Neighborhood Housing Services of Chicago

Serving Lower Income Neighborhoods in Distress

Bruce Gottschall, Executive Director

Neighborhood Housing Services of Chicago

     FDIC Advisory Committee on Economic Inclusion 

			         February 5, 2009

Neighborhood Housing Services of Chicago
        - Mission:  Neighborhood Housing Services of Chicago creates opportunities for people to live in affordable homes, improve their lives and strengthen their neighborhoods.
        - We do this by:
        - Educating and preparing new homeowners for success
        - Lending to help people buy, fix and keep their homes
        - Sustaining home ownership through foreclosure prevention services
        - Preserving, rehabbing and investing in housing 
        - Building powerful and enduring community partnerships 
        - NHS started in 1975 to combat redlining in Chicago
        - Created or preserved 26,923 units of housing through: 
        - Lending
        - Rehab
        - New construction
        - Directly invested $458 million 
        - Neighborhood Lending Services  & NHS Redevelopment Corporation

NHS of Chicago
        - 9 target communities
        - Community building and neighborhood reinvestment strategies
        - Block and institutional organizing
        - Home ownership training and counseling
        - Pre-purchase 
        - Post-purchase
        - Foreclosure prevention

Home Ownership Preservation Initiative (HOPI) Model
        - Partnership begun in 2003 between
        - NHS of Chicago
        - City of Chicago, Department of Housing
        - Federal Reserve Bank of Chicago
        - Major Lenders/Servicers
        - HOPI approach
        - Quality homeowner education to prevent current and future delinquencies
        - Direct interventions to assist homeowners at risk of foreclosure
        - Reclaim foreclosed homes for owner-occupants
        - Study mortgage and servicing impacts on neighborhoods to develop best practices as a laboratory for training and replication 

HOPI Recent Activity
        - Activity             Sept-Dec 2007     Sept-Dec 2008
        - New F/C Cases             215                       680
        - Workshop Attendees       46                       840
        - Counseled Borrowers    772                     1226
        - Documented Saves       114                       181

Loan Modifications
        - More Modifications Offered, But Not On Sustainable Terms
        - Only 1/3 of Mods Lower Monthly Payment
        - The Rest Freeze or Increase Monthly Payment
        - Workable Mods require considering Homeowner's Total Budget
        - Time to Solution for counselor is Still 3-6 month
        - Execution of “new” programs has not reached loss mit staff level

Why aren’t loan mods sustainable?

-  Investor Restrictions On How Much Loan Can Be Modified
        - Lack of Accurate Data On What Homeowner Can Afford
        - Servicer Capacity to Handle Volume Of Requests
        - Investors Waiting On Bailout Programs
        - Servicer Disincentives To Do Loan Modifications v. Foreclose  

New NHS Foreclosure Client Profile
        -  Average NHS Client: Monthly Household Expenses Are 137% of Income
        - More Families With Good Loans Delinquent Because Of Other Expenses And Decreases In Income
        - Streamlined Modification Programs Can Handle the Cases With Reasonable Total Household Expense Ratios.  @ 30-40% of NHS Population
        - Next Tier, @ 20% Require Intensive Counseling On Budgeting/Cost Cutting

Streamlines the Loan Resolution and Process for Counselors And Servicers 
        - Quickly identify borrowers who are eligible for these options, and  
        - Gets them through the process faster.  
        - Counselors, borrowers, and lenders all speaking the same language

        - A transparent Web-based solution that offers:
        - Automated loan resolution proposals based on borrower characteristics
        - Automated identification of federal and state “rescue” programs available for refinance solutions
        - A password-secure Web site that facilitates the fast, easy exchange of loan and borrower information between counselors and servicers

Neighborhood Lending ServicesCDFI and Licensed Mortgage Bank
        - Lending to families and individuals to:  buy, fix or keep homes
        - Tool to fill lending gaps to create reinvestment
        - City-wide to low/moderate income borrowers
        - Neighborhood Lending Program:
        - CBDG subsidy funds to leverage private funds and create investment and affordability

NHS Borrower
        - Owner occupant in target neighborhood
        - African-American (71%) or Hispanic (19%)
        - Female Head of Household (42%)
        - Household income at or below 80% of the Area Median Income (65%)
        - Loans to borrowers in Low/moderate income census tracts (90%)
        - Up to 10% of transactions may be to homebuyers or homeowners with ITINs

PSSA 2003 and 2006 Cumulative Loan Originations

New 2009 Loan Pool Overview
        - $150 million loan pool over next three years
        - Loans to low/moderate income borrowers and/or neighborhoods
        - Dedicated 6.00% loan loss reserve 
        - MacArthur foundation participant
        - Public/private partnership effort
        - Loans originated by NHS of Chicago’s non-profit residential mortgage licensee - Neighborhood Lending Services, Inc. (NLS) 

Composition of Originations
| Product Mix                     | Forecasted Mix |
|---------------------------------|----------------|
| Category                        | 2003-2006      | 2007 | 2008 Proj | Jan 09 – Dec 09 | Jan 10 – Dec 10 | Jan 11 – Dec 11 |
| Refinance                       | 12.1%          | 53.8% | 53% | 52% | 51% | 50% |
| Purchase                        | 69.7%          | 29.3% | 32% | 32% | 33% | 34% |
| Home Improvement                | 18.2%          | 16.9% | 15% | 16% | 16% | 16% |
||
| Per Annum Average (in millions) | $29            | $31 | $46 | $49 | $50 | $51 |

Why participate?
        - Extensive community development lending and investment opportunity
        - Sound economics from an investor perspective
        - Sound financial optics on investor income statement and balance sheet
        - NHS delivers on promises making reward worth effort
        - Wide recognition from regulatory and public sector, including City of Chicago and public at large
        - Visibility and marketing effort creates additional opportunities for lender originations
        - Newly-originated first mortgages by lender made possible by tandem NHS second mortgage 
        - Managed reserves address credit risk
        - Innovative template replicable in other markets for private, public, and non-profit collaborations to create innovative community development opportunities

Investor Participation 2009(in progress)
        - Allstate Bank
        - Beverly Bank
        - Charter One Bank
        - Cole Taylor Bank
        - Community Savings Bank
        - First Savings Bank of  Hegwish
        - Harris, N.A.
        - Hoyne Savings Bank
        - HSBC
        - MB Financial Bank

*   Midwest Bank and Trust
        - National City Bank 
        - Neighborhood Lending Services
        - The Northern Trust Company
        - Park Federal Savings
        - Park National Bank
        - The Private Bank and Trust
        - Prospect Federal Savings
        - Standard Bank
        - State Farm Bank

NHS Redevelopment Corporation
        - Direct real estate ownership and development
        - Tool for neighborhood reinvestment
        - Fix problem vacant properties
        - Create visible investment to set standards for improvement
        - Provide affordable housing opportunities
        - Multi-family rental rehab and new construction (tax credits, etc.)
        - New home construction to encourage homeownership on vacant lots
        - NeighborHomes:  purchase, rehab and resale of vacant 1-4 unit properties for sale to owner occupants

ACA Model BlockGreen Bungalow HomesBefore 

ACA Model BlockGreen Bungalow HomesAfter

Current Purchase, Rehab, Resale Issues
        - Very soft market
        - Even in formerly okay neighborhoods
        - Tightening credit availability
        - Overall holding costs
        - Decreasing sales prices
        - Increased subsidy needs and lower acquisition cost
        - Rental single family - option
        - Lease to purchase options
        - Subsidy needs
        - Management and counseling costs
        - Subsidy to cover costs of those lease to purchasers who don’t become the owner and need to replace with new

NEW REALITY
        - 97% of properties that go to foreclosure auction end up in REO inventories.
        - Investor interest has been dramatically reduced had declined from 30% of foreclosures purchased at auction
        - Large inventories of bank owned REO property are putting tremendous downward pressure on local real estate markets.
        - Servicers are actively pursuing opportunities to move REO.
        - Increased interest negotiating transactions
        - “Make us an Offer”

Neighborhood Perspective
        - Currently there are 358 single family active listings in Roseland.
        - 279 listings are priced less than $149,999
        - 47 are listed for less than $30,000 with an average time on market of 167 days.
        - In ‘05 & ’06 no properties under $30,000
        - 10 are listed for less than $15,000 with an average market time of 105 days.

Foreclosures in NHS Neighborhoods

Market Capacity vs Price
        - REO property most likely will have substantial deferred maintenance
        - Cost to rehabilitate properties has not decreased
        - Soft resale and rental market makes rehabilitation challenging without significant subsidy.
        - Single family rental demand still an unknown in hardest hit communities.  

Bank Owned REO located at 331 West 110th Street. Photograph taken from MLS listing # 06834796

Neighborhood Housing Services of Chicago

Serving Lower Income Neighborhoods in Distress

Bruce Gottschall, Executive Director

Neighborhood Housing Services of Chicago

     FDIC Advisory Committee on Economic Inclusion 

			         February 5, 2009