Foreclosure Prevention Programs in Lucas County

December 2014 Foreclosure Prevention Programs in Lucas County Analysis of Applications and Outcomes by Zip Code for Potential Racial Disparities Toledo Fair Housing Center

TABLE OF CONTENTS Introduction..2 Foreclosure Prevention Program Overview.3 Methodology 7 Analysis and Findings... 8 Conclusion.....17 Appendix I.18 1 P age

Introduction As a private, nonprofit fair housing agency, the Toledo Fair Housing Center (TFHC) seeks to eliminate discrimination in housing and housing-related services. In the past, TFHC has discovered and addressed discriminatory lending patterns and practices both at the neighborhood and borrower levels. Although the earliest of this work took place decades ago, discrimination persists in lending. As a result, TFHC has continued to investigate the industry and to encourage policies and practices that would increase the availability and affordability of credit in traditionally underserved communities and among traditionally underserved borrowers. In recent years, largely due to weak bank regulation and poor lending practices, the nation and the Toledo area experienced a record increase in home foreclosures. In response to this crisis, the government developed a number of programs to assist homeowners in obtaining more affordable loan terms and better enable homeowners to remain in their homes, where possible. TFHC, along with other housing counseling agencies in northwest Ohio, administered these programs at the local level. One of the major programs that TFHC utilized to help clients was Save the Dream Ohio. Save the Dream Ohio (SDO) was a foreclosure prevention program administered by the Ohio Housing Financing Agency (OHFA). 1 Formerly known as Restoring Stability: A Save the Dream Ohio Initiative, SDO is funded by the U.S. Department of Treasury s Hardest Hit Fund (HHF). 2 HHF was instituted in response to the 2007 foreclosure crisis in order to help people save their homes and to restore stability to the housing markets. 3 Since its creation in 2010, HHF has provided $7.6 billion to 18 states and the District of Columbia. 4 OHFA has administered nearly $571 million in HHF funds through its SDO program to help Ohioans who are facing foreclosure and to combat the effects that the foreclosure crisis has had on Ohio s communities. 5 Much in the same way that TFHC examines home purchase and refinance HMDA data for evidence of discrimination, TFHC decided to review foreclosure prevention program data for the existence of any disparities. TFHC wanted to determine if residents in minority zip codes were equitably represented in the application process for these special loan programs and if they were fairly represented in the proportion of successful outcomes. 1 http://ohiohome.org/savethedream/ 2 About the Hardest Hit Fund. http://www.savethedream.ohio.gov/docs/factsheet.pdf; http://ohiohome.org/savethedream/. See also, About Save the Dream Ohio: http://ohiohome.org/savethedream/. Save the Dream Ohio was started in 2008 as a collaborative foreclosure prevention effort between state government, nonprofit housing counseling agencies, and legal aid organizations. 3 http://www.treasury.gov/initiatives/financial-stability/tarp-programs/housing/hhf/pages/program-purpose-and- Overview.aspx 4 Id. 5 Hardest Hit Fund: State-By-State Information: http://www.treasury.gov/initiatives/financial-stability/tarp- Programs/housing/Pages/Program-Documents.aspx 2 P age

Foreclosure Prevention Program Overview SDO seeks to assist homeowners by bringing their delinquent mortgage current, making up to 18 months of their monthly mortgage payments, paying their delinquent property taxes, and reducing or eliminating the principal balance on their mortgage. 6 Homeowners may receive a maximum of $25,000 per program, and $35,000 total assistance if they receive assistance under more than one program. 7 An overview of each program is included below. SDO assistance is available to homeowners who: 1) have an involuntary hardship due to an involuntary reduction or loss of income or significant medical expenses, which occurred on or after January 1, 2007; 2) have a qualifying mortgage from a lender who participates in SDO, and; 3) satisfy minimum program eligibility requirements, including, but not limited to, having household income of less than $112,375, owing less than $432,500 on their mortgage, and not being in an active bankruptcy. 8 9 10 11 More specifically, qualifying hardships include the following: 1. Involuntary loss of income due to unemployment that is ongoing or lasted at least 60 days 12 2. Involuntary loss of income of 10 percent or more for at least 60 days 13 3. Significant medical expenses incurred by a household which amount to either: a) 7.5% of the household gross annual income within a single calendar year during 2007-2012, or; b) 10% of the household gross annual income within a single calendar year during 2013 or 2014. 14 4. Relocation of more than 50 miles for employment. 15 Homeowners receive assistance in the form of a zero-interest, non-amortizing, subordinate mortgage lien that is forgiven 20 percent each year for five years. 16 If a homeowner stays in his or her home for five years after receiving assistance, his or her loan is forgiven and the lien is released. 17 If, within five years of receiving assistance, a homeowner sells or refinances his or her home at a profit, he or she may have to repay all or a portion of the loan with the proceeds he or she received. 18 If, however, a homeowner sells or refinances his or her home at a loss or without 6 http://www.savethedream.ohio.gov/docs/factsheet.pdf 7 http://www.savethedream.ohio.gov/docs/faqs.pdf 8 http://www.treasury.gov/initiatives/financial-stability/tarp- Programs/housing/Documents/Ohio%20HHF%20FactSheet.pdf; http://www.savethedream.ohio.gov/docs/faqs.pdf. 9 http://www.savethedream.ohio.gov/docs/servicerlist.pdf 10 http://www.savethedream.ohio.gov/docs/factsheet.pdf 11 While some homeowners are still receiving SDO assistance, OHFA is no longer accepting new applications. http://www.cleveland.com/open/index.ssf/2014/02/save_the_dream_ohio_to_stop_re.html 12 Save the Dream Ohio: Hardest Hit Fund Program Guidelines. Involuntary Loss of Income Due to Unemployment. http://www.ohiohome.org/savethedream/svdr-guidelines1-1.pdf, pg. 17 13 Id. At pg. 18. 14 Id. At pg. 19. 15 Id. 16 Closing on Assistance: http://www.savethedream.ohio.gov/closing.aspx. 17 Id. 18 http://www.savethedream.ohio.gov/docs/faqs.pdf, p.3; Closing on Assistance: Selling or Refinancing My Home. http://www.savethedream.ohio.gov/closing.aspx 3 P age

profit, he or she does not have to repay the SDO assistance. 19 A homeowner who loses his or her home to foreclosure within five years of receiving assistance does not have to repay any of his or her loan. 20 Application Process OHFA partners with HUD-approved housing counseling agencies throughout the state, who assist homeowners directly to prepare their SDO applications. 21 22 Homeowners must first contact OHFA s Save the Dream Ohio hotline. From this hotline, OHFA connects financially distressed homeowners to a local HUD-approved housing counseling agency. 23 Housing counselors then work with homeowners to determine whether they are eligible for SDO or any other foreclosure prevention programs. After evaluating eligibility, a housing counselor submits a homeowner s completed SDO application directly to OHFA. 24 OHFA then reviews a homeowner s SDO application to see if the homeowner qualifies for any of the SDO programs. 25 If OHFA determines a homeowner qualifies for assistance, it requests approval from the mortgage servicer. Upon receipt of approval from the servicer, the homeowner must attend a closing to sign the closing documents, which include a new note and subordinate mortgage. 26 OHFA has partnered with Associates Title, Inc., a Columbus, Ohio-based company, to complete the closing documents, record the liens, and conduct the closings. 27 Homeowners meet with a title agent from Associates Title to sign the closing documents. 28 Once closing is completed, OHFA distributes funds directly to the mortgage servicer. 29 Types of Assistance There are six different programs under SDO for which a homeowner may qualify. 30 As previously stated, homeowners may receive a maximum of $25,000 per program, and $35,000 total assistance if they receive assistance under more than one program. 31 Below is an overview of each SDO program: 19 Id. 20 http://www.savethedream.ohio.gov/docs/faqs.pdf, pg.3 21 http://www.savethedream.ohio.gov/docs/faqs.pdf 22 http://www.savethedream.ohio.gov/docs/counselingagency.pdf 23 About Save the Dream Ohio. http://ohiohome.org/savethedream/ 24 http://www.savethedream.ohio.gov/docs/counselingagency.pdf 25 Id. 26 http://www.savethedream.ohio.gov/closing.aspx 27 http://www.savethedream.ohio.gov/docs/faqs.pdf; http://www.savethedream.ohio.gov/closing.aspx; www.associatestitleinc.com/index.html 28 http://www.savethedream.ohio.gov/closing.aspx 29 http://www.savethedream.ohio.gov/docs/faqs.pdf, pg. 2. 30 Id. 31 Id. 4 P age

Rescue Payment Assistance (RPA) The RPA program assists homeowners by providing a one-time payment to a participating servicer to reinstate their delinquent mortgage. 32 This payment may include principal, interest, taxes, homeowners insurance, escrow shortages, association fees, and corporate advances. 33 In order to qualify for RPA, homeowners must, in addition to meeting minimum eligibility requirements, demonstrate sustainability by showing that either their debt-to-income ratio is: a) 38% or less if they have only a first mortgage; b) 48% or less if they have first and subordinate mortgages, or; c) 34 35 qualify for at least six months of Mortgage Payment Assistance (MPA). Mortgage Payment Assistance (MPA) The MPA program provides homeowners mortgage payment assistance for up to 18 months or $25,000, whichever is greater. 36 To qualify, homeowners must, in addition to meeting minimum eligibility requirements, have experienced either: a) an involuntary loss of income due to unemployment that is ongoing or lasted at least 60 days, or: b) an involuntary loss of income of 10 percent or more for at least 60 days, and; have a debt-to-income ratio (DTI, mortgage payment including principal, interest, taxes, insurance, and association fees versus gross monthly household income) of at least 20 percent if they are involuntary unemployed, or at least 31 percent if they experienced an involuntary loss or reduction in income. 37 Modification with Contribution Assistance (MCA) The MCA program provides homeowners up to $35,000 in assistance in order to reduce their monthly mortgage payment by qualifying them for a permanent loan modification, reducing their 38 39 principal mortgage balance, or both. Assistance under MCA is available in three forms: 1) MCA-Modification; 2) MCA-Recast, and; 3) MCA-Principal Reduction. 40 Below is a summary of each: MCA-Modification: Under MCA-Modification, a lump sum of up to $35,000 in SDO assistance is applied to the principal loan balance and any arrearages, in conjunction with a loan modification. 41 In addition to mortgage principal reduction from SDO funds, the mortgage servicer modifies the homeowner s mortgage in one or more of the following ways: interest rate reduction, principal loan forgiveness, forgiveness or deferment of arrearages, or changes to the loan term. 42 32 Id. 33 http://www.savethedream.ohio.gov/docs/faqs.pdf, pg. 2 34 http://www.savethedream.ohio.gov/docs/faqs.pdf 35 http://www.ohiohome.org/savethedream/svdr-guidelines1-1.pdf, pgs. 53-55. 36 Id. at 56. 37 Id. at 57-60. 38 http://www.savethedream.ohio.gov/docs/faqs.pdf, pg. 3. 39 http://www.ohiohome.org/savethedream/svdr-guidelines1-1.pdf, pg. 61. 40 Id. 41 Id. 42 Id. 5 P age

MCA-Recast: Under MCA-Recast, a lump sum of up to $35,000 is applied to the principal loan balance and any arrearages. 43 After the funds are applied to the principal, the servicer reamortizes the payment schedule based on the lower principal balance, thereby reducing the homeowner s monthly mortgage payment. 44 Principal Reduction (MCA-P): MCA-P is available for homeowners with a mortgage being serviced by Bank of America (BoA). 45 Under this program, homeowners may use SDO funds in conjunction with a proprietary BoA loan modification in order to reduce the principal loan balance and modify the terms of the loan in order to provide the homeowner a more affordable mortgage payment. 46 Lien Elimination Assistance (LEA) The LEA program assists homeowners by: a) extinguishing, if the principal balance is greater than $25,000 and the lender agrees to accept $25,000 and forgive the remainder in order to release the lien, or; b) paying off, if the principal balance is $25,000 or less, the first mortgage lien on the homeowner s primary residence. 47 Under LEA, a homeowner may attempt to extinguish a second lien at the same time as the first lien as long as: a) the loans are secured by the same property; b) the loan is held by the same servicer, and; c) the first lien is extinguished before the second. 48 Homeownership Retention Assistance (HRA) The HRA program provides homeowners up to $25,000 to extinguish, reinstate, modify, or recast second mortgage liens, or reinstate delinquent property taxes or HOA fees. 49 Transition Assistance (TA) The TA Program assists homeowners who cannot afford their current mortgages transition to more affordable housing as part of a servicer-approved short sale or deed-in-lieu of foreclosure. 50 A homeowner may receive up to $7,500. 51 $5,000 is paid directly to the homeowner. 52 Up to $2,500 is available to subordinate lien holders, if any, not to exceed 10 percent of the second lien balance, which the servicer must accept in return for releasing the second lien. 53 54 A homeowner may apply for TA up to 12 months after vacating the property for which they are seeking assistance. 55 43 Id. 44 Id. 45 Id. 46 Id. 47 Id. at 65. 48 Id. at 67. 49 Id. at 72. 50 Id. at 70. 51 Id. 52 Id. 53 Id. at 71. 54 Id. 55 Id. 6 P age

Methodology In early 2013, TFHC obtained SDO data for the state of Ohio from the Ohio Housing Finance Agency through a public records request. After reviewing the raw data in early 2014, TFHC decided to focus particularly on Lucas County for the period extending from October 2010 through February 2013. TFHC undertook the analysis of this data to determine whether any geographic patterns existed that would indicate treatment of applicants in minority neighborhoods that was less favorable than that of applicants in predominantly white, non-hispanic neighborhoods. Since the only geographic indicator present in the records that TFHC obtained was zip code, TFHC analyzed the data at this level. Although census tracts or even addresses are far more precise geographic variables, the data limitations prevented TFHC from examining the data in such a fashion. After separating out the Lucas County records by zip code, TFHC researched the application and outcome data that was present in the database as well as the demographic and housing characteristics of the zip codes included in the records. From this research, TFHC found that five of the twenty-eight zip codes are predominantly minority neighborhoods, meaning that their population is composed of over 50% of people who are not white, non-hispanic individuals (i.e. Total population minus those who are white, non-hispanic equals the minority population). TFHC also documented the percentage of owner-occupied housing in each zip code in order to determine whether or not the applications were proportional to the stock of owner-occupied housing. Finally, TFHC also researched the various SDO programs, potential outcomes, and whether these outcomes were positive, negative, or neutral for the clients. Other sections of this report provide descriptions of the various programs, products, and potential outcomes that TFHC utilized in order to conduct its analysis and articulate its findings. 7 P age

Analysis As previously indicated, the Fair Housing Center identified 5 predominately minority zip codes in Lucas County. According to the American Community Survey Estimates, all of the zip codes have African-American populations which exceed 60% and total minority populations which exceed 70%. These zip codes, which are featured in the map below include 43604, 43607, 43608, 43610, and 43620. The zip codes are home to 10,900 owner occupied housing units, or 9.6% of the owner occupied housing units in Lucas County. Accordingly, the Center has used a benchmark of 9.6% to determine if residents in minority zip codes have been proportionally represented in applications to and successful outcomes in foreclosure prevention programs. 8 P age

The Center started its analysis with a review of the applications submitted for foreclosure prevention assistance. From January 25, 2011 to February 11, 2013, 1006 applications were submitted in Lucas County. Of these applications, 177, or 17.6% of the applications, were from minority zip codes (see Appendix I). The map below shows the applications for all programs by the zip code in which the property was located. 9 P age

The Center proceeded to evaluate the representation and outcomes for the different programs. Of the 1006 applications, 632 were funded, 8 were declined, and the balance of 366 were not funded. Not funded is a general description of outcomes that were neither funded nor declined. These outcomes include, but are not limited to working, inactive, withdrawn, closed, and various other pending categories. This status indicator, therefore, does not necessarily reflect positive or negative outcomes for the consumer applicant. The map below displays all outcomes for all programs. The two maps below it separate out the outcomes by outcome type funded and not successfully assisted, respectively. 10 P age

Other Outcomes Other Outcomes 11 P age

The study did not find evidence of less favorable treatment for applicants in minority zip codes versus predominantly white zip codes. In all of the categories, applicants from minority zip codes represented a larger proportion of the funded participants than the 9.6% benchmark. A brief description of the various results by program follows. LEA Program Under the Lien Elimination Assistance (LEA) program, 16 applications were funded and 2 were declined. Of the 16 funded, 12 were applications from minority zip codes, which represented 75% of the funded applications. The two applications that were declined were not located in minority zip codes. The map above shows the geographic distribution of LEA program applications by zip code. The map below illustrates the positive and negative outcomes, i.e. funded and declined, for the LEA program. 12 P age

MPA Program A review of the Mortgage Payment Assistance (MPA) program revealed that all 238 applicants were funded. Of the 238 funded applicants, 34 or 14.3% were from minority zip codes. This is significantly higher than the 9.6% benchmark of proportional representation. The maps below show the geographic distribution of MPA program applications and outcomes. 13 P age

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RPA Program There were 384 applicants for the Rescue Payment Assistance (RPA) program, of which 378 were funded and 6 were declined. Of the funded applications, 61 or 16.1% were residents of minority zip codes. This, again, is higher than the 9.6% figure for the predominantly minority zip codes. The map above demonstrates the zip codes from which RPA program applications originated, and the map below shows the outcomes and their geographic distribution for the RPA program. 15 P age

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Conclusion In sum, TFHC found that residents in minority zip codes were proportionally represented in applications and positive outcomes for the LEA, MPA, and RPA programs. Nevertheless, data limitations affected the scope and depth of the review. TFHC did not have access to all of the loan files to provide a more detailed analysis. Furthermore, the only geographic variable by which TFHC was able to analyze and map the data was zip code, which is not a preferable level of analysis due to its size and failure to accurately reflect neighborhood boundaries. Having applicant information by census tract and a reporting system more similar to that which is available under the Home Mortgage Disclosure Act would have been very helpful to TFHC s study. 17 P age

APPENDIX I