When Bruce Dorpalen became national director of housing counseling for Acorn Housing Corp., he wasn't expecting a ringside seat for a financial crisis of historic scale. But that's what he got.
Dorpalen is second-in-command at the Chicago-based nonprofit group founded to foster reinvestment and housing development in struggling communities. Unlike its controversial sister group ACORN, Acorn Housing's chief focus is service delivery, not organizing, though it also advocates for lending reform.
Dorpalen described how Acorn Housing helped make Philadelphia a national laboratory for community lending in the 1980s and early '90s, and how it has expanded its focus because of the credit and housing crises.
Acorn Housing is now one of the nation's largest housing-counseling organizations approved by the Department of Housing and Urban Development. Like other such counselors, it offers free help to anyone trying to avoid foreclosure.
Question: You were one of the founders of Acorn Housing, which started here and in several other cities in 1985 during a period of bank consolidation. What was the impetus?
Answer: We had a large pool of people who were interested in becoming homeowners, and certainly there were lots of houses that were available in Philadelphia. But people weren't qualifying for mortgages. It wasn't that they didn't have any money. They may have been low-income, but they had income, they paid their bills on time, they were actually pretty reliable people, and somehow they weren't qualifying. What we found was that traditional underwriting was missing some of their income and credit records.
We were able to negotiate with banks to change the underwriting standards, give people very good pricing, and it turned out that suddenly lots of people were able to qualify. We created a housing-counseling program to really help people through the process and help them prepare and deal with credit issues and money management. Philadelphia was a laboratory for mortgage underwriting, which changed the way that community lending is done across the country.
Q: How did that program differ from what became known as predatory lending?
A: Several things were key. One was that it was all 30-year, fixed-rate mortgages, so the monthly payments stayed the same - a major issue for low- and moderate-income people because their incomes don't go up rapidly. Generally, predatory loans were adjustable-rate mortgages and often adjusted upward after two or three years.
The loans I'm describing were underwritten very well, so people had to be reliable credit risks, but not necessarily because of their credit scores. If you didn't have credit references that were on a credit report, we could also go to people who had loaned you money - furniture stores, utility companies, landlords who might not show up on the credit report - and use those.
What we found is that a lot of traditional underwriting didn't really capture people's incomes or credit very well. But with a good housing-counseling program, you could figure out who would pay their mortgage on time and who was responsible. And these portfolios have always performed well.
Q: It's been three months since President Obama's loan-modification program began. What's the verdict?
A: That the program has got very good things on paper, but the servicing industry has not implemented it fully, and in fact there are lots of missteps happening. Routinely, people are being asked to put money down as up-front payments before they can qualify for a modification. That's not allowed under the Obama plan. Foreclosures are continuing to be processed even though no foreclosures are supposed to move forward until people have been reviewed for the Obama plan. So there are lots of missteps like that.
Currently, I think the really big breakthrough has been the Philadelphia court diversion or mediation program. The whole idea is that when people are coming to a foreclosure hearing that they be diverted into a mediation session where they would be working with a housing counselor and the servicer.
So there's the ability to figure out what their financial situation is, figure out what a good modification would be, and then make a proposal and work it out with the servicer on the spot.
What's been happening around the country is that servicers have not been making these decisions quickly, so it's routine for decisions to take three and five months.
In Philadelphia, because the parties have to sit together face to face, there's the potential of much faster resolutions. There aren't really very many programs comparable to that around the country, so kudos to Philadelphia for having the leadership to pull this together.