Rhode Island is a nonjudicial foreclosure state. That results in a fast-moving foreclosure process and few official statistics. It also means that pinpointing leading causes and hotspots is tough.Foreclosure - Rhode Island

Carol Lewis

English

Research Papers in Economics

4    Spring 007
by Carol Lewis
Federal Reserve Bank of Boston
Foreclosure 
                                                in Rhode Island
Rhode  Island  is  a  nonjudicial  foreclosure 
state. That results in a fast-moving foreclo-
sure process and few official statistics. It also 
means that pinpointing leading causes and 
hotspots is tough.
According  to  Home  Ownership 
Connection  Director  Vivien  King  of  the 
Housing  Network  of  Rhode  Island—the 
Rhode  Island  association  of  nonprofit 
community  development  corporations 
(CDCs)—most  calls  for  help  are  from 
individuals  who  are  weeks,  days,  or  even 
hours away from foreclosure. 
“When clients come into our members’ 
offices at such a late hour, it is difficult to 
find practical solutions because now we’re 
not talking just about the mortgage but also 
legal fees.” 
Nevertheless, the network is doing what 
it can through Don’t Borrow Trouble Rhode 
Island—a  campaign  against  predatory 
lending  that  Boston  Mayor  Thomas  M. 
Menino and the Massachusetts Community 
and  Banking  Council  pioneered  and 
that  Freddie  Mac  expanded  nationally.  It 
provides  education  and  free  counseling 
services  to  help  consumers  avoid  scams 
and resolve financial difficulties. According 
to King, foreclosure is at the forefront of 
financial  difficulties.  Between  October  1, 
2005, and September 30, 2006, the Housing 
Network dedicated 726 counseling hours to 
foreclosure alone. 
Challenges
Some people in foreclosure are victims of 
circumstance—say,  a  job  loss  or  illness. 
Others are victims of predatory lending. For 
many,  their  adjustable-rate  mortgages  are 
no longer affordable or they chose homes 
they couldn’t afford. Most of the network’s 
clients are people who refinanced and have 
little home equity left. 
King  says  that  although  foreclosure 
prevention products are available, one size 
doesn’t fit all. The network staff has to do 
triage.  Consumers  and  referring  agencies 
call  (800)  436-3180  and  leave  contact 
information. A certified housing counselor 
returns the call within 24 hours to obtain an 
overview of the problem and subsequently 
meets with the client. If loss mitigation is 
appropriate, counselors help the client and 
lender to structure a remedy. 
When appropriate, the counselor refers 
clients to a program partner: Rhode Island 
Housing & Mortgage Finance Corporation, 
United States Department of Housing and 
Urban  Development,  Rhode  Island  Legal 
Services, National Consumer Law Center, or 
Consumer Credit Counseling Services. The 
Housing Network keeps client information 
in Fannie Mae’s Home Counselor Online 
System,  a  free  database,  and  transfers 
information to the appropriate agency.1 
The  Housing  Network  follows  up 
at  monthly  antipredatory/foreclosure 
workgroup  meetings  involving  housing 
counselors, credit counselors, legal services, 
and  housing  advocates.  Workgroup 
members present their most complex cases, 
and the team makes recommendations. 
One interesting remedy, typically a last 
resort, is a lease-back option agreement with 
a community development corporation. If 
the client is affiliated with a CDC in the 
Housing  Network’s  trade  association,  the 
CDC may consider purchasing the house 
and leasing it to the borrower until he or 
she is able to repurchase it.
Unfortunately, if their credit is too far 
gone,  clients  may  end  up  in  bankruptcy. 
But by completing preliminary filings for 
bankruptcy  early  enough,  they  effectively 
halt the foreclosure process—and gain time 
to sell the house and deal with debts. For 
some people in bankruptcy, a lease-buyback 
program  is  a  good  way  to  resolve  the 
foreclosure problem, after which they can 
withdraw the bankruptcy filing.
Solutions
It is important that people not wait until the 
last minute to call the helpline. “The earlier 
they call, the better it is for them and for 
us in terms of looking at good solutions,” 
King says.
And to the industry she recommends 
being proactive. Banks should create an array 
of  lending  products  addressing  different 
needs—clients  with  fluctuating  incomes, 
clients  on  disability  with  fixed  incomes, 
single-parent  families  with  no  disposable 
income  for  emergencies.  According  to 
King, a successful campaign on foreclosure 
prevention  requires  many  partners—
community agencies, CDCs, and state and 
local government.
Some  initiatives  have  begun  in 
Rhode  Island.  Building  on  the  work  of 
the  foreclosure-prevention  and  predatory-
lending  workgroup,  a  new  workgroup 
is  exploring  alternative  loan-rescue 
products  ranging  from  small  grants  to 
full-rescue  finance  products.  The  group, 
whose  members  come  from  the  housing 
and  mortgage  banking  industries,  is  also 
investigating  national  best  practices  for 
more future ideas.2 
What’s  next  for  King?  “We  need  to 
branch out to deal with more foreclosure 
issues,  with  predatory  lending  being  a 
part, but not the sole focus. … Our goal 
for 2007 is to increase our capacity to deal 
with the foreclosure trouble that we know 
is coming.”
 
Endnotes
1  Home  Ownership  Connection  tracks  foreclosure 
phone calls and, with Fannie Mae’s help, has mapped 
its own Rhode Island hotspots, many of which coincide 
with Fannie Mae’s predatory lending hotspots.
2 Fannie Mae, Rhode Island Housing and Mortgage 
Finance Corporation, Rhode Island Housing Resource 
Commission, Rhode Island Department of Business 
Regulation, Consumer Credit Counseling Services of 
Southern New England, Mortgage Guaranty Insurance 
Corporation, Rhode Island Legal Services, Sovereign 
Bank,  Citizens  Bank,  Randolph  Savings,  and  Bank   
of America.
u This Communities & Banking article is copyrighted by the Federal Reserve Bank of Boston. The views expressed are not necessarily those of  the Bank or 
the Federal Reserve System. Copies of articles may be downloaded without cost at www.bos.frb.org/commdev/c&b/index.htm.

Foreclosure in Rhode Island

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