A Look Inside...
The loss of a home is a devastating thing, a traumatic event for borrowers, and an economic and social disruption for communities. When large numbers of foreclosures occur within a particular area, they can destabilize entire neighborhoods by negatively impacting property values and reducing tax revenues. For the defaulting homeowner, it not only forces an unsettling relocation but, as credit is damaged, may impede future financial opportunities as well. No one wins. Foreclosure is bad news for all involved.
The good news is that in many instances foreclosure can be prevented. As this issue of Community Developments highlights, each actor in the mortgage market — from the largest secondary market players to the smallest community group — has a valuable role to play. Fannie Mae and Freddie Mac, for example, have developed statistical models designed to help servicers predict the relative likelihood that a delinquent loan will be resolved or ultimately default. Making this distinction early allows servicers to reach out to troubled borrowers in a targeted way, a way that may make a difference. To aid in this endeavor, some lenders and servicers are partnering with community groups and counselors to assess the circumstances of troubled borrowers and work out potential loss-mitigation strategies.
At their best, these partnerships maximize the financial expertise of banks and other mortgage servicers and the local relationships and outreach strengths of community groups and consumer counselors. Taken to scale, these partnerships - such as Chicago's Homeownership Preservation initiative - can help to stabilize entire neighborhoods.
For banks participating in these partnerships, taking an active approach to foreclosure prevention also affords an opportunity to earn positive Community Reinvestment Act (CRA) consideration. In those instances where, despite the best efforts of all involved, foreclosure cannot be avoided, banks can still take action to prevent the unfortunate consequences that affect an individual homeowner from spreading to the broader community. By donating, or selling at a below-market rate, foreclosed properties to nonprofit developers for sale to low- and moderate-income (LMI) buyers in LMI neighborhoods, banks may earn valuable CRA credit in the process.
We here at the OCC offer this issue of Community Developments as a resource for banks seeking approaches to foreclosure prevention that offer promise.