Affordable Housing Finance

REGIONAL REPORT

Northeast

Developers Weather the Storm

AFFORDABLE HOUSING FINANCE • January 2009

Community groups surviving the foreclosure crisis

BY BENDIX ANDERSON

Affordable developers have struggled for years to fill vacant lots and repair abandoned buildings in the low-income neighborhoods of aging Northeastern cities.

High foreclosure rates have slammed these neighborhoods in towns from Washington, D.C., to Boston. In the West Ward area of Newark, N.J., white steel barriers painted with the phone numbers of real estate agents block the windows of hundreds of empty new houses seized by lenders.

But so far, the crisis has passed over many low- and moderate-income families who used government-subsidized financing to buy homes from affordable housing developers.

The view from Baltimore

Enterprise Homes, Inc., has built and sold more than 1,000 homes to low- and moderate-income families in the past 10 years with almost no foreclosures, despite the housing crash that grips the neighborhoods around many of its developments.

“It hasn’t affected us,” says Chickie Grayson, president and CEO of the Baltimore-based developer.

For example, at Heritage Crossing in Baltimore, Enterprise Homes sold 185 houses to low-income families between 2001 and 2003. Many took on loans covering up to 98 percent of the appraised value of the home.

Low incomes and small downpayments might sound like a recipe for disaster, and enough time has passed for overstretched homeowners to lose their houses—but Enterprise reports no foreclosures.

To achieve this, Enterprise Homes followed a simple formula used by community groups throughout the Northeast, which includes credit counseling, soft financing, and a permanent mortgage with a low, permanent interest rate.

Homeownership training is the first step. “You couldn’t go to closing without attending the courses,” says Grayson. The coursework includes separate sessions on financing, home maintenance, and community involvement.

Soft financing also is needed to make deals feasible. Community groups like Enterprise Homes often work in neighborhoods scarred by vacant lots where the cost to develop a house is both higher than the price a new house can appraise for and higher than neighborhood residents can afford.

At Heritage Crossing, the homes averaged $200,000 each in development costs. Enterprise lowered the price to homebuyers with soft financing of about $50,000 per home.

Provided through city and state programs, the loan is gradually forgiven as homebuyers remain in their homes. “This is so they can’t flip it,” says Grayson. “You can’t sell it in the first few years without paying all of the soft loan back. After five to 15 years, it goes away.”

Homebuyers paid the rest of the cost of their homes with permanent fixed-rate financing and their own $1,000 to $4,000 downpayments.

Enterprise Homes makes sure all of its borrowers take out 30- or 40-year financing with fixed interest rates. The rates are often a percentage point or less than market rates thanks to first-time homeownership programs available through state housing finance agencies working with mortgage lenders that use strict underwriting. These loans are a stark contrast to most subprime financing, in which borrowers with low incomes or bad credit pay higher-thannormal interest rates, supposedly to compensate lenders for risk.

Enterprise Homes has three new homeownership developments under construction, totaling about 400 units in and around Baltimore, with two in Baltimore County and a third in Howard County.

Other developers plan to use some of the $3.9 billion in funding provided under the federal Housing and Economic Recovery Act of 2008. They’ll use the money to help them buy and fix up foreclosed houses in their neighborhoods to resell at affordable prices to low- and moderate-income families.

Northeast Updates

For more than two decades, Greater Newark and Jersey City Local Initiatives Support Corp. (LISC), based in Newark, N.J., has helped more than 30 local community development corporations build about 950 units of affordable housing, including hundreds of for-sale homes. “Our groups are not having problems with foreclosures, and we’re very proud of that,” says Gerard Joab, senior program director for Greater Newark and Jersey City LISC, which covers five cities in northern New Jersey.

Local affordable housing developer Enterprise Homes has completed and sold more than 1,000 homes to low- and moderate-income families, including 463 homes at its Sandtown-Winchester Square community in West Baltimore, Md., completed between 2001 and 2005. Several of the homes at Sandtown targeted families earning less than $22,000 per year. “Currently no homes are in foreclosure there,” says Chickie Grayson, CEO of Enterprise Homes. “[In November], there was one for-sale sign.”

After more than 10 years of selling homes to low- and moderateincome families, the Philadelphia Housing Authority (PHA) has no regrets. “We’ve built and sold 390 houses to low- and moderate-income families. We have not had a single foreclosure,” says Kirk Dorn, spokesperson for PHA. PHA built the homes as part of its HOPE VI redevelopments of more than a dozen distressed public housing projects.

Local affordable housing developer La Casa de Don Pedro has built and sold more than 200 affordable homes to low- and moderate-income families in Newark, N.J.’s North Ward. Since it was founded in 1972, the nonprofit has had almost no foreclosures. La Casa is building eight two-family and three single-family homes and also provides homeownership counseling, job search services, energy conservation seminars, and nearly 20 otherprograms.

The Housing Partnership Development Corp. plans to buy, renovate, and sell at least 50 foreclosed homes in New York City to low- and moderate-income families using $2 million in federal Neighborhood Stabilization Program funds. The local affordable housing developer will start in two ZIP codes in the Far Rockaway neighborhood of Queens, where nearly one in five homes are in foreclosure.