How to recapture foreclosed homes

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Text by Sarah Phelan

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Courtesy of the San Francisco Housing Development Corporation.

As the Guardian's report about foreclosures in San Francisco reveals, they are concentrated in the southeast, where working people and communities of color live, making efforts to recapture these properties and resell them as affordable housing units a worthy endeavor.

But for those who believe buying these properties isn't the best use of city money in stringent budgetary times, it's worth looking at what's happening policy-wise elsewhere in the Bay Area.

Last month, a dozen Democratic U.S senators joined their Republican colleagues to defeat a bill that would have allowed judges to reduce mortgages in bankruptcy courts. President Obama, facing strong opposition from the nation’s surviving banks, did not pressure lawmakers to support the measure, and the Senate killed a plan to spare thousands of homeowners from foreclosure through bankruptcy.

Steven Zuckerman, managing director of the California branch of Self-Help, one of the largest community development financial institutions (CDFI) in the United States, says his organization was deeply involved in supporting that legislation. And he doesn’t buy detractors arguments that lowering mortgages in bankruptcy courts would cause banks to raise other people’s mortgage rates.”

‘The bill only included mortgages that already exist,” Zuckerman, who blames the bill’s failure on the “lobbying of bankers’ associations," told me.

According to information posted at its website, the North Carolina-based Self-Help has already provided billions in financing to small business owners and nonprofits nationwide in an effort to create and protect ownership and economic opportunities for minorities, women, rural residents, and low-wealth families and communities.

And locally, Self-Help is one of several CDFIs trying to help communities like San Francisco’s southeast sector and North Richmond in the East Bay, which have been hard hit by the recent wave of foreclosures sweeping the area.

”We do have a program and a product that we are trying to make available to groups that work in areas with high foreclosures,” Zuckerman said.

The idea for this “lease purchase mortgage product,” as Zuckerman calls it, grew out of Self-Help witnessing non-profit housing developers seeing the opportunity to purchase foreclosed homes, but struggling, given the economic and housing meltdown, to secure the necessary financing.

“We are true believers in preventing foreclosures,” Zuckerman said, “but no matter how hard we try, there are going to be foreclosures, which hurt neighborhoods, because as properties stay vacant, crime increases, reducing the value of the surrounding homes.”

Self-Help’s aim, Zuckerman says, is to figure out ways to help folks occupy these homes responsibly. One idea is for non –profit affordable housing groups to purchase, renovate and resell these homes.

“But in this economy, with the housing and mortgage model in disarray, low-income buyers may have trouble qualifying to buy these homes, either because their credit scores have weakened or because credit companies have recently become more restrictive,” Zuckerman said. “As a result, non-profits that buy foreclosed homes run the risk of being stuck with them. Our product allows non-profits to find low income folks who have cash flow but can’t qualify for mortgages right now, and lease the home to them with an option to buy over a five year period.”

As Zuckerman explained, the traditional problem has been that the financing that affordable housing non-profits usually find is short-term—and so if they rent homes to people for five years, they can’t pay back the loan during that time.

“But if developers borrow money, be it from banks or Obama'’s national stabilization program, and find tenants and execute lease to purchase contract, we can originate the long-term mortgage with the non-profit developer as the borrower, and when the renter qualifies for a mortgage, the developer can sell them the home, and the mortgage is transferable and assumed by the renter, as part of the purchase price.”

“We’re hoping that if we can create the capacity to offer non-profit affordable housing developers that lease-to buy product, that will give them the confidence to initiate projects,” Zuckerman added. “We’re eager to work anywhere in the Bay Area where non-profit affordable housing developers are looking to do this.”

Self-Help is currently working with North Richmond Community Housing Development Corporation, and Zuckerman says he is excited that folks in San Francisco think his organization’s project will be helpful.

Zuckerman also opined that trying to renegotiate or modify existing mortgages with banks is a real quagmire.

“There are a lot of structural and political reasons that make it difficult for banks to do what appears on the surface to be win-win and economically justifiable, namely short sales, in which the home is purchased for its market value, so the mortgage to the existing home owner can be satisfied,” he said

Darlene Williams of North Richmond’s CHDC confirmed that her organization is at the beginning stages of working with Self-Help to put together a foreclosure acquisition and resale program for the City of Richmond and Contra Costa County, regions that have been dramatically impacted by foreclosures.

‘The market has dropped so low and many buyers aren’t qualifying for mortgages, right now,” Williams said noting that the City of Richmond has already issued requests for proposals related to monies received from the federal national stabilization program, and Contra Costa County has selected CHDC as an organization to work with.
‘Everyone is still trying to put programs together,” Williams said.

Kara Douglas, Affordable Housing Manager for Contra Costa County agreed that there are still a lot of obstacles, but confirmed that Contra Costa is moving forward with plans to purchase and resell some of the 10,000 properties that have foreclosed countywide.

"One helpful thing is a group the National Community Stabilization Trust , which has just got up and running," Douglas said, noting that NCST recently negotiated with six of the nation’s largest banks, including Fannie Mae, Chase, Wells Fargo and Bank of America, and that locally Bank of America has dedicated staff to dealing with Contra Costa’s foreclosure crisis

That said, Douglas clarified that Contra Costa has not got hold of any homes, yet.

“But we have contracted with non-profit entities to carry out the program, and they, in turn, are looking at CDFIs,” Douglas said.

She also noted that under Contra Costa County’s planned foreclosure purchase program, it’s not clear that, “the folks over at 123 Elm Street will be able to move back into 123 Elm Street, but they may be able to move into another house.”