January 19, 2003

The zero-down option

By Thomas Grillo

Anthony and Carol Antonelli were on the verge of fleeing Boston.

A little more than a year ago, they were faced with a $900-a-month rent increase for their Allston duplex. They applied for work in Upstate New York - near her relatives - where rents are low and a single-family home can be had for under $100,000.

But as they prepared to leave the city they love, Anthony Antonelli saw a news report about a mortgage program that offered city workers a chance to buy homes with no money down.

"One day I was sitting at our kitchen table with my wife in tears, and three weeks later we had a home of our own," said Antonelli, a 41-year-old painter at the Boston Public Library. "Without this program we would have spent a lifetime renting, or living out of state, where it's more affordable."

The Antonellis, who purchased a home in Hyde Park for $210,000, are one of 100 applicants who got $20 million worth of loans backed by the Municipal Mortgage program in 2002. Applicants must buy in the cities or towns in which they work.

The little-known initiative is a collaboration of MassHousing, the state's affordable housing agency, and Fannie Mae, one of the nation's largest underwriters of home loans.

The program offers city, county, and state workers, as well as employees of nonprofit organizations, a no-down-payment mortgage to buy a single-family home.

Such programs have their detractors, though.

Some housing activists contend that when new homeowners invest none of their own cash, they are more apt to walk away from the properties when times get tough. That could increase the foreclosure rate and destabilize neighborhoods, they say.

Ada Focer, a Dorchester housing advocate, said homeownership is a worthy goal, but she questions the longterm desirability of no-money-down programs. She fears they will lead to foreclosures if home values plummet and equity is stripped from the house.

"These are families who are on thin ice to start with," Focer said. "We know the economic environment will change, and the question is how to write strong loans that give maximum amount of opportunity for homeownership, yet protect families and neighborhoods, who all suffer when foreclosures rise."

And because mortgage underwriting requirements have become more lenient in recent years, she wonders whether no-money-down programs are necessary.

Focer cited the real estate crash of the late 1980s and early 1990s to make her point. After the decline, she said, many homeowners ended up with property that was not worth the value of their mortgages, and the number of forclosures soared. (By 1991, about 12,750 homeowners had lost their homes through foreclosure - the most in Massachusetts history, according Land Court data. Eric Gedstad, a spokesman for MassHousing, acknowledged the dangers. But the agency's mission, he said, is to assist low- and moderate-income persons who don't have enough cash to put down or would exhaust their savings if they had to come up a down payment. "We know we're pushing the envelope," he said. "But it's our mission to serve people who would not get a home without our help."

For many would-be buyers, the Boston area is too expensive a market without some kind of help. Last year in Boston, for instance, the median price for a single-family home exceeded $300,000. That means people are being pushed out to to more affordable locations like Brockton, Lawrence, and Worcester.

Bruce Marks, chief executive of the Neighborhood Assistance Corp. of America, a Boston-based nonprofit organization that provides home loans to low- and moderate-income buyers, said the percentage of buyers using his program who have been forced to purchase a home outside the city has grown from 34 percent in 1997 to 74 percent last year.

Soaring costs and the lack of a down payment are the biggest obstacles to homeownership, housing expert say. The Census Bureau reports that the US homeownership rate reached 68 percent last year, but in Massachusetts it was 62 percent of residents.

No-money-down programs can make it possible for people to buy in the neighborhoods where they want to live, though.

Teresa Marx, 29, and Joseph DeMasi, 29, who moved to Massachusetts last year, were paying $1,500 per month to rent a two-bedroom apartment in Jamaica Plain. Marx, a high school science teacher in South Boston, said she and her husband wanted to be homeowners within a year.

But the median price for a single-family home in Jamaica Plain was $469,000 in the first eight months of 2002, and small condominiums were priced at about about half that amount. So the couple explored other neighborhoods, such as Dorchester and Roslindale.

DeMasi, a researcher, spotted an advertisement while riding the MBTA, for the Take the T Home Mortgage Program.

Under the MassHousing program, income-eligible buyers who can verify regular MBTA ridership can qualify for a no-down-payment loan at competitive interest rates. Within three months, the couple had found a five-room Colonial in Roslindale that needed work, for $240,000.

"The house is structurally in good shape, but hasn't been cared for the last 20 years, so we're using the savings that would have gone to the down payment toward replacing the bathroom," Marx said. "If it hadn't been for the program, we wouldn't have any cash to improve the house."

Antonelli, the painter, said it's not as if the no-down-payment programs free him from having to make any sacrifices. He has taken a second job, and the family has trimmed expenses.

"We know there will be sacrifices, but it's worth it," he said. "Every time I round the corner and see my house, I smile."

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