ACORN Housing Corporation (AHC), which negotiated with banks to broaden eligibility criteria for first-time homeowner loans, is advocating borrower affordability standards in its discussions with servicers on loan modifications. ACORN organizers have also visited homes and established contact with at least 515 homeowners whom servicers had been unable to reach.
Bruce Dorpalen, national director of AHC, a 501(c)(3) founded in 1985 by the Association of Community Organizations for Reform Now (ACORN), said AHC counselors focus on the affordability needs of homeowners it counsels. “We believe that solutions for the homeowners we counsel must be based on what owners’ can afford long-term rather than repayment agreements, which are widely used but are often unaffordable.”
AHC counselors examine a homeowner’s income and expenses, look for areas to reduce expenses, allow for a $500 monthly surplus and an additional $200 per dependent, and seek a maximum debt-to-income ratio of 50 percent, Dorpalen said. The counselors identify the monthly payments that an owner can afford, typically with a reduction of interest rate, extension of term, and in some cases principal reduction, and make a proposal to the servicer.
AHC has established a network of 35 servicers that enables AHC’s housing counselors to work with senior servicing managers to negotiate resolutions for clients, Dorpalen said. He added: “The network ends the problems many counselors had with unreturned calls, servicers refusing to work with counseling agencies, and servicer representatives not willing or able to modify loans.
“More servicers are buying into foreclosure prevention to better figure out affordable solutions because foreclosures have a high cost to them. The mortgage servicer and the investor are usually better off with an affordable loan modification and a paying borrower than an expensive foreclosure and need to resell the property.”
From October 2006 to early June 2007, AHC worked with 1,162 servicer customers, of whom 39 percent were still in counseling at the end of the period, while 30 percent received loan modifications and 8 percent brought their loan current or refinanced it, Dorpalen said. AHC is receiving about 350 calls monthly from homeowners, he added.
The servicer with which AHC has worked most closely is HSBC – North America. Dorpalen said that HSBC and AHC use a formula based on household income and expenses to determine the affordability of the mortgage payment. If the house payment is not within the affordability range, the interest rate is lowered by five points to bring it into affordability, he said, adding that HSBC pro-actively communicates about the program in mailings to borrowers who are 60 days or more late.
Dorpalen said that in the HSBC effort AHC counselors worked with 2,864 clients from October 2003 through January 2007. Of proposals submitted by AHC, HSBC approved 85 percent of the clients, he said, adding that “this process has been quicker than traditional loss mitigation.”
An HSBC spokesperson said: “HSBC offers a foreclosure avoidance program as one of many options available to our customers who are facing a financial hardship. We are pleased that as a result of our successful collaboration with ACORN, our customers not only receive the immediate payment relief that HSBC provides but also benefit from the personalized one-on-one financial counseling provided by ACORN’s housing counseling specialists.”
In addition, AHC has worked with Countrywide to re-engage no-contact borrowers. ACORN organizers visited 1,514 homes in Texas, Ohio, Michigan, Louisiana, and Michigan from June 2006 to February 2007. The organizers established contact with 515 owners, 304 of whom called AHC for assistance. Others contacted Countrywide directly.
Bruce Dorpalen, ACORN Housing Corporation
Countrywide had these comments on its experience with ACORN: “ACORN has been invaluable to us in our efforts to assist homeowners in distress. The formal relationship between ACORN and Countrywide started as an outgrowth of Hurricanes Katrina and Rita disaster recovery efforts. Countrywide needed assistance in locating borrowers who lived in the most heavily affected areas in Louisiana and Texas. ACORN’s results were so positive that we expanded our relationship to the other states previously mentioned, and will further expand the outreach effort this year to other states.”
Although home visits worked well in the Countrywide effort, Dorpalen said that telephone counseling is generally “more effective in delivering counseling services to homeowners in crisis and is more efficient.” AHC provides telephone counseling through an AHC call center in Chicago that has a six-member staff available five days a week from 10 a.m. to 7 p.m.
In addition, AHC has 112 counselors who do face-to-face counseling in 39 offices, including one in Philadelphia and another in Newark, N.J.
Increasingly, AHC works with owners and their servicers before owners become delinquent, Dorpalen said. The owners may have an adjustable rate reset within six months, or they may be making regular payments by not paying other bills or financing them on credit cards, but the payments are clearly unsustainable. AHC is asking servicers to modify these loans without requiring home-owners to first become delinquent on their payments.
Dorpalen said: “We see many people who never should have been in 2/28 and other adjustable mortgages. They have sufficient income and credit to qualify for a 30-year fixed-rate loan. They often didn’t know they had adjustable-rate mortgages.
“Some of these mortgages were sold to borrowers by mortgage brokers as the only product they could qualify for,” he said, adding that brokers and others wanted to sell subprime products in large volume. Dorpalen added that “there was a lot of churning of subprime mortgages for one or two years, at the end of which the owner would incur substantial refinance costs.”
In 2000, AHC signed an agreement with Ameriquest Mortgage Company* in which Ameriquest agreed to follow best practices and AHC agreed to provide low-income residents with financial education and counseling.
Adam Bass, senior executive vice president and vice chairman of Ameriquest, said: “Our agreement with ACORN established industry-leading standards, which we continued to build upon.” According to the company, the origination best practices established in the 2000 agreement with AHC were updated in 2003 and a set of servicing best practices were added.
AHC’s original agreement with Ameriquest also included a pilot lending program that made financing available to residents in 10 low- and moderate-income neighborhoods. Asked for comment about the pilot program, Dorpalen said “It was excellent on paper. The company offered the best subprime product in the market. It was difficult to implement because it was so outside the company’s business systems and culture.”
Only a few of the 35 servicers pay AHC for its work with delinquent borrowers. Dorpalen said that home-owner counseling must be reimbursed in order to build a long-term infrastructure for this service.
AHC counselors receive one week of internal training with a senior counselor and periodic workshops, Dorpalen said. The counselors are not certified by the National Foundation for Credit Counseling, he said.
AHC has purchased foreclosure lists and contacted borrowers in Detroit and Denver but has not done the same in Philadelphia because funding has been unavailable, he said.
Speaking about subprime lending, Dorpalen said: “There’s no reason that you can’t have a clean subprime loan without high fees and adjustable rates, balloon payments, and pre-payment penalties, as long as it has a fixed rate.”