May 3, 2008

State Updates

House Increases Funding for Several Key Housing Programs

Yesterday, the House of Representatives passed a consolidated amendment to the House FY'09 budget that will increase funding for several key housing programs, and engrossed an FY'09 budget that provides for a 9.1 percent increase in DHCD line items overall. The House accepted amendments to increase funding for the Massachusetts Rental Voucher Program by $1 million, Public Housing Operating Subsidies by $1 million, RAFT by $250,000, Soft Second Loan Program by $500,000, Mental Health Rental Subsidies by $200,000 and the IDA program by $100,000.

CHAPA thanks Speaker Salvatore DiMasi, Chairman Robert DeLeo, and Chairman Kevin Honan for their support in advancing these critical investments in affordable housing. CHAPA also commends the following representatives for their effective advocacy in promoting housing amendments: Rep. Pam Richardson, lead sponsor of the Mass. Rental Voucher Program Amendment, Rep. Michael Kane, Rep. Thomas Stanley and Rep. Robert Fennell, lead sponsors of the Public Housing Operating Subsidy amendment, Rep. Linda Dorcena Forry, lead sponsor of the Soft Second amendment and Rep. David Sullivan, lead sponsor of the RAFT amendment.

2008 Housing Permit Activity Lowest Since 1982

The latest Census Bureau permit report indicates that Massachusetts activity in the first quarter of 2008 was the lowest it has been in decades. The Bureau estimates that 1,967 private housing units (not seasonally adjusted) were permitted in the first quarter of 2008 (January-March), a decline of 50% from the first quarter of 2007 and 63% from the first quarter of 2006. Permits were down for both single family and multifamily housing. The 2008 figure is the lowest first quarter total since 1982 (which totaled 1,875). Seasonally adjusted estimates result in a slightly higher first quarter estimate for 2008 (2,306 units), but put it below the seasonally adjusted first quarter estimate for any year since 1975.

Housing Prices and Sales Continue to Drop

On April 28, the Boston Globe, using Warren Group data, reported that the statewide median price for a single family home sold in March 2008 fell to $304,000, down 10.6% from the March 2008 median of $340,000, and that the number of single family homes sold fell to 2,637 (32% below the March 2008 figure). Condominium sales volume was also down in March, falling 35.6% but the median price fell by only 1.8% (from $275,000 to $270,000). The report also noted, however, that these trends are not uniform across the state and that prices fell much more steeply than the state average in some cities and towns while they rose in others.

Massachusetts Foreclosures Rising

On April 25th, the Boston Globe reported on Warren Group data showing that 1,167 properties were foreclosed upon in March, up from 486 a year earlier and that over 2,800 properties were foreclosed between January and March 2008, up 140% from the same period in 2007. Petitions to foreclose filed during January-March 2008 totaled 8,968, up 33% from the same period in 2007. The Globe also noted that foreclosure rates are particularly high in "" cities. It reported that 20 larger cities and towns (more than 1,000 total residential units), are expected to have foreclosure rates of 1.2% or more. Lawrence is expected to have the highest rate at 4%.

90-Day "Right to Cure" Foreclosure Law Went into Effect May 1

The provision of Massachusetts' state foreclosure law (Section 21 of Chapter 206) that increases the amount of time lenders must give borrowers to cure their delinquency went into effect this week and applies to all foreclosures initiated on or after May 1. Previously, lenders only had to give a 30 day notice. Mortgage holders must give borrowers a 90 day Notice of Right to Cure that includes information on who to contact to discuss alternatives, and cannot accelerate the loan or add fees to the loan balance during that 90 day period (except for late fees which are capped at 3% of the outstanding balance).

The mortgage holder must also file a copy of the Notice with the State Division of Banks (DOB) and information on these filings will be made available through a DOB online database. Additional information about the database, the 90-day Right to Cure, and how other provisions of Chapter 206 are being implemented are available on the Division of Banks website.

State Supreme Judicial Court Rules Against Abutters in 40B Appeal

On April 24, the SJC ruled that an abutter appeal challenging a comprehensive permit approval by the local zoning board of appeals was moot because the challenged permit became inoperative as a result of the Housing Appeals Committee (HAC) decision. The decision, William Taylor et al. vs. Board of Appeals of Lexington et al., involved a proposal by Rising Tide Development to build a 36 unit project.

After the ZBA approved a permit for 28 units, abutters filed suit in Superior Court seeking to have the ZBA approval annulled while the developer appealed the ZBA decision to the HAC. In 2005, the HAC ordered Lexington to issue an amended permit for 36 units. The abutters' appeal of the original 28-unit permit was subsequently dismissed in Superior Court as moot. The SJC took up the case after an Appeals Court judge overturned the lower court decision and upheld the dismissal. It noted, however, that the abutters could have appealed the ZBA's decision to issue the amended permit if they had filed a timely appeal. (The abutters did contest the HAC approval in a separate action which they lost in a separate SJC decision.)

Some attorneys expressed partial disappointment with this decision, noting that it continues to allow multiple avenues of appeal after a HAC decision, even though one of the goals of Chapter 40B was to provide a streamlined approval process. The SJC noted the conflict, but concluded that "the anomalies created by the separate appeals require a legislative solution, either by expanding the issues that may be considered by the HAC or by expanding the scope of judicial review after the HAC directs the issuance of a new comprehensive permit." The slip opinion is available on the SJC website.

Federal Updates

New England Housing Network Advocates for Key Federal Priorities

The New England Housing Network, a coalition of housing and community development groups in the six New England states, will be holding meetings on May 5 in Washington, D.C. with the New England Congressional delegation and key committee staffers. Click here to view the Network's budget and legislative priorities.

House Financial Services Committee Approves Foreclosure Aid to Cities and States

On April 23, the House Financial Services Committee approved a bill to create a new HUD program to provide $15 billion in aid to state and cities to help acquire foreclosed properties. The House bill differs significantly from legislation (H.R. 3221) approved by the Senate on April 10 which would provide $3.92 billion.

Under H.R. 5818, the Neighborhood Stabilization Act of 2008, half of the funding would be provided as loans and half as grants, with the funding distributed to States based on their share of the total number of single family (1-4) foreclosures nationwide and their share of the total number of subprime single family home mortgages that are more than 90 days delinquent. HUD would also have to adjust allocations to account for differences in single family home prices but the total increase a state can received for price differences is capped at 25%. States would be required to use the same formula to allocate funds to cities of over 50,000 with high foreclosure rates, unless that allocation would be less than $10 million. In order to receive funds, states and qualifying cities would have to submit a plan to HUD within 30 days of bill enactment outlining how they would spend their funds.

Under the bill, costs of purchasing properties for resale or operation as rental or rent-to-own housing would have to be funded entirely through the loan allocation. Loan funds would be 0% interest and non-amortizing with terms of 3 years for ownership properties and 5 years for rental properties. Loan funds could also be used for rehabilitation costs. Grant funds could only be used for demolition, property operating costs, rehabilitation, and administration and planning. At least half of the grant spending must benefit very low income households (of which at least half must benefit extremely low income households). Properties acquired under this program could only be sold to households with incomes at or below 140% of area median income and at least half of the grant spending must benefit very low income households (at least half of which must be extremely low income). A comparison of the House and Senate bills is available on CHAPA's website.

House Committee Approves Bill to Create FHA Program to Encourage Loan Modifications

On May 1, ten Republicans joined 36 Democrats on the House Financial Services Committee in approving (46-21) a bill to create a new, two-year FHA program to help borrowers with high debt burdens and/or negative equity to refinance into affordable loans if the current mortgage holders agree to reduce the outstanding mortgage principal as needed and waive prepayment and penalty fees. Representative Barney Frank, sponsor of the bill, estimates it could help one million households. H.R. 5830, the FHA Housing Stabilization and Homeownership Retention Act of 2008, would also provide $200 million a year in FY2008 and FY2009 in new housing counseling funds and create an Office of Housing Counseling within HUD.

The bill may go to the full House next week. Although the Acting Secretary of HUD has stated that the Administration opposes the proposed FHA program, Treasury Secretary Paulsen had indicated that some compromise may be possible.

H.R. 5818 authorizes the FHA to insure up to $300 billion in refinance loans for owner-occupants of 1-4 unit homes with mortgages originated before December 31, 2007 and current mortgage debt to income ratios above 35%. Holders of the existing mortgages would have to agree to accept less than full payment of the outstanding amounts due (85% of current appraised value at most) and waive all prepayment penalties and delinquency fees. The refinance loans would have to be fixed rate and the total loan (including mortgage insurance premiums, origination fees and closing costs) could not exceed 90% of current appraised value.

The program would be designed and monitored by an Oversight Board, consisting of the Secretaries of HUD and Treasury and the Federal Reserve Board, and to protect the FHA fund against possible losses, would use risk-based insurance premiums and require borrowers to share profits or at least pay a 3% exit fee upon subsequent sale or refinance. The bill also requires the Federal Reserve to complete a study within 60 days of bill enactment on the need and feasibility of creating an auction or other bulk refinancing to enable the FHA to process the new loans more quickly and efficiently. A summary of the bill is available on CHAPA's website. The text of the bill as introduced and the approved amendments are available on the Committee's website.

Fannie Mae Considers Modifying Proposed New Lending Standards

On April 23, Fannie Mae announced that it "may retool" its proposed new lending standards for purchase, refinance and home equity loans. One new standard, which went into effect for applications on or after January 15, 2008 and March 2008, reduced the maximum loan to value (LTV) ratios for single family (one unit) homes to five percentage points less that the ratio for which the borrower would otherwise qualify. That is, a borrower who would normally qualify for a loan at 80% of value can now only receive a loan at 75% LTV if in a declining area. (For loans originated under special programs that previous allowed ratios of 95% or more, the new limit is 95% and the new rule does not apply to loans that are fully insured by a federal agency).

Additional standards announced in March for implementation starting June would expand the declining market LTV reductions to larger properties. They would also establish stricter standards for all types of loans and locations. Among other things, the new standards raise current credit score requirements by 40 points, subject to an absolute minimum of 580, and add new fees to the amount Fannie Mae charges originators, including a variable fee equal to 0.25% to 2% of the loan amount depending on the borrower's credit score and loan to value ratio. Lenders who decide to pass the new fees along to the borrower usually do so by raising the interest rate on the loan. In addition, Fannie Mae would no longer purchase loans involving a borrower who was 60 days late or more on a loan any time in the prior 12 months. Critics have argued that the new fees and rising downpayment requirements will affect minority and low-income borrowers disproportionately.

Recent Research

State Foreclosure Prevention Working Group Finds Most Borrowers Still Not Helped

The State Foreclosure Prevention Working Group, a joint initiative of 37 states Attorneys General and the Conference of State Bank Supervisors (CSBS) was formed last summer to work with subprime mortgage loan servicers to reduce the number of foreclosure by encouraging loan modifications and other sustainable long term solutions.

It released its second "Analysis of Subprime Mortgage Servicing Performance" last week covering the activity of 13 servicers from November 2007 through January 2008. The report found that foreclosure prevention continues to fall short, with 70% of seriously delinquent borrowers still not on track for any loss-mitigation outcome, the same percentage it found in October, despite widely-publicized campaigns to encourage homeowners in trouble to seek help.

It also found that the loss mitigation departments of many of the servicers appeared to be having trouble managing their workload as the number of loans in default continued to rise, in part because most cases are handled individually using a hands-on approach. The report recommended that states, servicers and investors collaborate to develop a more systematic approach to mitigation and in the meantime slow down the foreclosure process to buy time (as Massachusetts' new law will do starting May 1). The report did note some improvement in the percentage of homeowners who received some form of loan modification as opposed to repayment plans.

The Pew Charitable Trusts Releases New Report on States' Responses to Foreclosure

On April 16, the Pew Charitable Trusts released a comprehensive report on what states and the District of Columbia are doing to try to address subprime mortgage problems. "Defaulting on the Dream: States Respond to America's Foreclosure Crisis" finds that states have been taking the lead in developing policies and programs to preventing more irresponsible loans from being made and improving residents' ability to stay in their homes. It notes that states are strengthening loan underwriting standards and helping borrowers avoid foreclosure and calls for stronger consumer protection legislation in the future. The Trusts estimates that 1 in 33 homeowners nationwide is likely to experience foreclosure in the next two years, including 1 in 48 Massachusetts homeowners, primarily as a result of high cost loans made in 2005 and 2006.

Study Finds New England Home Energy Affordability Gap Worst in Nation and Growing

The sixth annual Home Energy Affordability Gap Analysis, by Fisher, Sheehan and Colton (FSC), released in April, reports that home energy affordability problems rose nationwide in 2007. All six New England states were among the seven states with the highest gap, based on the study's ranking of 50 states plus the District of Columbia.

Vermont ranked 51st in affordability, followed by Maine (50), New Hampshire (49), Connecticut (48), Massachusetts (46) and Rhode Island (45). The study looks at what households with incomes of 185% of the federal poverty level can afford for home energy at 6% of gross income; the affordability gap is the difference between that number and estimated actual costs. The study found an average gap nationwide more than doubled between 2002 and 2007, rising 127% to $1,448. In New England, average gaps more than tripled in some states, with 2007 average gaps ranging from $3,333 (Vermont) to $2,165 ( Rhode Island).

The study also found that fuel assistance payments under LIHEAP have not kept pace with rising costs, with 2007 payments filling only 9.4% of the gap nationwide in 2007, compared to 20.4% in 2002. In New England, LIHEAP filled 9-13% of the gap, depending on the state, down from 23-30% in 2002. State fact sheets are also available at www.homeenergyaffordabilitygap.com.

Upcoming Events

May 22- June 10 - CHAPA Spring 2008 Regional Meetings. Citizens' Housing Planning Association is hold regional meetings in May and June to provide updates on key state and federal housing policy changes and to get suggestions for CHAPA's 2009 priorities. The meetings are open to the public and all interested parties are encouraged to attend, including the public, private, and non-profit sectors. Meetings will be held in Pittsfield (May 22), Springfield (May 22), Worcester (May 30), Lowell (June 2), Boston (June 5), Hyannis (June 6) and New Bedford (June 10). Click here for details on the time and site for each meeting.