|Volume 4, Issue 2, 2004||Federal Reserve Bank of Dallas|
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Home-Ownership Preservation Initiative Comes to Dallas
GMAC-Residential Funding Corp. has brought its home-ownership preservation program to Dallas.
GMAC-RFC, a mortgage and home equity loan servicing and financing subsidiary of GMAC Financial Services,* is seeking participation from the city of Dallas, mortgage lenders and servicers, community organizations and other key stakeholders to reduce the Dallas–Fort Worth area's mortgage foreclosures. According to GMAC-RFC, the foreclosure posting rate rose about 12 percent over last year to more than 31,000—the highest gain since the early 1990s.
The initiative is designed to change lenders' business practices by offering homeowners education, counseling and loan assistance, rather than immediately placing delinquent loans in collection. As General Counsel Mike Seats explained, GMAC-RFC hopes to help "keep families in their homes, revitalize neighborhoods and stem foreclosure losses" by providing easy access to a host of coordinated resources.
The costs of foreclosure extend beyond households and their mortgage companies. When houses are vacant, especially for long periods, they become a liability to the neighborhood by devaluing surrounding properties. Sustained and increased vacancies translate into fewer consumers in the neighborhood, depressing local businesses. As less residential and business capital is invested in the community, its health declines, making it less attractive to potential homebuyers. This destructive cycle ultimately shrinks the community's and surrounding area's tax base.
A 2003 report from Harvard's Joint Center for Housing Studies finds the risk of foreclosure increasing because while access to credit has expanded, incomes have eroded. "The State of the Nation's Housing" reports that among households in the two lowest income quintiles, incomes fell by 2 to 3 percent in 2001 and did not rebound in 2002.
Because of this reduction in cash flow, more borrowers are using a higher percentage of their income to pay for housing. From 1997 to 2001, the number of homeowners who spent over 50 percent of their incomes on housing rose from 5.8 million to 7.3 million. Up to 84 percent of these people were in the two lowest income quintiles, meaning they had little to cushion the blow of financial emergencies.
GMAC-RFC launched the home-ownership preservation program in June 2003 with the city of Chicago, Neighborhood Housing Services of Chicago and other lenders. Among other strategies, these partners have developed a local hotline that provides help for homeowners in jeopardy of losing their homes. Callers dial 311 and are immediately connected to credit counselors, who customize their advice to each client. The program has assisted over 2,000 callers and provided more than 1,000 counseling sessions since its inception in January 2004. Participating lenders and the city share the cost of the counseling sessions. Since the program's start, GMAC-RFC has prevented 144 of its borrowers from losing their homes to foreclosure.
Encouraged by these results, GMAC-RFC is expanding its program to Dallas, Detroit and Atlanta. It has also established the Home Ownership Preservation Enterprise (HOPE) Foundation to maintain the viability and momentum of these partnerships. GMAC-RFC has provided seed money for the foundation and is seeking contributions from industry peers to turn HOPE into a sustainable funding mechanism for home-ownership preservation.
GMAC-RFC's plan in Dallas is to leverage its own resources and expertise with those of Dallas–Fort Worth area stakeholders in an effort to reduce the rising mortgage foreclosure rate. By tapping the power of a public–private partnership, GMAC-RFC hopes the area can stem the problem of home ownership becoming an asset-stripping activity and help it remain the cornerstone of financial stability.
For more information on this initiative, contact Josh Cantu at GMAC-RFC, 214-874-6399. For more information on GMAC-RFC, go to www.gmacrfc.com .
*GMAC Financial Services is part of GMAC Mortgage Group, whose parent company is General Motors Corp.
e-Perspectives, Volume 4, Issue 2, 2004