Cleveland-based ESOP (Empowering and Strengthening Ohio's People) was on the front lines of the foreclosure crisis before it became a national story. Today, despite its impressive track record for keeping families in their homes, ESOP's work is threatened by decreasing funding.
Foreclosures don't make headlines like they did a year ago. Has the rate slowed?
No, the foreclosure rate has not slowed. In fact, preliminary numbers suggest that we had more filings in 2009 than we did in 2008. We are talking about 90,000 filings or more per year in Ohio. The most troubling sign we are seeing is a sharp increase in "90-day bucket loans." These are loans that are 90-plus days delinquent but with no foreclosure filing by the bank. It's a way for banks to put off taking control of the property while homeowners dig themselves deeper and deeper in the hole, with unpaid monthly payments piling up and no idea whether the lender intends to file foreclosure. In Ohio, about 65,000 loans fall into this category, with little indication of improving. If and when these properties are foreclosed on, the negative impact on the housing market and economy will be huge.
Today, how many foreclosures are resulting from the terms of the loan, like a sudden rise in interest rate, and how many are tied to layoffs and other factors?
Without question, the face of foreclosure has changed. Three years ago, about 80 percent of foreclosure filings ESOP saw were the result of predatory lending, and 20 percent were the result of a hardship like illness or unemployment. Today, the numbers are just the opposite. To add insult to injury, much of the economic downturn is a direct result of the abusive lending that took place between 2000 and 2007.
We keep reading that the Obama administration can't come close to its goals for keeping people in their homes. Are the efforts misguided, or are lenders just resisting them?
Both and then some. President Obama's Making Home Affordable Program (HAMP) is a very good program with one major flaw: lack of funding for housing counseling. So in practice it has become a colossal failure. Lenders and servicers, most notably Chase and Wells Fargo, are resisting the program, while others simply can't ramp up enough to meet the demand, causing lost and stale paperwork. Combined with homeowners who get into default trouble because they couldn't reach their lender early on in the first place, and you have a recipe for disaster. This is exactly what we are seeing 10 months since HAMP started.
However, if HAMP had included money to fund counselors, this would not be the case. It's been proven over and over again that with counseling — an advocate that aggressively pursues loan modifications on the homeowner's behalf — homeowners have a 60 percent better chance of saving their home, according to national study by the Urban Institute. With ESOP, that success rate is even higher, at 83 percent.
You've warned that ESOP won't be able to continue its counseling services much longer without funding. Where does that stand legislatively?
Federal funding has gone from $180 million last year to just $55 million this year. You have to wonder why top officials at the U.S. Treasury are so perplexed about why the HAMP program is not working. Last year, ESOP assisted over 7,000 families as a result of about $1.2 million in federal funding. This year, while those seeking our assistance have only increased, our funding has been reduced to $558,000.
At the state level, there currently is no funding for housing counseling. There are some bills pending, most notably SB 197, that holds some hope of providing counseling dollars by increasing the foreclosure filing fee for lenders. Because our state legislators have not been especially proactive on this issue for the last 10 years, however, we still have a long fight ahead of us.
Do you see any signs of hope on the horizon, locally or nationally?
ESOP is founded on enduring hope and the commitment to fight back. Over the last couple months, we have engaged media outlets around the state to get the word out that 1) this crisis is far from over (even the Mortgage Bankers Association has indicated that this crisis won't even peak until the end of 2010 at the earliest); and 2) the only proven strategy that promises the most success is foreclosure counseling. The message is slowly sinking in, but we need to keep pressing the issue. Just last week, ESOP helped spearhead a statewide press event that was attended by more than 100 counselors, homeowners and public officials including Ohio's attorney general, Richard Cordray. Next month, ESOP and other key stakeholders plan to go to Washington, D.C. to hold meetings with HUD, Treasury and key congresspersons to let them know that without counseling, this crisis will only get worse. We are hopeful that someone in the U.S. capitol will hear us. Too many of our neighbors are depending on it. At ESOP, we have a slogan: We work miracles around here. It's just part of the program. Right now, the miracle we need is for our federal and state officials to take a close look at what is still going on in our communities and make the investment that is needed to turn the corner.