New York's Foreclosure Prevention Services Program Threatened

November 10, 2011

Author: Kirsten E. Keefe

New York continues to be in the midst of the foreclosure crisis.  Last year, more than 250,000 pre-foreclosure notices were mailed to homeowners while more than 77,000 foreclosures were pending statewide.  New York’s urban and rural areas are all affected by foreclosures.  Indeed, six areas in upstate New York were among the top 25 metropolitan areas nationwide with the largest increase in seriously delinquent mortgages from March 2010 to March 2011 (Kingston, Poughkeepsie-Newburgh-Middletown, Elmira, Binghamton, Glens Falls and Albany-Schenectady-Troy).  Conservative estimates predict that the nation is about a third of the way into the foreclosure crisis, and that is only if the economy doesn’t worsen.  In New York, about 9.4% of mortgages are seriously delinquent or in foreclosure. 

While subprime loans were the catalyst of the foreclosure crisis, today, loss of employment and income is the main cause of the majority of New York homeowners going into default on their mortgages.   Long-time homeowners are increasingly falling behind on payments and most of the loans at risk are less than $200,000.  Not every home can be saved of course, but a significant percentage of homeowners are proving to be able to get back on track with the right protections and assistance, helping to turn the foreclosure crisis around.

New York has aggressively addressed this crisis by increasing protections for homeowners and tenants, providing early notice to homeowners in default of availability of assistance, initiating a mandatory settlement conference process in all residential mortgage foreclosures, and enacting regulations mandating better mortgage servicer behavior.  These actions have had positive effects.  New York ranked second of only 11 states which experienced home price appreciation in 2010 and our homeowners are getting more loan modifications through the federal Home Affordable Modification Program (HAMP) than almost every other state. 

The success of these programs relies greatly on the availability of direct assistance to homeowners in default and foreclosure.  Since 2008 the majority of that assistance has been provided through New York’s Foreclosure Prevention Services Program, administered by New York State Homes and Community Renewal.  Since its inception, the Program has funded over 120 non-profit housing counseling and legal services programs, providing free services to homeowners in every county in the state.  Housing counselors help prepare modification packages, negotiate directly with lenders to obtain affordable modifications and provide one-on-one budget and credit counseling.  Legal services offices represent, and have trained hundreds of pro bono attorneys to represent, homeowners in settlement conferences, and negotiate loan modifications.  Legal service providers also defend homeowners in foreclosure actions, raising procedural and substantive defenses to foreclosure, protecting homeowners’ rights and preventing illegal foreclosures.

The Foreclosure Prevention Services Program has dramatically changed the landscape in New York for the good.  Prior to the creation of this Program, few housing counseling and even fewer legal services programs were funded to assist troubled homeowners across New York.   A comprehensive system of housing counselors and legal services lawyers has been trained under the Program.  They work tirelessly together in their communities to provide outreach to homeowners.  Organizations also support the Office of Court Administration by developing court notices, training judicial personnel, screening homeowners and being available to assist homeowners who appear in court.  The result has been more homes saved.  Based on a snapshot survey of just over half of the agencies funded, between January 2010 and August 2011, over 41,000 households were served and over 7,000 foreclosures were avoided (with many cases pending).  The default rate in foreclosure cases has dropped from 90% to 20%.
 
Impact of Foreclosures on Cities and Communities

The devastating impact of foreclosures on cities and communities has been well documented.  Foreclosed properties depress housing values, an abandoned home leads to blight and the costs of maintaining those properties impact municipal budgets.  The direct loss in property value for homes currently at risk of foreclosure in New York State alone is estimated to be $21.0 billion.  The expected loss of property values of surrounding homes is $39.98 billion totaling a total loss in market value statewide of $61.0 billion.  Estimated revenue loss for local governments statewide is $5.172 billion, including direct tax revenue loss of $372 million and $4.8 billion in indirect costs to cities. 

The fiscal impact on cities and communities can only be mitigated by a reduction in foreclosures.  The median cost savings for each home saved from foreclosure per county is almost $76,000.  Taking into account direct, as well as, indirect costs, the county-average amount saved per foreclosure averted is $186,695.  There is no question that foreclosure is devastating to an individual family, both financially and certainly psychologically, but the foreclosure crisis is one that is fiscally damaging all of us.

The direct services that homeowners and communities have come to rely upon, however, is facing disruption, and possibly extinction.  All funding for the Foreclosure Prevention Services Program ends December 31, 2011.  The funding loss is occurring at the same time that many housing counseling agencies are also losing funding they historically have received from the Department of Housing and Urban Development.  Legal services programs similarly have been losing funding from other sources, and there is no expectation of additional money coming from Congress to fund these vital services.  Already, many agencies have had to end intake for new homeowners and are planning lay-offs of staff.  The snapshot survey of 70 organizations that currently receive funding indicated 159 anticipated layoffs of staff if funding is not restored. 

To educate lawmakers of the impending shut down of this critical program, Empire Justice Center, along with our colleagues across the state, has launched a campaign to request that Governor Andrew Cuomo include $25 million in his Executive Budget to fund the program in State Fiscal Year 2012-13.  In addition, $4.8 million in gap funding is needed to cover the last quarter of the current fiscal year (January – March 2011) and keep these services alive in cities across the state. 

Direct Services to Homeowners Work

The cost benefit of direct services to homeowners has been proven over the course of the last three years.  The non-profits have developed efficient and effective networks to help the most homeowners they can in their local communities. Based on the estimated financial impact of foreclosures on New York, the program has avoided losses totaling over $2 billion to date – for an investment of less than $50 million over the course of three years. Direct services to homeowners work, for both the families in trouble and for their communities. In a nationwide study, homeowners who received counseling were 1.7 times more likely to cure their foreclosure than homeowners who did not receive counseling.  Housing counselors aided homeowners to obtain modifications with monthly payments that were on average $267 less per month than homeowners who were non-represented.  Saving New Yorker’s money on their monthly mortgage payments means more money in their pockets to go back into our state’s local economies.            

The Foreclosure Prevention Services Program has also helped to keep loan modifications scams at bay in New York.  Called “distressed property consultants” under New York State law, for-profit companies have cropped up around the country promising homeowners that they will work with their mortgage servicers for a very hefty fee - $2,500, $5,000 or more.  While these companies are prohibited under New York State law from taking any upfront fees before performing services, they creep in through the internet and direct mail solicitations and have scammed a number of New York’s homeowners, and almost always perform little to no services.  If the non-profit network of reputable services that has been created through the Foreclosure Prevention Services Program goes away, the great fear is that these scammers will proliferate.      

We are far from out of the woods of the foreclosure crisis.  The measures taken so far by New York, however, including both the substantive protections instilled in law, and the resources that have been dedicated to directly helping homeowners, has poised New York to emerge from the crisis ahead of the curve from the crisis.  New York must continue to be vigilant and aggressive in its efforts to maintain its forward moving path.  

If you are interested in being part of this campaign, please contact Kirsten Keefe or Kristin Brown Lilley in the Albany office of Empire Justice Center at (518) 462-6831.