www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 September 20, 1993 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 93-28 TO: ALL APPROVED MORTGAGEES SUBJECT: Prepurchase and Foreclosure Prevention Counseling Demonstration The Department has a congressional mandate under Section 106 of the Housing and Development Act of 1968 (12 U.S.C. 1701x) as amended by the HCD Act of 1991, to conduct a Prepurchase and Foreclosure Prevention Counseling Demonstration in three target areas. The Department has selected two sites in Chicago, Illinois and one site in Atlanta, Georgia for this demonstration. The three target areas are identified as Englewood/Marquette Park 1/ and South Suburban in Chicago, and South DeKalb County in Suburban Atlanta. On September 30, 1992, the Department awarded grants to three HUD-approved Counseling agencies to provide counseling for this demonstration. They are the Spanish Coalition for Housing, and the Community and Economic Development Association of Cook County, Incorporated, in Chicago, and the DeKalb/Fulton Housing Counseling Centers, Incorporated, in Atlanta. The purpose of this demonstration is to determine the effectiveness of mandatory prepurchase counseling for first-time home buyers, and foreclosure prevention counseling for homeowners to avoid and reduce defaults and foreclosures on mortgages insured under the F.H.A. single family mortgage insurance programs. The demonstration is designed to encourage responsible and prudent use of federally insured home mortgages: to assist homeowners with federally insured mortgages in retaining their homes; and promote the availability and expansion of housing opportunities in connection with federally insured home mortgages. This demonstration will end on September 30, 1994, unless otherwise extended. Mandatory Prepurchase Counseling. Under this portion of the demonstration, an eligible home buyer who intends to purchase a home located in a counseling target area, and who intends to apply for a FHA mortgage to purchase a 1 to 4 family unit home _________________ 1/ Also includes the Ashburn and Auburn Gresham community areas. _____________________________________________________________________ provide potential first-time home buyers with a certificate evidencing that they have received prepurchase counseling. The Department's Chicago and Atlanta Regional Offices will hold conferences and issue circulars to the members of its real estate community regarding the requirements of this demonstration. Therefore, to allow the realty industry time to become aware of the requirements of this demonstration, for a period of 90 days from the date of this letter, HUD will continue to insure eligible first-time home buyers in the target areas even if the purchaser signed a sales contract prior to receiving counseling. However, such home buyers must have received counseling from the appropriate agency listed herein prior to the processing of a FHA-insured mortgage application. After this 90-day period, only first-time home buyers who have received counseling prior to signing a contract to purchase will be eligible for a FHA-insured mortgage. Foreclosure Prevention Counseling. Under this portion of the demonstration, the Department is making housing counseling available to mortgagors who are 60 or more days delinquent with respect to payment under a FHA-insured mortgage on a home located within a counseling target area. The selected counseling agencies must provide counseling with respect to available options, programs, and actions for resolving mortgagors' delinquencies or defaults. As you are aware, Section 577 of Public Law 101-625, dated November 28, 1990, requires mortgage creditors to notify delinquent homeowners of the availability of homeownership counseling services within 45 days of delinquency. Therefore, to assist with this demonstration, the Department is requesting, to the extent possible, that lenders simultaneously send copies of any delinquency notices to the appropriate housing counseling agency when it sends notices to mortgagors residing in the designated target areas. For your convenience, we have listed below the Target Areas, names and addresses of participating counseling agencies, contact persons, and telephone numbers: Target Area: Englewood/Marquette Park, II. (includes Ashburn and Auburn Gresham community areas) Ernesto Maldonado, Executive Director Spanish Coalition For Housing 3429 West North Avenue Chicago, Illinois 60647 Telephone number: (312) 342-7575 FAX number: (312) 342-8528 _____________________________________________________________________ Target Area: South Suburban Chicago, II. Eva I. Booker, Project Manager Community and Economic Development Association of Cook County, Inc. 224 North Des Plaines Street Chicago, Illinois 60661-1195 Telephone number: (312) 207-5444 FAX number: (312) 207-6943 Target Area: South DeKalb County (Suburban Atlanta), GA. Jimmy Bennett, Executive Director DeKalb/Fulton Housing Counseling Centers, Inc. 233 Mitchell Street Suite 100 Atlanta, Ga. 30303 Telephone Number: (404) 659-6744 FAX number: (404) 508-0967 Attached is a listing of designated zip codes and census tracts representing each of the three target areas for this demonstration. A copy of the legislation authorizing the demonstration is also attached. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing - Federal Housing Commissioner Attachments _____________________________________________________________________ CHICAGO, ILLINOIS * ZIP CODES ** ENGLEWOOD/MARQUETTE PARK ================================ TARGET AREA ________________________________ 60620 ________________________________ 60621 ________________________________ 60629 ________________________________ 60632 ________________________________ 60636 ________________________________ 60652 ================================ Housing Counseling Agency: Spanish Coalition for Housing * ZIP CODES ARE ONLY PROVIDED FOR THE EASE OF IDENTIFICATION AND ARE NOT TO EXTEND BEYOND THE BOUNDARIES OF THE CENSUS TRACTS. ** INCLUDES ASHBURN AND AUBURN GRESHAM COMMUNITY AREAS _____________________________________________________________________ __________________________________________________________________________ CENSUS TRACTS FOR ENGLEWOOD\MARQUETTE PARK TARGET AREA ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ CHICAGO, ILLINOIS * ZIP CODES SOUTH SUBURBAN CHICAGO ================================ TARGET AREA ________________________________ 60406 ________________________________ 60426 ________________________________ 60445 ________________________________ 60469 ________________________________ 60472 ________________________________ 60473 ________________________________ 60627 ================================ Housing Counseling Agency: Community and Economic Development Association of Cook County, Inc. * ZIP CODES ARE ONLY PROVIDED FOR THE EASE OF IDENTIFICATION AND ARE NOT TO EXTEND BEYOND THE BOUNDARIES OF THE CENSUS TRACTS. _____________________________________________________________________ __________________________________________________________________________ CENSUS TRACTS FOR SOUTH SUBURBAN CHICAGO TARGET AREA ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ ATLANTA, GEORGIA * ZIP CODES ** SUBURBAN ATLANTA ================================ TARGET AREA ________________________________ 30316 ________________________________ 30032 ________________________________ 30034 ________________________________ 30038 ________________________________ 30049 ________________________________ 30317 ================================ Housing Counseling Agency: DeKalb/Fulton Housing Counseling Centers, Inc. * ZIP CODES ARE ONLY PROVIDED FOR THE EASE OF IDENTIFICATION AND ARE NOT TO EXTEND BEYOND THE BOUNDARIES OF THE CENSUS TRACTS. ** ALSO KNOWN AS SOUTH DEKALB COUNTY. _____________________________________________________________________ __________________________________________________________________________ CENSUS TRACTS FOR SOUTH DEKALB COUNTY SUBURBAN ATLANTA TARGET AREA ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ Sec. 106 HOUSING COUNSELING 376 (iii) report to the Secretary not less than annually regarding the extent of Compliance of creditors with the requirements of subparagraphs (A) and (B). (E) REPORT.--The Secretary shall submit a report to the Congress not less than annually regarding the extent of compliance of creditors with the requirements of subparagraphs (A) and (B) and the effectiveness of the entity monitoring such compliance. The Secretary shall also include in the report any recommendations for legislative action to increase the authority of the Secretary to penalize creditors who do not comply with such requirements. (6) DEFINITIONS.--For purposes of this subsection: (A) The term "creditor" means a person or entity that is servicing a home loan on behalf of itself or another person or entity. (B) The term "eligible homeowner" means a homeowner eligible for counseling under paragraph (4). (C) The term "home loan" means a loan secured by mortgage or lien on residential property. (D) The term "homeowner" means a person who is obligated under a home loan. (E) The term "residential property" means a 1-familly residence, including a 1-family unit in a condominium project, a membership interest and occupancy agreement in a cooperative housing project, and a manufactured home and the lot on which the home is situated. (7) REGULATIONS.--The Secretary shall issue any regulations that are necessary to carry out this subsection. (8) AUTHORIZATION OF APPROPRIATIONS.--There is authorized to be appropriated to carry out this section $6,700,000 for fiscal year 1991 and $7,000,000 for fiscal year 1992, of which amounts $2,000,000 shall be available in each such fiscal year to carry out paragraph (5)(D). Any amount appropriated under this subsection shall remain available until expended. (9) TERMINATION.--The provisions of this subsection shall not be effective after September 30, 1992. (d) PREPURCHASE AND FORECLOSURE-PREVENTION COUNSELING DEMONSTRATION. (1) PURPOSES.--The purpose of this subsection is : (A) to reduce defaults and foreclosures on mortgage loans insured under the Federal Housing Administration single family mortgage insurance program; (B) to encourage responsible and prudent use of such federally insured home mortgages; (C) to assist homeowners with such federally insured mortgages to retain the homes they have purchased pursuant to such mortgages; and (D) to encourage the availability and expansion of housing opportunities in connection with such federally insured home mortgages. (2) AUTHORITY.--The Secretary of Housing and Urban Development shall carry out a program to demonstrate the effectiveness of providing coordinated prepurchase counseling and _____________________________________________________________________ 377 HOUSING COUNSELING Sec. 106 foreclosure-prevention counseling to first-time homebuyers and homeowners in avoiding defaults and foreclosures on mortgages insured under the Federal Housing Administration single family home mortgage insurance program. (3) GRANTS.---Under the demonstration program under this subsection, the Secretary shall make grants to qualified nonprofit organizations under paragraph (4) to enable the organizations to provide prepurchase counseling services to eligible homebuyers and foreclosure-prevention counseling services to eligible homeowners in counseling target areas. (4) QUALIFIED NONPROFIT ORGANIZATIONS.--The Secretary shall select nonprofit organizations to receive assistance under the demonstration program under this subsection based on the experience and ability of the organizations in providing homeownership counseling and their ability to provide community-based prepurchase and foreclosure-prevention counseling under paragraphs (5) and (6) in a counseling target area. To be eligible for selection under this paragraph, a nonprofit organization shall submit an application containing a proposal for providing counseling services in the form and manner required by the Secretary. (5) PREPURCHASE COUNSELING. (A) MANDATORY PARTICIPATION.--Under the demonstration program, the Secretary shall require any eligible homebuyer who intends to purchase a home located in a counseling target area and who has applied for (as determined by the Secretary,) a qualified mortgage (as such term is defined in paragraph (10)(K)) on such home that involves a downpayment of less than 10 percent of the principal obligation of the mortgage, to receive counseling prior to signing of a contract to purchase the home. The counseling shall include counseling with respect to : (i) financial management and the responsibilities involved in homeownership; (ii) fair housing laws and requirements; (iii) the maximum mortgage amount that the homebuyer can afford; and (iv) options, programs, and actions available to the homebuyer in the event of actual or potential delinquency or default. (B) ELIGIBILITY FOR COUNSELING.--A homebuyer shall be eligible for prepurchase counseling under this paragraph if : (i) the homebuyer has applied for a qualified mortgage; (ii) the homebuyer is a First-time homebuyer; and (iii) the home to be purchased under the qualified mortgage is located in a counseling target area. (6) FORECLOSURE PREVENTION COUNSELING. (A) AVAILABILITY.--Under the demonstration program, the Secretary shall make counseling available for eligible homeowners who are 60 or more days delinquent with respect to payment under a qualified mortgage on a home _____________________________________________________________________ Sec. 106 HOUSING COUNSELING 378 located within a counseling target area. The counseling shall include counseling with respect to options, programs, and actions available to the homeowner for resolving the delinquency or default. (B) NOTIFICATION OF DELINQUENCY.--Under the demonstration program, the Secretary shall require the creditor of any eligible homeowner who is delinquent (as described in subparagraph (A)) to send written notice by registered or certified mail within 5 days (excluding Saturdays, Sundays, and legal public holidays) after the occurrence of such delinquency : (i) notifying the homeowner of the delinquency and the name, address, and phone number of the counseling organization for the counseling target area; and (ii) notifying any counseling organization for the counseling target area of the delinquency and the name, address, and phone number of the delinquent homeowners. (C) COORDINATION WITH EMERGENCY HOMEOWNERSHIP COUNSELING PROGRAM.--The Secretary may coordinate the provision of assistance, under subsection (c) with the demonstration program under this subsection. (D) ELIGIBILITY FOR COUNSELING.--A homeowner shall be eligible for foreclosure-prevention counseling under this paragraph if : (i) the home owned by the homeowner is subject to a qualified mortgage; and (ii) such home is located in a counseling target area. (7) SCOPE OF DEMONSTRATION PROGRAM. (A) DESIGNATION OF COUNSELING TARGET AREAS.--The Secretary shall designate 3 counseling target areas (as provided in subparagraph (B)), which shall be located in not less than 2 separate metropolitan areas. The Secretary shall provide for counseling under the demonstration program under this subsection with respect to only such counseling target areas. (B) COUNSELING TARGET AREAS.--Each counseling target area shall consist of a group of contiguous census tracts : (i) the population of which is greater than 50,000; (ii) which together constitute an identifiable neighborhood, area, borough, district, or region within a metropolitan area (except that this clause may not be construed to exclude a group of census tracts containing areas not wholly contained within a single town, city, or other political subdivision of a State); (iii) in which the average age of existing housing is greater than 20 years; and (iv) for which (I) the percentage of qualified mortgages on homes within the area that are foreclosed exceeds 5 percent for the calendar year preceding the year in which the area is selected as a counseling target area, or (II) the number of qualified mortgages originated on homes in such area in the calendar year _____________________________________________________________________ 379 HOUSING COUNSELING Sec. 106 preceding the calendar year in which the area is selected as a counseling target area exceeds 20 percent of the total number of mortgages originated on residences in the area during such year. (C) MORTGAGE CHARACTERISTICS.--In designating counseling target areas under subparagraph (A), the Secretary shall designate at least 1 such area that meets the requirements of subparagraph (B)(iv)(1) and at least 1 such area that meets the requirements of subparagraph (B)(iv)(II). (D) EXPANSION OF TARGET AREAS.--The Secretary may expand any counseling target area during the term of the demonstration program, if the Secretary determines that counseling can be adequately provided within such expanded area and the purposes of this subsection will be furthered by such expansion. Any such expansion shall include only groups of census tracts that are contiguous to the counseling target area expanded and such census tract groups shall not be subject to the provisions of subparagraph (B). (E) DESIGNATION OF CONTROL AREAS.--For purposes of determining the effectiveness of counseling under the demonstration program, the Secretary shall designate 3 control areas, each of which shall correspond to 1 of the counseling target areas designated under subparagraph (A). Each control area shall be located in the metropolitan area in which the corresponding counseling target area is located, shall meet, the requirements of subparagraph (B), and shall be similar to such area with respect to size, age of housing stock, median income, and racial makeup of the population. Each control area shall also comply with the requirements of subclause (I) or (II) of subparagraph (B)(iv), according to the subclause with which the corresponding counseling target area complies. (8) EVALUATION.--Each organization providing counseling under the demonstration program under this subsection shall maintain records with respect to each eligible homebuyer and eligible homeowner counseled and shall provide information with respect to such counseling as the Secretary or the Comptroller General (for purposes of the study and report under paragraph (9)) may require. (9) GAO STUDY AND REPORT. (A) STUDY.--During the 12-month period ending on the termination date under paragraph (13), the Comptroller General of the United States shall conduct a study to assess the effectiveness of the demonstration program and counseling under the program. The study shall include : (i) a comparison of the default and foreclosure rates for each counseling target area and other areas, including each corresponding control area; (ii) a survey of eligible homebuyers and eligible homeowners counseled under the program; and (iii) identification of factors preventing participation in the program for single family home mortgage insurance _____________________________________________________________________ Sec. 106 HOUSING COUNSELING 380 under the National Housing Act and contributing to default and foreclosure under such program. (B) REPORT.--The Comptroller General shall submit to the Committees on Banking, Finance and Urban Affairs and Veterans' Affairs of the House of Representatives, the Committees on Banking, Housing, and Urban Affairs and Veterans' Affairs of the Senate, the Secretary of Housing and Urban Development, and the Secretary of Veterans Affairs, not later than the termination date under paragraph (13), a report regarding the study under subparagraph (A). The report shall include : (i) information describing the results of the activities under clauses (i) through (iii) of such subparagraph; (ii) an assessment of the effectiveness of the counseling under the program in preventing default and foreclosure, based on comparison between counseling target areas and control areas; and (iii) a recommendation of whether a permanent counseling program involving prepurchase counseling or foreclosure-prevention counseling would be effective in reducing defaults and foreclosures on qualified mortgages. (10) DEFINITIONS.--For purposes of this subsection: (A) The term "control area" means an area designated by the Secretary under paragraph (7)(E). (B) The term "counseling target area" means an area designated by the Secretary under paragraph (7)(A). (C) The term "creditor" means a person or entity that is servicing a loan secured by a qualified mortgage on behalf of itself or another person or entity. (D) The term "displaced homemaker" means an individual who : (i) is an adult; (ii) has not worked full-time, full-year in the labor force for a number of years, but has during such years, worked primarily without remuneration to care for the home and family; and (iii) is unemployed or underemployed and is experiencing difficulty in obtaining or upgrading employment. (E) The term "downpayment" means the amount of purchase price of home required to be paid at or before the time of purchase. (F) The term "eligible homebuyer" means a homebuyer that meets the requirements under paragraph (5)(B). (G) The term "eligible homeowner" means a homeowner that meets the requirements under paragraph (6)(D). (H) The term "first-time homebuyer" means an individual who : (i) (and whose spouse) has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the home pursuant to which counseling is provided under this subsection; _____________________________________________________________________ 381 HOUSING COUNSELING Sec. 106 (ii) is a displaced homemaker who, except for owning a residence with his or her spouse or residing in a residence owned by the spouse, meets the requirements of clause (i); or (iii) is a single parent who, except for owning a residence with his or her spouse or residing in a residence owned by the spouse while married, meets the requirements of clause (i). (I) The term "home" includes any dwelling or dwelling unit eligible for a qualified mortgage, and includes a unit in a condominium project, a membership interest and occupancy agreement in a cooperative housing project, and a manufactured home and the lot on which the home is situated. (J) The term "metropolitan area" means a standard metropolitan statistical area as designated by the Director of the Office of Management and Budget. (K) The term "qualified mortgage" means a mortgage on a 1- to 4-family home that is insured under title II of the National Housing Act. (L) The term "Secretary" means the Secretary of Housing and Urban Development. (M) The term "single parent" means an individual who : (i) is unmarried or legally separated from a spouse; and (ii)(I) has 1 or more minor children for whom the individual has custody or joint custody; or (II) is pregnant. (11) REGULATIONS.--The Secretary may issue any regulations necessary to carry out this subsection. (12) AUTHORIZATION OF APPROPRIATIONS.--There are authorized to be appropriated to carry out this subsection $350,000 for fiscal year 1991 and $365,000 for fiscal year 1992. (13) TERMINATION.--The demonstration program under this subsection shall terminate at the end of fiscal year 1994. 12 U.S.C. 1701x