Cheryl Cassell | HCT Training

Providing Housing Counseling and Direct Services for Homeowners Transitioning from Homeownership to Rental Housing

PROVIDING HOUSING COUNSELING AND DIRECT SERVICES TO HOMEOWNERS TRANSITIONING TO RENTAL HOUSING

Cheryl CassellDirector-Housing Counseling Network

Dr. Jade K. BrightlyFounder- Global Soulutions

April 18, 2012

Providing Housing Counseling And Direct Services To Homeowners Transitioning To Rental Housing Presentation Title Here

Housing Landscape

Fair Housing Act

Landlord Tenant Rights

Rental Process

Important Documents

Transitioning from Homeownership to Rental

Renting versus Owning

Neighborhood Stabilization and Real Estate Owned Properties

AGENDA

Providing Housing Counseling And Direct Services To Homeowners Transitioning To Rental Housing

The United States grew by 0.5 million households from 2008 to 2009.

Renter households grew (+0.9 million).

The number of homeowners fell (-0.4 million).

According to Fannie Mae, renters believe that buying a home is a safe investment while 75% of renters still agree that owning a home makes more financial sense than renting.

Source: National Realtors Association

National Findings

Housing Landscape


Working households, with a severe housing cost burden, increased significantly in 25 states across the nation while no states significantly decreased.

2009, housing cost represented a severe burden for at least one in 10 households in every state in the US and exceeded 30% in a handful.

Housing cost burdens worsened significantly in four states Oklahoma, Missouri, Minnesota, and Indiana.


State Findings


2008 and 2009, Arizona, California, Florida, New Jersey, and New York share of cost-burdened working households exceeded the national average and experienced a statistically significant increase.

The share of working households with a severe housing cost burden in Florida and California (33 percent) is nearly three times the rate observed in North Dakota and Iowa (12 percent).

The share of working households with a severe housing cost burden in Florida and California (33 percent) is nearly three times the rate observed in North Dakota and Iowa (12 percent).


State Findings


Higher income earners are experiencing affordability problems.

Earners between $45,000 and $60,000 pay more than 30% their incomes on housing

46.2 million households spends 50% on housing costs

Source: Harvard Joint Center for Housing Studies

Housing Affordability Trends


25% of working renters have housing cost burden.

Housing affordability has worsened for renters than for owners.

Four out of five working households, with extremely low incomes, had a severe housing cost burden in 2009.


Housing Affordability Trends


In 2008, homeownership rates decreased from 66.6% to 65.9% due to:

Foreclosure crises

High unemployment

Government downsizing

Tight lending standards

Stringent credit challenges


Shift in Demand for Homeownership


The number of owner households fell by 201,000 annually.

Two trends underlie this shift: The rising number of renters who have

deferred home buying, and

the rising number of owners who have switched back to renting.


Recovery of Rental Demand


The Housing Vacancy Survey indicates that the number of renters swelled by 3.9 million from 2004 to 2010.

The rental market has gained strength over the past year.

By 2020, minorities are expected to make up a third of all U.S. households.

Hispanics alone will contrib ute nearly 40% of the increase.


Recovery of Rental Demand

Providing Housing Counseling And Direct Services To Homeowners Transitioning To Rental HousingAdd Presentation Title Here

The Fair Housing Act, 42 U.S.C. 3601 et seq.,

Prohibits discrimination by direct providers of housing,

Such as landlords and real estate companies as well as other entities, such as municipalities, banks or other lending institutions

and homeowners insurance companies whose discriminatory practices make housing unavailable

FAIR HOUSING ACT


The Act is applicable to:

Race or color

Religion

Sex

National Origin

Familial Status

Disability

Fair Housing Act


The Department of Justice can bring a lawsuit:

•In cases involving discrimination in mortgage loans or home improvement loans,

•May file suit under both the:

•Fair Housing Act and

•The Equal Credit Opportunity Act.

Fair Housing Act


• Under the Fair Housing Act, the Department of Justice may bring lawsuits:

• where there is reason to believe that a person or

• entity is engaged in a "pattern or practice" of discrimination or

• where a denial of rights to a group of persons raises an issue of general public importance.

Fair Housing Act


Ways an individual can file a discrimination complaint:

Department Of Housing and Urban Development (HUD)

Federal Court

State Court

Fair Housing Act

Providing Housing Counseling And Direct Services To Homeowners Transitioning To Rental Housingdd Presentation Title Here

• The majority of DOJ’s pattern or practice cases involve claims of race discrimination.

• False information about availability of housing.

• Steering home seekers to certain areas based on race.

• Fair Housing Testing Program

• Most mortgage lending cases brought by Department of Justice are under Fair Housing Act and Equal Credit Opportunity Act (which will be discussed later) have alleged discrimination based on race or color.

Housing Discrimination Based on Color


Overt discrimination against members of a particular region.

Zoning ordinance designed to limit use of private homes as a place of worship.

The number of cases filed in 1968 alleging religious discrimination is small in comparison to other prohibited bases, such as race or national origin.

Discrimination in housing based on Religion

Providing Housing Counseling And Direct Services To Homeowners Transitioning To Rental Housingd Presentation Title Here

Humiliation to women who are poor.

Degradation of sexual harassment

Pricing discrimination

Discrimination in Housing based upon Sex, including Sexual Harassment


The Fair Housing Act prohibits discrimination based upon national origin.

Such discrimination can be based either upon the country of an individual's birth or where his or her ancestors originated.

The Justice Department has taken enforcement action against municipal governments that have tried to reduce or limit the number of Hispanic families that may live in their communities.

The Department has also sued lenders for discrimination against Native Americans.

Discrimination in Housing based on National Origin


The Fair Housing Act, with some exceptions, prohibits discrimination in housing against families with children under the age of 18.

In addition to prohibiting an outright denial of housing to families with children, the Act also prevents housing providers from imposing any special requirements or conditions on tenants with custody of children.

Discrimination in Housing based on Familial Status


In most instances, the amended Fair Housing Act prohibits a housing provider from refusing to rent or sell to families with children.

However, some facilities may be designated as Housing for Older Persons (55 years of age). This type of housing, which meets the standards set forth in the Housing for Older Persons Act of 1995, may operate as "senior" housing.

The Department of Housing and Urban Development (HUD) has published regulations and additional guidance detailing these statutory requirements.

Housing Discrimination based on Familial Status


The Fair Housing Act prohibits discrimination on the basis of disability in all housing transactions.

Disability Defined-An individual with mental or physical impairment that substantially limits one or more major life activity.

Discrimination in housing based on Disability


The ECOA prohibits discrimination in credit on the basis of:

Race

Color

Religion

National Origin

Sex

Equal Credit Opportunity Act

Providing Housing Counseling And Direct Services To Homeowners Transitioning To Rental HousingHere

Marital Status

Age (provided the applicant has the capacity to contract)

Because an applicant receives income from a public assistance program or

Because an applicant has in good faith exercised any right under the Consumer Credit Protection Act



The Department of Justice may file a lawsuit under ECOA where there is:

A pattern or practice of discrimination

Cases involving discrimination in home mortgage loans or home improvement loans

Fair Housing Act and Equal Credit Opportunity Act



Other federal agencies have general regulatory authority over certain types of lenders.

The regulators monitor creditors for their compliance with ECOA.

Referrals are made when there is a reason to believe that a creditor is engaged in a pattern or practice of discrimination with violates ECOA.

Other Federal Regulators


The Consumer Financial Protection Bureau has issued regulations under ECOA. These regulations, known as Regulation B, provide the substantive and procedural framework for fair lending.

The agencies and the types of creditors that they regulate for purposes of compliance with ECOA are as follows:



Consumer Financial Protection Bureau (CFPB): Banks, savings associations, and credit unions with total assets of over $10 billion and their affiliates. Also shares enforcement authority with the Federal Trade Commission over mortgage brokers, mortgage originators, mortgage servicers, lenders offering private educational loans, and payday lenders regardless of size.



Office of Thrift Supervision (OTS)-Savings associations and federally chartered savings bank (the word “Federal” or the initials “F.S.B.” appear in the federal institution’s name.

Comptroller of Currency (OCC)-National banks and federal branches/agencies of foreign banks (the word “National” or the initials “N.A.” appear in or after the bank’s name).



Federal Reserve Board (FRB)-Financial institutions that are members of the Federal Reserve System, except national banks and federal branches/agencies of foreign banks.

Federal Deposit Insurance Corporation (FDIC)-State chartered banks that are not members of the Federal Reserve System.



National Credit Union Association (NCUA)-Federal credit unions (the words “Federal credit unions” appear in the institution’s name).

Federal Trade Commission-Retailers, finance companies, creditors (including most mortgage companies) that are not assigned to another agency.



SCRA provides for the temporary suspension of judicial and administrative proceedings and civil protections in areas such as housing, credit and taxes for military personnel while they are on active duty.

The Servicemembers Civil Relief Act, formerly known as the Soldiers’ and Sailors’ Civil Relief Act (SSCRA), is a federal law that provides protections for military members as they enter active duty.

Servicemembers Civil Relief Act


Responsibilities of the Landlord:

Unit must be in habitable and livable condition

Unit and Complex must be safe

Duty to Make repairs

Landlord/Tenant Obligations

Landlord/Tenant Rights


Responsibilities of the Tenant:

Rent

Repairs

Be a Good Neighbor

Landlord/Tenant Obligations


Repairs

Eviction

Landlord Tenant Disputes


Landlord insurance only covers their personal liability and the premises and common areas, as well as the physical building.

It is important to note that the landlord’s insurance does not cover tenant property, nor does it cover tenant’s liability to people injured in their home.

Rental insurance is highly encouraged. The monthly cost is low (around $10). Provides good coverage in the event of a fire, robbery, or other mishap. Some rental units even require residents to purchase renter’s insurance.

Renter’s Insurance


Typical Renter’s Coverage

Types of Coverage

Renter’s Insurance Coverage


Affordability

Client Qualification

Locating the Right Rental

Housing Options

Property Management or Privately Owned


Complete Application

Provide a Security Deposit

Review and Sign Lease

RENTAL PHASE


• Review and Sign Lease

• Insurance

• Protect and/or Surveillance the Unit

POST RENTAL PHASE


Provide rental counselors with comprehensive guidance and counseling services to clients seeking to move into a rental unit.

GOAL – To assist clients with moving into a comfortable, affordable rental home.

THE RENTAL COUNSELING PROCESS


Perform intake Conduct needs analysis Create an action plan Discuss income and expenses Develop a budget and spending plan Affordability Review credit report Rental housing options; how to locate right unit Conduct a rental unit needs-versus-wants analysis Discuss the post-rental phase, including lease and move Make necessary referrals


Intake - gather baseline information from client

Conduct accurate needs assessment

Document the household income and expenses

Determine household debt level

Review clients credit report

Identify credit challenges

Determine and document household savings


Develop a household budget

Analyze budget and recommend modification

Conduct affordability analysis based on income and debt

Develop a written action plan with follow up

Make referrals for additional services

Provide client information on delinquency/foreclosure

services Source: www.homeownershipstandards.org

Guideline and Code of Ethics Reference Guide

http://www.homeownershipstandards.org/


Educate – Provide a complete picture of the rental housing landscape and thorughly discuss each step in the rental process.

Inform - Set appropriate expectations when guiding the rental home search.

Listen – Be open to hearing what the clients truly want/need and make sure the clients know they are being heard.

Important Traits of a Rental Housing Counselor


Be Empathetic – Clients, transitioning from one home to another, may be undergoing serious life changes. Be sensitive and work to establish trust.

Support – Be a source of secure informaiton and guidance, backing up clients’ decisions as much as possible.

Provide Options – Let clients make decisions for themselves in order to encourage a more sustainable housing situaiton and greater security.

Analyze – Determine the needs of each individual client and help to match these needs with the best housing options.



Make Recommendations- Use your professional expertise to recommend the best options for your client.

Collaborate - Work in partnership with the client to

arrive at outcomes and make decisions. Work with other agencies to provide referrals and other assistance the client may need.

Be Available – Rental counseling can be complicated and lengthy. A counselor needs to provide support through the entire rental process.



How to Conduct an Intake Session:

1. Counselor gives an overview of the rental process

2. Counselor gathers information regarding the client’s current situation

Financial Information Housing situation Credit information

3. A physical file must be created for the above information and it must be entered into a client management system.

General Intake Action –


HUD requires certain specific record keeping protocol:

Client files must be maintained properly

All agencies are required to use a client management

system (CMS).

Privacy- all client information must be kept strictly

confidential.

File Retention Requirements- client files must be kept a

minimum of 3 years.

Minimum client file requirements are on page 7 of manual.Source – www.hud.gov- Housing Counseling Handbook

Record Keeping


One of the most important considerations when choosing a rental unit is based on a clients income and expenses.

Selecting a rental unit that is affordable in the long-term encourages greater security and housing sustainability.

To conduct an accurate analysis, the client should be able to accurately present past, present, and future earnings.

Landlords want to have valid documentation to determine if the tenant can pay the rent each month.

The budget analysis helps to secure the desired rental.

Budget Analysis


Typical documentation needed to calculate income are:

Past 2 years of tax returns

Past 2 years of W-2’s

3 months of consecutive, current paystubs.

Budget Analysis


Hourly Employee Formula:

Year-to-date income: $___/Number of pay periods to date____ =

Average income pay period: $___ x Number of pay periods per year:___ =

Subtotal $___ + any other income: $___ =

Gross annual income: $___/12 = Gross monthly income: $___

Income Calculations


Salaried Employee Formula:

Weekly pay (or bi-weekly, semi-monthly, or monthly pay): $____ x

Number of pay periods remaining in the year: ____ = Subtotal: $ ____

+ Any other income: $_____ + Year-to-date income total: $ ____

Gross annual income: $____/12 = Gross monthly income: $____

Income Calculations


Self-Employed Formula:

From IRS Schedule C, Line 31: $____

+ From IRS Schedule C, Part II, Line 12 (Depletion): $ ___ + From IRS Schedule C, Part II, Line 13 (Depletion): $ ___

Total: ____/ Total months business operation for the year: $ ___ =

Average monthly income per year: $____

Complete the above formula for multiple years and then average the gross monthly income.

Determine the gross annual income by multiplying by 12.

Income Calculations


A good rule of thumb –

Put at least 10% of net income into a savings account.

This builds a cash reserve and will earn interest.

A cash reserve can also be used for emergencies.

There are various types of savings accounts:

Traditional Savings Account

Online Savings Account

Money Market Account

Ceertificate of Deposit (CD)

Home Savings

Savings


Check the box indicating if an expense is fixed or flexible

Fixed Flexible

vacation

student loans

school supplies

utilities

health

insurance

car payment

haircut

clothing

credit card

payment

Expenses Activity


Budgets help to create realistic spending and savings goals. Budgets allow clients to see where money is going.

Budgets encourag the forming of new spending habits to create a secure financial life.

Clients must decide on a method to track their income and expenses. (www.mint.com is a free money management site)

Clients should select a method which is most comfortable . Notebook receipts binder Worksheets Quicken software Online

Budget


Assume your client has the income and expenses listed in the budge below. Where would you propose the client cut expenses to make their budge more affordable?

Make these changes in the chart below.

Scenario- Mary works at the US Post Office and earns $45,000 Her husband, Joe works as an independent contractor His average grossly monthly income is $3,200 Their child attends daycare They have credit card debt/minimum payment of

$75/month Additional expenses listed

Where would you recommend the client make changes?

Budget Activity


Factors to consider:

Prospective buyersNumber of children Occupations

Husband - Mechanic at a car dealership for 7 years Wife – full time teacher’s aid

Combined Gross Monthly Income Savings Debts

Determining Affordability


Maximum Affordable Rent- no momer than 31% of gross income should go toward rent.

Factors to consider:

Prospective buyersNumber of children Occupations

Husband - Mechanic at a car dealership for 7 years Wife – full time teacher’s aid

Combined Gross Monthly Income Savings Debts

Determining Affordability


1. Application Fee

2. Security Deposit

3. First/Last Month’s Rent

4. Moving Costs

5. Utilities

Required Cash


1. Avoid a Credit Check

2. Submit a Letter of Explanation

3. Get a Letter of Recommendation

4. Pay Off Creditors

5. Get a Co-Signer

Credit Issues


6. Pay More Money Up-Front

7. Rent from an Owner

8. Get a Referral from a Current Tenant

9. Sublet a Rental Unit

Credit Issues


The counselor completes the action plan after the initial client interview and all financial information is collected and discussed.

•The action plan contains the goals of the counseling process as well as the steps necessary to achieve those goals.

•Each action plan is unique because it addresses the clients needs. •HUD requires a copy of the action be included in the file.

•A copy of the action plan must be provided to the client.

Action Plan


• Discuss and list major obstacles to obtaining rental housing.

• Determine and list the best strategies for addressing the obstacles.

• Give the client specific actions to take before the next meeting or before proceeding with the next step in the rental process.

• List the ultimate outcome of the rental counseling.

• Have the client sign and date the action plan after discussing all items.

Action Plan Template:

A lease is a legally-binding document between a landlord and a tenant.

It is important that tenants read the lease carefully and understand all terms before they sign.

Leases can occassionally be "oral" or unwritten but usually in writing. Oral leases are harder to prove. It’s best to get the lease in writing.

Along these same lines, sometimes at the signing of the lease, the landlord will make oral promises or ask the tenant to agree to something. These should also be written onto the lease and initialed. This will help to discourage disputes later.

LEASE AGREEMENTS


The landlord agrees to provide a clean, sanitary, vacant apartment and to make repairs.

You agree to pay the rent, keep your apartment or house clean, undamaged, and follow the rules of your lease.



When you apply to rent a house or apartment, you apply to qualify for a lease.

The landlord requires you to fill out an application form and pay an application fee before you sign the lease.

The application requests information on:employment history credit references and often becomes part of the lease.


When you apply to rent a house or apartment, you apply to qualify for a lease.

The landlord requires you to fill out an application form and pay an application fee before you sign the lease.

The application requests information on:employment history credit references and often becomes part of the lease.


Review the lease.

Get help for explanations.

Make sure the terms of the security deposit are clearly spelled out.

Get all promises for repairs in writing.

Initial changes to lease.

Ask your landlord to sign his or her initials next to each change.

Before Signing A Lease

After Signing A Lease

The landlord must give you an exact, legible, and signed copy of the lease and application within 7 days.

Always keep your lease, application, and other documents concerning your apartment or house in a safe place.


Breaking A Lease

Your lease is a binding contract .

Breaking the lease is a breach of contract and you could be penalized.

There are exceptions: Natural disasterCrimeMilitary dutySuffered health problems



Homeownership Benefits

Renting can be about the same or less as paying a mortgage.

Home ownership offers tax benefits.

Tax benefits offer savings.


Monthly Expenses

Rental company’s cover certain housing expenses.

Homeowners pay housing expenses: Property Taxes and Special Assessments

Home/Hazard Insurance

Utilities

Maintenance

Home Owner Association (HOA) Fee

Membership Fee

Providing Housing Counseling And Direct Services To Homeowners Transitioning To Rental HousingPresentation Title Here

Transitioning from homeownership to renting can be extremely difficult.

Housing counselors are essential in assisting homeowners who become delinquent on their mortgage and are facing foreclosure. Housing counselors can assist a homeowner explore all options.

The earlier in the process that a homeowner works with a housing counselor, the more options and potential outcomes are available.

Transitioning from Rental to Homeownership


Loan Modifications and Foreclosure Alternatives

Making Home Affordable Options

Transition Options

Real Estate-Owned Properties

Transitioning From Homeownership to Rental


Deficiency Judgment

Tax Implications of Short Sales, Deeds-in-Lieu and Foreclosures

Credit Implications of Short Sales, Deeds-in-Lieu and Foreclosures

Helping Clients Rebuild Credit after a Transition

Transitioning from Homeownership to Rental


Renting Versus Owning

The renter starts out paying $800 per month with annual increases of 5%.

The homeowner purchases a home for $110,000 and pays a monthly mortgage of $1,000.


Buying Versus Renting

After 6 years, the homeowner's payment is lower than the renter's monthly payment .

With the tax savings of homeownership, the homeowner's payment is less than the rental payment after 3 years


Advantages of Buying

Property builds equity.

Sense of community, community, stability and security.

Free to change landscaping and décor.

Not dependent on landlord to maintain property.


Considerations of Buying:

Responsible for maintenance

Responsible for property taxes

Possibility of foreclosure or loss of equity

Less mobility than renting

Advantages of Renting:

Little or no responsibility for maintenance

Easier to move


Considerations of Renting:

No tax benefits

No equity is built up

No control over rent increases

Possibility of eviction


The Neighborhood Stabilization and real Estate Owned Properties

Provides grants to purchase foreclosed or abandoned homes and to rehabilitate, resell, or redevelop these homes in order to stabilize neighborhoods and stem the decline of house values of neighboring homes.

The NSP program is authorized under Title III of the Housing and Economic Recovery Act of 2008.

Source: www.hud.gov

The Neighborhood Stabilization Program (NSP)


The Neighborhood Stabilization Program (NSP)

The REO Portal supports more

efficient disposition of REO properties to support the stabilization of neighborhoods and recovery of local housing markets by enabling a neighborhood-focused, strategic approach to acquisition.

Source: www.hud.gov


Real Estate Owned (REO) Properties

These foreclosed homes collectively

account for nearly half of all real estate-owned or REO properties in the U.S.

HUD’s REO gives a comprehensive view of housing opportunities.

The REO listing includes properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA).

Source: www.hud.gov

THANK YOU!

To follow up with the speakers:Cheryl CassellDirector-Housing Counseling [email protected]

Dr. Jade K. Brightly202-756-1838brightlyjk@globalsoulutions.bizwww.GlobalSoulutions.biz

Presentations will be available at www.ncrc.org/conference by April 30, 2012

mailto:[email protected]

http://www.globalsoulutions.biz/

http://www.ncrc.org/conference

Cheryl Cassell | HCT Training

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