Combating the Foreclosure

Crisis:

A Local Solution

Underwater Mortgages and the Foreclosure Crisis Are Crippling Our Communities & the

Economic Recovery

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The Crisis is Far From Over

• 1.8 Million Families Lost Their Homes in 20121.8 Million Families Lost Their Homes in 2012• 5.1 Million Homes Currently Delinquent or in 5.1 Million Homes Currently Delinquent or in

ForeclosureForeclosure• 14 Million Homes are Underwater14 Million Homes are Underwater

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The Crisis in Richmond• Communities in Richmond lost over $264 million in wealth

due to the foreclosure crisis in 2012, or $4,000 per household.

• Majority communities of color zip codes lost an average of $4,700 per household.

• Communities in Richmond saw 30 foreclosures per 1,000 households

• Right now, more than 12,000 homes are worth less than the amount that homeowners still owe on their mortgages.

• If all underwater homeowners in Richmond were able to renegotiate their mortgages reducing their principle owed to current market value, homeowners would save an average of $14,000 annually, which in turn provide an economic stimulus to our local economy!

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Principal Reduction is Key Principal Reduction is Key To Rebuilding Community To Rebuilding Community

WealthWealthDecember 1, 2012 Editorial

Crippling mortgage debt “make[s] a strong and steady economic recovery all but impossible…. the foreclosure crisis, and its damage to homeowners and the economy, is still paramount. In the next term [of the Obama Administration], the focus should be on debt reduction, refinancing, enforcement and true consumer protection.

August 12, 2012

Housing remains the biggest impediment to economic recovery, yet Washington seems paralyzed. The Obama administration’s housing policies have fallen short.

-- Joseph E. Stiglitz and Mark Zandi.

Foreclosures Are A Current And Future Nightmare For Many Communities

4 million families with no effective access to Federal distressed mortgage programs because their mortgages are in PLS

45% of PLS loans are underwater

PLS servicing contracts prohibit or prevent the sale of PLS mortgages and limit modifications

Fannie Mae is forecasting additional 2 million PLS mortgage foreclosures

These foreclosures will cost communities $68 billion

52 million U.S. Single Family Mortgages

The Particular Problem for Homeowners with PLS (Private Label Securities) Loans

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A Local Solution with a Big Impact

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• Cities can acquire certain underwater loans and restructure them so that homeowners can refinance into a new loan in line with the current value of the home and current market interest rates.

• The loans are acquired through purchase: either through voluntary transfer or through the use of eminent domain (where PSAs block voluntary purchase).

• The city never takes possession of the homes themselves, but rather just the mortgage loans.

 • By recognizing the current “fair market value” of these

loans, as opposed to the inflated value on the books, the loans can be acquired at a price that allows for a new mortgage to be written that no longer has the homeowner underwater.

How It Works

Step 1: The City partners with advisors and funders - Advisors who have the legal and financial expertise to carry

out the program - Investors who have the capital to acquire the loans and

cover the costs of the program, both operational and legal. - Both the advisors and the investors get paid out of the

proceeds from the new mortgage fund

Step 2: The loans are identified

Step 3: Homeowners opt into the program

Step 4: Advisors make offers to purchase loans from

servicers, on behalf of the City- And attempt to negotiate

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Steps of the program, continued

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Step 5: City purchases mortgages through voluntary transaction (where possible) or utilizes the eminent domain law

Step 6: City reduces principal balance on purchased PLS loan

Step 7: Homeowner obtains a new modified loan and how have a more affordable mortgage

Homeowner and Community BenefitsThis is an example for the level of benefits that participating families

may realize. Communities benefit from greatly reduced probability

of foreclosure.

  Original Loan

Today After Program

Home Value $400,000 $200,000 $200,000Mortgage Balance $320,000 300,000 $190,000Home Equity $80,000 ($100,000) $10,000Loan to Value Ratio (LTV)

80% 150% 95%

Monthly Payment $1,798 $1,798 $907

Assumes a 6%, 30 year, fully amortizing mortgage is refinanced by a 4%, 30 year, fully amortizing mortgage. Some loan programs may also require insurance, which may add $175 per to the After Program monthly payment.

Probability of Default Drops from ~60% to ~7.5% (FHA actuarial assumption)

A Few Frequently Asked Questions*

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* SEE THE “FAQ” DOCUMENT FOR THE COMPLETE LIST* SEE THE “FAQ” DOCUMENT FOR THE COMPLETE LIST

Q: Will this program take people’s homes? A: No. The entire goal of this program is to keep people in their homes.

Q: What kind of loans will be eligible? A: All loans currently being considered are underwater PLS loans. Beyond

that, cities will decide how they want to design the program and determine if there are investors ready to provide the funding.

Q: How can cities afford to do this? And isn’t there a threat of litigation? A: The threats are designed to frighten cities, but they lack legal merit. We think this only works if there are private partners prepared

to take on these financial and legal responsibilities.

Q: Will these private partners be making money off of this? A: Yes. The advisors and funders will be paid from the proceeds of the

new mortgage fund. Unless or until we identify public or non-profit entities that are able to fund this program at scale, we are talking

aboutprivate investors who expect to make a profit.

How You Can Get Involved in this Campaign to Rebuild Our

Neighborhoods

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Help spread the word and sign people up as supporters

In your neighborhood, work place, school, church, civic associations, etc…