The NORMAL(SM) Loan Fund of Neighborhood Housing Services of Chicago provides counseling, foreclosure intervention and financial resources for homeowners who obtained financing from a predatory lender where the terms and conditions of the loan exceed the customer’s ability to maintain ownership of the property. NORMAL stands for Neighborhood Ownership-Recovery Mortgage-Assistance Loan.

Formed in 1975, Neighborhood Housing Services of Chicago brings about community reinvestment through a partnership of residents, business and government. NHS programs are organized around four major areas of activity: (1) community building through 10 neighborhood-based programs; (2) neighborhood lending through Neighborhood Lending Services (the lending arm of NHS and an Illinois residential mortgage licensee), administering loan programs that finance home improvement, purchase, and rehabilitation by directly lending to low- and moderate-income families; (3) real-estate development through the NHS Redevelopment Corporation, which buys and redevelops single- and multifamily properties and builds new homes; and (4) home-ownership development through the NeighborWorks HomeOwnership Center and neighborhood programs, including educational programs and one-on-one counseling.
 
In response to rising foreclosures tied to sub-prime loans in its targeted neighborhoods, NHS initiated a home-ownership preservation effort in 1997. By early 1999, it was evident that additional resources would be needed to address the problem. In fall 1999, NHS convened a task force of local lenders, city government, housing advocates and NHS staff to plan and build a new partnership that became the NORMAL program.
 
The task force developed policies and procedures for the loan product, set underwriting guidelines and created a loan committee comprised of representatives from lending institutions that invested in the fund. NHS then created a loan-participation pool and offered investment opportunities to lending institutions, at the level of $100,000 a share. Eighteen institutions agreed to participate for a total of 22 shares, making $2,200,000 available for loans during the pilot. The first loan was approved and closed in June 2000.

Program Goal.  NHS works with borrowers on addressing problems with their first mortgage and on helping them qualify for conventional refinancing, using products developed with local lenders, Fannie Mae or Freddie Mac. NHS, often with the help of the Legal Assistance Foundation, negotiates with the current lender/servicer/investor to reduce the mortgage amount. The objective is to prevent the loss of home ownership and avoid the property abandonment that often follows a foreclosure.

Program Uses.  Loans are used for refinancing existing predatory loans, refinancing with rehabilitation, or for foreclosure intervention. A NORMAL loan will typically be used to refinance a first mortgage, although an existing, predatory second mortgage may be included in the refinancing as well. A requirement of the loan program is that any refinanced mortgages must be negotiated to a “short sale” (reduced payoff). The loan cannot be used to repay other revolving or installment debt.

Borrower Criteria.  Borrowers must be owner-occupants. Typically, borrowers have been residents of NHS neighborhoods, but the NORMAL loan is also available to eligible borrowers throughout the city of Chicago. Successful loan applicants must have adequate disposable income for repaying the loan and respectable credit histories. Borrowers are expected to have a modest amount of their own funds for the transaction.

NORMAL Loan Committee.  A committee of participating lenders was created to manage the NORMAL program. The committee meets monthly and is comprised of representatives from five of the 18 financial participants. Loan decisions are based on a careful analysis of the applicant’s income, indebtedness and credit history.

The Loan.  NORMAL loans are fully amortizing, and the loan amounts, rates and terms are recommended to the committee by NHS lending staff. The borrower’s-note rate is the FNMA 60-day rate plus 50 basis points, set at the time of loan origination. The loans are originated under the NORMAL program guidelines, funded from the NORMAL loan participation, serviced by NHS, and intended for future sale to a participating lender. The maximum loan amount cannot exceed Fannie Mae or Freddie Mac maximums, and the loan-to-value and combined loan-to-value limits are those used in NeighborWorks products. Closing costs include a loan-origination fee (one percent of the loan amount or $500, whichever is greater) and may be included in the loan amount.
 
The loan committee can consider exceptions, such as deferred-payment loans, on a case-by-case basis. In situations where property rehabilitation is part of the loan package, the loan-to-value limit is that established for NeighborWorks loans.

Emergency Loans.  The executive director may approve emergency loans of up to $1,000 for needs of an urgent nature, such as imminent foreclosure. These loans can be made if the homeowner would experience hardship if the situation were left unattended until the next scheduled committee meeting.

Marketing.  NHS receives 100 to 150 calls for home-ownership preservation assistance monthly, and NHS staff direct each caller to the appropriate solution (loss mitigation with the lender, negotiated-payment plans, legal assistance, conventional refinancing, a small loan to reinstate a mortgage, or a NORMAL loan). NHS receives referrals through its lender-partners. Also, the city of Chicago’s anti–predatory loan and consumer-education campaign (“Call 1-800-SAVE HOME”) encourages victims of predatory lenders to call NHS for assistance. NHS also receives calls as a HUD-certified counseling agency and as a result of its work with block clubs and community groups. NHS is listed as a resource by most lenders in the “HUD letter” they are required to send to delinquent or defaulted mortgage customers.

• Fifteen NORMAL loans have been approved, with an average loan amount of nearly $70,000.
   
• Ten of the 15 loans prevented an impending foreclosure. All resulted in a reduction of the previous mortgage balances in amounts ranging from $5,000 to $45,000.
   
• This program has provided NHS with a great opportunity to expand its partnerships with lenders. It has opened a dialogue with financial institutions that previously had not partnered with NHS of Chicago, and has created a forum wherein NHS can communicate its goal of preserving home ownership and protecting equity in neighborhoods.

• The NORMAL loan component cannot exist on its own. It must be tied to a full range of counseling and intervention services. The financing must have flexibility and pricing that will allow homeowners to maintain ownership and continue to make affordable monthly payments.
   
• Maximize available loan-fund resources. Combine public and private lending resources and actively seek and draw on other resources when making loans. For example, borrowers may be eligible for closing-cost or rehabilitation grants. The availability of such funds also promotes affordability.
   
• This is a time- and labor-intensive effort. Unraveling the interlocking relationships with each loan is quite complicated, and the organization needs to be prepared for a substantial increase in needed staff time and resources. However, NHS of Chicago believes the program is essential. Without it, NHS target neighborhoods would suffer an increase in vacant buildings and failed home-ownership cases.
   
• NHS is currently conducting the program as a citywide effort, but in other locales a larger, regional effort might be appropriate. Predatory lenders operate in all markets, and both financial and political support are necessary to address the problem. A larger target area would allow for increased partners and resources.

Agency interview with: Jim Wheaton