So how are CLTs delivering these results against the odds? The NCLTN survey found that the majority of CLTs are implementing stewardship activities that include pre-purchase education, prevention of high-risk loans, ongoing support for homeowners after purchase, and early detection of, and intervention in, delinquencies and foreclosure filings. The effectiveness of these activities is apparent from the number of seriously delinquent loans that CLTs manage to cure. During 2009, 29 out of 57 seriously delinquent CLT homeowners avoided foreclosure due to CLT assistance, a cure rate of 51 percent. To put this finding in perspective, Fitch Ratings reported that only 6.6 percent of all prime residential mortgage-backed security loans in delinquency were cured in the third quarter of 2009. Fitch also notes that most of these “cures” were due to temporary loan modifications, which have a high redefault rate.
One CLT strategy for curing delinquencies and preventing foreclosures is to help homeowners move into more manageable housing situations if their circumstances change. For instance, an elderly woman who had purchased a home from the CHT many years ago asked for help selling it so she could move into rental housing, mainly because her declining health had made the responsibilities of owning a home too much to handle. Had she been in market housing, she might have slipped into default due to her rising medical bills, and her home might have fallen into disrepair due to her limited ability to maintain it. Instead, CHT repurchased her home and facilitated her move into an affordable rental apartment, which happened to be owned and managed by CHT. As Higgins comments, “There is this perception that success is only climbing up the housing ladder, and most of the time, for low-income families, we see that as success. But we also see success as moving safely down the housing ladder when that produces better outcomes.”
CLTs have also proved to be highly effective in foreclosure prevention by keeping low-income homeowners in their homes. The NCLTN survey found that 71 percent of CLTs contact mortgage lenders as soon as they became aware of delinquencies, 57 percent provide homeowners with direct financial counseling, and 35 percent offer emergency rescue funds to address delinquent payments.
Gary Jones, a father of two, bought his home from CHT seven years ago. Since 2008, when he lost his $17/hour job and his wife filed for divorce, Jones has been working with CHT staff to keep his home. Higgins explains, “Owners like Gary hope their situations will get better and sometimes postpone dealing with them, but we intervened to say ‘It’s time to get proactive before your situation gets any worse.’” Seven counseling sessions later, CHT helped him get a moratorium on his first mortgage, put his rehab loan into forbearance, enrolled him in a repayment plan for delinquent taxes, and assisted him in finding temporary employment and completing a retraining program in his field. His CHT counselor, Janet Harvey Coutrayer, says, “We’ll continue to work on his financial situation for several years, I’m certain. If he cannot secure enough temporary work, we may have to facilitate the sale of his home. But it’s looking like he’ll bring in enough to hold him over until he finds full-time employment.”
Another aspect of stewardship that promotes sustainability is the prevention of high-risk loans among CLT homeowners in the first place. Proposed mortgages are routinely screened by CLTs; high-risk loans are prohibited for buying a CLT home. Moreover, as a condition of their approval, many CLTs insist on three concessions from buyers and lenders:
- The CLT wants to be notified by the lender if a homeowner becomes seriously delinquent.
- The CLT wants the right to cure default on the homeowner’s behalf.
- If a foreclosure occurs, the CLT wants the first right to buy the home out of foreclosure.
There is another post-purchase protection: 83 percent of CLTs require homeowners to seek their permission before refinancing or taking out a home equity loan. HLTSC’s Goetschius explains, “Homeowners will come in considering a refinance. I walk them through how to evaluate whether prepayment options are perhaps a better way to go than refinancing. I help them see how loan terms can either help or hurt their family’s long-term goals.” Goetschius not only spends time preventing unsound loans, she also initiates contact with her homebuyers whenever refinancing would be advantageous.
The NCLTN study found that 85 percent of CLTs required general homebuyer education, 95 percent required a CLT-specific orientation, and 67 percent required homebuyers to meet with a lawyer before purchase. Approximately 50 percent of CLTs offer post-purchase services to build homeowner competency and security, including financial literacy training, referrals to contractors for improvements and repairs, and mandatory counseling for delinquent homeowners. These stewardship activities, covering the gamut from prevention to intervention, address the challenges and risks that may arise over the course of a lower-income household’s acquisition and operation of a home. As Goetschius says, “You seldom see this type of ongoing education and stewardship in the market or in other publicly-subsidized homeownership programs, but it’s common in CLTs.”