Project Summary. St. Louis Alliance for Home Ownership Preservation

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1 Project Summary St. Louis Alliance for Home Ownership Preservation In early 2008, Mayor Slay became concerned about the growing number of foreclosures foreclosures can hurt not only individual homeowners but City neighborhoods and the City s economy as a whole. The Mayor believed that with early, proactive intervention, many foreclosures could be avoided, and approached agencies already involved in this issue individually and asked them to work as a group to help City homeowners avoid foreclosure to the greatest possible extent. The agencies agreed to collaborate. This new "St. Louis Alliance for Home Ownership Preservation" began operating in March The City funded the Alliance from two sources: the City s Affordable Housing Commission, established in 2001 with a portion of the proceeds of a new use tax committed $250,000, and the Board of Aldermen matched that amount with an additional $250,000 in general revenue. HUD counseling funding augmented the available City funding. One critical deficiency in the HUD-funded initiative was that no funds were available to provide financial assistance to homeowners. Much of the City s funding went towards filling this gap: agencies were authorized to spend up to $1,500 per household to make past-due mortgage/insurance payments or pay closing costs on fixed rate refinancings, but only when it was virtually certain that after the one-time assistance the family could continue to own the home e.g., families must demonstrate ability to make future mortgage payments based on a budget that takes into account income/all household expenses and only when necessary to avoid foreclosure. Services provided by the Alliance include initial homeowner screening, budget preparation, financial literacy courses, intervention/negotiations with lenders to restructure/refinance existing mortgages (many originally adjustable rate or subprime), and case management for one year after initial intake. When foreclosure cannot be prevented, agencies assist in relocating the family to a rental home. In the program s first year of operation, 976 families received initial counseling/case management, 428 homes have been saved from foreclosure, and only 12 less than 3% of the 440 cases resolved experienced foreclosure. Other homeowners were still in the process of receiving assistance. The program continues in 2009.

2 1 Project Description: About the City of St. Louis St. Louis is an older industrial central city, struggling with challenges that are typical of such cities as well as unique. St. Louis, like Baltimore, is both a City and a County this means that the City is unable to annex surrounding territory and is choked by its square-mile boundaries. It also means that the City must provide county as well as City services. Today, the City is recovering from 50 years of disinvestment that resulted in the loss of 60% of the City s population 500,000 people and hundreds of thousands of jobs. Today, the Census Bureau agrees that the City s population is growing from 348,189 at the 2000 Census to 355,663 in July of Bureau of Labor Statistics data show that the City s job base is growing. Although 25% of the City s population still lives in poverty, the unemployment gap between the City and the suburbs is narrowing. In reference to demographics and housing stock: The median value of an owner occupied residence is $63,900. Most of the homes were built before 1940 The median household income in St. Louis is $33,221 according to the 2007 Census Bureau American Communities Survey Median home owner housing cost was $1,121 per month 51% of the City s housing units are owner-occupied Need for the Project & Challenges it Addressed In early 2008, St. Louis Mayor Francis Slay became concerned about the growing number of foreclosures taking place across the United States and in the City of St. Louis. While the magnitude of the foreclosure problem in the City was not as severe as in surrounding counties or in other parts of the country, its impact was nevertheless being felt and seen. The Mayor believed that with early, proactive intervention, a significant number of foreclosures could be avoided. The City s Affordable Housing Commission was already funding several agencies that were involved in assisting families in danger of homelessness or foreclosure. The Mayor approached the agencies and asked that they work as a coordinated group in order to help homeowners in the City avoid foreclosure to the greatest possible extent. Foreclosures can have a devastating effect not only on individual home owners but city neighborhoods and a city s economy as a whole. One agency estimates that one foreclosed property can result in a loss of tens of thousands of dollars due to unpaid property taxes, reductions in surrounding property values that damage a family s net worth, and ultimate renovation costs to make abandoned foreclosures habitable again. Foreclosures also cause untold psychological damage to a neighborhood s image and residents peace of mind. Foreclosures also cause severe disruption in family life

3 2 children are uprooted from schools and separated from their friends, and foreclosure is the prelude to homelessness in far too many cases. All five agencies accepted Mayor Slay s challenge to combine efforts to combat City foreclosures. These agencies, Better Family Life, Inc., Catholic Charities/Housing Resource Center, ACORN, the Urban League of Metropolitan St. Louis and Beyond Housing, Inc., formed the St. Louis Alliance for Homeownership Preservation. The group began operating officially in March How the Partnership Worked The City s Affordable Housing Commission provides grants and loans to developers and non-profit agencies that provide housing and related services to low to moderate income City residents. The agencies that were approached by the Mayor had all received funds from the department to provide services at one time or another. Several non-profits had requested 2008 funding to provide counseling and other services for families in crises. The Mayor asked that the applicants withdraw their separate proposals and work together to provide the necessary assistance cost-effectively and with a one stop shop approach. The agencies worked collaboratively from multiple sites in various neighborhoods, ensuring that services were accessible to all and from sources with established relationships. One agency served as the lead organization with the added responsibility of disbursing funds to other member agencies and providing the Commission with statistics and monthly reporting. This non-profit also designed a shared data base for member use that tracked clients, recorded accomplishments, and prevented double dipping among clients. The Affordable Housing Commission awarded $250,000 from its Affordable Housing Trust Fund, generated by a special use tax on major purchases by individuals and companies from outside the city limits. The City s Board of Aldermen approved an additional $250,000 from general revenue to successfully launch the program its first year. These general revenue funds were limited to direct client financial aid use only. Together with direct financial aid funds from the Commission s original award, these general revenue funds created a pool of $350,000 that participating agencies could use to pay up to $1,500 per client for delinquent mortgage or insurance payments or fixed rate refinancing costs for families needing cash assistance in addition to counseling but only where the agency believed that the family could retain ownership once these one-time funds were spent. This pool of revenue proved to be critically important. Several of the non-profit agencies received funding from the Department of Housing and Urban Development to provide counseling only. These funds could not be used to provide any direct payments on behalf of the homeowner. Many homeowners in danger of foreclosure can make it if they can just catch up with past due mortgage/insurance payments, or if they can cover the cost of refinancing at a fixed rate. Successful outcomes were virtually impossible when counselors were faced with difficult loan officers or

4 3 outstanding payments too great for the home owner to satisfy personally. City funds augmented HUD counseling dollars and made a critical difference in those cases that could not be resolved by simple by loan modification. Program Guidelines and Criteria The program is intended to serve low- and moderate-income homeowners--all families receiving assistance must have incomes no greater than 80% of the area median income. In the St. Louis City, 80% of the area median income for a single person is $36,900; for a family of four 80% of the area median is $52,700. There was also consensus that financial aid should only be provided if the family could demonstrate a capacity to live with a budget and make on-time mortgage payments in the future. Where possible, counselors sought work-out agreements that required no funding to stretch the available dollars in the financial aid pool. It was agreed that no more than $1,500 would be provided to any family from this funding source. Where possible, families were encouraged to bring their own funds to the table to pay arrearages. A complete list of criteria developed for the pilot program is provided as an addendum. In situations where the Alliance determines that foreclosure cannot be prevented, agencies assist the household in relocating to a rental home to avoid homelessness and the stress associated with being forced out of the residence. How Success Was Measured All participating agencies agreed that approximately 1,000 families could be counseled during the first year of operation. While the obvious goal was to save all families from foreclosure, there was no way to know how many could actually be saved from foreclosure since factors such as job stability and lender cooperation were outside the collaborative s control. It soon became clear that the process of modifying loans was slow and often frustrating as loan officers across the country buckled under the pressure of enormous case loads. At the end of its first full year of operation, the Alliance has preserved homeownership for 428 families, and is continuing to work with an additional 472, in most cases waiting on responses from lenders. The following table provides program statistics for the first year. As noted in the table, during this first year, 976 families had received initial counseling/case management, 428 homes have been saved from foreclosure, and only 12 less than 3% of the 440 cases resolved families experienced foreclosure. Other homeowners were still in the process of receiving assistance. Based on the program s success rate to date, it is anticipated that most of the homeowners remaining in the program will be able to avoid foreclosure.

5 4 : OUTCOMES--MARCH 15, 2008 THROUGH MARCH 15, 2009 Total number of clients counseled: 976 Clients Averting Foreclosure with Alliance Intervention: Number of clients receiving direct City financial assistance: 210 Number of clients receiving financial assistance from other source: 37 Number of clients with modified mortgage repayment plan: 89 Number of clients w/forbearance agreement: 1 Number of clients w/mortgage brought current: 87 Short sales (lender accepts less than total due): 3 Lender accepted deed in lieu of foreclosure: 1 TOTAL 428 Counseling/assistance continuing: 472 Clients unable to be helped: Foreclosures 12 No assistance possible 64 Total City direct financial assistance to homeowners: $218,472 Average City financial assistance/210 clients receiving assistance: $1,040 Total City administrative/counseling cost: $150,000 Average City administrative cost per 976 clients counseled: $154 The St. Louis Post Dispatch reported that RealtyTrac, a national real estate monitoring firm, released data suggesting that foreclosure rates across the country jumped an average of 9 percent for the first quarter of However, the St. Louis Metro area bucked the trend by reporting a 3.2 percent decline from the fourth quarter of 2008 and a 15.7 percent drop from the same quarter last year. Future Plans The Affordable Housing Commission is continuing to fund the program in Although additional general revenue funding will not be available, approximately $130,000 from the year one allocation to provide direct client financial aid remains available and will be carried over to the contract. These funds will be added to the $300,000 awarded by the Affordable Housing Commission in January 2009 to create an operating budget of approximately $430,000 for the program. President Obama s new foreclosure prevention and homeowner assistance programs will help replace the loss of general revenue funding for the program these new programs address some of the same needs that the direct financial assistance portion of the City s initiative addresses. New programs that include a moratorium on foreclosures by major lending institutions and refinancing for home owners that find themselves upside down in a property or owe more than their homes are worth will also help. Individual members of the Alliance are pursuing Economic Recovery funding for rapid re-housing programs. Economic Recovery funding can be used to help displaced families have a softer landing once foreclosure occurs as well as to prevent foreclosures. Such

6 5 counseling and financial assistance would benefit home owners as well as tenants who find themselves evicted because the landlord lost their rental home due to foreclosure. In conclusion, the Alliance reached approximately 98 percent of the 1,000 person goal targeted for assistance in the first program year. It is anticipated that 1,000 additional contacts are a reasonable projection for 2009 activity and that positive outcomes will be similar to or exceed those in the first year, thanks in large part to the current administration s new initiatives.

7 Mortgage Assistance Criteria 6 ADDENDUM Client must earn 80% or below of the Area Median Income (AMI) Client must be at least 30 days delinquent Client must undergo counseling and complete intake forms which include signatures verifying that information given is correct. Counselor will perform a thorough assessment of when delinquency began, what factors contributed to the delinquency and the current status of delinquency. Client must sign credit authorization to pull credit and a client authorization form to enable counselors to speak with the lender on their behalf. Client must provide mortgage documentation to prove ownership (example: HUD statement, deed, promissory note, title work, foreclosure letter, recent mortgage statement, etc.) Counselor will review mortgage obligations and mortgage delinquency. Client will complete a Detailed Budget. If client s income doesn t cover monthly expenses, the client is counseled on how to adjust expenses to minimize the risk of future delinquency. If client s income doesn t cover debts, (including mortgage payments), client will be denied mortgage assistance until their income does cover debts. Counselor will explain the various options available to the client such as a special forbearance, mortgage modification, mortgage funds assistance, partial claim, refinancing, selling the home, or deed in lieu of foreclosure. Counselor must determine that the client s taxes and insurance are current prior to approving mortgage assistance funds. Before mortgage assistance is approved, the client is asked what amount, if any; they have available to go towards the delinquent mortgage. The funds given by the client must be given in the form of a money order or cashiers check made out to the lender. Mortgage funds from the client and or the agency are sent directly to the lender. (Experience shows the lender will not accept partial payments) Client and counselor call the lender together or separate to decide the least burdensome outcome for the client. If the lender and counselor agree upon a workable plan, the counselor can make a verbal commitment for the funds. Mortgage assistance funds are used solely to bring the mortgage payment current or to facilitate a work out plan with the lender that is best suited for the client s situation. Allowable costs are limited to principle, interest, taxes, insurance and lender fees. No direct assistance can be made payable to borrowers or to a third party. If underlying terms of hardship and corrective measures cannot be met, mortgage assistance could be denied. If the client is in bankruptcy, assistance will not be provided. As a condition of receiving mortgage assistance, the client will attend one of the three hour financial literacy or managing your money sessions offered by the Alliance within three months and also agree to quarterly meetings with a counselor (face to face or by phone) during the following twelve months.