For Immediate Release

March 3, 2006
Contact: Becky Fleischauer, 202-220-2360

 

Shoring Up Homeownership in the Midst of Record Foreclosures

Demographic and geographic hotspots threaten decades of gains in minority homeownership

(Washington, D.C.) –NeighborWorks America will marshal foreclosure intervention help to demographic and geographic foreclosure hotspots, where decades of gains in minority homeownership and neighborhood revitalization are being threatened. Making the announcement to a roundtable of experts and community leaders NeighborWorks convened to address the factors that contribute to foreclosures, CEO Ken Wade declared: “We must do all we can to ensure that homeownership is not built on quicksand. This is particularly important with the explosion of subprime and predatory lending and overall increase in homebuying at prices that are outpacing incomes.”

The NeighborWorks initiative will begin in Ohio where foreclosures have more than doubled in the last five years. In addition to Ohio, NeighborWorks will target 8 to 10 communities hit hardest by foreclosure. The effort will deploy triage strategies that help homeowners on the brink of losing their homes avert foreclosure. Many of these practices are borrowed from NeighborWorks Center for Foreclosure Solutions – a clearinghouse of effective solutions from around the nation.  For example, a  partnership between the city of Chicago and NHS of Chicago – a NeighborWorks organization – prevented more than 700 foreclosures in the last 18 months.

“I applaud the efforts of NeighborWorks America in tackling the important issue of foreclosure prevention.  Foreclosures in the affordable housing context take a terrible toll upon individuals and neighborhoods.  Our hope is that the programs like today will help build the community-based partnerships that will help reduce foreclosures,” said FDIC Director and NeighborWorks America board Chairman Thomas J. Curry.   

Within the last five years, nearly 3 million households in the U.S. have experienced foreclosure – the majority in geographic “hotspots” that are disproportionately low-income and minority.  Foreclosures on all loans have increased by more than 50 percent since 2000.

The NeighborWorks roundtable featured new research quantifying the problem and effective triage strategies. Highlights from the discussion include:

What’s at stake

• Historic gains in minority home ownership rates, which until the mid-1990's had been stagnant for two decades. African Americans are twice as likely as whites to have taken out expensive subprime mortgages, most of which will jump to higher interest rates in the next two years, according to an analysis of data that lenders disclose under the federal Home Mortgage Disclosure Act.

• An unprecedented wealth-building tool for families. In addition to lowering crime and revitalizing blighted neighborhoods, home ownership also helps families build wealth that can pay for education and be passed on to the next generation. (Harvard Joint Center for Housing Studies)

• Total monetary losses are estimated between $30,000 and $80,000 per foreclosure.  Apgar, Duda and Gorey (2005)

Underlying causes

• Explosive growth of more expensive, risky “subprime” loans, which are far more likely to be foreclosed upon than prime loans.  The percentage of subprime loans going into foreclosure increased from a little more than 3 percent in 1998 to about 7 percent in 2003.  The foreclosure rate for prime loans over this period is about .5 percent. (Apgar 2004).

• Third-party brokers – the most common originators of subprime loans --  are primarily concerned with making loans and not necessarily with assuring that the loans are viable or the best deal possible for the customer.  Fannie Mae estimates that as much as 35-50 percent of all subprime borrowers could have qualified for lower cost prime loans.

• Consumer behaviors that result in little savings and no inhibitions about taking on additional debt. Debt loads have doubled in the last decade. Many families might be better off, and receive less expensive loans, if they saved for a down payment and paid down other debts before buying a home. 

• “Trigger” events that include job loss and reduced income, illness, divorce, unexpected expenses spurred by natural catastrophes.

Solutions

• Increase effective pre-purchase and pre-refinance education and counseling. Homeowners who completed NeighborWorks homeownership education and counseling cut their default rate by more than 30 percent. (Freddie Mac)

• Aggressive outreach and marketing of toll-free hotline assistance to encourage borrowers in distress to seek help earlier.  The Homeownership Preservation Foundation’s 1-888-995-HOPE national homeowner assistance line has served more than 45,000 homeowners – connecting them to advice, assistance and support to help them stay in their homes.

• Increase counseling capacity to cover a range of triage needs for those on the brink of foreclosure, including negotiating with lenders and servicers and providing borrowers with financial education, employment assistance and/or family counseling.

• Forge more partnerships among cities, lenders, and servicers aimed at averting foreclosures. An innovative campaign spearheaded by the city of Chicago and NHS of Chicago prevented more than 700 foreclosures in the past 18 months.

• Improve industry efforts to focus on successful loan “workouts.”  Research shows that recent changes in mortgage servicing policies have helped keep delinquent borrowers in their homes through repayment plans. The repayment plans have reduced the home loss of low-and moderate-income borrowers by 68 percent.

• Improve data collection and early alert systems.  Research released at the roundtable showed that the Mortgage Electronic Registration Systems is often listed in public records as the foreclosing entity, obscuring the identity of the loan orginator. Such data and reporting systems make it difficult to pinpoint vulnerable loans and aid borrowers in distress.

About NeighborWorks America

NeighborWorks America provides financial support, technical assistance and training for communities across the nation, including the NeighborWorks network – a nationwide network of more than 240 community development organizations working in more than 4,400 urban, suburban and rural communities across America. These organizations engage in revitalization strategies that strengthen communities and transform lives. In the last five years alone, NeighborWorks organizations have generated more than $10 billion in reinvestment and helped more than 780,000 families of modest means purchase or improve their homes or secure safe, decent rental or mutual housing.