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Steering Committee of the Campaign to Save Foreclosure Prevention Services 2012 Budget Testimony



February 13, 2012

Albany, New York

 

Prepared by:



Submitted by:
The Steering Committee of the
Statewide Campaign to Save the Foreclosure Prevention Services Program: 

Affordable Housing Partnership
Albany County Rural Housing Alliance
Asian Americans for Equality
Belmont Shelter Corporation
Center for New York City Neighborhoods
Chautauqua Home Rehabilitation and Improvement Corporation
Community Development Corporation of Long Island
Economic Opportunity Council of Suffolk, Inc.
Empire Justice Center
Habitat for Humanity of New York State
Housing Action Council, Inc.
Legal Aid Bureau of Buffalo, Inc.
Legal Aid Society of Mid-New York
Legal Aid Society of Northeastern New York
Legal Assistance of Western New York, Inc.
Legal Services for the Elderly, Disabled or Disadvantaged of Western New York, Inc.
Legal Services NYC
Legal Services NYC - Bronx Corp (dba Bronx Legal Services)
Legal Services NYC - South Brooklyn Legal Services    Legal Services NYC - South Brooklyn Legal Services
Legal Services of Mid NY
Legal Services NYC - Queens Legal Services
Long Island Housing Partnership, Inc.
Legal Services NYC – Bedford Stuyvesant Community Legal Services
Legal Services NYC-Brooklyn Branch
Legal Services NYC-Staten Island Legal Services
MFY Legal Services, Inc.
Nassau Suffolk Law Services, Inc.
Neighborhood Housing Services of Jamaica
Neighborhood Housing Services of New York City, Inc.
NeighborWorks Alliance of NYS
New York Legal Assistance Group
UNHS NeighborWorks® HomeOwnership Center, Utica, NY
Volunteer Legal Services Project of Monroe County, Inc.
Westchester Residential Opportunities Incorporated
Western New York Law Center

TESTIMONY

I.  Introduction

Thank you for the opportunity to provide testimony.  This testimony is submitted on behalf of the steering committee for a statewide network of non-profit organizations that has been working to preserve funding for New York’s Foreclosure Prevention Services Program. 

II.  Foreclosure Prevention Services Program

Administered by NYS Homes and Community Renewal since 2008, the Foreclosure Prevention Services Program funds more than 120 not-for-profit organizations across New York to provide a wide-range of critical foreclosure prevention services, including both housing counseling and legal representation.  As a result of the Program, we now have a robust statewide network of well-trained and experienced homeowner advocates who work collaboratively to stave off foreclosures and maintain affordable housing.  We also have developed strong relationships with the courts and have established referral systems, offices and clinics in some courthouses, and other programs to ensure the maximum number of New York homeowners access our services.  If funding is not restored in the 2012-13 State Budget, this program will end on March 31, 2012, thereby dismantling the network and leaving homeowners in foreclosure without needed assistance from housing counselors and legal services providers.

Since its inception, Program-funded advocates have assisted more than 80,000 families and have averted approximately 14,000 foreclosures.  Thousands of additional cases are still pending.  Program-funded advocates have also engaged in mass public education efforts, dramatically raising the visibility of foreclosure prevention resources, homeowner rights, and awareness of how to avoid foreclosure rescue scams.  As grassroots service practitioners, we first exposed many of the practices now acknowledged as illegal—such as robo-signing and loan modification scams—that have shaped the foreclosure crisis. 

Though New York’s judicial process affords a number of protections, homeowners cannot possibly navigate the judicial system and banks’ complicated processes for applying for loan modifications without the expert assistance of an attorney or housing counselor.  An informal survey of clients by Legal Services NYC revealed that more than 79% had attempted to negotiate directly with their servicer for more than a year without results before seeking assistance.  Further, many foreclosures require complex solutions—whether they involve consideration of non-traditional income, write-down of a principal balance or a solution outside of the standard framework—that are practically impossible without an advocate.  We also have seen a deluge of recent federal and state regulations in the banking and lending industry that provide numerous benefits to homeowners but are too complex and cumbersome for unrepresented homeowners to comprehend.  Only experienced advocates have the ability to invoke these regulations and challenge improper denials of loan modifications or other workouts through administrative channels, to say nothing of the expertise needed to protect homeowners’ rights in judicial foreclosure proceedings.   

III.  Foreclosure Relief Unit within Department of Financial Services (DFS)

The Governor announced in his State of the State address, and included in his Executive Budget, the creation of a Foreclosure Relief Unit within the Department of Financial Services (DFS).  The scope of what this unit will do is not fully revealed, but the agency that regulates the banking industry can certainly play a constructive role in public education and outreach and in performing an escalation function to assist legal services and housing counselors when they are having particular difficulty working with a mortgage servicer.  While this new unit is a welcome addition to the state’s foreclosure-prevention efforts, it cannot replace the on-the-ground network of experienced housing counselors and legal services attorneys working on an ongoing basis in every county of the state with homeowners – often for years –  to help them find the right solutions for their families. 

Indeed, it is our understanding that this unit is intended to work in tandem with the existing community of service providers.  Last week, the Unit launched its “state-run mobile command center staffed with foreclosure counselors” who provide information about loan modifications available under federal law and “take complaints from homeowners who believe they were subjected to lender or mortgage servicer abuses so these cases can be investigated by the department” [1] with a first visit to Long Island.  It has been reported that the Unit is tasked with "[c]hanneling aggrieved or abused homeowners to programs and agencies which are actively engaged in pursuing claims related to mortgage servicer abuses," yet Governor Cuomo's Executive Budget eliminates the State's funding for those very housing counseling agencies and legal services providers comprising the Foreclosure Prevention Services Program which provide these services.  A mobile van handing out information at locations around the state cannot provide New York's homeowners with the advocates they need to navigate the loan modification process, and it certainly cannot provide them with legal representation in court in their foreclosure cases.  Without continued funding of the Foreclosure Prevention Services Program, a vast network of providers—with the ability to link DFS to local foreclosure-prevention efforts and indentify common barriers—will crumble. Maximizing the effectiveness of this new unit, and keeping New York in the front of the pack of states in dealing with the crisis as it has been, requires keeping this network of local service providers intact by restoring funding in the 2012-13 State Budget.

IV.  Multi-State Attorneys General Settlement

We are encouraged by the multi-state Attorneys General settlement announced last week with six of the nation’s largest mortgage loan servicers and we hope that its potential will be fully realized and its terms vigorously enforced.  The settlement has the promise to provide unprecedented relief for many of the homeowners who have been harmed by the housing crash, however, the relief provided in the settlement will be far from complete and is only a start.  We must continue to be aggressive in addressing avoidable foreclosures.   It is estimated that one-fifth of New York’s homeowners who are underwater on their homes – meaning they owe more than the present value - will receive some kind of financial benefit from the settlement.  The benefit to many more homeowners will likely come from the improved processes mandated by (and the fraudulent conduct prohibited by) the agreement.  Experience has well taught us, though, that servicers do not change easily and a settlement is only as good as the ability to enforce its provisions in individual cases, and that, of course, requires access to advocates.  Full implementation of the settlement will take three years, as well, and will require the assistance of housing advocates. 

We were very pleased that Attorney General Schneiderman favors providing funding for housing counseling and legal services programs to provide direct services.  Despite this good news, continued state funding of the Foreclosure Prevention Services Program is crucial.  It is clear that any funding flowing from that settlement will not be in place to allow continuation of the Foreclosure Prevention Services Program which will, if funding is not restored, expire on March 31, 2012.  Given the significant amount of time it will take to get funds on the ground, and the uncertainty about the amount and focus of that funding, gap funding at minimum is needed to ensure continuous high-quality provision of these critically important services.

V.  Conclusion

Our Addendum to this testimony provides much more information about the current state of the crisis.  The most recent indicator is illustrated by a new report released in January, 2012 by NEDAP entitled Foreclosures in New York: What’s Really Going On.  According to the report, “more than 345,000 mortgages were in default or delinquent in New York State, in 2011.”  This number, which is based on the mandatory 90-day notices that must be sent to all homeowners 90 days before a foreclosure is filed, “indicates severe mortgage distress and risk of foreclosure and destabilization for huge numbers of families and communities throughout the state.” It also is a worse prediction of the problem than that estimated by Empire Justice in March 2011 based on Federal Reserve Bank of NY data, which then showed that over 250,000 homes in NYS were either in foreclosure or about to enter foreclosure.  Furthermore, no part of the state is immune to this crisis.  While a slight majority of foreclosures are in New York City and on Long Island, 46% of all foreclosures are in upstate urban and rural counties.

The ripple effect of foreclosures cannot be underestimated.  The Addendum also provides more detail regarding the negative impact of home loss on the state, local municipalities and neighborhoods, as well as on families undergoing foreclosures.   New York’s proactive approach to the foreclosure crisis and substantive protections, including the mandatory settlement conferences and its investment in direct assistance for homeowners, has been working.  While the Foreclosure Prevention Services Program cannot prevent some foreclosures due to homeowners’ loss of income as a result of the economic downtown, program assistance can lead to solutions such as short sales that prevent homes from abandonment while helping to preserve homeowners’ credit and assisting with “soft landings”.  Furthermore, the program has averted thousands of avoidable foreclosures by helping homeowners obtain loan modifications and assert their legal rights in judicial foreclosure proceedings.  New York’s default rate in foreclosure proceedings has dropped from over 90% to 10%, according to the Office of Court Administration’s November 2011 report.  We rank 5th in only 10 states nationally which experienced home price appreciation in 2011, and we are fourth in the nation in terms of loan modifications achieved through the federal Home Affordable Modification Program (HAMP). All of these achievements will be jeopardized if we leave our homeowners without assistance and make them go it alone.

Our services are helping to stabilize communities across the state.  Without continued funding in the 2012-13 State Budget, homeowners facing foreclosure will lose access to critical services and the network of service providers that the Program has developed.  Just as dire, with nowhere left to turn, even more homeowners will fall prey to the ubiquitous mortgage rescue scammers that plague our communities, costing homeowners money and time that they certainly cannot afford to lose. 

For more information or to answer questions, please contact Kristin Brown Lilley or Kirsten Keefe, Empire Justice Center at 518-462-6831 (kbrown@empirejustice.org, kkeefe@empirejustice.org), Jacob Inwald, Legal Services NYC Legal Support Unit at 646-442-3634 (jinwald@ls-nyc.org), or Hilary Lamishaw, NeighborWorks Alliance of NYS at 518-272-8289 x214 (hilary@triponline.org).
 
ADDENDUM

1.  The Economic and Personal Impact of Foreclosure on New York’s Children and Families

The ripple effect of foreclosures cannot be underestimated.  The loss of a home in a foreclosure auction negatively impacts the state, local municipalities, the local neighborhoods, the family and children of the home foreclosed upon.  According to a May 2009 report by The Urban Institute entitled The Impacts of Foreclosures on Families and Communities, “when foreclosures occur, the families living in foreclosed properties are almost always obligated to move, but other effects may well touch on virtually all aspects of their well-being.”  The report further notes that the “lack of a stable home can negatively influence behavior and social development.  Frequent school change is related to poor academic performance and educational attainment.”  In addition to the harm caused to the family, the impact of the foreclosure reaches local municipalities, not only through lost tax revenue as a result of lowered property values, but also from the expenses related to a foreclosed home which range from the cost of cutting grass to the cost of demolition of a vacant property that has attracted crime and public health issues.

The impact of a single foreclosed home is more profoundly felt the more urban the environment.  According to research looking at buildings that are over-mortgaged or have gone into foreclosure from the Citizens Housing and Planning Council, funded by Enterprise, in a study titled The Impact of Multifamily Foreclosures and Over-Mortgaging in Neighborhoods in New York City “… at a minimum… over-mortgaged buildings are likely located in neighborhoods with a housing stock at risk of deterioration.  As a result, the troubled over-mortgaged buildings and their surrounding areas warrant the continued, and possibly heightened, expenditure of public resources for both ongoing monitoring and direct intervention to prevent deterioration in these communities”

Further, the study shows “… the average number of C housing code violations placed (the most serious violations that can be placed on properties) over the two year period studied (2008-2010) increased 13.7% in buildings located within 250 feet of an over-mortgaged building.  Buildings outside of a 250 feet radius only increased their average C housing code violations by 6.3%.”
 
a) Delinquency Trends and the Economic Impact on New York State – Past, Present and Future Predictions

Empire Justice Center has been analyzing statewide delinquency and foreclosure data since 2007.  It’s first report, “The Mortgage Meltdown,” produced in 2007, focused on subprime lending and delinquency data.  That report identified concentrations of loans at risk and for the first time highlighted Long Island as a heavy hit area.  Prior to the report, it was well known that Queens and Brooklyn had significant numbers of subprime loans, but the problem on Long Island had not yet been identified.

The delinquency and foreclosure trends noted in Empire Justice’s first report continued and intensified as shown in our “Mortgage Meltdown II” report released in March, 2011.  The report showed an overall increase in delinquency rates occurring across the state and confirmed what was already apparent to service providers: that the recession and job loss was taking its toll and that the number of delinquent and foreclosed prime loans had overtaken the number of subprime.  This report also identified a disturbing trend, in which the number of homeowners in delinquency exceeded the number of homeowners in foreclosure as of the date of the data.  The conclusion drawn from the data, was that while the rest of the nation is widely viewed to be approximately a third of the way through the foreclosure crisis, New York is closer to halfway through.  Clearly this prediction will worsen should economic conditions in New York fail to improve, or should any of the components of our foreclosure response, such as the homeowner assistance provided through the Foreclosure Prevention Services Program, are lost.

b) The Current State of Foreclosure

Empire Justice Center’s most recent analysis using March, 2011 data obtained from the Federal Reserve Bank of New York estimated that over 250,000 homes in NYS are either in foreclosure or about to enter foreclosure.  The first wave of the foreclosure crisis was composed of homeowners who had received abusive loans that were unaffordable or became unaffordable in the first few years of the loan being made.  The current face of the crisis includes not just homeowners who received abusive loans but homeowners who have traditional, prime loans that are in foreclosure as a result of lost income.  We are at a time in our economic history that one can play by the rules and do all the right things and still face homelessness.  While we are already familiar with the human and social costs of the foreclosure crisis, the full economic impact will not manifest right away.  Hundreds of thousands of homes are in the foreclosure pipeline.  

No part of the state is immune to this crisis.  While the majority of foreclosures are in New York City and on Long Island, 46% of all foreclosures are in upstate urban and rural counties.  As of March 2011, on average, 10% of mortgages in New York were more than 60 days delinquent or in foreclosure.  At the county level, foreclosure rates generally fall between 6 percent and 14 percent, meaning that foreclosures continue to be a significant problem in every county of the state and are not isolated to the counties with the particularly high numbers of homes in distress. 

As noted above, rates of foreclosure in counties across the state are consistent in both urban and rural areas.  Forty-nine of the state’s sixty-two counties (nearly 80%) are within 3 percentage points of the state median of 8.6%.  Several of the counties with very high foreclosure rates are those counties with the largest populations of homeowners (Bronx, Suffolk, and Queens).  However, several rural counties are included in those with the highest foreclosure rates (Sullivan, Broome, Washington, and Montgomery).  

The top 10 counties in New York with the greatest estimated number of foreclosures also include a mix of upstate and downstate counties, and are from almost every region of the State (Suffolk, Queens, Nassau, Brooklyn, Westchester, Orange, Erie, Monroe, Bronx, and Staten Island).

The impact of the foreclosure crisis on neighborhoods remains significant.  While every community is impacted by foreclosures, most of the data studied is looking at the county level.  This masks the fact that foreclosures are not spread out evenly across counties; they are concentrated in certain neighborhoods.  Indeed, in many neighborhoods 1 in 3 or 1 in 5 mortgages are in foreclosure.  This concentration means that market forces will not be sufficient to address the crisis.  As we move forward, we believe that continued funding for the Foreclosure Prevention Services Program will help limit the destructive impact in these communities, which will be critical to their very survival.  Vacant homes resulting from foreclosures will result in a downward spiral of prices impacting homeowners who are current on their mortgages and not underwater, resulting in a continued loss of wealth in these neighborhoods.

Another indicator of the current crisis is illustrated by a new report released in January, 2012 from NEDAP entitled Foreclosures in New York: What’s Really Going On.  According to the report, “more than 345,000 mortgages were in default or delinquent in New York State, in 2011.”  This number, which is based on the mandatory 90-day notices that must be sent to all homeowners 90 days before a foreclosure is filed, “indicates severe mortgage distress and risk of foreclosure and destabilization for huge numbers of families and communities throughout the state.”

2.  New York has Taken a Proactive Approach to the Foreclosure Crisis

New York’s legislature has been among the most aggressive in the country to address the subprime and foreclosure crises since 2008.  Thanks to thoughtfully crafted statutory protections and strategic investments in homeowner assistance, New York ranked 5th of only 10 states to experience home price appreciation in 2011, and we are fourth in the nation in terms of loan modifications achieved through the federal Home Affordable Modification Program (HAMP).  We strongly believe that New York is poised to exit the foreclosure crisis ahead of most other states, but only if we stay the course with current programs and activities and continue to be aggressive and nimble in addressing emerging issues.
 
New York is considered a model state [2] for its foreclosure settlement conference program established in 2008.  The settlement conferences have succeeded in reducing the number of homes lost to foreclosure and in keeping people in their homes.  Prior to the institution of mandatory settlement conferences in New York, over 90 percent of foreclosures ended in default judgment against the homeowner.  That means that in nearly all of the foreclosures filed, the borrower never filed an answer or otherwise appeared in the case, and the home was lost to a foreclosure sale with no participation on the part of the homeowner. 

We believe the biggest reasons for this were the lack of understanding of the legal process, as well as the lack of available assistance to homeowners.  Considering a foreclosure is one of the most detrimental lawsuits that can be filed against a family, these figures are appalling. 

The settlement conferences have provided a forum and a more consumer-friendly opportunity for borrowers to appear on their own behalf in foreclosure filings.  Having a date set for homeowners to appear before the court has proven a more successful method to engage defendants in their defense of foreclosure actions.  According to the report provided by the Office of Court Administration in November 2010, approximately 50 percent of homeowners appeared for the conference in just the first nine months that the conferences were extended to all residential foreclosure actions.  This appearance rate is certainly a stark contrast from the 90-plus percent figure of default foreclosures that existed prior to the conferences. [3]    

According to the most recent report provided by the Office of Court Administration in November 2011, approximately 90% of homeowners appeared for the conference between November 2010 and September 2011.  (This is a remarkable improvement over the estimated 90% of foreclosure cases that ended in a default judgment against the homeowner prior to the initiation of the conferences.)  Notably, for homeowners outside New York City, 41% of all appearing homeowners were represented by counsel.  Unfortunately, the report also highlights the court’s concern about the loss of funding for the Foreclosure Prevention Services Program:

 “The availability of representation for defendants who cannot retain counsel is a paramount concern, because it impacts directly upon the success of the conference process and the ability to reach settlement. Initially, over the course of the first years of the settlement conference program, there was an increase in legal representation.  Currently, however, with the onset of budget restraints and cuts, we are concerned that gains we have made are being lost.”

3.  Impact of Loss of Funding for Direct Services for Homeowners

As noted by the Court, one of the critical components to the success of the settlement conferences have been the direct services that have been made available to homeowners and the efforts in New York State law to connect borrowers in default with housing counseling and legal services assistance.  Increased resources for courts and adequate funding of the Foreclosure Prevention Services Program to provide direct assistance for homeowners would improve both the efficiency and the effectiveness of the conferences significantly.  In 2008, the state took a leadership role by funding the Foreclosure Prevention Services Program which provided the glue for a network of housing counseling agencies, legal service providers, and pro bono assistance programs to cooperate on local levels with the local courts to ensure an efficient and effective method for homeowners to obtain quality assistance during the foreclosure process.  The program was financially renewed in 2010, allowing the network of agencies to continue direct assistance to homeowners.  However, so far the Governor has refused to include money in his Executive Budget for a program that has shown to have a real impact on families and communities facing the foreclosure crisis. 

Simply stated, the impact of the loss of funding for direct services throughout New York will be devastating.  In many counties, especially rural counties, services will go away completely. [4] Agencies have already given pink slips to some of their direct service providers, reduced hours to extend dollars further, or have made employees aware that their jobs are at risk if funding is not continued.  Intake of new cases has slowed and sometimes, stopped completely.  New triage systems aimed at helping homeowners in bulk are already implemented.  The bottom line is that fewer homeowners will preserve homeownership and receive affordable loan modifications absent the direct assistance we have been able to provide in New York since 2008.  The economic consequences for New York State will be devastating.

We cannot speak for the courts, of course, but predict that the impact of the loss of services for homeowners would be great for them, as well.  Empire Justice has conducted trainings for judicial staff in almost every judicial district of the state over the past year.  Local legal services providers and housing counselors have made great efforts to reach out to their courts to make them aware of their services and in turn, many courts have created systems to best ensure borrowers avail themselves of these services. [5]  Feedback from the trainings we’ve conducted evidence that the courts have come to rely on the availability of direct services for homeowners.  The loss of services will further tax judicial resources, and impact the efficiency and effectiveness of the settlement conferences.

4.  Impact on the State with the Foreclosure Prevention Services Program Funded

Since the Foreclosure Prevention Services Program started in 2008, over 80,000 homeowners have been assisted and at least 14,000 homes have been saved from foreclosure.  Every dollar invested in foreclosure prevention through the Program has resulted in a $68 savings to the state.  This is due to the avoidance of decreased property values and subsequent decreased tax revenue.  It is estimated that, to date, the Program has saved over $3.4 billion across New York State.  If nothing is done to help the more than 250,000 homes entering foreclosure, the cost would total over $61 billion in decreased property values and reduction in tax base. 

End Notes:

 [1] See LIBN.com powered by Long Island Business News NY foreclosure mobile unit coming to Long Island published February 8, 2012 http://libn.com/2012/02/08/ny-foreclosure-mobile-unit-coming-to-long-island/
 [2] See report released on February 6, 2012 from the National Consumer Law Center titled Rebuilding America: How States Can Save Millions of Homes Through Foreclosure Mediation.  Throughout the report, New York is analyzed as a model state providing critical services to homeowners which helps save homes from foreclosure and limit the costly consequences of foreclosures in our communities.
 [3] Some regions, such as Staten Island, reported an appearance rate closer to 80 percent.
 [4] One example is Better Neighborhoods Inc. in Schenectady which is the only provider of housing counseling for Fulton and Montgomery Counties, directly funded under the Program.  BNI will be forced to cease services in these counties if funding is not continued.  Legal services in these counties are in the same position, and this will be happening in counties throughout NY.
 [5] Some courts have designated rooms in the courthouse to house legal services lawyers and counselors on settlement conference days to refer pro se defendants.  In other counties, the court would hold a pre-settlement conference session for new defendants in conjunction with legal services and housing counseling staff to better prepare homeowners and connect them with services.  Pro bono programs using lawyers trained through HCR’s Foreclosure Prevention Services Program and administered by funded bar associations, have added representation in some of the heavier hit counties, as well.