Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

How does foreclosure prevention fit into the affordable housing toolbox? While most communities have programs to help renters become homeowners, many communities do not focus enough on keeping existing homeowners in their homes. Foreclosure prevention programs help homeowners who have defaulted on their mortgage and are in danger of foreclosure or a forced sale that will strip them of hard-earned equity. By providing these families with counseling and access to attractively priced refinancing options, foreclosure prevention can keep families affordably in their homes while preserving home values and stability in the surrounding community.	Click on the thumbnail below to see a foreclosure prevention policy timeline.
Why should communities get involved in foreclosure prevention?	Solutions in Action
Communities across the country are facing rising foreclosures as interest rates reset on adjustable rate mortgages (ARMs) originated between 2004 and 2006. While foreclosures also occur on other mortgages, the adjustable rate mortgages issued by the subprime sector between 2004 and 2006 are particularly vulnerable as many of these loans will reset to very high fixed interest rates. According to one estimate, the number of foreclosures nationally due to interest rate reset may exceed one million (or 13 percent of adjustable rate first mortgages). [1] Foreclosures affect more than just individual borrowers. Government efforts can help both individual borrowers and the community overall by: helping families stay in their homes and retain their equity, preventing widespread losses in low- and moderate-income homeownership, stabilizing communities, safeguarding local property tax rolls, and protecting nearby homeowners from equity loss. For a more thorough explanation of why governments provide foreclosure prevention assistance, click here. What policies can help prevent and respond to foreclosures? Foreclosure prevention policies can target assistance directly to families in need, or they can focus at the community level on modifying the regulatory environment to reduce foreclosures and their impact on neighborhoods. The policies that can help prevent and respond to foreclosures vary depending on how deep into financial trouble families are.	Photo courtesy of Neighborhood Housing Services of Chicago Chicago's Home Ownership Preservation Initiative (HOPI) is an early example of a one-stop approach to foreclosure prevention that includes both counseling and research efforts to prevent foreclosures now, reduce foreclosure risk in the future, and mitigate the damage foreclosures can cause. Neighborhood Housing Services, the organization that administers HOPI, reports that the initiative prevented over 1,300 foreclosures in its first three years. Learn more about HOPI...

This section details a range of policy solutions being implemented at the state and local levels, including policies to:

• establish a foreclosure prevention task force,
• connect struggling homeowners with immediate assistance,
• help homeowners and renters regain stability after a foreclosure, and
  
• prevent foreclosures in the future.

How to Navigate the Foreclosure Prevention Section To help you sort through the different foreclosure prevention options, we have developed two options for navigating the foreclosure prevention section on HousingPolicy.org: OPTION #1: To view and select policies on a graphical foreclosure timeline, click here. OPTION #2: Or, to access policies through traditional text menus, click on "Learn more about foreclosure prevention" below.

Learn more about foreclosure prevention. Go back to learn about other policies that help residents succeed.

[1] Mortgage Payment Reset: The Rumor and the Reality. [PDF] 2006. By Christopher L. Cagan. Santa Ana, CA: First American Real Estate Solutions.

The Center for Housing Policy gratefully acknowledges the input and feedback provided for this policy section by the following reviewers (in alphabetical order): Sonia Garrison, Self-Help; Steve Tuminaro, NeighborWorks America; and Christen Wiggins, Neighborhood Housing Services of Chicago. Please note, however, that the views and opinions expressed on HousingPolicy.org are those of the Center for Housing Policy alone.

Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners


How does foreclosure prevention work?

States and localities have adopted a range of short- and long-term educational, financial, legal, and regulatory policies for preventing foreclosures and protecting affected families and communities.  To develop a foreclosure prevention approach that meets local needs and offers a wide range of policy solutions, some communities have brought stakeholders together to form foreclosure prevention task forces that look at options for immediate assistance, post-foreclosure stabilization, and ways to reduce the risk of foreclosures in the future.  A second category of policy interventions involves counseling, legal services, short-term loans, and flexible refinancing programs that provide immediate assistance to borrowers who are delinquent on their mortgages.  To help when a foreclosure cannot be avoided, some communities have developed policies that help affected families -- both renters and owners -- to regain stable and affordable housing.  A final set of strategies focuses on reducing the risk of future foreclosures by understanding and responding to early indicators of financial distress and working to reduce the likelihood that families take out unsustainable mortgages.

Click on the links below to learn about ways to prevent foreclosures and and Help affected renters and owners. Establish a foreclosure prevention task force to facilitate a comprehensive approach Communities can develop a comprehensive response to foreclosures by convening representatives of government, industry, and non-profit organizations. Connect struggling homeowners with immediate assistance Strategies that provide immediate foreclosure prevention assistance include short-term emergency loans, preferential refinancing products, 24-hour hotlines, and expanded outreach by reliable non-profit assistance organizations. Help families regain stability after a foreclosure When preventing the foreclosure is not possible, communities can help families find, qualify for, or afford a new rental home. Reduce the risk of foreclosures in the future Communities can prevent foreclosure by increasing outreach in areas with high foreclosure risk and by helping families to avoid risky mortgage products. See the clickable timeline of foreclosure prevention policies. Click here to view other resources on preventing foreclosures and equity loss.

Click here to leave this section and learn about ways to stabilize the community by facilitating the reuse of abandoned, vacant, and tax-delinquent properties if foreclosures have already occurred.

Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Connect Struggling Homeowners with Immediate Assistance

Foreclosure prevention has a greater chance of success when it reaches borrowers in the earliest stages of delinquency. Many tools are available to provide information and/or financial assistance to borrowers before it is too late.

Click on the options below to learn what communities can do to help struggling homeowners: Photo courtesy of Neighborhood Housing Services of Chicago Expand foreclosure prevention efforts by reputable non-profit counseling and education organizations By funding expanded outreach, education, and counseling efforts by reputable homeownership education and counseling organizations, state and local governments can get homeowners on track as early as possible. Establish or promote a hotline or other one-stop resource for foreclosure prevention A foreclosure prevention hotline or other one-stop resource makes it easier for struggling homeowners to start working on solutions. Offer a range of suitable refinancing products and emergency loans By connecting families with low-cost refinance loans, 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. Lengthen the foreclosure timeline through a moratorium or other extension Extending the process of home foreclosure through a temporary moratorium may allow homeowners additional time to reduce the financial damage of foreclosure. Expand the availability of legal services for file review and foreclosure prevention assistance Legal assistance can be a critical resource to help families stay in their homes and prevent financial losses by negotiating alternatives to foreclosure.

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You are currently reading: Connect struggling homeowners with immediate assistance Strategies that provide immediate foreclosure prevention assistance include short-term emergency loans, preferential refinancing products, 24-hour hotlines, and expanded outreach by reliable non-profit assistance organizations. Other pages in this section: Establish a foreclosure prevention task force to facilitate a comprehensive approach Communities can develop a comprehensive response to foreclosures by convening representatives of government, industry, and non-profit organizations. Help families regain stability after a foreclosure When preventing the foreclosure is not possible, communities can help renter and homeowner families find, qualify for, or afford a new rental home. Reduce the risk of foreclosures in the future Communities can prevent foreclosure by increasing outreach in areas with high foreclosure risk and by helping families to avoid risky mortgage products. See the clickable timeline of foreclosure prevention policies. Click here to view other resources on preventing foreclosures and equity loss.

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Expand foreclosure prevention efforts by reputable non-profit counseling and education organizations

Funding for reputable non-profit homeownership education and counseling providers is a simple, but important, component of foreclosure prevention. Government funding, through flexible homeownership-oriented resources such as HOME or CDBG, can ensure that solid non-profit programs can continue or even expand. Schenectady, New York, and West Jordan, Utah, are among the numerous cities nationwide that use a portion of their CDBG money to support foreclosure prevention counseling provided by HUD-certified non-profit counseling agencies.

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Establish or promote a hotline or other one-stop resource for foreclosure prevention

Families facing the possibility of foreclosure cannot afford to waste time looking for reliable assistance. Governments can help by offering a unified foreclosure prevention resource that allows homeowners to focus on sorting through their options rather than finding them. By sponsoring and actively promoting a hotline for families at risk of foreclosure, governments can also provide a seal of approval that helps families avoid scams masquerading as foreclosure prevention assistance.

In addition to offering hotlines and other one-stop foreclosure prevention resources, communities need to actively promote these tools to connect families to the resource they need. Governments are a natural leader for getting the word out and ensuring that families can trust that the assistance is reputable. There are many different ways for governments to promote these tools, as the following examples show. To promote the foreclosure prevention available through its 311 customer service hotline, Chicago mailed information about the new resources to all households in communities with high rates of foreclosure and conducted a citywide advertising campaign. Each water bill in Baltimore includes a message directing financially distressed homeowners to call 311 for help preventing foreclosure. Press releases and media events have drawn attention to foreclosure prevention hotlines in cities such as Atlanta, Baltimore, Chicago, and Dallas, and in states like Delaware, Montana, Ohio, and Colorado. A media event held by the Colorado Division of Housing was followed by a panel discussion on issues related to foreclosures. To maximize the effectiveness of these hotlines, communities can encourage lenders and servicers to work closely with hotline counselors to help restructure loans when needed. Back to top

Solutions in Action

Foreclosure Prevention Outreach in Ohio Ohio's Foreclosure Prevention Taskforce, a broad partnership similar in many respects to HOPI in Chicago, has supplemented the state's 211 non-emergency hotline with a few in-person options for comprehensive foreclosure prevention assistance. In September 2007, the Taskforce held Borrower Outreach Days in three different parts of the state. Borrower Outreach Day includes foreclosure prevention education and counseling as well as opportunities for on-site borrower-lender communication, refinancing, and loan modification. As a periodic resource, Borrower Outreach Day clearly can not stand alone; however, it offers one-stop access to a range of foreclosure prevention resources while also renewing the media's attention to existing foreclosure prevention options. Learn more about Ohio's Foreclosure Prevention Taskforce.

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Offer a range of suitable refinancing products and emergency loans

A number of state and local housing finance agencies have developed special loan products to prevent foreclosures among families that cannot qualify for traditional refinancing products and have been unable to obtain modifications to their existing loan to make the loan more affordable. Loans geared toward foreclosure prevention tend to have less restrictive underwriting requirements and/or more suitable loan terms. Foreclosure prevention loans take a variety of different forms that all aim to help families stay in their homes whenever possible. Depending on local needs and resources, this may involve silent second mortgages and shared appreciation loans, low-interest refinance loans, and short-term emergency loans. Examples of each approach are provided in this section.

The following table describes three categories of financial problems that may lead foreclosure, financial assistance options that can prevent foreclosure in each of these cases, and some examples of communities that have implemented each of these approaches. Click on a community option to learn more, or click on any state to jump to an example.

Cause of Mortgage Delinquency	Short-term crisis (job loss, medical emergency, etc.)	Unaffordable mortgage terms and minimal refinance barriers	Unaffordable mortgage terms and serious refinance barriers
Community Options	Short-term emergency loans	Low-interest refinance loans, possibly with flexible underwriting requirements	Refinancing with flexible underwriting requirements, silent second mortgages, or shared appreciation loans
Examples	Delaware, Maryland, North Carolina, Ohio, Pennsylvania	Connecticut, Maryland, Massachusetts, New York, Ohio, Pennsylvania	Maryland, Minnesota, New Jersey, Pennsylvania

Some communities, such as Pennsylvania and Maryland, opt to offer loans of many different types and levels of assistance in order to help families at all points along the delinquency spectrum.

Pennsylvania's Mortgage Assistance Programs The Pennsylvania Housing Finance Agency (PHFA) provides three different types of foreclosure prevention loans targeted to the diversity of homeowners' needs: The Homeowners' Emergency Mortgage Assistance Program (HEMAP) can help prevent foreclosure for families with short-term financial problems that should be resolved within 2 years. For families with relatively good credit that cannot afford their current mortgage terms, PHFA offers the REfinance to an Affordable Loan (REAL) program. To bring foreclosure prevention solutions to families with severe affordability challenges, there is the Homeowners' Equity Recovery Opportunity (HERO) Loan Program which can be used by families that have damaged credit or owe more than the current value of the home. Learn more about Pennsylvania's Mortgage Assistance Programs...

Click on the links below to learn more about loan products that can help families avoid foreclosure: Short-term emergency loans Low-interest refinance loans Refinancing with flexible underwriting requirements, silent second mortgages, or shared appreciation loans

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Lengthen the foreclosure timeline through a moratorium or other extension

With home foreclosures at a record high, state governments are considering different options to help families avoid foreclosure, or at the very least, manage the financial stress associated with it. One approach is to delay the process of home foreclosure through a temporary moratorium. Slowing the foreclosure process may allow homeowners additional time to settle their debts, refinance their mortgage, modify their loans, or sell their property to reduce the financial damage of foreclosure. [1] However, the outcomes from foreclosure moratoriums have not been documented, and if a moratorium is not linked to other programs that can help families and communities appropriately use the additional time they are granted, it may not resolve the family’s underlying affordability challenge. State and Local Examples As the number of home foreclosures rapidly escalates, some state government agencies are again considering foreclosure moratoriums. In April 2007, Massachusetts adopted a foreclosure moratorium policy to assist borrowers to avoid foreclosure with a 30-60 day freeze on action by the lender or loan servicer. The program is managed by the Division of Banks, which operates out of the Massachusetts Office of Consumer Affairs & Business Regulation, whose priority is to allow for families to stay in their homes in order to give them additional time to develop and implement their own plan of action to work out a possible alternative to foreclosure.

History of Foreclosure Moratoria in the U.S Foreclosure moratoriums date back to the Great Depression. During the 1930’s, the State of Minnesota enacted a law that imposed two-year moratoriums on bank foreclosures. Similarly, in 1933, the State of New York adopted a law that granted a moratorium for homeowners facing foreclosure but required homeowners to make a minimum payment to their lender (determined by the courts). This foreclosure moratorium renewed annually until 1949. More recently, in 2005, HUD granted home foreclosure moratoriums for FHA-insured homeowners in areas affected by Hurricanes Katrina and Rita for approximately a year. During this period, lenders were prohibited from initiating new foreclosures in order to give homeowners time to get back on their feet.

In Massachusetts, a foreclosure moratorium is granted on a case-by-case basis after a homeowner has received a notice from their lender about foreclosure and submits a complaint to the Division of Banks. The Division of Banks will contact the lender or loan servicer to consider foreclosure extension, and the lender determines whether or not it is feasible.

Moratoria are voluntary and lenders do not have to comply with the moratorium request, although the requests are usually approved. A lender might deny a moratorium based on the borrower’s financial situation or the number of times the foreclosure process has been delayed in the past. When a moratorium is approved, borrowers are encouraged and provided with information to seek foreclosure prevention and housing counseling assistance. Once the homeowner establishes contact with a housing counselor, they are given an array of options and resources depending on personal budget information submitted by the consumer.

As of February 2008, the Division of Banks has issued 600 voluntary foreclosure stays to allow the homeowner additional time to work out a possible alternative to foreclosure. [2] While it is clear many homeowners are taking advantage of the program, there is no data available to determine how this time is used, or the outcome for the family.

Massachusetts is also considering a separate foreclosure moratorium bill, which would provide a 180 day moratorium on foreclosures for properties with 1-4 units if the mortgage was originated by a subprime lender. Click here to learn more about the bill.

Click here for more information about foreclosure moratoria in Massachusetts. In March 2008, the city council of Philadelphia passed a 30 day foreclosure moratorium policy to try to stem the rising tide of foreclosures there. The policy is set to expire in May 2008. The State of Maryland has signed into law a bill in April 2008 that lengthens the minimum length of foreclosure proceedings to 150 days, up from 15 to provide homeowners with additional time and notice before a foreclosure sale. This bill requires the lender to wait 90 days after default before filing the foreclosure and to send notice to the homeowner 45 days before filing the action. The lender must provide proof of ownership when filing the foreclosure action. Homeowners are able to stop the foreclosure by paying what is owed until one day before the sale. Click here for more information about Maryland’s efforts to protect homeownership. The State of New York is currently considering the Brennan Bill, a one-year home foreclosure moratorium that if approved, would be granted to all court-ordered foreclosures. State lawmakers in New Jersey have also brought up the possibility of a six-month foreclosure moratorium to relieve homeowners, but as of April 2008, no action had been adopted.

Moratoria Considerations Although moratoria may be invaluable for a homeowner by delaying a foreclosure and can be an effective tool in some cases, it is not likely to represent a long-term solution. It is unclear how many families can resolve their financial difficulties within a 30-60 day moratorium period, but clearly there will be some families who need a longer time or more substantial assistance, such as a write-down of the principal balance of the mortgage. A longer moratorium period would provide the family greater options, but would be more controversial and also would not necessarily resolve the underlying problem of the family’s inability to afford their monthly mortgage payment. In a review of state policy options, State Strategies to Address Foreclosures, the National Governors Association (2007) cautions that foreclosure moratoriums may have unintended consequences because foreclosure delays can be costly to borrowers if their debt continues to accumulate if they are unable to modify their loans, sell their home, or repay their debt.

Federal Moratoria At the federal level, the HOPE NOW Alliance, a coalition of mortgage and banking industry groups, came together, at the behest of the Secretaries of Treasury and Housing and Urban Development, to craft and implement possible national solutions to the flood of subprime foreclosures. In December 2007, they implemented a massive outreach campaign through letters to troubled borrowers and a national ad campaign, pointing borrowers to the HOPE-NOW hotline where counselors could help with repayment plans and loan restructuring. To offer more time to families with impending foreclosures, HOPE NOW is implementing a 30 day foreclosure moratorium called “Project Lifeline.” HOPE NOW members, Bank of America, Chase, Citigroup, Countrywide, Washington Mutual and Wells Fargo, announced in February 2008 that they will offer to delay foreclosure proceedings for up 30 days for seriously delinquent borrowers who respond to a special mailing within 10 days. The moratorium is used to determine if a workout plan is possible for the borrower. The program expected to be operational by March 31, 2008. The website of the Financial Services Roundtable, the group coordinating the Alliance shares the following : These servicers will begin the program by providing a letter to seriously delinquent homeowners nationwide giving homeowners a simple “step-by-step” approach that, if followed, may enable them to “pause” their foreclosure for 30 days while a potential loan modification is evaluated. Servicers will reach out to homeowners on a nationwide basis – with this step-by-step approach to finding a solution which meets their individual needs. This is different than the “streamlined” approach to loan modification announced previously. It is a broad, national approach to help all homeowners individually. Subprime, Alt-A, and prime loans may qualify for this program, including second liens and home equity loans. These leading servicers – which represent approximately 50 percent of mortgages – will soon begin to reach out to homeowners giving them a few simple steps that may qualify them for a loan modification: Step 1: call your mortgage servicer. Step 2: tell the servicer you have received the letter, you want to stay in your home and you are willing to seek counseling, if necessary. Step 3: provide updated financial information so the servicer can explore an appropriate solution. Step 4: if appropriate, any pending foreclosure may be "paused" for up to 30 days during this review process until a formal decision is made and, if possible, a plan is created.

[1] State Strategies to Address Foreclosures.[PDF] 2007.By Kheng Mei Tan and Stephanie Casey Pierce.Washington, D.C.: National Governors Association.

[2] Addressing the Foreclosure Crisis: State and Federal Initiatives in Massachusetts. [PDF].March 2008.By Janna Tetreault and Ann Verrilli.Boston, MA: Citizen’s Housing and Planning Association.

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Expand the availability of legal services for file review and foreclosure prevention assistance

Legal assistance can be a critical resource to help families stay in their homes and prevent financial losses by negotiating alternatives to foreclosure. Legal assistance also provides representation for families who have been taken advantage of by predatory lenders.

As the number of home foreclosures continues to rise, the work of local and state legal assistance agencies can be effective in combination with, or as an extension of, housing counseling services. Whereas housing counselors might lay out the various options available to prevent foreclosure, offer budget advice and assistance, information and referral services, or help to negotiate a "workout" with the lender, legal assistance tends to be more specific in navigating the legal issues homeowners may face as they try to avoid foreclosure. In many cases, a housing counselor might recommend that a client seek legal assistance to meet their particular needs.

There are over 900 legal aid offices at the state and local levels in the U.S., most of which operate under the Legal Services Corporation, a national entity created by Congress in 1974. These quasi-public agencies are intended to provide support to individuals and communities that typically do not have access to legal services – often the same populations most hurt by abusive loan practices. While most of these agencies serve clients on a range of legal needs, many have developed programs specific to home foreclosure and predatory lending issues, including litigation for fair housing, consumer protections, or education and advocacy. Legal Services of New Jersey, for example, has the Anti-Predatory Lending Project, which provides legal help to low-income homeowners who are at risk for foreclosure or the loss of equity as a result of predatory lending. They also promote homeowner education and outreach, as well as policy advocacy. Similarly, Legal Aid of North Carolina runs the Mortgage Foreclosure Project, which provides legal representation in foreclosure actions. The Project helps to preserve clients’ credit ratings, save homes from foreclosure, and make it difficult and expensive for predatory lenders to continue to engage in abusive loan practices. The Mortgage Foreclosure Project also promotes community education to increase awareness of home finance best practices and the dangers of predatory lending. Although the Legal Services Corporation provides funding to state and local aid agencies, many agencies are dependent on grants and other funding mechanisms to support their work. The Institute for Foreclosure Legal Assistance, a project of the Center for Responsible Lending, supports over 25 local legal aid providers with $15 million in grants to fund the litigation costs of foreclosure cases. This assistance is critical, since foreclosure cases can last several months and the attorneys that work in legal service corporation-funded organizations cannot collect attorney fees for their work.

Solutions in Action

Ohio's Save the Dream Program Ohio's Save the Dream program connects homeowners with legal services as part of a broad package of foreclosure prevention assistance. In April 2008, the state's attorney, chief justice, and Ohio State Bar Association president released a call to all qualified attorneys throughout the state to offer legal services to assist struggling homeowners. Over 1,100 attorneys registered to volunteer with the initiative and are being assigned to local legal services providers to be matched with clients. Attorneys will assist homeowners mediate disputes and represent homeowners restructure their loans for free. Ohioans can find a local attorney and find out about qualifying for legal assistance by calling the Save the Dream hotline. Currently, homeowners earning 250 percent of the AMI are eligible for legal support under this program. Click here to learn more about legal services assistance through Ohio's Save the Dream program.

As outlined in the “Reasons for Government Involvement” section, supporting legal service agencies can be a beneficial use of state and local government funds and can save governments’ money over the long-term. Local and state governments can dedicate funding for their community’s legal service agencies by:

• Providing direct funding to legal services or legal aid offices for legal assistance related to foreclosures.
• Integrating funding for legal services into the Consolidated Plan required by each community in order to receive Community Development Block Grant (CDBG) funding
• Increasing court filing or recording fees to provide funds for additional legal services for those who need it

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Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Case Study: Chicago's Home Ownership Preservation Initiative (HOPI)
Chicago's Home Ownership Preservation Initiative (HOPI) is an early example of a one-stop approach to foreclosure prevention that includes both counseling and research efforts to prevent foreclosures now, reduce foreclosure risk in the future, and mitigate the damage foreclosures can cause.

HOPI was launched in 2003 in response to high rates of foreclosures in Chicago over the prior ten years. The City of Chicago,

Neighborhood Housing Services (NHS) of Chicago, and the Federal Reserve Bank of Chicago created the initiative and brought together partners from lending, investment, and servicing institutions as well as non-profit organizations and the public sector. HOPI uses a four-part strategy for foreclosure prevention: Pre-purchase and post-purchase counseling and education Direct intervention with delinquent borrowers Rehabilitation of foreclosed properties Research and analysis of best practices for the mortgage and servicing industry NHS reports that the initiative prevented over 1,300 foreclosures in its first three years.

Photo courtesy of Neighborhood Housing Services of Chicago

The City of Chicago's 311 non-emergency hotline is at the heart of HOPI's direct intervention strategy. 311 operators connect delinquent borrowers with reputable credit counselors who can also help borrowers deal with their financial problems and negotiate with their loan servicer to avoid foreclosure. Borrowers are also linked with NHS or the city's Department of Housing for financial assistance, such as mortgage refinance or a short-term loan.

The City of Chicago is now one of many cities that use an existing non-emergency hotline to direct homeowners to foreclosure prevention resources. Communities without a non-emergency hotline can point residents to 1-888-995-HOPE, a national foreclosure prevention number provided by the Center for Foreclosure Solutions, a project of NeighborWorks America.

Another key element of the Chicago initiative is the close cooperation of lenders and servicers who help pay for the costs of the counseling, agree to restructure loans when needed, and work with the city on the disposition of foreclosed properties.

Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Short-Term Emergency Loans

In cases of temporary financial hardship, a small amount of assistance may make a large difference for a family. Housing finance agencies can craft these emergency loans to meet local needs and economic realities. Small and/or short-term loans are clearly not capable of preventing foreclosure for every family, but they play an important role in a community’s overall foreclosure prevention strategy by helping families stabilize their finances before delinquencies get out of control. Temporary financial assistance products are often designed to help families retain stable housing during unemployment or sudden losses of income.

The table below summarizes the assistance offered by five different short-term emergency loan programs. Click on the state to read more.

State	Loan Program	Maximum Loan (in total $)	Maximum Loan (in number of mortgage payments)	Interest Rate
Pennsylvania	Homeowners' Emergency Mortgage Assistance Program (HEMAP)	$60,000	24 months	9 percent
North Carolina	Home Protection Pilot Program	$20,000	18 months	0 percent
Delaware	Delaware Emergency Mortgage Assistance Program (DEMAP)	$15,000	12 months	3 percent, simple
Maryland	Bridge to HOPE Loan Program	$15,000	24 months	0 percent
Ohio	Ohio Home Rescue Fund	$3,000 or $5,000 depending on household income	3 months	0 percent

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Pennsylvania

In Pennsylvania, the Homeowners' Emergency Mortgage Assistance Program (HEMAP) will provide either a single loan to bring a mortgage current or continuing mortgage assistance for no more than 24 months, up to a maximum of $60,000. Monthly payments vary with household income to ensure that HEMAP borrowers do not pay more than 40 percent of household income on housing costs. The minimum monthly payment is $25 per month.

For households repaying based on the 40-percent calculation, the loan has an interest rate of nine percent; interest does not accrue when the loan is on a $25 per month repayment plan. Lenders are required to inform borrowers of the HEMAP program if a mortgage is at least 60 days delinquent. Funding is provided through a combination of state appropriations and repayment of HEMAP loans.

See the case study of Pennsylvania's mortgage assistance programs for more information about HEMAP and other loan programs to help Pennsylvania homeowners.

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North Carolina

In 2004, North Carolina initiated the Home Protection Pilot Program to prevent foreclosures in households affected by job loss. In selected counties, workers who have lost their jobs may receive a no-interest loan for: $20,000, an amount necessary to cover 18 months of mortgage payments, or the minimum amount needed to bring their loans current -- whichever is lowest. Repayment is deferred for 15 years or until the home is sold, refinanced, or no longer a principal residence. Applicants also receive a 120 day temporary stay of foreclosure upon receipt of their application. More information on North Carolina's Home Protection Pilot Program is available on the North Carolina Housing Finance Agency web site.

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Delaware

The Delaware Emergency Mortgage Assistance Program (DEMAP) provides loans to help families experiencing a temporary financial hardship due to circumstances beyond their control. Borrowers that are at least 60 days delinquent and at risk of foreclosure can obtain a DEMAP loan for up to $15,000 or 12 months of mortgage payments. The loan may either be received as a single payment to bring the mortgage current or a series of smaller, ongoing payments to assist with the mortgage for up to a year. To qualify, borrowers must have previously had a good credit history and must have a total family income of no more than 115% of the state's median annual income. The minimum payment on a DEMAP loan is $40 per month. More information on DEMAP can be found on the Delaware State Housing Authority web site.

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Maryland

Maryland's Bridge to HOPE Loan Program provides loans of up to $15,000 to help families stay in their homes while working on a permanent solution to their mortgage affordability problems. Bridge to HOPE loans can be used either to cover delinquent mortgage payments and taxes or to help families with ongoing mortgage payments for up to 24 months. In the case of ongoing loans, the maximum monthly assistance amount is based on borrowers' total monthly debt payments (for both housing and other household debt). Loans have 0 percent interest, and repayment is deferred until either (1) the property is sold or transferred or (2) the existing mortgage is refinanced.

To qualify, borrowers must have stable employment; their credit history must have been good prior to the current mortgage delinquency; and they must have a subprime or nontraditional mortgage. Eligibility limits for household income and the home's appraised value vary in different parts of the state. Bridge to HOPE loans can be used for one-unit, owner-occupied properties, including condos, attached or detached homes, modular homes, and other manufactured housing.

Families must work with a housing counseling agency on an action plan for resolving their mortgage affordability problems and maintaining ownership of the home.

Bridge to HOPE is part of Maryland's Home Owners Preserving Equity (HOPE) Initiative, which includes homeownership counseling and other financial assistance options. See the Low-Interest Refinance Loans section to learn about Maryland's Lifeline Refinance Mortgage Program, or see the Refinancing with Flexible Underwriting section to learn about the Maryland's Homesaver Refinance Mortgage Program.

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Ohio

In Ohio, families at risk of foreclosure due to a temporary financial setback may be able to get help from the Ohio Home Rescue Fund. Loans with zero percent interest are available to families earning up to 115 percent of area median income (AMI) or to families with higher incomes in two cases: (1) if the home is in a HUD-targeted area, families can earn up to 140 percent of AMI; and (2) if the home was purchased through the Ohio Housing Finance Agency's first-time homebuyer program, families are not subject to an income limit. Funding comes from the state's housing trust fund.

To qualify, families must demonstrate both the cause of their setback and their ability to continue making mortgage payments if they receive the rescue loan. All families must participate in homeownership counseling.

Loan limits and repayment terms vary with borrowers' income. For families earning less than 65 percent of AMI, the maximum loan is $3,000 or three months of mortgage payments. Repayment is deferred and forgivable after three years. For families earning 65 percent of AMI or more, the loan limit is $5,000 or 3 months of mortgage payments. Repayment is deferred until the sale or transfer of the property.

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Click on the links below to learn more about loan products that can help families avoid foreclosure: Short-term emergency loans Low-interest refinance loans Refinancing with flexible underwriting requirements, silent second mortgages, or shared appreciation loans

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You are currently reading: Connect struggling homeowners with immediate assistance Strategies that provide immediate foreclosure prevention assistance include short-term emergency loans, preferential refinancing products, 24-hour hotlines, and expanded outreach by reliable non-profit assistance organizations. Other pages in this section: Establish a foreclosure prevention task force to facilitate a comprehensive approach Communities can develop a comprehensive response to foreclosures by convening representatives of government, industry, and non-profit organizations. Reduce the risk of foreclosures in the future Communities can prevent foreclosure by increasing outreach in areas with high foreclosure risk and by helping families to avoid risky mortgage products. Help families regain stability after a foreclosure When preventing the foreclosure is not possible, communities can help renter and homeowner families find, qualify for, or afford a new rental home. See the clickable timeline of foreclosure prevention policies. Click here to view other resources on preventing foreclosures and equity loss.

Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Low-Interest Refinance Loans

Many housing finance agencies offer low-cost loans to help homeowners refinance mortgages with high interest rates or other nontraditional terms. Typically, state or local refinance loans offer financial assistance for borrowers that have relatively good credit, are not seriously delinquent on their mortgage, and do not owe more than the value of their home (a situation 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 that ask for help in the early stages of their mortgage affordability problems.

The table below summarizes six different low-interest refinance loan programs. Click on the state to read more. [1]

State	Loan Program	Credit Requirements	Interest Rate	Multifamily?
Ohio	Opportunity Loan Refinance Program	credit problems must be limited to the last 12 months	7.5 percent	no
Connecticut	Connecticut Fair Alternative Mortgage Lending Initiative (CT FAMLIES)	credit problems must be due to adjustable rate mortgage	5.625 percent, as of May 2008	yes, up to 4 units, owner-occupied
Massachusetts	Home Saver Foreclosure Prevention Program	no more than 60 days delinquent on the mortgage; credit score of at least 560	about 7 percent, as of January 2008	yes, up to 4 units, owner-occupied
New York	Keep the Dream Refinancing Program	no more than 60 days delinquent on the mortgage; credit score of at least 575	6.5 percent, as of May 2008	yes, up to 4 units, owner-occupied
Pennsylvania	REfinance to an Affordable Loan (REAL) Program	no more than 59 days delinquent on the mortgage; minimum credit score of 620, unless loan payment recently re-set	7.625 percent, as of May 2008	no
Maryland	Lifeline Refinance Mortgage Program	borrowers with credit scores under 600 are subject to additional review	6.5 percent	no

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Ohio

The Opportunity Loan Refinance Program, offered by the Ohio Housing Finance Agency, can reduce foreclosure risk for homeowners worried about affording their mortgage payments after teaser rates reset. The program offers a 30-year fixed rate refinance loan for homeowners with incomes up to 125 percent of AMI. Loans are available to a maximum of 100 percent of appraised value. Second mortgages to cover closing costs or prepayment penalties are also available for up to 5 percent of appraised value. Families must have the home reappraised to determine the loan limits.

To qualify, homeowners must attend at least four hours of counseling by a HUD-approved counselor. Post-purchase counseling is also required if a borrower is delinquent 30 or more days. Taxes and insurance will be escrowed to help borrower avoid the financial pitfalls associated with large periodic payments.

Initially the program's usefulness in preventing foreclosures was limited by a minimum credit score requirement of 620 -- well above the credit scores of many borrowers who have already missed mortgage payments -- but recent modifications have increased the program's flexibility. Currently families may be able to qualify for the Opportunity Loan Refinance Program if their credit problems are limited to the last 12 months.

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Connecticut

In Connecticut, low- and moderate-income homeowners with adjustable rate mortgages (ARMs) may be able to refinance into a 30-year fixed rate mortgage through the Connecticut Fair Alternative Mortgage Lending Initiative and Education Services (CT FAMLIES) program. The interest rate on CT FAMLIES loans is the same as the rate for the state's first-time homeowner mortgage.

CT FAMLIES can be used to refinance mortgages on owner-occupied single-family homes and condos, as well as multifamily buildings of up to 4 units. Income and mortgage limits vary across the state and with the size of the home or family. Current qualification information can be found on the Connecticut Housing Finance Authority (CHFA) website.

Second mortgages are also available for closing cost assistance or to help families with an outstanding mortgage balance greater than the current value of the home.

Between March and May 2008, the state has scheduled five housing fairs to increase awareness of CT FAMLIES, connect borrowers with financial counseling programs, and facilitate borrower-lender communication. Public service announcements are also being used to educate Connecticut residents about the CT FAMLIES program and the state's housing fairs.

CT FAMLIES is funded by $50 million from previously issued bonds and is administered by the CHFA.

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Massachusetts

In Massachusetts, MassHousing's Home Saver Foreclosure Prevention Program provides fixed-rate refinancing to families who are unable to afford their current mortgage terms and are no more than 60 days past due on the loan. Refinance loans are available for condos, single-family homes, or multifamily buildings of up to four units. Applicants must complete housing counseling and have a credit score of at least 560 for single-family homes and condos, 580 for two-family homes, or 620 for three- or four-family homes. Funding for Home Saver comes from MassHousing ($60 million) and Fannie Mae ($190 million). MassHousing works with the HOPE hotline to direct eligible families to the Home Saver program.

To learn more about Home Saver, see the MassHousing website.

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New York

The State of New York's Keep the Dream Refinancing Program, which received $100 million in funding from Fannie Mae, provides fixed-rate 30-year or 40-year loans to families unable to afford the payments on a nontraditional mortgage. Refinance loans are available for owner-occupied, one- to four-unit homes, condos, and co-ops. To qualify, borrowers can be no more than 60 days delinquent on their mortgage and can have a total income of up to 125 percent of area median income (AMI) in most parts of the state or up to 165 percent of AMI in the 13-county New York City area. Mortgage limits and minimum credit scores vary with the property type. For single-family homes, condos, and co-ops, families with credit scores of at least 575 can obtain 100 percent financing for up to $417,000. For two-unit homes, the minimum credit score is 580, and the loan limit is $533,850 with 97 percent financing. For three- or four-unit homes, the minimum credit score is 620, and the loan limit is $645,300 with 95 percent financing.

Keep the Dream requires borrowers to complete homebuyer education and participate in early delinquency counseling if they become delinquent on the refinance loan.

Click here to learn more about the Keep Dream Program.

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Pennsylvania

Through Pennsylvania's REfinance to an Affordable Loan (REAL) Program, credit-worthy families can obtain a 30-year fixed rate mortgage for up to 100 percent of a home's appraised value. Borrowers cannot be more than 59 days past due on their existing mortgage, need a credit score of at least 620 (or meet other flexible credit standards if the mortgage payment recently re-set to a higher level), cannot owe more than the value of the home, and must have a household income of no more than $120,000 per year. Finally, the combined monthly debt payments on the REAL loan and other household debt must not consume more than 50 percent of borrowers' income.

Between its inception in July 2007 and March 2008, around 230 families have refinanced their home loans through REAL. PHFA has approved approximately $4 million in REAL loans with an average value of $122,000. PHFA currently funds the REAL program through its general fund and plans to sell taxable bonds for subsequent support.

See the case study of Pennsylvania's mortgage assistance programs for more information about REAL and other loan programs to help Pennsylvania homeowners.

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Maryland

Maryland's Lifeline Refinance Mortgage Program offers refinance loans to credit-worthy families that cannot afford their current mortgage terms. Borrowers with credit scores under 680 are required to attend homeownership counseling; applications from borrowers with credit scores under 600 are subject to additional review. Limits on borrowers' income and the value of the home vary in different parts of the state.

Lifeline offers 30-year and 40-year fixed rate amortizing mortgages as well as two interest-only options. Families' debt-to-income ratios cannot exceed 45 percent to qualify for an interest-only loan or 50 percent to qualify for an amortizing loan.

The Lifeline Refinance Mortgage Program is part of Maryland's Home Owners Preserving Equity (HOPE) Initiative, which includes homeownership counseling and other financial assistance options.

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Click on the links below to learn more about loan products that can help families avoid foreclosure: Short-term emergency loans Low-interest refinance loans Refinancing with flexible underwriting requirements, silent second mortgages, or shared appreciation loans

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You are currently reading: Connect struggling homeowners with immediate assistance Strategies that provide immediate foreclosure prevention assistance include short-term emergency loans, preferential refinancing products, 24-hour hotlines, and expanded outreach by reliable non-profit assistance organizations. Other pages in this section: Establish a foreclosure prevention task force to facilitate a comprehensive approach Communities can develop a comprehensive response to foreclosures by convening representatives of government, industry, and non-profit organizations. Reduce the risk of foreclosures in the future Communities can prevent foreclosure by increasing outreach in areas with high foreclosure risk and by helping families to avoid risky mortgage products. Help families regain stability after a foreclosure When preventing the foreclosure is not possible, communities can help renter and homeowner families find, qualify for, or afford a new rental home. See the clickable timeline of foreclosure prevention policies. Click here to view other resources on preventing foreclosures and equity loss.

[1] The National Governors Association provides summaries of numerous state-level mortgage assistance programs. See State Mortgage Assistance and Refinance Programs. 2008. By the National Governors Association Center for Best Practices. Washington, DC: NGA.

Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Refinancing with Flexible Underwriting Requirements

Many families facing foreclosure are unable to refinance since the drop in home values has 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 impacted borrowers' credit. To prevent foreclosures among families in deep financial distress, communities may wish to seek innovative solutions that go beyond standard refinance loans and short-term emergency assistance.

Foreclosure prevention tools that can help families that may not qualify for standard refinancing include: Flexible underwriting standards Silent second mortgages Shared appreciation second mortgages Negotiating with lenders to reduce outstanding mortgage balances

State	Loan Program	Assistance Type	Borrower Requirements	Loan Terms	Helps with Negative Equity?
Maryland	Homesaver Refinance Mortgage Program	flexible underwriting requirements	minimum credit score of 550, no more than 60 days delinquent on the mortgage	30- or 40-year fixed rate	yes, up to 105 percent of appraised value
Minnesota	Mortgage Foreclosure Prevention Program	silent second mortgages	-	payment deferred until sale of the home or payoff of the first mortgage	yes
New Jersey	Home Ownership Preservation Refinance Program (HPRP)	flexible underwriting requirements	no minumum credit score; no more than three 30-day delinquencies or one 60-day delinquency in the prior 12 months	30- or 40-year fixed rate	no
Pennsylvania	Homeowners' Equity Recovery Opportunity (HERO) Loan Program	negotiating with lenders	must have sufficient net income to afford new loan; annual income may not be more than $120,000	30-year fixed rate	yes, reduces loan to 100 percent of appraised value

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Flexible underwriting standards

Increasingly, communities across the country are offering foreclosure prevention loans with flexible underwriting standards to help borrowers with lower credit scores -- including scores in the mid or low 500s -- provided that mortgage delinquency is the borrower's most serious credit problem. Some programs, such as New Jersey's Home Ownership Preservation Refinance Program, have no minimum credit score for borrowers and consider instead the number and length of delinquencies.

Examples

New Jersey's Home Ownership Preservation Refinance Program (HPRP) helps borrowers who have been turned down for loan modifications. There is no minimum credit score for eligibility, but borrowers seeking assistance after an interest rate reset can have no more than three 30-day delinquencies or one 60-day delinquency in the past 12 months. HPRP provides 30 or 40-year fixed rate loans at 8% or 8.125% interest. The program is supported by $30 million from the NJ Housing and Mortgage Finance Agency; agency funding will be replaced through the sale of a taxable bond. More information on New Jersey's Home Ownership Preservation Refinance Program can be found on the New Jersey Housing and Mortgage Finance Agency web site.

Maryland offers the Homesaver Refinance Mortgage Program to help prevent foreclosure among families that have low credit scores or owe more than the current value of their home. Through the Homesaver program, families can refinance into a 30- or 40-year fixed-rate mortgage. Financing may cover closing costs and prepayment penalties. The maximum loan-to-value ratio is 105 percent (or a combined maximum of 110 percent including all second mortgages and forgivable loans).

To qualify, families need a minimum credit score of 550, may not be more than 60 days delinquent on their mortgage, and must complete homeownership counseling. Eligibility limits for household income and the home's appraised value vary in different parts of the state.

The Homesaver Refinance Mortgage Program is part of Maryland's Home Owners Preserving Equity (HOPE) Initiative, which includes homeownership counseling and other financial assistance options. Bridge to HOPE is part of Maryland's Home Owners Preserving Equity (HOPE) Initiative, which includes homeownership counseling and other financial assistance options. See the Short-Term Emergency Loans section to learn about Maryland's Bridge to HOPE Loan Program, or see the Low-Interest Refinance Loans section to learn about the Lifeline Refinance Mortgage Program.

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Silent second mortgages

Communities are also thinking creatively about how to structure loans to prevent foreclosure among families who cannot quality for more traditional refinancing -- either because they cannot afford a refinanced loan at the current mortgage level or because they owe more than their home is worth. One approach to addressing these problems is to refinance the family in a traditional mortgage at a level that is affordable to them and supportable by the home's current 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 payments of principal or interest while they are living in the home, but must repay the second mortgage 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 re-sale.

Example

The Minnesota Home Ownership Center oversees the statewide Mortgage Foreclosure Prevention Program. The program offers deferred payment, zero percent interest loans as a last resort for families who could not otherwise prevent foreclosure. These silent second mortgages must be repaid upon sale of the home or payoff of the first mortgage, with exceptions for cases of mortgage refinancing to get better loan terms. Repayment of the loans goes back into a revolving loan fund to help additional families.

Since funds are limited, the Home Ownership Center first helps families access a broad range of information and resources and develop an individualized foreclosure prevention plan. Case managers also work with lenders to negotiate the most affordable workout option. Funding comes from the state, city, and county governments.

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Shared appreciation second mortgages

A different silent second mortgage option that communities may wish to consider is a shared appreciation mortgage. Shared appreciation refers to the repayment agreement for the loan. Upon re-sale of the home, the family pays back a predetermined portion, or share, of the net sales proceeds. In some cases, the family first pays back 100 percent of the principal balance of the shared appreciation mortgage, and then pays a set share (for example, one-quarter) of any additional home price appreciation. In other cases, to preserve the family's incentives to keep up the home and maximize the home sales price, the family simply repays a share (e.g., 75 percent) of the net home sales proceeds, rather than making separate payments of principal and appreciation. See examples of how a shared appreciation second mortgage works.

The shared appreciation approach has several benefits. First, it allows families to stay in their home at a monthly payment they can afford. Second, it provides a means for reimbursing the government or the lender for the costs associated with providing the second mortgage Third, it preserves the incentives for the family to keep up the property and realize as high as possible a sales price. Finally, by basing repayment of the second mortgage on a share of the sales proceeds, rather than a set interest rate, one avoids the problem of having the family owe more than the value of the home.

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Negotiating with lenders to reduce outstanding mortgage balances

Yet another approach to helping families struggling with negative equity is for communities to negotiate with lenders to reduce a family's outstanding mortgage balance to their property's current appraised value. This can make refinancing feasible if borrowers can afford the monthly payments on a new loan.

Example

Pennsylvania's Homeowners' Equity Recovery Opportunity (HERO) Loan Program is a foreclosure prevention tool for families that either have severely damaged credit or owe more than the home is worth (a situation known as negative equity). Under the HERO program, the Pennsylvania Housing Finance Authority (PHFA) assesses a borrower's financial situation to determine how much mortgage he or she can afford, negotiates with the lender if necessary to reduce the outstanding mortgage to the appraised value of the home (or in some cases to a level that would be affordable to the family), purchases the loan, and restructures it into a 30-year fixed-rate loan for up to 100 percent of the home's appraised value.

To qualify, borrowers must attend in-person financial counseling, have sufficient net income to afford the new loan terms, and have annual income of no more than $120,000. There is no limit on the number of days a borrower may be delinquent on the mortgage.

See the case study of Pennsylvania's mortgage assistance programs for more information about HERO and other loan programs to help Pennsylvania homeowners.

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Click on the links below to learn more about loan products that can help families avoid foreclosure: Short-term emergency loans Low-interest refinance loans Refinancing with flexible underwriting requirements, silent second mortgages, or shared appreciation loans

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You are currently reading: Connect struggling homeowners with immediate assistance Strategies that provide immediate foreclosure prevention assistance include short-term emergency loans, preferential refinancing products, 24-hour hotlines, and expanded outreach by reliable non-profit assistance organizations. Other pages in this section: Establish a foreclosure prevention task force to facilitate a comprehensive approach Communities can develop a comprehensive response to foreclosures by convening representatives of government, industry, and non-profit organizations. Reduce the risk of foreclosures in the future Communities can prevent foreclosure by increasing outreach in areas with high foreclosure risk and by helping families to avoid risky mortgage products. Help families regain stability after a foreclosure When preventing the foreclosure is not possible, communities can help renter and homeowner families find, qualify for, or afford a new rental home. See the clickable timeline of foreclosure prevention policies. Click here to view other resources on preventing foreclosures and equity loss.

Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

How Does a Shared Appreciation Second Mortgage Work?

Under a shared appreciation approach to foreclosure prevention, a mortgage held by an at-risk borrower is split into two mortgages. The first is a standard 30-year fixed-rate mortgage at a level the family can afford. The balance of the original mortgage is converted into a silent second mortgage in which no payments are due until the home is resold (or refinanced). Upon sale of the home, the buyer repays the new first mortgage (the 30-year fixed-rate mortgage), plus a share of the remaining proceeds, which goes to satisfy the silent second mortgage.

For example, take an at-risk borrower who has a $200,000 mortgage but can only afford a fixed-mortgage on $150,000. Applying the shared equity workout approach, the family's original mortgage would be restructured into a $150,000 first mortgage on which the family would make regular payments, plus a $50,000 silent second mortgage on which no payments are due until resale (or refinance). Let's say the restructured first mortgage is a 30-year fixed-rate mortgage at six percent, the family holds onto the property for seven years and then sells it for $250,000 (net of commission and other seller expenses). At that time, the family would repay the principal balance remaining on the $150,000 first mortgage -- about $135,000 -- plus an agreed-upon share of the remaining $100,000 in net proceeds. If the arrangement called for the buyer to repay 75 percent of the net proceeds, the buyer would owe a total of $210,000 -- the $135,000 owed on the first mortgage, plus 75 percent of the remaining $100,000 in proceeds. In this case, the entity making the second mortgage would receive $75,000 for their initial $50,000 loan and the family would build $40,000 in equity -- much less than they would have without the assistance, but still much better than the alternative, which would have been foreclosure or bankruptcy.

An alternative approach would be for the family to repay 100 percent of the principal balance of the second mortgage and then an agreed-upon share of any home price appreciation. If the agreed-upon share of appreciation were 25 percent, then, upon sale, the family in the above example would owe $135,000 to pay off the first mortgage, $50,000 to pay off the silent second mortgage and then 25 percent of the $50,000 in home price appreciation, or $12,500, for a total of $197,500.

An advantage of the first approach is that it preserves incentives for the family to keep up the home and maximize the final sales price. On the other hand, the second approach would increase the chances of being repaid for the second mortgage in the event that the family sells relatively quickly, before home prices increase. In either case, it may make sense to provide incentives for families to stay in the home for a minimum time period.

Communities can establish the terms of the repayment agreement to fit local conditions.

Continue learning about preventing foreclosures through flexible refinancing products.

Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Reduce the Risk of Foreclosures in the Future

Foreclosure risks are often identifiable and preventable many years in advance. 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.

Click the options below to learn what communities can do to reduce the risk of foreclosures in the future: Photo credit: Jackson Smith Identify and target emerging foreclosure risks By using existing community knowledge and tracking foreclosure indicators, communities can get ahead of the curve and target assistance more vigorously to the families that need it most. Strengthen predatory lending laws and guidelines Strong protections against high-risk mortgages can shield consumers from unsustainable or unbeneficial terms and reduce the likelihood of foreclosure. Increase oversight of mortgage brokers and originators States can increase the oversight of mortgage brokers and lenders by coordinating with other states and sharing information on enforcement activities. Closely monitor downpayment passthroughs Downpayment passthroughs, which obtain funding from sellers and then fund downpayment assistance to buyers, can help families own a home, but they also can result in inflated purchase prices. Communities should watch these programs carefully to determine whether restrictions are warranted. Or, leave this section to learn more: Expand homeownership education and counseling Both pre-purchase and post-purchase homeownership education and counseling prepare families for sustainable homeownership and reduce the risk of foreclosure. The benefits of homeownership education and counseling, however, go beyond foreclosure prevention. For examples and to learn more about the importance of homeownership education and counseling, see its policy overview.

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You are currently reading: Reduce the risk of foreclosures in the future Communities can prevent foreclosure by increasing outreach in areas with high foreclosure risk and by helping families to avoid risky mortgage products. Other pages in this section: Establish a foreclosure prevention task force to facilitate a comprehensive approach Communities can develop a comprehensive response to foreclosures by convening representatives of government, industry, and non-profit organizations. Connect struggling homeowners with immediate assistance Strategies that provide immediate foreclosure prevention assistance include short-term emergency loans, preferential refinancing products, 24-hour hotlines, and expanded outreach by reliable non-profit assistance organizations. Help families regain stability after a foreclosure When preventing the foreclosure is not possible, communities can help renter and homeowner families find, qualify for, or afford a new rental home. See the clickable timeline of foreclosure prevention policies. Click here to view other resources on preventing foreclosures and equity loss.

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Identify and target emerging foreclosure risks

An excellent way for communities to get ahead of the curve is to identify local foreclosure trends and work consciously toward reducing the known risks. Grassroots community leaders will often have a good sense of the types of households and neighborhoods that foreclosures have affected the most; however, systematically collecting and analyzing local foreclosure data can provide a more thorough understanding of local patterns. A systematic analysis involves using data on foreclosure filings to map the affected households and dig deeper for trends that relate to the mortgage itself or to the neighborhood's or household's demographics.

Analyses of trends in various states and cities by The Reinvestment Fund, a financial lending and research institution, have found some common foreclosure indicators -- such as non-conventional mortgages, FHA loans, prior foreclosure filings, and neighborhoods with higher minority populations -- as well as some differences from place to place -- such as the type of lender, period of time between loan origination and foreclosure, and whether loans were more likely to be for purchase or refinance.

By conducting a systematic analysis and pairing it with interviews and additional research, communities can identify the likely causes of local foreclosures and focus their attention on risk reduction. Outreach and homeownership counseling opportunities can be more prevalent in "hot spots" where foreclosures are geographically clustered. Minnesota is poised to take action in its foreclosure hot spots. The state's Housing Finance Agency recently put out a request for proposals for early intervention foreclosure prevention programs in high-foreclosure areas of the state.

Governments can also monitor foreclosure indicators such as delinquent property taxes or other municipal bills and reach out to these homeowners with foreclosure prevention information. Property databases that focus on code violations and indicators of abandonment can help communities identify at-risk homeowners. For example, the Neighborhood Knowledge Los Angeles (NKLA) database, which receives funding and data from the City of Los Angeles, contains information on properties with delinquent property taxes or municipal bills -- often indicators of foreclosure risk. Some neighborhood property information databases, like City News Chicago, provide access to some court data. The court data available through City News Chicago includes housing court visits to follow up on code violations; however, other cities may opt to use this model to include foreclosure filings in property databases as well.


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Strengthen predatory lending laws and guidelines

The recent increase in foreclosures has been linked to the prevalence of subprime mortgages, especially loans with high-risk terms and a lack of transparency. The riskiest and highest-cost mortgages, which also tend to be subprime, are often referred to as predatory loans. Typical characteristics of predatory loans include: excessive fees, extreme penalties for prepayment, excessive kickbacks to brokers, unbeneficial refinancing (also known as "loan flipping"), unnecessary add-on products, binding mandatory arbitration clauses, and aggressive sales tactics and fraud (see Seven Signs of Predatory Lending from the Center for Responsible Lending). States hold the key to restricting these high-risk loans since many subprime loans are originated by non-deposit institutions, which the states regulate. In their role as regulator, states can protect consumers from the riskiest mortgages and direct them instead to more sustainable forms of homeownership. Anti-predatory lending measures can limit excessively high fees and interest rates for homeowners, as well as other clearly unbeneficial mortgage terms, while allowing responsible uses of subprime lending to continue. Many states have already taken action against these high-risk loans. According to the Center for Responsible Lending, 23 states have anti-predatory lending laws stronger than the federal law (HOEPA of 1994), and the strongest state law is in New Mexico (see sidebar). A comparison of state predatory lending laws and links to the full text of bills

Solutions In Action

Enacted in 2004, New Mexico's predatory lending law: covers all types of mortgages, limits prepayment penalties, prohibits intentional loan flipping, prohibits financing unnecessary add-on products with a mortgage, and has additional protections for high-cost loans. The New Mexico Regulation and Licensing Department is currently investigating mortgage lenders' and brokers' compliance with the law. Visit the New Mexico Regulation and Licensing Department's web site to learn more about New Mexico's predatory lending law.

are available through the National Conference of State Legislatures.
Additional information on predatory and subprime lending can be found through the Center for Responsible Lending.


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Increase oversight of mortgage brokers and originators

As the regulators of the majority of mortgage brokers and lenders, states can help to create a lending environment that is clear, fair, and consistent. In addition to restricting risky or predatory loans, states can strengthen their oversight of mortgage brokers and lenders and coordinate with other states to track enforcement actions taken across the country.

In January 2008, a national coalition of state regulators released the Nationwide Mortgage Licensing System (NMLS), an online system for coordinating states' mortgage regulations and oversight. The NMLS allows license applications to be completed and processed online, facilitates coordination of state licensing and regulations, and enables states to track license and enforcement activity from all participating state regulators.

Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York, and Rhode Island are already participating in the NMLS. A total of 42 regulatory agencies from 38 states, the District of Columbia, and Puerto Rico have announced plans to participate in the NMLS. The coalition expects the NMLS to eventually be used by all 50 states.

In the future, the NMLS will be expanded to provide public access to licensing and enforcement information so that consumers can make informed decisions when choosing between different mortgage lenders.

More information can be found on the NMLS website.


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Closely monitor downpayment passthroughs

Non-profit downpayment assistance programs, such as Nehemiah and AmeriDream, obtain funding from sellers and in turn use those funds to provide downpayment assistance to buyers. Proponents of these programs argue that this approach helps families purchase a home that could not otherwise have obtained a mortgage because they lack a downpayment. Critics argue these programs may harm buyers more than they help. The argument against these programs holds that sellers seek to recover the downpayment assistance and servicing fees paid to the nonprofit by inflating the selling price of homes, resulting in homebuyers who are upside down on their mortgages from day one. If this argument holds true, then buyers and lenders are being put at risk.

Due to concerns about these programs, a new HUD rule was created to prohibit seller-financed downpayment assistance for FHA-insured mortgages. (In October 2007, a federal court issued an injunction blocking the rule from being enforced, pending further review.) States may also opt to restrict these forms of downpayment assistance.

However, it is important to note that this controversy has not yet been resolved. In light of the many questions surrounding downpayment gifting programs, communities may wish to examine them carefully to make sure they serve buyers' best interests.

Some external resources may help shed light on the complexity of the controversy and provide evidence for each side of the debate: Reports that indicate restrictions may be warranted include An Examination of Downpayment Gift Programs Administered by Non-Profit Organizations. [PDF] 2005. Prepared by Concentrance Consulting Group for the U.S. Department of Housing & Urban Development, and a 2007 Government Accountability Office report [PDF]. Both suggest that seller-funded downpayment assistance may be linked with higher sales prices and poorer loan performance. Support for downpayment passthroughs can be found in Expanding Affordable Homeownership with Private Capital: A Study of the Nehemiah Down Payment Assistance Program. 2004. By Perry Wong, Daniela Murphy, Frank Fogelbach and Rob Koepp. Santa Monica, CA: Milken Institute. Statements from the major non-profit providers of seller-financed downpayment assistance are available on their websites: Nehemiah Corporation and AmeriDream.

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Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Reasons for Government Involvement

Increasingly, governments are taking an active role in foreclosure prevention. While part of the reason is certainly to protect families from the loss of their home and possibly prevent homelessness, the reasons extend beyond that. Government intervention can help to:

1. Avoid the costs of foreclosures;
   
2. Prevent losses in homeownership; and
   
3. Correct a malfunctioning mortgage market.
   

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Avoid the costs of foreclosures

Foreclosures impose substantial external costs to municipalities, neighborhoods, and property owners. Helping borrowers avoid foreclosure can achieve net savings on a municipal basis alone. A case study of Chicago in Collateral Damage: The Municipal Impact of Today's Mortgage Foreclosure Boom [PDF] estimated the cost to municipal governments of five different foreclosure scenarios. In the best case scenario, municipalities lose less than $500 per foreclosure, but in each of the other four scenarios the costs of a single foreclosure exceed $5,000.

In the worst case -- a foreclosed property that is abandoned and damaged by fire -- the total costs to municipal government are over $34,000. Investing public resources to prevent foreclosures makes sense for municipalities' bottom line, and it has additional benefit for neighborhoods which would otherwise be weakened, local property owners whose property values would otherwise be driven down, and the financially distressed families themselves.


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Prevent losses in homeownership

The Center for Responsible Lending calculates that subprime lending is causing a net loss of homeowners as foreclosures outnumber home purchases in the subprime market (see March 27, 2007 testimony by Michael D. Calhoun [PDF] before the U.S. House Committee on Financial Services). Foreclosure prevention therefore has a significant role to play in boosting and/or maintaining local homeownership rates. It may even be as important for low-income homeownership rates as downpayment assistance.


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Correct a malfunctioning mortgage market

There are differences of opinion about how active the government should be in regulating or otherwise intervening in the mortgage market. One argument in favor of intervention is that the mortgage market has been plagued by "information asymmetry" -- lenders have access to current information on the rates and terms of mortgage products but borrowers cannot readily learn the real price of a mortgage or the best price they could qualify for. This puts borrowers at a disadvantage and can lead to families paying more for a mortgage than they would in a better-functioning market or to families not getting the mortgage they thought they were signing up for. Governments can work to correct the current information asymmetry to make the mortgage market work better in the future. They also can offer assistance to families who have been victimized by a lack of information and are now at risk of foreclosure.

Some would also argue that the incentives are not correctly aligned in the mortgage market to ensure positive outcomes. Because many loans are sold on the secondary market, lenders do not have the same incentives to ensure the loan is sustainable as they would have had if they kept the loans on their books. Similarly, mortgage brokers are paid when they close a loan and do not have a financial stake in ensuring that the loan is sustainable over time.


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Click here to continue learning about foreclosure prevention.

Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Help Renter and Owner Families Regain Stability after a Foreclosure

When developing a comprehensive foreclosure prevention policy, communities may wish to consider the ultimate impact on families if a foreclosure is inevitable. What options exist to help both renters and owners find and afford a place to live if their home is lost due to foreclosure?

Click on the options below to learn what communities can do to help renter and owner families regain stability after a foreclosure:
Gates of Ballston, Arlington VA -- photo courtesy of AHC Inc.	Protect tenants living in foreclosed properties When a rental property is foreclosed upon tenants' options for retaining or restoring stable housing vary substantially depending on the community. Facilitate rental options for former homeowners Local and state governments can develop policies to focus on meeting the needs of families who are trying to recover from foreclosure.

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You are currently reading: Help families regain stability after a foreclosure When preventing the foreclosure is not possible, communities can help renter and homeowner families find, qualify for, or afford a new rental home. Other pages in this section: Establish a foreclosure prevention task force to facilitate a comprehensive approach Communities can develop a comprehensive response to foreclosures by convening representatives of government, industry, and non-profit organizations. Connect struggling homeowners with immediate assistance Strategies that provide immediate foreclosure prevention assistance include short-term emergency loans, preferential refinancing products, 24-hour hotlines, and expanded outreach by reliable non-profit assistance organizations. Reduce the risk of foreclosures in the future Communities can prevent foreclosure by increasing outreach in areas with high foreclosure risk and by helping families to avoid risky mortgage products. See the clickable timeline of foreclosure prevention policies. Click here to view other resources on preventing foreclosures and equity loss.

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Protect Tenants Living in Foreclosed Properties

Foreclosure prevention efforts tend to focus on homeowners, yet many of the properties facing foreclosure -- including single-family homes and multifamily buildings -- are occupied by renters, leaving these families at risk of eviction -- regardless of whether or not they paid their rent on a timely and regular basis. A 2008 study of rental housing in the U.S. by the Harvard University Joint Center for Housing Studies notes that almost 20 percent of all foreclosures are rental properties. According to a 2008 study by the National Low Income Housing Coalition of twenty metropolitan areas, roughly 40 percent of the recent foreclosures nationwide are of homes likely to be occupied by renters: non-owner-occupied single family and multifamily rental homes. [1] This has serious implications for many of the tenants of these units since when a rental property is foreclosed upon, families' options for retaining or restoring stable housing vary substantially depending on the community.

Three strategies local and state governments can take to protect renters in the case of foreclosure include:

• Adopt laws that prevent tenants from being evicted due to foreclosure
• Adopt or increase requirements for notice to tenants of a pending foreclosure
• Ensure that multifamily foreclosures do not harm renters' future housing options

Adopt laws that prevent tenants from being evicted due to foreclosure

In most cases, tenants are not protected from eviction once their home is foreclosed on because of state "first in time, first in right" laws, which maintain that if the mortgage was recorded before the tenant signed the lease, then the lease becomes obsolete if the property enters foreclosure.

There are three main exceptions that protect renters in the case of foreclosure. The first two exceptions are for recipients of Section 8 vouchers and tenants living in rent controlled units, who are able to maintain their leases after foreclosure by law. [2] The third exception is the more general policy of several states (including New York, New Jersey, and New Hampshire), a number of cities and the District of Columbia to require "just cause" as a condition for eviction. These laws protect renters by ensuring that landlords can only evict with proper cause, such as not paying rent on time. In general, foreclosure does not count as a "just cause" to justify eviction in these locations.

In March 2008, the State of Massachusetts filed a bill to include "just cause" protections for renters in properties that became lender-owned through foreclosure in the past three years. Click here for more information about just cause laws.

Adopt or increase requirements for notice to tenants of a pending foreclosure

A renter may not have any warning that the property they are living in is going through foreclosure until they receive notice of eviction. The new property owner (typically the mortgage lender) can evict the occupants with as short as 3 days notice in some states. A number of states are developing policies to ensure that tenants receive warning of a pending foreclosure and to extend the period that they can remain in the home after a foreclosure.

In Minnesota, a series of bills passed in 2007 require landlords to notify tenants if a property is in foreclosure and give tenants more rights to maintain or restore utility service when the landlord fails to pay the bill. Other cities and states are following suit. The Baltimore, Maryland, City Law Department has drafted legislation to require the new owners of foreclosed apartments to give renters more notice of foreclosure sales, with penalties for building owners who fail to do so. [3] In January 2008, state officials in Rhode Island drafted legislation that would require lenders to inform renters of pending foreclosures in writing at least 60 days prior to eviction and, like Minnesota, ensure that tenants have the same level of basic utility services during that period. Under the proposed legislation, the state would also take measures to ensure that renters are given information on legal and housing counseling resources to assist with the transition period and the search for a new home. [4]

Ensure that foreclosures do not harm renters' future housing options

It is a common practice among landlords to reject an applicant if he or she has been evicted from a prior rental property. However, when the eviction is due to a foreclosure on the house or apartment, rather than the renter's actions, this policy may not make much sense. Eviction can also damage a renter's credit rating, making it difficult for a renter to find future housing or get loan approval. Communities may wish to adopt policies that make it easier for renters to access new housing after foreclosure.

A bill passed in Minnesota in 2007, eliminates an eviction notice from a tenant's rental record if they vacate a rental property because of the owner's foreclosure. [5]

Click here for more information about Minnesota's rental protection bills.


[1] The Costs of Maintaining Ownership in the Current Crisis: Comparison in 20 Cities. [PDF] April 2008. By Dean Baker, Danilo Pelletiere and Hye Jin Rho. Washington, D.C.: National Low Income Housing Coalition.

[2] Renters in Foreclosure: What are their Rights? By Janet Portman. NOLO.org

[3] Foreclosures Put Renters on the Street. By Daniel J. Sernovitz. April 4, 2008. Baltimore Business Journal.

[4] New Law Would Help Renters. [PDF] By Lynn Arditi. The Providence Journal. January 12, 2008.

[5] Tenant Eviction Records [PDF] April 11, 2008. By C. Green. St. Paul, Minnesota: Session Weekly. Page 9.

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Facilitate rental options for former homeowners

Increasingly, local and state governments are boosting the resources available to homeowners for foreclosure prevention through housing counseling, education, and outreach. But what if foreclosure is inevitable or a family has already lost its home?

Several states have developed foreclosure prevention task forces and adopted recommendations to help keep many families in their homes and to dispose of foreclosed properties in a speedy and effective manner. The Ohio Foreclosure Task Force, for example, includes seven recommendations in its final report (PDF) to assist with community stabilization as the number of vacant properties increases due to the rise in foreclosed properties. Click here to learn more about strategies that state and local governments are using to deal rising inventories of vacant and abandoned properties.

To date, however, relatively few policies have focused on meeting the needs of families who are trying to recover from foreclosure. One of many consequences of foreclosure is damage to the former homeowner's credit score, which can make it very difficult to rent or find new housing. Families forced to move through foreclosure -- whether the former homeowners themselves or renters that were renting from the former homeowners -- also may incur substantial costs for moving and security deposits that they may find difficult to meet. The inability of such families to secure housing may become a strain on community resources over the long-run. Although there are limited examples of government agencies providing assistance during the transition/recovery process, a paper by the Progressive Policy Institute, Gimme Shelter, offers two federal policy recommendations that can be adapted and applied at the local or state level. They include: Adopt a first-time homebuyer tax credit (similar to the District of Columbia's first time homebuyer tax credit) in jurisdictions with high foreclosure rates and extend eligibility to those that have lost their home to foreclosure in addition to first-time homebuyers. Create a preference for housing vouchers to go to families at risk of losing their home or who have already been foreclosed upon. More information on these recommendations can be found in Gimme Shelter [PDF]

Solutions in Action

The Massachusetts Foreclosure Prevention Plan The Massachusetts Foreclosure Prevention Plan includes an innovative provision to assist families during the foreclosure recovery process. The Plan calls for participating lenders to provide $5,000 to housing counseling agencies for each of their borrowers served. The money will go towards the transition costs associated with moving into a new home and paying a deposit for first and last months' rent. Any remaining funds will go back to the housing counseling agency to offset their administrative costs for providing services. Transition resources will be limited to borrowers that meet specified criteria and are working with a qualified housing counselor (approved by NeighborWorks, CHAPA, or HUD). As of May 2008, two lending agencies have agreed to provide transition funding. Click here for a PDF with more information about the Massachusetts Foreclosure Prevention Plan.

Other policy recommendations worth considering include:

• Provide funding for land banks to buy foreclosed properties and rent them back to the former homeowners;

• Provide funds for credit repair counseling;

• Provide assistance with first- and last-month’s rent, security deposits, and the housing search process.

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Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Establish a Foreclosure Prevention Task Force to Facilitate a Comprehensive Approach

Courtesy of McCormack Baron Salazar

Foreclosures present a complex and urgent challenge for communities to address. Creating a broad-reaching task force can help to ensure that all facets of a community's approach to preventing foreclosures and addressing their consequences are woven together into a comprehensive foreclosure plan. So that communities' solutions can be both quick and comprehensive, the recommendations of a task force can be implemented on a rolling basis. According to a study released in April 2008 by the Pew Center on the States,[1] 14 states have created foreclosure task forces. Many localities have also established foreclosure prevention forces. Foreclosure task forces often have a diverse membership, including government officials, community-based non-profits, real estate agents, financial institutions, attorneys, developers, and business leaders. Increased awareness of and attention to foreclosure issues locally may be an immediate benefit of creating a task force, while

stronger foreclosure prevention policies and assistance for struggling homeowners tend to follow as a task force's plans are devised and implemented.

The following are examples of some of the state task force efforts:

Colorado's Foreclosure Prevention Task Force, which consists of government, industry, and non-profit representatives, created a foreclosure hotline for the state. Struggling homeowners can call the hotline to learn about their options for preventing foreclosure and receive help negotiating with their lender. More information on Colorado's effort can be found on their web site. The Homeownership Preservation Task Force in Maryland released recommendations in November 2007 that led to the introduction and passage of foreclosure prevention legislation. The new laws, which went into effect in April 2008, extend the timeline for foreclosures from 15 days to 150 days to give families more time to either save or sell the home, allow families to stop a foreclosure by paying what they owe up until one day before the foreclosure sale, criminalize mortgage fraud, and increase the protections against predatory foreclosure rescue transactions. In addition, the task force spurred the development of the Bridge to HOPE loan program that provides short-term emergency loans to help families stay in the home while seeking a permanent solution to their mortgage affordability problems. The Maryland task force was composed of government, industry, and non-profit representatives and was divided into three working groups: Financial Resources, Education and Outreach, and Legal and Regulatory Reform. The full task force report can be found on the Maryland Department of Housing and Community Development web site (PDF).

Solutions in Action

The Ohio Foreclosure Prevention Task Force In 2007, Ohio responded to the state's high foreclosure rate by creating the Ohio Foreclosure Prevention Task Force. The task force brought together representatives of industry, government, and non-profit organizations to develop a common set of recommendations for helping families to avoid foreclosure and communities to deal with its aftermath. The task force has resulted in a new outreach campaign, more flexible refinancing options, expanded legal services, increased opportunities for borrower-lender communication, and more comprehensive and usable state foreclosure prevention websites. Learn more in our case study of Ohio's task force.

In Massachusetts, the Division of Banks held a Mortgage Summit in late 2006 that established two working groups: one focused on regulatory issues and the foreclosure process and another focused on education, outreach, and foreclosure intervention assistance. Following the release of the working groups' joint report, the state adopted new foreclosure prevention programs and policies, including a new fixed-rate refinancing program for struggling homeowners, increased funding for and promotion of foreclosure prevention counseling, and a ban on predatory foreclosure rescue transactions. Click here (PDF) to see the full Mortgage Summit Working Groups' report.

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You are currently reading: Establish a foreclosure prevention task force to facilitate a comprehensive approach Communities can develop a comprehensive response to foreclosures by convening representatives of government, industry, and non-profit organizations. Other pages in this section: Connect struggling homeowners with immediate assistance Strategies that provide immediate foreclosure prevention assistance include short-term emergency loans, preferential refinancing products, 24-hour hotlines, and expanded outreach by reliable non-profit assistance organizations. Help families regain stability after a foreclosure When preventing the foreclosure is not possible, communities can help renter and homeowner families find, qualify for, or afford a new rental home. Reduce the risk of foreclosures in the future Communities can prevent foreclosure by increasing outreach in areas with high foreclosure risk and by helping families to avoid risky mortgage products. See the clickable timeline of foreclosure prevention policies. Click here to view other resources on preventing foreclosures and equity loss.

[1] Defaulting on the Dream. 2008. By the Pew Center on the States. Washington, DC: Pew Charitable Trusts. Available at: http://www.pewcenteronthestates.org/report_detail.aspx?id=37972

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Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Case Study: Ohio Foreclosure Prevention Task Force
Between 2005 and 2006, foreclosure filings in Ohio increased by more than 23 percent,[1] and interest-rate resets on adjustable-rate mortgages were expected to lead to even more foreclosures in the coming years.[2] In response to the state's rise in foreclosures, the governor of Ohio created the Ohio Foreclosure Prevention Task Force in early 2007.

The task force was led by the Director of the Ohio's Department of Commerce (who also serves as chair of the Ohio Housing Finance Agency) and included representation from state, federal, and local government; lenders; and non-profit organizations. Task force members met every other week between April and September 2007 and were divided into five committees: Community Outreach and Community Education, Responsible Lender Options, Legal, Housing Options, and Legislative.

The task force report, released in September 2007, offered 27 recommendations grouped into the following categories:

• Encourage borrowers to get help early,
• Expand housing counseling and intervention services,
• Work with lenders and servicers to maximize alternatives to foreclosure,
• Provide options for homeowners to refinance or restructure their mortgages,
• Improve Ohio's foreclosure process,
• Strengthen protections for homeowners, and
• Help communities recover from the aftermath of foreclosures.[3]

The Department of Commerce website contains the full task force report (PDF).

The task force has helped Ohio develop and enhance its foreclosure prevention programs. For example, as a result of task force efforts, the Opportunity Loan Refinance Program now has more flexible underwriting requirements so that more families can qualify and avoid foreclosure. Similarly, Ohio has instituted Borrower Outreach Days that have helped to facilitate communication between borrowers and lenders, provide opportunities for loan modifications, and connect families with non-profit foreclosure prevention education and counseling.

To supplement existing legal aid resources and provide pro bono legal assistance to families facing foreclosure, the state has recruited over 1,000 attorneys and continues to seek additional volunteers. Foreclosure training for volunteer attorneys is provided through the Ohio Bar Association. In addition to expanding the number of attorneys that provide free legal assistance, the state now also has a hotline (888-404-4674) that families can call to be screened for eligibility and connected with a pro bono attorney in their area.

Ohio's online resources have been greatly augmented to provide access to the information and tools that struggling homeowners need. A new public awareness campaign, Save the Dream, links Ohioans with state, local, and federal foreclosure prevention resources. The Ohio Housing Finance Agency provides refinance information and a sample legal response to a foreclosure complaint on its Second Look at Your Mortgage web site. Consumer financial information, including substantial foreclosure prevention resources and the phone numbers of the loss mitigation offices of many loan servicers, can be found on the Ohio Treasurer of State's Your Money Now web site.

Continue reading about establishing a foreclosure prevention task force.

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[1] Foreclosure Growth in Ohio 2007. 2007. By Policy Matters Ohio. Cleveland, OH and Columbus, OH: Policy Matters Ohio. Available at: http://www.policymattersohio.org/ForeclosureGrowthOhio2007.htm

[2] Inaugural Meeting of Ohio Foreclosure Prevention Task Force Set: News Release. 2007. By the Ohio Department of Commerce. Available at: http://www.com.state.oh.us/press/display.asp?ID=1006

[3] Ohio Foreclosure Prevention Task Force Final Report. 2007. By the Ohio Department of Commerce. Available at: http://www.com.state.oh.us/admn/pub/FinalReport.pdf (PDF)

Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

Key Resources
The following is a list of key resources on topics related to foreclosure prevention. If you're aware of other resources that should be added, please contact us.

• Background
  
• Connect Struggling Homeowners with Immediate Assistance
  
• Reduce the Risk of Foreclosures in the Future
  

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Background

Analyzing Elements of Leading Default-Intervention Programs. [PDF] 2005. By J. Michael Collins and Rochelle Nawrocki Gorey. Ithaca, NY: Policy Lab Consulting Group.

Bringing Subprime Mortgages to Market and the Effects on Lower-Income Borrowers. [PDF] 2004. By Ira Goldstein. Joint Center for Housing Studies Working Paper Series. Cambridge, MA: Joint Center for Housing Studies of Harvard University.

Collateral Damage: The Municipal Impact of Today's Mortgage Foreclosure Boom. [PDF] 2005. By William Apgar and Mark Duda. Minneapolis, MN: Homeownership Preservation Foundation.

Defaulting on the Dream: States Respond to America's Foreclosure Crisis. [PDF]. 2008. By Pew Charitable Trusts. Philadelphia, PA: Pew Charitable Trusts.

Effective Community-Based Strategies for Preventing Foreclosures. [PDF] 2005. By NeighborWorks America. Washington, DC: NeighborWorks America.

Home Ownership Preservation Initiative Partnership Lessons and Results: Three Year Final Report. [PDF] 2006. By Neighborhood Housing Services of Chicago, Inc. Chicago: Neighborhood Housing Services of Chicago, Inc.

Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners. [PDF] 2006. By Ellen Scholemer, Wei Li, Keith Ernst, and Kathleen Keest. Durham, NC: Center for Responsible Lending.

Preserving Homeownership: Community-Development Implications of the New Mortgage Market. [PDF] 2004. By William Apgar and Mark Duda. Chicago: Neighborhood Housing Services of Chicago and Washington, DC: NeighborWorks America.

Subprime Lending is a Net Drain on Homeownership. [PDF] 2007. By Center for Responsible Lending. CRL Issue Paper No. 14. Durham, NC: Center for Responsible Lending.
The paper argues that subprime lending will lead to a greater increase in foreclosures than in new homeowners -- resulting in fewer homeowners altogether. The authors estimate that the nation will experience a net loss of approximately 1 million homeowners as a result of subprime loans originated between 1998 and 2006. The paper includes graphs and tables depicting the number of foreclosures, subprime loans, and new homeowners over time, as well as the foreclosure rate and the impact of subprime lending and foreclosures on African-Americans and Latinos.

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Connect Struggling Homeowners with Immediate Assistance [go to policy page]

Websites

Homeownership Preservation Foundation
National toll-free foreclosure prevention hotline

Institute for Foreclosure Legal Assistance
A non-profit that support groups giving legal representation to families facing foreclosure and financial ruin because of abusive subprime mortgages

Legal Services Corporation
The largest national organization that supports civic legal agencies to provide legal assistance to low-income Americans

NeighborWorks Center for Foreclosure Solutions
A non-profit leader in foreclosure prevention solutions

Reports

Addressing the Foreclosure Crisis: State and Federal Initiatives in Massachusetts. [PDF] 2008. Prepared By Janna Tetreault and Ann Verrilli. Boston, MA: Citizens’ Housing and Planning Association.

Analyzing Elements of Leading Default-Intervention Programs. [PDF] 2005. By J. Michael Collins and Rochelle Nawrocki Gorey. Ithaca, NY: Policy Lab Consulting Group.

Effective Community-Based Strategies for Preventing Foreclosures. [PDF] 2005. By NeighborWorks America. Washington, DC: NeighborWorks America.

Foreclosure Alternatives: A Case for Preserving Homeownership. [PDF] 2006. By Desiree Hatcher. Profitwise News and Views, February: 2-5.
This article discusses the costs of foreclosure to homeowners, private and public lenders, loan servicers, mortgage insurers, cities, and neighborhoods. It calculates the total cost of a typical foreclosure as $73,300 for an FHA loan and $26,600 for a privately-insured mortgage. It then lays out the standard foreclosure prevention options and discusses the cost-effectiveness of foreclosure prevention.

Foreclosure Prevention: Improving Contact with Borrowers. [PDF] 2007. By Samuel Frumpkin, William Reeves, E. Matthew Quigley, Barry Wides, and Julie Williams. Community Development Insights. Office of the Comptroller of the Currency, Administrator of National Banks, U.S. Department of the Treasury.

From Boom to Bust: Helping Families Prepare for the Rise in Subprime Mortgage Foreclosures. [PDF] 2007. By Almas Sayeed. Washington, DC: Center for American Progress.

Home Ownership Preservation Initiative Partnership Lessons and Results: Three Year Final Report. [PDF] 2006. By Neighborhood Housing Services of Chicago, Inc. Chicago: Neighborhood Housing Services of Chicago, Inc.

Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners. [PDF] 2006. By Ellen Scholemer, Wei Li, Keith Ernst, and Kathleen Keest. Durham, NC: Center for Responsible Lending.

Preserving Homeownership: Community-Development Implications of the New Mortgage Market. [PDF] 2004. By William Apgar and Mark Duda. Chicago: Neighborhood Housing Services of Chicago and Washington, DC: NeighborWorks America.

State Strategies to Address Foreclosures. [PDF] 2007. By Kheng Mei Tan and Stephanie Casey Pierce. Washington, D.C.: National Governors Association.

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Reduce the Risk of Foreclosures in the Future [go to policy page]

Websites

Center for Responsible Lending (Mortgage Lending Information)

New Mexico Regulation and Licensing Department (Predatory Lending Law Information)

National Conference of State Legislatures (State Predatory Lending Laws)

Reports

Analyzing Elements of Leading Default-Intervention Programs. [PDF] 2005. By J. Michael Collins and Rochelle Nawrocki Gorey. Ithaca, NY: Policy Lab Consulting Group.

The Best Value in the Subprime Market: State Predatory Lending Reforms. [PDF] 2006. By Wei Li and Keith S. Ernst. Durham, NC: Center for Responsible Lending.

Bringing Subprime Mortgages to Market and the Effects on Lower-Income Borrowers. [PDF] 2004. By Ira Goldstein. Joint Center for Housing Studies Working Paper Series. Cambridge, MA: Joint Center for Housing Studies of Harvard University.

Collateral Damage: The Municipal Impact of Today's Mortgage Foreclosure Boom. [PDF] 2005. By William Apgar and Mark Duda. Minneapolis, MN: Homeownership Preservation Foundation.

Home Ownership Preservation Initiative Partnership Lessons and Results: Three Year Final Report. [PDF] 2006. By Neighborhood Housing Services of Chicago, Inc. Chicago: Neighborhood Housing Services of Chicago, Inc.

Innovative Servicing Technology: Smart Enough to Keep People in Their Houses? [PDF] 2004. By Amy Crews Cutts and Richard K. Green. Freddie Mac Working Paper #04-03. McLean, VA: Freddie Mac.

Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners. [PDF] 2006. By Ellen Scholemer, Wei Li, Keith Ernst, and Kathleen Keest. Durham, NC: Center for Responsible Lending.

Mortgage Payment Reset: The Issue and the Impact. [PDF] 2007. By Christopher Cagan. Santa Ana, CA: First American Real Estate Solutions.

Preserving Homeownership: Community-Development Implications of the New Mortgage Market. [PDF] 2004. By William Apgar and Mark Duda. Chicago: Neighborhood Housing Services of Chicago and Washington, DC: NeighborWorks America.

Subprime and Predatory Lending in Rural America: Mortgage Lending Practices That Can Trap Low-Income Rural People. [PDF] 2006. By Carla Dickstein and Hannah Thomas. Carsey Institute Policy Brief No 4.
This policy brief discusses the prevalence and effects of predatory mortgage loans in rural areas of the United States. It includes graphs and maps of Home Mortgage Disclosure Act (HMDA) data on the number and share of high-cost (or subprime) loans in non-metropolitan areas and persistent poverty counties. A case study focuses on predatory lending in Maine.

Understanding Mortgage Market Behavior: Creating Good Mortgage Options for All Americans. [PDF] 2007. By Ren S. Essene and William Apgar. Cambridge, MA: Joint Center for Housing Studies of Harvard University.
The report discusses consumer awareness and mortgage marketing practices that contribute to consumers making mortgage decisions that they later regret. The authors recommend a combination of regulatory and licensing changes for the mortgage industry and the creation of tools and an advisor network to better prepare consumers to make good mortgage decisions.


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Role: Help Residents Succeed
Policy: Prevent Foreclosures and Help Affected Renters and Owners

What Communities Can Do to Prevent and Respond to Foreclosures

The graphic below shows foreclosure prevention policies along a timeline starting before mortgage delinquency (and often before purchasing a home), during the period in which the mortgage grows progressively more delinquent, and ending after foreclosure has occurred. Click on a policy along the timeline to learn more.

Links have been provided in the quick links box in the upper right corner of each page, and in the grey navigation boxes, to return to the foreclosure policy timeline. After reviewing a policy section, click on one of these links to return to this timeline.

		Create a Foreclosure Prevention Hotline
	Homeownership Education and Counseling		Foreclosure Prevention Counseling	Short-Term Emergency Loans	Expanded Legal Services	Low-Interest Refinance Loans	Protections for Tenants	Rental Options for Former Homeowners
BEFORE Mortgage Delinquency			DURING Mortgage Delinquency				AFTER Foreclosure
Anti-Predatory Lending Laws	Oversight of Mortgage Brokers and Lenders	Monitor Downpayment Passthroughs	Create a Foreclosure Prevention Task Force	Identify and Assist High-Foreclosure Neighborhoods	Moratorium or Other Extension	Refinancing with Flexible Underwriting Requirements		Reuse Vacant and Abandoned Properties

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