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Neighborhood Stabilization and Distressed Notes NACEDA People & Places Conference March 5,2015.

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Presentation on theme: "Neighborhood Stabilization and Distressed Notes NACEDA People & Places Conference March 5,2015."— Presentation transcript:

1 Neighborhood Stabilization and Distressed Notes NACEDA People & Places Conference March 5,2015

2 NCST - What We Do Creating the bridge to stronger neighborhoods The National Community Stabilization Trust is a non-profit intermediary organization offering innovative programs and services to state and local governments and community-based housing providers to expedite the productive reuse of foreclosed and vacant properties to stabilize neighborhoods and to create affordable housing opportunities for underserved families. 2 Property Disposition Facilitating the effective transfer of foreclosed and abandoned properties to localities Financing Providing flexible financing to support local and state efforts Capacity Building Organizing local collaborations through NCST sponsor organizations and industry partners Focal Point Serving as an industry ‘voice’ for foreclosure remediation and neighborhood stabilization Technology Award-winning mapping and property transaction technology

3 The First Five Years 3 $1 Billion In our first five years of operation, NCST conveyed $1,039,447,847 in real estate back to the community through our non-profit providers. 18,000 Since 2009, NCST has conveyed more than 16,000 properties to community buyers, who in turn, rehabilitate and resell those homes at a discount to owner-occupants 1,200 The number of houses donated to local organizations through the Veteran Donation Program, future renovated homes that will benefit our country’s military veterans. $135 Million Our community buyers have saved over $135 million by buying their properties at a discount through NCST’s programs. The buyers utilize these savings to run other community programs 976 We have 976 community buyers. 3,000 Our buyers operate in 48 U.S. states, which includes 3,000 cities and nearly 4,000 zip codes. 6,000 The number of donation properties accepted through NCST by organizations in 48 states since 2012. 10,000 In 2014, we transferred our 10,000th First Look property to a community buyer.

4 HAMP Non-Performing Notes Short Sales Low Value Distressed Assets New REO (First Look) Existing/Aged REO Donations Other Loan Mods Distressed Asset Segments

5 LOW VALUE DISTRESSED NOTES Solutions for Pre-Foreclosure Assets, Non-Performing Notes, and Limbo Loans 5

6 Two Approaches to Note Purchase Mortgage Resolution Fund (MRF) –A nonprofit established by Enterprise Community Partners, the Housing Partnership Network, Mercy Portfolio Services, and NCST to acquire nonperforming notes in hard hit markets. –The objective was to keep families in their homes by right sizing mortgage payments or, when that was not feasible, to convert paper to property to that the real estate could be improved. –Bought notes directly from financial institutions and from FHA as part of DASP. –Notes were purchased in the Chicago metro area and in northeastern Ohio. The ReClaim Project –A joint effort by the Housing Partnership Network and NCST to purchase very low value distressed notes, typically on vacant property, where there is little expectation of any further owner contact or economic recovery for the servicer/investor. Nationwide in scope. –These properties often sit in limbo for years undermining neighborhood stabilization efforts. –NCST and HPN, via an entity called CRC, remediate the situation in the most economic manner possible, working closely with local community providers. 6 NCST has participated in two distinctly different nonperforming loan efforts

7 The ReClaim Project The Ultimate Resolution Tool for Zombie Properties NCST and HPN operate a tax exempt non-profit holding entity, called CRC, that accepts non-performing notes as donations, with a financial contribution from the Servicer for the resolution of each asset. Unprecedented value proposition for communities:  Creates a mechanism to permanently resolve very low value, abandoned ‘zombie properties’  Includes new financial resources from participating servicers to remove blight  Supplies options for owners occupants or legal tenants in place and resolution for long standing blighting properties Primary Objectives: 7 Provide servicers with a pre-foreclosure pathway to resolve low value assets Create efficient execution that is more cost- effective than foreclosure and less damaging to communities than lien releases. Enable communities to take control of distressed properties A transparent and predictable program that will align with local goals and strategies and leverage existing local capacity with new resources.

8 Why ReClaim Works for Servicers Donating notes creates positive outcomes for Servicers and the communities embattled by abandoned properties.  Conveyance of distressed low value notes to a single entity is more efficient than negotiating individual conveyances and/or payouts in communities, large and small, across the nation.  Designed to enhance the scale and speed of asset transfers and ensure consistency of execution.  Based on sound real estate practices with a clear mission focus.  Homeowner retention and community-focused property remediation are prioritized. 8 BENEFITS QUICK RESOLUTION —Loans can be transferred over a 30-day period after due diligence and pricing COST EFFICIENCY —Resolution costs may be less costly than the servicer’s standard foreclosure path RESPONSIVE TO COMMUNITY NEEDS — Alleviates financial burdens that communities face with bank “walkaways” by proactively contributing resources for significant blight removal and neighborhood reclamation INSULATION FROM LOCAL HEADLINE RISK – Compared to other liquidation alternatives, NCST, and HPN - as mission-focused nonprofit - will direct community-responsive resolutions, rather than the Servicer making subjective decisions that have negative local repercussions.

9 ReClaim Disposition Methodology 3. Position Property for Reuse DemolitionTransfer - Rehab 2: Initiate Process to Take Title DIL/Short Sale Statutory or Judicial Foreclosure Tax Foreclosure 1: Pursue Alternative to Foreclosure with Borrower OccupiedVacant 1) Preserve homeownership and occupancy of properties to the extent possible Where willingness and baseline financial capacity exists When property does not present a health and safety hazard to occupants and/or neighborhood When a local partner is available to maintain long-term tenants if title to property can be conveyed 2) Maximize Use of Foreclosure Alternatives or Fast-Tracking Maximize opportunities to negotiate DIL or short sales to obtain title to properties Work with local authorities on the path to foreclosure that will expedite local control of property (tax foreclosure vs. statutory or judicial foreclosure) 3) Determine asset resolution with the highest community development value Use Servicer funding to expedite demolitions to reduce blight Co-develop and/or transfer properties to Community Buyers to create affordable homeownership or rental opportunities for income eligible families. 9 Privileged & Confidential

10 Waterfall Strategies for Loan Resolution 10 Privileged & Confidential Repayment Plan/ Settlement For small UPBs Modification Lesser of UPB or LTV at least 90% or below Fair Market Value Deed in Lieu With cash for keys Foreclosure DIL/Short Sale Quick Sale Quick Donation Foreclosure REO Sale Property Donation Demolition Tax Foreclosure With Demolition Contribution to local authorities Occupied PropertiesVacant Properties Borrower transition + Sale Donation Demolition

11 NACEDA People & Places Conference March 5, 2015

12 12 HPN Counseling Impact  First HUD-approved national housing counseling intermediary (1995)  Over the last 5 years, HPN’s network of counseling agencies has helped 79,000 households prepare for homeownership  HPN’s members advise on average close to 1,400 households annually  Building on our 20 year track record in the industry, HPN has led efforts to increase access to high quality homebuyer education and counseling for consumers through our network of high performing counseling agencies and through technology innovation  At the core of our business practice is facilitating peer learning between our members with a focus on catalyzing innovation in the sector

13 13 Counseling Management and Oversight HPN is a business collaborative of the nation’s leading housing and community development nonprofits and, as a CRC partner, will manage the national counseling network focusing on borrower engagement.  Identification of local providers and management of counseling provider subcontracts  Establishment of counseling work plan, job description and training needs  Technical Assistance  Management of monthly reporting and payment requisition to counseling providers  Sharing best practices through peer exchange to enhance the integrated counseling model

14 14 Counseling Providers – Threshold Criteria Demonstrated commitment to CRC business model HUD Certified Counseling Agency National Homeownership Industry Standards and National Industry Code of Ethics and Conduct for Homeownership Professionals Organization Documented capacity to serve borrowers (minimum 1,000 households) Documented capacity assisting borrowers to restructure secondary non- mortgage debt Experience working with mortgage servicers Capacity Formal training and certification plan for new hires Quality Control Plan Program Directors Employee Capacity and Experience Ability to refer Borrowers to additional resources including: legal, social supports; housing search assistance; down payment or other financial assistance programs; financial literacy programs Local Relationships & Borrower Resources Currently uses client management system that is able to submit client level data and aggregate reporting electronically Electronic client files Technology & Information Sharing

15 15 Benefits of Integrated Counseling Approach  Local presence –High capacity local organizations provide the market presence needed to help distressed homeowners reach positive solutions  High-touch role –Ongoing and intensive interactions with borrowers throughout the loss mitigation process –Evaluate desire and capacity for retention –Assist with soft-landing and transition counseling for alternative disposition  Enhanced outcomes –Enhanced contact rate –Foreclosure avoidance Integrated Counseling Approach BorrowerCounselor Special Servicer

16 Distressed Loans – Lessons Learned 1.Due Diligence: Thorough due diligence on every asset must be undertaken.  MRF did title work and some on-site sampling, relying too much on seller representations.  With ReClaim, NCST and HPN conducted loan by loan analysis prior to pricing, including determining tax/title deficiencies, subordinate liens, active bankruptcies, current property condition, occupancy status, and estimated value. 2.Special Servicer: Servicing seriously delinquent, often vacant property is a specialization. Fund a servicer with the right focus, experience, and incentives. 3.Nonprofit and For-Profit Partnerships: Accepting low value notes is a high risk undertaking. Working with a for-profit partner has real benefits, but ensure that interests are aligned from the outset. And, remember, all capital comes with “strings”. 4.Waterfall Your Options and Work Fast: Time is not the friend of the note remediator – the costs of servicing, foreclosure, and subsequent resolution are daunting. 5.Borrower Ability and Willingness: Not all borrowers want to stay. Working to establish their trust is important, but ultimately building trusted local relationship is even more important. 16 MRF and ReClaim Have Been Valuable Learning Opportunities

17 Contacts Annie Carvalho | | (651) Joe Ferguson| | (617) National Community Stabilization Trust (NCST) is a national nonprofit organization working with the nation’s largest financial institutions and local housing providers across the U.S. to reclaim neighborhoods hard hit by high levels of foreclosure and abandonment. To support the recovery of distressed neighborhoods, NCST ensures local housing providers have the right tools to transform empty, foreclosed properties into community assets that increase the stock of affordable ownership and rental housing. Housing Partnership Network (HPN) is a member-driven collaborative of the nation’s 100 leading housing and community development nonprofits who combine social mission with business acumen to create affordable homes in healthy communities for lower-income and working families. The HPN approach is based on peer exchange among the top performers in the field who share ideas and knowledge, pool resources, collaborate on business enterprises, and provide credible, practitioner-based solutions that drive our policy recommendations and advocacy. 17 Privileged & Confidential

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