By Craig Nickerson, National Community Stabilization Trust and Rebecca Regan, Housing Partnership Network
In numerous communities today, REO inventories are declining and overall foreclosure rates are at five-year lows; however, the importance of continuing the work of stabilizing hard hit neighborhoods is far from over. Many neighborhoods, often low- to moderate-income and multicultural communities, continue to be disproportionately affected by the housing crisis.
In many respects, the future of neighborhood stabilization looks different than in the recent past. Over these next few years, we must work together to create earlier intervention strategies for both borrowers and properties, find ways to appropriately scale support and provide capital for local interventions, and launch improved financing tools for nonprofits to acquire and rehabilitate properties. We must also remove from many local landscapes the long festering, low-value properties stuck for years in a pre-foreclosure state of limbo.
The ReClaim Project was created with a focus on the future of neighborhood stabilization. The project’s focus is to undertake early intervention strategies that will move these low-value, pre-foreclosure properties in specific markets toward a community-sensitive resolution. These properties, typically with values below $25,000, idle in pre-foreclosure when other resolution paths are deemed economically infeasible by servicers and investors. In addition, homeowners with defaulted mortgage loans and significant financial hardship often abandon hope and vacate these properties, creating what is described as “zombie loans”. After abandonment, vacant properties negatively affect home values for the homeowners who remain in the neighborhood. Some of these distressed homes have been unoccupied for long periods, deteriorate beyond repair, and can pose a danger to public safety.
This project, a joint endeavor of the National Community Stabilization Trust (NCST) and the Housing Partnership Network (HPN), was initially piloted in Cuyahoga County, Ohio. Most recently, a new phase of the program launched with a loan portfolio from a national servicer. Additional servicers and investors are projected to participate by early 2015, making The ReClaim Project a high profile and critical contribution to neighborhood recovery.
There are two primary project objectives for The Reclaim Project: first, to create a transparent, predictable program that enables communities to take control of low-value distressed assets to meet stabilization goals; and second, to provide servicers with a cost-effective path to resolve the properties. For servicers and investors of loans in default, completing the foreclosure process for loans on low-value properties is often not economically desirable, particularly in judicial foreclosure states.
A 2013 RealtyTrac study found that vacant properties inflict heavy costs to American communities: blight, crime, lowered home values, and decreased property tax revenue.1 And in a 2014 report, RealtyTrac found that 152,033 U.S. properties in the foreclosure process were vacant, representing 21 percent of all properties in the foreclosure process. The states with the most owner-vacated foreclosures were Florida with 54,908 (36 percent of national total), Illinois (15,512), New York (10,880), New Jersey (8,595), and Ohio (7,780). 2
“The program components begin when a servicer donates their low-value, non-performing mortgage loans, along with a financial contribution, to The ReClaim Project,” said Rebecca Regan, executive vice president and president, Capital Markets of HPN, and president of The ReClaim Project board of directors. “A financial contribution from the servicer is tied to each donated loan. This is applied to the costs for loan resolution and property remediation expenses, such as servicing, homeowner counseling, property security and maintenance, curing title and property tax deficiencies, and where necessary, demolition.”
“Our approach to this program is holistic – we concentrate on timely, sustainable solutions,” said Craig Nickerson, president of NCST. “We are closely engaged with local housing providers, land banks, and city and state officials to determine the best possible outcome for the homeowners, these distressed properties, and the communities. The loans are on-boarded with a specialized servicer who has extensive experience with this asset class. By tackling this thorny problem we are hopefully going to be able to turn eyesores into billboards of new hope in hard hit neighborhoods.”
The ReClaim Project utilizes the network of community-based providers established by NCST via REO transactions, and by HPN using their members across the country to determine the optimal local working partnerships.
“For each non-performing loan, we consider a number of factors,” added Regan. “We look at property condition, alignment of a disposition strategy with community goals, and the impact on the charitable purpose of The ReClaim Project. We weigh all the factors, and consider a number of options, which includes modifying loans to right-size mortgage payments so the borrowers can once again afford monthly carrying costs. If we can’t keep the family in the home, or we can’t make contact with the family, the best option is often to complete the foreclosure process so that properties can move to community-based developers for rehabilitation or demolition.”
By conveying a note to The ReClaim Project, servicers avoid the cost and economic uncertainties associated with a foreclosure. The conveyance of a low-value loan pool to a single national intermediary, for which homeowner retention and community-focused property remediation is tantamount, is both cost effective and efficient.
And communities need new, sustainable solutions that provide lasting assistance to families, facilitate vacant property rehabilitation, and permanently remove dangerously blighted properties from neighborhoods.
“After years of preparation, we are just getting the program underway,” added Nickerson. “And we are excited about the opportunities and inevitable challenges ahead. Through The ReClaim Project, we offer the servicers a financially responsible alternative to loan charge-offs, and importantly, The ReClaim Project involves local grassroots solutions that are sensitive to homeowner needs and community stabilization provider interests.”
The Housing Partnership Network is an award-winning business collaborative of 100 of the nation’s leading affordable housing and community development nonprofits. Creating private sector partnerships and enterprises that achieve ambitious social missions, HPN and its member organizations work together to scale innovation and impact, helping millions of people gain access to affordable homes and thriving communities that offer economic opportunity and an enhanced quality of life.
The National Community Stabilization Trust is a nonprofit organization committed to stabilizing our nation’s neighborhoods. Formed through the unprecedented collaboration of six leading national community development non-profits, NCST serves as the bridge between large financial institutions and local housing providers and actively helps develop community-based housing strategies to ensure that low- and moderate-income families have access to affordable, safe homeownership and rental opportunities.