As researchers, we often ask the question, where do families move after foreclosure? After all, renter and owner families may face many barriers to secure new housing post-foreclosure. Foreclosure can hurt one’s credit, making it difficult to obtain future housing or get approved for a loan. If a renter is evicted due to foreclosure — rather than failure to pay rent — they may still be subject to having an eviction on their rental history, putting them at a disadvantage when applying for new housing. These barriers may lead displaced households to move into overcrowded living arrangements with friends and family, or to move into substandard housing that doesn’t require a credit check to move-in, while the foreclosed home remains vacant.
Some policymakers and practitioners are turning to a “right-to-rent” approach to keep families in their home. Developed by the Center for Economic Policy and Research, right-to-rent programs enable at-risk occupants to give up the title of their home and rent the property from the new owner. Freddie Mac and Fannie Mae employ a variation of this approach, allowing renters that are in good financial standing at the time of foreclosure to stay in the property on a month-to-month basis if they agree pay market rents.
In 2009, Boston Community Capital CDFI launched the Stabilizing Urban Neighborhoods (SUN) Initiative, which goes one step further by purchasing REO homes and reselling the properties back to their owners through a 30-year fixed rate mortgage. This unique process helps eligible homeowners or renters stay in their home at payments they can afford, and stabilizes neighborhoods by ensuring that foreclosed homes remain occupied and in productive use.
The SUN initiative works with homeowners and renters that are going through the foreclosure process, but have not yet been displaced from their home. Clients are referred to SUN by partner organizations that offer housing counseling and legal aid. If clients meet stringent eligibility criteria– sufficient income to stay in and maintain the property—SUN Initiative staff will provide an offer to the bank or servicer (whichever entity has control of the home mortgage) to buy the home at market value. When SUN initiative staff make an offer on the home, they provide the seller with data on comparable homes and their recent sale price as evidence that they are offering a fair market value for the property. BCC reports that between October 2009 and April 2010, the SUN initiative successfully negotiated the purchase of over 60 homes at an average discount of 53 percent off the original mortgage. SUN Initiative then re-sells the home back to its clients at market rate, and has had a 100 percent success rate to date. Boston Community Capital has raised almost $50 million for this initiative, all from private investors, which is estimated to finance up to 2,000 housing units over five years.
By taking a broad look at financial information and reviewing credit on a case by case basis, the SUN initiative has worked with 100 families that have qualified to participate in the program to buy back their home. This innovative program helps the individual homeowners avoid the struggle of securing a new place to live, as well as stabilizing the surrounding neighborhood.