Hope for a city in decline

Louis, Doris, their five children, a dog, and a cat lived in the 12-by-15 foot living room of an old duplex house. All that was left between the bare wall studs of their shared bedroom were strips of lath with broken bits of plaster sandwiched between them. The family meals had been cooked on a camping stove for the past two years. Louis long ago had started renovations, but progress was slow, since he works long hours at a factory that makes gaskets.

The family lived in what was an atrophying town--Chelsea, Mass. A prime piece of property in Boston's backyard, Chelsea ironically had become so run-down that houses there simply couldn't be sold anymore. Most owners, like Louis, couldn't qualify for repair loans. Many rental units in town were near-slums, run by absentee landlords. Residents were used to hearing sneers when they said they lived in Chelsea.

But now Louis's family is getting a rebuilt home, from the roof to kitchen cabinets, thanks to a $40,000 low-interest loan secured with the help of Chelsea Neighborhood Housing Services (NHS), one of the most dynamic chapters of a nationwide housing program.

The epitome of President Reagan's neighborhood self-help ideal, the 164 NHS programs in 121 US cities are private, locally run, nonprofit corporations (under an umbrella agency, the congressionally authorized Neighborhood Reinvestment Corporation). They pool a modest amount of government money with creatively raised funds to provide low-cost home repair financing and energy improvements.

An NHS chapter in Clearwater, Fla., obtained paved streets, storm sewers, and street lights for its neighborhood in only 10 months. The Baltimore NHS created a corporation that operates low-income long-term rental units.

Thanks to Chelsea NHS, a ''domino effect'' is going on among the city's primarily low-income residents: Blocks of gutted homes are being restored, and pride and neighborliness have returned.

The organization's goal is not to clean up urban slums for sale to middle-class investors: ''We serve people who've been living here all along,'' says Jim Chaput, the group's energy specialist.

A revolving loan fund, with seed money from the Neighborhood Reinvestment Corporation and supplemented by state contributions and fund-raising activities, provides loans to those who don't qualify for a bank loan or can't afford current interest rates. Loans are custom-made, based on need.

''No two loans are for the same amount, the same interest rate, or the same monthly payment,'' says director William Newcomb. Every loan Chelsea NHS has given could be called ''risky,'' but none has backfired.

The program depends on a close-knit triad composed of:

* Residents, who have majority control over decisions such as what areas to target for rehabs.

* Local banks, which benefit when housing stock improves, stimulating local investment. There was a big incentive for Chelsea banks--mostly small institutions with large housing portfolios--to get involved.

''Things were coming down around our ears,'' explains Irene Grzybinska, president of the Chelsea Provident Cooperative Bank.

''People would come in, get a loan for an old place, and (their houses) would start to fall apart.'' Many customers didn't have the maintenance skills to repair their old homes.

* City governments, which often find less need for federal housing projects. Chelsea Mayor Joel Pressman has earmarked $300,000 in community development funds for NHS over the next two years.

During the past winter, Chelsea NHS began offering home energy audits and low-cost weatherization. ''A typical heating bill (for one winter) in Chelsea is experts help residents weatherstrip and caulk leaky places, with an average fuel-bill reduction of ''$200 to $300 the first year,'' Mr. Newcomb says.