Congressman Kucinich is in town today for hearings on foreclosures. On Friday, ESOP, the Cleveland-based organization that's been at the forefront of the crisis since long before Washington and the mainstream media even knew there was a problem, announced that it's buckling under the strain of the banking industry's indifference to people losing their homes:
At a Congressional field hearing on Monday, ESOP will ring the alarm on the federal government’s failure to address the ongoing foreclosure crisis in Ohio and, as a result, the looming extinction of foreclosure counseling groups like Empowering and Strengthening Ohio’s People (ESOP).
… ESOP’s Executive Director Mark Seifert will testify on the second of two panels. He will focus on the documented impact of foreclosure prevention counseling on Ohio’s ongoing foreclosure crisis and how, without immediate congressional action, these counseling services will vanish the first quarter of 2010 due to a lack of funding.
While all signs point to an ever-growing problem of foreclosures that won’t even PEAK until late 2010, according to Rick Sharga, a top executive at the real estate data firm Realty Trac, lenders continue to give homeowners the runaround and devise new ways to manipulate families facing foreclosure. The foreclosure prevention and counseling services that have emerged as a lifeline for homeowners who don’t know where to turn or get lost in the process are in danger.
Read Seifert's prepared statement after the jump.
EXECUTIVE DIRECTOR, EMPOWERING & STRENGTHENING OHIO’S PEOPLE (ESOP)
DOMESTIC POLICY SUBCOMMITTEE OF THE OVERSIGHT AND GOVERNMENT REFORM COMMITTEE
12/07/2009 — CLEVELAND, OHIO
Mr. Chairman and members of the Committee, Thank you for the opportunity to address you today on the ongoing foreclosure crisis in Ohio. I am Mark Seifert, the Executive Director of ESOP, Empowering & Strengthening Ohio’s People. We are a HUD Certified foreclosure prevention and counseling agency with 11 offices throughout Ohio, serving communities large and small, urban and rural. ESOP, formerly known as the East Side Organizing Project, started as a community organizing group working on safety and education issues, much of it in Chairman Kucinich’s neighborhood.
In the last two years, our organization has grown from a staff of three in Cleveland to almost 60 statewide — a direct result of federal funding recognizing the need for foreclosure counseling prevention in Ohio. We have been on the frontlines of Ohio’s foreclosure epidemic since 1999. During last five years, we have helped more than 13,000 families save their homes. Almost 8,000 of those families have walked through our doors in the last year alone. We know all too well the toll this crisis CONTINUES to exact on struggling families.
That is the focus of my testimony today — the unending state of the foreclosure crisis, the failure of federal programs meant to reverse course and the possible extinction of foreclosure counseling services in Ohio .
CURRENT STATE OF THE FORECLOSURE CRISIS
Let me start by saying: This hearing could not come at a more important time as the foreclosure crisis is far from over. Last month, the Mortgage Bankers Association announced record-breaking third quarter foreclosure filings and delinquency rates in Ohio. Fifteen percent — or 226,140 — of loans serviced in Ohio are in foreclosure or past due. That’s a thirteen percent rise over the first quarter; and a spike of fourteen percent since the second quarter.
A deeper look at these statistics proves even more troubling. For example, the number of loans past due not just by one month — but by 90 days — has doubled from a year ago. As we all know, a 30-day delinquency is much easier to correct, as perhaps the homeowner is a few weeks late due to a one-time car repair. But the meteoric climb in 90-day defaults strikes at the heart of what is nothing less than a second foreclosure crisis in Ohio: one caused by long-term factors like job loss, health issues, divorce and the like.
In fact, 90-day defaults are becoming the new barometer this crisis, especially of how banks are still finding ways to skirt responsibility on non-performing loans. Let me explain. In my opinion, when it comes to homeowners in 90-day default, banks are deciding that given Ohio’s soft housing market and low home values, they will fare better by keeping these mortgages on their books — versus filing for foreclosure or releasing their interest/liens — until the market improves. Meanwhile, homeowners dig themselves deeper and deeper into the default hole, with unpaid monthly payments piling up and no idea whether the lender intends to file foreclosure and kick them out. A foreclosure purgatory, if you will. Such behavior by the banks does nothing to stabilize neighborhoods or help families get on solid ground.
Two years since the foreclosure crisis first rocked the country, all signs point to an ever-growing problem of foreclosures that won’t even PEAK until late 2010, according to Rick Sharga, a top executive at the real estate data firm Realty Trac.
IMPACT OF FORECLOSURE PREVENTION COUNSELING
In this landscape, ESOP’s foreclosure prevention and counseling services have emerged as a lifeline for homeowners who don’t know where to turn or get lost in the process when they do respond to notices from their lender or servicer.
This year alone, ESOP will welcome 8,000 families facing foreclosure through our 11 statewide offices. We expect to help 6,500 of them receive affordable loan modifications — a success rate of over 80 percent that has made ESOP a leader in the state.
Testament to our work comes from the homeowners we help every day. After one Chase borrower learned in October that she had just received an affordable workout after months of waiting, she wrote to ESOP Counselor Robert King. “Somebody pinch me!! Is this the end? Because of ESOP, we get to keep our roof over our heads.”
All this has been achieved through an annual budget of just $2 million, the majority of which is money channeled through NFMC, the Federal National Foreclosure Mitigation Counseling Program.
Let me be clear: The documented impact of foreclosure prevention counseling on Ohio’s ongoing foreclosure crisis is under attack and, without congressional action, will vanish the first quarter of 2010.
To date, NFMC funding has been immediate and, effective. It has also been the SOLE source of federal dollars for foreclosure prevention counseling. However, in the next funding cycle, for the year 2010, NFMC funding for Ohio will be cut by more than half.
Ohio remains at the epicenter of the foreclosure crisis going forward, so this reduction in NFMC funding is devastating.
I assure you: these cuts will severely cripple ESOP’s ability to continue to serve the thousands of families it does each year. ESOP’s budget alone will suffer a projected 50 percent decrease in NFMC funding. It costs ESOP approximately $200 to serve each family in foreclosure that comes to us. This loss of NFMC money means that in 2010, instead of serving 8,000 families or more, as we did this year, we will only be able to assist about 4000 families. Keep in mind that by the end of 2009, Ohio will see close to 80,000 foreclosure filings. That number is projected to rise even further to 90,000 in 2010.
It is imperative that the federal government reinstate NFMC funding at higher amounts for the hardest hit states like ours.
As you may well know, Ohio’s Save the Dream, a multi-state-government-agency effort that funds a hotline, operators, marketing and outreach and a website, has been recognized as one of the best in the nation. Save the Dream operators refer callers to counseling agencies, and also to their respective lenders and servicers.
About 65 percent of ESOP’s caseload comes from Save the Dream referrals. Without future NFMC funding, however, Save the Dream will have few to zero agencies left for homeowner referrals. The tragic irony here is that the average response rate of the top 15 lenders and servicers also getting Save the Dream referrals in 2008 was only 30 percent. Major banks like Chase, US Bank and Wells Fargo had a less than 1 percent response rate.
These lender response rates are not our numbers. They are what banks are self-reporting to the state of Ohio. LESS THAN ONE PERCENT! This alone should demonstrate the amplified need for federal funding of foreclosure prevention counseling agencies like ESOP.
Nevertheless, I am sad to report that ESOP’s recent grant application to HUD was denied. The reason is HUD’s focus on pre-purchase and post-purchase mortgage, debt and budget counseling. Because ESOP’s main emphasis is on foreclosure prevention, our non-profit did not score enough points in HUD’s scoring template. But given the ongoing foreclosure crisis and the ongoing recession, it should go without saying that HUD needs to re-order its funding priorities to include foreclosure prevention counseling as well. ESOP sent HUD Secretary Shaun Donovan a letter on Nov. 30 expressing our dissatisfaction and has requested a meeting to discuss all of the above. We have not yet received a response.
That brings me to the third and final federal program to assist borrowers in foreclosure: the Obama Administration’s Making Home Affordable Program, also known as HAMP. I have saved my remarks on HAMP for last as HAMP not only holds great promise, but has also wreaked great havoc.
Since mid-June, when HAMP finally sprung into action, much of ESOP’s caseload has turned into potential HAMP loan modifications.
Homeowners who finally end up at ESOP come with horror stories. Communications from lenders trying to offer HAMP trial modifications often only provide 800 numbers, sending borrowers into automated loops. When borrowers do gather paperwork and send it in themselves, it is almost certain to get lost in a maze of disorganization and bureaucracy that constitutes the loan modification arms of most banks.
As a brief aside, my sister is experiencing a hardship. She is current with her mortgage. I walked her through what she needed to do to participate in HAMP. I told her to expect it to take about an hour or so. She later called me to tell me that while she doesn’t have anything in writing yet and spent 4.5 hours on the phone, she “thinks” she will qualify for a modification and is waiting for the paperwork.
The sad truth is that experienced counselors at ESOP are also having trouble working with lenders and HAMP. Take Wells Fargo, for example, a bank whose loan modification process leaves a lot to be desired. Conference calls go nowhere; Wells Fargo representatives rarely get back to ESOP with answers on specific files. We hear, “Let me check on that,” but they never do. Wells Fargo executives have shunned repeat overtures by ESOP to meet their own homeowners and sort out the larger structural problems.
Then there’s JP Morgan Chase. Since ESOP organized a statewide protest against Chase in June, ESOP has had two face-to-face meetings with Chase representatives. While Chase is coming to terms with its shortfalls, more than Wells Fargo, Chase’s HAMP processes are still too slow and inefficient.
These two banks are not alone. ESOP is finding that major banks’ new servicing arms are ill-equipped to handle or understand the HAMP modification tidal wave. Often times ESOP counselors are the ones explaining HAMP rules to lenders. Banks like Chase have confessed that ESOP is a crucial link between lender and homeowner when it comes to facilitating HAMP modifications.
There has been much in the news lately about how few trial HAMP modifications have been converted into permanent workouts. To date, ESOP has done more than 400 HAMP trial modifications. By now at least 275 should have been converted to permanent modifications. Yet, we have just ONE example of that.
Trying to get permanent modifications through HAMP is the heavy-lifting ESOP does every day on behalf of homeowners — and lenders and servicers. We do this because HAMP has some excellent principles we believe in — the 31 percent debt-to-income ratio and overall goal of stabilizing neighborhoods by keeping people in their homes.
Moreover, we go above and beyond HAMP’s requirements. At ESOP, we further counsel all our homeowners on their entire debt portfolio. We routinely look at what caused the default in the first place: predatory lending, hardships like lack of employment, medical bills, etc; discretionary spending that needs to be adjusted, etc. We also refer our homeowners to other services like HEAP and ODJFS so they can couple our foreclosure prevention counseling with other community services. To not provide such holistic counseling means that the 31 percent benchmark will not result in an affordable monthly mortgage payment.
Furthermore, ESOP’s counseling work ensures a solid HAMP workout the FIRST time, reducing the rate of re-default.
None of this is required under HAMP, only encouraged. Without such counseling, however, I predict that 80 percent or more of HAMP modifications will re-default. I beg you to restructure HAMP to mandate and fund foreclosure counseling.
In light of the dismal permanent modification rates, the U.S. Treasury and HUD last week put HAMP on steroids, via a conversion drive. Lenders and servicers will now have to wait to receive an initial $1,000 until after trial modifications turn permanent. They can still collect an additional $3,000 in federal TARP money if the modification survives for three years. And the Administration has said it is going to aggressively track conversion performance and publish these numbers, in an attempt to publicly shame banks to work faster and better.
The Administration acknowledges that increased awareness and understanding of HAMP is sorely needed and that the HAMP documentation process is challenging at best for individual homeowners. To wit, the Administration is encouraging counseling agencies like ESOP to help achieve HAMP’s potential. I am extremely discouraged, however, that the Administration has remained silent on how it expects ESOP and other agencies to pay for continued assistance and outreach to borrowers who need HAMP modifications.
I am extremely troubled that there is no provision in HAMP to share any part of the total $4,000 allotted for each HAMP modification with counseling agencies. As a non-profit providing free foreclosure prevention services, we spend $200 counseling each homeowner — a mere fraction of the bank’s $4,000 recompense. Congress has an obligation and power to change the rules and insist that instead of the entire initial $1000 payout of TARP money going to the lender/servicer, at least $500 of it be directed to the agencies working in the trenches, agencies like ESOP closest to those affected, to ensure that we have the resources to continue to be part of the solution and bring homeowners timely, affordable and successful HAMP modifications.
I cannot stress enough how urgent and pressing the funding issue is for ESOP. Unless HAMP is reworked within the next 30 days to provide funding for foreclosure counseling agencies, make no mistake: ESOP will begin to lay off counselors and close its statewide offices one by one. Unfortunately, I am the one who will make that decision and it will start with our remote, rural locations where we are the only counseling resource available but where we can no longer maintain the cost overheads when ESOP’s very survival is at stake.
In closing, the need for foreclosure prevention counseling in Ohio has never been greater. But without immediate increased federal funding for this work, similar to legislation that gave rise to NFMC, the biggest losers will be Ohio’s homeowners and Ohio’s economy.
HAMP’s fundamental flaws — its lack of holistic debt counseling and silence on foreclosure counseling funding — leave Ohio vulnerable to nothing less than a second foreclosure crisis. This amounts to an utter failure of HAMP and its mission to stabilize neighborhoods on the brink of economic and foreclosure-related collapse. HAMP’s complexity, ineffectiveness and unfunded mandates are why Ohio is in a state of continuing crisis.
If Ohio is to turnaround, the federal government must support the work of counseling agencies like ESOP by changing HAMP, reinstating NFMC to reasonable levels in Ohio and re-ordering HUD’s funding priorities.
Thank you and I ask that my testimony be entered into the record and look forward to your questions.