Foreclosure Mitigation Toolkit for Communities
The Federal Reserve views the high rate of mortgage foreclosures as an urgent problem. Using the System’s expertise and extensive network of national and regional relationships, the Fed is collaborating with other regulators, community groups, policy organizations, financial institutions and public officials to identify solutions to prevent unnecessary foreclosures and their negative effects.
The goal of this toolkit is to provide resources to assist communities in addressing the current turmoil in the housing market and minimize the impact of foreclosures on neighborhoods. Web links and local resources are included. For more information, contact the Federal Reserve Bank Community Development Office in your region.
- Step 1
- Step 2
- Step 3
- Step 4
Step One: Assess the Foreclosure Situation
The first step in any community effort is assessing the foreclosure situation in your community. This will also enable you to target limited resources to foreclosure hotspots.
U.S. Credit Conditions in the United States
The New York Fed maintains a website with dynamic maps and data showing credit conditions by county across the U.S. These mapsshow delinquency rates for various types of credit including auto, bank cards and student loans in addition to mortgage loans. The maps may assist community groups in targeting financial counseling and other resources to at-risk homeowners. Policymakers can also use the maps and data to develop plans to lessen the direct and spillover impacts that delinquencies and foreclosures may have on local economies. Local governments may use the data and maps to prioritize the expenditure of their resources for these efforts.
National Delinquency Survey
The Mortgage Bankers Association (MBA) provides quarterly reports on delinquency and foreclosure rates of loans at the national, regional and state levels. The MBA’s National Delinquency Survey , conducted since 1953, covers 80 to 85 percent of all first-lien residential mortgage loans outstanding in the United States. Delinquency and foreclosure measures are broken out into various loan types (prime, subprime, VA and FHA) and fixed- and adjustable-rate products.
Regional and Local Data Resources
State laws require that notices of intent to foreclose real estate be posted for public view, although the exact posting process varies from state to state. These preforeclosure notices, along with actual foreclosure sales data, are compiled regularly by various companies who make the information available for sale. Some counties make maps and listings of property addresses available during the “publication” period prior to the foreclosure sale date. Contact a local title company in your community to get more information on the best local sources for preforeclosure and foreclosure sales reports.
Foreclosure laws and regulations are important to consider and can vary significantly across states. In some states with a judicial foreclosure process, the lender must take the borrower to court to seize the property. In other states, a nonjudicial foreclosure process requires no court action.
Sources for State Laws on Foreclosure
Step Two: Reach Troubled Homeowners
Surveys show many at-risk homeowners often fail to seek help. They may be embarrassed or don’t know where to turn. Stress can make dealing with credit problems even harder. Community leaders serve a crucial role by helping consumers find quality housing counselors at the first sign of trouble.
The U.S. Department of Housing and Urban Development (HUD) maintains a database of HUD-approved counseling agencies. Additional information, including financing options, can be obtained from the Federal Housing Administration.
One important way to strengthen foreclosure outreach is to build strong partnerships with existing state and local coalitions and task forces.
If there are no existing coalitions or task forces in your area, you can start one by reaching out to grassroots and faith-based groups, legal aid offices, housing counseling organizations, community development organizations, and city and state consumer protection departments. Two good examples of state coalitions include:
- Texas Foreclosure Prevention Task Force
- Colorado Foreclosure Prevention Task Force
- Missouri Homeownership Preservation Network
Homeowner workshops and/or default clinics have proven successful in helping borrowers avoid foreclosure. They are held in accessible community locations such as convention centers, schools and public libraries. Sponsors invite troubled borrowers, issue media releases and post notices on websites and in public places.
Three basic models exist for effectively run workshops. They range from large events at which loan servicers and housing counselors meet face-to-face with borrowers to smaller events that are primarily educational in purpose.
- HOPE NOW Homeowner Preservation Workshops are typically held in large metro areas. They benefit from a national partnership with NeighborWorks America and an alliance with more than 25 lenders to allow borrowers to meet with loan servicers and housing counselors.
- Community Foreclosure Mitigation Workshops are typically hosted by a local coalition or task force. Local nonprofit counselors are on site to counsel borrowers. Lenders and servicers are often willing to participate in community events that are well-designed and marketed.
- Default Clinics are hosted by nonprofit credit and/or housing counselors as a way to triage distressed borrowers and streamline the default counselors’ time. This model focuses on getting information to clients quickly to help them select the appropriate assistance needed.
Community leaders are employing many direct approaches to reach troubled homeowners, making use of information and materials available from local and national organizations:
Public Service Announcements (PSAs)
- Foreclosure Help and Hope is a PSA campaign created by NeighborWorks America, the Homeownership Preservation Foundation and the AD Council.
- Loan Modification Scam Alert is an anti-foreclosure scam toolkit created by NeighborWorks America.
- 5 Tips for Avoiding Foreclosure Scams provides consumer help from the Federal Reserve.
- Money Matters includes video PSAs from the Federal Trade Commission.
- Foreclosure Prevention offers radio scripts and PSAs on housing issues from the Comptroller of the Currency.
- Practical Tips for Avoiding Foreclosure is a sample local brochure based on information from HUD.
- Foreclosure prevention from Greenville County Human Relations, 2009
Mailings, Flyers and Press Releases
- Foreclosure Hotline Card created for the Colorado Foreclosure Hotline
- Baltimore, Maryland Workshop
- Bellevue, Washington Workshop
Local Community Partnership websites
Public Television Partnerships
A number of national organizations and government agencies maintain rich informational websites to assist communities and consumers in dealing with foreclosure issues, including prevention, mitigation, counseling, loan modifications, neighborhood stabilization and foreclosure-rescue scams.
- Enterprise Community Partners: Is a national nonprofit with more than 25 years of experience in the community development and affordable housing field.
- Local Initiatives Support Corporation: Is a national nonprofit that helps local organizations access national resources and expertise.
- NeighborWorks America: Was created by Congress to provide financial support, technical assistance and training for community-based revitalization efforts. It supports a wide range of programs:
- The Center for Foreclosure Solutions provides information that helps counselors and community leaders connect with and advise troubled homeowners.
- The National Foreclosure Mitigation Counseling Program(NFMCP) provides grants to HUD-approved counseling intermediaries to expand their capacity to counsel at-risk borrowers.
- The NeighborWorks Center for Homeownership Education & Counseling works through the NeighborWorks Training institutes to provide regional and place-based trainings.
- Foreclosure Basics e-learning course, an online educational resource.
- The Homeownership Preservation Foundation: Provides information and videos that explain alternatives to foreclosure and operates a national hotline—888-995-Hope (4673)—available in both English and Spanish. Callers can be referred to local nonprofit counseling assistance.
- HOPE NOW Alliance: Is a national alliance of more than 50 lenders, loan servicers and counseling organizations dedicated to preserving homeownership and minimizing foreclosures.
- HOPE NOW members have agreed to a uniform set of procedures and guidelines to increase outreach to borrowers.
- HOPE NOW also partners with NeighborWorks America to conduct homeowner workshops.
- Making Home Affordable: The Obama administration has introduced a comprehensive Financial Stability Plan to address problems at the heart of the crisis and help make monthly mortgage payments more affordable for troubled homeowners.
- Office of the Comptroller of the Currency: Provides consumer and community information and includes sample public service announcements for radio.
- The Federal Deposit Insurance Corporation (FDIC): Provides consumers and community foreclosure assistance and links to foreclosure rescue and loan modification scam awareness resources.
- The Federal Reserve Board of Governors: Provides foreclosure-help resources to both consumers and communities. It also connects with all 12 Federal Reserve Banks.
- U.S. Department of Housing and Urban Development: Provides links to consumer resources, government programs and government-approved, nonprofit counseling agencies.
Identifying and understanding the alternatives to foreclosure can help prevent problems before they occur or significantly reduce the pain. The government implemented a major program in 2009 to encourage loan modifications. Local housing counselors are good sources for helping consumers find options. Just understanding the different terms can guide consumers to the right course of action.
- Glossary of Mortgage and Foreclosure Terms
- Renters Rights Information from the National Loan Income Housing Coalition
- National Industry Standards for Homeownership Education & Counseling
Step Three: Establish Post-Foreclosure Support Systems
Sadly, foreclosure is unavoidable for some borrowers, even when they have made contact with their lender/loan servicer early on in the process. Circumstances such as severe loss of income may prevent the mortgage from being modified to a payment that is affordable to the borrower.
Working collaboratively, housing counselors and other stakeholders from community-based organizations, financial institutions and local government agencies can encourage former homeowners to regain personal financial stability and contribute to the overall recovery of their community.
A Resource Guide for Foreclosure Recovery has been developed for use as a tool for community leaders to assist consumers in achieving stability following foreclosure. The table of contents below provides an overview of the topics covered in the Guide.
Managing foreclosure and options for a graceful exit
- Relinquishing ownership of the property
- Renters’ rights
Components of foreclosure recovery
- Relocation (housing and shelter)
- Restoration (restoring normalcy to life)
- Rebuilding (credit and finances)
- Renewal (stability and looking ahead)
Appendix—additional reports and resources
Contact the local field staff from the Community Development Office in your region for assistance with recommendations for implementing this guide.
Step Four: Stabilize Neighborhoods
Foreclosures are not only devastating to the homeowner, but can also be destructive to neighborhoods and communities, especially when they happen in large numbers and in a concentrated area.
Research suggests that foreclosures reduce surrounding property values, which in turn can lead to more foreclosures, vacant and abandoned properties, and other neighborhood blight. Foreclosures also tend to be a magnet for crime, including property damage, trespassing, squatting and vandalism.
While foreclosure prevention is a critical component of a community foreclosure strategy, equally important is mitigating decline from existing and future foreclosures by protecting foreclosed properties, neighborhoods and the community tax base. The Federal Reserve sponsored Recovery, Renewal, Rebuilding , a series of forums to generate discussion on the aftereffect of the foreclosure crisis and explore solutions for community recovery, rebuilding and preparing for the future.
To curtail the decline of communities severely affected by foreclosures, Congress created the Neighborhood Stabilization Program (NSP) as part of the 2008 Housing and Economic Recovery Act.
NSP funds may be used for:
- purchase and rehabilitation of foreclosed properties,
- demolition and redevelopment of demolished or vacant properties for rent or sale to lower-income households,
- down payment and closing cost assistance programs,
- creation of land banks, and
- other housing-related activities to stabilize neighborhoods.
View a report on NSP programs in the Eleventh District.
The National Community Stabilization Trust promotes productive reuse of foreclosed properties and stabilizes neighborhoods by facilitating the transfer of foreclosed and abandoned properties from financial institutions nationwide to states, local municipalities and community- based housing organizations. The Trust is a collaboration of six national nonprofit organizations: Enterprise Community Partners, Housing Partnership Network, Local Initiatives Support Corp., National Council of La Raza, National Urban League and NeighborWorks America. Through an agreement with the U.S. Department of Housing and Urban Development, the Trust's First Look Program gives communities participating in HUD's Neighborhood Stabilization Program a brief exclusive opportunity to purchase foreclosure properties so these homes can be rehabilitated, rented, resold or demolished.
One common problem faced by cities with vacant or abandoned properties is identifying the person responsible for the property. Often ownership or servicing of the mortgage will be transferred between parties several times over the life of the loan.
- A title search will identify the last owner of record, and generally some kind of contact information will be available on the title.
- The local tax assessor can identify the name, address and possibly the loan number of the loan servicing agent on properties where the first mortgage is impounded for taxes and/or hazard insurance.
- A good starting point for locating appropriate contacts for bank-owned property is the Mortgage Bankers Association website that includes a list of property preservation contacts for numerous large loan servicers from around the country.
One option for dealing with vacant and abandoned properties is to create a land bank through which a municipality may buy and hold property for future sale or development.
The Genesee County Land Bank in Flint, Mich., has been touted as a national model. In 1999, the Michigan Legislature changed the way foreclosed properties were handled by giving outright ownership of these properties to the local county treasurer after only two and a half years. This change in the law opened the door for communities to reclaim, reinvest in and rebuild their neighborhoods.
The Genesee County Land Bank Authority (GCLBA) uses the new law to acquire abandoned land through the foreclosure process and determine the best use of that land. The GCLBA assembles land for transfer to adjacent homeowners, develops long- and short-term green spaces, and assembles land for new housing and commercial development.The objective is to restore the integrity of the community by removing dilapidated structures and redeveloping abandoned properties.
The Land Bank has spurred re-use of more than 4,000 residential, commercial and industrial properties that it has acquired since 2002 through the tax foreclosure process. In addition, with revenue generated from tax delinquent property fees and interest, the Land Bank has developed an $8 million self-sustaining fund to support cleanup and reinvestment.
This campaign exists to provide individuals, advocates, government agencies, developers, nonprofits and others with information resources, tools and assistance to support their vacant property revitalization efforts. Vacant properties are defined as vacant residential, commercial and industrial buildings and lots that
- Pose a threat to public safety, and/or
- The owners or managers have neglected the fundamental duties of property ownership, such as failing to pay taxes or utility bills, defaulting on mortgages or carrying liens against the property.
The goal of the campaign is to help communities prevent abandonment, reclaim vacant properties and once again become vital places to live. Four actions fulfill this campaign:
- Creating a national network of vacant property practitioners and experts,
- Providing tools and research,
- Making the case for reclamation, and
- Building capacity of local, regional and national practitioners and decisionmakers through technical assistance and training.
The city of Minneapolis recently conducted an analysis of the cost of boarded and vacant properties. The analysis revealed that the true cost to the city was over $6,000 per property. Some communities have set up a building registry to record unfinished, abandoned, substandard and vacant properties left by homebuilders and other developers. New construction permits are not approved until the builder/developer has corrected existing problems.
A vacant property registration ordinance requiring owners of vacant or abandoned properties to register with the municipality may allow community officials to more easily monitor and inspect the properties and enforce code compliance. Safeguard Properties, a privately held field services company, works with loan servicers to preserve and maintain foreclosed properties. Safeguard provides a list of vacant property registration ordinances for numerous cities around the country.
In 2008, Living Cities, a collaborative of corporate and philanthropic organizations, launched the Foreclosure Mitigation Initiative. This 10-city pilot supported new and existing programs to mitigate the impact of concentrated foreclosures by returning foreclosed properties to productive use.
The programs selected for this pilot demonstrated promising local initiatives in strong, moderate, and weak housing markets and used tools such as New Markets Tax Credits, land trusts and nonprofit real estate brokers.
A report on the results of the pilot along with a series of policy recommendations is now available.