Neighborhood Housing Services, Inc., of Boise, Idaho, has created a foreclosure-prevention program for homeowners in the state who need one-time emergency mortgage assistance.

When Neighborhood Housing Services Inc. of Boise was incorporated in 1982 (as “Boise Neighborhood Housing Services”), it began its revitalization efforts in Boise's Vista neighborhood. NHS expanded into the Veterans Park neighborhoods in 1986. Since then, NHS has grown from a neighborhood revitalization effort into a multiservice housing and social service agency, with programs ranging from homeless intervention to home ownership. It serves the city of Boise, and Ada and Canyon counties, plus offers many services statewide. As a NeighborWorks Full-Cycle Lender, NHS provides pre- and postpurchase counseling, affordable financing, and house rehabilitation. It has stimulated more than $150 million in reinvestment activity in Idaho neighborhoods. This does not include other NHS services, such as home-ownership counseling and direct social services, which are difficult to quantify.

Program Development.  NHS decided to implement a foreclosure-prevention program in summer 2002 due to the volume of calls — approximately eight to 10 a month — it was receiving from homeowners in danger of foreclosure. In response, NHS sought funding and received $50,000 ($40,000 in capital funds and $10,000 in operational funds) from NeighborWorks America.

Lending Guidelines.  A subcommittee of NHS’s loan committee developed guidelines for the program. Since there were many interested borrowers but only limited funding, the committee decided to create strict lending criteria. The foreclosure-prevention funds are available to borrowers who are visibly capable of fulfilling their repayment responsibilities and quickly get back on track. Borrowers cannot ever have had a bankruptcy, and their delinquency must be due to circumstances beyond their control, such as job loss or medical reasons. The borrower must be working, and earning no more than 120 percent of the area median. The program is available statewide, and borrowers do not need to be NHS customers. The loan is a one-time service; once the homeowner receives assistance, they will not be eligible for this type of loan again from NHS.

The Loan.  The minimum and maximum loan amounts are $1,500 and $5,000, respectively. The interest rate is 4 percent, and the term ranges from five to 15 years (determined by a debt ratio of 45 percent). Once the mortgage is brought current, any remaining funds may be used to consolidate or pay off other debts. NHS also has the option of deferring the first payment for a couple of months, if the borrower needs more time to recover from their situation. NHS makes the payments directly to the lending institutions via a cashier’s check.

Marketing.  NHS does not officially market the foreclosure prevention program, since it already receives numerous phone calls from loan customers as an approved HUD housing-counseling agency. NHS also supplies program information to its local lending partners, so they are aware of this option and can refer customers in need.

Staffing.  The housing counselor and loan officers are all involved in staffing the program. Eventually, increased staffing may be necessary, but at this time current staff are able to handle the customer base. NHS spends, on average, nine hours with each customer who receives a loan.

Delinquencies and Defaults.  If a customer defaults on the foreclosure-prevention loan, NHS contacts him or her to determine if the delinquency is short-term. If necessary, NHS can modify the loan to provide additional short-term help. Otherwise, the default will be addressed through NHS’s standard delinquency procedures.

• As of May 2003, NHS had closed seven loans, averaging $4,400 each (four applications are in process). The loans have performed excellently. All the borrowers fell into default due to job loss, but were quickly able to become current on their mortgage and get back on track with help from NHS. The families were very happy and relieved that this option was available.
   
• With major lay-offs at area employers Micron, Hewlett Packard and Jabil, postpurchase counseling at NHS has increased, along with potential customers. Currently, the housing counselor is receiving 15 to 20 inquiry calls a week. Most are from the HUD referral line. The NHS counselor determines over the phone if the person can qualify for a loan or be helped in other ways.
   
• At present, NHS is the only organization in the state offering this type of foreclosure-prevention assistance. Unfortunately, NHS did experience a few customers who attempted to refinance their mortgages through this program, but did not succeed due to circumstances surrounding their first mortgage.
   
• NHS plans to close six to eight loans a year. The program’s projected annual operating cost is $7,248. The projected capital costs, assuming eight loans a year at $5,000 each, is $40,000. The net savings for avoiding these foreclosures is approximately $25,000 each.
   
• NHS plans to solicit ongoing funds from area lenders once it can demonstrate the value of the program.

• The most difficult aspect of working with borrowers who are 60 or more days past due on their mortgage is rallying the lender. The organization will need to contact the mortgage holder and clearly explain the program guidelines, plus convince them to be patient while the program process takes place.
   
• NHS staff have authority to approve these loans directly, with consent from the executive director, rather than taking each to the loan committee. The loan committee decided to conduct the loan underwriting this way because these cases generally are time-sensitive, and loan committee approval may take too long. The organization must be able to make quick decisions regarding loan approval in order to help the customer before foreclosure proceedings begin.
   
• Offering a foreclosure-prevention program is a good idea for nonprofit housing organizations. It is routine for these organizations to help low- to moderate-income families achieve home ownership, but helping them remain homeowners is a vital objective that also needs to be addressed.
   
• Stable funding is the most important factor of a foreclosure-prevention program. If NHS had additional or ongoing funds, it would be able to assist more families. However, even limited funding is important and useful.
   
• Working with these customers takes a good deal of staff time and energy. The loan counselor will need to work closely with both the lender and the customer, who most likely will need extra support to remedy the situation. The average cost per loan is $906.
   
• Advertising a foreclosure-prevention program may cause the organization to be inundated with loan requests. Typically, this type of program does not attract enough resources to assist a high volume of customers. Thus, it is recommended that the organization refrain from advertising.
   
• It is important to help customers remedy their situation, but equally important to offer limited loan amounts. Loan limits require borrowers to make managing their finances a priority and allow the organization to assist more customers.
   
• Strict lending guidelines help slow the depletion of funds. If they are too loose, the loan funds will be gone very quickly. Understand that the organization will not be able to help every potential customer, and may need to make difficult decisions regarding eligibility guidelines.
   
• Make sure a list of referrals is available for customers ineligible for the foreclosure-prevention program. They still need assistance, and it is vital for the counselor to direct them to other helpful resources.

Agency interview with: Kathy Nelson