The foreclosure crisis that started in 2008 when homeowners began defaulting on subprime mortgages is far from over, but Gov. Andrew Cuomo’s budget eliminates the state’s Foreclosure Prevention Services Program.
The move came as a surprise to local housing agencies that have relied on money from the program to assist struggling homeowners in the Capital Region.
For Better Neighborhoods Inc. in Schenectady, the loss of state funding would force the organization to eliminate housing counseling services in Fulton and Montgomery counties and reduce services in Schenectady County.
Ellie Pepper, assistant director of Better Neighborhoods, said housing counselors help homeowners navigate a complicated bureaucracy — one that pits lenders with expertise in complex financial transactions against homeowners with little financial savvy.
“A lot of times, people come to us after they’ve tried to deal with the lender on their own,” Pepper said. “We negotiate on their behalf. We get momentum where they couldn’t get momentum on their own. It’s a complicated process.”
For the 18-month period that ended in December, Better Neighborhoods received about $88,000 from the Foreclosure Prevention Services Program.
Housing counselors often negotiate loan modifications for their clients, enabling homeowners to avoid foreclosure, stay in their homes and pay off their mortgages under new terms. Sometimes a modification isn’t possible, and they advise the homeowner about other options, such as a short sale, through which a property is sold and the lender agrees to accept a discounted payoff and release its lien on the property.
The housing groups are hoping to convince Cuomo to restore funding for the program.
“We need to make a big push,” said Louise McNeilly, who coordinates HomeSave, a Capital Region coalition of nonprofit legal and housing groups that assists homeowners who are delinquent on their mortgages. “We can’t give up.”
Kirsten Keefe, senior staff attorney at the Empire Justice Center in Albany, estimates that the foreclosure crisis isn’t even half over, and if funding for the program is eliminated “direct services to homeowners is going to dry up. There are not a whole lot of other funding sources dedicated to foreclosure relief.”
Susan Cotner, executive director of the Affordable Housing Partnership in Albany, said the funding cut would likely force housing agencies to stop providing homeowners with one-on-one assistance and instead focus on empowering them to navigate the foreclosure process themselves by providing information and snapshot analyses at educational meetings. This approach isn’t ideal, Cotner said.
“You’re dealing with massive bureaucracies, legal issues and the loss of a home,” she said. “It’s a hard battle to fight on your own.”
Since 2008, the Affordable Housing Partnership has met with more than 425 households, “some for three hours, some for over 25 hours,” she said.
New York requires lenders to send homeowners facing foreclosure 90-day pre-foreclosure notices to let them know that they are in trouble. Included in these notices is information about housing counselors in their area.
According to Louise McNeilly, 18,893 notices of intent to foreclose in 90 days were sent to homeowners in the Capital Region in 2010; in the last month, 2,000 new properties received such notices, up from 1,244 in November. Between January 2011 and January 2012, 3,183 Schenectady County homeowners received 90-day intent to foreclose notices. So far this month, 331 notices have been mailed to Schenectady County homeowners.
Foreclosure filings slowed last year, but experts attribute this to the “robosigning” scandal — where banks were found to have signed off on legal filings without properly reviewing each case — rather than an actual drop in delinquent homeowners. The uproar over robosigning led to a temporary, nationwide halt in foreclosures as banks and mortgage lenders investigated how the illegal practice became widespread. Foreclosure filings eventually resumed, but at a slower pace, as lenders were forced to comply with new policies enacted in the wake of the scandal.
The Foreclosure Prevention Services Program was created in 2008 to deal with the rash of foreclosures caused by the collapse of the subprime housing market. Today, most of the homeowners visiting housing agencies have conventional mortgages and are suffering as a result of income loss because of the recession.
The program’s budget was about $25 million. The money actually ran out in January, but the state decided to provide $1 million in gap funding between January and March, giving housing advocates hope that the governor’s budget would reinstate funding for the program.
“We felt very positive,” Pepper said. “The governor seemed to demonstrate his understanding and support.”
Housing advocates said that, given Cuomo’s experience heading the U.S. Department of Housing and Urban Development during the Clinton administration and his seeming understanding of the foreclosure crisis, his decision was particularly shocking.
Cuomo’s budget does create a Foreclosure Relief Unit to assist struggling homeowners “via outreach, educational programs and regulatory assistance,” but housing advocates said they weren’t sure what the unit would do and whether it would be as effective.
The housing agencies are dealing with multiple cuts. HUD funding is being cut, and the state is eliminating $19 million in funding for neighborhood and rural preservation programs.
As a result of budget cuts last year, Better Neighborhoods employees’ adopted a four-day workweek.
“We can manage the status quo until June,” Pepper said. “After June, it’s tough to say what will happen.”