RHLS Addresses Foreclosure Crisis, Revamps Tax Program
As seen in The Legal Intelligencer

Kristina Klugar
07-28-2008

Regional Housing Legal Services has provided 35 years of service to community-based organizations dedicated to promoting affordable housing, economic development and neighborhood revitalization. Initially focused on Philadelphia and surrounding counties, it now serves the entire state, giving its staff a unique vantage point and making RHLS a one-of-a-kind intermediary that works at the grassroots level, customizing its assistance one community group at a time, as it also works to make local and state policies responsive to the ultimate beneficiaries.

RHLS provides legal and technical assistance to about 60 nonprofit organizations annually. Its impact is significantly broadened by the work it does to find creative policy solutions to difficult problems facing its clients. On the policy front, during the past year, RHLS played a key role in helping to address the mortgage foreclosure crisis. The organization was also successful in revamping a tax credit program, once a model that was used by other states for fueling community building, that was not being used to its fullest potential.

Just when predatory lending was already creating what some referred to as an "epidemic," changes in the economy caused an increase in foreclosures and home loss. For example, during 2006-07, the Pennsylvania Housing Finance Agency, which administers the Homeownership Emergency Mortgage Assistance Program, or HEMAP, experienced a 36 percent increase in applications received for assistance from Montgomery and Delaware counties each, and an increase of nearly 15 percent in applications from Philadelphia. RHLS, which created a special online, interactive program to assist HEMAP applicants, has experienced an increase in usage of almost 50 percent in the past 18 months. (See the HEMAP Help Center at http://www.rhls.org/HEMAP.asp.)

The mortgage foreclosure crisis led a number of community groups to approach RHLS, Community Legal Services and Pennsylvania Legal Assistance for help in creating a loan product to help victims of predatory loans. RHLS approached the city of Philadelphia about using some funds as a loss reserve for a Pennsylvania Housing Finance Agency, or PHFA, bond issue. The city was receptive to this idea. At the same time, RHLS approached PHFA about using the city's money as a loss reserve for such a PHFA bond issue.

The city dollars allowed PHFA to purchase predatory loans and restructure them to be affordable to the current homeowners. To date, PHFA has approved 72 HERO loans for a total of $8.9 million. Three hundred are in the pipeline which will use up the $25 million that PHFA has.

Mark Schwartz, executive director of RHLS and a PHFA board member, worked closely with Brian Hudson, executive director of PHFA, to create an investment vehicle which would allow banks to invest in the rescue product. With PHFA's encouragement, Schwartz approached PNC Bank, the largest bank based in Pennsylvania. Months were spent trying to create an investment vehicle that would work for both PNC and PHFA. The challenge was to create a rescue loan product in which credit scores and loan to value ratios would not be the basis of underwriting decisions and to create an investment vehicle for banks and other financial institutions that can be used to leverage public resources. Ultimately, these efforts led to a $5 million investment by PNC in the HERO program and contributed to the establishment of the program which is administered by PHFA and has become a model for housing finance agencies throughout the country. Other banks have now expressed an interest in investing in similar products and PHFA has circulated a term sheet.

While housing advocates and social workers are struggling to keep people from losing their homes, community groups are trying to create more affordable rental units and build or rehab homes for sale. A tax credit program created in the 1960s in Pennsylvania that became a national model adopted by several other states, the Neighborhood Revitalization Program, or NAP, was - years ago - an important source of income for such efforts. Funded by the state at $18 million per year, only about $6 million of this allocation was being used in recent years, leveraging about $9 million in additional funds out of a possible $25 million to $35 million.

After legislation was successfully changed, thanks in large part to efforts of Reps. John Taylor and Thomas Petrone and Sen. Dominic Pileggi, as well as Dan Reisteter of the Pennsylvania Bankers Association, RHLS spent close to a year drafting new program guidelines with a goal of increasing investments, especially by pass-through entities such as law firms. RHLS staff provided four training sessions in various parts of Pennsylvania. Under the new guidelines, the NAP will have two application periods instead of a rolling review process. Applications will be batched and graded against each other. Criteria are being used by the Department of Community and Economic Development, or DCED, for triaging the applications.

For the first time in NAP history, NAP will consider the broader impact of approved projects. The process will take into consideration eligibility, degree of distress, impact and financial commitment/market planning. The ultimate result will be that DCED will be better able to target the credits and the impact of the credits will be considerably increased.

Early indications are that DCED has received more than 160 applications in the first application period totaling $25 million in tax credits with an additional $45 million in investments - far more than what the NAP is allocated annually, exceeding anyone's expectations.

Over the years, RHLS's staff has grown but remains lean for the amount of work that it does. Now statewide, RHLS's main offices are in Glenside, where five practicing attorneys work. While RHLS's efforts are concentrated in Southeastern Pennsylvania, in recent years, the organization has doubled its capacity in Pittsburgh by adding a second attorney. RHLS also has offices in Harrisburg and Gettysburg where the Pennsylvania Utility Law Project and the Pennsylvania Housing Law Project are housed.

Kristina Klugar is an attorney and is policy director for Regional Housing Legal Services based in Glenside, Pa. Prior to joining RHLS, Klugar served on the staff of Community Legal Services and worked as an independent consultant.

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