As in other cities and towns, the first wave of the global lending crunch is hitting hard in poorer Boston neighborhoods. But Mayor Tom Menino isn’t waiting for Washington to swoop to the rescue. Instead, he’s treating foreclosures the way he would treat any other local issue needing immediate local attention. Other cities, including Baltimore and even New York—where neighborhoods like Jamaica and Hollis have seen foreclosures more than triple in the past three years—could take a lesson from him.
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.
Abandoned property poses a policing challenge; last year, the Herald noted, cops found guns, drugs, excrement, and “flammable liquids” in one vacant home. And a street plagued by crime, in turn, is even less likely to attract buyers for its vacant houses, further harming its chances of recovery. Falling real-estate prices elsewhere in Boston could worsen things, as renters and homeowners with the newfound ability to live elsewhere in the city leave the worst neighborhoods in droves.
Mayor Menino could easily have garnered headlines by doing what Baltimore has done: sue the banks. As the New York Times reported in January, Baltimore mayor Sheila Dixon, citing discrimination against black borrowers, has filed a federal suit against mortgage lender Wells Fargo, seeking recompense for plummeting tax revenues and the money that foreclosures cost the city. Dixon is taking a page from mayors of the sixties and seventies: it’s always someone else’s fault. But casting blame doesn’t fix anything; it merely allows city administrators to avoid accountability.
Menino, by contrast, is taking responsibility. Partly in response to the Herald investigation, he’s 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 doesn’t 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.
So far, Mayor Menino seems to understand that it’s his job to avoid such a calamity.