oreclosure Intervention: Protecting Homeowners

F oreclosure Intervention: Protecting Homeowners By Sham Manglik, Policy Analyst, National Low Income Housing Coalition Foreclosures devastate families and neighborhoods and hamper economic recovery. In an effort to reduce the number of foreclosures, Congress, the Administration, and the lending community have created some programs to help borrowers modify their mortgages. These efforts include new programs to help troubled borrowers and resources for housing counseling programs. Unfortunately, with the rise in unemployment, the number of foreclosures has continued to grow and foreclosure prevention programs have not been as successful as hoped. ADMINISTRATION Foreclosure prevention and counseling programs are administered by a variety of entities, including Freddie Mac, Fannie Mae, HUD and the Federal Housing Administration. In addition, banks and mortgage servicers modify mortgages outside of the federal programs. PROGRAM SUMMARY Since 2009, the Obama administration has created several programs to help struggling homeowners avoid foreclosure. Home Affordable Modification Program. The Home Affordable Modification Program (HAMP) provides incentives to loan servicers (the organizations to whom monthly mortgage payments are made) and investors to modify first-lien mortgages for homeowners in default or in danger of default. By providing mortgage servicers with financial incentives to modify existing first mortgages, the Department of the Treasury (Treasury) hopes to help as many as 3 million to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage. Participation in the program is voluntary, and 145 servicers participate in the program under agreements with the Treasury. The HAMP modification program is available to owneroccupants in one- to four-unit properties at risk of default because of unaffordable mortgage payments. The unpaid principal balance on the mortgage loan must be equal to or less than $729,750 for one-unit properties (there is a higher limit for two- to four-unit properties) and the mortgage loan must have been made on or before January 1, 2009. The mortgage payments must be unaffordable (i.e. exceed 31% of the borrower s pre-tax income). The modification will consist of a reduction of the interest rate to a point where loan payments do not exceed 31% of the borrower s income. This interest rate, which can be as low as 2%, will be in place for the first five years of the modified mortgage, at which time the interest rate will slowly increase to the market rate at the time the mortgage was modified. If a 2% interest rate does not result in a payment that is affordable, the servicer can take additional steps to make the mortgage affordable, including extending the loan term out to 40 years, deferring repayment on a portion of the amount owed until a later time, or forgiving a potion of the debt. Borrowers request to participate in HAMP by sending their servicer an initial set of documents to establish their eligibility for the program. If eligibility is established and an economic model shows that it is worth more to the investor to modify the mortgage than foreclose, the servicer must offer the borrower a modification. If the modified mortgage is worth less than the foreclosed mortgage, the modification is optional. Slightly different rules apply in the case of loans owned or guaranteed by Freddie Mac or Fannie Mae. HAMP has several sub- or related programs. The Home Price Decline Protection (HPDP) program provides incentives to offset potential losses in home values after a modification to encourage servicers and investors to modify mortgages in declining markets. The incentives are based on projections of future home prices. The Principal Reduction Alternative (PRA) program provides funds to be used to reduce the principal for homes worth less than the amount remaining on the first-lien mortgage. Home Affordable Unemployment Program (UP) or Homeowners Loan Program is intended to offer assistance to unemployed homeowners through temporary forbearance of a portion of their mortgage payments. The Home Affordable Foreclosure Alternatives (HAFA) provides incentives to servicers and borrowers to pursue short sales or deeds in lieu of foreclosure in cases where the borrower is unable or unwilling to enter into a modification. In a short sale, a servicer allows the borrower to sell the property at its current value, even if the sale nets less than the total amount owed on the mortgage. With a deed in lieu, the borrower simply voluntarily transfers ownership of the property to the servicer. While not desirable alternatives, these procedures allow the homeowner and the servicer to avoid the time and expense of a foreclosure. Second Liens. According to the Treasury Department up to 50% of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the 84 2012 Advocates Guide to Housing & Community Development Policy

Foreclosure Intervention: Protecting Homeowners Second Lien Modification Program, when a HAMP modification is initiated on a first lien, servicers participating in the Second Lien Program must modify or extinguish the associated second lien. Modifications to the second lien are made based on the nature of the second lien according to a set of specific rules, or the servicer can extinguish the second lien in return for a lump sum payment from Treasury. The Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets (Hardest-Hit Fund or HHF) is designed to support innovative programs created by Housing Finance Agencies (HFAs) to stabilize housing markets and help families avoid foreclosure. HHF provides targeted aid to families in the states most impacted by the housing downturn. These HFA programs include assistance to unemployed homeowners, principal reduction, funding to extinguish second liens, and facilitation of short sales and deeds-in-lieu. HHF is available in Arizona, Florida, California, Michigan, Nevada, Ohio, Rhode Island, North Carolina, Oregon, South Carolina, Alabama, Georgia, Kentucky, Mississippi, Illinois, New Jersey, Indiana, and Tennessee. FHA refinance program. This program, begun in September 2010, writes down the mortgages of FHA-insured homeowners who are up to date on their mortgage payments, and provides Troubled Asset Relief Program (TARP) funds to cover a share of the lenders losses when a mortgage loan is written down. Emergency Homeowner Loan Program (EHLP). The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created this emergency homeowner loan program to help distressed homeowners keep current on their mortgages by providing loans to people who have experienced significant reduction in income and are at risk of foreclosure due to involuntary unemployment, underemployment or a medical condition. On June 20, 2011, HUD announced the launch of the program, after significant delays. The Dodd-Frank Act required that EHLP funds be expended by September 30, 2011, leaving a very short application window. The application deadline, originally set in June, was extended through September 15, 2011. four-unit home and the borrower must be current on his or her mortgage payments and be able to afford the new mortgage. The amount owed on the mortgage cannot exceed 125% of the current value of the house. To determine if a mortgage loan is owned by Freddie Mac or Fannie Mae, the borrower can call his or her mortgage lender or servicer and ask about the program. Contact information can be found on monthly statements or in mortgage coupon books. In addition, Fannie Mae and Freddie Mac have established tollfree telephone numbers and websites to help borrowers. Fannie Mae 1-800-7FANNIE (8am to 8pm EST) www.fanniemae.com/loanlookup Freddie Mac 1-800-FREDDIE (8am to 8pm EST) www.freddiemac.com/mymortgage HOPE NOW. An alliance composed of counselors, mortgage companies, investors, and other mortgage market participants, HOPE NOW members work together to reach out to homeowners in distress to help them stay in their homes and to create a unified, coordinated plan to help as many homeowners as possible. The alliance supports the HOPE for Homeowners Hotline, 1-888-995-HOPE, where borrowers can receive pre-foreclosure counseling. National Foreclosure and Mitigation Counseling Program. This program was launched in December 2007 to increase the availability of counseling services to homeowners at risk of foreclosure across the country. Under this program, NeighborWorks America makes grants to HUD-approved housing counseling intermediaries, qualifying state housing finance agencies, and NeighborWorks organizations. The entities then provide counseling to troubled borrowers to assist them in exploring loan modification or refinance options, including those offered through the Making Home Affordable program. NeighborWorks maintains an interactive website to help borrowers indentify a counselor in their area at: www. findaforeclosurecounselor.org/network/nfmc_lookup/ Homeowners in 27 states and Puerto Rico were eligible to apply for assistance through the EHLP program. Five additional states were authorized to directly administer EHLP funds through their preexisting state programs. Home Affordable Refinance Program. Through the Home Affordable Refinance Program (HARP), Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans they own or that they placed in mortgage-backed securities. This refinancing will allow borrowers to move to a less expensive fixed-rate mortgage even if their mortgage is greater than the current value of their homes, a situation known as being underwater. Currently, these underwater mortgages cannot be easily refinanced, leaving few options for borrowers facing unaffordable increases on their adjustable rate mortgages. To be eligible, the mortgage must be on an owner-occupied one- to Foreclosure legal assistance. The Dodd-Frank Wall Street Reform and Consumer Protection Act created, but did not fund, a HUD-administered program for making grants to provide legal assistance to low and moderate income homeowners and tenants related to home ownership preservation, home foreclosure prevention, and tenancy associated with home foreclosure. WHAT ADVOCATES NEED TO KNOW NOW While many homeowners have been helped by the various federal efforts, the numbers served have fallen far short of expectations. Three federal foreclosure assistance programs are currently being targeted for elimination in the 112th Congress by bills in the House and Senate: HAMP (H.R. 839 and S. 527), the Emergency Homeowner Loan Program (H.R. 836), and the FHA refinancing program (H.R. 830). National Low Income Housing Coalition www.nlihc.org 85

Foreclosure Intervention: Protecting Homeowners H.R 830 and H.R. 836 passed the House on March 11, 2011. H.R. 839 passed the House on March 29, 2011.While there is support in the House to terminate these programs, it is unlikely the Senate will concur. In August 2011, the Federal Housing Finance Agency (FHFA) released a Request for Information (RFI) on options for the sale of single-family real estate owned (REO) properties owned by the Federal Housing Administration (FHA) and the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. In January 2012, the Federal Reserve Bank submitted a white paper to Congress stating that the GSEs, through the direction of their regulator, the FHFA, should play a larger role in the national housing recovery. One suggested action is the implementation of an REO-to-rental program. It is likely that such an initiative will be unveiled in 2012. WHAT TO SAY TO LEGISLATORS Advocates should contact their Members of Congress with the message that the variety of efforts and programs targeted to helping stop foreclosures is indicative of the seriousness of the problem. If foreclosures cannot be reduced, the economy is likely to take longer to recover and more families and communities will experience housing instability. Congress should work to create and refine programs and initiatives to enable more homeowners to receive help. If an REO-to-rental program is created, advocates should urge lawmakers and FHFA to require that a significant portion of rental properties created by the program be targeted to extremely low income people. Funding should be allocated to make these properties affordable. FOR MORE INFORMATION Additional information about the Making Home Affordable initiatives at: www.makinghomeaffordable.gov/ More information on the homeowner s loan program at: www. nw.org/network/foreclosure/nfmcp/ehlp.asp. General information on foreclosure avoidance at: http://portal. hud.gov/hudportal/hud?src=/i_want_to/avoid_foreclosure Information on the FHA s modification and refinancing programs at: www.fha.com 86 2012 Advocates Guide to Housing & Community Development Policy

F oreclosure Intervention: Protecting Renters By Sham Manglik, Policy Analyst, National Low Income Housing Coalition As the foreclosure crisis has taken hold, experience and research have revealed that rental properties and renters are at significant risk, with renters comprising 40% of the families affected by foreclosure. These families often have no idea that their landlord has fallen behind on mortgage payments, and have usually continued to pay their rent even as their landlord has failed to pay the mortgage. Before the enactment of the federal Protecting Tenants at Foreclosure Act (PTFA) in May 2009, in most states it was legal for tenants to be required to move on only a few days notice. Under the PTFA most tenants now have the right to remain in the home for the remainder of their lease, or at least 90 days. The PTFA is set to expire at the end of 2014. Representative Keith Ellison (D-MN) has introduced legislation, H.R. 3619, to remove the PTFA sunset date and add a private right of action as an enforcement mechanism for the law. ADMINISTRATION The PTFA is self-executing; no agency is responsible for administrating the act. HISTORY AND PURPOSE In recent years, inappropriate lending, falling home prices and high unemployment have led to a very high number of foreclosures across the United States. However, the impact of these foreclosures is not limited to homeowners; renters lose their homes every day when the owner of the home they are renting goes into foreclosure. In fact, one in five properties in the foreclosure process is likely to be a rental. Further, research from the NLIHC concludes that since these properties often contain more than one unit, and many owner-occupied homes also house renters, roughly 40% of the families facing eviction as a result of the foreclosure crisis were renters in 2008. And unlike homeowners, who have some indication that a foreclosure is coming, renters are often caught entirely off-guard. As might be expected, very low income families and low income and minority communities are bearing the brunt of rental foreclosures. Data show that for four states in New England, the foreclosure rate on a per-unit basis is more than five times higher in largely non-white, poor neighborhoods than in largely white, low-poverty neighborhoods. Even more striking, nearly 60 of every 100 foreclosed properties in high-poverty, nonwhite neighborhoods are multi-unit, as compared to seven of every 100 in low poverty, white neighborhoods (Renters in Foreclosure: Defining the Problem, Identifying Solutions, Danilo Pelletiere, Ph.D., National Low Income Housing Coalition, January 2009). Prior to May 2009, protections for renters in foreclosed properties varied from state to state, and in most states tenants had few protections. The National Law Center on Homelessness and Poverty (NLCHP) and NLIHC issued a joint report on the foreclosure and eviction laws in each state and the District of Columbia. The report, Without Just Cause, can be found at www.nlchp.org/content/pubs/without_just_ Cause1.pdf. The NLCHP updated that report in 2010 and the updated report can be found at www.nlchp.org/content/ pubs/stayinghomereport_june2010.pdf. Recognizing the hardships experienced by tenants in foreclosed properties, Congress acted in early 2009 to provide a basic set of rights for such tenants. On May 20, 2009, President Obama signed the Protecting Tenants at Foreclosure Act (PTFA; P.L. 111-22, division A, title VII). The PTFA was extended and clarified in the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, section 1484. PROGRAM SUMMARY Protecting Tenants at Foreclosure Act. The PTFA requires the immediate successor in interest at foreclosure to provide bona fide tenants with a notice 90 days before requiring them to vacate the property, and allows tenants with leases to occupy the property until the end of the lease term. A bona fide lease or tenancy is one in which the tenant is not the mortgagor or the spouse, parent or child of the mortgagor, the lease or tenancy is the result of an arm s length transaction, and the lease or tenancy requires rent that is not substantially lower than fair market rent or is reduced or subsidized due to a federal, state or local subsidy. If the property is purchased by someone who will occupy the property, then that purchaser can terminate the lease on 90 days notice, even when the tenant has a lease that extends beyond 90 days after foreclosure. National Low Income Housing Coalition www.nlihc.org 87

Foreclosure Intervention: Protecting Renters Tenants with Section 8 housing choice voucher assistance have additional protections, which allow them to retain their Section 8 lease and require the successor in interest to assume the housing assistance payment contract associated with that lease. The PTFA applies to all foreclosures on all residential properties; traditional one-unit single family homes are covered, as are multi-unit properties. The law applies in cases of both judicial and non-judicial foreclosures. Tenants with lease rights of any kind, including month-to-month leases or leases terminable at will, are protected as long as the tenancy was in effect as of the date of transfer of title at foreclosure. The 90-day notice to vacate can only be given by the successor in interest at foreclosure. The successor in interest is whoever acquires title to the property at the end of the foreclosure process. It could be the financial institution that held the mortgage or it could be an individual who purchased the property at foreclosure. Notices of the pending foreclosure, while desirable, do not serve as the 90-day notice required by the PTFA. The PTFA applies in all states, but does not override more protective state laws. The PTFA specifically provides that it does not affect any [s]tate or local law that provides longer time periods or other additional protections for tenants. Consequently, state law should be examined whenever there is a tenant in a foreclosed property to maximize the protections available to tenants. State and local law may also help fill some of gaps in the federal law, such as the form (e.g., written or oral) and delivery mechanism for the 90-day notice (e.g., in person, by mail, or by another method). The PTFA provisions expire at the end of 2014. Other protections. Prior to creation of the PTFA, some financial institutions and Freddie Mac and Fannie Mae independently developed programs to assist renters in foreclosed properties to remain in their homes and offered cash for keys programs that provide monetary assistance to occupants of foreclosed properties if the occupants agree to leave in a specified period of time, usually 30 days or less. While both the month-to-month lease programs and cash for keys program are options that tenants should consider, these options are in addition to, and not a substitute for, the rights provided under the PTFA. Tenants should seek the advice of counsel before accepting these options. The American Recovery and Reinvestment Act of 2009 (ARRA), which predates the PTFA, applied similar renter protections to any foreclosed property purchased with Neighborhood Stabilization Program funds. However, in addition to the 90 days notice requirement and the right to remain in the home for the remaining term of any lease, ARRA further prohibits recipients of NSP funds from discriminating against (i.e. refusing to rent to) holders of Section 8 assistance. WHAT ADVOCATES NEED TO KNOW NOW On December 8, 2011, Representative Keith Ellison (D-MN) introduced H.R. 3619, which would repeal the sunset date for the PTFA and add a private right of action for renters whose rights under the PTFA have been violated. TIPS FOR LOCAL SUCCESS Implementing the PTFA provisions can be challenging. The law was effective upon enactment, and no federal agency is charged with interpreting the law or with writing regulations to enforce it. Because the law is self-implementing, if challenged individual tenants need to be able to assert their rights. NLIHC, in conjunction with the National Housing Law Project, has developed a toolkit for renters in foreclosed properties. The toolkit contains sample letters, copies of the PTFA, and other materials designed to assist tenants and their advocates in implementing the law and protecting tenants rights, see http://nlihc.org/library/other/foreclosure. Relying on individual tenants to assert their rights is a timeconsuming process. A better approach is for the entities and institutions involved in the foreclosure process financial institutions, lawyers, judges, and real estate professionals to recognize and abide by the law. Advocates at the local level should make area courts and attorneys aware of the law through letters and other contacts. All federally insured or chartered financial institutions have been informed of the law and instructed to comply with it. If a financial institution does not comply with the law, it is important that advocates identify the foreclosing institution and hold it accountable for the outcome. Federal financial institution regulators have information on their websites that will help identify the relevant regulator for a foreclosing institution and help tenants and advocates lodge a complaint against the institution. See below for contact information for federal banking regulators. WHAT TO SAY TO LEGISLATORS Legislators should be educated on the fact that as many as 40% of families faced with foreclosures are renters who are truly blameless in the situation. Federal lawmakers also need information on financial institutions compliance or lack thereof with the PTFA. Lawmakers should also be urged to consider changes to bankruptcy laws and other legislation that would encourage lenders to allow former homeowners and renters to stay in their homes. In addition, because PTFA protections expire at the end of 2014, advocates should ask their lawmakers to support H.R. 3619, which would make the protections permanent and would add a private right of action for tenants whose rights under the PTFA have been violated. The private right of action is important as it would add an enforcement mechanism to the protections included in the law. 88 2012 Advocates Guide to Housing & Community Development Policy

Foreclosure Intervention: Protecting Renters FOR MORE INFORMATION National Low Income Housing Coalition 202-662-1530 www.nlihc.org NLIHC renter s toolkit can be found at http://nlihc.org/ library/other/foreclosure General guidance and guidance for public housing agencies is available at http://nlihc.org/issues/foreclosure/ptfa in the attached file titled, HUD Regulatory Guidance. Guidance for FHA: http://edocket.access.gpo.gov/2010/ pdf/2010-27309.pdf For regulatory agency guidance, see: Federal Deposit Insurance Corporation (FDIC): www.fdic.gov/news/news/financial/2009/fil09056.html Federal Reserve Board of Governors (FRB): www. federalreserve.gov/boarddocs/caletters/2009/0905/ caltr0905.htm Office of the Comptroller of the Currency (OCC): www.occ. gov/news-issuances/bulletins/2009/bulletin-2009-28.html Office of Thrift Supervision (OTS): http://files.ots.treas. gov/25319.pdf National Credit Union Administration (NCUA): www.ncua. gov/resources/regulatoryalerts/files/2009/09-ra-08.docx For information on the regulatory agency complaint process, see : FDIC: www2.fdic.gov/starsmail/index.asp FRB: www.federalreserveconsumerhelp.gov OCC: www.helpwithmybank.gov/complaints/index.html OTS: www.ots.treas.gov/?p=consumercomplaintsinquiries NCUA: www.ncua.gov/resources/consumerinformation/ Complaints/index.aspx Information about the Freddie Mac program can be found at: www.freddiemac.com/news/archives/ servicing/2009/20090305_reo-rental-initiative.html Information about the Fannie Mae program can be found at: www.fanniemae.com/newsreleases/2009/4581. jhtml?p=media&s=news+releases Advocacy Story: Training and Education Increase New Law s Effectiveness In August 2010, after Massachusetts advocates succeeded in gaining passage of a law protecting tenants from no-cause evictions after foreclosure, they went right to work to make the new law a reality. Their goal was to inform tenants, agencies, courts and the banks about the law s protections. To make sure the new law actually did its job, advocates asked the Massachusetts Law Reform Institute (MLRI) to develop effective training and informational materials. MLRI responded with summaries, training packets, pro-se court pleadings and a brochure for tenants available in several languages that has now been accessed by thousands of people. MLRI also conducted trainings for judges, government officials, agencies and community groups. The result of the combined work of legal services lawyers in the courtroom, and the neighborhood groups armed with these publications in the field, has been remarkable. In a short period of time it was widely known that tenants in bank-owned properties could not be evicted without just cause, and that the banks must inform tenants of their rights, who to call for repairs, where to pay the rent and more. In most courts, the number of post-foreclosure no-cause evictions has dropped dramatically often to zero. The law is M.G.L. Chapter 186A and information can be found at http://masslegalhelp.org/ housing/foreclosures National Low Income Housing Coalition www.nlihc.org 89