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