Standing now at the front of the room during the City Life meeting, Griffiths asks Juan whether he’s still living in his home despite the bank’s efforts to sell it.
“Yes, I am,” Juan replies.
“Stay there!” the crowd shouts.
Someone asks which bank holds the mortgage. “Bank of America,” Juan says.
The crowd erupts in a chorus of boos, howling, “Bad for America.”
A City Life employee passes Juan a cardboard sword.
“You said you wanted to do what?” he asks Juan.
Juan lifts the sword. “Fight for my home!”
“Then we’ll fight with you!” the crowd shouts.
It’s no surprise that the sketchiest lending behavior during the real estate boom occurred in the areas that today have the highest foreclosure rates. It was in these neighborhoods that the financial institutions aggressively marketed a series of exotic mortgages — adjustable interest rates; no money down; no income documentation required — to consumers with poor credit scores. The lenders no longer cared about the possibility of a default because, rather than hold the mortgages and collect the monthly payments, they sold them to Wall Street, which combined them for sale as securities. The lenders, in other words, simply passed along the risk. With property values magically rising without end, thereby boosting the value of the mortgage-backed securities that were flooding the market, writing new mortgages was a guaranteed source of profit, so the lenders just kept pushing the product.
Unfortunately, most home prices stopped rising in 2006, just as lots of those adjustable mortgages were resetting at higher rates. Many homeowners were unable to afford the new, higher payments, and since the market had begun dropping, they couldn’t refinance or sell their house. Hordes of borrowers went into foreclosure, crushing the banks and leaving the American and global financial systems teetering on the verge of collapse. The federal government bailed out financial institutions to the tune of $700 billion, but the few programs launched to help homeowners have for the most part failed. This past September, for example, the $1 billion Emergency Homeowners’ Loan Program, which was supposed to assist the unemployed with their mortgages, shut down after aiding fewer than 15,000 households and spending only about half of its funding. Meanwhile, the Home Affordable Modification Program (HAMP) — designed to help borrowers rework their loans and avoid foreclosure — turned out to be a good idea without any teeth: Mortgage companies kept right on foreclosing over the wishes of the feds. According to federal statistics, only 2.4 percent of the roughly 3 million loans that were either seriously delinquent or moving toward foreclosure in the second quarter of 2011 got a HAMP modification.
It’s into this vacuum that City Life stepped, along with two strategic partners: the Harvard Legal Aid Bureau and Boston Community Capital, a local nonprofit lender. Collectively, the three groups make up the sword and the shield — attack with blockades, rallies, and media attention while defending with legal representation and financial assistance for the homeowner.
Harvard Legal Aid is a student-run law firm dedicated to helping low-income Boston-area residents. The organization’s strategy for dealing with foreclosures is simple: Dig through the chain of titles on a home in search of legal problems or sloppy transactions that took place as mortgages changed hands before landing in Wall Street securities. If lenders didn’t follow the law when securitizing the mortgages or when filing for foreclosure — for example, the widely reported incidents of mass robo-signings — the foreclosure process can be invalidated, and the eviction stopped. Some critics write these tactics off as merely searching for technical errors to nullify a process that justly holds borrowers accountable for their actions, but David Grossman, the faculty director of Harvard Legal Aid Bureau, says such mistakes by the banks are actually symptomatic of a dangerously flawed system. “The whole securitization mess is what got us where we are now, and that is what we are going after,” he says. “These aren’t just clerical errors. The whole thing was built on fraud, recklessness, and incompetence. That is what we are trying to expose.”
But while the Harvard students are sometimes able to stop evictions, at least temporarily, and the City Life protests and blockades can cause embarrassment for the bank or home investors, it’s the third leg of the effort, Boston Community Capital (BCC), that provides a long-term solution.
As it works with homeowners facing foreclosure, City Life examines their cases and occasionally decides to refer certain people to BCC, a 27-year-old nonprofit lender that provides grants to foster community development. If BCC then determines that the homeowner is a good credit risk, it will approach the mortgage holder and offer to buy the home in question at the current market price — typically less than the amount of the underlying loan, but higher than what the mortgage holder can expect to get for the property by foreclosing on it and selling it at auction. Banks are often gun-shy about cooperating with BCC, because they fear that everyone with a home will start demanding reduced mortgages. But if the mortgage holder and BCC can come to an agreement on price, the nonprofit buys it, then turns around and issues a new mortgage to the homeowner, allowing the family to permanently remain in the house.
The sword-and-shield alliance is clever in that it provides a financial lifeline for people who’ve been buried by the collapse of the real estate market, while also giving BCC leverage in its negotiations. “One of the biggest problems we have when we try to negotiate with banks is getting them to pay attention to us and our offer,” explains Jessica Brooks, BCC’s vice president of development and communications. “Lenders are more likely to respond to us when they are feeling the pressure City Life exerts, and they know the papers have been called to the scene of a protest.”
One irony is that although BCC works with borrowers that other lenders are unwilling to touch these days, it conducts far more due diligence than the mainstream banks ever did during the real estate boom. It will not just give money to anyone with a pulse. BCC examines the terms of the homeowner’s previous loan, looks into why he got in trouble in the first place, and determines what he can realistically pay each month. It’s a thorough process, and Meacham estimates that fewer than half of the applicants referred by City Life get approved for new mortgages — which are 30-year loans with a fixed interest rate of around 6.38 percent. BCC also tacks on about 25 percent to the price, with the surplus used to cover any defaults in the program. And to keep anyone from making a quick buck by getting the property on the cheap in a bad economy and then selling it at a profit when the market recovers, BCC takes a percentage of the appreciation when a house is eventually sold. To date, BCC has made 88 loans, which have kept more than 135 families in their homes. (Many of the properties are two- or three-deckers.) So far, just one borrower has been sent a foreclosure notice.
Prabal Chakrabarti, the director of community affairs at the Federal Reserve Bank of Boston, calls it a triple win. “The bank does well because it is able to recover the market value of the property more quickly,” he says. “The borrower does well because they get to stay in their home and avoid a forced move, which can be very hard on children. And the neighborhood does well because they don’t have a vacant or deteriorating property that is badly boarded up and could be a magnet for crime or bring down neighboring property values.”
The Home Affordable Modification Program was supposed to act like a federal version of City Life, calling for reducing the principal on mortgages that are for more than a house is currently worth. But the truth is that banks almost never do it. They worry that following the government’s recommendations would simply give deals to some homeowners who would have otherwise stuck it out — and even encourage people to default on loans just so they can get a reduction.
But while the government isn’t willing to force the issue, City Life has stepped up. In late September, City Life members were among the 3,000 people who protested in front of the Boston office of Bank of America, demanding principal write-downs. “Our view at City Life,” Steve Meacham says, “is that if you want the government to take action against such powerful actors, then you better have a powerful movement on the street, because they are not going to do it otherwise. And that’s what we’re trying to build.”
Back at Drusilla Francis’s home in Dorchester, City Life continues its protest throughout the hot morning. Down the block, meanwhile, an intense legal debate is taking place. Lee Goldstein, a lawyer from Harvard Legal Aid, has demanded to see the 48-hour eviction notice — a judge-signed document authorizing the eviction. Constable Burton Malkofsky doesn’t have it, though, insisting that all he actually needs is the court order to evict. Whipping out his smartphone, Goldstein begins quoting Massachusetts law. Malkofsky decides to make a few calls to locate the disputed paperwork. As all of this is going on, the police inform the two men that, given the size of the protest in front of the house, they don’t have the manpower just then to enforce an eviction, anyway. The action is postponed.
Melonie Griffiths races to the steps of Francis’s house and raises a bullhorn to her lips. “That’s right,” Griffiths hollers, echoing the crowd’s steady chants, “the banks get bailed out and we get moved out! But not all the time. Not if you fight back.” When she announces that the police have called off the eviction, the crowd erupts in cheers. They have saved Francis’s house — at least for today.
The next day, the protesters return in case the constable comes back. He never shows. Later that day, U.S. Bank, which hasn’t been willing to sell the property to BCC, finally names its price. BCC accepts: They’ll buy back the home for $210,000 and sell it to Drusilla Francis and Sandra Douglas, her new roommate she’s met through City Life, for $294,000. In early October, Francis, Douglas, and BCC closed on the property. After 22 years of living in her home, Francis will be able to stay.
Even before she got the official news, Francis had a good feeling. “They said the constable might be back the next day, but after that blockade, something inside me told me that I wasn’t leaving this house,” she says. “I knew we had won.”
After the crowd has cleared and the street is quiet, she grabs a bag of her belongings from her car. She carries it upstairs. By the time the day is over, everything is back where it belongs.