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Bloomberg News reporters Tom Schoenberg and Clea Benson are bylined as the authors of a scathing critique of NeighborWorks America, the national community development financial intermediary chartered by Congress to assist lower- and middle-income homeowners and boost homeownership in urban and rural markets.
This line in their article summarizes their take: “A close look at the group reveals a house in disorder—with sweetheart contracts, document fudging and unexplained departures of top officials.”
In full disclosure, NPQ has published several pieces on NeighborWorks in the past, particularly articles about NW’s foreclosure counseling work, including its use of a direct grant from Congress for the rapid development of a nationwide foreclosure intervention and counseling program in order to bypass what it considered an ineffectual foreclosure counseling structure in HUD. Some of our notable articles include this commentary on nonprofit involvement in the subprime mortgage crisis, another piece on NW’s rapid development of the program to distribute $130 million in foreclosure counseling assistance, and this brief note about NW’s work helping homeowners avoid foreclosure modification scams.
The specifics that Schoenberg and Benson describe involve “at least two large jobs [awarded] to insiders without bidding, later justifying one of the contracts with a backdated memo, [and] in…another case, managers signed off on a multimillion-dollar technology deal to a recently formed contractor, which had board members in common with NeighborWorks and used the same law firm.”
The article indicates that these “management shortcomings” have led “government inspectors and Republican lawmakers…[to ask] whether the organization has delivered on its post-crisis mission of keeping Americans in their homes.”
NW spokesperson Douglas Robinson was quoted to have said that NeighborWorks took action after these managerial messes were uncovered. Readers might assume that the departure of some senior leaders of NW might have been related to the organization’s efforts to fix the problems, though Robinson did not confirm that to Bloomberg News.
The examples that the Bloomberg News reporters cited are really two contracts that involve the kind of appearance of conflict of interest and self-dealing that NPQ often writes and rails about. One was an expensive contract with an IT firm hired to develop training software, the firm allegedly established by former NeighborWorks staff. The other was a contract with a company to do application processing that had several connections to former NW staff and board members. In both cases, there seem to have been enough warning signals of apparent or actual conflicts of interest abetted by irregularities in NeighborWorks’ procurement procedures to suggest managerial blind spots. If these two cases weren’t alone, but emblematic of larger, continuing problems, then more work is needed to clean the place up. If, as Robinson says, NW has taken corrective actions, the organization should be making sure that its internal controls—and the managerial oversight of those controls—are built up sufficiently to make sure that these kinds of problems don’t reappear.
But the Bloomberg article’s questioning of the NeighborWorks efforts in foreclosure modifications brings a whiff of partisan politics with it. Schoenberg and Benson mention that Republicans are raising questions about NeighborWorks funding: “House Republicans said…they’re seeking ways to cut federal spending by $5.5 trillion over the next nine years.” They cite Rep. Bob Goodlatte (R-VA) who used a congressional hearing to call NeighborWorks “left-wing community organizers.” For those who know NeighborWorks and the community-based nonprofits that are members of the NeighborWorks network, calling them “left-wing community organizers” is hard to understand, to put it mildly, given that the NeighborWorks America board is made up of representatives from the Federal Reserve, the National Credit Union Administration, and the Comptroller of the Currency, and the composition of many NW community members’ boards has plenty of bankers, reflecting the roots of the NeighborWorks movement.
The Goodlatte reference prompted us to look at the transcript of that hearing, held on February 12th by the House Committee on the Judiciary, Subcommittee on Regulatory Reform, Commercial and Antitrust Law to examine the mortgage lending settlements negotiated by the Justice Department. As we might have guessed, Goodlatte seemed haunted by the specter of ACORN. His exact quote, which Schoenberg and Benson referenced, was this:
“Bank of America’s settlement also required it to set aside $490 million to pay potential consumer tax liability arising from loan modifications. Should Congress again extend the nontaxable treatment of home loan forgiveness, the money does not revert to the bank. Instead, it flows to activist groups like NeighborWorks America, which has been described as funding, quote, ‘a national network of left wing community organizers operating in the mold of ACORN,’ end quote.”
Although Goodlatte didn’t immediately identify the source of that quote, later in the hearing it was revealed that the comment appeared to have come from Paul Larkin, a research fellow at the Heritage Foundation, who was one of the hearing witnesses.
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Goodlatte and his colleagues also used the hearing to attack the National Council of La Raza and other organizations that had provided foreclosure counseling services, both on federal contracts and through the resources provided by settlement agreements (even though it was the banks, not DOJ, that typically chose the third party entities like NeighborWorks and La Raza, so long as they were HUD-certified housing counseling agencies, to implement the counseling components of the settlement agreements). After criticizing the Justice Department’s oversight of these settlement agreements, Goodlatte concluded, “For DOJ to funnel money to third parties through settlements this way may violate the law and is undoubtedly bad policy.”
Subcommittee chairman Tom Marino (R-PA) grilled a Justice Department witness over whether anyone from the White House or some unknown outside group had guided Justice and the banks on the selection of the third-party implementers—again, the specter of the hand of ACORN all but flowing from Marino’s lips. Rep. David Trott (R-MI) concluded that the settlement agreement process “looks and smells a little bit like a slush fund” and raised suspicions about how the banks got access to the list of HUD-approved nonprofit counseling agencies (apparently unaware that they are on the HUD website). Marino then observed that the Justice Department’s prosecution of the banks on mortgage lending issues amounted to “using extortion to make banks appropriate funds to left-leaning organizations.”
The Bloomberg News article went on to question the impact of NeighborWorks foreclosure counseling efforts, noting that most people who received counseling were not able to successfully achieve loan modifications or might have succumbed to mortgage payment problems later on. The implication was that this was because of NeighborWorks, as opposed to the real problem in foreclosure counseling: Getting the banks to agree to substantial modifications of loan terms, as in reducing principal and interest, as opposed to modifying payment schedules. No offense to the Bloomberg News writers, but this seems to be the first sally of Republicans aiming at the Justice Department’s prosecution of banks such as Bank of America and Citi and questioning the use of settlement funds by third-party entities such as NW and La Raza. How the big banks, having deluged this nation with terrible lending practices, bringing the economy to its metaphorical knees, and requiring billions in taxpayer bailouts, could be turned into victims of the Justice Department conspiring with purported leftist housing counselors is difficult to understand. Somehow, Goodlatte and his fellow committee members made NeighborWorks groups, the National Council of La Raza, and other foreclosure counseling organizations into the bad guys in this scenario.
Those of us with long experience in the nonprofit housing industry might agree with one issue raised by Goodlatte and his colleagues, which is that the monitoring and oversight of Justice settlements might benefit from more explicit processes and more widespread public reporting. However, in the subtext of the Goodlatte/Morino/Trott critique is their opposition to groups that help homeowners to renegotiate bad mortgages and their opposition to additional funding going to groups with social justice missions, like the National Council of La Raza.
NeighborWorks America? Among the national housing and community development intermediaries, NeighborWorks has long been the intermediary most strongly linked to promoting homeownership through bank-funded lending pools, hardly the image of “left-wing community organizers.” If NeighborWorks has stumbled into some messy managerial situations, they should be cleaned up, not just as specific instances of mismanagement, but for the systemic weaknesses that allowed them to happen. But no one should mistake the ideological agenda at work behind this Bloomberg News article in terms of what Goodlatte and others are trying to do.
In both the Bloomberg News article and the February hearing chaired by Congressman Marino, there were references to what was said to be the less than stunning results of the foreclosure counseling efforts of NeighborWorks. At NPQ, we’ve been watching the data almost from the very beginning, and we understood from the outset both how difficult the challenge was to put $130 million into a network of community-based counseling groups in a short period of time—and make that work with banks and mortgage servicers often unresponsive and recalcitrant about altering the mortgage principal and interest terms.
Notwithstanding the charges from Rep. Goodlatte and others about the foreclosure counseling delivered by NeighborWorks groups, we thought it might be worth looking at the actual evaluations conducted by the Urban Institute. The most recent evaluation report is the September 2014 report on the National Foreclosure Mitigation Counseling Program Evaluation, rounds 3 through 5. This report examined the results of the NMFC for borrowers who received counseling between July 2009 and June 2012 and addressed and provided answers to the following questions among others:
- Did NFMC counseling help clients receive loan modifications? “Modification cures bring a troubled loan current through loan modification. NFMC counseling improved the likelihood that a client would receive a modification cure for a troubled loan—that is, a loan 90 or more days delinquent, in foreclosure, or in REO status. The odds for NFMC clients of getting a loan modification cure increased by 1.78 times when compared to owners who did not receive NFMC counseling”
- Did the NFMC program help client homeowners receive loan modifications with larger payment reductions than non-NFMC owners? “The combined effect of counseling—from a larger payment reduction and other counseling assistance—substantially reduced (by approximately 70 percent) the odds that borrowers would return to troubled loan status after receiving a loan modification that cured their troubled loan. Virtually all of the improvement in sustained loan performance for cures results from NFMC counseling during which clients received help to improve their financial management skills, manage relationships with servicers and investors, and received other types of support. These services contributed substantially to better post-cure performance, while counseling’s contribution to larger mortgage payment reductions through loan modification had almost no separate effect on sustaining loans cured through modification. This indicates that it is not the amount of the additional payment reduction itself that is the primary factor contributing to improved sustainability, but the other supports and assistance provided by counseling. When translated into probabilities, the cumulative redefault rate for troubled loans cured with the help of an NFMC counselor was 63 percent less than for non-NFMC owners who cured with a loan modification.”
- For borrowers with troubled loans, did NFMC counseling increase their chances of obtaining a cure? “A crucial outcome for borrowers is both curing loans in serious delinquency or foreclosure and sustaining those cures (i.e., avoiding redefault). When the results of the curing and sustainability analyses are combined, they demonstrate that NFMC counseling more than doubled the rate of curing and sustaining. Among counseled borrowers, 14.1 percent of troubled loans were cured and sustained without redefault, compared with only 4.9 percent among noncounseled borrowers’ loans—a ratio of 2.9.”
- For clients that do not wish to or cannot remain in their homes, does NFMC counseling help clients close short sales? “For some NFMC clients, the most appropriate solution is not to remain in the house. Instead, clients may want to, or be forced by mortgage costs too high for their incomes to, move from their home either after completing a short sale or allowing the foreclosure process to run its course resulting in an REO sale. The multivariate analyses show that NFMC clients who pursue a short sale are more likely to complete one than are non-clients. The probability of completing such a sale in any given month is about 21 percent greater with NFMC counseling when compared to non-NFMC owners.”
For the first two rounds, for people receiving counseling in 2008 and 2009, the Urban Institute evaluation reached the following conclusions:
- Loan Modifications: “NFMC clients that had their loans modified in 2008 and 2009 and received counseling assistance paid $176 a month less, on average, than non-counseled clients that also received loan modifications. This average payment was 7.8 percent less than it would have been without counseling and translated into an annual savings of about $2,100 per counseled homeowner.”
- Sustainability of Modification Cures: “The combined effect of counseling from both a larger payment reduction and other counseling assistance substantially reduced the relative odds that borrowers would redefault after receiving loan modifications bringing seriously delinquent mortgages (those with three or more months of missed payments) or foreclosures back to current status. Translated into percentage terms, counseling lowered redefault rates after a modification cure of a typical loan by 67 percent or more.”
- Sustainability of Non-Modification Cures: “NFMC counseling also increased sustainability substantially for loans cured without a loan modification. Though the sustainability effect was somewhat smaller than for counseling and cures with modifications, the impacts were still large for a single program intervention. Overall, counseling reduced the relative odds of redefault for non-modification cures of loans in serious delinquency or foreclosure by about half…Measured by the probability of redefault…counseling lowered the redefault rate for a typical NFMC-counseled loan cured without a loan modification from 71 to 36 percent, or 49 percent, over nine months.”
- Modification Cures: “In addition to increasing the sustainability of cures, NFMC counseling improved client outcomes by increasing the likelihood that a borrower would bring a loan in serious delinquency or foreclosure back to current status. NFMC counseling came close to doubling the odds of modification cures compared with those for non-counseled borrowers.”
- Achieving and Sustaining Cures: “A crucial outcome for borrowers is curing loans in serious delinquency or foreclosure combined with sustaining those cures (i.e., avoiding redefault). When the results of the sustainability and cure analyses are synthesized, they demonstrate that NFMC counseling nearly doubled the rate of curing and sustaining troubled loans. Among counseled borrowers, 12.7 percent of seriously delinquent or foreclosed loans were cured and sustained without redefault, compared with only 6.5 percent among non-counseled borrowers’ loans—a ratio of 1.96.”
By most reports, for all of the resources that went into NeighborWorks foreclosure counseling, NW member organizations and other foreclosure counseling entities faced significant challenges beyond the banks’ own intransigence about altering loan terms. With the huge numbers of people facing foreclosures during the height of the economic collapse, the demand for foreclosure counseling typically outstripped available resources, and many foreclosure counseling entities found themselves burdened with stringent bureaucratic requirements, as demonstrated in this study published by the Federal Reserve on foreclosure counseling in Philadelphia. The reality is that the foreclosure crisis took people who were supposed to be in homes that were building family assets and reversed their situations. Rather than accumulating assets for long term investment or retirement, families with mortgage problems found themselves facing serious financial shortfalls, ruined credit, and homes that were draining rather than supporting household budgets. The presence of NeighborWorks counselors, by which we mean counselors working for community-based NeighborWorks network member organizations, gave homeowners in crisis a neutral third party to turn to for advice and often the confidence to take solutions to the banks and mortgage servicers. That’s the ultimate meaning of the NeighborWorks NFMC evaluation results, a third party to help families figure out their options and help them present modification packages to the banks and servicers that could turn into win-win solutions for all parties.
Let’s call out the critique of NeighborWorks’ purported “house in disorder” for what it is: A nonprofit intermediary appears to have mucked up a couple of contracts that should have gone through typically required federal procurement rules. That, however, may have put it into the crosshairs of some very conservative Republicans, who are out to attack community-based nonprofits that stand up for financially troubled homeowners and defend the banks that created the trouble in the first place.—Rick Cohen
Full disclosure: Because Rick Cohen was a vice president of two other national community development intermediaries, the Enterprise Foundation (1989-1991), now called Enterprise Community Partners, and the Local Initiatives Support Corporation (1992-1999), he has had several interactions with NeighborWorks personnel. While at LISC, he was involved with LISC’s part of the implementation of a Justice Department settlement with Nationwide Insurance, some of which went to NeighborWorks. The current Chief Operating Officer of NeighborWorks, Chuck Wehrwein, was the COO of the National Equity Fund, which is LISC’s housing tax credit syndication affiliate. Cohen has also worked with NW senior staff Maggie Grieve and Debby Visser before they joined the NeighborWorks “success measures” program and has appeared on panels discussing trends in philanthropy at a handful of meetings of the executive directors NW-affiliated community-based organizations.
NPQ has also had a long term working relationship with the Urban Institute. NPQ staff have spoken at Urban Institute programs and on occasion conducted contractual work on Urban Institute projects, though nothing in connection to NeighborWorks and its foreclosure counseling.