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NFCC Challenges Debt Relief Industry to Think Bold. My Thoughts.

It appears Michael Bovee took the NFCC challenge to think bold about consumer services to heart and submitted this guest post.

Steve published his reaction to the state of the industry speech made by Keating at the recent NFCC conference here.

There is a great deal contained in the address by Keating to comment on. The less than full balance efforts, as I understand them, are flawed and where I would most like to focus. I will reserve those comments for another time.

What I would like to talk about is housing counseling. Not as it has been being performed, but how it could be developed to perform.

CCA’s have been, in my opinion, perfectly positioned to do much more than what is currently being done at a national level for both housing and debt relief.

I am encouraged by Keating’s comments to be bold. Her speech contained 3 references to “thinking boldly” and one reference to consider “moving boldly”.

I would encourage nonprofit CCA’s boldly insert themselves into national and public discussions where they are suited to participate as part of the solutions.

Some examples of being bold would be to help develop fresh programs to mitigate foreclosure and to proactively push for additional solutions to the student loan debt problem.

Help Home Owners:

While CCA’s received funding for housing counseling, they were not empowered with needed tools to bring consumers effective results. CCA’s need to get empowered. Work with others and come up with a better way to insert yourself as a solution provider.

Develop and push for a plan that allows you to receive referrals from multiple sources to mitigate foreclosures through some form of deed in lieu process that includes the home owner simultaneously signing onto a lease option to purchase at current market value in a 3, 5, or 7 year time frame. A way to accomplish this would be through structured budget counseling where you could certify and package homeowners as financially qualified for a deed in lieu lease option.

Get your talking points together. Here are some notes to help start the discussion:

  • Nonprofit CCA’s have staff trained to determine budgets and spending. You have data systems in place to substantiate and document home owner financials. You will develop the files meeting set criteria for a lease option where rent does not exceed a set percent of consumer income (25% to 35%).
  • You will develop a budget and payment schedule around other existing debts such as unsecured credit cards.
  • Because you are a CCA with offices or licenses in one or more of the hardest hit states with high foreclosures (NV, CA, AZ, FL) you can suggest a pilot be funded prior to a national roll out.
  • Your being the front end for deed in lieu/lease w/option would help lessen the load on overwhelmed loss mitigation servicing departments.
  • Your deed/option program will keep people out of foreclosure and lighten the load on overwhelmed courts.
  • Your deed/option program is set up to keep people in their homes and communities which lessens neighborhood blight.
  • Your deed/option alternative puts together individual plans that return consumers to responsible spending which could help put a floor on economic deterioration at the local, state and national level.
  • The program could help your financial services industry partners from having to fully recognize and book losses with short sales and the sale of foreclosed homes. By kicking full loss recognition down the road 3 to 7 years banks will have a better and smoother opportunity to repair balance sheets (assuming the reliably creative accounting used to extend and pretend thus far can be continued. I think it can).
  • Servicers can still retain servicing rights and the servicing income. It could be adjusted, but could still exceed their revenue from foreclosure (which often explains the predilection not to modify a loan). Come up with a formula that puts them on your side of the issue.
  • During the first several years of the program housing values may have found the floor. In fact, your deed/option program may be the catalyst for home values to stop declining in certain areas.
  • Your customers will be maintaining care for the property, especially given the option to purchase contract provides for their lease payment to pay down the fair market price of the home that can be established at the time the program is started. Banks could even run with assumptions (depending on how long the option is extended), to apply lease payments to the FMV at the time the option is exercised.
  • MBS investors holding the bag on all the crap sold to them may get behind this. Get them involved in the discussion. You may just be saving a portion of your neighbor’s pension. You may even save your financial services partners from more MBS investor lawsuits. That has to be worth some grants & funding.
  • You have infrastructure and human capital that is not being utilized for DMP’s. Your counselors can be trained to use a developed system for the deed/option plan in relatively quick order. You are possibly one of the few groups in the nation with “ready to go” infrastructure other than the banks and servicers themselves and they are overwhelmed. Rather than looking at cutbacks and mergers, get involved as part of (even help create) needed solutions and start hiring from the pool of the unemployed in the FIRE industry. Hire recent college grads who cannot find a job to service their student loans (that’s another topic). Look to partner with someone like LPS in developing automation.
  • Talk to HUD, FHA, Fannie, Freddie. Get in front of your home state legislatures. Take a credible model to DC. Talk to local and state governments about all of the uncollected tax revenue while home owners squat, unable to pay a reset mortgage, or where the home is vacant and banks delay foreclosure.
  • Of the 750,000 homeowners the NFCC members have worked with in the last year, how many of them could have been helped by a deed in lieu with a lease and purchase option? Mine that data and find out. Get AICCCA and ACCPRO members to do the same. Use that data to show how effective your agencies can be if you are empowered to show consumers real solutions. That data is valuable. How many of the ¾ million were victims of forced placed insurance? How many were low income vs. middle income? Mining that data and creating a national discussion about the findings can provide the nation a great service and get policy moving in a positive direction. Look for partners in this effort like: Consumers Union, National Consumer Law Center, Consumer Federation of America, PIRG, Center for Responsible Lending. These groups care about the housing mess and the lower income demographic you touch daily. Look to academia for assistance as well. Move the discussion forward.
  • Get in front of the ongoing state AG negotiations with the banks on foreclosure fraud. Position yourselves with BOLD thinking and solutions. With settlement figures like 20 billion being thrown around, position your agencies to deliver solutions in order to receive funding. Your work and need to expand, if able to facilitate some type of front line process for a deed/option program, may even require more than 1 billion in funding.
  • While pushing a deed in lieu lease option agenda, get involved in the national mortgage fraud settlement discussion and position yourselves as a go to resource to facilitate the modification file work that will be needed to be put together as part of any wider settlement. Your funding could come from the settlement dollars. Put yourself in this type of position successfully and I begin to think not enough of you are licensed in FL, AZ, NV, CA, and other hard hit states.
  • I realize there is a very real chance that the state wide AG settlement on mortgage fraud has lost traction. Individual states have defected somewhat by pursuing their own individual course. Get in front of the individual states and position yourselves to provide a piece of what will be required as part of any settlement after it is reached in that state. Your funding can come from the settlement or be written in. If written in, get the dollar commitment inserted (you have, after all, suffered arbitrary funding cuts and other issues from your partners).
  • Make no mistake, there will be state and/or national and federal mortgage fraud settlements. Your financial service partners will not survive otherwise.

Think bold. Think big. Think expansion.

Student Loans:

Student loans are the next debt bubble to pop. Government loans qualify for IBR plans where private loans often do not (private loan investors and servicers often refuse to offer an IBR solution). CCA’s could develop a strategy and get in front private student loan servicers with a goal of being able to structure lower payments, not just facilitating regular payments on current loans as part of the DMP plan . The tsunami of defaulting student loan debt has only just begun. Get involved in current discussions on this issue and be proactive by starting new discussions. Here again, you have data. You speak with or serve hundreds of thousands of people nationwide every month. Aggregate the student loan data, map out a message and agenda, then progress it.

These are 2 ideas that are, at a minimum, worthy of not just thinking and consideration, but actions.

The third is being able to provide debt settlement solutions for those who cannot qualify for a DMP proposal, or who are forced to drop from one. There have been resources available to you to be able to offer people a debt settlement tool for some time. Your infrastructure suggests you should have already been doing so for years. In fact, as counselors to consumers looking for relief from overwhelming debt, not having a settlement discussion and education in place for the consumers suited to it is a major failure on the part of all leadership in the CCA space. I do look forward to later discussions on this topic.

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About Michael Bovee

Michael Bovee
  • http://northeast-properties.com Andy Faria

    To think of BOA as a landlord is scary…. the toilet would leak forever.

    The answer is to give everything that was purchased between 2004-2009 with less than 20% down back to the banks…. as fast as possible. Only then will property values begin to come up.

    • Michael

      Hi Andy,

      BofA as a landlord would indeed be frightful. There are real market solutions that can and would be developed to address property maintenance. The lease could be written in a manner where smaller household repairs would be reimbursed to the homeowner with proper documentation. Larger repairs could require that 3 bids be submitted etc. Like an auto insurance claim but the occupant does not get to choose the licensed and bonded shop.

      Property maintenance companies could expand to contract with servicers, or local city/county offices could be created to coordinate maintenance concerns with private and nonprofit companies. Cities and counties have a vested interest in their communities and their tax base. Settlement dollars could be allocated to the budget of these newly created local offices. This would create jobs in the private sector and/or prevent some public sector job loss due to gov cutbacks and budget constraints.

      In order for home values to go up they must first stop declining. CA foreclosures led the nation with a 55% increase last month. Until this situation improves, home values will see further declines. States, counties, cities, schools etc. have a keen interest in property values. When your neighborhood has 3 foreclosed homes and 2 short sales, you just saw your own property value decline, so homeowners who did everything right have an interest in solutions as do those with no mortgage at all.

      Just a few hours after Steve published this piece the CA AG announced the states withdrawal from the multi state negotiations:

      http://latimesblogs.latimes.com/money_co/2011/09/california-atty-gen-kamala-harris-breaks-from-national-foreclosure-probe.html

      “It has been a process of negotiating and sitting at a table in good faith, but ultimately I have decided that we have to go our own course and take an independent path. And that decision is because we need to bring relief to Californians that is equal to the pain California experienced, and what is being negotiated now is insufficient,” Harris told The Times in an interview.

      The pain Harris refers to is being felt not just by troubled home owners, it’s being felt by virtually everyone in one form or another.

      From Naked Capitalism:
      “The Wall Street Journal points out that the issue that led Harris to leave the talks was the one that we highlighted, that the Federal/state effort had offered an unduly broad release of claims (draft language would, among other things, waive the Federal and State regulatory ability to prosecute chain of title abuses).”

      The chain of title issue will be the long term legacy concern. Solutions must address this as well as the pool of garbage MBS.

      The deed in lieu with a simultaneous lease option would remove the immediate chain of title concerns on participating properties. This would be very good for banks with large exposure, especially BofA given their massive exposure to these concerns through their acquiring Countrywide. Countrywide is a separate entity to BOA. BofA will likely bankrupt it (or at least should). Sooner the better. A deed/option plan being in place for this inevitability would likely contribute to a more orderly process to deal with a good chunk of the CW troubled loans. If even able to manage 10% of troubled CW loans, CCA’s would be a great contributor to solutions.

      A solution like the deed/option being in place may prove very helpful if/when the CFPB needs to exercise resolution authority under Dodd Frank. The ready infrastructure of the CCA’s with some stream line processes would be a valuable resource to regulators in major events.

      Fannie and Freddie could be major supporters to the CCA’s participation in a deed/option scenario, given the size of their troubled loan portfolio. Also the deed/option would be a major tool that could contribute to order if a worst case scenario were to occur where one or both of these entities were to be wound down.

      Whether CCA’s are able to provide solutions through ready to go infrastructure in packaging and filing mods with their financial service partners or package files of deed/options (or both), they are well positioned to receive funding and generate revenue.

      A byproduct of the nonprofit CCA receiving funding and the ability to participate in a national solution to housing issues may eventually provide them the kind of long term viability to gain a measure of independence from creditors who have been their main source of funding for decades. When they are able to break that bond they will be far better positioned to fully embrace their stated purpose of benefiting consumers.

      CCA’s should develop a “We Stand Ready” campaign. There are many people to partner with in this message. I can identify dozens of effective partners just off the top of my head.

      My suggestions here are BOLD, and I am quite serious about them.

      I am passionate and care about this issue. I am fully prepared to help strategize and assist CCA’s in kick starting this effort. If CCA’s want to have a serious discussion about this, Steve knows how to reach me as do some CCA exec’s.

      • http://northeast-properties.com Andy Faria

        MB,

        I agree CCAs could do a lot more with housing counseling, and they need the money, so why not?

        I’m just not so sure I’m buying into the deed-option plan. The first reason is that the investors will never get onboard (they don’t want to play landlord and they never will) and the second is, even if they do get onboard, I’m not so sure it’s good for homeowners.  

        You said, “In order for home values to go up they must first stop declining.” … I totally 100% agree.

        But then you say, “CA foreclosures led the nation with a 55% increase last month. Untilthis situation improves, home values will see further declines.” … I don’t necessarily agree with part of this. Actually, it’s only one word that I don’t agree with…  “improves”. I say this because I believe that foreclosures and short sales are actually a move in the right direction for the rest of the neighborhood..

        It’s easy, short sales and foreclosures help people because they bottom out that particular property. The new buyer will now own a house at market value, they will be able refi, sell, fix it up etc. That property has been “corrected” .. when the entire neighborhood has been “corrected” home prices will be done declining (corrected market value) and will have nowhere to go but up, as demand rises .

        The homeowners that hold onto their homes when they owe $500k and have a value of $300k, only slows the recovery down. All this does is delay the inevitable, and leaves the rest of the neighborhood waiting for that home to be corrected. It can be corrected by short sale, foreclosure, or when enough principle has been paid down on the loan to correct it. Short sale and foreclosure take about a year (most states), waiting for the loan to amortize, may take 10-15 years. If we’re going to wait on people to pay their loans down, strap in because it will be a LONG HAUL.

        It’s no secret (at least up here in MA) that property values are still coming down,  and when we will finally hit bottom is still up in the air. Think about it, if every underwater home in the neighborhood was given back to the banks in the next two years, we would finally hit bottom. It’s like pulling a band-aid off, quickly with one swoop, instead of the painful, torturous bit by bit method. 

        There is no shortage of buyers for affordable homes, finding buyers won’t be a problem. (especially if the banks offer special financing options on their reo inventory, and they still get the loans back) Creating a program where homeowners rent their homes back only slows down recovery. We need to increase the transferability of these homes, not stall their transfer.

        But back to the CCAs, I love the idea of them getting more involved, and you would be a HUGE resource for them. I truly hope that they do reach out to you so you can pour a bucket of your wisdom on their heads.

        I must say though, I would rather see the CCAs work in a direction to assist with liquidating these properties. Lobby to expand and improve on the relocation assistance programs that the lenders already offer to liquidating homeowners. Yes some type of grace/lease/redemption period for homeowners to vacate (without eviction) after a foreclosure would help, but I’m talking 6 months. Any longer than that and we will all have to get used to the reality of “BOA as our landlord”, and that’s just too scary to even think about. 

        Love ya babe, have a great weekend.  

      • Michael

        Thanks Andy. You are always insightful.

        If the only issue to manage in this problem of massive scale were home values, I would tend to agree with many of your points. Unfortunately, there is a great deal more. Chain of title issues, bank capitalization, the need for housing to grasp a thin strand of normalcy before the nations economy will begin a recovery, put-back litigation….

        The deed w/option is not the only way CCA’s can contibute, they can be there in a transitory capacity as you suggest, and also could build and process files for straight forward mod programs (that may be how the settlements shake out).

        I agree that investors do not want to be landlords. In a normal environment they would balk all the way. This is not a normal environment. Someone like Deutsche bank may never participate, but agencies (Freddie, Fannie, FHA etc.) would. In the end they may have to participate in something like this. Perhaps a deed w/option would apply to 25% of trouble loans and traditional mods combined with principle write downs another portion.

        Enjoy your weekend too. Sorry to see the Red Sox season end the way it did this week.

      • Michael

        From Propublica: Secret Docs Show Foreclosure Watchdog Doesn’t Bark or Bite
        http://www.propublica.org/article/secret-docs-on-foreclosure-watchdog

        The above linked report speaks to inefficiencies in auditing and program implementation. The ability to get income and budgets put together correctly is right in the wheel house of CCA’s. With less than 2 billion out of the 50 billion budgeted being sent out, CCA’s could be streamlining the file work and getting funding for their ability to do math correctly.

        Notably:

        “Auditors also found that GMAC was regularly miscalculating homeowners’ income. In a review of 25 loan files of homeowners who had received modifications, the auditors said 21 involved a miscalculation of income. Since income is a key factor in whether a homeowner qualifies for a modification, the high error rate raises obvious questions about whether GMAC was accurately evaluating homeowners’ applications.”

        “The companies were cited for some of the same problems for which auditors had criticized GMAC, such as regularly miscalculating borrowers’ income. JPMorgan Chase, for instance, had erred in estimating income in about a third of the homeowner loan files reviewed.”

        There is much more in the report.

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