Updated July 11, 2007

June 4, 2007 Foreclosure Prevention Task Force Meeting and Publc Hearing Minutes

Attendance:

Kim Zurz, Director, Department of Commerce – Chair

Rich Cordray, Treasurer, State of Ohio

Steve Driehaus, State Representative

Mike Adelman, Ohio Bankers League

Michael Deemer, Attorney General’s Office

Doug Garver, Ohio Housing Finance Agency

Carol Mount Peterson, Federal Home Loan Bank (alternate)

Rachel Robinson, Equal Justice Foundation

Lou Tisler, Neighborhood Housing Services

Tom Leach, U.S. Department of Housing and Urban Development

Bill Graves, Ohio Department of Development

Lisa Tarter, Fannie Mae (alternate)

Jef Wherry, Ohio Mortgage Bankers Association (alternate)

Eric McFadden, Governor’s Office of Faith Based and Community Initiatives

Ralph Gildehaus, Ohio Benefits Bank

Bill Faith, Coalition on Homelessness and Housing in Ohio

Simone Morgan, Senator Tom Robert’s Office (alternate)

Britney Colvin, Senator Jeff Jacobson’s Office (alternate)

Craig Forbes, Rep. Chris Widener’s Office (alternate)

Becky Hart, Ohio Credit Union League (alternate)

Absent:

Linda Brooks, Freddie Mac

Larry Long, County Commissioners Association of Ohio

Larry Litton, Litton Loan Servicing

John Mahoney, Ohio Municipal League

MINUTES AND CALENDAR

Director Zurz opened the meeting and asked for a motion to approve the minutes of the May 21 meeting. The minutes were approved.

Future meetings of the Task Force will be held on June 18, July 16 and August 13 at the same time and location.

SUBCOMMITTEE REPORTS

Director Zurz called upon the subcommittee chairs to give their reports. 

• Educating Borrowers / Contacting Borrowers  - Treasurer Cordray reported that the committee is working on how to meld a borrower outreach strategy using both 211 and the 888-995-HOPE systems. The committee is also working on recommendations for funding housing counseling and strategies for media outreach.  Save Our Homes coalitions will be an important part of the outreach effort. Representative Driehaus asked about funding for expansion of 211. Budget action is in doubt at this point, and the committee’s recommendations will not be dependent on budget approval.   Treasurer Cordray also mentioned that Willis Blackshear, Montgomery County Recorder, has done research and identified homeowners with “at risk” loans and recommended that we learn more about his method and results.
• Housing Options – This committee will meet June 11 at 3:30 at OHFA.
• Legal – The committee met on May 29 and will continue every two weeks. Next meeting is June 11 at 1 p.m at the Attorney General’s office.  Some recommendations may overlap with the legislative committee.  Mike Deemer will ensure that this happens.
• Legislative – No report.
• Responsible Lender Options – The committee met earlier in the day.  They discussed a plan to hold “Borrower Outreach Days,” which would be forums with servicers and counselors at locations throughout the state.  The forums would be held in August.  Borrowers would have an opportunity for loan counseling, meetings with servicers, and finding out about refinance options.

PRESENTATION BY FEDERAL RESERVE BANK

Director Zurz introduced Ruth Clevenger, Vice President for Community Affairs of the Federal Reserve Bank of Cleveland. Ruth had several handouts including an announcement of the Policy Summit on June 21, links to testimony by the Federal Reserve (the Fed), and news releases regarding recent guidance. Her remarks are summarized below:

The Fed’s approach to the issue of foreclosure is as a regulator and as the nation’s central bank.  Her personal view is that while in the past there has been a lack of available credit in some communities, today the problem is one of too much access to the wrong kind of credit and capital.  New lending systems in the subprime market are not subject to the same regulation as the prime market. Today those new non-bank lending sources account for almost 50% of the higher priced conventional loans, and 66% in Cleveland.  Bank mergers in the prime market are not the cause. In spite of mergers, Ohio markets are actually less concentrated than the national average, and the number of banking offices has remained stable.  Partnerships with nonprofits help banks reach qualified borrowers in underserved markets.

Non-bank lenders focus on the subprime market. Their increased market share has been helped by technology that makes high risk manageable, which has improved access to credit by marginal borrowers.  Subprime foreclosures are the result of higher interest rates, lower price appreciation and job loss. The majority of defaults are with adjustable rate mortgages (ARMs) in both the prime and subprime sectors. 

In the subprime sector there is a separation between the originator (mortgage broker), the investors and servicers which leads to more aggressive underwriting.  The Fed is reviewing HOEPA and TILA for possible regulatory reform. 

There is a lack of reliable information on foreclosures.  Two primary sources, the Mortgage Bankers Association and Realty Trac have different methodologies.  The MBA data shows increasing numbers of foreclosures but not detail on the loan or borrower.  Realty Trac may count some houses more than once.  No one is measuring the trust.  The Task Force should keep in mind that 75-85% of subprime borrowers are successful, and should avoid the unintended consequence of drying up credit.

The Fed issues Supervisory Guidance to alert banks to practices that will receive extra scrutiny in a bank evaluation.  Recent guidance includes illustrations to accompany the October 4, 2006 Guidance on Nontraditional Product Risks, a policy letter encouraging banks to pursue prudent workout arrangements including transitioning borrowers from high cost to lower cost loans, and guidance on Interagency Credit Risk Management Guidance for Home Equity Lending.  There will be a hearing on June 14 regarding how the Fed could use rulemaking to restrict abusive lending practices and prevent fraud. 

Rachel Robinson asked what is the Fed’s position on “no doc” and stated income loans.  Ruth said that if the Fed can tighten oversight under TILA or HOEPA, there could be a way to close this gap.

Treasurer Cordray asked for clarification regarding regulation of loan products. Ruth said that banks don’t have to get regulatory approval for loan products, but the Fed can set parameters. Keep in mind that any rules would apply only to insured depository institutions, which represent 50% of the market.

Mike Deemer asked how the Fed regulates affiliates of bank holding companies. Ruth said the Fed’s oversight is not at the same level as a full bank. She will send a more detailed answer by email.

Rachel asked what recourse an individual would have if they get a loan that has elements that are inconsistent with the Fed’s guidance. Ruth explained that the Fed would refer the issue to the lender, and could address it subsequently in an examination.

PRESENTATION BY HOMEOWNERSHIP PRESERVATION FOUNDATION (HPF)

Dean Caldwell-Tautges addressed the Task Force using a power point presentation.  (See attachment for more detail.) He began by noting the upcoming Ad Council campaign that will kick off on June 25.  HPF expects to handle 100,000 calls in 2007, and to counsel about 50,000 families.  HPF receives 50-100 calls per day. HPF has counseled 4,000 Ohioans to date.  HPF counselors spend about 45-60 minutes with each caller counseled. When borrowers call back they speak to the same counselor, and have that counselor’s direct line. If a borrower has more complicated issues, they are referred to organizations in the NeighborWorks network for face to face counseling.

Following the formal presentation, there were several questions:

What are the loan characteristics of callers?

43% - ARM

18% - unsure

41% - fixed rate

62% - have missed two payments

6% - have FHA insured loans

What are the reasons some calls don’t go forward to counseling?

Some calls are from people who want to buy a home.  Some people are just seeking information.

Will there be an opportunity to add other counseling organizations besides NeighborWorks members?

This has already happened.  HPF initially chose NeighborWorks to ensure minumum standards of quality.  Additional capacity will be needed in the future.

How can a national call center provide information for borrowers in different states?

Every counselor has information available on state law, timelines and local agencies who provide social services. This information is updated consistently.

What is the relationship between HPF and GMAC and ResCap?

HPF’s funding is from the foundation arms of these two lenders.  Funding is not tied to outcomes.  HPF does not refer borrowers to any for-profit organization.

WRAP-UP

Director Zurz once again encouraged people to send “out of the box” ideas to members of the Task Force.  She asked for suggestions on how we can make the borrower outreach meetings successful.

The Task Force asked for a representative of a subprime lender or servicer to speak at the next meeting as well as someone from the Center for Responsible Lending.

Director Zurz clarified that the Task Force’s focus is on the entire process of foreclosure with an emphasis on owner occupants.  She further clarified that the Legal Committee should focus on issues related to sheriff sales.

Bill Faith asked for an update on federal issues that should be addressed, and noted that Representative Gilmore is convening a roundtable on the Ohio foreclosure crisis in Washington on June 27.  Issues that were identified include tax relief for borrowers on loan forgiveness (introduced in House and Senate), increase funding for counseling (needs appropriations support) and direct homeowner assistance (under discussion.)

Tom Leach passed out information on Foreclosure Prevention summit in Cleveland on June 26.

Upcoming committee meetings are as follows:

June 11 and June 25 – Legal at 1 p.m

June 11 – Housing Options at 3:30

June 18 – Responsible Lender Options at 11:30.

Meeting adjourned at 2:50 p.m.

May 21, 2007 Foreclosure Prevention Task Force Meeting and Publc Hearing Minutes

Attendance:

Kim Zurz, Director, Department of Commerce – Chair

Rich Cordray, Treasurer, State of Ohio

Chris Widener, State Representative

Steve Driehaus, State Representative

Jeff Jacobson, State Senator

Mike VanBuskirk, Ohio Bankers League

Mike Deemer, Attorney General’s Office

Carol Mount Peterson, Federal Home Loan Bank (alternate)

John Mahoney, Ohio Municipal League

John Kozlowski, Ohio Credit Union League

Rachel Robinson, Equal Justice Foundation

Lou Tisler, Neighborhood Housing Services

Tom Leach, U.S. Department of Housing and Urban Development

Bill Graves, Ohio Department of Development

Vanessa Randolph, Fannie Mae (alternate)

Bob Niemi, Ohio Mortgage Bankers Association (alternate)

Eric McFadden, Governor’s Office of Faith Based and Community Initiatives

Ralph Gildehaus, Ohio Benefits Bank

Bill Faith, Coalition on Homelessness and Housing in Ohio

Mark Wiseman, Cuyahoga County Foreclosure Prevention (alternate for Jim Rokakis)

Damien Hardy, Senator Tom Robert’s Office (alternate)

Absent:

Linda Brooks, Freddie Mac

Doug Garver, Ohio Housing Finance Agency

Larry Long, County Commissioners Association of Ohio

Larry Litton, Litton Loan Servicing

MINUTES

Director Zurz opened the meeting and asked for a motion to approve the minutes of the May 7 meeting. The minutes were approved.

SUBCOMMITTEE REPORTS

Director Zurz called upon the subcommittee chairs to give their reports. 

• Educating Borrowers – (This committee is meeting jointly with Contacting Borrowers.)  Treasurer Cordray reported that the committee is continuing to develop recommendations for coordinated outreach to borrowers and for expanding the availability of homebuyer counseling.  Save Our Homes coalitions have now been established in 26 counties and are sharing best practices. 
• Housing Options – This committee has not met yet.
• Legal – This committee has not met yet.
• Legislative – Representative Driehaus reported on the second meeting of the committee.  Regarding the impact of SB 185, the feedback is generally positive but since the legislation has only been in effect since January 1, it is too soon to evaluate.  A concern was raised my mortgage brokers about obtaining the acknowledgement from borrowers in a timely manner from customers who apply over the phone. Often the customer fails to return the signed form until the closing. Also a concern was raised about whether a written exam could be an alternative to the classroom training requirements for brokers when the applicant has prior experience with a regulated mortgage lending institution.  The committee also discussed S.B 119 (Schuler), which would provide new procedures for local governments to obtain tax delinquent properties for land banks, and H.B. 138 (Foley-Blessing), which requires prompt recording of deeds following foreclosure. Both bills are viewed favorably by the subcommittee, although some concerns about the details of S.B. 119 need to be addressed.  Finally, the subcommittee took testimony regarding the importance of including credit scoring education in financial literacy programs.
• Responsible Lender Options – The committee is continuing to discuss targets for negotiations with lenders. Director Zurz has requested legal counsel to help with this work. Under consideration are proposed changes in the foreclosure process. Other potential legislative issues were identified and will be researched by the members.

PUBLIC TESTIMONY

The Committee took testimony from 21 individuals.

Copies of the written testimony are available on request to members of the Task Force and to interested parties.   

Director Zurz reminded the Subcommittee Chairs of the importance of public notice requirements.  Please let Cindy Flaherty know when committees are meeting.

The next meeting of the full Task Force will be June 4 at 1 p.m. on the 23^rd floor of the Riffe Center.

The meeting adjourned at 3:55 p.m.

May 7, 2007 Foreclosure Prevention Task Force Meeting Minutes

Attendance:

Kim Zurz, Director, Department of Commerce – Chair

Rich Cordray, Treasurer, State of Ohio

Chris Widener, State Representative

Steve Driehaus, State Representative

Tom Roberts, State Senator

Jeff Jacobson, State Senator

Michael Adelman, Ohio Bankers League (alternate)

Doug Garver, Ohio Housing Finance Agency

Carol Mount Peterson, Federal Home Loan Bank (alternate)

Kent Scarrett, Ohio Municipal League (alternate)

John Kozlowski, Ohio Credit Union League

Rachel Robinson, Equal Justice Foundation

Lou Tisler, Neighborhood Housing Services

Tom Leach, U.S. Department of Housing and Urban Development

Bill Graves, Ohio Department of Development

Carl Riedy, Fannie Mae

Clayton Evans, Freddie Mac (alternate)

Jeff Wherry, Ohio Mortgage Bankers Association

Eric McFadden, Governor’s Office of Faith Based and Community Initiatives

Ralph Gildehaus, Ohio Benefits Bank

Suzanne Gravette Aker, Coalition on Homelessness and Housing in Ohio (alternate)

Mark Wiseman, Cuyahoga County Foreclosure Prevention (alternate for Jim Rokakis)

Guest Speakers:

Frank Nothaft, Freddie Mac

Engram Lloyd, HUD

Absent:

Mike Deemer, Attorney General’s Office

Larry Long, County Commissioners Association of Ohio

Larry Litton, Litton Loan Servicing

MINUTES

Director Zurz opened the meeting and asked for a motion to approve the minutes of the April 10 meeting. Treasurer Cordray moved and Bill Graves seconded a motion to approve the minutes. The minutes were approved.

SUBCOMMITTEE REPORTS

Director Zurz called upon the subcommittee chairs to give their reports.  Subcommittees are expected to bring their recommendations to the Task Force where they will be voted upon by the full body.  Minority reports will be accepted.  Please let Cindy Flaherty know when Task Forces are holding their meetings and copy her on communications.

• Educating Borrowers – (This committee is meeting jointly with Contacting Borrowers.)  Treasurer Cordray reported that the committee is working on building out an infrastructure to spread the message about options for borrowers.  His office is taking the lead on creating Save Our Homes task forces at the county level. The task forces include community groups, public officials such as auditors, treasurers, clerks, sheriffs and commissioners, realtors and lenders.  These coalitions have been established in 14 counties and are sharing best practices. 
• Contacting Borrowers – Mark Wiseman reported on behalf of Jim Rokakis. This committee is working on mapping the state to determine where counseling is available and is developing a budget for marketing. The committee is also doing research toward building an infrastructure for receiving calls from borrowers as a budget for statewide availability of housing counseling.  He invited other Task Force members to provide input.
• Housing Options – This committee has not met yet.
• Legal – This committee has not met yet.
• Legislative – The committee met by phone. Representative Driehaus distributed the following list of issues for consideration by the committee:
  • Evaluating the impact of SB 185, Ohio’s anti-predatory lending legislation
  • Review of the county Sheriff’s sales, effectiveness of processes and procedures
    • Recordation of deeds in a timely manner (Foley-Blessing HB 138)
  • Linkage of sub-prime lenders with parent companies investing state dollars
  • Strategies to support jurisdictions coping with abandoned properties
    • Facilitating land banking and reuse efforts (Schuler SB 119)
    • Developing and promoting a county “toolbox” for dealing with foreclosures (i.e. – 211, Ohio State University Extension Service)
  • Clarification of ownership, responsible party and contact info on property records held by County Recorder and County Auditor statutory agent
  • Other county elected official initiatives – identification and reporting of subprime loans – County Recorder
  • K-12 financial literacy

• Responsible Lender Options – The committee has met and is defining targets for negotiations with lenders. This will take the form of a matrix.  Director Zurz has been calling the lenders and is getting strong interest in forming a partnership with the state of Ohio.  She encouraged any Task Force members who have input on this matter to get in touch with her.

FREDDIE MAC PRESENTATION

Clayton Evans introduced Frank Nothaft, Chief Economist of Freddie Mac. His power point presentation is attached separately.  Highlights and discussion are summarized below:

• For Freddie Mac’s borrowers, who are in the prime mortgage market, two-thirds of delinquencies are caused by loss of job or illness
• Unemployment peaked nationally in 2003. Since that time, Ohio’s unemployment rate was sustained longer than the national rate, and remains about 1% above the national average.  For prime borrowers, mortgage default is delayed following unemployment.
• Task Force members asked if there was a relationship between unemployment and increased subprime lending, as prime borrowers facing a loss of income refinance to stay in their homes. This may be the case, but additional research is needed.
• While FHA/VA and conventional foreclosures have stayed steady, subprime has almost doubled. Subprime loans represent 15% of all loans outstanding, but 50% of loans entering foreclosure. In Ohio about half of the subprime loans are for refinance.
• The subprime market is characterized by a lack of quality in underwriting. Layering of risk increases the likelihood of default. The percentage of investor loans is high.
• In the prime market 94% of loans are fixed rate, and Adjustable Rate Mortgages (ARMs) are mostly 5/1 structures.
• In the subprime market the majority of loans are 2/28 structure with a three-year prepayment penalty.  Teaser rates are one of the reasons that purchase borrowers choose a subprime loan.
• Subprime lending cuts across all incomes, but affects low and moderate- income borrowers more.
• Subprime lending is higher among black and Hispanic borrowers, even after factoring credit scores. Down payment may also be a factor. Minority neighborhoods have a higher prevalence of subprime loans.
• Treasurer Cordray asked when Freddie Mac’s $20 billion commitment to purchase mortgages to help subprime borrowers would become a practical reality.  Clayton Evans answered that it would be in a 60-day time frame.

FANNIE MAE PRESENTATION

Carl Riedy, Vice President of Community Lending, began by complimenting Governor Strickland on forming the Foreclosure Prevention Task Force.  He noted that the impact of subprime lending is hurting Ohio’s recovery, and that it’s part of Fannie Mae’s mission to make safe mortgages.  Highlights of the presentation include the following:

• Subprime growth started rising dramatically in 2006.  The amount of subprime mortgage debt outstanding was $126 billion in 2002, $591 billion in 2006 and now totals $1.1 trillion.  Subprime loans are 21% of all mortgage debt.
• The housing market is soft nationally and even softer in Ohio.  Sales of new and existing homes are on the decline.  There is a 30-month supply of unsold inventory.  Nationally, home prices declined 1-3% in 2007 and are leveling off.
• The combined factors of financial illiteracy at the street level and capitalism at the lender/investor level contributed to the current housing turmoil.
• 4.5 million subprime loans will reset in 2007-2009. Nationally subprime mortgages make up 18% of all loans and 63% of foreclosures.
• Foreclosures are severe in the sunbelt and rust belt states, as measured by Realty Trac. The rate of foreclosures is higher in Ohio for both prime (1.49%) and subprime (11.32%) loans.
• Two states, Ohio and Michigan are responsible for the largest losses in Fannie Mae’s portfolio. 
• In response to the situation, Fannie Mae is focusing on loss mitigation and adjusting mortgage products.  There were 27,000 workouts on Fannie Mae loans in 2006. 
• Fannie Mae is getting 15,000 applications per month for refinances, and 80% are getting a “yes” from the automated underwriting system.   Treasurer Cordray asked if that indicated Fannie Mae would refinance 140,000 mortgages this year, and Carl confirmed that was correct if current trends continue.
• HomeStay is the new initiative to help borrowers in need of a fixed rate mortgage. Changes to Fannie Mae’s Guide will be made in May, and the automated underwriting system will incorporate the guide changes in the third quarter. The changes will emphasize the ability to repay. Expanded Approval, which serves borrowers with less than perfect credit, will become part of the standard underwriting platform for all 2000 Fannie Mae lenders. There is no limit on business volume for HomeStay. For owner-occupied one-unit properties, no payoff will be required on collections.  Special servicing and early default intervention will be required. HomeStay will include a 40-year option.
• Fannie Mae contributed $5 million to the Homeownership Preservation Foundation’s “Know Your Mortgage” national ad campaign and 24/7 foreclosure prevention hotline, in partnership with NeighborWorks.
• Fannie Mae has a pilot with Wells Fargo to make better linkages between servicers and borrowers.
• Beginning in 2005, Fannie Mae partnered with the Ohio Housing Finance Agency to offer My Ohio Mortgage through US Bank and participating lenders.  In two years My Ohio Mortgage has financed 15,700 below market fixed rate mortgages ($1.6 billion) for people who might otherwise have gone to the subprime market.
• Opportunity Loan Refinance Program (OLRP), launched in April, is more aggressive than HomeStay. Other housing finance agencies are looking to Ohio for a model.  Criteria for OLRP should be final within the week.

HUD PRESENTATION

Tom Leach gave an overview of HUD’s business in Ohio.  HUD insures one out of ten homes in Ohio and distributed $330 million in grants to local government and agencies. He highlighted a mortgage payment assistance program in Cincinnati that is funded with Community Development Block Grant funds. Then he introduced Engram Lloyd, Director of the HUD Philadelphia Homeownership Center. Mr. Lloyd’s presentation is attached separately. Highlights are summarized below:

• New and subprime loan products have cut substantially into FHA’s market share.  From 2000 to 2006 FHA-insured first time homebuyer loan volume dropped from 22,000 (6%) to 13,000 (4%) of all loans, while subprime lending grew from 10% to 25%.
• HUD has an inventory of homes (Real Estate Owned -REO) of 28,000 nationally and 8,400 in the Philadelphia Office region, of which 70% are in Ohio or Michigan.
• FHA pays insurance claims to lenders after foreclosure.  Most claims are on well-seasoned loans.
• The current crisis in Ohio goes well beyond the economic downturn.  Subprime lending is a contributing factor. 
• The average subprime borrower has a higher income than the average FHA borrower.  Many subprime borrowers could have qualified for an FHA insured mortgage.
• FHA loans are better for the consumer.  FHA loss mitigation has tools that other products don’t have including partial claims, pre-foreclosure, deed-in-lieu and loan modification.  These tools cure about 51% of delinquent loans in Ohio.  93% of the loans cured resulted in the homeowner retaining their home after two years.
• FHA has a new pilot in Cleveland that may become a model to move subprime borrowers to FHA insured loans.  It will be a streamlined refinance project at 95% LTV with cash out or 97% LTV with no cash out.  FHA will do quality assurance on 10% of appraisals. The 203(k) program that allows rehab to be financed into the mortgage is an important option.
• HUD’s housing counseling program funds 10 local agencies for a total of $258,000. Several other agencies are funded through national HUD housing counseling grantees, but more funds are needed, and increases are expected.

WRAP-UP

Director Zurz asked the Task Force members to come to the next meeting with “out of the box” ideas.  What is happening locally that could be statewide?  What are other states doing?

Future speakers include the Federal Reserve and the Homeownership Preservation Foundation.  If members have other requests for speakers, contact Cindy Flaherty.  (cflaherty @ ohiohome.org.)

The next meeting will be the public hearing. It will likely be in a different location to accommodate the audience.  Questions about the public hearing should be addressed to Cindy as well.

If time permits, the subcommittees will give reports at the next meeting. If not, the Task Force will meet again on June 4.

Mike Adelman applauded Director Zurz for the recent news release about the public hearing and the message for people who are in mortgage difficulty to contact their lender.

The meeting adjourned at 3:15 p.m.