Photo credit: Michael Gi cc
This Program Could Become A National Model
The biggest component in the housing market’s barometer of stability is the number of foreclosures conducted and this number continues to decline. Much of the decrease in the number of foreclosures may be attributed to government mitigation programs, short sales and ‘zombie’ foreclosures.
See Foreclosures Drop to Pre-Crisis Levels
See There May be Zombies in Your Neighborhood
See Homes in the Shadow of a New Housing Economy
In many cases, distressed homeowners can negotiate with their lender to get a loan modification. That is, unless the loans are backed by Fannie Mae and Freddie Mac. The Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, doesn’t allow loan modifications which reduce the size of a mortgage. The regulatory agency fears that such “principal reductions” will encourage borrowers to default on their mortgages with the hope to get cheaper loans.
See FHA Gives Second Chance to Former Homeowners
A Boston-based non-profit has a unique approach to helping homeowners to get a buyback and avoid foreclosure. Their claim is that their initiative is removing blight while involving only the people that want to be a part of the change. Boston Community Capital buys homes in Massachusetts, Rhode Island and Maryland that are in foreclosure or close to it and resells or leases them back to the former owner at a price reflective of the current market value.
The group’s initiative is known as Stabilizing Urban Neighborhoods (SUN). It provides a compelling model for home buy-back programs and Massachusetts Attorney General Martha Coakley has singled SUN out as a way to turn-around neighborhoods hit hardest by blight.
“The initiative has kept about 500 families in their homes since launching in 2009” said Elyse Cherry, Boston Community Capital’s Chief Executive. While it has foreclosed on three homes during the same period, its default rate is under five percent, which is below the national average.
If a borrower is late on their mortgage payments because of a hardship or if they are in some stage of foreclosure, they are eligible to apply if there’s steady income. The program is not generally for those who have already completed a foreclosure and are out of the home.
If a homeowner later decides to sell, and the home sells for a profit, they can’t take all of it. As explained on Boston Community Capital’s website: “SUN is entitled to a percentage of the profits equal to the reduction in the original mortgage amount. For example, if your original mortgage was $400,000 and your SUN mortgage is $200,000, your new mortgage represents 50% of your original mortgage. If you sell your house for $250,000, SUN is entitled to 50% of the proceeds over $200,000, or $25,000. Boston Community Capital will reinvest its share of any potential profits in projects that benefit the community, keeping the equity where it belongs — in our neighborhoods.”
Resources:
The Washington Post. “A Boston program aiding foreclosed homeowners could be a national model for fighting blight” 29 July 2014.http://www.washingtonpost.com/blogs/wonkblog/wp/2014/07/28/how-a-boston-group-helps-keep-troubled-borrowers-in-their-homes-a-model-to-fight-blight
Boston Community Capital website. 29 July 2014. http://www.bostoncommunitycapital.org/foreclosure-relief