This home at 21 Sheppard St. in Brockton, listed for sale by Four Points Realty for $89,900, is eligible for purchase under the “Buy Brockton” program that allows creditworthy borrowers to purchase homes with no money down if the properties have been foreclosed upon or involve a short sale.
Eight South Shore lenders, normally competitors, are joining forces in a venture backed by the city of Brockton aimed at reducing the number of foreclosed and abandoned properties in the community.
The city, the lenders and state agency partner MassHousing hope the new “Buy Brockton” initiative will help qualified borrowers purchase distressed properties and stabilize struggling neighborhoods.
Under the program, Rockland Trust, HarborOne Credit Union, North Easton Savings Bank, Crescent Credit Union, The Community Bank, Avon Cooperative Bank, Dedham Institute for Savings and Mutual Bank – all of which have branches in the Brockton area – have contributed $35 million to provide 100 percent mortgage financing to creditworthy, income-eligible borrowers who want to purchase troubled homes.
They’ll offer in-house, MassHousing-insured loans until the $35 million pool is exhausted.
MassHousing also is negotiating with Fannie Mae, the government-sponsored entity to which it sells many of its loans, to offer similar opportunities elsewhere. It hopes to obtain a declining-market variance that will allow its loans to be offered at 100 percent financing in other communities, said Manager of Homeownership Business Development and Mortgage Insurance Director Peter Milewski.
Selling any property has become more difficult as “declining market” policies of Fannie Mae and Freddie Mac take on renewed importance in Massachusetts, where home prices have fallen steadily since 2005.
In such markets, Fannie and Freddie require borrowers to put down five percent more when buying a home than they’d have to in non-declining markets. With lenders tightening underwriting standards in the wake of the subprime mortgage market implosion and resulting credit crunch, that often means a down payment of at least 10 percent of the purchase price of a home.
Steven Borgerson, Rockland Trust’s Vice President for Mortgage Lending, said 70 percent of Brockton-area borrowers he sees don’t have that kind of cash.
Lately, even lenders that intend to keep mortgages in their own portfolios rather than sell them on the secondary market can’t make a 100 percent-financed loans in-house either, Borgerson said, since mortgage insurers won’t back them.
‘Penalizing Wrong People’
With Wall Street loan investors largely out of the mortgage picture, Borgerson said he believes that Buy Brockton is the only program in the state that offers borrowers an insured loan with no down payment.
The loans are offered for 30-year terms, at a discounted, fixed interest rate that’s currently 5.625 percent without points.
Eligible households can have a maximum income of $108,000, and a home cannot cost more than $385,000, although Borgerson estimates most selling prices won’t top $200,000.
The program requires borrowers to purchase a single-family home or condominium that’s bank-owned, in foreclosure or for sale as a “short sale,” an alternative to foreclosure in which the home is sold for less than the outstanding loan amount with the lender’s approval.
Borgerson said “hundreds” of Brockton homes qualify for purchase under Buy Brockton.
“Every [real estate broker] who’s heard about it is overjoyed,” he said.
Janet Baxter, manager of the Brockton branch of Jack Conway & Co., a Norwell-based real estate brokerage firm, said she knows borrowers who would qualify.
“I have clients that have no money down, but perfect credit scores,” she said. “I do have people interested in this.”
Peter Milewski, MassHousing’s manager of homeownership business development and mortgage insurance director, said a borrower’s inability to come up with a down payment is not an insurmountable risk factor on its own.
“We think the Fannie and Freddie guidelines may be penalizing the wrong people [with declining-market policies]. There isn’t significantly greater risk in 100 percent loan-to-value loans versus 97 percent,” he said.
In fact, said Milewski, who used to work for Mortgage Guaranty Insurance Co. – one of the nation’s largest mortgage insurance companies – the single biggest risk factor is a borrower’s credit score.
Buy Brockton doesn’t mandate a minimum borrower credit score, he said, although lenders will generally want a FICO score of 680 or above.
If a married couple is applying for the loan, the lender would consider the lower of the two scores unless the spouse with the higher score also has a significantly higher income, Milewski said.
The city of Brockton will support Buy Brockton financially, using federal funds to help borrowers with closing costs, said Bob Martin, who co-chairs Mayor James E. Harrington’s Foreclosure Prevention Task Force.
It’s also doing other things to make those who do buy a home feel welcome, Baxter added, by encouraging local vendors to provide a sort of “welcome wagon” care package of products, coupons and services to new owners.
“I think it’s a great program,” Baxter said. “Anytime a city is willing to invest the money and the time, and the local banking industry comes together, how can you lose?”
