On February 9, 2012, the Federal Government and Attorneys General from 49 States reached an agreement with the five largest mortgage servicers for $25 billion in payments to resolve violations of state and federal law and to implement comprehensive new mortgage loan servicing standards.  The five servicers are Ally Financial, Inc. (formerly GMAC), Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo.

After much deliberation, Massachusetts Attorney General Martha Coakley decided to join the national settlement, so the Commonwealth will receive its $46.5 million share of payments to the states to be distributed by the States’ attorney generals to “foreclosure relief and housing programs, including housing counseling, legal assistance, foreclosure prevention hotlines, foreclosure mediation, and community blight remediation.”

Here’s why the Attorney General’s decision to join the national settlement is, on balance, a good decision for Massachusetts:

The foreclosure crisis shows no signs of abating. Foreclosure petitions were 67 percent higher in September than they were in May.  The Massachusetts Housing Partnership’s Foreclosure Monitor's assessment of real estate data and economic trends indicates that foreclosures in Massachusetts will increase, there are still thousands of properties in the foreclosure pipeline, and we will not likely see a full real estate recovery until 2014 or later.  In this context, getting help to homeowners now is vital.

Resources to address the foreclosure crisis are drying up.  In response to the crisis, Massachusetts has made resources available for foreclosure prevention and for the redevelopment of foreclosed properties.  The MA Division of Banks continues to make annual awards for foreclosure prevention counseling under Chapter 206 of the 2007 law that MACDC was instrumental in passing.  However, as the mortgage licensing fees that fund these grants have declined, so have the awards: from $2 million in 2008 to $1 million in 2011.  The primary funding source for redeveloping foreclosed properties, the federal Neighborhood Stabilization (NSP) Program, which has been used to purchase and rehabilitate over 1,300 units statewide, is completely spent.  We need the resources generated by this settlement and we need them now.

Massachusetts is more likely to gain from the national settlement than from going it alone.  Under the national settlement, in addition to the $46.5 million going directly to the state for various programs, Massachusetts homeowners will receive $224 million in loan modifications and other direct relief and $32.7 million in refinancing of underwater homes.  Borrowers who lost their homes and suffered servicer abuse will gain $14.7 million.  Furthermore, the five banks agreed to implement unprecedented changes in how they service mortgage loans, handle foreclosure, and ensure the accuracy of information. Not everyone likes the Agreement; some take the attorneys general to task for not holding out for a better settlement.  It’s true that Attorney General Coakley could have conceivably obtained more resources for MA by declining to join the national settlement, but this is by no means certain, and what is certain is that the resources would be longer in coming.  Plus, this settlement does not preclude federal and state pursuit of further criminal enforcement actions.  Given the options and uncertainties, I believe that the Attorney General made the right decision for Massachusetts.

To ensure that the resources best address the foreclosure crisis in Massachusetts, MACDC and its allies need to engage, advocate and negotiate with the Attorney General on behalf of the families and communities most impacted by the ongoing crisis.  We need to be aggressive in speaking out about the uses for the $46.5 million, when the money flows, and how it is spent.  Our task is just beginning.

On December 18th, CBS’ 60 Minutes broadcast a story entitled There Goes the Neighborhood about the impact of abandoned properties due to foreclosures and declining home values.  The piece focuses on Cleveland, Ohio where Cuyahoga County officials have demolished more than 1,000 homes this year - and plan to demolish 20,000 more - rather than let the blight spread and render nearby homes near worthless.

Although I grew up just outside of Cleveland, I’ve lived away long enough to appreciate that I am in no position to make an informed judgment about whether the decision to demolish these homes is in the interest of Cleveland’s citizens.  I know that the market context in Cleveland is very different than in Boston, and perhaps the neighborhood is served by demolishing vacant homes before they become vandalized and blighted, or worse.  Deeding the resultant vacant lots over to abutters for open space or community gardens may well help stabilize the value of surrounding properties.

However, there is something so sad that all these homes, many of them sound structures, are being demolished, especially when so many people in Cleveland don’t have a decent home.  Beyond that, I believe that aggressive demolition as a defensive response to homes becoming vacant represents a failure in public policy nationwide.  We, as citizens, are collectively responsible for this failure.

First, stable homeownership requires appropriate financing, and we failed to provide the necessary oversight and regulation of the lenders, brokers and appraisers who knowingly sold predatory loan products to families who could not afford them.  Second, when homeowners got into trouble, whether due to the loan products they bought or the economic calamities they faced, they appealed to lenders who too often refused to modify loans to payment levels borrowers could afford and adjust principal amounts to reflect a home’s current value.  We have failed to enact laws that can require lenders to negotiate in good faith with borrowers, and to enact federal bankruptcy reform that will allow homeowners to restructure their debts.

Third, when foreclosure occurred, we failed to protect the residents, both renters and owners, from being evicted.  Fourth, we failed to enforce building codes to require the foreclosing lender to better maintain the properties they acquire after foreclosure (or control prior to foreclosure).  And fifth, we failed to provide the funding and technical assistance so that nonprofit organizations and individual homebuyers can acquire, renovate, and maintain foreclosed properties so they become an asset to rather than a blight on the neighborhood.

By the time the City of Cleveland, or any other City, is faced with the option of leaving a vacant home to deteriorate or demolishing the home before it deteriorates, we have already lost five opportunities to intervene.  Unless we are assured that there is sufficient quality, affordable housing to meet everyone’s needs- and I don’t know of a place where we can have that assurance- demolishing homes rather than preserving and improving them represents a fundamental failure in public policy: in laws and regulations, in code enforcement, in resources, and in political will.  The public tools are there if we choose to prioritize them.

This is a true story. Actually, it is two stories about the foreclosure crisis, both true.

We’re familiar with the first story. In Massachusetts and across the country, the foreclosure crisis continues to decimate families, and communities. The response from loan servicers has ranged from marginally improved at best, to anywhere from woefully inadequate to counter-productive at worst. The programs initiated by the federal government have been too little and too late and too reliant on the voluntary participation of lenders.

According to data provided by the Warren Group to the Boston Globe, the number of homeowners in Massachusetts who lost their properties to foreclosure in April, 2010 (1,372) is 80% more than the number from April of 2009 (764), and the number of foreclosure petitions (the first step in the foreclosure process) jumped 21% compared to April of 2009. Furthermore, lenders are getting more efficient at foreclosure, reducing the time it takes to complete a foreclosure from 9.2 months in October, 2008 to 4.6 months in November 2009.

But there is another story, hidden under the grim headlines of the first story. Nonprofit counseling agencies across the Commonwealth are helping prevent foreclosure, and when necessary they are helping people transition to new housing so they can land on their feet.

During calendar year 2009, according to data collected by MACDC through its GOALs Survey, MACDC Members counseled 5,200 households at risk of foreclosure. The same members reported that, by the end of calendar year 2009, 31% (1,590 households) had achieved a positive outcome (averting foreclosure) by the end of the year. Since it can take many months for these situations to be resolved many of these 5,200 households will eventually achieve a positive outcome in 2010. Furthermore, the percentage of families in Massachusetts achieving successful outcomes within the same year increased from 24% in 2008 to 31% in 2009.

Some of this success is likely attributable to the Obama Administration’s Home Affordable Modification Program (HAMP) that was introduced in early 2009. Despite significant problems with HAMP in moving borrowers from temporary to permanent loan modifications, by February, 2010, over 4,000 Massachusetts families had received permanent loan modifications under the program.

The positive impact of foreclosure prevention counseling is further demonstrated by data on the National Foreclosure Mitigation Counseling Program (NFMC). The most recent findings from an Urban Institute analysis of NFMC showed that homeowners who sought counseling after a foreclosure filing were 1.6 times more likely to get out of foreclosure, and avoid a foreclosure sale, than homeowners not assisted by counseling.

The experience of MACDC members bears out the positive impact of this counseling. Juan Bonilla, the Director of Homeownership Programs at Lawrence Community Works (LCW), tells a story of an elderly man who was not aware until days before his home was to be foreclosed that there was assistance available. With LCW’s help he got the auction postponed and later submitted the documents necessary for a loan modification, which LCW expects to be successful. There was a woman whose lender gave her a trial modification, and at its completion insisted she enter another trial period at a higher interest rate and payment, because the lender mistakenly calculated that her income had increased 25%. Because of the intervention and the persistence of the LCW counselors, both homeowners remain in their homes. Since 2007, LCW has provided foreclosure prevention assistance to approximately 400 families in the region, and 59% of these families have achieved positive outcomes.

At the Neighborhood of Affordable Housing (NOAH) in East Boston, Counselor Smita Das tells the story of a single mother of two young children. After losing her job, she was unable to pay the two mortgages on her triple-decker. With NOAH’s helped she received a trail modification under the HAMP program, and then a permanent modification that lowered the combined monthly payment on her mortgages from $4,500 to just over $2,800.

Michele Morris of Valley CDC in Northampton highlights an important reason for counselors’ success in helping homeowners in crisis: the ability to develop a positive working relationship with the loan servicer’s staff. Homeowners may typically vent their frustration by treating the loan servicer’s staff as an adversary, which is not conducive to getting the family’s loan prioritized and getting the complex servicing errors untangled.

The moral of this story is clear. With all the challenges associated with loan modifications and foreclosure prevention counseling, it remains the fastest and most cost effective method of assisting families facing foreclosure, preserving family wealth, avoiding displacement, and stabilizing neighborhoods. Our frustration and anger about the on-going foreclosure crisis should not obscure the important success that nonprofit organizations are having day after day, one family at a time. We need to dramatically increase support for counseling, not throw in the towel in despair.