We can stop foreclosures and keep families in their homes
Our country has suffered through more than 4 million foreclosures since the housing crisis began in 2007.
The process is as individual as each family and as generic as any corporate machine: A homeowner falls behind on mortgage payments, and eventually the bank ends up owning the house. In time, the bank sells the house to someone else.
A few lucky homeowners in Massachusetts are the exception to this sorry, too-common tale.
For the past two years, nonprofit Boston Community Capital has run a program called SUN, or Stabilizing Urban Neighborhoods. It buys homes out of foreclosure, sells them back to the families who lost them and gives those families new, more affordable mortgages.
The program hinges on the fact that foreclosed homes usually sell for fire-sale prices, sums that are generally far less than the home's fair market value.
Boston Community's SUN buys homes in foreclosure, either purchasing them directly from the bank or buying them from the owner in bank-approved short sales.
The program then sells the homes back to their former owners at prices closer to market value, which is usually less than the homeowner originally owed. The program may also offer the homeowner a new mortgage.
For an example, consider a homeowner who owes $200,000. SUN might buy the house from the bank for $130,000 and sell it back to the original owner for $170,000, also offering a new mortgage at 6.25%.
The homeowner owes less and has a lower monthly payment, and SUN has a profit it can set aside to protect it from potential buyer defaults.
To qualify for the program, homeowners must prove hardship, such as a job loss or serious illness. They make a $5,000 down payment and must also demonstrate their ability to pay the new monthly tab.
If they later resell the home at a profit, Boston Community gets half of that profit.
The Boston Community program is close to its goal of buying 10 homes a month.
A much newer program is under way in Denver.
In that city, a consortium of housing groups led by Mercy Housing Inc. arranges to buy loans, not houses, and reduce the principal owed on each.
These efforts are good for just about everybody.
The homeowner keeps the home. That's one more person or family who has a place to live, doesn't have to cope with the disruption of moving and can build equity. A home is often an American family's primary investment and source of wealth.
The bank doesn't have the hassle and expense of foreclosing on, maintaining, marketing and reselling the home.
Banks are set up to lend money -- they're not very good at managing real estate. Look around at the foreclosures in your neighborhood, and you'll likely see homes with grass left long in the summer, snow accumulating on the sidewalk in winter, pools left to fester and maintenance ignored in every season. Banks simply can't keep up with their own foreclosures.
The neighborhood keeps its residents, which is good for both community relationships and property values.
The investor who bought the original loan gets a better return than if the bank sold the home through the standard foreclosure process.
Unfortunately, not every bank sees the merits of this approach, and some refuse to participate. Some banks won't let Boston Community buy a home in the first place or sell a home back to its original owner.
Their reasons are varied.
They think they can get more money for the property. They fear potential fraud in a short sale that's transferred back to the original homeowner. Or they think that the program will encourage other homeowners to default.
Perhaps they've forgotten that American taxpayers bailed out banks when banks' risky lending practices got those institutions in over their heads. It's time for them to pay that bailout forward, either by modifying loans themselves or working with community groups that have the resources to help.
Boston Community and Mercy Housing have sane, sensible ideas that keep people in their homes while also benefitting neighborhoods, banks and investors. More banks should gather up their remaining shreds of decency and enthusiastically participate.