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Webinar Instructions You will need to call the conference call number to hear the webinar audio. The conference call number is (605) 772-3900 and participant access code is 434945#. This is a long-distance call. Once you have called in please press 6 to mute your phone. Thank you. We will begin momentarily and thank you for you patience. 1
Predatory Real Estate Practices & The Homeownership Sustainability Fund Program (HSF) Facilitated by Lloyd P. London, Director September 14, 2007
3 Agenda Introduction Predatory Lending Predatory Lending Tactics Q & A Homeownership Sustainability Fund Program History Homeownership Sustainability Fund Program Objectives Q & A Agency Benefits Program Workflow Intake Process Q & A Program Evaluation Process Reviewed Documentation and Information HSF Program Forms Q & A
4 The National Community Reinvestment Coalition The National Community Reinvestment Coalition (NCRC) is a membership organization that promotes economic justice and fair access to credit, capital, and financial services for all communities, rural and urban. NCRC supports long-term solutions that provide resources, knowledge, skills, and opportunities to wealth in underserved communities.
5 The Homeownership Sustainability Fund (HSF), formerly the National Anti-Predatory Lending Consumer Rescue Loan Program (CRF), was designed to get borrowers out of abusive and predatory loans with a remedial loan and help borrowers at risk of foreclosure get a fresh start. All HSF loans are conventional home mortgage loans with market- like interest rates, no fees, no points, no prepayment penalties, and no insurance or ancillary product sales or offerings. Homeownership Sustainability Fund Program (HSF)
6 Today’s Market According to the Mortgage Bankers Association- “The United States overall had 0.7 percent of mortgages enter foreclosure in the second quarter of 2007, with 5.1 percent past due and 1.1 percent at least 90 days past due. Of the 7.7 million households who took out ARMs over the past two years to buy or refinance, up to 1 million could lose their homes through foreclosure over the next five years because they won't be able to afford their mortgage payments, and their homes will be worth less than they owe, according to Christopher Cagan at First American Real Estate Solutions research.
7 Today’s Market The FDIC reported that there was roughly $27.5 billion worth of residential mortgage loans that were 90 days or more past due at the close of Q2. If we estimate an average mortgage size of $300k (due in part to the areas in which most of the foreclosures are concentrated), that’s approximately 91,667.00 total households. ….The delinquency rate, which tracks the number of people who are behind in their payments but have not yet entered the foreclosure process, was also up sharply during the spring, rising to 5.12 percent of all loans, up nearly three- fourths of a percentage point from the same period a year ago. Doug Duncan, the Mortgage Banker Association’s chief economist, said the worsening performance was driven by two factors — heavy job losses in the Midwest states of Ohio, Michigan and Indiana and the collapse of previously booming housing markets in California, Florida, Nevada and Arizona.
8 Indiana foreclosures remain high Hoosier State is in top 10 for foreclosures in July By Arthur E. Foulkes The Tribune-Star TERRE HAUTE — Indiana continues to be among the worst states in the nation for home foreclosures, according to data released by RealtyTrac, a California- based firm specializing in foreclosed properties. The Hoosier state was in the top 10 in foreclosures in July, RealtyTrac reported. One house in 609 in Indiana was in foreclosure, compared with one in 693 for the nation as a whole, the firm reported. … The high number of home foreclosures in Indiana and nationwide follows years of expansion in the subprime mortgage lending business, experts say. Subprime mortgages are typically sold to people with little or no credit, often with little money down. Arthur Foulkes can be reached at (812) 231-4232 or firstname.lastname@example.org.
9 A predatory loan is an unsuitable loan designed to exploit vulnerable and unsophisticated borrowers. A predatory loan is an unsuitable loan designed to exploit vulnerable and unsophisticated borrowers. Predatory real estate transactions include property flipping, the over-appraisal of properties, enticing consumers into loan products with terms and conditions that make sustaining their homeownership difficult and any number of schemes or scams that deprive current and future homeowners of achieving the safe and affordable “American Dream”. Predatory Lending
10 The market that borrowers see today is flooded with enticing mortgage products boasting record- low introductory rates, interest-only loans, option adjustable-rate mortgages (ARMs), no money down, and no income documentation required. Originally considered “nontraditional” mortgages because of their high risk and small pool of qualifying borrowers, these products are now cropping up nationwide and becoming mainstream. David Berenbaum, Executive Vice President- NCRC
11 Predatory Lending Tactics/ Origination Targeting mailings to low-income or minority neighborhoods “Bait and Switch” Home Improvement Scams One-Stop Shopping Scams Under-developed and over-valued properties sold Racial steering to high-rate lenders Kickbacks to mortgage brokers (Yield Spread Premiums) Structuring loans with payments the borrower can not afford Inflated value of home Falsifying loan applications Adding insincere co-signers Forging signatures on loan documents Paying off low income or subsidized mortgages Changing loan terms at closing Shifting unsecured short term debt into mortgages
12 Predatory Lending Tactics/ Loan Terms Unjustified high interest rates “interest only” ARMs with unaffordable first adjustments 40-year Balloon loans with large balance remaining after 15 or 30 years Unjustified high points and/or padded costs Padded recording and settlement fees Unnecessary broker fees Required, financed credit insurance Falsely identifying loans as lines or credit or open-end mortgages Request to sign blank or unfinished documents Loans refinanced with escrows into loans without escrows without notification Mandatory arbitration clauses Unjustified and excessive prepayment penalties Adjustable rate loans with high interest rates and high minimum floor rates
13 Predatory Lending Tactics/ After Closing Flipping (repeated refinancing, often after high pressure sales) Daily interest when loan payments are late Unnecessary forced placed homeowners insurance policies Predatory servicing practices Foreclosure abuses Failure to provide payment history request Failure to report good payment history Failure to provide accurate loan balance and timely payoff amount
15 Homeownership Sustainability Fund Program Established the National Fair Lending Consumer Rescue Fund (CRF) in October 2001 with member agencies in Arizona, Ohio and New York with a 25 million funding commitment from Household International (Now HSBC-North America.) Closed first loan in New York in March 2002 Designed brochure and website, www.fairlending.com, in 2004www.fairlending.com Assisted “Toussie Development” Class Action Victims in Suffork County New York beginning in 2004 to refinance mortgage loans in developer over-appraisal scam
16 Homeownership Sustainability Fund Program Ombudsman Agreement with Select Portfolio Services in 2004 to work with servicing matters referred from the Federal Trade Commission (FTC) Expanded to 17 states in 2005 Participated with Freddie Mac’s “Don’t Borrow Trouble” campaign in 2006 to provide technical support to housing agencies Joined the Baltimore Homeownership Preservation Coalition in 2007 Charter member of the Prince Georges County Homeownership Preservation Coalition in 2007 Expanded to 19 states in 2007 Re-branded the CRF to the Homeownership Sustainability Fund Program (HSF) in 2007
17 Homeownership Sustainability Fund Program Objective To work efficiently and urgently on behalf of consumers affected by predatory and abusive lending practices, foreclosure abuse, servicing abuse and involuntary hardships in order to help them to sustain their homeownership To intervene and mediate with lenders or servicers when necessary to provide reasonable and affordable workouts To “rescue” qualified clients affected with an affordable remedial mortgage product with favorable terms and conditions To extract data for use in advocacy for others which will lead to improvement in existing consumer protection laws
18 1.Default counseling and financial education/ foreclosure prevention 2.Intervention and mediation with lender to assist homeowner as needed 3.Provides an affordable mortgage refinance 4.Provide assistance in receiving write-downs, as necessary 5.Assist member organizations with private enforcement of consumers’ rights and responsibilities The HSF program will include five components necessary To have a lasting beneficial effect for the homeowner:
19 Eligible States: The approval to refinance loans is available in the states of Alabama, Arizona, California, Colorado, Florida, Georgia, Indiana, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Texas and Wisconsin. Eligible Borrower: Consumers who have predatory or other high-costs loans secured by real estate and borrowers at risk of foreclosure. Consumers who have made good faith efforts to pay their mortgages and are unable to do so due to an involuntary change in their financial circumstances. Consumers with charge-off accounts at Household/ Beneficial Finance and HSBC affiliates will be handled through our mediation process and are not eligible to be refinanced in the HSF Program Eligible Properties: 1-2 unit residential properties, manufactured housing, condominiums and PUDs. Properties must be owner occupied. Closing Cost: Paid by the lender. There will be no points, no closing costs (appraisal, title, and recording or release fees) and no prepayment penalty. No insurance will be available or offered nor any side loans. Escrows: Escrows available for taxes and homeowner insurance in all states where refinance can be done.
20 Financing: Loan Terms/ Conditions 1st Mortgage with a fixed rate for 15, 20 or 30 years Interest rate based on ability to pay guidelines No Private Mortgage Insurance No Prepayment Penalty *Principal and interest payment- (no exotic or non-traditional mortgages) *No maximum loan amount 100% LTV refinances (lower for manufactured housing) Possible cash-out up to $10,000 or 10%of loan amount, whichever is less, for debt consolidation Home repair costs necessary for property eligibility may be financed Flexible Underwriting Allows review for foreclosure in progress and credit that would generally be unacceptable in the conventional marketplace Credit scores not used in underwriting decisions but explanations may be required Boarder income may be used Maximum total debt ratio of 45%, may make exceptions to 50%. Disposable income guidelines apply
21 Agency Benefits NCRC will compensate nonprofit agencies who provide HSF counseling and processing assistance in the amount of $250 for each case for pre-qualified submissions that meet the parameters of the HSF Program. Payments are not paid based on the final approval or closing but on their ability to participate in the the program (evaluation). The opportunity to make use of a remedial loan product for their local community Provide competent contact with services/ lenders to offer resolution Access to executive resources for mediation of HSBC-North America and its affiliates loan matters is offered.
22 Program Workflow Agency determines consumer eligibility for HSF Program/ Consumer contacts HSF staff Agency submits case to HSF staff Intake Specialist Inputs file in HSF Database Program Director/ Associate Director assigns case to Fair Lending Specialist (FLS) File and document review done by FLS File investigation and initial processing done by FLS and agency contact File assembled and submitted to HSBC Rescue Underwriters for application processing/ credit decision (preliminary approval) File developed by FLS, agency contact and HSBC Underwriters for Final Approval Loans closed in HFC/ Beneficial branches by independent agents
23 Intake Process NCRC General Intake (Short Form) NCRC/ HSF Intake (Long Interview) 1.) Set Expectations 2.) Listen to the story 3.) Look at financial facts and develop options 4.) Make contact with other services
25 HSF Program Evaluation The HSF offers a low rate, no fee loan for consumers who qualify for this special program and demonstrate both the ability and intent to pay. The evaluation process consist of: High risk mortgages- can be defined as unaffordable or inequitable terms Consumers who have made good faith efforts to pay their loans but, are unable to do so due to a change in financial circumstances Origination concerns, such as over appraisal, high fees, high interest rates, misrepresentation, etc. Servicing related concerns Unintentional financial hardships Predatory or problematic nature of transaction placing homeowner at “risk of foreclosure.”
26 Documents Reviewed for Submission Original 1003-Mortgage Application Truth-in-Lending Disclosure (at application and final at closing) Good Faith Estimate Mortgage Note or Deed of Trust Note Mortgage or Deed Mortgage Note Riders Previous Loan Documents HUD-1 (settlement statement) Loan Disbursement Form Foreclosure Papers Written Workout Documents
27 Predatory Information and Items Reviewed for the HSF Program Submission Loan Terms Interest rate and annual percentage rate Whether fixed or variable rate Type of index (Libor, Treasury, etc.) Variable rate ceiling and floor Term of loan Monthly payment amount Escrow payment Loan Fees Loan Origination Fee Discount Points Commitment Fee Broker Compensation (YSP) Loan Application Fee Document Preparation, Processing and Underwriting Fees Fees Paid Outside of Closing (POC) Questionable Settlement Expenses
28 Predatory Information and Items Reviewed for the HSF Program Submission Additional Items Prepayment Penalty Credit Insurance Mandatory Arbitration Insincere Cosigners Notes and Riders Appraisals Forged Signatures or Fraudulent Documentation Borrower's Individual Circumstances Purpose of Loan Borrower Current Hardships Borrower's Credit History (Profile) History of Repeated Financing Amount of Equity in Home Borrower's Ability to Repay Borrower in Bankruptcy, Forbearance or Foreclosure
29 Hardship Hardship is defined as an involuntary increase in expenses or decrease in income significant enough to affect the borrower’s ability to meet his or her mortgage commitment. HSF requires a client to submit a hardship/ predatory lending complaint letter in conjunction with any required information or documents Hardship letters written in the consumer’s own words are most effective Though counselors can assist borrowers who have poor writing skills, the counselor should not coach a borrower to exaggerate the hardship/ predatory issue in order to gain the sympathy of the lender. We seek to verify issues of hardship and predatory matters for acceptance into the program.
30 HSF Program Forms HSF Document Checklist HSF Voucher Consumer Information Form (Application) Authorization Form Escrow Account Option Form Personal Financial Assessment Form
37 Summary The National Community Reinvestment Coalition in its partnership with HSBC-North America brings this opportunity to consumers that have been victims of unfair and abusive lending across the nation. The establishment of the Homeownership Sustainability Fund Program, formerly the National Anti-Predatory Lending Consumer Rescue Fund Program (CRF), shows that the collaboration of these entities can work together in furtherance of a strategy to challenge predatory lending practices and provide a safe and affordable mortgage loan.
39 For More Information Please contact Lloyd London at (202) 464-2738 or email@example.com firstname.lastname@example.org The NCRC National Anti-Predatory Lending Consumer Rescue Fund Information if available at www.fairlending.com. www.fairlending.com Thank you for participating today!