ALFN Leadership Conference
August 19th, 2010
American Legal & Financial Network’s 8th Annual Leadership Conference
July 18-21, 2010
Washington, DC
Conference Overview
In its eighth decorated year of hosting a nationwide network of constituents for a leadership Conference converging on principal concerns, efforts, and topics paramount to the mortgage servicing industry, the American Legal and Financial Network (ALFN) welcomed over 300 attendees to the Nation’s Capital for four days of timely discussion, education, and evaluation. In addition to attorneys practicing within the area of loss mitigation, and foreclosures, participants included those from Government-Sponsored Enterprises, mortgage servicers, field services/property preservation companies, title agencies, and those from the public and non-profit arenas.
Over and above providing a venue for information sharing and professional networking, the Conference celebrated the accomplishments and advances since last year’s gathering in New Mexico, and offered a determination and focus for the obstacles yet to be conquered. As ALFN President and CEO William LeRoy noted, 2010 has been marked with unprecedented challenges and extraordinary circumstances. He added that this Conference once again delivers to its members the “educational offerings (that) will equip all attendees with the information necessary to effectively address the current, pending and future Legislative, Legal, and Loan Administration issues.”
Both long-time recognized leaders within the various sectors of the industry and new members to the ALFN followed an agenda offering broad and robust fields of content. Sessions dedicated to alternative policies, Federal program reviews, tenant protection, industry communication efforts, Federal legislative assessments, bankruptcy matters, electoral influences, industry impacts on communities, overall servicing within our current economic climate, departmental and programmatic guidelines, and finally, a glance into the future that offered servicing projections for 2011.
Safeguard Properties was honored to be a sponsor and participant at this year’s event. Founder and Chairman Robert Klein was invited to lead a session dedicated to community impacts and responses. Over the course of the past two years, Robert has developed a vast depth of expertise in this area as he has spearheaded initiatives, fostered community outreach, and cultivated collaborative relationships between members of the mortgage servicing industry and representatives from local jurisdictions.
Loan Servicing Challenges vs. Community Impact – An Evaluation of Current Efforts & Proposed Initiatives to Nurture Industry Collaboration
Moderator
Robert Klein, Safeguard Properties
Panel
Michael Braverman, City of Baltimore
Jim Rokakis, Cuyahoga County Treasurer
Rob Hicks, LPS
Steve Bancroft, Detroit Office of Foreclosure Prevention and Response
ALFN President and CEO William LeRoy acknowledged and recognized an esteemed Panel of private and public sector representatives deeply entrenched and demonstrating a vast depth of knowledge in the area of community collaboration. William stressed the grave importance of communication by the industry to address the impacts of the foreclosure crisis, and this Session promised to deliver anecdotes and solutions.
Robert Klein welcomed and graciously thanked the over 100 attendees for dedicating their time to join the Session. He noted a significant and accomplishment by the industry and communities to create a shift of perspectives from that of finger-pointing to one of collaboration and solution building. Robert assured that the diverse background of the Panel will offer a broad and intelligent review of the partnerships created and nurtured through multiple efforts and initiatives, as well as applying this momentum to new areas of opportunity for engagement.
City of Baltimore, A Toolbox with Multiple Strategies
Michael Braverman reported that the City of Baltimore currently has an inventory of approximately 17,000 vacant buildings and 13,000 vacant lots. Although this represents a large percentage of the municipal landscape, these are not distributed evenly throughout his jurisdiction, as some neighborhoods are demonstrating the signs of stability, while others are in serious distress. The important questions that the City had to (and continues to) answer are “how to appropriately meet scale?”, “what is the endgame?”, and” how are the demands of each neighborhood accommodated?”.
Prior philosophies included a primary focus and engagement in healthy markets, while boarding, securing, cleaning, and demolition was designated for the more highly distressed counterparts. These activities led to communication and subsequent collaboration with the industry creating efficiencies that decreased municipal expenses and, in turn, increased revenue from the collection of cleaning and boarding liens.
To create stability, the City identified multiple strategies and began to review and consider the applications of various models on a block by block approach and application. Michael noted that Baltimore’s accomplishments rest on creating a diverse toolbox that contains an instrument for multiple scenarios and users. These include, but are not limited to enforcement, litigation, citation, receivership, and demolition. As a result, a process for citations within healthy markets where litigation should not be necessary has been crafted. At the same time, Baltimore has recognized that the market for rehabilitation in stressed areas has matured.
While the demolition dollars needed to meet the volume of that within the distressed areas are still not available, the infusion of private capital has helped the City to address its problem of chronic vacancy as developers are undertaking rehabilitation projects utilizing their own resources and capacity. Fully recognizing that Developers require an environment of mitigated risks, the City has assisted to minimize and/or eliminate such issues. Baltimore’s model for its distressed areas has included shifting the focus, responsibilities, and expertise to that of the appropriate party, including non-profits, developers, and government. As a result of these efforts and the implementation of these strategies, relationships with the REO Clearinghouse, mortgage servicers, and local government have formed and are flourishing.
In fiscal year 2011, relying on the core strengths of City government, private developers and non-profits, and using approaches tailored to an understanding of the local markets, Baltimore has targeted 2000 vacant properties for rehabilitation, a scale that dwarfs other programs to date.
Cuyahoga County Land Bank, a Proven Solution
Treasurer Jim Rokakis shared a detailed overview of the history of the Cuyahoga County Land Bank Authority, which became effective in March following two years of coordination. With Cuyahoga County, including the City of Cleveland, leading the Nation in the number of foreclosures, the creation of a Land Bank offered a timely, necessary, and viable solution to a devastating crisis. It drew inspiration from the works by Dan Kildee and on the exemplary model created for Genesee County. Jim shared the solid funding structure created for the program, including the borrowing of tax delinquent penalties/debts (every six months), which are resources that would have gone to tax lien buyers but is now directed to the Land Bank. Illustrating the successes of its creation, activities, and partnerships in Cuyahoga County, the Ohio legislature recently expanded Land Bank authorities to implementation in an additional 43 Counties.
The benefits of the Land Bank are unquestionable, as they will help to stabilize tarnished housing markets and eliminate the dumping of low-valued properties into the hands of irresponsible investors. Half of the property transfers in the City of Cleveland in 2009 were generated from a Sheriff’s sale. This activity has led to a significant drop in population and a litany of negative impacts on the municipality's neighborhoods. Once considered a problem confined to urban areas, foreclosures have expanded to the more stable and higher valued suburbs. Jim shared a rundown of the numbers of properties now vacant due to a foreclosure and their diminished market values.
The Land Bank has earned the reputation as the "go-to" agency by Countywide housing advocate agencies, and was the area’s lead applicant for Neighborhood Stabilization II dollars, attributed in part to the partnerships established between the City, County, and the Authority. In addition, multiple other large scale agreements have developed. A contract has been formalized with the U.S. Department of Housing and Urban Development for the Dollar Home Program. Fannie Mae is currently transferring all low-valued properties and providing $3500 to defray associated demolition costs. This source is projected to generate 50 to 60 properties per month.
Due to the Land Bank’s authority and capacity to negotiate, swap, etc. with property owners, the economic development opportunities are both endless and encouraging. Jim provided the example of an entire city block, currently under one primary owner, ripe for local business development, thereby allowing for expansion and retention.
Jim analogized the County as being the “Gulf of Cuyahoga”, he added, “we have to cap the flow before we can clean up the mess from foreclosures.” Robert added that this tool provides a resource and outlet for servicers and can eliminate the decision to walk away from a property.
Detroit, Unveiling New Programs
Steve Bancroft noted that “the bad news is generating good news in Detroit.” Although cities across the Nation are realizing an average loss of value for vacant and abandoned properties of 70-80%, that number is far more exaggerated in Detroit as servicers stand to lose 100% from a foreclosure. Regardless of the magnitude of the foreclosure, Steve affirms that the strategy for the 20% significantly impacts and influences the 80%.
With the full involvement and direct assistance by leading local attorneys, Detroit is about to unveil a program designed to replace the ROOF Agreement. Steve shared a brief evaluation of the limitations and reasons that contributed to the replacement of ROOF. Primarily, the failure was in the tardy timing of its implementation, as most homeowners had already vacated their homes when eligible to enter the program. The new FLOOR (Foreclosure Limitation Owner Occupant Restoration) Agreement will be available to the troubled borrower earlier within the delinquency process and prior to the servicer incurring unnecessary and costly expenses. Under a 15 month contract (additional 2 month duration compared to the time calculated under the State provision) both insurance and property taxes will be paid by the borrower. Steve advised that the program is structured so that it can be executed in any state, regardless of judicial or non-judicial formation.
Detroit is also implementing a pilot program, in partnership with Fannie Mae, created under the pillars of reducing servicer expenditures and preventing a property from further diminishing in value. A deed in lieu from the borrower results in the property transferring immediately, at back-end REO prices, to a non-profit, which then can contract with the former owner for a first right of refusal. The result is that the property retains occupancy and is sold at or near the value as what would have been paid by an investor.
Robert confirmed that Detroit’s focus and models have been to squelch the City’s growing inventory of abandoned, blighted structures by maintaining occupancy. These approaches are in alignment with the industry’s stand that vacancy expedites a property’s physical deterioration and subsequent loss in the value. Servicers will also agree that a majority of vacant properties are being responsibly maintained; however, tools must be available to address the few, but high profile, exceptions.
Industry Outreach, Communication and Collaboration
Rob Hicks shared the intrinsic value, benefits, and tangible accomplishments obtained through the industry’s ongoing efforts to increase communication and share information with local municipal representatives. The Code Enforcement Summits are an example of an extension of what the servicing industry initiated. These endeavors have led to positive, measurable results, and the formation of solid, productive relationships. Such results include minimizing the number of code violations issued to servicers, which is a demonstrated cost savings for all and exemplifies the common goal to preserve properties and maintain the integrity of communities.
Through steadfast collaboration, the industry has created and introduced new, practical resources for code enforcement professionals, including the MERS Initiative. Robert added that the contributions of field services and property preservation companies offer invaluable assistance with a current, street-level perspective that unites the industry and communities.
Opportunities for Solution Building
In light of the magnitude of the housing crisis and the growing volume of distressed properties, Robert spoke of the demonstrated need for new strategies, procedures, and funding options to better address no/low valued assets.
Steve identified the obstacles within the corporate infrastructures of servicing institutions that prohibit meeting the spectrum of today’s demands. This “silo” effect has created a lack of coordination and departmental connections that have diminished thoughtful action and success. Steve invited and requested that everyone from all sectors within the industry approach these issues with a new and broad outlook. To accommodate and embrace these perspectives, a review of and revision to current guidelines may be warranted.
Michael suggested that the industry also promote the creation and endorsement of legislation that addresses and supports the needs of, and actions by, municipalities. He advised that government needs to be on board as an active and contributory partner. Robert added that the language and requirements within legislation must clearly differentiate the status a property, such as that being occupied versus vacant.
Additional Sessions of Key Interest
Although the agenda included a full menu of sessions pertinent and practical to conference attendees, the following were identified as being of particular interest as they touched on processes, procedures, and programs directly impacting troubled borrowers and communities.
Representatives from two of the nation’s Government-Solution Enterprises (GSE), Fannie Mae and Freddie Mac, shed light on of the many supportive and complimentary responsibilities that each agency has assumed related to the execution of various Federal programs, introduced by the U.S. Department of Treasury, designed to assist homeowners with foreclosure prevention and loan modifications. Much focus was placed on HAMP. The discussion and review of these active roles extended beyond responsibilities and included ancillary components and outcomes, such as a government partnerships, new relationships with mortgage servicers, contributions to the evaluation of program effectiveness and policy development, borrower outreach, and influences on communities.
With respect to communication improvements and outreach, Fannie Mae, HAMP’s designated program administer, initiated a campaign that offers multiple website resources to accommodate and guide various audiences, printed materials, web trainings, instructor led courses, satellite media tours, public service messages, and the HOPE hotline for homeowners. Multiple additional programs were noted, including, but not limited to, forbearance arrangements for unemployed borrowers and second lien modifications, which have been created to directly assist with, and fuel, the stabilization of fragile and anguishing housing markets. These efforts are paving the way for financial recovery for homeowners and communities, alike.
Freddie Mac, offering compliance oversight for multiple programs, is responsible for monitoring and reporting on the activities by, and fulfillment of, participating servicers. It was confirmed that the GSE operates under a model that strives to reduce any and all negative impacts from the foreclosure crisis to borrowers and communities. These approaches include the responsible disposition of REO assets, expediting property sales, preserving market values, and implementing and supporting efforts to encourage an increase in homeownership. Freddie Mac is also considering new models to address vacancies during delinquency. Options under review include short sales, deeds in lieu, and the implementation of a Receivership program.
Another session profiled the Protecting Tenants at Foreclosure Act, providing an update one year after its enactment. To frame the context for a panel discussion, an account of its historic, legislative background was outlined, including previous attempts and multiple stand-alone Bills that laid the ground work for Congress to review related precursors. The panel noted that over 40% of tenants were affected by the negative impacts of foreclosure, a population for whom the Act was designed to protect.
Although tenant protection is very popular issue for discussion within the industry, the Act has not generated the full volume, supported by limited case law, and a ripple of impacts, as predicted. However, there remains an outstanding ambiguity regarding the interpretation and implementation of many of its guidelines, including, notices of foreclosure, termination of a bona fide lease, a clear definition of “arm’s length”, the solid and concurring determination of fair market rent, and the appropriate timing for the release of a 90 day notice. The priority of Federal versus State regulations lingers with unclear determination. The example of evictions was provided, enforcement for which is governed by State laws.
Although servicers identify cautionary limitations and problematic obstacles associated with the role of “landlord”, it was noted that a significant outcome of the Act is that is has opened the door for the consideration of new opportunities related to rental strategies, including lease-to-buy programs, and tools for defraying carrying costs. The disposition of a tenant occupied property was reviewed.
The session dedicated to reviewing tenant protection issues ended with the presentation of new legislation that will further address foreclosures, including the Dodd Frank Wall Street Protection Act (which was enacted in late July). Per Title 14, in the case of any foreclosure, the successor of interest assumes the rights of a bona fide tenant. It also raises significant questions regarding the definition of a “complete transfer of title”, for which factors such as the date of a notice, orders by the court, finalization by a judge, redemption periods, and the recording of a deed create and add to the ambiguity of this provision. State regulations will bear influence on these matters.
About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, Ohio and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees and a handful of contractors performing services in the Midwest, to a national company with approximately 800 employees. Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.