Sandy Gerber - Community Development Senior Project Manager
Published November 1, 2005 | November 2005 issue
The Minnesota Mortgage Foreclosure Prevention Association (MMFPA) is a statewide network of individuals and member organizations that dedicate their time to a serious mission: helping people avoid home mortgage foreclosure. The association provides foreclosure prevention services in every county in Minnesota and ranks as one of six leading foreclosure prevention programs in the United States, according to a group of nonprofit executives working with the Fannie Mae foundation on innovations in foreclosure prevention. 1/
MMFPA was spawned in 1993 by a group of concerned individuals who witnessed the financial crises and farm foreclosures of the 1980s and identified a need for foreclosure prevention services in Minnesota. The founders included social service providers, mortgage lenders, credit counselors, attorneys and neighborhood activists. The initial thrust of the organization was to provide quality education and training so housing professionals could help people who were behind in their mortgages or facing foreclosure. According to real estate agent Mike Mohs, a longtime member and current board president of MMFPA, "The founders recognized there was a need for professionals in the housing industry to get certain things they weren't getting from their own organizations—namely, education about foreclosure prevention and homeownership."
Today, MMFPA operates on three fronts: providing support, information and networking for individuals and organizations working to prevent foreclosures in Minnesota; educating and training housing professionals to improve the quality and availability of mortgage foreclosure prevention programs and services for Minnesota residents; and advocating policies and practices that enhance foreclosure prevention counseling.
The association is made up of approximately 80 individuals and member organizations, including real estate agents, attorneys, bankers, mortgage lenders, county agents, loan officers and social service providers. It has a 13-member governance board and operates under clear, precise bylaws that emphasize high and consistent quality of services. Association members are bound by a detailed code of ethics that addresses issues of professional conduct, conflicts of interest, discrimination and confidentiality.
One unique aspect of MMFPA is its ability to function and thrive as a volunteer organization. The association has only one paid staff person and minimal funding. Most of its members have full-time jobs, but are able to provide services through their commitment to the organization's mission.
"We rely on the volunteer spirit of the members," says Mohs. "It's pretty amazing. They're willing to pitch in and share the load."
Susan Aulie, a former MMFPA board member who serves as senior director of financial services for Lutheran Social Service in Duluth, adds, "It helps that the organizations our members work for are committed to the purpose of the association. They support their employees' attendance at meetings and other activities."
Another noteworthy aspect of MMFPA's work is its emphasis on high-quality, ongoing training. In order to provide Minnesota residents with effective financial counseling that can prevent foreclosures, service providers must be well-trained. The cornerstone of MMFPA's training program is an eight-day session conducted every September.
According to Mohs, "It's a lengthy, in-depth training that covers the whole foreclosure process, from basic real estate knowledge to bankruptcy to negotiation with lenders to dealing with clients on a personal level." At the end of the session, participants must pass a written test to become certified by MMFPA.
In addition to its annual eight-day sessions, the association conducts quarterly inservice trainings. Examples include one held last April, "Foreclosure 303," which was designed for working counselors who wanted to review and deepen their skills. A July training session focused on reverse mortgages and elder housing issues. The association is considering whether to offer training later this year on changes in bankruptcy laws that took effect in October of 2005. Mohs notes that these new laws will require people to complete financial counseling before they can declare bankruptcy. MMFPA plans to seek recognition of its certified counselors as qualified specialists.
MMFPA requires members to complete two trainings every two years to maintain their certification. One of these trainings can be taken at the association's annual meeting. MMFPA's trainers are often selected on a referral basis and usually have in-depth knowledge of the subject matter they teach. For example, the foreclosure process is typically taught by an attorney, as is the bankruptcy process. Lenders provide a portion of the finance-related training. Fees paid by trainees, which range from $25-$50 for quarterly sessions up to $295 for the annual sessions, provide much of the funding for MMFPA.
In a paper on the effectiveness of foreclosure prevention programs, housing researchers J. Michael Collins and Rochelle Nawrocki Gorey note that MMFPA is a national model for training because of its standardized curriculum, certification and continuing education requirements. The organization is also recognized for utilizing detailed case studies and engaging experienced counselors as trainers. 2/
Mohs observes that while MMFPA has changed over the years, the causes of financial hardship that lead to foreclosures have stayed about the same.
"Our work has gotten better," he observes. "We've become more proficient at what we do. We've expanded our training and now offer better, more comprehensive courses. But the cases we dealt with in the beginning were much the same as the cases now. People get into financial difficulty for any number of reasons: medical expenses, loss of a job, being a victim of predatory lending. It's a huge problem. I see the same thing time after time, with little variation."
Aulie concurs. "People get behind," she says. "The situation isn't all that different now than it was in the past, except maybe today things are a bit more complex because there are so many more mortgage products available and predatory lending is on the rise."
A homeowner looking for help with foreclosure issues can locate local MMFPA-certified counselors through referrals or by checking the organization's Web site at www.mmfpa.org, which features a map that includes contact information for counselors in every Minnesota county.
MMFPA-trained counselors use two primary strategies in their interventions with people in mortgage trouble: financial counseling and financial assistance.
Financial counseling is what MMFPA stresses in its training and outreach. During the counseling process, a foreclosure prevention specialist works with the homeowners to develop a plan that addresses the multiple factors behind their difficulties. First, they must analyze the sources of the problems, which could include issues such as abuse, health setbacks and job loss that may warrant the services of outside agencies. Almost any plan would include referrals to city and county emergency services, health clinics or nonprofit social service providers.
Second, they develop a plan to address the family's expenses, debt structure and spending habits. Counselors work with people to develop a realistic budget that reprioritizes how they allocate their funds, seeking to place mortgage payments near the top of the priority list. For those who are severely delinquent and are confronting serious life crises, debt counseling usually must be combined with publicly funded financial assistance and options generated with the lender. For those who are moderately delinquent and are facing temporary or less severe challenges, debt counseling can often get people back on their feet.
The second strategy MMFPA-certified counselors use is direct financial assistance through a loan program financed by the Minnesota Housing Finance Agency (MHFA). To qualify, borrowers must demonstrate that they have no other financial options, their shortfall is temporary and they are committed to rectifying their situation. The maximum loan available is $5,500 at zero percent interest, made on a one-time basis, to be repaid upon sale of the home or transfer of the title.
MMFPA stresses that working with a person's mortgage lender is essential for nearly all individuals dealing with mortgage payment delinquency. The type of negotiation between a homeowner and a mortgage lender in this situation is called loss mitigationand the alternatives are called workout options. Such options can include temporary changes in payments or changes to the loan term or interest rate.
Mortgage companies have an incentive to negotiate, because delinquencies and foreclosures result in huge revenue losses for lenders. The leading foreclosure prevention programs demonstrate that significant savings can be realized when lenders and loan servicers partner with nonprofit prevention programs to stave off foreclosures. 3/
At times, foreclosure prevention specialists might advise selling the home, if there is equity to be had. Foreclosure prevention specialists will also discuss options such as refinancing or declaring bankruptcy, but will generally point out that these choices can involve more pitfalls than benefits for the homeowner.
Measuring the effectiveness of MMFPA's counseling and other services is a challenge. Individual agencies regularly submit reports to funders on initial outcomes, covering issues such as whether the home was saved or foreclosed or the mortgage was brought current, and MMFPA reports these initial outcomes to MHFA. Longer-term results are harder to track.
"There hasn't been a cost-benefit analysis," says Mohs. "It's been a tough thing for us to gather information about, because we're an organization made up of people from other organizations. In the past, we've had to rely on our individual members to get into a data-gathering mode."
The first centralized effort to measure long-term results is under way. An intern working with Lutheran Social Service, which is the largest provider of an MHFA-sponsored foreclosure prevention program, recently began surveying people who received foreclosure prevention services from MMFPA-trained counselors. Surveys have been conducted by mail and telephone, and responses are currently being tabulated.
Early results confirm that the MHFA-financed loan fund is a particularly effective component of MMFPA's services. However, some survey responses have raised questions about clients' expectations. According to Aulie, "In some cases, people who didn't receive a one-time MHFA loan didn't think they'd been helped. We thought we'd served them well, giving them tools and leveraging our resources, but if they didn't get money, clients didn't always see our efforts as helpful. It's made us think more about the clients who don't get loans. How can we serve them better? How can we make sure that their expectations are appropriate? What are their options?"
MMFPA's passion for seeking answers to those questions reflects the organization's spirit and dedication.
"Through MMFPA, I learned the importance of commitment and belief and passion in the mission," Aulie says.
"MMFPA has been successful because of extremely compassionate and dedicated people," adds Mohs. "We've been very fortunate in attracting people who are willing to go above and beyond their jobs. The fact that we're an all-volunteer organization still in existence is a testament to our effectiveness."
Foreclosure is the legal means by which a lender repossesses mortgaged property. The foreclosure process is a time-sensitive sequence of actions and events that are initiated at the county level and governed by state laws. All foreclosure laws are uniform in the sense of requiring parties to take certain actions within specified time frames, but the details vary from state to state. For example, some states have short time frames for borrowers to pay what is owed, while other states give borrowers more time.
In the initial stages of the process, most lenders will negotiate with the borrower in an attempt to avoid foreclosure. Outside help in the form of financial counseling, interest-free emergency loans or other interventions may enable a delinquent borrower to bring the mortgage current and halt further legal action. In some cases, the borrower decides that selling the home to pay off the mortgage is the best solution. As a last resort, the borrower may opt to declare bankruptcy.
There are two main types of foreclosure: judicial, in which a lender pursues foreclosure through the court system; and nonjudicial, in which foreclosure is initiated through notices or public advertisements. In most states, nonjudicial foreclosure is the less complex and more common variety.
The timeline below lists major steps in the nonjudicial foreclosure process. Events and time frames are generalized here; an actual foreclosure may differ significantly from this example, depending on the state in which it takes place.
Sample Foreclosure Timeline
Sources: Minnesota Mortgage Foreclosure Prevention Association, Bankrate.com and Minnesota Statutes Chapters 580 to 583.