S.F. Backs New Strategy for Preventing Foreclosure in Low-Income Neighborhoods

San Francisco's foreclosure rate is very low relative to the rest of the nation, and has dropped considerably since the height of the mortgage default crisis. But foreclosure rates in the city's southern and southeastern neighborhoods remain higher than the citywide average, according to a report issued by the San Francisco Controller's Office in February.

On Tuesday, the Board of Supervisors unanimously approved a resolution in support of an innovative strategy for stabilizing neighborhoods where homeowners face a higher risk of foreclosure. Typically, pools of delinquent mortgages are sold off to private equity firms and hedge funds.

The resolution calls for joining with other cities to encourage owners of at-risk mortgages, such as Fannie Mae and Freddie Mac, to sell off the distressed mortgages to nonprofits and community development financial institutions (CDFIs) instead.

These national organizations, such as National Community Capital and Hogar Hispano, aim to acquire the at-risk mortgages for the purpose of preventing foreclosure and stabilizing low-income neighborhoods.

“When mortgages are in trouble ... the speculators swoop in,” said Amy Schur, campaign director at the Alliance of Californians for Community Empowerment, who worked with Supervisor John Avalos to draft the San Francisco resolution. "We need to get these troubled mortgages into the hands of of what we call 'good actors,' ” she added.

The nonprofits and CDFIs have raised private capital to purchase pooled distressed mortgages at fair-market value, and hope to leverage unspent federal funding allocated to California under the Troubled Asset Relief Program (TARP) to reduce the loan principals and prevent foreclosure.

“There’s money sitting there that’s meant for housing assistance,” Schur explained.

David Sobel, executive director of the San Francisco Housing Development Corp., said Bayview-Hunter’s Point, where his office is based, has a higher rate of owner-occupied units than most San Francisco neighborhoods.

But it's also a comparatively low-income area, and people can easily become vulnerable to foreclosure: “If somebody’s hours are cut on their job, if they lose their job … if there’s a disability,” it's easy to fall behind on payments, he said.

Partnership With Other Cities

Avalos noted that San Francisco is joining with the cities of Newark, New Jersey, and Richmond in the East Bay in the bid to encourage major lenders to sell off at-risk loans to nonprofits and CDFIs.

Mayor Ed Lee indicated to Avalos' office that he's "generally supportive” of the concept, according to Jeremy Pollock, Avalos' legislative aide.

Yet Avalos acknowledged that even with a group of municipal leaders on board, there’s still no guarantee that the strategy will actually work, since it’s entirely up to the lenders to decide who to sell the distressed mortgages to.

“A lot of investors," he said, "are just out there for the bottom line."

The controller's report noted that foreclosure rates still remain comparatively high in certain low-income neighborhoods. "Bayview-Hunters Point has a foreclosure rate over four times the citywide average," it said.

The report found that 3,002 loans in San Francisco are currently underwater or nearly underwater, with almost half concentrated in Ingleside-Excelsior/Crocker-Amazon, Bayview-Hunters Point and Visitacion Valley/Sunnydale.

“The 94124 and 94134 Zip codes, which represent Bayview-Hunters Point and Visitacion Valley/Sunnydale, make up the highest proportion of the at-risk borrowers, each with 17 percent of the at-risk population,” the report noted.