Take a Stand Against Foreclosures
on Dacia Street
WINCHESTER
MALDEN
MEDFORD
REVERE
ARLINGTON
EVERETT
BELMONT
SOMERVILLE
CAMBRIDGE
CHELSEA
CHARLESTOWN
WATERTOWN
East
Boston
North End
Allston
Beacon
Hill
Brighton
Back Bay
NEWTON
South
End
BOSTON
South
Boston
Mission
Roxbury
Hill
BROOKLINE
Dacia Street
Jamaica Plain
Roslindale
NEEDHAM
Dorchester
West Roxbury
Mattapan
Hyde Park
Readville
DEDHAM
Habitat Homes Under Construction
Completed Habitat Homes
Foreclosed REOs, 2007-08
TABLE OF CONTENTS
I. Executive Summary
2
II. Case for Emergency Intervention
3
III. State and National Solutions
5
IV. Case for Homeownership
6
V. Habitat’s Unique Model
7
VI. Proposal for Dacia Street
9
VII. Development Pro Forma
11
VIII. The Challenge
12
IX. Habitat Greater Boston’s Officers and Board of Directors
13
X. Sources
16
“The foreclosed properties on Dacia Street are an eyesore, resting
alongside beautiful new buildings with units for rent and historic homes
that have been in the same family for several generations…
One neighbor said one of the boarded up homes was a popular site for
squatters and was used ‘as a shooting gallery.’”
GREG ST. MARTIN, THE BOSTON METRO,
MAY 14, 2008
EXECUTIVE SUMMARY
2
This is Habitat for Humanity Greater Boston’s emergency intervention plan to stabilize one of
Boston’s most fragile communities.
The Dacia Street neighborhood in Dorchester was on the brink of revitalization and now,
because of rampant foreclosures, it is starting to slip backward. Concentrations of foreclosures
have triggered disinvestment in nearby properties, destabilizing the neighborhood and
threatening to erase what improvements have been made over the past 20 years.
Habitat Greater Boston proposes purchasing a cluster of vacant buildings on Dacia Street and
other nearby streets. After acquiring the properties, Habitat will renovate the homes with the
help of the partner families and volunteers. Once construction is complete, Habitat will sell
the homes to families at cost and provide them with interest-free mortgages.
Habitat’s unique model of acting as the general contractor, developer and lender makes
this plan both affordable and viable. It is affordable because Habitat’s development and
construction costs are significantly lower than those of other nonprofit developers. Habitat
does not employ a general contractor; rather we contract directly with subcontractors for the
skilled trades and incorporate valuable in-kind contributions of building materials and labor
into our projects.
This emergency intervention plan is viable because it employs Habitat’s tried and true method
of partnering with low-income families. Habitat helps families work on their own homes and
expects them to attend 100 hours of homeowner education classes and contribute at least
300 hours of “sweat equity” as their down payment. Upon completion of construction, Habitat
provides our families with 20-year no-interest mortgages to purchase their homes from us.
Because we remain as their lender throughout the term of the loan, we are available to help
our families if and when they experience financial problems.
CASE FOR EMERGENCY INTERVENTION
3
Greater Boston is facing a crisis. Job markets are sluggish; wages are low, and housing
instability increases everyday. Foreclosed properties threaten to destabilize entire
communities.
Notes: Minimum wage is currently $5.85 per hour. Housing wage is the hourly wage needed to afford a two-bedroom apartment at the Fair
Maket Rent, paying 30% of pre-tax income and working 40 hours a week for 50 weeks. Analysis is based on methodology developed by
Cushing N. Dolbeare and the National Low Income Housing Coalition.
Source: US Deptarment of Housing and Urban Development 2008 Fair Market Rents
Greater Boston is one of the least affordable areas to live in the country, and the housing wage
here – the income necessary to afford the fair market rent on a modest apartment, working
40 hours a week, 50 weeks a year -- is $24.59 an hour [Fig.1]. 1 That’s four times the federal
minimum wage of $5.85, and three times the Massachusetts minimum wage of $8. For low
income families here, decent rental properties are too often hard to find, and homeownership
is out of the question. They are forced to choose between paying rent, paying medical bills,
buying food, or accruing more and more debt. Breaking out of generational cycles of poverty
seems impossible.
4
The overheating of the housing market and the relaxation of credit standards over the past
decade only exacerbated the problem. Families with debt-to-income ratios that would have
disqualified them from even thinking about buying homes were given mortgage loans, no
questions asked. New forms of lending sprang up to meet demand, and the subprime markets
ballooned with new loans. Even before that two year mark when interest rates on 2/28
loans would jump up precipitously, homebuyers who had stretched their paychecks thin to
make mortgage payments were unable to pay heating bills, home insurance premiums and
property taxes, and as a result, were walking away from their homes. Ever since those interest
rates began to climb after the two-year grace periods, foreclosures have swept through
Boston’s most vulnerable neighborhoods at staggering rates.
• 4.9% of all residential properties in Dorchester were
petitioned for foreclosure in 2007.
• 5.9% of all residential properties in Mattapan were
petitioned for foreclosure in 2007.
• 7.2% of all residential properties in Roxbury were
petitioned for foreclosure in 2007. 2
It might appear that foreclosures would reduce housing costs, making housing more
affordable. Unfortunately, even though house prices have come down, lenders now have
more conservative underwriting standards, making it difficult for low- income families to
qualify for loans. Over 40% of lenders tightened standards in 2008, including over 60% of
prime lenders.3 Furthermore, no one other than Habitat provides loans to families making
60% or less of the area median income, which is $51,500 for a family of four.
5
STATE AND NATIONAL SOLUTIONS
Once house prices do hit bottom and banks return to normal underwriting standards,
homeownership rates should begin to increase slowly. Homebuyers (those who haven’t
had their credit prospects ruined by foreclosure) will be attracted back by low interest rates
and slowly rising house prices. But it’s sure to be an excruciatingly slow process. “Thanks
to overbuilding and oversupply,” says Eric Belsky, Executive Director of the Joint Center for
Housing at Harvard University, “falling house prices are hard to stop. It is like trying to stop the
QE2.” 4
In the interim, we need to plan emergency
interventions to stabilize our city’s most
vulnerable neighborhoods first. H.R. 3221, the
legislation that Rep. Barney Frank and Senator
John Kerry shepherded through Congress in
2008, enables state and local governments
to contribute $4 billion for neighborhood
“Thanks to overbuilding
and oversupply,” says Eric
Belsky, Executive Director of
the Joint Center for Housing
at Harvard University,
“falling house prices are
hard to stop. It is like trying
to stop the QE2.”
stabilization programs. Conrad Egan, chairman of the Redevelopment and Housing Authority
in Fairfax County, Virginia already knows how he plans to spend the money, should the bill
pass. He’ll facilitate the sale of REO properties by reducing interest rates and financing to
first time homebuyers who fit into set income limits. He’ll narrow the affordability gap with
$50,000 to $70,000 grants to homebuyers per unit, and he’ll follow up with homeownership
counseling. In the case of the most desperate neighborhoods, Fairfax County will buy the
foreclosed homes, renovate, and sell them themselves.5
Here in Massachusetts, state and local government officials also have begun to act. Governor
Deval Patrick recently announced a plan to address affordable homeownership with a $20
million loan fund which developers can access to purchase abandoned and at-risk properties.
The fund is administered by the Massachusetts Housing Investment Corporation and will be
available to developers in the near future.
CASE FOR HOMEOWNERSHIP
Habitat for Humanity only develops houses for purchase. We believe homeownership is one
of the linchpins to long-term financial security for families, and it also has proven to stabilize
and revitalize entire communities.
In the U.S., homeowners are 12 times wealthier than renters
of the same age, race, and income,6 and their children are:
•
•
•
20 percent less likely to become teenage parents,
25 percent more likely to graduate from high school, and
116 percent more likely to graduate from college.7
Affordable homeownership is no magic wand – it doesn’t fit or fix every family’s situation.
But the positive outcomes for homeowners and their children can have a huge impact
on their communities. Homeowners are 15 percent more likely to vote than renters of the
same age, income, and race, and 16 percent more likely to belong to school or community
organizations.8 Homeownership gives families a powerful incentive to improve their homes
and neighborhoods: homeowners take pride in their communities and are 28 percent more
likely to repair or improve their homes than renters.9
6
HABITAT’S UNIQUE MODEL - HOW DOES IT WORK?
7
At Habitat Greater Boston, we’ve got a 20- year track record proving that our homeownership
model is sound. Ninety-five per cent of the projects we’ve built have helped to transform the
neediest neighborhoods in Boston: Dorchester, Roxbury, Mattapan, and South Boston [Fig. 3].
Most people know that Habitat helps families to build their own homes, but fewer appreciate
that Habitat also functions as the general contractor, the mortgage lender, and the credit
counselor. Furthermore, we conduct extensive outreach to identify low-income families who
are in need of housing and willing to partner with us on a long-term basis to improve their
lives through homeownership.
CONSTRUCTION
We keep costs down by acting as the general contractor for all our projects. In
addition, we use donated building materials and volunteer labor whenever we can.
Whirlpool provides all the appliances for Habitat homes for free and Lowe’s provides
all of the paint. We also have arrangements with manufacturers of plumbing supplies
and lumber mills for free materials. And that is just the beginning. Once people
become aware of our needs for a specific project, more labor and materials are
contributed to help Habitat complete construction.
HABITAT MORTGAGES
As the lender, we provide mortgage loans to very low income families who are
gainfully employed but who would not qualify for a traditional mortgage loan.
Once a Habitat family completes 300 hours of “sweat equity” on a home and attends
100 hours of homeowner education classes, we consider their investment of time and
energy as the down payment. We then sell the home to the family and provide them
with a 20-25-year, zero-interest, zero-profit mortgage. Brookline Bank services our
mortgages and maintains tax escrows for our homeowners, all for a very nominal fee.
8
HOMEOWNERSHIP AND FINANCIAL MANAGEMENT CLASSES
Habitat requires that all selected families attend at least 100 hours of homeowner
education classes before buying a home from us. Our classes are conducted at our
offices in downtown Boston and are taught by volunteer professionals in areas such as
finance, law and construction. Our classes cover a variety of topics related to
homeownership, including financial management, understanding credit, condominium association matters (if applicable), and household repair topics.
FAMILY SELECTION
Habitat Greater Boston’s Family Selection Committee is made up of volunteers who
review all applicants for homes. To be selected, families need to satisfy our objective criteria, such as family size an income at or below 60% of area median income as
established by HUD. Families also need to demonstrate they have secure employment
and pass our review of their credit report. Finally, members of the Family Selection
Committee conduct home visits to determine the family’s need for housing and their
willingness to partner with Habitat in constructing a home and paying off a mortgage.
9
PROPOSAL FOR THE DACIA STREET NEIGHBORHOOD
St.
Daci
Dove
a St.
Habitat Greater Boston is the process of buying
a cluster of foreclosed, abandoned properties in
Dorchester, renovating them and selling them to
partner families to stabilize one of Boston’s most
vulnerable neighborhoods.
Dalk
eith
St.
St.
Qu
Blu
eH
inc
yS
t.
Dacia
ill A
ven
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e
Balfou
r St.
Nues
t
Com ra
m
Affor unidad
CD
dable
Hous C
ing
Way
lan
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.
Wa
y
Hab land S
itat t.
Hom
e
s
Fa
yst
o
nS
t.
Petitioned for Foreclosure (1/07 - 3/08)
Advertised Auction (1/07-4/08)
Real Estate Owned Property (as of 3/08)
Vacant Real Estate Owned Property
Data provided to Habitat Greater Boston by Boston’s
Department of Neighborhood Development, July 2008
10
Dacia Street and Dove Street are short streets just off Blue Hill Avenue in Dorchester.
In a three-block area there are 15 properties in various stages of foreclosure. [Fig. 4]. If
any neighborhood proves that foreclosures and vacancies are contagious, this is it.
Mayor Menino’s Foreclosure Intervention Team has singled out this neighborhood as
one of the hardest-hit streets in Boston. In May, The Metro reported that:
The foreclosed properties on Dacia Street are an eyesore, resting
alongside beautiful new buildings with units for rent and historic
homes that have been in the same family for several generations…One
neighbor said one of the boarded up homes was a popular site for
squatters and was used ‘as a shooting gallery.’
‘I’m glad the city is here. It’s finally time that somebody came to clean it
up,” said the neighbor, who asked not to be identified. ‘Having kids and
living in a house next to one with junkies isn’t something you want.’10
This neighborhood is in desperate need, but with immediate intervention by Habitat
for Humanity, it has the potential to bounce back. Once we have secured funding
for the project, Habitat Greater Boston will work with our pro-bono legal counsel at
Goodwin Proctor, LLP to buy foreclosed and vacant buildings from the lenders. At
the same time, we will start advertising for low-income families who are interested in
becoming Habitat homeowners. The selected families will perform their sweat-equity
requirements by working on renovating the buildings we purchase. The first phase of
the project will be to buy and renovate vacant buildings owned by lenders after foreclosure sales failed to attract any purchasers (known as Real Estate Owned or “REOs”).
Currently, there are three REOs on Dacia Street alone.
11
DEVELOPMENT PRO FORMA
Habitat Greater Boston plans to purchase between two and four REOs with the potential to be
developed into 8-10 units. The total development cost to save eight units in the Dacia Street
neighborhood is estimated to be $1,128,430 or $141,054 per unit.
One of Habitat for Humanity’s fundamental policies is to sell Habitat homes at or below cost
and to provide no-interest loans to the families who purchase them. In this case, because we
estimate the cost to develop each unit will be $141,054, we will sell units for $140,000 and
provide the family with a 20-year mortgage loan for the entire purchase price at 0% interest.
The resulting mortgage payment will be $583.33 a month. Adding in monthly payments of
tax escrow and condominium fee, a family will be able to live in a 2-3 bedroom Habitat home
for under $900 a month.
Category of Expense
Acquisition
Permits & Approvals
Building Construction*
Site Development
RE Taxes during Construction
Architects & Engineers
Subtotal
Estimate for 8
Units
280,000
9,100
645,304
16,000
10,000
64,530
1,024,934
Contingency – 5%
Closing
Legal
Debt Service
Construction Interest
Admin. Overhead
Developer’s Fee
Sales Commission @ 4%
Accounting Fees
Subtotal
61,496
4,000
4,000
0
0
24,000
0
0
10,000
103,429
Total Projected Expenditures
Total cost per unit
$1,128,430
$141,054
* Please note: Building
construction cost estimate
takes into account
donations of unskilled
volunteer labor and giftsin-kind, appliances from
Whirlpool Corporation and
paint from Lowe’s Home
Improvement.
THE CHALLENGE
12
Dacia Street, looking south
Thousands of families in Greater Boston live in unsafe, substandard or overcrowded housing.
These living conditions affect children’s health and education, cause instability and insecurity
in families and erode communities. Habitat for Humanity Greater Boston is in a unique position to intervene in the foreclosure crisis. With your support, we can turn this crisis into an
opportunity to improve the lives of some of these families.
Our goal is to develop two to three buildings and create eight condominium units by purchasing and renovating vacant buildings in the area. It is imperative for us to act soon, before
more families on the street lose their homes to foreclosure.
We are looking for generous sponsors who want measurable
results. Please join with us to save the Dacia Street
Neighborhood.
HABITAT GREATER BOSTON’S OFFICERS AND BOARD OF DIRECTORS
13
Habitat Greater Boston has strong leadership who work together on all Habitat projects. The
Board of Directors is made up of accomplished professionals with backgrounds in architecture,
finance, law, property management, and real estate and development. Lark Palermo, President
and CEO, has an extensive background in housing, real estate development and non-profit
management.
Michael Liu, AIA
Chairman, Board of Directors
The Architectural Team, Inc.
50 Commandant’s Way
Chelsea, MA 02150
Mahmood Malihi
Vice Chairman, Board of Directors
Leggat McCall Properties
10 Post office Square,
Boston, MA 02109
Suanne St. Charles, Esq.
Clerk, Board of Directors
McCarter and English, LLP
265 Franklin St.
Boston, MA 0210
Mr. Liu was elected Chairman of the Board in
2006. A registered architect, Mr. Liu joined The
Architectural Team in 1981, where he is Vice
President and Principal in charge of design. Mr. Liu
has been a member of the Board of Directors for
Bay Cove Human Services and the Boston Society
of Architects’ Housing Committee. A graduate of
Cornell University, Mr. Liu lives with his wife and two
sons in Newton.
Mr. Malihi joined the Board of Directors in 2007. He
is Principal and Executive Vice President at Leggat
McCall Properties. Prior to joining Leggat McCall in
1983, Mr. Malihi worked at Macomber Builders. He
is also a past President of the Greater Boston Real
Estate Board. Mr. Malihi earned his BS in Engineering
from Tufts University and his Master’s degree from
Stanford University. He resides in Boston.
Ms. St. Charles joined Habitat’s Board in 2006 and
was elected as Clerk in 2007. A partner in the real
estate department of McCarter & English,
Ms. St. Charles was previously a partner at Peabody &
Arnold. She is a member of the TechBoston Advisory
Board for the Boston Public Schools and Mayor
Menino’s “Evening on the Bridge” Board of Directors.
Ms. St. Charles graduated from Carleton University in
Ottawa, Ontario and she earned her J.D. from Boston
College Law School. She lives in West Roxbury.
14
James P. Dever, III
Treasurer, Board of Directors
Sovereign Bank
965 Great Plain Avenue
Needham, MA 02492
Jeffrey N. Carp, Esq.
Member, Board of Directors
State Street Corporation
One Lincoln Street
Boston, MA 02110
William D. DiSchino
Member, Board of Directors
Barkan Management Company
24 Farnsworth Street
Boston, MA 02210
James Kirby
Member, Board of Directors
Commercial Construction
Consulting, Inc.
313 Congress Street
Boston, MA 02210
Mr. Dever has been a member of the Board since 2004.
He was elected as Treasurer in 2007 and also serves
as Chair of the Family Partnership Committee. He is
currently Vice President of Sovereign Bank in Needham
and he resides in Boston.
Mr. Carp joined the Habitat Board in 2007. He is
Executive Vice President and Chief Legal Officer of State
Street Corporation. Prior to joining State Street, Mr. Carp
was Executive Vice President and General Counsel to
MFS Investment Management and Mr. Carp is a former
senior partner of WilmerHale, LLP. A graduate of Tufts
University and George Washington Law School, Mr. Carp
resides in Wayland with his wife and two children.
Mr. DiSchino was elected to the Habitat Board of
Directors in 2008. He is President and CEO of Barkan
Management Company, a leading manager of
residential properties in Massachusetts. A member of
the Community Associations Institute and the Greater
Boston Real Estate Board, Mr. DiSchino is also past
President of the Rental Housing Association. He is a
graduate of Boston College and an IREM (Institute of Real
Estate Management) Certified Property Manager. Mr.
DiSchino lives with his wife in Medfield and they have
four grown children.
Mr. Kirby is President of Commercial Construction
Consulting (also known as C3), a company he founded
in 1989 to provide technical and financial advice to
real estate developers. He has been a member of the
Board since 2006. Mr. Kirby is a licensed engineer
in Massachusetts and a graduate of Northeastern
University. He lives with his wife in Wrentham and they
have two grown children.
15
Susan Winston Leff
Member, Board of Directors
Wells Fargo Bank
101 Federal Street
Boston, MA 02110
Howard J. Wayne, Esq.
Member, Board of Directors
Wayne, Richard & Hurwitz, LLP
One Boston Place
Boston, MA 02108
Lark Jurev Palermo
President & CEO
Habitat for Humanity Greater Boston, Inc.
240 Commercial Street
Boston, MA 02109
Ms. Leff was elected to the Habitat Board of Directors
in 2008. She is Senior Vice President for Wells Fargo’s
Middle Market Real Estate Group. One of the cofounders of New England Women in Real Estate, Ms.
Leff is a past President of the Board of the Real Estate
Finance Association and past President of the Board
of Boston’s Children’s Museum. A graduate of the
University of Chicago with a Master of Fine Arts degree
from Princeton University and a Master of Business
Administration from Boston University, Ms. Leff lives
with her husband in Boston and they have two grown
sons.
Mr. Wayne was elected to the Board of Directors in
2008. He is the founding partner of Wayne, Richard &
Hurwitz where he specializes in business transactions.
Mr. Wayne earned his undergraduate degree at the
University of Massachusetts and his J.D. from Boston
College Law School. He is currently a Trustee at Salem
State College. Mr. Wayne resides in Brookline with
his wife. They have two grown children and four
grandchildren.
Ms. Palermo was appointed as President and CEO
of Habitat Greater Boston in November, 2005. Prior
to joining Habitat, she was General Counsel at
The Community Builders, a nonprofit affordable
housing development company. She is the
former Commissioner of the Division of Capital
Asset Management and a former partner in the
real estate department of WilmerHale, LLP. She is
currently a Trustee at The Massachusetts College
of Art and Design. A graduate of Boston University
and Suffolk University Law School, Ms. Palermo
lives in Brookline with her two sons.
16
SOURCES
1 Joint Center for Housing Studies of Harvard University, “Housing Challenges,” The State of the
Nation’s Housing 2008, p. 30.
2 Department of Neighborhood Development, “Foreclosure Trends 2007,” City of Boston, p.3.
3 Moody’s Economy.com, prepared for Homes for Working Families, “Analyzing Affordability in
Metropolitan Housing Markets: An Examination of Affordability for Middle-Income Households,”
June 2008, p.6.
4 Eric Belsky, Speech at CHAPA Breakfast Forum, July 17, 2008.
5 Conrad Egan, “Federal Response,” Speech at CHAPA Breakfast Forum, July 17, 2008.
6 Boehm, Thomas P. and Alan Schlottmann, “Does Family Ownership by Parents Have an
Economic Impact on Their Children?” Department of Finance, University of Tennessee at Knoxville,
1999.
7 DiPasquale, Denise and Edward L. Glaser, “Incentives and Social Capital: Are Homeowners Better
Citzens?” Joint Center for Housing Studies, Harvard University, W97-3, December 1997.
8 Galster, George C. “Cross-Tenure Differences in Home Maintenances and Conditions,” Land
Economics, 41. 1983.
9 DiPasquale and Glaser, 1997; also Rossi, Peter and Eleanor Weber, “The Society Benefits of
Homeownership: Empirical Evidence from National Surveys,” Housing Policy Debate, 7(1), 1996;
and Rohe and Stegman, 1994.
10 Greg St. Martin, “City targets Roxbury Foreclosure Problem,” Metro Boston, May 14, 2008, p.2.