State Updates
DHCD Finalizes Neighborhood Stabilization Plan
The Department of Housing and Community Development (DHCD) submitted its Neighborhood Stabilization Plan (NSP) to HUD on Dec. 1st. The plan indicates how the Department will utilize $43.4 million in funding from the Housing and Economic Recovery Act of 2008.
Massachusetts received a total $54.8 million, with funds directly allocated to Boston ($4,230,191), Brockton ($2,152,979), Springfield ($2,566,272) and Worcester ($2,390,858). Those cities can also apply to the state for up to $9.1 million in additional direct funding, according to the State's NSP. Fitchburg, Haverhill, Lawrence, Lowell, Lynn, New Bedford, Framingham, Barnstable, Plymouth and Marlboro are also eligible to apply for $6.8 million in direct assistance.
DHCD's plan proposes that the remaining funds be distributed for projects in some or all of the 39 communities through a variety of programs including existing loan funds, housing development programs and new grant opportunities for acquisition, rehabilitation or redevelopment of properties, landbanking or selective demolition of blighted buildings. $3.4 million is also set aside for program administration and technical assistance. This technical assistance includes expanded efforts regarding use of receivership and support for a central clearinghouse of lender-owned properties available for purchase.
DHCD Announces 18 Gateway City Neighborhood Planning Grants
The Patrick Administration has taken a critical step in revitalizing gateway cities by funding 18 cities to establish or update neighborhood revitalization plans. Gateway Plus Action Grants (GPAG) will help boost economic conditions in struggling neighborhoods by identifying housing and infrastructure needs to efficiently focus public resources. The cities of Chelsea, Chicopee, Fitchburg, Haverhill, Holyoke, Lawrence, Leominster, Lowell, Lynn, Methuen, New Bedford, Pittsfield, Revere, Salem, Springfield, Taunton, Westfield and Worcester will each receive the maximum planning grant amount of $75,000, with an emphasis on civic engagement in the planning process.
Study Links Housing Instability and Poor Health Outcomes for Children
The Children's Sentinel Nutrition Assessment Program (C-SNAP) & Medical-Legal Partnership for Children (MLPC) at Boston Medical Center have released a study confirming the conventional wisdom about kids and housing instability: children whose families lack secure housing are more likely to be hungry and in poor health. The report highlights the need to continue to focus on homelessness prevention at a critical time.
As of December 1st, the Commonwealth's approximately 2,000 homeless shelter units for families were full and 640 families were being sheltered in hotels and motels. CHAPA commends C-SNAP, MLPC, and the Paul and Phyllis Fireman Charitable Foundation for its commitment to highlighting the impact that homelessness has on health outcomes and healthcare costs, and looks forward to additional partnerships with the medical community on this important issue.
Metropolitan Area Planning Council Ratifies Recommendations to Implement Regional Plan
Strategies to implement MetroFuture, MAPC's regional plan for growth and development, were officially ratified on December 2nd. The plan calls for bold changes around how the region and its municipalities grow, with a focus on concentrating development near transit and in areas currently served by infrastructure. The plan sets a goal of 349,000 new housing units between 2000 and 2030 to meet the region's economic and population needs. There are scores of housing related recommendations in areas of housing production, preservation, fair housing, homelessness, zoning reform, housing plans and other key areas.
Housing Solutions Campaign Requests $40 million for Mass. Rental Voucher Program
The Housing Solutions Campaign, a coalition of over 25 diverse organizations, has requested that the Governor fund the state's major rental voucher program, MRVP, at $40 million in his FY 2010 House One budget.
The program was funded at $33 million in FY09, which created a deficiency because the program needs $36 million to fund the 5,100 vouchers in place when FY09 began on July 1, 2008 due to rising rent and utility costs. A $40 million appropriation will allow an additional 400 vouchers to be used to help leverage federal resources from the Neighborhood Stabilization Plan and will help relieve pressure on the family shelter system by preventing homelessness.
The Governor's FY 10 budget proposal, House One, is currently being developed and will be released in approximately seven weeks. Please contact Sean Caron if you are interested in joining the campaign to support additional project-based or mobile state rental vouchers.
United Way Creates Community Support Fund to Provide Direct Aid for Basic Needs
On November 1, 18 United Way chapters across Massachusetts announced that they have jointly created a Community Support Fund to provide direct assistance to households needing help to pay for energy costs, food and housing. One hundred percent of the money raised for the Fund will go directly to households.
State Estimates CPA Match May Fall to 35% Next Year
The Department of Revenue (DOR) distributed Community Preservation Act (CPA) matching funds to 127 cities and towns in mid-October. The average match was 73.7% (67.6% for communities that impose surcharges of less than 3%).
The Community Preservation Coalition (CPC) has published a summary of the distribution, with links to DOR spreadsheets showing the FY2008 distribution by community and their projection that next October's match (FY2009) will fall to 35% due to declining Trust revenues. CPC has also published an analysis of the FY2008 distribution by community surcharge level. DOR has also published a more detailed analysis of the status of the Trust Fund in the October/November 2008 issue of City and Town.
Foreclosure Deeds Up, Petitions Down in October
A total of 993 foreclosure deeds were filed in October in Massachusetts, according to The Warren Group, up 24% from September and up 34% from October 2007 (739). Overall, a total of 10,603 foreclosure deeds have been recorded between January and October 2008, up 67.5% from the same period a year ago when 6,332 were recorded.
However, foreclosure petition filings year-to-date are down 24% (18,286) compared to January-October 2007 (24,127), indicating foreclosure prevention efforts may be producing results. The Warren Group noted that urban areas continue to be hardest hit, with Worcester (76), Springfield (50), Dorchester (41), Brockton (37) and Lawrence (36) reporting the highest numbers of foreclosure deeds in October .
Single Family Home Sales Up, Prices Down in Massachusetts
The Warren Group reports that Massachusetts single-family home sales increased in October, for the second month in a row, while sale prices continue to drop. They reported that 3,698 homes sold this October, up almost 14% from the same month a year ago, while the statewide median home price dropped to $285,000, down 13.9% from the October 2007 median of $331,000. Year-to-date sales are down 12% from 2007, while year-to-median sale price of $310,000 is 10% lower than a year ago.
The Warren Group reports no sales uptick for condominiums, with October 2008 sales (1,660), down 7.4% from October 2007 and year-to-date sales down 22.7% from a year ago. However, median condominium prices have declined less steeply than single family homes, with the October 2008 median statewide ($260,000) down only 5.5% from a year earlier and the year to date median ($278,000) only 1.5% lower than the same period a year ago.
Housing Permits Continue to Fall to Historic Lows
Census Bureau building permit estimates released last month indicate that only 476 new housing units were permitted statewide in Massachusetts in October 2008, for a year-to-date total of 8,363 units. The 2008 total is down 32% from a year ago, down 57% from 2005, and is the lowest reported since at least 1969. Nationally, year-to-date permits were down 34% compared to a year earlier.
Federal Updates
Federal Reserve Chair Calls for New Measures to Address Foreclosures
In a speech on December 4, Federal Reserve Chair Bernanke called for new steps to address the foreclosure crisis, arguing that the current economic crisis cannot be resolved without housing market measures. He noted that unnecessary foreclosures are occurring because lenders are failing to modify loans even though it would be in their best economic interest to do so (citing recent losses on defaulted subprime loans of 50-60% of loan balance).
He urged new policies to promote loan modifications that are permanent and in some cases include principal write-downs (to ensure the homeowner will not lose equity in the near future under the new loan). He proposed that the federal government could encourage servicers to make loan modifications that bring monthly payments down to 31% of income, rather than the 38% used in the FDIC Indy Mac model, by sharing some of the cost of the reduction below 38%. He also urged consideration of purchasing delinquent or at-risk mortgages in bulk as a longer term solution.
He also recommended changes in the FHA Hope for Homeowners (H4H) program, urging Congress to consider reducing the upfront (3%) and annual (1.5%) insurance premiums on the and urged steps to reduce the interest rate on H4H loans (currently estimated at 8%), either through a Treasury Department purchase of the Ginnie Mae securities that underwrite the program or legislation to directly subsidize the rate.
Contributions to National Housing Trust and Capital Magnet Fund Temporarily Halted
On November 13, the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, directed both entities to stop setting aside funds for the National Housing Trust Fund and Capital Magnet Funds established this summer under the Housing and Economic Recovery Act (HERA) of 2008.
HERA required both agencies to start setting aside funds, calculated as a percentage of their new business, starting October 1, but also authorized FHFA to halt the set-asides if warranted by the financial condition of the entities. HERA also required that FY2009 allocations be used to cover costs related to the FHA's Hope for Homeowners program with funds first becoming available for the Housing Trust and Magnet Fund in FY10.
FHA Revises Hope for Homeowners Program to Spur More Refinancing for At-Risk Owners
On November 19, in response to extremely low utilization (111 loan applications nationwide in its first month), HUD announced changes to the Hope for Homeowners (H4H) program that began on October 1.
H4H was created to help borrowers with unaffordable mortgages refinance into loans they can afford (with FHA insurance) at mortgage to income ratios of up to 38% and debt to income ratios of up to 50%. However, it generally requires the holders to the original mortgage to accept less than the full balance due, as the new loan must be less than the current appraised value of the property. The newly announced changes are intended to make the program more attractive to lenders and help more borrowers qualify for refinancing.
- To attract lenders, HUD is raising the maximum amount of the new loan from 90% of appraised value to 96.5% (though only in cases where the new loan results in mortgage and debt ratios not exceeding 31% and 43% respectively). However, as before, lenders will not receive the full amount of the new loan as a payoff due to the 3% upfront insurance premium that is generally rolled into the new loan.
- It is addressing the problem of current subordinate liens (i.e. second mortgages) on the troubled mortgage by allowing upfront payments to those lienholders (previously HFH only offered them the possibility of a future payment through shared appreciation upon the next sale of the property).
- To help more borrowers qualify, it is also extending the maximum loan term from 30 years to 40 years, which will reduce monthly payments. It is also eliminating the requirement for a 3-month "trial modification" before approving loans at ratios above 31/43.
While praising the changes, Representative Barney Frank sent a letter to Treasury Secretary Henry Paulson on November 20, urging him to use a portion of the Treasury Department's Troubled Assets Relief Program (TARP) funds to reduce HFH insurance fees and to implement several additional foreclosure prevention programs. Many industry observers expect HFH participation to remain low, as lenders wait to see if new options develop.
FDIC Proposes National Loan Modification Program
On November 14, the Federal Deposit Insurance Corporation (FDIC) announced a proposal to encourage lenders to systematically modify millions of delinquent (60 + days) non-GSE mortgage loans. Full details were posted on its website on November 17, including sample documents.
The proposed program would follow the model FDIC has used in its takeover of the IndyMac Federal Bank, using interest rate reductions, term extensions and principal forbearance (not forgiveness) to reduce first lien mortgage payments to as low as 31% of monthly income. To encourage lender and servicer participation, the FDIC proposal would pay servicers $1,000 for each loan modified and share up to 50% of the losses if a modified loan subsequently re-defaulted within 8 years (the guarantee would only begin after borrowers make at least six payments).
Servicers and lenders who agree to participate would be required to subject all mortgages to a standardized review to determine if they are suitable candidates for modification, based on a comparison of the net present value of foreclosing on a loan relative to the NPV of modifying it using the FDIC model (e.g. reducing payments to 31% of income).
The FDIC estimates that this approach could result in the modification of about half of the 4.4 million loans that are currently delinquent (1.4 million were 60+ days delinquent as of June 2008) or projected to become delinquent by the end of 2009 (3 million). At this volume, it estimates the program would cost about $24 billion – assuming a maximum re-default rate of 33%. Potential funding sources include the Treasury Department Troubled Assets Relief Program (TARP).
Federal Reserve to Buy $600 Billion in GSE Debt to Stimulate Mortgage Lending
On November 25, the Federal Reserve announced that it will begin purchasing $100 billion in direct debt owned by Fannie Mae, Freddie Mac and the Federal Home Loan Banks, as well as $500 billion in mortgage-backed securities (MBS) guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae.
It expects to begin making the direct debt purchases this week and to begin the MBS purchases by the end of this year. It took this step in response to the widening gap between the interest rates investors demand for GSE debt and Treasury debt, with the expectation that its purchases will narrow the gap and ultimately lower mortgage interest rates and increase the availability of loans and loan demand.
News reports indicate that the markets are responding, as mortgage rates for 30 year fixed rate loans fell from 5.97 percent to 5.53 percent in the past week, and weekly loan applications more than doubled. The financial industry is reportedly urging the Treasury Department to make additional purchases of GSE mortgage-backed securities to lower rates further.
Federal Government to Provide Capital to and Share Mortgage Losses with Citigroup
On November 23, the Treasury Department, the Federal Reserve and the FDIC announced steps to provide liquidity and capital to Citigroup and to limit the bank's losses on a $306 billion pool of risky residential and commercial mortgages.
The Treasury Department will provide capital by using $20 billion in TARP funds to purchase preferred stock in the bank. The Treasury Department and the FDIC also agreed to shoulder 90% of any losses on most of the $306 billion pool of risky assets (Citigroup will absorb the first $29 billion in losses and 10% of subsequent losses). The two agencies will receive preferred shares of bank stock for this arrangement as well. As part of the overall bailout, Citigroup also agreed to limit executive compensation and follow the FDIC loan modification model for delinquent residential mortgages.
HOPE Now Alliance October Report Shows Rising Use of Loan Modifications
On November 25, the HOPE Now Alliance, a voluntary alliance of mortgage servicers, counselors and investors, released data on loan modification and payment plan agreements by its members through October. Its 26 servicer members account for 94% of the subprime market and 69% of the prime market.
The Alliance estimates that its members prevented about 1.7 million foreclosures in the first 10 months of 2008 and concluded 790,500 foreclosure sales during the same period. It noted that member use of modifications, as opposed to repayment plans, has risen steadily. Overall, 41% of the workouts approved since January 1, 2008 have consisted of modifications (about 751,000 loans), with the remaining 59% consisting of repayment plans (about 1.07 million loans). In October, however, modifications comprised almost 46% of the 225,000 workouts reported for that month.
The Alliance noted that there are now more delinquent (60+ days) prime loans (about 1.1 million) than similarly delinquent subprime loans (about 941,000). Loan modifications were more common for borrowers with subprime loans (57% of subprime workouts compared to 31% of the workouts for prime borrowers).
The Alliance has also published state level data from its members through September 2008. For Massachusetts, its members reported an average of 30,738 delinquent (60+ days) loans in the third quarter of 2008 (July-September), including 17,652 subprime loans, with 7,370 workouts (3,738 loan modifications and 3,632 repayment plans). They also reported 5,362 foreclosure starts and 2,505 foreclosure sales for the quarter. The latter figure has remained fairly steady throughout 2008.
Federal Reserve Study Finds CRA Not Responsible for Subprime Mortgage Crisis
In a speech on December 3, Federal Reserve Governor Randall Kroszner summarized the results on a new Federal Reserve analysis of loans originated in 2005 and 2006 and the extent to which these were originated by CRA lenders and the performance of these loans. Overall, the analysis found that only 6% of all higher-priced loans were extended by CRA-covered lenders to lower income borrowers or neighborhoods in their CRA assessment areas. It also found the CRA lenders purchased less than 2% of all higher-priced and CRA-credit-eligible mortgage originations sold by independent mortgage companies.
