Chicagos HOPI Experiment: Lessons from the Field Homeownership Preservation Initiative HOPI

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Chicagos HOPI ExperimentLessons from the
FieldHomeownership Preservation Initiative
(HOPI)

• July 2006
• J. Michael Collins
• mcollins_at_policylabconsulting.com
• 607.592.3112
• www.policylabconsulting.com
• Do not cite or distribute without permission

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Counseling for Borrowers in Default

• Growth of foreclosures for vulnerable families
• Benefits of avoiding foreclosure
• Lenders can help, but need to make contact
• Counseling can play trusted advisor role
• What is the role of default counseling?
• Why do borrowers avoid their lender?
• What can we do to reach borrowers in trouble?
• Who do borrowers trust and why?

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HOMEOWNERSHIP PRESERVATION INITIATIVE
A program of NEIGHBORHOOD HOUSING SERVICES OF
CHICAGO, INC.

• Research Projects
• Matching NHS Client Database to Property Records
• Analysis of CCRC Telephone Counseling Records
• Chicago Mortgage Default Counseling Survey
• HOPI Workshop Participant Survey
• Tracking Loan Performance for 311-referred
  Clients
• Borrower Focus Groups

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NHS Client Data

• Analysis of over 800 records in 2005.
• NHS HOPI counseling clients are typically
  African-American women living in lower-income
  neighborhoods.
• The majority have debt-to-income over 50
• Two-thirds already started the foreclosure
  process
• Average delinquency 5.3 months
• Average time in counseling 111 minutes
• Two-thirds of clients that receive at least three
  hours of one-on-one counseling avoid foreclosure

Source NHS Chicago Home Counselor Online
Database, 2005-2006
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CCRC Counseling Records

• Coding of over 800 counselor note files for key
  words and phrases.

• 32 Job Loss
• 25 Health Crisis / Health Insurance
• 16 Taxes, Utilities or Property Insurance
• 14 Problem with Rental Unit
• 12 High Cost Auto or Consumer Loan
• 10 Disability
• 10 Overspending
• 10 Death in Family

20 of cases referred to NHS 32 involve
bankruptcy
Source Coding of CCRC Online Database, 2004-2006
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The Chicago Mortgage Default Counseling Survey

• Conducted fall of 2005 with 299 households
• 50 questions
• Who is being served?
• 69 first-time buyers
• 55 first-time refinancers (average of 2.1
  refis)
• 11.6 years average time in home (22 retired
  seniors)
• Median mortgage balance 91,213

Source Chicago Mortgage Default Counseling
Survey, 2005
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Why did borrowers take out their loan?
72 of Defaulted Loans Are Refinances
Source Chicago Mortgage Default Counseling
Survey, 2005
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Was this loan a mistake?

• 73 I should have been approved for this loan
• 37 I should have shopped around more
• 20 Unfair loan terms caused my delinquency
• 26 I regret taking out this mortgage.

Source Chicago Mortgage Default Counseling
Survey, 2005
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Why Did You Not Contact Your Lender?
Source Chicago Mortgage Default Counseling
Survey, 2005
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Most Have Low Opinion of Lenders Willingness to
Help Worst Among Most Stressed Borrowers
(Highest on Index of Physical and Emotional
Stress Indicators)
Source Chicago Mortgage Default Counseling
Survey, 2005
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Time in Counseling Matters

• Average of 2.2 counseling sessions
• 1.9 hours total avg.
• Health and death in family longer (2.7 hrs)
• Phone 1.3 hrs
• Face-to-face 2.2 hrs

Impact of Additional Hour of Counseling
Source Chicago Mortgage Default Counseling
Survey 2005
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Targeting Default Counseling
Source Chicago Mortgage Default Counseling
Survey, 2005
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Workshop Surveys

• 433 homeowners attended 14 workshops
• Borrowers not yet in default
• 48 have never talked to their mortgage servicer
• 36 of borrowers making late payments
• 45 have no escrow account for taxes/insurance
• 78 have no emergency savings
• 69 are interested in home repairs
• 1/3rd believe bankruptcy will save them from
  foreclosure
• 51 do not know their lender or servicer might
  provide alternatives to foreclosure

Source NHS Homeowner Workshop Surveys, 2005-2006
(178 responses)
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Loan-Level Analysis of Impact

• 10 sample of 311 clients tracked by 3 HOPI
  partner lenders.
• Of loans tracked for at least 4 quarters
• 20 percent moved into foreclosure
• 32 percent were paid off
• 5 percent cured
• 36 percent of loans have transitioned from no
  contact with the loan servicer in one quarter, to
  being in regular contact with the servicer the
  quarter after receiving counseling.

Source NHS Homeowner Workshop Surveys, 2005-2006
(178 responses)
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Borrower Focus Groups

• Most blame themselves for taking out their loan
• the first four times it was a lower rate with a
  lot of money. And then you get greedy.
• My husband and I were like lets pull some
  money out. We did some upgrades to the home. We
  took vacations and we bought cars and we did all
  this other stuff, not really intellectually
  realizing what we were doing.
• Borrowers are under a great deal of stress,
  leading them to avoid help.
• To me, it was such an embarrassment. I didnt
  even want to go to anybody. I felt embarrassed.
  
• My problem was I started hiding my bills. My
  company went under. No one would hire me. I got
  more depressed and well, I did not know what to
  do. When I came out of depressionI am going
  what the hell are these bills?
• I was always week to week. I get paid, I pay my
  bills. I get paid, I pay my bills. Then its not
  there. Then youre in trouble. I didnt know
  which way to turn. I didnt know there was help
  out there.
• Borrowers feel little sympathy from their lender
  (although borrowers dealing with loss mitigation
  staff were more favorable)
• They make you feel like a deadbeatthe way they
  interrogate you, they seem like they want to
  catch you in a lie because the questions are
  repetitiousthe only thing Im going to say is
  blah, blah, blah. Im not lying. I need help.
• I had twenty people call my house out of that
  twenty, the twenty-first person actually listened
  to what I was telling her and said wait just a
  minute, this department can help you.
• Trust for NHS stems from the relationship with
  the City of Chicago and their reputation
• They have no ulterior motives. They have
  nothing to gain and nothing to lose. They're
  just this is it, this is it, now you do
  something.
• Theyre a lot more compassionate...you dont
  feel like youre being put down. Even though they
  could hang up the phone and laughI dont feel
  that.

Source HOPI Borrower Focus Groups, May 2006
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Future Research

• Mortgage fraud
• The economics foreclosure sales
• Understanding borrower behavior under stress
• contact rates
• cultural differences
• lender specific surveys and focus groups
• Impact of Illinois regulations on non-prime
  lending
• The role of disclosures in borrower risk
  assessment and loan choice
• Borrower help seeking behavior and the potential
  for lender referrals to local services

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Sustaining Homeownership

• Borrower, financial institution and local
  government all benefit from default interventions
• Early Intervention - outreach and information
• Triage approach - easy to access and low-cost
• Overcome fear, lack of trust and effects of
  stress
• Refining counseling servicing strategies
• Time element
• Understanding borrower behavior

www.policylabconsulting.com Do not cite or
distribute without permission