WALL STREET JOURNAL - MAY 1, 2009
Foundation Backs Foreclosures Project
By MIKE SPECTOR
The Ford Foundation plans to pump $50 million into a new nonprofit venture that will help municipalities buy foreclosed homes from financial institutions, in an effort to stem property-value declines plaguing U.S. neighborhoods.
The money, among the largest so-called program-related investments by a foundation, will go to a consortium of community-based nonprofits that will serve as a middleman between cities trying to rehabilitate neighborhoods and mortgage servicers looking to unload seized properties.
Michael Falco Luis Ubinas took the helm of the Ford Foundation in January 2008.
The consortium, called the National Community Stabilization Trust, hopes to simplify and accelerate this market, which can get bogged down when municipalities have trouble negotiating with financial institutions. It will work with state and local governments and other groups that have received special grants from the Department of Housing and Urban Development to buy and redevelop foreclosed homes.
The stabilization trust is the latest nonprofit project aiming to ease the housing crisis since it began about two years ago. Housing & Neighborhood Development Services Inc., a nonprofit in Orange, N.J., recently bought 47 mortgages from J.P. Morgan Chase & Co. with plans to fix up the homes and sell them. The Center for New York City Neighborhoods provides counseling, legal services and other education for homeowners at risk of foreclosure.
Backed by Ford and a $3 million start-up investment from the Chicago-based MacArthur Foundation, the stabilization trust hopes to spur purchases in more than 100 cities before year's end.
The trust aims to serve two main functions. It is courting major financial institutions -- including J.P. Morgan, Bank of America Corp. and GMAC Financial Services -- and negotiating discounted prices on foreclosed homes before they are listed. The trust also plans to provide financing to municipalities or other local groups looking to buy those distressed properties.
Funneling the properties to buyers through the trust can save financial institutions time and money on marketing. And even a discounted price could be higher than what a property might fetch if it lingers unsold.
The trust hopes to accelerate purchases of foreclosed properties that can drag down nearby home values. Foreclosure filings hit 803,489 properties in the first three months of this year, up 24% from the same period a year ago, according to RealtyTrac Inc., a foreclosure-tracking firm.
Ford's $50 million investment will fund the stabilization trust's financing arm to help municipalities buy distressed properties. Ford, whose $9.5 billion of assets make it the second-largest U.S. philanthropy after the Bill & Melinda Gates Foundation, hopes the investment will attract private capital because the foundation will be second in line for losses behind government investments.
The trust hopes to raise some $400 million. Ford officials concede that is a small amount relative to the scope of the foreclosure mess, but hope the trust achieves enough success to prompt other similar efforts.
Unlike a typical grant, Ford's money comes from its endowment principal, in the form of a 10-year loan with a below-market interest rate of 1%. Ford has made such investments for decades, but this marks its largest bet on an untested project.
"It's risky," said Luis Ubinas, Ford's president. But "only a market-based solution is going to work to clear what is likely more than $1 trillion in real estate. Someone has to step up and put the risk capital in play that will come up with a model for that marketplace solution."
Mr. Ubinas, a former McKinsey & Co. consultant, took the foundation's helm in January 2008. In addition to the stabilization trust, Ford plans to spend an additional $100 million on housing over the next five years, Mr. Ubinas said, doubling what the foundation had put in that area over the past decade.
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