Neighborhood Housing Services of Cleveland provides foreclosure-prevention loans to qualified, delinquent customers to bring their mortgages current. The program is meant to protect families from foreclosure and thereby preserve home ownership.

NHS of Cleveland provides services to the entire city and its approximately 500,000 residents. The organization has been in existence for 25 years, and was one of the first NHSs. NHS provides NeighborWorks Full-Cycle Lending and pre- and postpurchase counseling, homebuyer education and second mortgages for home purchase. The foreclosure-prevention loan program was implemented in December 1999.

Program Incentive.  NHS created the program to provide an additional service for members of its prepurchase program, and encourage participation in postpurchase classes and services. Recruiting participants for postpurchase classes can be difficult, and offering access to foreclosure-prevention loans can be an attractive inducement.

Suitable Applicants.  In order to qualify for the foreclosure-prevention product, the cause of the delinquency must be a situation outside the borrower’s control, and its reoccurrence must be unlikely. The borrower must be able to document the cause of the delinquency, and show an ability to repay both the first mortgage and the foreclosure-assistance loan. The borrower must also show a history of credit-worthiness.

Approval Process.  Once an applicant is deemed appropriate, an NHS loan specialist collects the required information and presents the applicant’s case to the executive director. The executive director then makes a referral to the loan committee, which makes the final decision.

Lending Guidelines.  Foreclosure-prevention loans are available for city residents whose income does not exceed 115 percent of the area median and who are members of the NHS’s Homebuyers’ Club. The maximum loan amount is $2,500. Funds are provided at the market rate; the term is anywhere from three to 60 months; and the security is a subordinate mortgage. NHS charges $300 for documentation preparation and administrative services. To receive a loan, the customer must attend NHS’s postpurchase-education program.

Postpurchase Program.  The postpurchase class covers a range of issues, such as managing finances, prepayment techniques, and methods (and the importance) of making mortgage payments on time. NHS goes over homeowners insurance, policy costs and different types of coverage. Class participants learn preventive-maintenance techniques, and about NHS’s home-improvement training with Home Depot. NHS covers foreclosure prevention and steps homeowners should take when approaching financial hardship or delinquency. Work-out options are identified, such as loan modifications, deeds in lieu of foreclosure, or pre-foreclosure sales. Participants pay no fee for the class.

Marketing.  NHS does not formally advertise the foreclosure-prevention loans; they are simply tied to its prepurchase program. The loans were created, in part, as an incentive for customers to complete the entire education piece. NHS has found no need for extensive marketing, as it receives lender referrals and word-of-mouth advertising from Homebuyers Club participants. Furthermore, NHS feels that more-extensive marketing would result in excessive applicants, all of whom could not be supported by the program.

Cost.  The main program costs are loan funds and staff time, though required staff time is minimal. The foreclosure-prevention loan is simply another product available through NHS, and the NHS loan specialist manages the process.

Funders.  The main funding came from NeighborWorks America, but funds also come from other NHS contributors. NHS receives capital donations, some of which are then allocated to the program.

Funding Requirements.  The funding needed depends on the number of Homebuyers Club members and the number of customers an organization maintains. NHS of Cleveland estimated it would complete less than 10 foreclosure-prevention loans a year. Thus, it keeps about $25,000 available.

• Two loans have been made. Both customers underwent one-on-one budget and credit counseling for a year, and were able to alleviate their delinquencies with NHS financing. NHS helped these families avoid a potentially disastrous situation, and the customers were very appreciative.
   
• It is easy to convince assisted families to participate in the postpurchase class, when it is a requirement of receiving assistance. Moreover, NHS customers learn a great deal from the class, and have referred other homeowners to the program.
   
• NHS has informed local lenders of the loans. Some banks refer customers more often than others, but most lending institutions love the program. It is an attractive alternative to foreclosure, as it both salvages loans and also helps lenders avoid the lengthy and expensive process of foreclosure. Lenders, who lack the NHS’s means for working out financial alternatives with customers, are happy that NHS strives not only to create homeowners, but also to sustain them.
   
• Participation in postpurchase education has increased by more than 40 percent. The foreclosure-prevention loan program has added value to the class, and participants view the loan as protection from emergencies that could result in delinquent mortgage payments.

• Steering new homeowners into postpurchase education is vital. Homeowners need budgeting and credit counseling, and need to know how to manage money and home-ownership expenses. Foreclosure-prevention loans are not often needed, and should be used, therefore, to motivate homebuyers to complete the entire education piece.
   
• In the future, NHS may use these loans to rescue households from predatory-lending situations. NHS would not advertise the program as such, but if a customer came to NHS with a predatory-lending issue, NHS would like to help remedy the situation. The process could potentially be complicated, as NHS would not want to overstep the boundaries with its lending partners. But there is a potential need for a loan program to be available for this purpose.
   
• NHS hopes that by increasing participation in the postpurchase classes, its customers will not need this product, as they will better know how to manage their finances and avoid excessive debt. However, it is beneficial to have the product available and in place, in case a loan is needed.
   
• Do not formally advertise the program unless you have the means to manage a large customer base, as the program could easily become very popular. So far, word-of-mouth advertising is communicating the Cleveland program well enough to the public, while keeping customer interest at a manageable level.

Agency interview with: André Reynolds