The Housing Chronicles Blog: Philanthropists seeking targeted ways to address foreclosures

Saturday, March 1, 2008

Philanthropists seeking targeted ways to address foreclosures

Philanthropic groups as diverse as the Ford Foundation, The MacArthur Foundation and Living Cities are increasingly seeking ways to address the rising trend of foreclosures through highly targeted means. From a WSJ article:

Some of the nation's wealthiest philanthropies are turning their attention to the growing foreclosure crisis, which some fear could usher in the type of urban blight that devastated pockets of American cities in the 1970s and 1980s.

How to tackle it isn't clear. "Every big funder is out there trying to figure out how to participate in systemic responses," says George McCarthy, a senior program officer with the Ford Foundation. The problem, he says, is that "no one can figure out where the opportunity lies" and how philanthropic dollars can be spent most effectively.

The Ford Foundation, which has about $12.8 billion in assets, is looking to fund programs aimed at reducing the number of homes that wind up in foreclosure, perhaps by making it easier for homeowners to get mortgages modified.

Meanwhile, Living Cities, a consortium of major foundations and financial institutions working to revive inner cities, is considering funding programs to keep borrowers in their homes and get abandoned properties back into use....

he amount of money charities are setting aside to assist is relatively small when compared with the scope of the mortgage crisis. As of the end of January, some 2.3 million mortgage loans were delinquent and another 505,000 were in default, according to Moody's economic research firm.

Nevertheless, moves by foundations could provide quick funding for programs operated by local governments and nonprofit groups at a time when federal solutions have been slow to materialize. This week Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, floated a plan that would allocate as much as $10 billion in loans to states to buy foreclosed or abandoned properties, along with $10 billion in Federal Housing Administration guarantees to allow people delinquent in payments to refinance into more-affordable mortgages. But it isn't clear whether such proposals will reach fruition. Meanwhile, city and state officials say the situation is growing bleaker and that they need to act now...

In the 1970s and 1980s, many cities were hurt when the loss of manufacturing jobs and an economic downturn drove residents to move away. Investor-owners abandoned properties in the face of rising inflation and higher fuel costs, and many ended up in the hands of local governments. Foundations, community groups and others eventually helped return many of these properties to productive use.

This time around, assisting troubled homeowners is turning out to be particularly difficult and costly because many are in such bad financial shape. The large volume of problem loans has stretched the resources of housing counselors and mortgage-servicing companies. Arranging for broad-based loan workouts or purchases of foreclosed properties has also proved difficult, in part because so many mortgages were packaged into securities, sliced and diced and sold to investors.

The Ford Foundation is considering an investment in a program being developed by Consumer Credit Counseling Service of Greater Atlanta that would give its counselors access to mortgage-pooling and servicing agreements, and the authority to fashion loan modifications for certain borrowers who've fallen behind on their payments. Mortgage servicing companies that participate in the program would agree in principal to execute the group's recommendations...

Another program Living Cities is looking at was proposed by the Center for New York City Neighborhoods, a nonprofit recently created to address the subprime mortgage crisis. The program wants to quickly reach borrowers at risk of foreclosure and get them into loans that they can afford. Already the Open Society Institute, funded by George Soros, is spending $1 million in each 2008 and 2009 on efforts including counseling, legal assistance and borrower education. The Open Society Institute has committed to spending a total of $10 million on mortgage-related programs over the next two years.

The Chicago-based John D. and Catherine T. MacArthur Foundation, with assets of $6.8 billion, is stepping up its support for organizations it already funds, such as Neighborhood Housing Services of Chicago, a nonprofit organization that works with financially distressed homeowners, and the Woodstock Institute, which is analyzing foreclosure data. It is also helping the City of Chicago look at ways to put foreclosed homes back into use as quickly as possible.

The foundation is also considering using program-related investments -- low-cost loans for charitable purposes -- to help develop financial instruments to make it easier for people to stay in their homes, or rent or buy foreclosed properties. The investments could also fund organizations that would make bulk purchases of foreclosed properties. Over the past 30 years, the foundation has invested more than $500 million in affordable housing and community development.

In Detroit, the Kresge Foundation recently provided a $500,000 grant to Southwest Housing Solutions for housing counseling and the negotiation of loan workouts. The Kresge Foundation expects to spend $2 million to $3 million on foreclosure-prevention programs this year. It is looking at ways to support the purchase and maintenance of vacant properties and to help people hurt by foreclosures find other housing.

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