Foreclosure solutions

The escalating rate of home foreclosures is putting American homeowners in crisis-mode. As of March this year, more than “900,000 households [were] in the foreclosure process, up 71% from a year ago, according to a survey by the Mortgage Bankers Association. That figure represents 2.04% of all mortgages, the highest rate in the report’s quarterly, 36-year history.” (cnnmoney.com)

Facing foreclosure is stressful and frightening. Organizations such as Twin Cities Habitat help people save their homes. Cheryl Peterson, Manager, Twin Cities Habitat for Humanity Mortgage Foreclosure Prevention Program (MFPP) and Kwame Owusu-Acheampng, MFPP Intake Counselor, addressed the mortgage meltdown and how their organization is tackling the issue on last week’s “Conversations with Al McFarlane.” Their discussion was the first in a series.

Studies conducted by Wilder Research Center and Family Housing Fund have shown that preventing foreclosure is more cost effective than allowing a foreclosure. Foreclosed homes, typically boarded up for months or even years, are a primary source of neighborhood instability, depressed property value and increased crime. A house that remains occupied helps keep neighborhoods stable.

“A lot of homeowners don’t understand that foreclosure is a lengthy process and many homeowners have been told by their lender, or other entities, that they have to move once their sheriff’s sale takes place. However, in Minnesota there is a six-month redemption period post sheriff’s sale, so homeowners can stay in the property,” said Peterson.

MFPP analyzes the homeowner’s financial situation and develops an individualized plan for preventing the foreclosure of the property. MFPP also works with lenders to determine what options there may be to help the family stay in their home.

As the intake counselor Owusu-Acheampng is the first person of contact. “When people call in, I gather information from them about their mortgage. If they can afford the house, I meet with Cheryl and we review the case and then assign them to a housing counselor. I’m the first line of defense,” he said.

Owusu-Acheampng explained that some homeowners find themselves suddenly unemployed, sometimes for as long as five months, and fall behind in mortgage payments. “But then after that five months, they find a new job and they can afford the property. However, they’ve fallen behind in mortgage payments and bringing the account current can become a problem. What we can do is work with them and their mortgage company to fill out a loan application whereby the mortgage company can take the delinquent amount and add it to the unpaid principle balance,” he said.

Owusu-Acheampng added: “If the homeowner is unemployed and has no income, we cannot help them. However we can refer them to another agency that may be able to provide assistance. We advise them about the foreclosure process so they know what to expect.”

Petersen said: “In the last five to seven years there’s been an increase in high-cost, exotic mortgage products, or interest-only loans and adjustable rate mortgages –the number one thing that’s been in the news lately. All of those products have impacted the number of foreclosures in cities like Minneapolis. Homeowners purchased products that weren’t long-term affordable to them, and therefore, they defaulted in their mortgages and went into foreclosure. This has lead to vacant properties in areas both in North and South Minneapolis, but especially North Minneapolis.”

The mortgage meltdown has severely hit North Minneapolis. Last week, Hennepin County Judge Robert A. Blaeser ordered the appointment of a third party receiver to take control of 141 residential properties in North Minneapolis that were owned or controlled by TJ Waconia and its straw buyers.

This first of its kind court order was in response to a lawsuit filed by Minneapolis and three North Minneapolis neighborhood groups that charged TJ Waconia engaged in a complex and fraudulent residential real estate scheme that converted owner-occupied homes to rental units, most of which have since been foreclosed and many of which are vacant. TJ Waconia’s practices have left many North Minneapolis homeowners unable to sell their homes or owing significantly more for their homes than the properties are worth.

Peterson said that an option for some homeowners facing foreclosure is a short-sell.

“More and more mortgage companies are willing to do a short-sell where they accept less than the full amount,” she said. “This may be slightly better for the homeowner’s credit, but they’ll have to be out of the property more quickly. Some homeowners feel it’s in their best interest to ride out the foreclosure process so they’ll have more time to find housing rather than opting for a short-sell.

“Over the next year, I think we’re still going to see high foreclosures, but then the situation will level out,” said Petersen. “At the same time I think there are going to be new housing issues that’ll come up. For example, in the 90s flipping was an issue in North Minneapolis, and then a lot of these high-cost loans were given to homeowners that weren’t affordable. I think because there are a number of vacant properties, investors will purchase them and create contract for deeds and rent-to-own situations.”

Peterson said contract for deed may not be the best option to purchasing a property. “If you default on a contract for deed payment, once you get the notice [of default] you have to be out of the property in sixty days. It’s not as advantageous as a traditional mortgage,” she said.

The predatory lending legislation that was passed last year in the state of Minnesota will help protect homebuyers from bad mortgages, said Petersen. “Last year’s legislation places fiduciary duty on brokers in which they are agreeing to put a homeowner in the best product possible. In the past, the higher the interest rate, the more money brokers were making and therefore they were pushing for high interest rate loans because they were making more money off the deal. With this legislation, that’s less likely to happen,” said Petersen.

“Financial literacy is extremely important. A lot of the loan products that some homeowners have gotten into are very complicated products,” said Petersen. “It’s extremely important before you make a large investment such as homeownership that you really know what you are getting into. Our foreclosure prevention program works with a group of statewide housing counselors, which includes purchasing counselors. There are first-time homebuyer products that offer pre-purchase counseling and ownership counseling which I strongly recommend looking into before purchasing a home. First-time homebuyer products usually have lower interest rates and they look at monthly income versus expenses to ensure that a buyer will be able to afford the product they’re given.”

“Homeowners have some responsibility to prepare themselves financially before getting a home and lenders have the responsibility to do what is right,” said Owusu-Acheampng.

MFPP was developed with support from the Family Housing Fund and Northwest Area Foundation from a concept developed by the Northside Residents Redevelopment Council (NRRC).

Program participants must demonstrate commitment to solving their financial problems with long-term solutions. To date, MFPP has served nearly 3,000 families. TCHFH continues developing the program, with the Home Ownership Center acting as fiscal administrator. The program provides customized services to meet the needs of each applicant and responds to the ever-changing mortgage industry.

An MFPP representative may be contacted at (612) 331-4090. For additional information on Twin Cities Habitat for Humanity and its programs, www.tchabitat.org.