The Foreclosure Crisis: A Blueprint for Foundation Intervention

Dear NFG Members,

I am very pleased to present to you a new NFG Special Report which is the culmination of many months of work. The Foreclosure Crisis: A Blueprint for Foundation Intervention is our most recent effort to educate funders on the critical foreclosure issue plaguing our country. This report provides extensive information on the state of the foreclosure crisis and presents original data on foundation foreclosure interventions. This report also provides recommendations to funders on developing an intervention strategy. We have included extensive appendices that provide detailed information on foreclosures, land banks and links to further resources on the issue. This special report was preceded by a 2008 NFG Issue Brief on foreclosure and a 2006 NFG Issue Brief on predatory lending.

This special report was made possible through a grant from the Kresge Foundation. A number of people are responsible for the production of this amazing new resource for funders. Author and consultant Doug Dylla has worked tirelessly for many months writing this document. I would also like to acknowledge the assistance of George McCarthy of the Ford Foundation, John Weiler of the F.B. Heron Foundation, Wendy Jackson of the Kresge Foundation, and Laurie Latuda of the Goldseker Foundation.

Bettye Brentley
Executive Director 

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Executive Summary

Community development professionals are deeply worried that the current financial crisis (and the related foreclosures on property, decline in housing values and overall economic turmoil) threatens to undo much of the revitalization work in low- and moderate-income neighborhoods that had been accomplished through signifi cant public and private investment.

As of April 2009, the nation’s foreclosure crisis continues to worsen, with more than 8.1 million foreclosures expected between 2009 and 2012 according to a recent report by Credit Suisse.1 While there may be debate about the cause of this rise in foreclosures, there is little debate about the devastating impacts of the crisis. Foreclosures are inflicting enormous direct and indirect costs on homeowners (both those facing foreclosures and
those living near foreclosed properties), on tenants who are forced to vacate apartments in foreclosed multi-unit properties, on communities that are struggling to deal with the negative effects of vacant and abandoned properties, and on local governments facing reduced property values, lower tax revenues and greater disinvestment. Like strong winds feeding a growing forest fi re, broad-scale economic problems in the U.S. are worsening the foreclosure crisis. These trends include high consumer debt loads, declining home sales and housing values, rising unemployment, tightening credit and general turmoil (and lack of confi dence) in the fi nancial services industry (witnessed by the federal take-over of mortgage giants Freddie Mac and Fannie Mae and the failures of many other lending institutions over the past six months).

This report was commissioned by the Neighborhood Funders Group (NFG) to document the ways that foundations have responded to the foreclosure problem, both locally and nationally. In some cases, such as the Kresge Foundation, the response has been primarily focused on a city (Detroit) by working with other regional partners to create a special offi ce to tackle the local problems in comprehensive ways. In some cases, such as the Ford Foundation, the response has included investing in raising national awareness of the problem and building broad national infrastructure to handle the rising number of vacant and abandoned properties across the U.S.

Research for this report included an extensive literature search, a survey of NFG members, and interviews with key informants from foundations and their grantees across the country.

The report begins with an overview of the foreclosure crisis. It then highlights some key themes and recommendations coming from the interviews with program officers from 21 diverse foundations. The report also identifi es some of the challenges and opportunities ahead. The following sections identify types of foreclosure intervention strategies and detail short examples of foreclosure investment strategies pursued by foundations. The report concludes with a summary of responses to a 2008 NFG survey of foundations and other grantmaking institutions about their investments in foreclosure intervention strategies. An extensive appendix is included as well.

In summary, the report notes that foundations are very concerned about the foreclosure crisis and are actively engaged in strategies to combat foreclosures in their areas of operation. Ninety-two percent of the foundations responding are currently involved in foreclosure prevention or remediation activities. The activities and investments include:

• Advocacy work
• Planning and convening with stakeholders
• Policy and research work
• Outreach and education
• Prevention counseling
• Intervention activities
• Legal services
• Community stabilization strategies

While it is too early to tell about the ultimate success of these activities and investments in effectively resolving the foreclosure crisis, there are clear signs that foundations can play powerful roles in responding to the crisis by:

• Conducting high-quality research to document the extent and impact of the foreclosure
  problem in an area.
• Convening broad-based coalitions of stakeholders to discuss the problem and work
  collaboratively to implement solutions.
• Investing in advocacy efforts ranging from legal work to grassroots organizing that
  works to champion the issue, rally public support, and create pressure for public policy changes and improved business practices by lenders.
• Leveraging resources of other funders to help support and build sustainable capacity for critical foreclosure prevention services.
• Supporting efforts to create new tools and test new strategies to deal with diffi cult
  problems, such as the adaptive reuse of potentially millions of vacant REO (real estate
  owned) properties or identifying ways of reinvigorating the nation’s mortgage market.
• Supporting direct delivery of specifi c services to target populations — for example,
  providing legal representation to homeowners facing foreclosure, or supporting
  efforts to provide assistance to families after foreclosure. By demonstrating the important benefi ts of these services, foundations can encourage their continued delivery by the public sector.

Foundations can and should play key roles in addressing this crisis, but they can’t do it alone. The problem is too massive. As Laurie Latuda, program offi ce at the Goldseker Foundation, wisely notes, “Working with the foreclosure issue is more than just investing in grants to particular groups. Foundations should think about the role they can play to bring other people to the table. The impact of convening supporters can be far greater than any dollar amount given.”

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