On September 1, 2021 the White House released a visionary policy position paper that described in uncommon detail, its vision for housing programs in the Biden Administration. The strongest theme in the President’s message was the support and promotion of the involvement of non-profit organizations in many aspects of HUD’s programs. SP Group believes that there are three key components that need to be addressed effectively to maximize the potential of the non-profit focus of the Administration’s HUD policies.
1. Capacity Assessment
The President’s ambitious goals for non-profit participation in the resolution of defaulted single-family FHA-insured mortgage loans include selling 50 percent of the pipeline to non-profit organizations. The presumption that underlies this goal is that by disposing the defaulted loan to non-profit organizations, a larger number of loans will be resolved in ways that avoid foreclosure and dislocation of borrowers than would be the case if HUD continued to rely primarily on the for-profit sector. Given the number of defaulted FHA-insured loans currently on HUD’s books and the potential for an increase due to the impact of the COVID-19 pandemic, is there sufficient operating capacity among non-profit organizations to engage and resolve the tens of thousands of borrowers whose homeownership is in jeopardy? Has someone measured the capacity among non-profit organizations and matched the existing capacity with the location of the distressed loans and their underlying collateral?
Not all non-profit organizations have equal levels of or types of operational capacity. Some organizations are best at dealing with landlord-tenant disputes, some are best at fighting for improved housing code enforcement, while others are best at small-scale housing rehabilitation or meeting the requirements of elderly populations. Few non-profit organizations are analogous in size or capacity to housing development corporations that are devoted to producing housing at a scale that can sustain the cost of the human capital necessary or which have the financial resources to bring units to market in significant numbers.
Faced with this reality, the Administration will need to address capacity-building in order to create a non-profit sector that can achieve the goals imagined in the President’s housing policy. HUD has conducted highly successful training and technical assistance in the past. These efforts were marshalled around effective use of CDBG funds in the early 1980s. A capacity building and technical assistance initiative of similar or larger magnitude is needed to support the President’s housing agenda.
2. Success Metrics
A necessary precursor to selecting appropriate metrics for measuring the effects of increasing participation of non-profit organizations in resolving defaulted FHA-insured loans is developing a set of realistic expectations for what can be achieved and the timetable for achieving it. A mortgage default resolution strategy that rests heavily on the non-profit sector without clear goal-setting invites inevitable confusion as to the effectiveness of the strategy.
What will success look like? To answer this question, policy makers should clearly identify the metrics that will be used to measure progress achieved by the substantial increase in non-profit participation in HUD’s programs. Success metrics should consider whether the non-performing loan outcomes are disruptive or non-disruptive for the borrowers and for the neighborhood. Another aspect of success metrics could be the degree to which the private sector engages with non-profit organizations and the degree to which meaningful synergies are created that increase the number of affordable units that otherwise would not have been preserved.
3. Reporting Requirements
A greatly expanded role for non-profit organizations in the resolution of defaulted FHA-insured single-family loans will require non-profit organizations and their personnel to perform functions that many have never undertaken before. Fulfillment of HUD’s policies to avoid foreclosure or achieving outcomes, such as recycling defaulted collateral properties into the hands of FHA-eligible borrowers and documentation of compliance, will require clear guidance from HUD. Policy makers should consider how reporting requirements should be established to support the metrics that are necessary to measure program performance, and the penalties for incomplete or inaccurate reporting.
Overall, the Administration’s ambitious policy shift represents a renewal of HUD’s mission and has the potential to drive positive change for American families. Making those changes won’t be easy and will require a serious retooling of how HUD and the non-profit sector do their business.