Philanthropic Responses to the Subprime and Foreclosure Crisis

1
Philanthropic Responses to the Subprime and
Foreclosure Crisis
Solomon Greene Open Society Institute
Presentation at Kirwan Institute for the Study
of Race Ethnicity Convening on Subprime
Lending, Foreclosure Race October 2, 2008






2
Overview

• Recent foreclosure trends and outlook
• Interventions - emerging models, challenges and
  opportunities
• Role of philanthropy

3
Recent Foreclosure Trends
4
Recent Foreclosure Trends
5
Foreclosure Outlook Rate Resets
6
Foreclosure Outlook Declining Prices
Annual Housing Price Appreciation in the U.S., 1Q
2008
Source Year-on-Year Housing Price Appreciation
OFHEO housing price index, 1Q 2008
7
Foreclosure Outlook Declining Credit
Home Loan Originations in the U.S. 19902009
(estimated)
Source HUD, Fannie Mae estimates (1998 forward),
Fannie Mae forecast
8
Foreclosure Outlook Declining Credit
Change in Home Purchase Loan Activity (2006 -
2007), by Race
Source NYU Furman Center for Real Estate and
Urban Policy analysis of HMDA 2006 and 2007 data
(forthcoming)
9
High Costs of Foreclosure
Source Sheltering Neighborhoods from the
Subprime Foreclosure Storm. Special Report from
the Joint Economic Committee. April 2007.
10
Intervention Timeline
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Foreclosure Prevention Strategies

• Education and Outreach
• Financial literacy, consumer awareness and
  anti-predatory lending campaigns
• Call centers and hotlines
• Homeownership Counseling
• Pre-purchase (credit counseling, financial
  counseling)
• Post-purchase (refinance, loss mitigation)
• Legal Representation (pro-bono, low-bono, legal
  services)
• Counsel and advise
• Predatory lending suits
• Policy Advocacy Reform
• Anti-predatory lending laws
• Industry regulation and oversight
• Financial products
• Refinance products
• Rescue funds or bridge loans

12
Foreclosure Prevention Challenges

• Insufficient counseling capacity
• Servicer bottleneck
• Capacity constraints
• First- v. second-lien holders
• Competing tranches
• Sustainability of loan modifications
• Under water properties - debt exceeds value
• Difficulty underwriting refinances or loan
  modification
• Inability to dispose of property through
  pre-foreclosure sale

13
Foreclosure Prevention Emerging Models

• Early warning systems Bel-Air Edison
  Neighborhoods Inc. Community Law Center
• Coordinated service delivery Center for New
  York City Neighborhoods
• Technological solutions Consumer Credit
  Counseling Services

14
Foreclosure Defense Strategies

• Legal representation
• Loss mitigation
• Foreclosure defense
• Legal reform
• Settlement conferences and mediation
• Moratoria
• Bankruptcy courts

15
Foreclosure Defense Challenges

• Timeline balance between foreclosure
  proceedings that are too fast and too slow.
• Representation Extremely low rates of legal
  representation for foreclosed borrowers, even in
  judicial foreclosure states.
• Negotiation Difficulty identifying party with
  legal authority to negotiate (i.e., securitized
  loans, MERS)

16
Foreclosure Defense Emerging Models

• Court-ordered mediation and diversion Ohio
  Queens, NY Philadelphia, PA
• Pro bono mobilization and training Civil
  Justice Maryland Pro Bono Resource Center
• Standing challenges - Ohio cases

17
Community Stabilization Strategies

• Minimize Displacement
• Graceful exit strategies
• Eviction defense
• Relocation assistance
• REO Property Reuse
• Code enforcement and taxation of vacant
  properties
• Acquisition and rehabilitation for resale,
  affordable rental housing, or adaptive reuse
• Land banks and land trusts
• Rent-to-own and leaseback programs

18
Community Stabilization Challenges

• Tension between tenants rights and property
  disposition goals
• Difficulty valuing properties
• Lack of funds and expertise in acquiring and
  managing scattered-site properties
• High holding costs
• Title problems
• Ensuring pipeline of credit-ready homebuyers

19
Community Stabilization Emerging Models

• Acquisition and rehabilitation of REO pools
  HANDS, Inc. (Essex County, NJ)
• Bulk negotiation and transfer National
  Community Stabilization Trust
• Mission-driven broker - Neighborhood Housing
  Services of NY
• Rescue funds New York Times Foundations
  Neediest Cases Fund

20
New Opportunities

• State and federal anti-predatory lending
  legislation
• Frank-Dodd bill
• 300 billion credit facility within FHA to
  purchase non-performing loans
• 3.9 billion in CDBG funds dedicated to
  neighborhood stabilization
• Tax credit for homeowners buying foreclosed
  properties
• Increased willingness of servicing industry to
  discount REO properties
• Court reform initiatives
• Increased awareness around renters issues and
  passage of local legislation to protect tenants
  rights in foreclosure
• Linking REO reuse to workforce development,
  affordable housing and other community
  revitalization goals
• Treasury bailout

21
Role of Philanthropy

• Fund direct services (education and outreach,
  counseling, legal services).
• Fund efforts at structural/policy change
  (organizing, policy research, impact litigation,
  etc.)
• Leverage private-sector capital (PRIs, credit
  enhancement).
• Serve as resource for generating critical
  information and sharing best practices (research,
  convenings, etc.).
• Convene stakeholders, develop task forces and
  coalitions.

22
Big Picture

• How can foundations help government and community
  groups overcome the servicer bottleneck to
  promote more and better loss mitigation and REO
  disposition strategies?
• How can foundations support innovative models
  that demonstrate sustainable and affordable
  homeownership is viable and essential component
  of wealth building for communities of color?
• How can foundations help eliminate racial
  disparities in credit markets and strengthen fair
  lending practices to avoid repeat of crisis?