TALKING POINTS by gabyion

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									                                                                    FACT S H E E T
Foreclosure Prevention                                                                            Beyond a Policy-by-Policy
Foreclosure prevention programs help homeowners who have
                                                         TALKING POINTS
defaulted on their mortgage and are in danger of foreclosure or a
forced sale that will strip them of hard-earned equity. By providing
                                                                                                  Approach:Developing a
                                                                                                  Coordinated Response Strategy
                                                                                                  In states, cities, regions and suburban
these families with counseling and access to attractively priced                                  communities across the country, task
refinancing options and other assistance, foreclosure prevention can                              forces and coalitions are forming to
                                                                                                  coordinate and improve local responses
keep families affordably in their homes while preserving home values
                                                                                                  to the foreclosure crisis. This coordination
and stability in the surrounding community.                                                       is an essential part of the development
                                                                                                  and execution of an effective and
                                                                                                  strategic response to the challenges of


                                                         TALKING POINTS
What Policies Can Help Prevent Foreclosures?                                                      foreclosure prevention and the
States and localities have adopted a range of short- and long-term educational, financial,        stabilization of neighborhoods affected
legal and regulatory policies for preventing foreclosures and protecting affected families        by foreclosures. The basic steps include:
and communities. Foreclosure prevention strategies often include immediate assistance
such as 24-hour hotlines, short-term loans, flexible refinancing programs and legal assis-          Getting organized by bringing together
tance. Some communities also have extended the foreclosure timeline to give borrowers               stakeholders into a task force or
more time to assess their options or find new housing if foreclosure is inevitable. Addi-           coalition
tional policies, such as predatory lending restrictions, go a step beyond immediate assis-



                                                         TALKING POINTS
tance and aim to reduce the risk of foreclosures in the future.
                                                                                                    Strengthening the policy and
                                                                                                    regulatory environment
The foreclosure prevention approaches covered in this fact sheet can be broadly grouped
as follows:
                                                                                                    Developing a local action strategy by
  Information and counseling                                                                        assessing neighborhoods’ needs and
  Financial assistance                                                                              housing market conditions, and
  Legal assistance
                                                                                                    Assessing progress through monthly or
  Extensions of the foreclosure timeline
                                                                                                    quarterly reports on relevant factors,
  Future foreclosure risk reduction, such as predatory lending restrictions                         such as the number of foreclosure
                                                                                                    notices and the timely disposition of
                                                                                                    foreclosed properties.
Information and Counseling
An important early step in foreclosure prevention is linking borrowers with reliable infor-       A coordinated response strategy can help
mation and counseling. Communities can help borrowers understand their situation and              communities craft and implement a
assess the options by expanding outreach by reliable nonprofit assistance organizations           comprehensive foreclosure response plan
and providing 24-hour foreclosure prevention hotlines. Although federal funding is avail-         that incorporates a broad spectrum of
able to support foreclosure prevention counseling, many housing counseling agencies               high-impact policies, such as those
still struggle with insufficient resources to meet local needs. States and localities can help    discussed in this fact sheet.
by using a portion of their CDBG allocation or other locally controlled resources to fund
expanded outreach, education and counseling by reputable homeownership education
and counseling organizations. States and localities can also help borrowers get connected
with reliable information and counseling by establishing or promoting a foreclosure pre-
vention hotline or other one-stop resource, such as using a local 311 service to connect
families with foreclosure prevention counseling or promoting the Homeownership
Preservation Foundation’s nationwide hotline at 1-888-995-HOPE.

States and localities can use their voice to share information with their residents about
federal foreclosure prevention programs – perhaps by including information on state and
local foreclosure prevention websites, providing information in direct mailings or referring
                                                                                                                                                          NHS OF CHICAGO




to federal resources in press releases related to foreclosures. Homeowners may be able to
access refinancing or loan modification assistance through federal programs such as the
Homeowner Affordability and Stability Plan (www.makinghomeaffordable.gov), Hope for
Homeowners (www.hud.gov/hopeforhomeowners), and FHASecure – and states and lo-                   A housing counselor from Neighborhood Housing Services
calities can help get the word out.                                                              of Chicago provides one-on-one assistance to a client.
                                                                                       Financial Assistance
                                                                                       By connecting families with low-cost refinance loans, silent second mortgages and emergency
                                                                                       loans, state or local housing finance agencies can help homeowners avoid foreclosure and stay in
                                                                                       their home at a monthly mortgage payment that they can afford. Some jurisdictions help families
                                                                                       access financial assistance by collaborating with lenders and servicers to obtain better terms and
                                                                                       more sustainable loan modifications for existing borrowers, while others offer refinance products
                                                                                       and emergency loans to help prevent foreclosures. Refinance products and emergency loans may




                                                   NEIGHBORHOOD DEVELOPMENT ALLIANCE
                                                                                       be tailored to different levels of need, such as a temporary financial crisis, unsustainable mort-
                                                                                       gage terms paired with moderate refinance barriers or unsustainable mortgage terms paired
                                                                                       with serious barriers to refinance. In addition to offering their own financial assistance products,
                                                                                       states and localities can help connect homeowners with federal financial assistance options, such
                                                                                       as the Homeowner Affordability and Stability Plan, Hope for Homeowners and FHASecure.

560 State Street Townhomes, St. Paul, Minnesota.
                                                                                       Short-Term Emergency Loans for Families
                                                                                       Experiencing Temporary Setbacks
                                                                                       In cases of temporary financial hardship, perhaps caused by a sudden loss of income, a small
Silent Second Mortgages                                                                amount of assistance may make a large difference for a family. Housing finance agencies can
                                                                                       craft short-term emergency loans to meet local needs and economic realities, for example, by
for Foreclosure Prevention                                                             giving borrowers repayment timelines of anywhere between a few months to two years and
in Minnesota                                                                           offering loan levels and terms that are feasible for the housing finance agency while still
                                                                                       offering enough assistance to help families weather temporary hardships. Small and/or
                                                                                       short-term loans are clearly not capable of preventing foreclosure for every family, but they
The Minnesota Home Ownership Center                                                    play an important role in a community’s overall foreclosure prevention strategy by helping
oversees the statewide Mortgage Foreclo-                                               families stabilize their finances before delinquencies get out of control.

sure Prevention Program. This program                                                  Low-Interest Refinance Loans for Families
offers deferred payment, zero percent                                                  with Moderate Refinance Barriers
interest loans as a last resort for families                                           Many housing finance agencies offer low-cost loans to help homeowners refinance mortgages
who could not otherwise prevent foreclo-                                               with high interest rates or other nontraditional terms. Typically, state or local refinance loans
                                                                                       offer financial assistance for borrowers who have relatively good credit, are not seriously
sure. These silent second mortgages must                                               delinquent on their mortgage and do not owe more than the value of their home (a situation
be repaid upon sale of the home or payoff                                              known as negative equity). The moderate level of financial assistance provided by most
                                                                                       refinance loans can be a strong tool for preventing foreclosure among credit-worthy families
of the first mortgage, with exceptions for
                                                                                       who ask for help in the early stages of their mortgage affordability problems. Unfortunately,
cases of mortgage refinancing to get                                                   many families facing foreclosure are further behind on their mortgages or have damaged credit
better loan terms. Repayment of the loans                                              and will therefore need more flexible assistance as a last resort before losing the home.

goes back into a revolving loan fund to
                                                                                       Flexible Refinance Loans and Silent Second Mortgages
help additional families.                                                              for Families with Substantial Refinance Barriers
                                                                                       Many families facing foreclosure are unable to refinance since the drop in home values has
Since funds are limited, the Home                                                      left them owing more than the current value of the home (a situation known as negative
                                                                                       equity); in addition, late or missed mortgage payments will have negatively affected
Ownership Center first helps families
                                                                                       borrowers’ credit. To prevent foreclosures among families in deep financial distress,
access a broad range of information and                                                communities may wish to seek innovative solutions that go beyond standard refinance loans
resources and develop an individualized                                                and short-term emergency assistance.

foreclosure prevention plan. Case                                                      Increasingly, communities across the country are offering refinance loans for foreclosure
managers also work with lenders to                                                     prevention that have flexible underwriting standards so that they can reach borrowers with
                                                                                       lower credit scores — including scores in the mid or low 500s — provided that mortgage
negotiate the most affordable workout
                                                                                       delinquency is the borrower’s most serious credit problem. Some programs have no minimum
option. Homeowners are only considered                                                 credit score for borrowers and consider instead the number and length of delinquencies.
for silent second mortgages if they are
                                                                                       Another innovative approach to addressing these problems is to refinance the family in a
unable to avoid foreclosure through other                                              traditional mortgage at a level that is affordable to them and supportable by the home’s current
means. Funding comes from the state, city                                              property value and then issue a silent second mortgage to cover the difference between that
                                                                                       amount and the current mortgage balance. With a silent second mortgage, the family makes no
and county governments.
                                                                                       payments of principal or interest on the second mortgage while they are living in the home;
                                                                                       repayment is due only when they sell or refinance. A silent second mortgage allows the family to
                                                                                       continue living in the home and make affordable monthly mortgage payments on their
                                                                                       refinanced first mortgage, while also ensuring that the loan provided by the community is repaid
                                                                                       if the property sells for more than the first mortgage amount at the time of eventual resale.
   Shared Appreciation Second Mortgages as a Foreclosure Prevention Tool
   Communities looking for a financial assistance option that can                sales proceeds, rather than making separate payments of
   help prevent foreclosure among families with negative equity                  principal and appreciation.
   or damaged credit may wish to consider shared appreciation
   second mortgages. Shared appreciation refers to the                           The shared appreciation approach has several benefits for
   repayment agreement for the loan. Upon re-sale of the home,                   foreclosure prevention. First, it allows families to stay in their
   the family pays back a predetermined portion, or share, of the                home at a monthly payment they can afford. Second, it provides a
   net sales proceeds. In some cases, the family first pays back                 means for reimbursing the government or the lender for the
   100 percent of the principal balance of the shared                            costs associated with providing the second mortgage. Third, it
   appreciation mortgage, and then pays a set share (for                         preserves the incentives for the family to keep up the property
   example, 25 percent) of any additional home price                             and realize as high a sales price as possible. Finally, by basing
   appreciation. In other cases, to preserve the family’s incentives             repayment of the second mortgage on a share of the sales
   to maintain the home and maximize the home sales price, the                   proceeds, rather than a set interest rate, one avoids the problem
   family simply repays a share (e.g., 75 percent) of the net home               of having the family owe more than the value of the home.




Legal Assistance                                                                                       SOLUTIONS IN ACTION
Legal assistance can be a critical resource to help families stay in their homes and prevent finan-
cial losses by negotiating alternatives to foreclosure. Legal assistance also provides representa-
tion for families who have been taken advantage of by predatory lenders.
                                                                                                         Foreclosure Prevention
                                                                                                         Outreach in
As the number of home foreclosures continues to rise, the work of local and state legal assis-
tance agencies can be effective in combination with, or as an extension of, housing counsel-
                                                                                                         Cuyahoga County, Ohio
ing services. Whereas housing counselors might lay out the various options available to                  In 2007, the Cuyahoga County, Ohio,
prevent foreclosure, offer budget advice and assistance, provide information and referral                Commissioners partnered with several
services or help to negotiate a “workout” with the lender, legal assistance tends to be more             county offices to initiate coordinated
specific in navigating the legal issues homeowners may face as they try to avoid foreclosure.            foreclosure prevention efforts. They
In many cases, a housing counselor might recommend that a client seek legal assistance to                established an Office of Foreclosure
meet their particular needs. States and localities can help by providing funding for foreclo-            Prevention to centralize all related efforts
sure-related legal services and offering training sessions to help pro bono attorneys become             and provide outreach and education about
more knowledgeable in topics related to foreclosure.
                                                                                                         predatory lending practices. The county
                                                                                                         commissioners allocated general funds to
Extensions of the Foreclosure Timeline                                                                   increase staff capacity for foreclosure
                                                                                                         prevention counseling and to hire an
Another approach to helping families avoid, or better manage, foreclosure is to delay the                investigator in the county prosecutor’s
foreclosure process through a temporary moratorium. Slowing the foreclosure process may                  office to build cases against criminal
allow homeowners additional time to settle their debts, refinance their mortgage, modify
                                                                                                         mortgage fraud activity. The county was
their loans or sell their property to reduce the financial damage of foreclosure. A similar out-
                                                                                                         also able to secure state legislation for a
come may be achieved by lengthening the notice period required before a lender may initi-
                                                                                                         pilot rescue fund program that would use
ate foreclosure proceedings. However, if a longer foreclosure timeline is not linked to other
                                                                                                         Temporary Assistance for Needy Families
programs that can help families and communities appropriately use the additional time they
                                                                                                         (TANF) funds to provide financial support
are granted, families may still face the same underlying affordability problems and end up
                                                                                                         for housing counseling and one-time
losing the home to foreclosure despite the additional time.
                                                                                                         mortgage payment assistance for families
                                                                                                         who were able to re-negotiate their
Future Foreclosure Risk Reduction                                                                        mortgage and obtain affordable terms with
                                                                                                         the help of a certified housing counselor.
Foreclosure risks are often identifiable and preventable many years in advance – notably, by
minimizing or preventing the issuance of mortgages with unsustainable terms. Governments
can counter these risks through targeted outreach, regulations to prohibit the riskiest loans
and enhanced consumer awareness to help families make better mortgage decisions. By
adopting or strengthening anti-predatory lending laws and guidelines, governments can                          For more information
shield consumers from unsustainable or unbeneficial terms and reduce the likelihood of
foreclosure. In addition, states can increase the oversight of mortgage brokers and lenders by            on foreclosure prevention visit
coordinating with other states and sharing information on enforcement activities. Expanding                  www.housingpolicy.org/
pre-purchase homeownership education and counseling programs can also help reduce the
                                                                                                                  factsheets.html
risk of foreclosures by teaching prospective homeowners about the home-buying process
and the responsibilities of homeownership that follow.

								
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