Boston Community Capital started in 1985, a nonprofit community development group that began with $3,500 and has since grown to invest nearly $700 million in low-income communities, its CEO and co-founder Elyse Cherry tells Governing. As the housing crisis took full effect, the group saw a vacuum for a financial institution such as itself to come to the aid of distressed homeowners.
Through coordination with local governments and community groups, BCC has helped more than 125 foreclosed homeowners keep their homes, Cherry says. After someone in need is directed to the group through a government entity or a foreclosure counselor, BCC takes stock of their financial situation. They evaluate the state of the mortgage and ensure the applying homeowner has steady income -- a full "underwriting," Cherry says.
They appraise the house at its distressed market value, determine who owns the mortgage and make an offer. BCC then marks up the price 25 percent, to guarantee its own loans, and sells the home back to the original homeowner with a 30-year mortgage and a fixed 6.75 percent interest rate. The group and the homeowner also agree to share the appreciation of the home's value over time, which allows the homeowner to keep 50 percent of that added value if and when the home is sold or refinanced. The money that BCC receives, Cherry points out, is then reinvested into the community.
"Another way to describe the mortgage foreclosure crisis is it's the sound of equity whooshing out of the neighborhood," Cherry says. "Our whole purpose in life is to help build healthy communities where low-income people live and work."
For the moment, BCC operates in Massachusetts, the only state where it licensed to participate in such foreclosure aid. But Cherry says she hopes to expand its model -- to her knowledge, the only one of its kind -- to communities such as Oakland, Chicago and Minneapolis.
State and local governments could also play a role in allowing BCC's foreclosure initiative and others like it to flourish, Cherry says. In addition to directing homeowners to the group's services, government entities can provide easy access to title information or utility liens as the group reviews a homeowner's fiscal predicament. Finally, there are some lenders that, when approached by BCC, don't want to have the home resold to the original owner. Pressure from state and federal governments could prevent lenders from taking that stance, which clashes with BCC's explicit mission, Cherry says.
Governments also benefit from homeowners staying in their homes because they continue paying taxes and government agencies aren't forced to pick up the tab for public services if, for example, crime increases in a largely abandoned neighborhood.
Tom Ambrosino, mayor of Revere, Mass., where BCC has been active, is one of the government officials who have been working with the group to help area homeowners. In Revere, according to numbers from the Massachusetts Housing Partnership, a little more than 2 percent of its houses were considered distressed in July.
Revere reached out to Cherry and BCC because of an "epidemic" of homeowners walking away from their homes, Ambrosino tells Governing. The city has coordinated with the group to publicize its foreclosure program and point homeowners in need in the right direction.
"It's a tremendous program, a real success story," Ambrosino says. "It's been very beneficial to the city. For a long time, we really had no place to refer people who were in that predicament."
Obama's similar efforts to aid foreclosed homeowners, such as the Home Affordable Modification Program, which was intended to keep 3 to 4 million homeowners in their homes but has reached only 691,000, have been routinely criticized, most recently in a hearing in front of a congressional subcommittee. Cherry suggests government programs lack one key element of BCC's model: allowing homeowners to benefit from the home's appreciation, which gives them motivation to maintain its quality.
With the housing market showing no signs of a robust recovery, Cherry says BCC's Sustainable Urban Neighborhoods initiative will remain a fundamental part of its mission for the foreseeable future. After all, there is no shortage of homeowners in need of help.
"When people are thrown out of their homes and the houses become vacant, the neighborhood destabilizes," she says. "We're fully allied with city, town and state governments in maintaining neighborhood stability. At the core, that's really the purpose of this initiative."
