sign of trouble.

The U.S. Department of Housing and Urban Development (HUD) maintains a database of HUD-approved counseling agencies External Link. Additional information, including financing options, can be obtained from the Federal Housing Administration External Link.

Community leaders can also reach borrowers effectively using homeownership events, public service announcements, and brochures and websites.

Build Partnerships

One important way to strengthen foreclosure outreach is to build strong partnerships with existing state and local coalitions and task forces.

If there are no existing coalitions or task forces in your area, you can start one by reaching out to grassroots and faith-based groups, legal aid offices, housing counseling organizations, community development organizations, and city and state consumer protection departments. Good examples of state and regional coalitions include:

Host Homeownership Events

Homeowner workshops and/or default clinics have proven successful in helping borrowers avoid foreclosure. They are held in accessible community locations such as convention centers, schools and public libraries. Sponsors invite troubled borrowers, issue media releases and post notices on websites and in public places.

Three basic models exist for effectively run workshops. They range from large events at which loan servicers and housing counselors meet face-to-face with borrowers to smaller events that are primarily educational in purpose.

  • HOPE NOW Homeowner Preservation Workshops PDF Document External Link are typically held in large metro areas. They benefit from a national partnership with NeighborWorks America and an alliance with more than 25 lenders to allow borrowers to meet with loan servicers and housing counselors.
  • Community Foreclosure Mitigation Workshops External Link are typically hosted by a local coalition or task force. Local nonprofit counselors are on site to counsel borrowers. Lenders and servicers are often willing to participate in community events that are well-designed and marketed.
  • Default Clinics External Link are hosted by nonprofit credit and/or housing counselors as a way to triage distressed borrowers and streamline the default counselors’ time. This model focuses on getting information to clients quickly to help them select the appropriate assistance needed.

Reach Out to Consumers

Community leaders are employing many direct approaches to reach troubled homeowners, making use of information and materials available from local and national organizations:

Public Service Announcements (PSAs)

Educational Brochures

Mailings, Flyers and Press Releases

Local Community Partnership websites

Public Television Partnerships

Access National Resources

A number of national organizations and government agencies maintain rich informational websites to assist communities and consumers in dealing with foreclosure issues, including prevention, mitigation, counseling, loan modifications, neighborhood stabilization and foreclosure-rescue scams.

Enterprise Community Partners External Link: Is a national nonprofit with more than 25 years of experience in the community development and affordable housing field.

Local Initiatives Support Corporation External Link: Is a national nonprofit that helps local organizations access national resources and expertise.

NeighborWorks America External Link: Was created by Congress to provide financial support, technical assistance and training for community-based revitalization efforts. It supports a wide range of programs:

The Homeownership Preservation Foundation External Link: Provides information and videos that explain alternatives to foreclosure and operates a national hotline — 888-995-HOPE (4673) — available in both English and Spanish. Callers can be referred to local nonprofit counseling assistance.

HOPE NOW Alliance External Link: Is a national alliance of more than 50 lenders, loan servicers and counseling organizations dedicated to preserving homeownership and minimizing foreclosures.

  • HOPE NOW members External Link have agreed to a uniform set of procedures and guidelines to increase outreach to borrowers.
  • HOPE NOW also partners with NeighborWorks America to conduct homeowner workshops.

Making Home Affordable External Link: The Obama administration has introduced a comprehensive Financial Stability Plan to address problems at the heart of the crisis and help make monthly mortgage payments more affordable for troubled homeowners.

Office of the Comptroller of the Currency External Link: Provides consumer and community information and includes sample public service announcements for radio.

The Federal Deposit Insurance Corporation (FDIC): Provides consumers and community foreclosure assistance and links to foreclosure rescue and loan modification scam awareness resources.

The Federal Reserve Board of Governors External Link: Provides foreclosure-help resources to both consumers and communities. It also connects with all 12 Federal Reserve Banks.

U.S. Department of Housing and Urban Development External Link: Provides links to consumer resources, government programs and government-approved, nonprofit counseling agencies.

Identify Foreclosure Alternatives

Identifying and understanding the alternatives to foreclosure can help prevent problems before they occur or significantly reduce the pain. The government implemented a major program in 2009 to encourage loan modifications. Local housing counselors are good sources for helping consumers find options. Just understanding the different terms can guide consumers to the right course of action.

Glossary of Mortgage and Foreclosure Terms PDF Document External Link

Renters Rights Information External Link from the National Loan Income Housing Coalition

National Industry Foreclosure Counseling Centers External Link

Foreclosure Rescue/Loan-Modification Scams

Step Three: Establish Post-Foreclosure Support Systems

Sadly, foreclosure is unavoidable for some borrowers, even when they have made contact with their lender/loan servicer early on in the process. Circumstances such as severe loss of income may prevent the mortgage from being modified to a payment that is affordable to the borrower.

Working collaboratively, housing counselors and other stakeholders from community-based organizations, financial institutions and local government agencies can encourage former homeowners to regain personal financial stability and contribute to the overall recovery of their community.

A Resource Guide for Foreclosure Recovery PDF Document External Link has been developed for use as a tool for community leaders to assist consumers in achieving stability following foreclosure. The table of contents below provides an overview of the topics covered in the Guide.

Managing foreclosure and options for a graceful exit

  • Relinquishing ownership of the property
  • Renters’ rights

Components of foreclosure recovery

  • Relocation (housing and shelter)
  • Restoration (restoring normalcy to life)
  • Rebuilding (credit and finances)
  • Renewal (stability and looking ahead)

Appendix — additional reports and resources

Contact the local field staff from the Community Affairs Office in your region for assistance with recommendations for implementing this guide.

Step Four: Stabilize Neighborhoods

Impact to Neighborhoods

Foreclosures are not only devastating to the homeowner, but can also be destructive to neighborhoods and communities, especially when they happen in large numbers and in a concentrated area.

Research suggests that foreclosures reduce surrounding property values, which in turn can lead to more foreclosures, vacant and abandoned properties, and other neighborhood blight. Foreclosures also tend to be a magnet for crime, including property damage, trespassing, squatting and vandalism.

Recovery, Renewal, RebuildingWhile foreclosure prevention is a critical component of a community foreclosure strategy, equally important is mitigating decline from existing and future foreclosures by protecting foreclosed properties, neighborhoods and the community tax base. The Federal Reserve is sponsoring Recovery, Renewal, Rebuilding External Link, a series of forums to generate discussion on the aftereffect of the foreclosure crisis and explore solutions for community recovery, rebuilding and preparing for the future.

Identifying Ownership and Registration of Vacant/Abandoned Properties

One common problem faced by cities with vacant or abandoned properties is identifying the person responsible for the property. Often ownership or servicing of the mortgage will be transferred between parties several times over the life of the loan.

  • A title search will identify the last owner of record, and generally some kind of contact information will be available on the title.
  • The local tax assessor can identify the name, address and possibly the loan number of the loan servicing agent on properties where the first mortgage is impounded for taxes and/or hazard insurance.
  • A good starting point for locating appropriate contacts for bank-owned property is the Mortgage Bankers Association website that includes a list of property preservation contacts PDF Document External Link for numerous large loan servicers from around the country.

The National Vacant Properties Campaign

National Vacant Properties CampaignThis campaign External Link exists to provide individuals, advocates, government agencies, developers, nonprofits and others with information resources, tools and assistance to support their vacant property revitalization efforts. Vacant properties are defined as vacant residential, commercial and industrial buildings and lots that:

  1. Pose a threat to public safety, and/or
  2. The owners or managers have neglected the fundamental duties of property ownership, such as failing to pay taxes or utility bills, defaulting on mortgages or carrying liens against the property.

The goal of the campaign is to help communities prevent abandonment, reclaim vacant properties and once again become vital places to live. Four actions fulfill this campaign:

  1. Creating a national network of vacant property practitioners and experts,
  2. Providing tools and research,
  3. Making the case for reclamation, and
  4. Building capacity of local, regional and national practitioners and decisionmakers through technical assistance and training.

The Local Initiatives Support Corporation, LISC, is a co-founder of the National Vacant Properties Campaign as part of the LISC Vacant Properties Initiative External Link. LISC provides practitioners and policymakers with models, research and technical assistance to turn vacant properties into vehicles for positive change.

The city of Minneapolis recently conducted an analysis of the cost of boarded and vacant properties. The analysis revealed that the true cost to the city was over $6,000 per property. Some communities have set up a building registry to record unfinished, abandoned, substandard and vacant properties left by homebuilders and other developers. New construction permits are not approved until the builder/developer has corrected existing problems.

A vacant property registration ordinance requiring owners of vacant or abandoned properties to register with the municipality may allow community officials to more easily monitor and inspect the properties and enforce code compliance. Safeguard Properties, a privately held field services company, works with loan servicers to preserve and maintain foreclosed properties. Safeguard provides a list of vacant property registration ordinances External Link for numerous cities around the country.

Land Banking

One option for dealing with vacant and abandoned properties is to create a land bank through which a municipality may buy and hold property for future sale or development.

The Genesee County Land Bank External Link in Flint, Mich., has been touted as a national model. In 1999, the Michigan Legislature changed the way foreclosed properties were handled by giving outright ownership of these properties to the local county treasurer after only two and a half years. This change in the law opened the door for communities to reclaim, reinvest in and rebuild their neighborhoods.

The Genesee County Land Bank Authority (GCLBA) uses the new law to acquire abandoned land through the foreclosure process and determine the best use of that land. The GCLBA assembles land for transfer to adjacent homeowners, develops long- and short-term green spaces, and assembles land for new housing and commercial development.The objective is to restore the integrity of the community by removing dilapidated structures and redeveloping abandoned properties.

The Land Bank has spurred re-use of more than 4,000 residential, commercial and industrial properties that it has acquired since 2002 through the tax foreclosure process. In addition, with revenue generated from tax delinquent property fees and interest, the Land Bank has developed an $8 million self-sustaining fund to support cleanup and reinvestment.

Neighborhood Stabilization Program

To curtail the decline of communities severely affected by foreclosures, Congress created the Neighborhood Stabilization Program External Link (NSP) as part of the 2008 Housing and Economic Recovery Act.

NSP funds may be used for:

  • purchase and rehabilitation of foreclosed properties,
  • demolition and redevelopment of demolished or vacant properties for rent or sale to lower-income households,
  • down payment and closing cost assistance programs,
  • creation of land banks, and
  • other housing-related activities to stabilize neighborhoods.

Living Cities, the National Community Development Initiative

In 2008, Living Cities External Link, a collaborative of corporate and philanthropic organizations, launched the Foreclosure Mitigation Initiative. This 10-city pilot supported new and existing programs to mitigate the impact of concentrated foreclosures by returning foreclosed properties to productive use.

The programs selected for this pilot demonstrated promising local initiatives in strong, moderate, and weak housing markets and used tools such as New Markets Tax Credits, land trusts and nonprofit real estate brokers.

A report PDF Document External Link on the results of the pilot along with a series of policy recommendations is now available.