Everywhere you turn there are stories of foreclosures, families thrown out of their homes because they cannot pay their mortgages. The stories are often heart-wrenching, and when the local sheriff stops sales, he becomes a local hero.
But what exactly is going on? The Reinvestment Fund (TRF) is leading the way to understanding the problem. Starting with Monroe County and then looking at other counties in the Commonwealth of Pennsylvania, TRF is helping the secretary of banking, the Pennsylvania Housing Finance Agency, and an industry-advisory group to understand the problem. Among the points that TRF reported is that Monroe County’s foreclosures occurred within an average of 2.8 years of loan closing, which is about a year shorter than the average in Montgomery County, and nearly a year shorter than the average in Philadelphia County. TRF also reported that most of the foreclosures were in just 12 subdivisions and five townships, which is a disturbing pattern.
The best way to determine what led to foreclosure is to review loan files and look for patterns on a variety of factors: loan to value, debt-to-income ratios, credit history, cost of financing, and borrower’s reserves. TRF had hoped to speak to the families involved in foreclosure filings in Monroe County, but many had left their homes and could not be located.
Robert F. Cotterman, a researcher who analyzed FHA-insured loans for the U.S. Department of Housing and Urban Development, studied the factors that influence dollar-loss rates and default probabilities of FHA borrowers. We have highlighted his report in “Spotlight on Research.” If you are interested in helping new homeowners stay in their homes (and lenders take lower losses), read this article.
And then there are the CDCs and CDFIs stepping in to help the troubled homeowner. NHS of Chicago realized that the homeowners who had bought in NHS neighborhoods without the benefit of NHS homeownership counseling or financing were losing their homes to foreclosure. To protect housing values and the stability of these neighborhoods, the Chicago NHS stepped in to stop the decline by working with subprime lenders and servicers as well as borrowers and the city of Chicago. The program is still new, but it is making headway on a very tough problem. We hope to hear of Third District organizations doing the same in the near future.