1. Solving Delinquency Problems and Minimizing Foreclosures Heidi Kern, Executive Director Habitat for Humanity of Fulton County, Ohio Collin Morelock, Mortgage Program Coordinator Habitat for Humanity-MidOhio Habitat for Humanity of Ohio – Annual Conference October 30, 2015 Two affiliate leaders share their journey to overcome serious mortgage delinquency problems. They will discuss strategies for dealing with delinquent homeowners and how confronting their delinquencies minimized the long-term effects on their affiliates’ reputations with donors, community partners and families.

2. How to manage a delinquency problem #1: Why are you here? If you’re in this session you probably have a delinquency concern. You are NOT alone Purpose: to give an overview of how our affiliates began changing our delinquency problems for the better. Examples, Ideas, Q&A

3. No matter the affiliate size… … the problem is the same and must be addressed in order to see change happen. large Small Affiliate Medium Affiliate Large Affiliate We all juggle the same problem.

4. Acknowledge: 1.The problem didn’t happen overnight; the solution won’t either. 2.Your affiliate must make a “lifestyle change” in how delinquencies are handled, rather than intermittent attempts at fixing the problem. 3.No single “fix-all” exists. Although we all juggle the same problem, evaluate how the problem is perceived. (#2 next slide)

5. 1.Identify the Problem Don’t place blame Find the loopholes & mistakes 2.Evaluate your Environment What is acceptable in your communities? (how is delinquency viewed?) How do your donors and volunteers view your affiliate? 3.Evaluate your Capabilities Staff Size How much time is spent on financial management? Number of delinquencies vs. Number of mortgages AKA: delinquency rate Do you outsource or service in-house? Learn from the past but focus on the future…

6. 4.Review your Partner Families How do they view your affiliate? What does your grapevine look like? How well do you know their payment habits? 5.Know the Laws Know what you MUST do compared to what you can CHOOSE to do. Educate your Board and key financial officers. Then What? Learn from the past but focus on the future…

7. Set Policies Put Methods into Action CONSISTENCY of Application COMMUNICATE Attitude & Expectation Expect Support & Dedication Let’s look at each of these steps closer… Implementation Process

8. Step 1: Set Policies Payment Policies Due Dates Grace Periods Late Fees Partial Payments Suspense Accounts? Delinquency Policies What is late? Letters Timeline Who Handles What? Loan Originator Requirements Consistent Point of Contact Follow All Laws Never assume you won’t be questioned! Habitats are not immune! Document… Document! Log Files, Paper Trail

9. Step 2: Put Methods into Action Policies mean nothing if you don’t act upon them Make time to do you’re your job

10. Step 3: Consistency of Application Treat all partner families the same. → Following policies assures that. Let the grapevine help for a change!

11. Step 4: Communicate- Attitude & Expectation “Your attitude toward Delinquency Management will define your success.” Is our Mission to give houses away?

12. Is it fair to the Partner Families who pay on time that others don’t pay at all? Habitat’s mission is based on PARTNERSHIP. Willingness to Partner continues throughout the entire mortgage term. Partnership with our Families

13. Education is key to establishing attitude and expectation in partner families Be respectful but not “customer- oriented”. Establish clear and concise expectations. Show what the “blessing” actually is. Family support and mentoring is a great tool. Click to view partner family interview (property of HFHFCO)

14. Step 5: Expect Support & Dedication Board Members Must agree to support the policies if they are going to support the mission. Financial Parties Committees and partner agencies must be dedicated to upholding necessary actions even when questioned. Volunteers & Staff Must know the difference between showing the love of the mission and expecting the partnership to be fulfilled.

15. Mortgage Delinquency Master Plan (Mid-Ohio) 1.Improve evaluation of Ability to Pay prior to program (Underwriting). 2.Better develop applicant’s Ability to Pay prior to closing (and more Underwriting). 3.More promptly address loans with negative escrow. 4.Improve intervention for loans that fall 15-119 days behind. 5.More disciplined remediation for loans that fall 120+ behind.

16. Principal Arrearage in Dollars ‘09-15 (Mid-0hio):

17. Headcount: 120+ Days Past Due

18. Why should we take a strong stance regarding delinquency management? We’re suppose to help people, not be mean. Let’s see what HFHI thinks about this… “But, we’re Habitat…”

19. Why would delinquencies and foreclosures affect fundraising and an affiliate’s sustainability? References by Lisa Reitz, Habitat for Humanity Int’l. 5/7/2013 my.habitat.org 1.Limits Cash Flow Less cash = Less projects = Less families served “Late and unpaid mortgages will have a significant negative effect on your cash flow, even to the extent it could limit your capacity.”

20. Why would delinquencies and foreclosures affect fundraising and an affiliate’s sustainability? References by Lisa Reitz, Habitat for Humanity Int’l. 5/7/2013 my.habitat.org 2.Negative Respect from Partner Families They know they owe you, so why wouldn’t you expect payment? Don’t be fooled! “ Laxness in dealing with delinquencies can be like a virus and result in other homeowners being late with their payments.”

21. Why would delinquencies and foreclosures affect fundraising and an affiliate’s sustainability? References by Lisa Reitz, Habitat for Humanity Int’l. 5/7/2013 my.habitat.org 3.Affiliate Reputation Suffers in Financial World Your portfolio suffers and can hinder future funding opportunities. Lenders won’t work with problem situations and poorly managed organizations. “Although, your book value for a seriously delinquent mortgage won’t change, its real value will significantly decrease. If you have used this mortgage as in an AAR (accelerated asset recovery) program (loan or sale), you will find that you must take it back and swap it for a performing loan. If this happens too much, it may jeopardize your ability to leverage your mortgages in order to expand your capacity and affect your credibility with the bank or institution that is doing your AAR transactions.”

22. Why would delinquencies and foreclosures affect fundraising and an affiliate’s sustainability? References by Lisa Reitz, Habitat for Humanity Int’l. 5/7/2013 my.habitat.org 4.Sustainability -- Who are your customers? Donors want to know their money is going to an organized and professionally managed mission. Board and Committee members may quit if their volunteer experience is less than fulfilling. “A history of ongoing delinquency problems can have a demoralizing effect on your board and lead to loss of experienced leaders and less ability to attract new board members, particularly those that have the financial sophistication, influence and access to wealth that are critical for successful fundraising, particularly with major gifts and capital campaigns.”

23. Why would delinquencies and foreclosures affect fundraising and an affiliate’s sustainability? References by Lisa Reitz, Habitat for Humanity Int’l. 5/7/2013 my.habitat.org 5.Negative Publicity The best way to fight negative publicity of a foreclosure is to not let the problem get that bad. Donors and volunteers will appreciate that you uphold expectations of the partner families. If you experience negative press because your delinquencies are high, then you may experience a loss in your fundraising and especially limit your capacity to get significant gifts from wealthy individuals.”

24. Okay, we have problem… what now? Don’t beat yourself up… But DO ask yourself the following…

25. 1.Did you follow policy? 2.Has the seriousness of the issue been communicated? 3.Have you documented ALL details, communications and facts? 4.Are you following laws, required timelines and legal obligations? 5.Have you offered a payment plan option with strict guidelines? PRONTO or other modification/forbearance option. 6.Have you offered mentoring and financial education? Ask the following…

26. 7.Be willing to offer a deed in lieu of foreclosure option. 8.Consider a “cash for keys” option. Understand the cost of foreclosure to the affiliate. 9.Do you know what’s next in the delinquency process? 10.Communicate with Board/Executive Committee at all times (no surprises) so proper decisions can be made effectively and efficiently. 11.Understand that sometimes the solution the partner family wants is not one that Habitat can offer. You must not sacrifice the aid to future families for the sake of one who is not willing to fulfill their partnership. Ask the following…

27. The Key: Family Support Click to view support mentor interview (property of HFHFCO) If you can work out a payment plan, require mentoring and budget counseling as part of the obligation. (Goes back to Willingness to Partner)

28. The Hard Truth Delinquency Management never ends -- When you reach your GOAL, you are not done. Continued dedication will improve the odds of keeping a low delinquency rate and turn your delinquency problem into a Payment Management Procedure.

29. Prepare for the worst, hope for the best, & stick to your plan Heidi Kern Habitat for Humanity of Fulton County, OH director@habitatfco.org 419-335-7000 Collin Morelock Habitat for Humanity Mid-Ohio cmorelock@HabitatMidOhio.org 614-800-4899