• Virginia’s home borrowers will receive an estimated total of $409,937,551.22 in benefits from loan term modifications and other relief.
• Virginia’s borrowers who lost their homes to foreclosure from January 1, 2008, through December 31, 2011, and suffered servicing abuse qualify for approximately $31,301,320.91 in cash payments.
• The value of refinanced loans to Virginia’s underwater borrowers will be an estimated $84,309,742.00.
• The Commonwealth will receive a direct payment of $69,657,121.00.
• The Bureau of Financial Institutions at the State Corporation Commission, as Virginia’s banking regulator, also joined the settlement and will receive an additional $1,000,000.

The $69 million direct payment to the Commonwealth is what Virginia could use to address the costs of the housing crisis such as the money Virginia had to spend for foreclosure prevention counseling. This $69 million was a great opportunity to invest in rebuilding home ownership in the Commonwealth. In his presentation to the Senate Finance Committee, Attorney-General Ken Cuccinelli noted this $69 million coming directly to the Commonwealth:

Preference that money be used for foreclosure prevention or counseling programs, or to enhance consumer protection efforts to prevent and prosecute financial fraud.

The Virginia House of Delegates and the State Senate released their respective versions of the State Budget this past Sunday Feb 19^th and neither body used the $69 million settlement for housing. Neither body included any money in the budget for a Housing Trust Fund or any significant investments in addressing the housing crisis many Virginians are still stuck in. Both bodies used the $69 million from the national mortgage foreclosure settlement for aid to local governments and capitalizing a new Fund created to mitigate impact in Virginia of anticipated Federal Budget cuts.

Senate Finance Chair Walter Stosch

In explaining the use of these funds, Senate Finance Chairman Walter Stosch says:

We are also recommending that the proceeds from the recent mortgage servicing settlement be used, in part, to reduce the “Aid to Localities” reversion of $50 million included in the budget as introduced.  This action will give greater flexibility and financial support to localities as they address the impact of the Virginia Retirement System rates and employee compensation actions.

In a more detailed explanation, the General Government and Technology Subcommittee of Senate Finance said:

Finally, in the area of General Government, I want to mention our recommendations for allocation of the funds available to the Commonwealth under the recent mortgage servicing settlement. Under the terms of this settlement, Virginia will receive approximately $69 million. We recommend creation of a “Nonrecurring Reserve Fund”. Monies from this fund would be available to further reduce the existing reduction in aid to localities by up to $50 million in FY 2013, with any remaining funds to be allocated to the FACT fund.

In the State Senate’s version of the budget, the $69 million from the mortgage settlement is in Item 472.10 #1s. The information below is copied directly from the subcommittee report on the budget:

General Government Subcommittee Item 472.10 #1s

Central Appropriations           FY 12-13         FY 13-14
Central Appropriations                  $61,750,000        $0 GF

Language:
Page 363, following line 15, insert: “472.10. Non-recurring Reserve Fund $61,750,000 Fund Sources: General $61,750,000.”

There is hereby appropriated to this Item $61,750,000 the first year from the one-time deposit to the general fund pursuant to the Mortgage Servicing Settlement. These funds shall be used for the following purposes in priority order:

1. Fund any shortfall in funding of the one-time three percent bonus payment for state employees, as authorized in Item 468, of this Act.

2. Up to $50,000,000 of any funds remaining after satisfaction of the requirements of A.1 of this Item shall be used to offset the reductions in local aid set out in Item 472 of this Act, Reversion Clearing Account – Aid to Local Governments.

3. Any funds remaining after satisfaction of the requirements of A.1 and A.2 of this Item shall be transferred to further capitalize the Federal Action Contingency Trust (FACT) Fund set out in Item 469.J, of this Act.”

Explanation:  (This amendment provides $61.8 million GF in the first year for creation of a Non-recurring Reserve Fund. These general funds are derived from the Commonwealth’s one-time payment under the Mortgage Servicing Settlement Agreement.)

The budget released by the Virginia House of Delegates uses the money in a similar, albeit more opaque, way. These are items 469 #1h, 469 #2h, 469 #3h, and 472 #1h. In his letter about the House budget, Appropriations Chairman Delegate Lacey Putney says:

Second, our budget will restore $70 million in aid to localities. You may recall over the last several years one of the balancing strategies was to reduce local aid by $60 million each year. Making substantial strides in phasing-out this structurally unbalanced practice was a top priority of the Committee.

House Appropriations Chair, Delegate Lacey Putney

Delegate Putney does not mention the National Mortgage Settlement, or where this $70 million comes from. The Technology Oversight & Government Activities Subcommittee of the House Appropriations Committee describes this new funding in more detail:

Mr. Chairman, a number of members expressed concern about the financial well-being of their localities, and I want to extend my thanks to you for directing the resources necessary to this Subcommittee to address this issue. Consequently, the Subcommittee is recommending reducing the local aid reversions contained in the current budget by $70 million over the biennium.

The overview report of the House budget summarizes how this money was allocated:

Local Aid Reductions and FACT Fund

• Provides $32.5 million in FY 2013 and $37.5 million in FY 2014 to reduce the total amount of local aid reverted to the Commonwealth by localities.
  • Reduces local aid reversions by $70 million – from $120 million to $50 million for biennium
• Authorizes a total of $50.0 million for the Federal Action Contingency Trust (FACT) Fund
  • Provides $30.0 million in FY 2012 and authorizes the use of $20.0 million from FY 2012 balances to further capitalize the Fund
  • $7.5 million of the FY 2012 amounts are set-aside to continue providing support for BRAC-Oceana in FY 2013
• Provides three criteria for use of fund:
  1. to address localities affected by the 2005 BRAC or subsequent BRAC recommendations;
  2. to continue statutorily-required federally mandated services at the present level if federal reductions are imposed; and
  3. to address economic development opportunities to transition industries negatively affected by BRAC or federal reductions
• Establishes FACT Fund Approval Commission to evaluate proposed uses of the FACT Fund and recommend approval or denial to the Governor.
  • Governor must also notify the Chairmen of House Appropriations and Senate Finance Committees in writing about any distribution of money from the FACT Fund.

Speaking about the House budget, Speaker Bill Howell makes no mention of the $69 million from the National Mortgage Settlement. He does mention reducing cuts to local government:

Further, the House budget provides help to our localities by providing $138 million in inflation adjustments over the introduced budget and restoring $70 million in aid to localities.

Attorney-General Cuccinelli briefs the State Senate Finance Committee on the settlement funds

Virginia received a direct, one-time payment of $69 million from the National Mortgage Settlement Agreement. This money should have been used to benefit the Virginians struggling through the weak housing market. Virginia is ranked 8^th in the nation for underwater homeowners. Virginians have lost billions of dollars in equity in their homes, rents are rising faster than incomes, foreclosures are hollowing out our neighborhoods, and homelessness is on the rise for the first time in a decade.  Instead of addressing these critical needs, the Virginia General Assembly wasted this one-time opportunity by using the money to fill holes in the budget.

Economists, business leaders, and policy makers all agree that re-starting the housing market is essential to our economic recovery. The money from the National Mortgage Settlement Agreement should have been spent as it was intended, to rebuild home ownership and help Virginians who have been devastated by the housing crisis. Examples of how this $69 million should have been used in Virginia include:

• Down payment assistance for first time home buyers
• Housing counseling for new homeowners and foreclosure prevention
• Rehabilitation of vacant & abandoned properties
• Development of affordable housing
• Preventing homelessness through rapid re-housing

Invested in this way, the money would have helped absorb the current oversupply of housing. We know that programs such as down payment assistance can help credit worthy borrowers afford their first homes. Housing counseling for first time home buyers and foreclosure prevention are highly effective and much needed in Virginia. Support for localities, non-profits, and housing authorities to purchase, rehabilitate and rent foreclosed homes would not only have helped reduce inventory, but also would have addressed growing problems with neighborhood blight and vacancies.

This $69 million payment could have made an enormous difference if it had been intelligently invested to improve the housing market. Rebuilding home ownership among low and moderate- income Virginians would have promoted economic growth. Virginia will never again have this opportunity to address families in need, who have lost unprecedented amounts of money in this housing crisis. Using the one-time payment from the National Mortgage Settlement Agreement to fill routine and unrelated holes in the budget is the wrong decision. Targeted investment in housing is what Virginians need and deserve from this money.

Passed in 1968, the Fair Housing Act was designed to combat housing discrimination and segregation and promote racial integration nationwide.  It prohibited discrimination based on race, color, religion, and national origin in areas including real estate sales, rentals, loans, insurance, and all related services.  Prior to its passage, mortgage bankers, restrictive covenants in housing developments, and public housing authorities all contributed to the deep-set problem of institutionalized racial discrimination in the housing market.  The Act created a new mechanism to address housing discrimination, allowing victims of housing discrimination to submit complaints to the Department of Housing and Urban Development (HUD).

The Fair Housing Act has been amended several times since 1968 to address new forms of housing discrimination and expand the enforcement powers of HUD and its state agencies.  The classes protected by the Act have been expanded to cover housing discrimination based on sex, disability, and familial status.  In 1988, the definition of prohibited activities has also been expanded to include less direct methods of discrimination including coercion, interference, and intimidation.  Most significantly, the 1988 amendments included the creation of more direct methods of enforcement for HUD and its agencies.

Soto and Swesnik argue that despite all of these reforms, the Fair Housing Act still falls short.  Shockingly, today less than 1% of the actual incidents of housing discrimination are investigated.  Of those reported, the majority are handled by private non-profit fair housing organizations rather than HUD or other government agencies.  Private non-profit fair housing organizations investigate 66% of the reported cases of housing discrimination. HOME is a good example of one of these non-profit fair housing organizations. Founded in 1971, HOME has been ensuring equal access to housing for all Virginians for decades. Discrimination still occurs in 21^st century Virginia and HOME continues to help Virginians access neighborhoods of their choice.

In spite of all the steps the government and private organizations have taken, today housing discrimination is alive and well.  Predatory lenders target racial minorities to charge higher interest rates for loans, usually trapping the borrowers in an endless cycle of debt.  Soto and Swesnik revealed that African American and Latino families take out more than three times as many predatory loans as their white neighbors.    Communities of color have also suffered disproportionate loss of homes and wealth in the foreclosure crisis.  Discriminatory lending and foreclosure practices have emptied out entire once- vibrant African American communities.  Today, the property values in predominantly white communities consistently exceed those in their African American counterparts.

Soto and Swesnik even cite instances of institutionalized housing discrimination perpetuated by government agencies.  For example, in the wake of Hurricane Katrina, African American families received less federal assistance for the value of their homes than their white neighbors.

The high number instances of private and institutionalized housing discrimination coupled with a low number of instances reported or investigated perpetuates the very problem the Fair Housing Act sought to end.  Segregation and discrimination based on race and other factors might be illegal, but the law does not mean much if there is no way to enforce it.

Soto and Swesnik call for continued reform to adjust to a growing need for fair housing.  First of all, they say federal housing protections should be expanded to prohibit discrimination based on factors including sexual orientation, marital status, and source of income.  The Fair Housing Act should also be amended to allow private actions for governmental failure to actively combat housing segregation and discrimination.

HUD should embrace its mission to affirmatively further fair housing by aggressively enforcing the federal legislation that requires active steps to end segregation.  HUD must continue to conduct testing and research to pinpoint caused of continued de facto segregation.  HUD must also provide more funding through grants to the private non-profit fair housing organizations that handle the bulk of investigations now.

It is clear that housing discrimination and segregation of communities is a continuing problem in the United States.  Through continued reform of the Fair Housing Act, more research to address the problem at its root, and a concerted effort by HUD, government agencies, and private fair housing organizations, we can work to end housing discrimination.

This is a guest post by Amy Weiss. Amy is originally from Richmond, Virginia and is a third year law student at the University of Richmond.  She graduated from the College of William and Mary in 2007 where she studied history and anthropology. 

Control is really key for comfort…it’s good to keep in mind that the best territories have clearly defined borders and allow for some privacy. They’re low on stress and high on security…[t]erritories have rituals.

These statements from an article about staying overnight at a hotel or the homes of family or friends during holiday travel essentially speak to the second most fundamental and basic of human needs in Maslow’s Hierarchy of Needs – the need for security.

We all feel comfortable and zen-out at home because our homes are our territory — it’s where we thrive because we can just be ourselves and it’s where we have control of our lives. In our homes, we can choose to be with other people or not and we can put out the things that have meaning for us and define us like photos of pets or trophies that commemorate achievements. And our homes provide us with sensory experiences that sustain and comfort us — the ones that welcome us in after a day in the world — such as scents, sounds, sights, and textures.

How true these words are – not just for those lucky enough to have money to spend on traveling and visiting family and friends, but for every person and especially so for homeless children, women and men who have so little control over their lives.

A recent report from the National Alliance to End Homelessness shows that in Richmond Va there are an estimated 9% of the population are homeless. In the Washington, Arlington, Alexandria VA area, an estimated 8% are homeless- over 13,000 people.

Let’s resolve that our state of Virginia will build more permanent supportive housing and affordable housing – housing that will give people addresses at which mail and packages can be received, kitchens to fill with the aromas of nourishing food to be shared with others, front doors that can be decorated for the holidays and secure havens to be called “home”.

This is a guest post by Yoomie Ahn. Yoomie is a former Board member of the Virginia Housing Coalition and Chair of its Legislative Committee. This blog post expresses Yoomie’s personal opinions only and does not represent the official views of the Virginia Housing Coalition, her employer or HOME.

Urban Development Areas (UDA’s) are how local governments in Virginia connect housing with jobs and transportation.  Virginia’s growth over the past couple decades has also given rise to more sprawl.  Virginians now must commute further because of a lack of affordable housing in key geographic areas, causing more traffic and transportation problems. Increased spawl has placed disproportionate cost burdens on low and moderate income Virginians.  Rising gas prices are a painful reminder of the burden of longer commutes. An article explains:

The purpose of UDAs is not only to allow the concentration of growth in certain areas (thus relieving the pressure on others) but also to guide the design of such areas to ensure they are livable and attractive environments. The legislation explicitly calls for “new urbanism and traditional-neighborhood design.”

As a organization that helps first-time home buyers, we see how housing and transportation costs are hurting low and moderate income Virginians. They are forced to live further and further away from their jobs. This in turn pours large (and rising) transportation costs into an already strained budget. There is only so much thrift you can teach someone until these economic factors overcome their ability to budget. If we want to help low and moderate income Virginians build wealth, we must make sure they can live near where they work. That is exactly what UDA’s help do. Homeowners save money on housing and transportation. Local governments save money on infrastructure for sprawl. The state government saves money on roads.

There is a bill making its way through the 2012 session of the Virginia General Assembly that makes UDA’s voluntary instead of mandatory. This means that local governments are longer being required to prevent needless sprawl. It has passed the State Senate 25 – 15 and is now headed to the House of Delegates for approval.

Many Virginians disfavor sprawl and want to preserve the character of their communities. UDAs allow local governments to guide and focus growth in specific areas, preventing needless sprawl.  More focused growth means more housing options closer to jobs and other important resources.

UDA’s would also help Virginia’s communities prepare for the Age Wave. Older Virginians will need communities that are accessible, walkable, and closer to public transportation, health care centers, and other important resources  UDA’s would create pedestrian-friendly, mixed-use neighborhoods with a balance of natural areas and developments  ideal for residential communities. Sprawl negatively affects communities in many ways, but it also taxes governmental resources. It imposes significant costs for local government including roads, schools, transportation and infrastructure.  Taxpayers must bear the burdens of these increased costs.

On his blog, “Bacon’s Rebellion,” Jim Bacon discusses the history of UDA’s in Virginia.  Former Delegate Clay Athey (R-Front Royal) describes how Frederick County was among the first Virginia jurisdictions to create a UDA.  The purpose of the UDA was to create cost-effective developments without the “scatteration” of projects that have created expensive sprawl in many other counties:

About 20 years ago, Frederick County was among the first Virginia jurisdictions to create an “urban development area,” or UDA, Athey says. The idea was to concentrate development in a zone where it could be cost-effectively served by water, sewer and roads. Outside the zone, land would be largely preserved for agriculture, although limited development was still possible. Channeling the growth into the UDA has restrained the scatteration of development projects and attendant ills that have bedeviled many other counties. The UDA has limited the need to extend utilities and upgrade country roads to serve patchy development in agricultural districts. Says Athey: “Frederick County is a model for what we ought to be trying to do statewide.”

There have been implementation problems with UDAs, and there is some vociferous opposition. There are many technical issues that can be thorny to work out. These are not reasons to abandon them though. Virginians are suffering from high housing costs and transportation costs. The problem has gotten so bad, that we are now cannibalizing public education to pay for roads. Virginia must stay committed to UDA’s and work through these issues because we need to get this right.

Watch a thorough presentation about UDA’s from the Va Chapter of the American Planning Association. This video is 45 minutes long, so enjoy!

While the tactics of loan scams continue to change, there are some themes that homeowners should be aware of.  Scammers will often tell homeowners facing foreclosure to stop paying their mortgage.  Instead, scammers recommend that you use the money you would put towards making payments to pay the scammer’s fee.  Scammers also tell homeowners that they must be behind on payments to get a loan modification.  This is not true!  You can work with your mortgage company at any time to get a loan modification.

To gain credibility, some scammers will claim to be affiliated with government programs, and will charge a large upfront fee for services.  Remember, unlike scammers, HUD approved housing counseling services will never charge a fee.  While the scammer’s website may use language found in government assistance programs, they will not have a .gov web address!  Instead, their website will end in .com, .net, or .org.   A website ending in .org does not automatically make the company trustworthy!  Scammers will often employ the use of the .org designation to give homeowners a false sense that the organization is a nonprofit.  Make sure you contact your lender first.  Your lender will be able to tell you which government programs you qualify for to avoid foreclosure.

Another way that scammers attempt to gain credibility and your trust is by creating a legitimate-sounding title.  Again, loan modification scams change all the time.  However, there are some common titles that you should be aware of.  Possible titles of scam artists include:

• Loan Modification Consultant
• Forensic Loan Auditor
• Mortgage Loan Auditor
• Foreclosure Consultant
• Foreclosure Prevention Specialist
• Mortgage Consultant
• Short Sale Negotiator

Don’t fall for these phony credentials!  Seek out HUD approved housing counselors in your area to help you navigate the foreclosure process or work directly with your lender.  You lender or housing counselor can help you to avoid scammers.

If you are scammed, remember that you are not alone!  Many people have been scammed by loan modification scammers.  If you have been scammed, you can and should take action against your scammer.  You can report a loan scam by filing a complaint online through the Loan Scam Prevention Network.  Every day, loan modification scams rob people of their money and their homes.  Fighting back and reporting scams is key to stopping scammers!

If you’re facing foreclosure or behind on payments, HOME may be able to help you.  Contact us at 804.354.0641 for information.     

Looking forward, continued weakness in the housing market poses a significant barrier to a more vigorous economic recovery.

Among the policy priorities the Fed promoted were:

• moderate the inflow of properties into the large inventory of unsold homes
• limit the number of homeowners who find themselves pushed into an inefficient and overburdened foreclosure pipeline.

Foreclosures are the market’s way of repossessing assets from non-paying borrowers. The key word here is non-paying. If the market is not distinguishing between paying and non-paying borrowers, we have a problem. Dual-tracking is a big part of this problem. Homeowners who can afford to stay in their homes are still losing them to foreclosure. We have a similar problem with short-sales. Many real estate agents in Virginia have had short-sale deals fall through because Virginia’s foreclosure process beat them to the punch. Both loan modifications and short sales are far better for the economy than another foreclosure on the market.

The Fed highlighted these problems in the mortgage servicing industry in their analysis:

A 2010 interagency investigation of the foreclosure processes at servicers, collectively accounting for more than two-thirds of the nation’s servicing activity, uncovered critical weaknesses at all institutions examined, resulting in unsafe and unsound practices and violations of federal and state laws. Treasury has conducted compliance reviews since the inception of HAMP, and, beginning in June 2011, it released servicer compliance reports on major HAMP servicers. These reports have shown significant failures to comply with the requirements of the MHA program.

The market is not being served well by these mortgage servicers. Their unsafe and unsound practices have hampered the housing market from recovering. The Fed goes on to explain in detail, the effect of unnecessary foreclosures:

the large inventory of foreclosed or surrendered properties is contributing to excess supply in the for-sale market, placing downward pressure on house prices and exacerbating the loss in aggregate housing wealth.

On how foreclosures mitigation must be a priority, the Fed describes how foreclosures are bad for everyone involved (I’ve bolded phrases for emphasis):

foreclosures inflict economic damage beyond the personal suffering and dislocation that accompany them. In particular, foreclosures can be a costly and inefficient way to resolve the inability of households to meet their mortgage payment obligations because they can result in “deadweight losses,” or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods. These deadweight losses compound the losses that households and creditors already bear and can result in further downward pressure on house prices. Some of these foreclosures can be avoided if lenders pursue appropriate loan modifications aggressively and if servicers are provided greater incentives to pursue alternatives to foreclosure. And in cases where modifications cannot create a credible and sustainable resolution to a delinquent mortgage, more-expedient exits from homeownership, such as deeds-in-lieu of foreclosure or short sales, can help reduce transaction costs and minimize negative effects on communities.

One thing that is definitely true as committees begin to work their way through very heavy legislative loads (1,515 bills in the House and 780 bills in the Senate) is that there is a large class of freshmen who are new to the process and interested in learning the issues. This is an excellent opportunity for those of us involved in housing to tell them how important it is to get serious about affordable housing. There are 15 new Delegates in the House (14 R’s and one D) as well as six new Senators (4 R’s and 2 D’s). If you are represented by one of these first year lawmakers, you have a unique opportunity to educate them about housing and build a relationship.

It is important to connect with our new legislators and let them know that affordable housing is one important key to economic recovery and job growth in Virginia. The Virginia Housing Coalition commissioned a study last fall on the economic impact that a Housing Trust Fund would have in the State. Assuming a $10 million per year allocation to the Fund, the economic benefit to the state would exceed $1 billion after 10 years. Your legislators need to know these facts and how you feel about the need for more housing opportunity in your community.

For an excellent overview on the state of the housing market in the US and the world, see the review in The Economist from late last year showing how much more precipitous the US decline was – and making the observation that there is much more to come:

since American homes now look cheap, are prices set to rebound? Average house prices are 8% undervalued relative to rents, and 22% undervalued relative to income. Prices may have reached a floor, but this is no guarantee of an imminent bounce. In Britain and Sweden in the mid-1990s, prices undershot fair value by around 35%. Prices in Britain did not really start to rise for almost four years after they bottomed. Some 4m foreclosed homes could come onto America’s market, which may hold down prices.

The Federal Reserve also released a white paper in early January urging Congress to get more serious with a fix to the nation’s housing market. The underlying theme was that without a housing fix, the economy would continue to be hampered in its ability to move toward a more robust recovery.

With economic growth and economic development efforts at the top of the Governor’s agenda, one topic getting a lot of attention is the impact of declining federal funding and the impact it will have on Virginia’s economy. In both the December and January issues, Virginia Business highlighted this challenge facing the Commonwealth.

What’s often lost in these analyses (that focus more on defense and transportation cuts) is that federal housing programs have been slashed as well – with profound impacts in Virginia in the years ahead. HOME funding, the principal source of “gap” financing for affordable housing, is down 40% from two years ago. Funding for public housing continues to be squeezed putting the state’s supply of housing for our lowest income families at risk.

Every analyst, economist and pundit repeatedly talks about housing as the drag on our economy. Virginia’s legislators should make housing a top priority this 2012 session.

This is a guest post by Bob Adams. Bob Adams is the President of HDAadvisors, a consulting firm that specializes in housing and community development. Bob was the Executive Vice President and Chief Operating Officer of Community Housing Partners Corporation, President of the National Low Income Housing Coalition in DC and Deputy Director for Housing at the Virginia Department of Housing and Community Development. Bob is a graduate of Yale University and holds a Master’s degree in Urban and Regional Planning from VCU.

Del. Bob Marshall (R - 13th House District)

Virginia must prevent unnecessary foreclosures and Del. Bob Marshall (R-Manassas) has introduced smart and targeted legislation to do just that. We all know housing continues to be a drag on the economy. Foreclosures are supposed to help the market correct itself by moving people who cannot pay out, and moving people who can pay, in. The widespread practice of dual-tracking is preventing Virginia’s housing market from recovering. This practice of “dual-tracking” is when lenders continue to pursue foreclosure even though the homeowner is in the middle of a loan modification to have their monthly payment reduced. Currently, homeowners are being foreclosed upon even though they can pay to stay in their home.

In a recent survey, a staggering 87% of housing counselors in Virginia said that their clients were foreclosed upon even though they were in the middle of a loan modification process. This means that as we speak, homeowners who can pay to stay in their homes and are in the middle of the loan modification process can be foreclosed upon. To strengthen our housing market, we must prevent unnecessary foreclosures. Vacant homes are already devastating neighborhoods and housing values all over Virginia. Every unnecessary foreclosure further depresses home prices, adds to the housing inventory and destabilizes a family.

Delegate Marshall’s bill, HB 822, is very simple. It prevents any Virginia homeowner from being foreclosed on if they’ve applied for a loan modification unless:

a)      They get rejected for their loan modification

b)      They get approved for a loan modification, but default again

This is the smartest foreclosure reform bill I have seen because it prevents unnecessary foreclosures by helping the market distinguish between good foreclosures and bad foreclosures. A good foreclosure is one where the market repossesses a home from a non-paying borrower.  That home can be put back into the market and sold, often at a discount in the current environment, to a paying customer. A bad foreclosure is one where a homeowner, who can pay to stay in the home, still loses their home. Virginia’s economy cannot afford any more unnecessary foreclosures. Every paying Virginia homeowner should be given the chance to have their loan modification approved or rejected PRIOR to any foreclosure.

You can read the full text of Delegate Marshall’s HB 822 online. This bill will be heard in the Civil Subcommittee of the House Courts of Justice Committee. It is important that all members of this committee hear from you how important it is to prevent unnecessary foreclosures.

Va Legal Aid Society is one of the many similar organizations across the Commonwealth

As the housing crisis continues, low income Virginians depend on Legal Aid services to help them get through wrongful foreclosures, loan modification scams, predatory lenders etc. Unfortunately, Legal Aids in Virginia have seen their revenues take a hit just as demand on their services is peaking. Housing counselors often refer complicated cases involving foreclosure fraud or illegal predatory lending to Legal Aid lawyers. For most Virginians, Legal Aid is the only option to access the justice system in this bad economy. Legislation at the 2012 General Assembly in Richmond could help bring in more revenue, but it has some interesting opposition.

In Virginia, like most states, legal aid societies are funded through private donations, charities, the federal government and state and local governments. A prominent source of state funding for Legal Aid in Virginia is through a source called IOLTA (Interest on Lawyers Trust Accounts).  This source is created from interest-bearing accounts in which practicing attorneys keep client money.

Like many programs, funding for legal aid has taken a serious hit over the past few years. First, Federal funding for legal aid has been dramatically reduced. Second, revenue from IOLTA accounts has fallen off. While, Virginia Legal Aid could once depend on millions of dollars from these interest-bearing accounts, they now only bring in significantly less. Despite declining revenue, demand for services is higher than ever. Many Legal Aid chapters in Virginia find themselves turning away over half of their traffic due to insufficient staff and funds.

Del. Manoli Loupassi (R-68th House District)

To help remedy this, Delegate Manoli Loupassi (R-Richmond) introduced House Bill 100 to give more leeway to the Supreme Court of Virginia so they can make rules encouraging lawyers to dedicate their IOLTA money for Legal Aid. Currently, the requirement to deposit client funds in an interest-bearing account was subject to enforcement only by the Virginia State Bar or the Attorney General.  The bill would repeal the Code section that bars the Virginia Supreme Court from taking any disciplinary action against attorneys who fail to comply. There was a hearing on this bill on Monday Jan 16^th in the Civil Subcommittee of the House Courts of Justice Committee where there was much discussion and confusion about how exactly this system worked.

Va House of Delegates Courts Subcommittee debates HB 100

On paper, Virginia has an opt-out system: IOLTA money should go to the legal aid system unless Lawyers specifically opt-out. However, lack of enforcement means that, by default, only those who specifically opt-in have their IOLTA money going to Legal Aid. If lawyers do nothing (or opt out) their money does not end up going to Legal Aid. This is borne out by the numbers. There are around 30,000 active attorneys in Virginia but only 5,200 IOLTA accounts with money going to Legal Aid. When the economy was better, this did not matter. Now with historically low interest rates and the higher demand for legal aid services, the outlook for legal aid is bleak.

The Virginia Bankers Association opposed HB 100 during the subcommittee hearing claiming that the bill was unnecessary since the IOLTA system is already opt-out in Virginia. As mentioned earlier, the actual language of HB 100 is simple. It creates no new regulations or rules. Rather it repeals the provision prohibiting the Supreme Court of Virginia from adopting a disciplinary rule requiring that lawyers deposit client funds in an interest-bearing account.

During the subcommittee hearing on HB 100, representatives from the Virginia Bar Association, which includes HB100 as part of its legislative agenda, spoke in favor of the bill. VBA argued that under the current system with many attorneys unfamiliar with the rules, thousands of client accounts remain “in limbo” and inaccessible to the IOLTA system. 43 other states have mandatory IOLTA systems and this puts Virginia among a small minority. The Virginia Bankers Association opposed HB 100 during the subcommittee hearing claiming that the bill was unnecessary since the IOLTA system is already opt-out.

Va Banker Association opposition to HB 100

Ultimately, HB 100 was passed out of the subcommittee, with six delegates in favor and three delegates voting against. The bill will now head to the full Courts of Justice Committee for a vote.

The housing market in Virginia continues to be weak and the foreclosure crisis is on-going. Low-income Virginia families need Legal Aid services to work through bad foreclosures, predatory lending, and other challenges.

HB 100 is a smart idea.