At the height of the financial meltdown, in July 2008, New Economy Project launched the NYC Foreclosure Prevention Gap Loan Program, geared to low income NYC homeowners harmed by predatory lending and loan servicing practices. The Program, which we operated until December 2013, provided small, low-interest loans that enabled 386 New Yorkers to stop foreclosure and stay in their homes. The Gap Loan Program provided a total of $1.58 million in loans, which preserved more than $20 million in home equity.

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The Program was designed to complement other foreclosure prevention efforts, by filling “gaps” in financing needed to obtain affordable loan modifications and other long-term solutions to keep people in their homes. Gap Loans provided homeowners and their advocates with a critical negotiating tool, which they
used to secure substantial principal write-downs, short pay-offs, and sustainable loan modifications from banks and mortgage servicers. New York City and State have both replicated our loan fund, making public funds available for foreclosure prevention.

New Economy Project established the Gap Loan Program after years of working to end discriminatory and abusive lending practices that have devastated low income neighborhoods and communities of color. Indeed, lenders filed more than 68,000 home foreclosure actions in NYC, from 2008 to 2013 — the vast majority of which were in low income neighborhoods and communities of color.

This summary report describes the Program’s impact and describes opportunities and challenges in lending to homeowners in severe financial distress. The report includes borrower case examples and a NYC map showing where Foreclosure Prevention Gap Loans were made.

Key Findings

New Economy Project’s Foreclosure Prevention Gap Loan Program enabled hundreds of lower-income New Yorkers to keep their homes and significantly reduce their mortgage debt. In total, the Gap Loan Program:

• Helped 116 households, and a total of 386 NYC residents, avoid foreclosure.
• Preserved at least $20.83 million in home equity, the primary source of wealth for many low income families. Every $1 from the Gap Loan Program preserved more than $13 in borrowers’ home equity.
• Reduced borrowers’ mortgage debt by approximately $4.83 million. Every $1 from the Gap Loan Program reduced borrowers’ housing-related debt by $3.05.
• Reduced borrowers’ total monthly housing payments by 27.1%, or $566, on average. After receiving a Gap Loan, borrowers’ housing payments decreased from 43.9% of their monthly incomes to 29.0%, on average – a reduction that brought their housing costs within conventional guidelines of affordability.

The Program was especially effective at addressing high-interest second (or “piggy-back”) mortgages. The Program leveraged funds to extinguish abusive second mortgages, through short pay-offs of these loans. For every Program dollar paid to settle a second mortgage, the Program eliminated $5.48 in mortgage debt. The Program enabled 26 borrowers to settle more than $2.28 million in second mortgage debt, using just $416,000 in lending capital. These loan pay-offs translated to an average monthly savings of $671 per household.

The Program’s success at leveraging funds to prevent foreclosures has attracted national attention. In New York, both the City and State have replicated our Program. New York City launched the Mortgage Assistance Program (MAP) in January 2011, with support from New Economy Project. In 2014, New York State’s Attorney General announced funding to expand MAP across New York State. New Economy Project continues to serve as a consultant on MAP, and serves on the Credit and Policy committee for the Statewide MAP expansion.