The foreclosure crisis has receded from the headlines. But any notion that foreclosure is not a serious problem anymore would be news to nonprofit foreclosure prevention counselors on the front lines.
At a gathering on September 28, convened by MACDC and CHAPA, counselors from 13 nonprofit organizations immersed in foreclosure prevention spoke about the issues they encounter, the changing nature of the foreclosure crisis, and challenges going forward. They spoke about lenders being aggressive in setting auction dates yet unresponsive to borrower requests for loan modifications. They noted that the funding that has sustained foreclosure prevention counseling is drying up. They fear the impact on their neighborhoods of lenders initiating foreclosure while neglecting to maintain those properties once the foreclosure process has been initiated.
The data on foreclosures underscore the persistent nature of the problem. A September article by The Warren Group, publishers of Banker & Tradesman, noted that foreclosure petitions in the Bay State rose in July, increasing 49 percent compared with July 2014. This marked the 17th consecutive month of increases in petition filings. In the first seven months of the year, there were 6,360 petitions filed in Massachusetts, a 60 percent increase from last year's mark through July. Petitions are the first step in the foreclosure process, when banks petition the state courts for the right to foreclose.
Too often, loan servicers are taking steps that tend to exacerbate problems rather than remedy them. Some are not complying with required standards when borrowers apply for loan modifications. Many are reluctant to negotiate forgiveness of past due amounts, or to consider principal reductions, when borrowers encounter hardships. Some are ignoring borrower authorizations of foreclosure counselors to negotiate on their behalf.
Counseling agencies are struggling to serve their clients with diminishing resources to fund their work. Many continue to rely on annual grants from the MA Division of Banks through a program, authorized by legislation from 2007 that permits the Division to collect fees from licensed mortgage originators, retain up to $5 million of these fees, and use up to $2 million of the retained revenue to make grants for foreclosure prevention counseling and homebuyer education. Earlier this year, through the State budget, the Legislature authorized the Division to retain $2.35 million from these fees, and the Division in 2015 made $1.3 million available in grants. The Request for Proposals for 2016 grants has recently been issued by the Division.
MACDC advocated for this program because we knew that a long-term, stable source of dedicated revenue would be necessary to address the foreclosure crisis. Eight years later, with the number of foreclosures stubbornly high, the wisdom of the Legislature’s decision is evident. According to a 2015 report issued by the Division of Banks, in calendar year 2014, the 21 agencies who received awards served almost 5,300 clients. Unfortunately, other funds that have historically supported this work have been reduced or eliminated, including funds from the Community Based Home Corps Program (funded by the MA Attorney General’s Office from prior legal settlements), HUD Counseling grants, and NeighborWorks America’s National Foreclosure Mitigation Counseling (NFMC) Program.
An article by journalist Loren Berlin, published in the November 10 issue of Shelterforce Weekly, addressed the dearth of funding nationwide for foreclosure prevention counseling. She notes, “Across the United States, hundreds of housing counseling agencies are struggling to regroup as elected officials declare the foreclosure crisis resolved and public funds to support mortgage default counseling services evaporate. The NFMC received $180 million in Congressional appropriations in 2007; it got roughly $50 million this year. Similarly, the U.S. Department of Housing and Urban Development’s budget for housing counseling services, which funds a variety of counseling services, including foreclosure prevention, was just $47 million this year, down from $87.5 million in 2010. Additionally, many states have reduced or ended their support for default counseling, and the majority of funds from the 2012 national mortgage settlement have been depleted. This loss of government support is compounded by a similar decrease in funds from national foundations and large financial institutions.”
In Massachusetts, MACDC is working with CHAPA to identify and advocate for resources to fill this growing void. At the same time, we need to continue to support the work of the nonprofit counseling agencies involved in homebuyer education and financial literacy, so we don’t see a repeat cycle of foreclosures in the future.
Research has demonstrated the link between pre-purchase homebuyer education and more sustainable homeownership. An analysis commissioned by the Federal Reserve Bank of Philadelphia in 2014 affirmed the benefits of pre-purchase counseling: in addition to improving homebuyers’ financial creditworthiness as they prepared to qualify for a home mortgage, individuals who received one-on-one counseling achieved better outcomes after purchase in terms of credit score, total debt, and payment delinquency than those who did not receive such counseling.
A working paper commissioned by national mortgage lender Freddie Mac in 2013 concluded that pre-purchase homeownership counseling reduced 90-day delinquency rates by 29% for first-time homebuyers taking out fixed-rate loans in owner-occupied one-unit properties under Freddie Mac’s affordable lending programs.
MACDC believes the path forward is clear. The Massachusetts state legislature can take a major step forward by providing funding for foreclosure prevention counseling and for first-time homebuyer education to replace what has been lost; one way would be authorize the MA Division of Banks to retain a higher amount of revenue from licensing fees so the Division can increase its awards. With this one step, we can help homeowners stay in their homes, protect neighborhoods from the negative impacts of foreclosure, and help today’s homebuyers to become tomorrow’s successful homeowners.