Take a Stand Against Foreclosureson Dacia Street

WINCHESTER

MEDFORDMALDEN

REVERE

CHELSEA

DEDHAM

WATERTOWN

Dacia Street

East Boston

BOSTON

CAMBRIDGE

SOMERVILLE

Allston

BROOKLINE

CHARLESTOWN

Jamaica Plain

Mission Hill

Back Bay

North End

Beacon Hill

South End

Readville

West Roxbury

BELMONT

NEWTON

EVERETT

ARLINGTON

NEEDHAM

Habitat Homes Under Construction

Completed Habitat Homes

Foreclosed REOs, 2007-08

Dorchester

South BostonRoxbury

Brighton

Mattapan

Roslindale

Hyde Park

TABLE OF CONTENTS

I. Executive Summary

II. Case for Emergency Intervention

III. State and National Solutions

IV. Case for Homeownership

V. Habitat’s Unique Model

VI. Proposal for Dacia Street

VII. Development Pro Forma

VIII. The Challenge

IX. Habitat Greater Boston’s Officers and Board of Directors

X. Sources

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“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

2EXECUTIVE SUMMARY

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.

3CASE FOR EMERGENCY INTERVENTION

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.

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.

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

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.

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5STATE 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

“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.”

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

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.

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

6CASE FOR HOMEOWNERSHIP

7HABITAT’S UNIQUE MODEL - HOW DOES IT WORK?

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.

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, condomini-

um 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 objec-

tive 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.

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9PROPOSAL FOR THE DACIA STREET NEIGHBORHOOD

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

Quincy St.

Nuestra Communidad CDC Affordable Housing

Wayland St. Habitat Homes

Dove St.

Blue

Hill

Ave

nue

Fayston St.

Dac

ia S

t. Balfo

ur S

t.Wayland St.

Dac

ia S

t.Dalkeith 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.

Data provided to Habitat Greater Boston by Boston’s Department of Neighborhood Development, July 2008

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 fore-

closure sales failed to attract any purchasers (known as Real Estate Owned or “REOs”).

Currently, there are three REOs on Dacia Street alone.

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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.

11DEVELOPMENT PRO FORMA

Category of Expense Estimate for 8

UnitsAcquisition 280,000Permits & Approvals 9,100Building Construction* 645,304Site Development 16,000RE Taxes during Construction 10,000Architects & Engineers 64,530Subtotal 1,024,934

Contingency – 5% 61,496Closing 4,000Legal 4,000Debt Service 0Construction Interest 0Admin. Overhead 24,000Developer’s Fee 0Sales Commission @ 4% 0Accounting Fees 10,000Subtotal 103,429

Total Projected Expenditures $1,128,430Total cost per unit $141,054

* Please note: Building construction cost estimate takes into account donations of unskilled volunteer labor and gifts-in-kind, appliances from Whirlpool Corporation and paint from Lowe’s Home Improvement.

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 posi-

tion 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 pur-

chasing 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.

12THE CHALLENGE

Dacia Street, looking south

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, AIAChairman, Board of Directors

The Architectural Team, Inc.50 Commandant’s WayChelsea, MA 02150

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.

Mahmood MalihiVice Chairman, Board of Directors

Leggat McCall Properties10 Post office Square,Boston, MA 02109

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.

Suanne St. Charles, Esq.Clerk, Board of Directors

McCarter and English, LLP 265 Franklin St.Boston, MA 0210

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.

13HABITAT GREATER BOSTON’S OFFICERS AND BOARD OF DIRECTORS

Jeffrey N. Carp, Esq.Member, Board of Directors

State Street CorporationOne Lincoln StreetBoston, MA 02110

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.

William D. DiSchinoMember, Board of Directors

Barkan Management Company24 Farnsworth StreetBoston, MA 02210

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.

James KirbyMember, Board of Directors

Commercial ConstructionConsulting, Inc.313 Congress StreetBoston, MA 02210

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.

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James P. Dever, IIITreasurer, Board of Directors

Sovereign Bank965 Great Plain AvenueNeedham, MA 02492

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. 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.

Howard J. Wayne, Esq.Member, Board of Directors

Wayne, Richard & Hurwitz, LLPOne Boston PlaceBoston, MA 02108

Lark Jurev PalermoPresident & CEO

Habitat for Humanity Greater Boston, Inc.240 Commercial Street Boston, MA 02109

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.

Susan Winston LeffMember, Board of Directors

Wells Fargo Bank101 Federal StreetBoston, MA 02110

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 co-founders 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.

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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.

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