Boston-based community lender BlueHub Capital on Friday announced it would suspend a controversial loan program it says can help people stay in their homes amid foreclosure proceedings, citing a court battle it’s fighting in its home state.
BlueHub said it will pause its shared appreciation mortgages in the 11 states where it offers them, including Massachusetts. With these loans, the nonprofit buys properties from lenders who hold mortgages and then sells them back to the residents, providing financing that includes reduced principal and monthly payments along with an agreement to share in any appreciation in value when a home is sold or refinanced.
BlueHub’s stated reason for pausing: uncertainty created by a Suffolk Superior Court judge’s ruling in August, in a lawsuit funded by the Neighborhood Assistance Corporation of America — another Boston-based nonprofit with national reach — on behalf of a group of unhappy BlueHub participants.
As part of a broad economic development bill passed a year ago, the Massachusetts Legislature included a provision that waives legal liability for shared appreciation mortgages issued by nonprofits. But the judge in August determined, among other things, that it would not apply retroactively.
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BlueHub maintains that these loans are useful in helping homeowners whose house values have fallen below the mortgages on the homes and face foreclosure, arguing that participants are better off financially and the loan terms are adequately disclosed. But NACA says these are high-priced, predatory loans that take advantage of vulnerable consumers.
BlueHub is seeking to appeal aspects of the judge’s decision, including a ruling against how BlueHub can sell homes back at a higher price than what it paid. But ultimately, BlueHub decided there was too much legal uncertainty until the court fight is resolved.
“It’s been this ongoing effort to really try and smear us,” said BlueHub chief executive Elyse Cherry, who insists the program isn’t profitable. “What it means is that homeowners in foreclosure whose homes are not worth the amount of their mortgage have nowhere else to turn.”
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Cherry and Governor Maura Healey, who signed the economic development bill, have known each other for decades, and Cherry has helped raise money on Healey’s behalf.
BlueHub has issued more than 750 of these mortgages since starting this program in 2009 following the last major real estate downturn, including nearly 450 in Massachusetts. About half of the participants have exited the program by paying off the loan through refinancing or a sale. BlueHub slowed these loans to a trickle in recent years amid the nationwide boom in home prices, issuing only eight in the last five years.
Cherry said it’s important to have this tool should another crash in home prices take place.
“Those of us who have been around long enough know that markets don’t just go up,” Cherry said. “We’re trying to be teed up for the next downturn.”
NACA chief executive Bruce Marks hailed BlueHub’s decision as a victory in his years-long quest to fight the practice.
“I and NACA wear that as a badge of honor that we have … eliminated another predatory practice,” Marks said. “While this is a very positive step, it’s 15 years too late. … [BlueHub] has made money on the desperation of homeowners to keep their homes.”
Marks said NACA decided to financially support the lawsuit, filed in 2020, after a group of homeowners approached him about organizing and fighting BlueHub.
Jeffrey Wiesner, a lawyer for the plaintiffs, said in an email that “BlueHub’s termination of their predatory program is music to our ears” and BlueHub now should properly compensate the hundreds of homeowners who have participated.
However, BlueHub borrower Rose Webster-Smith said the news made her upset.
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She works for a homeowner assistance organization, Springfield No One Leaves, and often refers people to BlueHub. She said she and her husband obtained a shared-appreciation loan in 2017 through BlueHub, enabling them to stay in their Springfield home following a foreclosure. She said they pay a 6.45 percent interest rate on the 30-year loan but didn’t refinance when rates were lower because she prefers to deal with BlueHub than a hard-to-reach mortgage purchaser.
“We like the fact we know who to call if we get into trouble,” Webster-Smith said.
Samantha J. Gross of the Globe staff contributed to this report.
Jon Chesto can be reached at jon.chesto@globe.com. Follow him @jonchesto.
BlueHub halts controversial ‘shared appreciation mortgages’ for distressed homeowners amid court battle
