Jean Braucher brings the story of a principal write-down program in Massachusetts.
A Boston nonprofit, Boston Community Capital, is teaming up with some financial institutions, in particular Bank of America, in a pilot program that has the effect of writing down mortgages to close to home value.
BCC says it works with qualifying homeowners and banks to buy underwater homes, either in short sales or at foreclosure, and then sells them back to owners at just above current market value. The nonprofit takes the risk of making the resale and allows those buying back to use their own lender or a mortgage company that BCC works with. See the program’s FAQs.
This isn’t anything close to a government program. The nonprofit is basically filling in the space where government has abdicated. They are essentially doing what the Home Owners Loan Corporation did during the recession, buying up homes and refinancing for borrowers. It will be difficult for a nonprofit to scale this up to the size that a state or federal agency could.
But there’s certainly plenty of incentive on the part of the bank, if they manage to look at the long term. I’ve heard countless stories of banks denying modifications and then selling the properties for 1/2 to 1/3 of what they could have gotten on a modified mortgage. That may be a short-term hit to the servicer, but a major loss over time, unless they believe they can create a kind of indentured servitude for the borrower to make up the difference. Through this policy, the bank gets what they need, while the borrower can stay in the home with an affordable mortgage. The nonprofit retains the upside, which allows them to finance their continued work.
It’s definitely a good idea. NPR has more. Braucher cautions that more data is needed here about what happens to the borrowers after the repurchase. But it appears that Elyse Cherry, the CEO of Boston Community Capital, is doing the Lord’s work here. Moreover, she’s doing the government’s.