$25M Expansion Deal Proves Viability of New Fix for the Mortgage Crisis

May 15th, 2013

FOR IMMEDIATE RELEASE: May 15, 2013      
CONTACT: Jonathan Lipman, 202-560-5990, lipman@berlinrosen.com

Homeowners, Banks, and Investors All Win in Boston Community Capital’s Foreclosure Prevention Program

Nationwide, 1 in 5 Homeowners with Troubled Mortgages Could Benefit

BOSTON — In a first of its kind deal, Boston Community Capital (BCC), a non-profit community development financial institution, has secured a new investment of $25 million in its innovative Stabilizing Urban Neighborhoods (SUN) Initiative. The investment is backed by revenue from a pool of mortgages SUN has made to homeowners who were previously facing foreclosure, and demonstrates that the financial industry can invest in troubled borrowers while at the same time helping to build healthy communities.

The deal, finalized May 6 with East Boston Savings Bank and arranged by Zions Bank’s non-profit public finance group, allows for a major expansion of the SUN Initiative and proves that new, fair market loans to defaulting and foreclosed homeowners can work for lenders while keeping homeowners in their homes and providing them with a new affordable mortgage.

In exchange for the new investment of $25 million, East Boston Savings Bank will receive a regular stream of revenue from mortgages BCC has assembled, as homeowners in the SUN Initiative pay off their fixed-rate mortgages over the next 30 years.

“Our model works, and our transaction with East Boston will help us expand the SUN Initiative here in Massachusetts and beyond, potentially keeping thousands of families in their homes,” said Boston Community Capital CEO Elyse Cherry. “What’s innovative here is that we’ve taken a transaction that is routine in the residential mortgage market but applied it to a new group of borrowers – those who were facing foreclosure. This new infusion of capital proves financial institutions can invest with confidence and be part of a nationally scalable, sustainable solution to the mortgage crisis that keeps defaulting and foreclosed homeowners in their homes as productive members of their communities.”

"Through the SUN Initiative, Boston Community Capital has a proven track record of helping good borrowers stay in their homes following a hardship, and we're extremely proud to partner with a program so effective at stabilizing our communities," said Jeff Dickinson, Vice President of East Boston Savings Bank.  "With the strong underwriting standards employed by the program, we feel confident that the underlying mortgages represent a reliable source of repayment going forward.  This was a good investment for East Boston Savings Bank and Boston Community Capital, but more importantly for the communities hardest hit by the recession."

Boston Community Capital estimates that its approach could help 1 in 5 homeowners nationwide whose homes have significantly dropped in market price, and who are either in default or foreclosure and currently have few, if any, options for obtaining a mortgage.

Started in 2009, the SUN Initiative has been praised by community, elected and financial leaders, including Federal Reserve Chairman Ben Bernanke, as a pioneering, sustainable, and scalable strategy for tackling the foreclosure crisis that continues to ravage communities and put a drag on the economy. As the only program of its kind in the United States, it offers qualifying homeowners facing foreclosure the opportunity to buy back their homes at current market value and make monthly mortgage payments they can afford. On average, homeowners pay about 40 percent less per month on their new mortgages.

The SUN Initiative has provided more than $56 million in mortgage financing for 270 properties to help 381 families remain in their homes.    Borrowers’ original outstanding mortgage principal has been reduced in the aggregate by more than $30 million. The program is growing rapidly; in 2012, the SUN Initiative’s volume of financing was triple the year before.  And of the hundreds of mortgages SUN has renegotiated, nearly all of them of pay on time.

The new investment will allow Boston Community Capital to expand the program beyond Massachusetts, working with partners in states hit hard by foreclosures.

“This highly successful program is another example of the innovative ways underway to help families stay in their homes,” said Massachusetts Attorney General Martha Coakley.  “The SUN Initiative makes sense for both homeowners and lenders, and shows how principal reduction can be a successful tool to help solve the foreclosure crisis.”

The SUN Initiative is not a bailout or charity.  Here’s how it works:

  • Through aggressive outreach, local media, and community partners, Boston Community Capital connects with homeowners facing foreclosure who genuinely want to stay in their home and responsibly pay an affordable mortgage that reflects the current fair market value of their home.
  • SUN qualifies potential borrowers by carefully analyzing their finances and employment situations and employs strong underwriting standards to assure that borrowers have the ability to pay a properly sized and priced mortgage. Applicants must show they fell behind on payments because of a demonstrable hardship, such as illness or job loss.
  • SUN negotiates with the lender to buy a home at the current distressed market value – which is substantially less than the amount originally paid by the homeowner during the housing bubble.
  • SUN resells the home, typically at current fair market value, to the existing occupants with a new fixed-rate 30-year mortgage they can afford.
  • Homeowners’ monthly mortgage payment and principal balance are reduced on average by 40 percent. 
  • To guard against fraud and speculation, SUN institutes a shared appreciation program requiring that BCC receive a portion of the gain if the value of a home appreciates over time.  That gain is reinvested in the communities BCC serves.

Since 2009, the SUN Initiative has provided an annual return to its investors of 4.25 percent. To further protect investors, the Initiative maintains strong loan loss reserves.

“Boston Community Capital is proving we can do what makes financial sense and do what is right,” said Amy Domini, a wealth manager at Loring, Wolcott & Coolidge in Boston, an initial SUN investor. “By re-aligning home prices with neighborhood income levels, they are aligning the interests of investors with the interests of communities.”

“It takes innovation to bring much-needed capital to America’s underserved communities,” said Mark Pinsky. Pinsky is CEO of Opportunity Finance Network, which made an early investment in the SUN Initiative through a NEXT Award supported by Wells Fargo and the John D. and Catherine T. MacArthur Foundation. “The SUN Initiative and other creative solutions like it point the way forward, and today’s milestone shows that Boston Community Capital is leading the way. We congratulate BCC on this crucial next step and look forward to seeing how it can help more homeowners in more places.”

Boston Community Capital (BCC) is a non-profit community development financial institution dedicated to building healthy communities where low-income people live and work. Since 1985, BCC has invested more than $900 million in projects that provide affordable housing, good jobs, and new opportunities in low-income communities, connecting these neighborhoods to the mainstream economy.