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Combating the Foreclosure Crisis: A Local Solution.

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Presentation on theme: "Combating the Foreclosure Crisis: A Local Solution."— Presentation transcript:

1 Combating the Foreclosure Crisis: A Local Solution

2 Underwater Mortgages and the Foreclosure Crisis Are Crippling Our Communities & the Economic Recovery 2

3 The Crisis is Far From Over 1.8 Million Families Lost Their Homes in 2012 1.8 Million Families Lost Their Homes in 2012 5.1 Million Homes Currently Delinquent or in Foreclosure 5.1 Million Homes Currently Delinquent or in Foreclosure 14 Million Homes are Underwater 14 Million Homes are Underwater 3

4 The Crisis in Richmond Communities in Richmond lost over $264 million in wealth due to the foreclosure crisis in 2012, or $4,000 per household. Majority communities of color zip codes lost an average of $4,700 per household. Communities in Richmond saw 30 foreclosures per 1,000 households Right now, more than 12,000 homes are worth less than the amount that homeowners still owe on their mortgages. If all underwater homeowners in Richmond were able to renegotiate their mortgages reducing their principle owed to current market value, homeowners would save an average of $14,000 annually, which in turn provide an economic stimulus to our local economy! 4

5 5 Principal Reduction is Key To Rebuilding Community Wealth December 1, 2012 Editorial Crippling mortgage debt make[s] a strong and steady economic recovery all but impossible …. the foreclosure crisis, and its damage to homeowners and the economy, is still paramount. In the next term [of the Obama Administration], the focus should be on debt reduction, refinancing, enforcement and true consumer protection. August 12, 2012 Housing remains the biggest impediment to economic recovery, yet Washington seems paralyzed. The Obama administrations housing policies have fallen short. -- Joseph E. Stiglitz and Mark Zandi.

6 Foreclosures Are A Current And Future Nightmare For Many Communities 4 million families with no effective access to Federal distressed mortgage programs because their mortgages are in PLS 45% of PLS loans are underwater PLS servicing contracts prohibit or prevent the sale of PLS mortgages and limit modifications Fannie Mae is forecasting additional 2 million PLS mortgage foreclosures These foreclosures will cost communities $68 billion 52 million U.S. Single Family Mortgages The Particular Problem for Homeowners with PLS (Private Label Securities) Loans 6

7 A Local Solution with a Big Impact 7 Cities can acquire certain underwater loans and restructure them so that homeowners can refinance into a new loan in line with the current value of the home and current market interest rates. The loans are acquired through purchase: either through voluntary transfer or through the use of eminent domain (where PSAs block voluntary purchase). The city never takes possession of the homes themselves, but rather just the mortgage loans. By recognizing the current fair market value of these loans, as opposed to the inflated value on the books, the loans can be acquired at a price that allows for a new mortgage to be written that no longer has the homeowner underwater.

8 How It Works Step 1: The City partners with advisors and funders - Advisors who have the legal and financial expertise to carry out the program -Investors who have the capital to acquire the loans and cover the costs of the program, both operational and legal. -Both the advisors and the investors get paid out of the proceeds from the new mortgage fund Step 2: The loans are identified Step 3: Homeowners opt into the program Step 4: Advisors make offers to purchase loans from servicers, on behalf of the City - And attempt to negotiate 8

9 Steps of the program, continued 9 Step 5: City purchases mortgages through voluntary transaction (where possible) or utilizes the eminent domain law Step 6: City reduces principal balance on purchased PLS loan Step 7: Homeowner obtains a new modified loan and how have a more affordable mortgage

10 Homeowner and Community Benefits This is an example for the level of benefits that participating families may realize. Communities benefit from greatly reduced probability of foreclosure. Original Loan TodayAfter Program Home Value $400,000$200,000 Mortgage Balance $320,000300,000$190,000 Home Equity $80,000($100,000)$10,000 Loan to Value Ratio (LTV) 80%150%95% Monthly Payment $1,798 $907 Assumes a 6%, 30 year, fully amortizing mortgage is refinanced by a 4%, 30 year, fully amortizing mortgage. Some loan programs may also require insurance, which may add $175 per to the After Program monthly payment. Probability of Default Drops from ~60% to ~7.5% (FHA actuarial assumption)

11 A Few Frequently Asked Questions* 11 * SEE THE FAQ DOCUMENT FOR THE COMPLETE LIST Q: Will this program take peoples homes? A: No. The entire goal of this program is to keep people in their homes. Q: What kind of loans will be eligible? A: All loans currently being considered are underwater PLS loans. Beyond that, cities will decide how they want to design the program and determine if there are investors ready to provide the funding. Q: How can cities afford to do this? And isnt there a threat of litigation? A: The threats are designed to frighten cities, but they lack legal merit. We think this only works if there are private partners prepared to take on these financial and legal responsibilities. Q: Will these private partners be making money off of this? A: Yes. The advisors and funders will be paid from the proceeds of the new mortgage fund. Unless or until we identify public or non-profit entities that are able to fund this program at scale, we are talking about private investors who expect to make a profit.

12 How You Can Get Involved in this Campaign to Rebuild Our Neighborhoods 12 Help spread the word and sign people up as supporters In your neighborhood, work place, school, church, civic associations, etc…

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