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Foreclosures in San Jose: Impacts and Solutions

Foreclosures in San Jose: Impacts and Solutions League of Cities Conference San Jose, CA September 16, 2009 What is the Housing Trust?

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Foreclosures in San Jose: Impacts and Solutions

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  1. Foreclosures in San Jose: Impacts and Solutions League of Cities Conference San Jose, CA September 16, 2009

  2. What is the Housing Trust? A nonprofit community lender formed in 1999 by the County Board of Supervisors, Silicon Valley Leadership Group, the SCC Collaborative on Affordable Housing and Homelessness, and the Housing Action Coalition. 501(c)(3) public benefit corporation Since 1999, HTSCC has raised over $38,000,000 in voluntary contributions from the public and private sector for the development of affordable housing and provision of loans to first-time low and moderate income homebuyers. Public-private partnership makes us unique

  3. HTSCC Programs First Time Homebuyers Closing Cost Assistance Loans ($6500, 3% loan) MAP - $35,000 second mortgage ESCO (Equity Share Co-investments) DAP - $15,000 deferred second loan with NHSSV Affordable Rental Development Acquisition, Construction, Permanent loans to Nonprofit Affordable Housing Developers Family, workforce, senior, special needs, supportive housing Emphasis on permanent, but allow transitional Homeless Housing Emergency Homeless Prevention Grants Grants to preserve safety net and rehab of existing housing

  4. Households Assisted Equal priority to Homeless housing, First-time Homebuyer Assistance, Multifamily Rental investment FTHB – over 2070 loans made to homebuyers Multifamily – over 2700 new units developed Homeless Housing – over 2700 households assisted Total – over 7500 Affordable Housing Opportunities

  5. Foreclosures in San Jose • July 08 – June 09 = 15,161 foreclosure filings • More than 2008, and double 2006 and 2007 combined • Foreclosures particularly impacting specific neighborhoods in South and East San Jose • 35 census tracts score highest on foreclosure impact schedule from HUD • Berryessa, Alum Rock, Edenvale, Evergreen

  6. Map of San Jose foreclosures

  7. Foreclosures in San Jose • Census tracts with highest foreclosures correlate with low and moderate income tracts • Ability for neighborhood to stabilize on own is compromised by lack of household financial resources • First wave of foreclosures primarily due to rate resets on sub-prime loans; hit LMI areas disproportionately • Second, more recent wave of foreclosures due also to job losses; hitting more middle and upper income tracts as well as exacerbating LMI

  8. Foreclosures in San Jose

  9. San Jose: Responses ForeclosureHelp Center • Majority of clientele are LMI borrowers with loan rate resets • Growing number of clients due to underemployment • Collaboration with local nonprofit housing agencies, real estate, lending professionals • Provides resources to families facing foreclosure by mediating with lenders for loan modifications; rental re-housing assistance

  10. San Jose: Responses NSP1 Grant – HERA Funds • 2008 – City of San Jose received $5.6million • acquisition and rehabilitation/redevelopment of multi-family residential properties for the benefit of VLI households • single-family residential acquisition, rehabilitation and resale program for the benefit of LMI households ARRA Funds for Foreclosure Counselors – NHSSV

  11. Housing Trust: Our take • Foreclosure Crisis primarily due to underwater homes and mortgages • Previously, underemployment or rate increases would be remedied with sale or refinancing • However, with current home values so far underwater, these options not available and foreclosure is only option

  12. Housing Trust: Our take Average Sales Price Condos/Townhomes in Target Geographies

  13. Housing Trust: Our Take • Current Washington DC solutions miss Bay Area and particularly South Bay • Hope for Homeowners (HERA, 2008) • No incentives for mortgage principal reduction • Making Home Affordable (HUD, 2009) • Loan modifications and some principal writedowns, but 125% underwater still too low for Bay Area and most homes not financed with Fannie Mae, Freddie Mac, FHA

  14. Housing Trust: Our Take • Best Solution: Aggressive steps to write down underwater principal on homes • Use ESCO (Equity Share Co-investments) to incentive lenders, homeowners to write down principal and share in future appreciation as pay-back • Win-win-win: Lenders don’t take foreclosure, homeowner stays in house, ESCO investor receives payback in future appreciation

  15. ESCO Foreclosure Prevention Example Lender is 42% better off than in foreclosure scenario Investor IRR = 7.5% Homebuyer recovers original equity invested Note: Assumes original LTV at 85% and subsequent 25% decline in home value. New loan refinances old one with a fixed-rate amortizing 30-year loan; 3% annual Home Price Appreciation, 6% cost of sale. Lender forgives 17% of original loan principal; another17% of original loan principal refinanced with ESCO.

  16. ESCO Foreclosure Prevention Tool • Presented to Congressional Delegation, Housing Financial Services Committee and Senate Banking Committee Staff • Met with US Department of Treasury Staff • Approached all 4 national banks • Presented to CalHFA • Meeting with local, community banks • New York Times, Ken Rosen, other respected national voices recognize need for principal reduction to stem foreclosures

  17. Housing Trust: Solutions NSP2 Grant • Formed consortium with City of San Jose Housing Department and NHSSV • Applied for $25,000,000 from NSP2 • Awards announced in Oct/Nov 2009 • Assist over 200 properties

  18. Housing Trust: Other Solutions NSP2 – Strategies • Acquisition and Rehab of foreclosed properties for sale to homebuyers up to 120% AMI • Acquisition of foreclosed homes occupied by previous owners (Boston Capital Model) • Acquisition and Rehabilitation of foreclosed properties by nonprofits for rent to tenants up to 50% AMI • ESCO down payment assistance to homebuyers earning up to 120% AMI purchasing foreclosed homes

  19. Housing Trust: Other Solutions Home Again, LLC proposal • Housing Trust considering a loan to start-up organization to assist in the purchase, rehabilitation, and sale of foreclosed homes to LMI buyers • $500,000 loan coupled with $1,000,000 loan from CDFI Clearinghouse

  20. Housing Trust: Contact • Website: www.housingtrustscc.org Kevin Zwick Executive Director kevin@housingtrustscc.org 408-436-3450 x225

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