REOMAC Annual Educational Summit and Expo
Moderator: Robert Klein, Safeguard Properties
- Joel Ratner, Cleveland Neighborhood Progress
- Eric Selk, Hope Now
- Tyler Smith, Wells Fargo Home Mortgage
The session opened up with discussions about the importance of maintaining communities and preventing neighborhood blight. Slavic Village is a Cleveland community which was severely impacted by the housing crisis. Home values used to range from $100 to $150,000, but now lie mainly below $30,000.
A for-profit entity was formed in partnership with the nonprofit organization, Cleveland Neighborhood Progress, to facilitate their plans. Marrying a private and nonprofit entity, the group focused on 2,200 homes in this area, specifically 328 vacant assets with 80 set for demolition. They work with banks to donate assets in the area, and then spend roughly $45,000 on rehab efforts for these assets. Ultimately, properties are selling for $60 to $65,000. The profit is immediately returned to the operating fund so that more properties can be improved.
To date, eight assets have been sold and 28 are in the rehab stage. The typical mortgage payment on a sold asset is approximately $450 per month. When compared with rental rates of $800 to $900 per month, this is a significant advantage for local residents.
It is important to focus on the neighborhood as a whole, across multiple banks, rather than just individual properties. It’s hard for a bank, or investor, to choose to rehab an asset when the property next door is a demolition candidate. However, if both are addressed in unison, this will drive neighborhood improvement.
Wells Fargo’s Approach
Wells Fargo’s approach to property rehab and donation is to hold one in six mortgages. This drives their mission to make decisions based on a global perspective, not property by property. Wells donated 1,600 properties in 2013 and aims to donate 10% of their inventory in 2014. They repaired approximately 90% of their assets and spent roughly $20,000 in repair work per property during 2013. These decisions were aimed to lower market time and target owner occupant buyers.
Wells is often questioned on the logic of foreclosing on an asset just to donate it thereafter. It was pointed out that 94% of Wells’ mortgages are current, in comparison, the donation volume is minimal. However, their donation strategy also includes paying taxes prior to transfer so the non-profit recipient can use their limited funds for actual neighborhood improvements. They may also obtain a demolition bid and offer the nonprofit those funds for a donation instead. The importance of using local expertise to find the best solution was emphasized.
Infusing private funds is important in the effort to improve communities. It was noted that there have not been any subsidies for rehab projects since the stimulus money ran out. The fact is that this initiative is not dependent on government funding and therefore can move faster and more efficiently.
There was some initial concern with being able to find financing to sell assets rehabilitated as part of this project and with being able to find qualified buyers. However, it was revealed that there were plenty of options for both and there’s a list of interested buyers as more assets become available. There are also ancillary benefits of this work, such as the recommitment of existing owner occupants to bring curb appeal to their own yards.
Hope Now’s Borrow Outreach Efforts
Hope Now’s borrower outreach efforts began with a focus on vacant properties, ultimately resulting in the Abandoned Property Committee. This group is focused on specific ZIP codes within Jacksonville, Philadelphia, Chicago and Dayton. They have developed a routine by which they define the assets in these areas which are vacant and have been abandoned, work with lenders to review that list, review the lenders terms for disposition, and facilitate the process by which the local nonprofit secures the assets. Best practices include consideration of violations and understanding the intent of the homeowners.
The panel challenged the audience to get involved in their local communities. They noted that solutions exist and we must often think past the traditional ways of thinking in order to identify and achieve them.
The REOMAC Annual Educational Summit and Expo was held in Palm Desert, CA.