Foreclosure. Counseling Program Report. Prepared by Karen Duggleby, MSW, LISW Minnesota Homeownership Center

Foreclosure 2014 Counseling Program Report Prepared by Karen Duggleby, MSW, LISW Minnesota Homeownership Center

Acknowledgements The Minnesota Homeownership Center is profoundly grateful for the dedicated professionals working within the Homeownership Advisors Network. The many positive results identified in this report would not have been possible without their hard work, patience and dedication for serving families at risk of foreclosure. About the Minnesota Homeownership Center The Minnesota Homeownership Center s mission is to promote and advance successful home ownership in Minnesota, with a focus on serving the needs of low- and moderate-income families and emerging markets. At the core of this mission is the belief that lower income households can achieve and recognize the benefits of long-term homeownership if they enter homeownership through the right door prepared to make wise, informed decisions for their families. The Minnesota Homeownership Center offers a unique approach to homeownership preparedness and sustainability: using a centralized, managed structure. In its centralized role, the Center provides leadership for key initiatives and partnerships that promote home ownership preparedness and sustainable homeownership throughout Minnesota. The Center ensures statewide access to high quality, consistent services by convening the Homeownership Advisors Network, a network of agencies that deliver its home ownership education and foreclosure counseling programs. The Center s approach emphasizes: High-quality programming grounded in national best practices Programming that is responsive to the changing environment Consistency of service delivery for consumers regardless of programming location A leadership entity serving as a single point of contact and expertise for industry stakeholders, funders, and the broader community. Mortgage industry stakeholders concerned with affordable, sustainable home ownership founded the Minnesota Homeownership Center in 1993. Since that time, the Minnesota Homeownership Center and its network have achieved a strong record of accomplishment across the state in helping primarily economically disadvantaged and underserved households access sustainable home ownership.

Table of Contents Key Findings 1. Introduction Foreclosure Process Chart 2. Report Overview and Methodology 3. Counseling Service Statistics 2014 Households Served Map 4. Findings: Loans, Affordability and Counseling Outcomes 2014 Foreclosures Prevented Map 5. Demographic Information Appendix: Foreclosure Prevention Counseling: The Minnesota Model 3 4 6 8 9 11 12 18 19 21 The content of this report is 2015, Minnesota Home Ownership Center. Reproduction of part or all its contents in any form is prohibited without the written consent of the Minnesota Homeownership Center.

2014 Key Findings Foreclosure Counseling Program Report 2,750 Households Counseled 36% decrease over 2013 76,786 households counseled since 2005 8,309 Foreclosures (Sheriff Sales) 30% decrease since 2013 23,272 Pre-Foreclosure Notices 19% decrease since 2013 Foreclosure Prevented 64% of households avoided foreclosure in 2014 33,655 households have avoided foreclosure since 2008 Mortgage Payments 47% had mortgage payments that were more than 30% of their income (considered unaffordable) 53% fell behind due to loss or reduction in income Household Income $36,000 Median Household Income 76% have low income (80% or below AMI) Average Age 50 years old 3

1 Introduction Foreclosure Counseling Report Summary Over the past year, the number of both foreclosures and households seeking foreclosure counseling has continued to decline. These changes are likely the result of improving conditions in the housing and employment markets in Minnesota. Homes are selling in less time and median sales price is rising (Minneapolis Area Association of Realtors ). The unemployment rate dropped to 3.6% near end of 2014, the lowest level since the beginning of the recession. The improvement in the housing and economic conditions likely contribute to the decline in foreclosures by improving the economic situation for many Minnesota households and by making it easier for those who are struggling financially to sell their homes before reaching the point of foreclosure. Figure 1: Minnesota Foreclosure Sales by Year & Region 30,000 25,000 23,092 25,673 21,298 20,000 15,000 10,000 5,000 14,532 15,779 13,181 17,895 10,686 11,834 6,754 8,309 4,689 0 2009 2010 2011 2012 2013 2014 Twin Cities Metro Statewide Source: Minnesota Homeownership Center, Foreclosures in Minnesota: A Report Based on County Sheriff s Sale Data. Feb 2014. 4

Figure 2: Number of Pre-foreclosure Notices, by year 2009-2014 80,000 66,570 71,665 60,000 54,569 40,000 39,054 28,781 23,272 20,000 0 2009 2010 2011 2012 2013 2014 Overview of Minnesota s Foreclosure Process Foreclosure is the legal process that allows a lender to take possession of and sell a property because the borrower did not meet the terms of the loan. State laws guide the process of foreclosure, which means that laws pertaining to foreclosure vary from state to state. State laws outline the sequence of events and actions that need to take place for a foreclosure to happen. The primary method of foreclosure in Minnesota is referred to as non-judicial foreclosure, also known as foreclosure by advertisement. This means that most foreclosures in Minnesota occur without court intervention. The foreclosure process typically begins after the fourth missed mortgage payment (see Figure 1, page 9). At this time, the loan transfers from the lender s collections department to an attorney. Working on behalf of the lender, the attorney begins the foreclosure process by first notifying the homeowner that they are handling the foreclosure and then scheduling a sheriff s sale date. The sheriff s sale is part of the foreclosure process in which the home is put up for sale at a public auction and sold to the highest bidder, usually the lender. Once the date of the sheriff s sale auction has been set, the law dictates that a notice of the sheriff s sale date must be published in a local newspaper for six consecutive weeks. The occupant of the property is served a notice of foreclosure at least four (4) weeks prior to the foreclosure sale. A formal redemption period follows the sale, which typically lasts six (6) months, during which the borrower can redeem the property by paying the amount of the foreclosure sale plus any accumulated interest, taxes, liens, or fees. For more details on the laws that govern Minnesota nonjudicial foreclosure go to: www.revisor.leg.state.mn.us/stats/580. 5

Figure 3: Foreclosure Process Chart Foreclosure Process in Minnesota Foreclosure by Advertisement Missed payments 6 weeks before sale 4 weeks before sale Sheriff s Sale Sale date scheduled Sheriff s Sale Pre foreclosure notice Missed payment notice Default/ intent to foreclose notice Lender calls and sends a letter Receive default notice. Phone calls and collection efforts continue. Account forwarded to foreclosing attorney (legal fees accrue). Receive Preforeclosure Notice. Sheriff s Sale date scheduled by attorney. (Date published for 6 consecutive weeks.) Occupant served with notice of Sheriff s Sale Deadline to bring mortgage current OPTION: MN state law allows homeowners to postpone Sheriff s Sale in return for shortened redemption period. Must file for postponement between date sale is published and 15 days prior to Sale. Redemption Period Typically 6 months. May be 12 months if agricultural. May be shortened to 5 weeks if property is abandoned or sale was postponed by homeowner. Eviction Redemption period BEGINS Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 You maintain the right to stay in your home [To redeem the property you must pay off the entire Sheriff s Sale amount + interest and fees] Redemption period ENDS - OR - Vacate Face eviction To speak with a foreclosure counselor in your area, contact the Minnesota Homeownership Center at (866) 462-6466 or www.hocmn.org NOTE: This document represents the most common foreclosure process in MN and may vary. Information is not presented as legal advice. 2010 Minnesota Homeownership Center 6

Key Activities in 2014 Homeownership Equity In 2014, the Homeownership Center researched the state of homeownership in Minnesota and the value it offers families and communities. The report outlines the importance of successful, affordable, sustainable homeownership for families and communities, including long-term asset and wealth building; safer neighborhoods; and better physical and mental health. The report also reminds us, though that these benefits remain out of reach for the homeowners, buyers, and neighborhoods hardest hit by the foreclosure crisis many of which were neighborhoods of color--and that the homeownership gap between white households and households of color remains disturbingly high. As we turn towards foreclosure recovery, the Homeownership Center is committed to making the benefits of homeownership real for everyone. Our newly formed Homeownership Opportunity Alliance comprised of leaders from all homeownership industry sectors, is dedicated to ensuring systemic, enduring changes to the homeownership industry in an effort to achieve homeownership parity. Sustaining foreclosure prevention Homeownership is successful only when it endures. As the foreclosure crisis wanes, the Homeownership Center is working to ensure that our partners and stakeholders continue to recognize the importance of foreclosure prevention in homeownership success. Demand for services diminished substantially in 2014. Nevertheless, close to three thousand families sought foreclosure prevention last year. We will continue to inform industry partners, implement new programs and policies, and reach out to troubled consumers to provide this valuable support. 7

2 Report Overview & Methodology This report provides a summary of evaluation results for the foreclosure prevention counseling program supported by the Minnesota Homeownership Center. Through this program, local foreclosure counseling services are delivered to consumers in 25 agencies throughout Minnesota. The report summarizes household and loan characteristics, service usage, and outcomes for homeowners receiving foreclosure counseling during 2014. This report includes data collected by foreclosure counselors at the 25 agencies in the Homeownership Advisors Network (see below) providing foreclosure counseling services through the Minnesota Homeownership Center s network. The report presents data and findings for all homeowners who went through a triage assessment and received either phone or in-person counseling. The triage assessment enables counselors to assess the homeowner s situation and identify possible solutions. The process includes gathering information from the homeowner including mortgage status, reason for delinquency, mortgage product and other housing expenses, affordability and their commitment to stay in the home. Overall, 60% of the clients served went through the triage assessment and received basic counseling and another 40% received more in-depth counseling. The report does not include data on homeowners who received information and referral. Program data was tracked using a central online reporting tool called CounselorMax. The data for this report is based on client data from 2014 unless otherwise noted. The data was downloaded from CounselorMax and analyzed using SPSS and GIS software. The following agencies provided client data for this report: Arrowhead Economic Opportunity Agency Anoka County Community Action Program Bi-County Community Action Program Carver County Community Development Agency CCCS of The Village Family Service Center City of St. Paul, Planning & Economic Development Communidades Latinas Unidas en Servicio (CLUES) Community Action Partnership of Suburban Hennepin Dakota County Community Development Agency Hmong American Partnership Inter-County Community Council LAO Assistance Center of Minnesota* LSS Financial Counseling Mahube-Otwa Community Action Partnership Neighborhood Development Alliance (NeDA) NeighborWorks Home Partners Northwest Community Action Program PRG, Inc. Rochester/Olmstead Community Housing Partnership Scott County Community Development Agency Southwest Minnesota Housing Partnership Twin Cities Habitat for Humanity Washington County Housing and Redevelopment Authority West Central Community Action Program Wright County Community Action Program * New agency as of October 2014 8

3 Counseling Service Statistics After years of waiting for the foreclosure crisis to come to an end, many signs over the past two years suggest that crisis is over. The steady decline in foreclosures that began in 2010 continued through 2014. The demand for foreclosure counseling has followed a similar trajectory. After reaching a peak of nearly 16,000 households served in 2009, the number of households seeking foreclosure counseling has continued to decline, with a steep decline occurring between 2011 and 2012 (from 10,178 households to 5,947). In 2014, 2,750 households received foreclosure prevention counseling from the Center s network a number that is below service levels prior to the crisis. The decline in households seeking foreclosure counseling along with an overall reduction in foreclosures is good news. Added to this is the good news that more households are seeking homebuyer education and counseling before buying a home. Between 2012 and 2014, nearly 5,000 households sought pre-purchase counseling and 18,493 households completing homebuyer education. The growing demand for homebuyer education is encouraging and suggests that homebuyers are taking steps to become prepared and informed before buying a home. Informed consumers are the key to preventing foreclosure problems in the future. Figure 4: Households Served Year Total Households Served 2005 4,245 2006 4,757 2007 4,828 2008 11,809 2009 15,868 2010 12,158 2011 10,178 2012 5,947 2013 4,246 2014 2,750 TOTAL 76,786 Pre-crisis Foreclosure Crisis 9

Figure 5: A Picture of the Foreclosure Crisis, Households Served by Quarter 2008-2014 5000 4759 4000 3000 2000 3790 3202 2674 2143 4052 3682 3375 3432 3199 2989 2538 2728 2450 2806 2194 1816 1449 1406 1276 1327 1114 977 1000 828 747 661 649 693 0 08' 108' 208' 308' 409' 109' 209' 309' 410' 110' 210' 310' 411' 111' 211' 311' 412' 112' 212' 312' 413' 113' 213' 313' 4 14'1 14'2 14'3 14'4 2008 2009 2010 2011 2012 2013 2014 10

Minnesota Homeownership Center: Foreclosure Counseling 2014 Households Served by Region Northwest Region 70 households Northeast Region 273 households West Central Region 99 households Southwest Region 77 households Central Region 402 households Southeast Region Greater Minnesota 1,135 households Twin Cities Metro 1,556 households * Outstate = 59 households 214 households 11

4 Findings: Loans, Affordability & Counseling Outcomes Analysis of Loan Type The vast majority of the homeowners served by foreclosure counseling have fixed rate prime mortgages. This marks the continuation of a pattern that began seven years ago, as the foreclosure crisis transitioned from a subprime mortgage problem to an unemployment problem. In 2008, 27% of the homeowners receiving counseling services had a subprime mortgage. In 2014, for the second consecutive year only 5% had subprime mortgages. Eighty-eight (88%) percent of the homeowners served by the Minnesota Homeownership Center s counseling network had fixed rate prime mortgages. The remaining 6% had adjustable rate prime mortgages. Figure 6: Prime & Subprime by Loan Type, 2008-2014 100% 80% 60% 40% 20% 0% 2008 2009 2010 2011 2012 2013 2014 Fixed Prime ARM Prime Fixed Subprime Arm Subprime Figure 7: 2014 Prime & Subprime Loans 2014 Prime (<=8%) 94% Subprime (>8%) 5% Missing 1% 12

Loan Status About half (43%) of the homeowners sought help from a foreclosure advisor while they were less than 90 days late on their mortgage; 22% were still current on their mortgage when they began working with their advisor. In general, homeowners who seek help early have a greater chance of averting foreclosure than those who wait until a sheriff s sale is pending. Similar to 2013 data, a high share of homeowners (47%) accessed foreclosure counseling after falling behind by over 120 days on their mortgage payments. It is unclear why some homeowners wait before seeking counseling. They may be trying to sell their home first or work out loan modifications directly with their lender. Unable to achieve a result, these homeowners seek foreclosure counseling at a later stage of delinquency. Figure 8: Loan Status at Intake, 2013-14 Loan Status 2013 2014 Current 20% 22% 30-60 Days Late 15% 12% 61-90 Days Late 9% 8% 91-120 Days Late 11% 11% 120+ Days Late 45% 47% 100% Figure 9: Loan Status at Intake, 2008-2014 75% 50% 25% 120+ Days Late 91-120 Days late 61-90 Days late 30-60 Days late Current 0% 2008 2009 2010 2011 2012 2013 2014 13

Reason for Default Reduction or loss of income is the primary reason for default among homeowners seeking foreclosure counseling assistance. In 2014, 53% percent of the homeowners served reported that they had either a loss or reduction of their household income. Another 27% reported life events that are associated with a loss or reduction of income (divorce/separation, health issues, death of a family member and business failure). Over the past two year, there was a 6% decline in households reporting a reduction of income, which may be a reflection of improved employment conditions. Reduction in income refers to situations in which total household income has decreased, typically because hours available for work have been reduced, a reduction in government assistance, or loss of a part- time job. However, loss of income, which refers to homeowners who have become unemployed and have temporarily lost all sources of income, remained steady at 25%. Figure 10: Reason for Default Reason Percent 2013 2014 Reduction in Income 27% 26% Loss of Income 25% 25% Medical Issues 12% 14% Poor Budget Management Skills 13% 12% Divorce/Seperation 9% 9% Increase in Expense 5% 4% Death of Family Member 2% 3% Increase in Loan Payment 2% 2% Business Venture Failed.9% 1% Other 4% 3% 14

Analysis of loan affordability The majority of homeowners counseled had mortgage payments that were unaffordable at the time they sought counseling. Fifty-three (53 %) of the homeowners had a monthly first mortgage payment that was more than 30% of their household income. Payments that are at or below 30% of income are typically considered affordable. Since the primary reason for falling behind is reduction or loss of income it maybe that the payments were affordable at the time they took out the loan. In 2014, the median monthly mortgage payment among the homeowners receiving counseling services was $1068, which is $124 less than 2013. Nearly half (44%) of the homeowners served had a monthly payment of $1000 or less. Almost a quarter (22%) of the homeowners had first-lien loan payments that exceeded $1500; this is consistent with 2013. Figure 11: Percentage of Homeowners Income Paid to Mortgage Payment 100% 50% 0% 47% 53% Less than 30% spent on mortgage More than 30% spent on mortgage Note: 98 households missing either annual income or mortgage payment information were removed from data. Households with more than 100% income paid to mortgage were trimmed from data as erroneous. 15

Counseling Outcome Summary Based on available outcome data, there were 1,028 foreclosures prevented among those who first sought counseling in 2014. It often takes many months to identify the outcome of foreclosure counseling. As of early 2015, outcome data was available for 58% (1,598) of the homeowners who first sought counseling in 2014. Forty-two percent (1,152) of cases opened during 2014 are still receiving counseling with outcomes pending. Since 2008, the Minnesota Homeownership Center s network has helped over 33,000 homeowners avoid foreclosure. During this time, the Center s network prevented foreclosure for 56% of the homeowners served. The industry average for foreclosure prevention is 36%. Figure 12: Number of Foreclosure Outcomes on Closed Cases Outcomes 2013 2014 Foreclosures Prevented Foreclosure Occurred Outcome Unknown 1,852 (47%) 522 (13%) 1,607 (40%) 1,028 (64%) 274 (17%) 296 (18.5%) TOTAL 3,981 1,598 Figure 13: Summary of Foreclosure Outcomes on Closed Cases 2008-2014 40000 35000 30000 25000 20000 15000 10000 5000 0 33,655 Foreclosure Prevented 13,425 12,958 Foreclosure Occurred Outcome Unknown 2014 2013 2012 2011 2010 2009 2008 16

Foreclosures prevented In 2014, 64% of the homeowners receiving counseling services were able to avoid foreclosure. Among those who averted foreclosure 90% were able to stay in their homes and 10% were unable to stay in their home. The most notable change between 2013 and 2014 is the increase in percent of homeowners who were able to avoid foreclosure, 64%. In 2014, there was a larger number of homeowners are still receiving counseling services at the end of the year than in 2013. Over time as cases close we expect the foreclosure averted rate to reach our average rate of 56%. Figure 14: Number of Foreclosures Prevented, by Remedy 2012-2013 Remained in Home Foreclosures Prevented 2013 2014 Brought Mortgage Current 600 366 Initiated Forbearance Agreement 200 110 Mortgage Modified 701 339 Bankrupcy 84 70 Mortgage Refinanced 79 30 Received Second Mortgage 1 2 Partial Claim 7 1 Entered Debt Management Plan 29 10 Unable to Remain in Home Pre-Foreclosure Sale (Short sale) 53 24 Sold Property 85 70 Executed Deed-in-Lieu 13 6 TOTAL 1,852 (46%) 1,028 (64%) 50% Figure 15: Percent of Foreclosures Prevented by Remedy, 2008-2014 25% 0% Brought Mortgage Current Forbearance Agreement Mortgage Modified Bankruptcy Mortgage Refinanced Short sale Sold Property 2008 2009 2010 2011 2012 2013 2014 17

Minnesota Homeownership Center: Foreclosure Counseling 2014 Foreclosures Prevented by Region Northwest Region 35 foreclosures prevented Northeast Region 82 foreclosures prevented West Central Region 29 foreclosures prevented Central Region 156 foreclosures prevented Greater Minnesota 412 foreclosures prevented Southwest Region 28 foreclosures prevented Southeast Region Twin Cities Metro 605 foreclosures prevented 82 foreclosures prevented 18

5 Demographic Information Households Household Type Marital Status Single adult 29% Married with children Married without children Female-headed single-parent household Two or more unrelated adults Male-headed single-parent household 29% 15% 14% 5% 5% Widow 3% Divorced 14% Unknown 17% Single 27% Married 39% Other 2% 0% 50% Education Age Highest Education Achieved Median Age = 50 100% 5% 6% 34% Unknown Graduate Bachelors Credit Score Median Credit Score = 561 4% Associates HS Grad 46% < HS 0% 5% 1 19

Race 3% 2% 1% 8% 8% 77% White Black Hispanic Asian Multiple Race Am Indian/AK Native Income Median Annual Income = $36,000 Annual Household Income Percent of Area Median Income (AMI) 100K+ 75K-100K 4% 6% 100% 15% 10% [76% are 0-80% or low income.] 50K-75K 25K-50K 17% 41% 16% 12% 100%+ 81-100% 61-80% 10K-25K <10K 23% 9% 48% 51-60% 0-50% 0% 50% 0% 1 20

Appendix Foreclosure Prevention Counseling: The Minnesota Model The Minnesota Homeownership Center brings 20 years of experience in supporting the delivery of foreclosure counseling services in Minnesota. Today, homeowners in Minnesota have access to foreclosure prevention services in each of the state s 87 counties. Using a community-based service delivery model, services are provided locally through a network of 25 organizations, called the Homeownership Advisors Network. These organizations represent a mix of community-based non-profit and government organizations that are involved with some aspect of housing as part of their mission. Most of the organizations have been offering foreclosure prevention services for the past decade. Based upon three essential elements, Minnesota s foreclosure prevention model demonstrates innovation, creativity and superior effectiveness in helping homeowners avoid foreclosure. A centralized approach: The Minnesota Homeownership Center s model uses a centralized, managed approach to homebuyer education and foreclosure counseling. The Center provides leadership and key services to community based homeownership agencies, including program models, certification and training, technical support, data collection and evaluation, program outreach, policy leadership and fundraising. One of the organization s most important functions is to develop and deploy a continuum of homeownership education and counseling services, from pre-purchase to foreclosure counseling. Statewide access to locally based services: Homeowners in Minnesota have access to foreclosure counseling services in each of the state s 87 counties. Using a community-based service delivery model, counseling services are provided locally through a network of non-profit and local government agencies whose mission emphasizes housing. The foreclosure advisors in this network are both highly trained and experienced. Most of the organizations have been offering foreclosure counseling for the past decade. Sustainable, coordinated funding: One of the strengths of the Minnesota Homeownership Center s foreclosure counseling model is that it has a consistent, reliable funding source. The program is financed through four primary funders: the state housing finance agency (Minnesota Housing); the Minnesota Homeownership Center, which receives its funding through lenders, local governments and a variety of philanthropic organizations; and two foundations the Family Housing Fund and Greater Minnesota Housing Fund. The community-based agencies providing foreclosure counseling receive funding through a competitive process, facilitated by the Minnesota Homeownership Center. This process avoids service duplication and ensures that high quality services are available statewide. When the foreclosure crisis emerged, the Minnesota Homeownership Center had the infrastructure in place to conduct the rapid and extensive organizational ramp-up required to meet the growing need for foreclosure counseling. The Center improved its service delivery model, increased its foreclosure prevention service capacity, and launched a large-scale public awareness and outreach campaign. The result of this effort is a statewide foreclosure prevention system that responds to consumer demand in the most efficient and effective way possible. 21

Achieving foreclosure prevention through effective counseling services Foreclosure prevention advisors work with homeowners facing foreclosure and help them to understand how they got into their current situation. Then, they help these homeowners develop a plan to move forward. Often, this includes asking a difficult question Can you afford your home over the long-term? For those who can, counselors work through a series of steps to help the homeowner get back on track with their mortgage. First, they examine if there are any personal resources available, such as savings or possibly loans from family or friends. Advisors also help connect homeowners with resources available in the community. Next, the advisors work with the mortgage company to explore loss mitigation options. Loss mitigation can include an array of solutions that help the homeowner to stay in the home. These solutions often include extending the loan to make up missed payments, temporarily lowering payments or lowering the interest rate to make the loan more affordable. Foreclosure Advisors work with homeowners to: Understand the foreclosure process Develop a customized plan to address their unique situation Improve financial management skills Know their mortgage product and communicate with their mortgage company Identify options for preventing foreclosure, including negotiating with the mortgage company for loss mitigation Avoid predatory practices Find alternative housing solutions if foreclosure is inevitable. 22