The foreclosure crisis is battering Springfield, Worcester and Dorchester.
They are among the Bay State communities most affected by foreclosure activity, which shot up 67 percent statewide during the first three quarters of the year, a new report shows.
Lenders filed 21,005 petitions to foreclose from January through September, up from 12,550 petitions a year earlier. The petitions, the first step in the foreclosure process, are more than double the number filed during the same months in 2005, according to The Warren Group, parent company of Banker & Tradesman.
Foreclosures are heavily concentrated in urban areas throughout the state, The Warren Group data show. Topping the list is Springfield, with 1,063 petitions, followed by Worcester with 954 and Boston’s Dorchester neighborhood with 907. Those cities, along with Brockton, Lynn, Lawrence, Lowell, New Bedford, Revere and Haverhill, account for nearly a third of all foreclosure petitions filed so far this year.
However, 46 of 351 Bay State communities have witnessed more than 100 petitions to foreclose during the first three quarter of 2007.
Housing advocates blame the higher foreclosure activity in lower-income cities on a larger volume of high-cost loans that were issued to minorities living in those communities.
“Many subprime lenders targeted lower-income people and minorities to market their products,” said Joseph Kriesberg, president of the Massachusetts Association of Community Development Corporations. “There’s a much higher percentage of high-interest-rate loans in these communities.
Research has shown that minorities hold a larger share of high-cost, subprime loans.
A report in March by several nonprofit groups revealed that black borrowers in six metro areas, including Boston, were four times more likely receive a higher-cost mortgage loan than whites. In the Boston area, the highest percentage of high-cost loans – 55 percent – went to black borrowers.
Compounding the problem is that communities like Worcester and Dorchester have experienced steeper home price declines, hurting owners who are struggling to refinance into less risky loans or sell their property, according to industry observers.
In Worcester, for example, the median price for single-family homes sold through October declined 9.2 percent compared with the same 10 months in 2006. In Dorchester prices plunged 13 percent during the same months. Meanwhile, the median price drop statewide for the same period was more modest at 4.4 percent.
“In some of these communities, property values have fallen faster and people started out with less equity to begin with,” explained Kriesberg.
Some leaders fear that foreclosures could destabilize and depress communities where revitalization efforts have been under way.
In Springfield, a regional housing partnership called HAP Inc. has been working to transform vacant dilapidated buildings into new housing and increase the city’s homeownership rate.
“We’ve been trying to undo damage that was done to neighborhoods of the city,” said Peter Gagliardi, executive director of HAP.
The economic recession in the late 1980s had a devastating impact on Springfield, and the housing market tanked. Median single-family home prices in Springfield fell every year from 1989 through 1996, according to The Warren Group. Prices started to climb in 1997 but didn’t exceed the peak median reached in 1989 – $97,000 – until 2004.
Springfield also has some of the poorest residents in the state. Springfield’s median household income, which stands at around $33,400 according to U.S. Census data, is among the lowest in the state. Only five other Bay State communities trail Springfield.
Gagliardi and other leaders worry that a growth in foreclosed property could hurt home values and lead to vacant and unmanaged buildings that attract crime and vagrancy. Gagliardi also fears that the properties could be snatched up by speculators who rent them, which could change a neighborhood with owners into one with mostly renters.
“As property becomes vacant and goes visibly downhill, it begins to chase away other potential homebuyers Â… because they don’t want to live in a place with vacant or boarded-up buildings,” he said.
The big worry is that the housing market will sink again and take years to recover, Gagliardi said.
‘Downward Spiral’
The foreclosure crisis will drag down home values in many areas across the country and reduce property tax revenues, according to a report released by the U.S. Conference of Mayors last week. Massachusetts is expected to be one of the states to take the biggest hit on tax revenue. The state stands to lose $223 million in tax revenue, the report predicts.
Foreclosures will result in a potential loss of $6.6 billion in tax revenues in 10 states, including Massachusetts, New York, Florida and California – and 524,000 fewer jobs next year.
The crisis is expected to drag down home values by an additional $519 billion in 2008, resulting in a $1.2 trillion loss in equity for the nation’s homeowners, the report says.
The foreclosure pace has been particularly brisk in cities in Arizona, Michigan, Nevada, California and Florida.
California, Florida, Nevada and Arizona have more than a third of the nation’s subprime adjustable-rate mortgages, and accounted for most of the increase in foreclosures nationwide during the second quarter, according to the Mortgage Bankers Association.
In Massachusetts, local counselors say that many minorities were steered to higher-cost adjustable-rate mortgages. Gagliardi, of HAP, estimates that 70 percent of the homeowners facing foreclosure who seek assistance at his organization have adjustable-rate mortgages.
“I’m not certain why Springfield would top the list [with foreclosures], but there certainly has been evidence from those who have tracked predatory lending that there seems to have been disproportionate amount of predatory lending or subprime lending in Springfield and it may be a function of a fairly large minority population,” he said.
HAP is connected with a national hotline to help homeowners at risk of losing their property. Callers from the 43 cities and towns in Hampshire and Hampden counties are referred to HAP for help.
HAP has been getting three to five new calls each day. The organization has already handled 130 foreclosure cases this year, more than double the 62 cases the group had in all of 2005, according to Gagliardi.
State leaders have been trying to curb foreclosures. In July, MassHousing announced a $250 million rescue fund designed to help residents who are in danger of losing their homes refinance into more affordable loans. But local activists say most homeowners who have sought help are ineligible because they’re too far behind on their payments or have poor credit.
Fran Paquette, director of the NeighborWorks Homeownership Center in Worcester, said his organization is promoting the MassHousing program fund but acknowledged it is restrictive.
“We don’t have the ammunition in our guns to fight the battle. There’s not a lot of options,” he said.
The NeighborWorks Homeownership Center has been providing one-on-one counseling for Worcester area residents but also is considering hosting clinics to help homeowners who are at risk of foreclosure. Paquette said he is hoping the clinics will feature agents and lenders who may be able to help residents.
Leaders at NeighborWorks have met with the city manager to develop a plan for dealing with foreclosures. One of the ideas being considered is establishing a fund that would provide short-term loans to homeowners to help them catch up with missed mortgage payments, according to Paquette.
Paquette said he’s not sure where the money would come from, but the city may seek help from foundations or nonprofit groups.
NeighborWorks is also looking at ways to help homeowners refinance into more stable mortgage products.
Even if some people manage to keep their homes, there is concern that homeowners will lose equity if foreclosures continue and housing values plummet, according to some observers.
“There’s going to be a massive loss of wealth in communities that are already lacking wealth,” Kriesberg said.
With foreclosures mounting and depressing values, entire neighborhoods could face a bleak future.
“Specific neighborhoods could get into a downward spiral of declining values,” said Kriesberg.
