Sustaining Homeownership Through Education and Counseling

This paper addresses a two-fold problem. First, some families are struggling to sustain their home ownership, yet market responses are inadequate. Second, postpurchase education and counseling, potential tools to assist vulnerable homeowners, are inadequately provided. This paper presents a conceptual framework for the effect of postpurchase education and counseling in assisting homeowners. It then examines information needs and strategies that can drive the provision of postpurchase services. In particular, the analysis assesses the current effectiveness and implementation of postpurchase programs. It also draws implications from prepurchase counseling and private sector loss mitigation. Finally, current stakeholders in home-ownership outcomes are identified. This paper recommends postpurchase education and counseling that are integrated into the lending models of the financial services industry and comprehensive over the timeline of the mortgage. A series of models ranging in scope are suggested, including potential actors and challenges involved

Home Foreclosures: Will Voluntary Mortgage Modification Help Families Save Their Homes? Part II? : Hearing Before the H. Comm. on the Judiciary Subcomm. on Commercial and Administrative Law, 111th Cong., Dec. 11, 2009 (Statement of Associate Professor Adam J. Levitin, Geo. U. L. Center)

The results to date from MHAP are deeply disappointing. Even the most optimistic view of HAMP and HARP’s potential would now project the programs as having only a minor impact on the foreclosure crisis. Until and unless the problems of unemployment; negative equity, and servicer capacity, incentives, and contract restrictions are addressed, we are unlikely to see noticeably different results. These issues cannot be addressed within the current structure of HAMP. Unfortunately, none of the solutions for foreclosures due to unemployment are particularly satisfying, and without addressing unemployment, foreclosures will remain at elevated levels. Bankruptcy presents possible solutions to negative equity as well as to servicer-side problems of capacity, incentives, and contractual restrictions, as it removes servicers from the modification business. A bankruptcy solution is not a silver bullet that will end the foreclosure crisis, but if negative equity and servicer-side problems can be successfully addressed, it will result in significant progress in foreclosure mitigation

Why don't lenders renegotiate more home mortgages? redefaults, self-cures, and securitization

We document the fact that servicers have been reluctant to renegotiate mortgages since the foreclosure crisis started in 2007, having performed payment-reducing modifications on only about 3 percent of seriously delinquent loans. We show that this reluctance does not result from securitization: Servicers renegotiate similarly small fractions of loans that they hold in their portfolios. Our results are robust to different definitions of renegotiation, including the one most likely to be affected by securitization, and to different definitions of delinquency. Our results are strongest in subsamples in which unobserved heterogeneity between portfolio and securitized loans is likely to be small and in subprime loans. We use a theoretical model to show that redefault risk, the possibility that a borrower will still default despite costly renegotiation, and self-cure risk, the possibility that a seriously delinquent borrower will become current without renegotiation, make renegotiation unattractive to investors.

Problems in Mortgage Servicing from Modification to Foreclosure: Hearing Before the S. Comm. on Banking, Housing, & Urban Affairs, 111th Cong., Nov. 16, 2010 (Statement of Associate Professor Adam J. Levitin, Geo. U. L. Center)

The mortgage foreclosure process is beset by a variety of problems. These range from procedural defects (including, but not limited to robosigning) to outright counterfeiting of documents to questions about the validity of private-label mortgage securitizations that could mean that these mortgage-backed securities are not actually backed by any mortgages whatsoever. While the extent of these problems is unknown at present, the evidence is mounting that it is not limited to one-off cases, but that there may be pervasive defects throughout the foreclosure and securitization processes. The problems in the mortgage market are highly technical, but they are extremely serious. At best they present problems of fraud on the court, clouded title to property, and delay in foreclosures that will increase the shadow housing inventory and drive down home prices. At worst, they represent a systemic risk of liabilities in the trillions of dollars, greatly exceeding the capital of the US’s major financial institutions. Congress would do well to ensure that federal regulators are undertaking a thorough investigation of foreclosure problems and to consider the possibilities for a global settlement of foreclosure problems, loan modifications, and the housing debt overhang that stagnate the economy and pose potential systemic risk

Project Finance as a Risk-Management Tool in International Syndicated Lending

We develop a double moral hazard model that predicts that the use of project finance increases with both the political risk of the country in which the project is located and the influence of the lender over this political risk exposure. In contrast, the use of project finance should decrease as the economic health and corporate governance provisions of the borrower’s home country improve. When we test these predictions with a global sample of syndicated loans to borrowers in 139 countries, we find overall support for our model and provide evidence that multilateral development banks act as “political umbrellas”

Home Ownership Risk Beyond a Subprime Crisis: The Role of Delinquency Management

A surge in delinquency among risky subprime home mortgages has produced calls for front-end regulatory fixes as well as emergency foreclosure avoidance interventions. Whatever the merit of those interventions, this Essay calls for home mortgage delinquency management to be conceptualized as an enduring component of housing policy. The Essay identifies and evaluates a framework for the management of delinquency that is not limited to formal foreclosure law and includes other debtor-creditor laws such as bankruptcy, industry loss mitigation efforts, and third-party interventions such as delinquency housing counseling. The Essay also proposes that delinquency management be evaluated through the lens of objectives commonly used to justify public investment in home ownership and home mortgage markets: to build household wealth and economic self-sufficiency, to generate positive social-psychological states, and to develop stable neighborhoods and communities. Because those ends are not inexorably linked to ownership generally or owning a particular home, a system of delinquency management that honors these objectives should strive to provide fair, transparent, humane, and predictable strategies for home exit as well as for home retention

Preserving Homeownership: Community-Development Implications of the New Mortgage Market

The recent rise in subprime mortgage foreclosures threatens to undermine the historic homeownership gains made by low-income and minority households during the 1990s.Particularly problematic is the fact that the wave of foreclosures sweeping the country is concentrated in low-income communities. Foreclosures have devastating financial and psychological impacts on borrowers, damaging their credit reputations and ability to secure credit in the future.Yet the negative impact of foreclosures extends beyond individual borrowers, lenders, and investors. Foreclosed properties often represent an eyesore, a site for illicit activity, and a drag on local house prices in vulnerable neighborhoods, and contribute to negative perceptions of these places. These factors can, in turn, generate a vicious cycle in which the presence of several foreclosed properties in a concentrated geographic area increases the likelihood that loans on neighboring properties will be defaulted on as well.Obviously, a run-up in foreclosures can impose unanticipated costs on mortgage industry participants. For investors and insurers of securities issues, foreclosures represent a direct reduction in cash flows and can reduce the market value of their securities. Foreclosure is also damaging to servicers, who incur significant expense pursuing and attempting to rectify problem loans. In addition, a servicer's bottom line deteriorates as the value of servicing rights must be written down as loans drop out of the pools backing securities issues.Funded by the Neighborhood Reinvestment Corporation and building on the work of Neighborhood Housing Services (NHS) of Chicago, this report seeks to chart new ways that community-based organizations -- working cooperatively with private industry and federal, state, and local governments -- can develop new national-scale foreclosure prevention initiatives. Through its Home Ownership Preservation Initiative (HOPI), the NHS of Chicago has forged a new partnership with the city of Chicago and key lending, investment and servicing institutions doing business in the city. The partnership seeks to preserve homeownership whenever possible and keep families in their homes through pre- and postpurchase counseling, prudent application of loan workouts, and in some cases by providing opportunities to refinance into more affordable NHS loans. When foreclosure is unavoidable, the partners seek to preserve the vacant properties as neighborhood assets

Financial development, economic growth and corporate governance : paper presented at the First Annual Seminar on New Development Finance held at the Goethe University of Frankfurt, September 22 - October 3, 1997

During the last years the relationship between financial development and economic growth has received widespread attention in the literature on growth and development. This paper summarises in its first part the results of this research, stressing the growth-enhancing effects of an increased interpersonal re-allocation of resources promoted by financial development. The second part of the paper seeks to identify the determinants of financial development based on Diamond's theory of financial intermediation as delegated monitoring. The analysis shows that the quality of corporate governance of banks is the key factor in financial system development. Accordingly, financial sector reforms in developing countries will only succeed if they strengthen the corporate governance of financial institutions. In this area, financial institution building has an important contribution to make. Paper presented at the First Annual Seminar on New Development Finance held at the Goethe University of Frankfurt, September 22 - October 3, 199

Robo-Signing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing: Hearing Before the Subcomm. on Hous. and Cmty. Opportunity of the H. Fin. Serv. Comm., 111th Cong., Nov. 18, 2010 (Statement of Associate Professor Adam J. Levitin, Geo. U. L. Center)

The US is now in its forth year of a mortgage crisis in which over 3 million families have lost their homes and another 2.5 million are currently scheduled to lose theirs. Repeated government loan modification or refinancing initiatives have failed miserably. To this sad state of affairs, there now come a variety of additional problems: faulty foreclosures due to irregularities ranging from procedural defects (including, but not limited to robosigning) to outright counterfeiting of documents; predatory servicing practices that precipitate borrower defaults and then overcharge for foreclosure services that are ultimately paid for by investors; and questions about the validity of transfers in private-label mortgage securitizations. While the extent of these problems is unknown at present, the evidence is mounting that they are not limited to one-off cases, but that there may be pervasive defects throughout the mortgage servicing and securitization processes

National Foreclosure Mitigation Counseling Program Evaluation: Final Report, Rounds 1 and 2

The National Foreclosure Mitigation Counseling (NFMC) program is a special federal appropriation, administered by NeighborWorks (NW) America, to support a rapid expansion of foreclosure intervention counseling in response to the nationwide foreclosure crisis. As this is a federal appropriation, NW America must inform Congress and other entities of the NFMC program's progress. The Urban Institute (UI) was selected by NW America to evaluate the NFMC program. This report presents the final results from UI's evaluation of the first two rounds of the NFMC program (people receiving counseling in 2008 and 2009), including a detailed analysis of program outcomes first described in preliminary reports of November 2009 (Mayer et al.) and December 2010 (Mayer et al.). According to those reports, homeowners receiving NFMC counseling avoided entering foreclosure, successfully cured existing foreclosures, and obtained more favorable loan modifications. This report updates previous analyses and also includes revised models of several homeowner outcomes for NFMC clients counseled in 2008 and 2009. These new models use an improved comparison sample selection design, which addressed potential issues raised by reviewers of earlier analyses, and a better method for controlling for possible selection bias in the NFMC sample. The additional analyses in this report include models of non-modification cures, non-modification redefaults, and foreclosures avoided