Ten years in, innovative foreclosure prevention initiative has kept more than 1,100 families from losing their homes
In the midst of the Great Recession, with foreclosures sweeping across the country, it was a novel proposal: Prevent evictions by writing new, affordable mortgages for homeowners facing foreclosure – with principal amounts based on the true values of their homes.
But was it possible to make safe loans to borrowers who, by the conventional standard, were the definition of uncreditworthy? Was there any chance it would work?
It turns out the answer is “yes."
BlueHub Capital (formerly Boston Community Capital) this year marks the 10th anniversary of its BlueHub SUN initiative, which provides mortgage loans to homeowners facing foreclosure. Launched in 2009, SUN has since expanded to seven states and kept more than 1,100 families from losing their homes.
“We piloted SUN a decade ago in Massachusetts because we knew that foreclosure has really destructive long-term consequences for families and we believed that many homeowners – if given a second chance – would be able to pay their mortgages and rebuild their finances,” said Elyse D. Cherry, the CEO of BlueHub.
“At the time, a lot of people told us that this would never work,” said Cherry. “They would look at us and say, ‘You want to make loans to people in default? Why would you want to do that?’ But we knew that if we gave people a mortgage they could afford, they would make their payments on time. For the last 10 years, that’s exactly what has happened. We took a risk in launching SUN because it was the right thing to do for the communities we serve – and now it has proven to be a sustainable model.”
The SUN initiative works by buying foreclosed homes from lenders at a discount that reflects the properties’ distressed market values (which are lower than the market value of the homes if they were not in foreclosure), and then selling the properties back to the original homeowners with new, 30-year fixed-rate mortgages that they can afford.
The initiative has provided nearly $190 million in mortgage financing over the last 10 years, which has made it possible for homeowners not only to keep their homes, but to build home equity. To fund SUN mortgages, BlueHub raises capital from investors, including banks, foundations, individuals, and the federal Community Development Financial Institutions (CDFI) Fund.
A comprehensive evaluation of the SUN initiative, which looked at new SUN borrowers between 2012 and 2016, found that nearly two-thirds (62%) of them had subprime credit, defined as having credit scores below 620. Nevertheless, 93% of SUN borrowers remained current on their mortgages one year after closing with SUN.
The conventional wisdom is that borrowers like those participating in SUN are not financeable. But SUN’s staff works closely with all borrowers, taking care to understand what caused them to fall behind on their mortgage payments in the first place; ensuring they have enough income to afford the costs of homeownership; and setting funds aside in case of another unexpected crisis. “What we’ve learned in doing this for the last 10 years offers real direction and insight for safer, more inclusive financial products and services,” says Cherry.
The initiative has substantially reduced borrowers’ mortgage costs. On average, SUN borrowers achieve a 28% cut in their monthly mortgage payment, a reduction of $650 per month. Mortgage principals decline, on average, by 31%, or $86,000. To date, approximately 180 borrowers have rehabilitated their credit and have been able to pay off their SUN mortgages in full, often by refinancing their loans at the lower rates available to borrowers with good credit.
“Beyond the impact that SUN can have on a family’s budget, there are all kinds of intangible benefits, like peace of mind, that come with keeping a home,” said Anne Depew, BlueHub SUN’s general manager. “Our borrowers often tell us that foreclosure is one of the most stressful things they have ever experienced, and that being able to stay in their homes is a huge relief.”
BlueHub is focused now on ensuring that SUN is prepared to serve more families if, as some economists predict, the U.S. should experience another economic downturn.
“We didn’t know how long there would be a need for SUN when we launched it – whether one year, three years, or 10 years,” said Cherry. “Even after the longest economic expansion in history, there are still communities around the country that haven’t made up the ground they lost during the Great Recession and can use help preventing foreclosures. This is one of the many things we ought to do to make sure our economy works for everyone.”