homeowners in distress: preventing foreclosures

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Homeowners in Distress: Preventing Foreclosures Strategies to Help Homeowners J. Michael Collins & Deb Neubauer University of Wisconsin Cooperative Extension October 20, 2010

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Page 1: Homeowners in Distress: Preventing Foreclosures

Homeowners in Distress: Preventing Foreclosures

Strategies to Help Homeowners

J. Michael Collins & Deb NeubauerUniversity of Wisconsin Cooperative Extension

October 20, 2010

Page 2: Homeowners in Distress: Preventing Foreclosures

Overview

• Current issues

• Data on foreclosure

• WHPE educational materials

• Strategies

• Dane County Case Study

Page 3: Homeowners in Distress: Preventing Foreclosures

Nationally Expecting Wave of Foreclosures Soon…

CoreLogic, formerly First American Corporation, www.corelogic.com

Page 4: Homeowners in Distress: Preventing Foreclosures

Distressed Sales RisingNational Home Sales by Segment

CoreLogic, formerly First American Corporation, www.corelogic.com

Page 5: Homeowners in Distress: Preventing Foreclosures

Who is Affected?

White Black/Afr Amer Hisp/Latino Other All

2.26

6.17

7.39

3.744.16

% Loan in REO by Demographics ( 2010)

White Black/Afr Amer Hisp/Latino Other All

Page 6: Homeowners in Distress: Preventing Foreclosures

High Area Unemployment Correlated with REOs

<5% 5-10% 10-15% >15% All

1.16

5.4 5.61

11.08

4.16

% REO by Zip Code Unemployment rate ( 2010)

<5% 5-10% 10-15% >15% All

Page 8: Homeowners in Distress: Preventing Foreclosures

Foreclosure Filings 2010 (thru June) 2009Adams 90 171Ashland 33 57Barron 107 227Bayfield 35 67Brown 597 1097Buffalo 10 44Burnett 83 139Calumet 82 160Chippewa 145 272Clark 69 126Columbia 172 349Crawford 43 58Dane 801 1550Dodge 232 446Door 72 143Douglas 115 224Dunn 99 197Eau Claire 172 335Florence 11 16Fon du Lac 188 449Forest 18 37Grant 50 101Green 82 164Green Lake 43 101Iowa 69 101Iron 16 33Jackson 36 72Jefferson 209 399Juneau 84 193Kenosha 628 1238Kewaunee 46 95La Crosse 156 339Lafayette 33 78Langlade 60 105Lincoln 57 142

Filings by County 2010 (thru June) 2009Manitowoc 179 301Marathon 283 505Marinette 114 260Marquette 51 113Menominee 0 6Milwaukee 3071 6323Monroe 88 188Oconto 125 261Oneida 115 232Outagamie 417 770Ozaukee 124 266Pepin 18 37Pierce 121 254Polk 180 408Portage 0Price 33 64Racine 630 1221Richland 45 64Rock 532 1165Rusk 37 62Sauk 176 381Sawyer 59 122Shawano 114 213Sheboygan 278 547St. Croix 353 753Taylor 38 78Trempealeau 32 100Vernon 47 81Vilas 85 159Walworth 404 726Washburn 57 118Washington 270 552Waukesha 783 1335Waupaca 160 338Waushara 79 158Winnebago 382 787Wood 118 259Wisconsin (sans Portage) 14341 27967

Page 9: Homeowners in Distress: Preventing Foreclosures

Common Themes of Interviews with People in Foreclosure Process

• School aged kids – minimize disruption• Relationship issues• Pride management with family & peers• Lack of trust in institutions

– Some exceptions for ‘helpful’ counselors / agencies• Communication / Education is challenge

– Lack internet, limited phone, time constrained– Interest in budgeting (reformed spendthrifts)

Page 10: Homeowners in Distress: Preventing Foreclosures

Financially Strapped

“I am on unemployment and I am about ready to declare bankruptcy. I can’t do consumer credit counseling b/c I am not employed. All my unemployment checks go toward paying my two mortgages. I am $19k in debt. I would like to save but I need to work in order to save.”

- married woman in 40s

By late delinquency (180+ days)• Tapped out family• Cashed in / borrowed from 401k• Austerity budgeting

Page 11: Homeowners in Distress: Preventing Foreclosures

Emotional Toll

“I had a job where I could work overtime when I wanted. So I bought a lot of toys (motorcycle, trucks, etc.). Then they got repossessed. I found it devastating. It was so embarrassing. Now I have one vehicle – the one that is most practical – and it is hard. I did not realize my unemployment would be so long. I did not think it would happen to me.” – male in 50s

• Unwilling to reveal extent of needs• Not seeking advice in community

Page 12: Homeowners in Distress: Preventing Foreclosures

Hard to Reach / Not Accessing Information

“I have access to the internet through the library. I simply cannot afford it at home. There is a lot of waiting and stuff so it makes it difficult. I do have an internet account at work but limited so I can’t really do a search at work.” - Single mother in 30s

• Reaching people – phone, mail, web – all limited

Page 13: Homeowners in Distress: Preventing Foreclosures

When during the month are people looking for help?

Week 1 Week 2 Week 3 Week 40

1000

2000

3000

4000

5000

6000

7000

8000

9000

September 2010, Referrals by Week

Source: MortgageKeeper.org, September 2010 Referrals by Counselors

Page 14: Homeowners in Distress: Preventing Foreclosures

Most Common: Food, Job, Utilities

Food Assistance Programs

19%

Job Training 18%

Heating/Utility Costs 18%

National Hotlines 11%

Legal Services 9%

Pharmaceutical Costs

7%

Home Repair 3%

Unemployment Assistance

3%

Senior Citizen Services

3%Childcare

2%Other

7%

Services Referred, 2009-2010

Source: MortgageKeeper.org, 2009-2010 Referrals by Counselors

Page 15: Homeowners in Distress: Preventing Foreclosures

Typology of Consumers in Distress (Negative Trigger Events)

• Income disruption, but potential to work– Job loss/cutback (relocation options)– Divorce (child support issues)– Widow/er (may have limited work options)

• Disability– Chronic (DI application process)

• Health crisis– Acute or ongoing expenses (medical debt management)

• Investor (not all are speculators) – tenant eviction issues – subsidized units

• Small business failure (non-real estate)– Sale / bankruptcy (special issues if farm)

• Strategic defaulters

Page 16: Homeowners in Distress: Preventing Foreclosures

Providing Services

• Prevention– People not in default, but worried

• Early Intervention– Missed 1-2 payments

• Late Intervention– Missed 3+ payments

• Transitional Support– Short sale or foreclosure auction

Page 17: Homeowners in Distress: Preventing Foreclosures

Early Intervention is the Ideal

Counseled when current Counseled at 30 days delinquent Counseled at 60 days delinquent Counseled at 90 days delinquent-0.1

-0.05

0

0.05

0.1

0.15

0.2

Effects Vary Depending on When Counseling Occurs

Pr(Mod) Pr(REO)

Source: Collins & Schmeiser, 2010

Page 18: Homeowners in Distress: Preventing Foreclosures

http://fyi.uwex.edu/whpe/

Page 19: Homeowners in Distress: Preventing Foreclosures

WHPE Themes

• Financial Issues of Owning a Home

• Physical Issues of Owning a Home

• When Things Go Wrong

Page 20: Homeowners in Distress: Preventing Foreclosures

1. Budgeting Basics

The goals of this chapter are:• Understanding your situation.• The benefits of and process for creating a

spending plan.• To discuss financial priorities and goals and

the steps needed to achieve them.

Page 21: Homeowners in Distress: Preventing Foreclosures

2. Making Ends Meet

The goals of this chapter are:• Show resources that may be available.• Understanding benefits and assistance

programs, as well as tax credits.• Address embarrassment of help seeking.• Programs can have complicated details. Be

patient and take time to learn your options.

Page 22: Homeowners in Distress: Preventing Foreclosures

3. Credit Management & Counseling

The goals of this chapter are: • To overview the benefits and drawbacks of debt.• How review a credit report.• Understand credit scores • Options for managing debt.

Take-away messages: • Always keep an eye on your credit—it affects more than you think.• Manage an economic hardship with the least damage to your credit record.• Check your credit score.• Bankruptcy and repayment are options but will not make your financial

problems go away.

Page 23: Homeowners in Distress: Preventing Foreclosures

4. Understanding Default & Foreclosure

The goals of this chapter are: • Background into how and why default and foreclosure occur.• Alternatives to foreclosure• The legal process of foreclosure.

Take-away messages:• Losing your home to foreclosure is in no one’s best interest; understand your

options.• Decide if you want to stay and are committed to repaying the loan; if not look

into a sale.• Talk to your lender.• Take time to learn details of programs and follow up on every detail; Don’t be

derailed by paperwork.• Ask for help but be careful of anyone offering a quick fix.

Page 24: Homeowners in Distress: Preventing Foreclosures

5. Keeping OrganizedThe goals of this chapter are: • To help you embrace the benefits of being organized.• To provide you with the tools to make smart decisions when

purchasing Insurance.• To encourage and guide you in creating your own household

organizational system.• To provide advice on which records should be kept and where.

Take-away messages: • Paperwork matters!• Know what to store and where to store it.• Plan for the unexpected.

Page 25: Homeowners in Distress: Preventing Foreclosures

6. Maintaining Your HomeThe goals of this chapter are: • Understand the responsibilities of owning a home.• Provide tools to help budget for repairs.• Understand the costs and benefits of financing repairs and remodels.

Take-away messages: • A lot goes into owning a home beyond simply choosing what color to

paint the walls. • Staying on top of home maintenance is important to save money in

the long run. • Energy efficiency and proper insurance can also save you money over

time.

Page 26: Homeowners in Distress: Preventing Foreclosures

7. RefinancingThe goals of this chapter are: • To illustrate the hidden costs that interest adds to a mortgage

payment.• To explain how refinancing can save homeowners money.• To explain some of the fees associated with refinancing.

Take-away messages:• Over the course of a loan, you will pay much more than you

originally borrowed. • Refinancing a loan can save you a lot of money on interest that

you will not have to pay.

Page 27: Homeowners in Distress: Preventing Foreclosures

Dane County Example

Page 28: Homeowners in Distress: Preventing Foreclosures

Scope Of Problem# of Foreclosures in Dane County (2000-2008)…47%

0

200

400

600

800

1000

1200

2000 2001 2002 2003 2004 2005 2006 2007 2008

Page 29: Homeowners in Distress: Preventing Foreclosures

Scope of Problem

• 2009: Increased 39% over 2008– 10% points higher than the statewide average

Page 30: Homeowners in Distress: Preventing Foreclosures

Community Answer• Dane County Foreclosure Prevention Taskforce

– Coalition of public agencies, non-profit service providers and other community partners working together to develop sustainable alternatives to foreclosure

• UW Law School instrumental in the formation

Page 31: Homeowners in Distress: Preventing Foreclosures

Strategy

• 3 work groups:

– Prevention

– Intervention

– Stabilization

Page 32: Homeowners in Distress: Preventing Foreclosures

Prevention

• Broad, coordinated approach to providing early outreach/ education on a community-wide basis– Created print material identifying local resources

to families facing the possibility of foreclosure

Page 33: Homeowners in Distress: Preventing Foreclosures

Intervention

• Effective assistance to individual homeowners at imminent risk of default, in default or in foreclosure– Community workshops-2 sessions:

• Objectives– Increase homeowners’ awareness of options for mortgage

help– Help homeowners to determine their next steps– Prepare homeowners for their next step by encouraging goal-

setting and budgeting.

Page 34: Homeowners in Distress: Preventing Foreclosures

Intervention cont….

• Created a Wisconsin Foreclosure Timeline– Presents the basic process of foreclosure simply

• Major deadlines and events to be expected in a foreclosure lawsuit

– Court filing requirements, redemption period, public notice of sale, etc..

– Critical for homeowners who are overwhelmed by the court processes and deadlines

Page 35: Homeowners in Distress: Preventing Foreclosures

Intervention cont….

• Dane County Foreclosure Mediation Program (DCFMP)– Workgroup advocated for a local rule mandating

that homeowners who are sued for foreclosure are notified of the mediation program

• Voluntary• Both parties pay $75• Homeowner agrees to housing counseling

Page 36: Homeowners in Distress: Preventing Foreclosures

Intervention cont…

• Answer Clinic– State Bar awarded a grant to the workgroup to

create a clinic to help homeowners file answers to foreclosure lawsuits.

• Staffed by volunteer attorneys and volunteer law students

Page 37: Homeowners in Distress: Preventing Foreclosures

Stabilization

• Objective is to identify and strengthen neighborhoods impacted by foreclosure– Purpose: find “hot spots” for foreclosed homes

Page 38: Homeowners in Distress: Preventing Foreclosures

Extension’s Role

• Coordinate the key players – Attorneys, community partners, law school, HUD

approved housing counseling agencies

• Provide the education required for goal-setting and budgeting

• Assist with the follow-up and evaluation

Page 39: Homeowners in Distress: Preventing Foreclosures

Websites

• Home Ownership Preservation Foundationwww.995hope.org

• Wisconsin Housing and Economic Development Authoritywww.wisconsinforeclosureresource.com

• Dane County Foreclosure Prevention Taskforce www.daneforeclosurehelp.org

Page 40: Homeowners in Distress: Preventing Foreclosures

Deb NeubauerDane County Extension Financial Education CenterLower Level, Suite 1012300 S Park StreetMadison, WI 53713(608) 261-5077Fax: (608) [email protected]

For More Information: http://fec.uwex.edu

J. Michael CollinsFaculty Director, Center for Financial SecurityUniversity of Wisconsin-Madison7401 Social Science, 1180 Observatory DriveMadison, WI [email protected]

For More Information: cfs.wisc.edu