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The Home Ownership Preservation Initiative in Chicago (HOPI). Reducing Foreclosures through Strategic Partnerships Presentation June 25, 2007 NeighborWorks America Creating Hope: Promoting Foreclosure Solutions. Bruce Gottschall , Executive Director Neighborhood Housing Services of Chicago.

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The home ownership preservation initiative in chicago hopi

The Home Ownership Preservation Initiative in Chicago (HOPI)

Reducing Foreclosures through Strategic Partnerships Presentation

June 25, 2007

NeighborWorks America

Creating Hope: Promoting Foreclosure Solutions

Bruce Gottschall, Executive Director

Neighborhood Housing Services of Chicago


1993

4,923

Foreclosures

2002

9,427

Foreclosures

Foreclosures Threatened

Chicago’s Neighborhoods

Analysis by National Training and Information Center (NTIC)

November 2004


In 2006 foreclosure starts increased to 10 290
In 2006, Foreclosure Starts Increased to 10,290


Nhs case study of foreclosure impact
NHS Case Study of Foreclosure Impact:


Foreclosures started in chicago showed a slight increase in 2005 and a significant increase in 2006
Foreclosures Started in Chicago Showed A Slight Increase in 2005 and A Significant Increase in 2006

Foreclosure starts

Year Foreclosure Started

Source: National Training and Information Center, Chicago, IL


Finding 6: Foreclosures Started on Newly Originated Prime Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

Foreclosure Starts

Year Foreclosure Started


Fast Foreclosures in NHS Targeted Areas Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.Foreclosures Starts Within 3 Years of OriginationDramatic Increase Since 1993

In 2001, 52% of all loans starting foreclosure were less than 3 years old

In 2006, 78% of all loans starting foreclosure were less than 3 years old.


New causes of high foreclosures
New Causes of High Foreclosures Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

  • No doc and reduced doc loans; particularly income documentation

  • ARM resets

  • Extremely loose underwriting; increase in allowable Debt to income ratios; qualifying borrowers at “Teaser” rates

  • Inappropriate loan products

  • Origination and appraisal fraud

  • Flat or declining market value


Chicago s hopi model
Chicago’s HOPI Model Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

  • Partnership of NHS, City, Federal Reserve, major lenders

  • 311 Hotlines connects to Credit Counseling Resource Center – collaborative of phone credit agencies

  • NHS provides in-depth assessments of borrowers and properties and face-to-face counseling

  • NHS Workshops invite borrowers with partner lenders to learn skills

    before there is a crisis

  • REO property disposition – prevent vacant buildings

  • Referrals to local resources

    • job training, tax assistance, emergency grants and loans


Chicago s hopi approach
Chicago’s HOPI Approach Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

  • Quality homeowner education to prevent current and future delinquencies.

  • Direct Interventions to assist homeowners at risk of foreclosure.

  • Partnering with loss mitigation to get solutions

  • Reclaim foreclosed homes for owner-occupants

  • Study mortgage and servicing impacts on neighborhoods to develop best practices as a “laboratory” for training and replication


Nhs of chicago hopi 3 year pilot totals
NHS of Chicago – HOPI Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005. 3 – Year Pilot Totals

Counseled and Educated over 4,000 people

  • Goal: 3,000 individuals

  • Result: 4,328 individuals

    (144% of goal)

    Prevented 1,304 foreclosures

  • Goal: 1,500 foreclosures prevented

  • Result: 1,304 foreclosures prevented

    (88% of goal)

    Reclaimed 330 buildings

  • Goal: 300 reclaimed buildings

  • Result: 330 reclaimed buildings

    (110% of goal)


Workshop outreach
Workshop Outreach Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.


Survey findings of nhs counseled families
Survey Findings of Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.NHS Counseled Families

  • Demographics of HOPI Clients

  • 73% Women

  • 81% African American

  • 15% Hispanic

  • Length of time lived in Home

  • Mean 10 years

  • Median 7 years

  • Income

  • Mean $27,000 (38% of AMI)

  • 1/3 below $18,000 (25% of AMI)

  • Average delinquency was 5.4 months when they contacted NHS

Source: NHS Chicago – Survey, 2005 (800 clients)


72 of defaulted loans are refinances
72% of Defaulted Loans Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.Are Refinances

Source: NHS Chicago-Defaulted Borrowers Survey, 2005 (183/289 respondents)


Workshop surveys
Workshop Surveys Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

  • 48% have never talked to their mortgage servicer

  • 36 % of borrowers making late payments

  • 45% have no escrow account for taxes/insurance

  • 78% have no emergency savings

  • 69% are interested in home repairs

  • 1/3rd believe bankruptcy will save them from foreclosure

  • 51% do not know their lender or servicer might provide alternatives to foreclosure

Source: NHS Homeowner Workshop Surveys, 2005-2006 (178 responses)


Most Have Low Opinion of Lender’s Willingness to Help Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

Worst Among Most Stressed Borrowers

(Highest on Index of Physical and Emotional Stress Indicators)

Source: Chicago Mortgage Default Counseling Survey, 2005


Why if behind did not contact lender
Why, If Behind, Did Not Contact Lender? Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

Source: NHS Chicago-311 Survey, 2005 (56/289 respondents)


Borrower focus groups
Borrower Focus Groups Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

  • Borrowers are under a great deal of stress, leading them to avoid help.

    • “I didn’t even want to go to anybody. I felt embarrassed.”

    • “Then you’re in trouble. I didn’t know which way to turn. I didn’t know there was help out there.”

  • Borrowers feel little sympathy from their lender (although borrowers dealing with loss mitigation staff were more favorable)

    • “They make you feel like a deadbeat…the way they interrogate you….. I’m not lying. I need help.”

    • “I had twenty people call my house out of that twenty, the twenty-first person actually listened to what I was telling her and said “wait just a minute, this department can help you.”

  • Trust for NHS stems from the relationship with the City of Chicago and their reputation:

    • “They have no ulterior motives. They have nothing to gain and nothing to lose. They're just ‘this is it, this is it, now you do something’.”

    • “They’re a lot more compassionate...you don’t feel like you’re being put down.”

Source: HOPI Borrower Focus Groups, May 2006


Could have been saved
Could Have Been Saved Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

  • Ms. C. behind $5,800 due to job loss. New, secure job in which debt to income ratio was 28%. Lender demanded $4,000 down to initiate repayment plan of remaining $1,800. Severance payment late from previous employer. Missed payment deadline by 2 weeks due to employer's slowness. When client presented $4,000 in certified funds, Lender refused to accept the money and proceeded with foreclosure. Client lost home. Client could easily have sustained the mortgage and repaid the remaining $1,800.

  • 2. Mr. & Mrs. C. Behind 4 months on their mortgage due to wife's job loss. Arrearage was $5,648.00, plus fees. Client got second job and cut expenses to reduce debt to income ratio to 45%. Lender stated that arrearage was $10,000 and demanded $7,000 even to consider a repayment plan. Client had tax refund check for $5,000 but lender refused to accept that and insisted upon the $7,000 down payment. Client is trying to sell home.


Could have been saved cont d
Could Have Been Saved Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.(cont’d)

3. Mr. S. Delinquent 4 months due to unemployment. Client obtained new employment at a debt to income ratio below 40%. Lender stated that it didn't do forbearance plans. Suggested loan modification but demanded $500 payment for loan modification application with no promise of approval or refund. Client didn't have the money so he was sent to foreclosure. Client cut off counseling with NHS.

4. Ms. C. Entered into a forbearance plan with a $8,000.00 down payment. As soon as she paid the money and made a few monthly payments, the servicing was transferred. The new servicer refused to honor the repayment plan and demand $2,366.00 down to enter into a repayment plan for the arrearage. She couldn't afford it. (NHS refinanced, but if NHS hadn't been around, she would have lost the home.)


More examples of lost saves
More Examples of Lost Saves Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

  • Refusal to waive pre-payment penalties negate possibility of refi

  • Repayment plans based on inadequate current financial information about borrower

  • Mod refused – 11% loan not sustainable 7.5 % with re-amortization doable But lender did repayment plan that could not be

  • sustained; hoping for refi in future; therefore plan

  • failed

  • “We don’t do mods”


Survey of default counselors
Survey of Default Counselors Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

  • Emailed to 400 counseling professionals

    35% response rate (over 136 completed)

    • 53% NeighborWorks Organizations

    • 41% Other nonprofit counseling agencies

    • 6% Local Government

  • In total served 11,000+ clients last 12 months

  • Typically 5 or fewer “default counselors”

  • 2 out of 3 respondents provide counseling directly

  • Source: NHS Default Counselor Survey 2007


    Counselors recent servicer efforts
    Counselors: Recent Servicer Efforts Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

    54%

    combined

    Source: NHS Default Counselor Survey 2007


    Borrower s retain negative view of servicer
    Borrower’s Retain Negative View of Servicer Rate Loans That Were Identified As ARMs and/or Balloon Payment Loans Increased by 152% in 2005.

    Source: NHS Default Counselor Survey 2007


    How helpful is it in creating loan workouts to have a designated contact
    How Helpful Is It In Creating Loan Workouts to Have A Designated Contact?

    Reduces time on hold, making call backs, etc by 10+ minutes per client.

    Saves typical counselor 3 days per year.

    Source: NHS Default Counselor Survey 2007


    Discussion restrictions contact understanding
    Discussion: Designated Contact?Restrictions, Contact, Understanding

    Source: NHS Default Counselor Survey 2007


    Ratings of 15 top subprime servicers
    Ratings of 15 Top Subprime Servicers Designated Contact?

    • Rate each institution's loss mitigation department based on your experience in the last 6 (six) months.

      • 1-4 scale:

        1: Very good to work with

        2: Fairly good to work with

        3: Fairly difficult to work with

        4: Very difficult to work with

  • Average: 2.5 – between fairly good-difficult

  • Range 1.6 to 3.2 - experiences uneven

    • Key finding: Within institutions counselors have varied experiences.

      • Even the ‘best’ have issues/problems as identified by counselors

  • Source: NHS Default Counselor Survey 2007


    Improvements Designated Contact?What Can Lenders or Servicers Do To Improve Cooperation With Nonprofit Mortgage Default and Housing Counselors?

    Outreach:

    • Notify borrowers earlier that counseling exists (but “HUD hotline is not enough”).

    • Incentives for clients to go to counseling.

      Servicer Contacts:

    • Designate contacts.

    • Expedite workout packages if a nonprofit partner is on the case.

    • “Special office” model.

    • “Servicing agents need $$ incentives to take time to cooperate with counselors.”

      Process:

    • Phone=time lost. Email and online communication/application to streamline process.

    • Faxing the release of information form = “a big run around”

    • “Keep us updated.” Validate our findings, analysis or recommendations.

    • Return phone calls. “Lenders don't ever call back…A return phone call is hard to come by.”

      Training:

    • “We are on the same team.” Need to be more respectful.

    • Host events with counselors to initiate better relationships.

    • “Cross-training makes the process much easier.”

    • Deal with varying levels of competence, on both sides, and high turnover rates.

    • “Work together!”

    Source: NHS Default Counselor Survey 2007


    What changes should lenders servicers make to the loan modification process
    What Changes Should Lenders/Servicers Make To The Loan Modification Process?

    New Types of Modifications:

    • Extend payments beyond 30 years with a annual review and shorten the term when payment increase is possible

    • Offer mods earlier

    • Convert ARMs into fixed rate, affordable payments

    • Relax upfront deposit requirements

      Counseling:

    • “Often borrowers have no clue what the lender has just said.”

    • “Recognize all repayment plans are at risk of falling apart – we can help.”

    • Better communication with borrower

      Servicing Operations:

    • “Get rid of the ‘goons’ ”

    • Be more customer friendly and “less chastising.”

    • Clear path from collection department to loss mitigation department

    • Make sure all phone staff know the full range of options and can exercise them.

    Source: NHS Default Counselor Survey 2007


    Expectation for demand for nonprofit foreclosure services over the next year
    Expectation For Demand For Nonprofit Foreclosure Services Over The Next Year?

    Source: NHS Default Counselor Survey 2007


    Hopi partnership meeting may 16 2007
    HOPI Partnership Meeting Over The Next Year?May 16, 2007

    • Moving from principles to execution of best practices and proven strategies for results

    • 120 lenders, servicers, counselors, investors, ratings agencies and Wall street

    • Meeting the Challenge of dramatically increased defaults and demand for counseling and loss mit

    • Priority to spend time with borrower

    • -”more like counselor then collector”


    What more needs to be done
    What More Needs To Be Done? Over The Next Year?

    Early stage Loss mitigation

    Outbound calling by third party

    Early ARM reset notification

    Target “hop spot” marketing

    Flexible approach to Loan workouts

    Increase modifications

    ARM to fixed rate

    Principal reduction or deferred portion

    Enhanced partnerships with third-party counseling agencies

    Loss mit contact with decision authority

    Standard financial info for workouts

    Third party review of modifications


    How do you improve outreach and loss mit practices
    How Do You Improve Outreach Over The Next Year?and Loss Mit Practices?

    • Merge collections and loss mit

    • Designated loss mit decision makers to work with

    • counselors

    • Cross training of loss mit and counselors

    • Trained collection staff to recognize loss mit

    • opportunities

    • Hold on foreclosure if valid solution

    • Loss mit allowed before serious delinquency

    • Modifications based on definition of “imminent risk

    • of foreclosure”

    • Priority to spend time with borrower

    • - ”more like counselor then collector”


    Value that a not for profit counselor can bring to the process
    Value That A Not-For-Profit Counselor Can Bring To The Process

    • Gain greater contact with borrowers

      • Cost-effective borrower outreach

      • Getting accurate current financial information

      • Outsource of staffing needs, filling a gap

      • Assistance in developing “best practices”

  • Third party Trusted advisor role creates solutions

  • Access to other resources

  • - Public Funds

  • - Other private sources


  • Looking Forward: Process HOPI Proven Strategies

    • Improve connection: counselors to loss mitigation

      • Designated contacts; Web-based information; Call backs

  • New loan modification strategies

    • ARM conversion; Extended term; Earlier options

    • Generally accepted practice to modify loans where default is imminent

  • Cooperation: counselor and loss mitigation

    • Co-meetings; Current financial information; Review cases together

  • Systems and process changes

    • Staff deployment/incentives and call queue management

    • Matrices to define options for front line loss mitigation staff

  • Tracking, monitoring, communications

    • Accountability for results

    • Converting Principles to results


  • The home ownership preservation initiative in chicago hopi1

    The Home Ownership Preservation Initiative in Chicago (HOPI) Process

    Reducing Foreclosures through Strategic Partnerships

    Bruce Gottschall, Executive Director

    Neighborhood Housing Services of Chicago

    Do not cite or distribute without permission


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