16-06-2008

As the Boston Herald reported in mid-February, the "epicenter" of Boston’s foreclosure crisis is Hendry Street in Dorchester, a long-forlorn area that enjoyed the first signs of gentrification in the early 2000s, only to be " turned into a blighted urban ghost town as a result of foreclosures, shady real-estate deals, and abandonment." Seven triple-decker houses on one street were "boarded up or empty," right around the corner from six more boarded-up properties. More than 200 foreclosures have hit Dorchester in the past year, with another neighborhood, Roxbury, not far behind.

The reason for the mass foreclosures is that easy money had fed a real-estate frenzy. Borrowers who purchased three-family fixer-uppers in fixer-upper neighborhoods like Dorchester—sometimes for as much as $623,500 with no money down—never had a chance of repaying $7,000 or so monthly mortgages with the couple of thousand dollars, at most, that they would take in monthly from renting out two or three of the units. They and their lenders had assumed that they could refinance when cash fell short, or flip the houses to someone else for a higher price. But when the credit party stopped, money and new buyers vanished.

Mayor Menino could easily have garnered headlines by doing what the city of Baltimore has done: sue the banks. But the mayor, by contrast, is taking responsibility. Partly in response to the Herald investigation, he has opened a "war room" in City Hall for a new "Foreclosure Intervention Team" made up of representatives of the city’s police, inspection, public health, public works, housing, and public property agencies. Since the team first met in late February, it has tackled Hendry Street, cleaning up sidewalks and empty lots as well as "securing abandoned homes, removing graffiti, replacing missing street and parking signs, and towing abandoned cars," the city says.

The mayor and city council also have passed a new ordinance to prevent neighborhoods from plummeting to Hendry Street’s level. It will require mortgage servicers and other investors who become the owners of foreclosed properties to register them promptly with the city, to secure them from squatters or vandals, and to contract with a local management firm for ongoing maintenance, with that firm’s contact information posted squarely in front of the house. Banks that don’t comply or that fail to maintain their properties face $300 weekly fines or $15,000 a year per property, surely an incentive to revalue the properties and sell them quickly to people for whom the economics of the investment can actually work, absent a real-estate bubble. Coupled with more aggressive policing in vulnerable areas, Menino’s approach may mean the difference between temporary pain and protracted, hard-to-reverse decline.

Boston does not have all the answers, however. For example, if banks find the fines too tough, or if few interested buyers in the most forlorn neighborhoods can find financing, the fines could serve as a perverse incentive for the banks themselves to walk away and hand homes over to the city. In fact, Boston is already taking over some Hendry Street–area properties that have fallen into such delinquency, and it is preparing to take over others before they do so. When this happens, the best thing that the city can do is work with potential landlords and owners to get properties back into private circulation quickly. Here, too, it all comes down to a tough approach toward public safety—as well as maintenance of public infrastructure like streets—to build confidence. Otherwise, the city could find itself the owner of thousands of properties that nobody wants, or, just as bad, landlord to thousands of underclass tenants.