What can America's cities do about the tsunami of home foreclosures engulfing so many communities? Analysts are warning that the current...
What can America’s cities do about the tsunami of home foreclosures engulfing so many communities?
Analysts are warning that the current vacancy rates are at the highest level since the Great Depression. One million to 2 million mortgages may default in the next two years.
It’s true the situation is spotty. Some areas are hit hard, others still largely untouched. Subprime lending is the big villain, but so is overbuilding during the housing boom in such states as Florida, California and Nevada.
Across the country, the most serious foreclosure pain is being felt by low- to middle-income families. Biggest concentrations have appeared in Rust Belt cities that suffer from weak economies and declining populations. Wayne County, Mich., which includes Detroit, actually led the nation in 2007 foreclosures.
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In Cleveland, sadly dubbed the “subprime” capital of the U.S., an estimated one out of every 10 homes is now vacant. The story of Cleveland’s ravaged Slavic Village, once a tightly knit community of Polish and Czech immigrant families, is incredibly sad — hundreds of abandoned homes, whole streets in tatters, criminal elements stripping houses clean the day they’re vacated.
The clear and present danger is that these disasters will spread and accelerate. As a Senate committee heard recently from Michael Barr, University of Michigan law professor and senior fellow at the Center for American Progress:
“Many homeowners are now under water and drowning fast, with loans far larger than their homes are now worth. … We risk a downward spiral in housing prices, credit markets, and the real economy.”
The immediate quandary for cities is that even a modest rise in foreclosures can trigger abandonments, start dragging down house values, deplete tax bases for police, schools, street maintenance and other critical services. Decades of often hard-earned neighborhood progress are quickly at risk.
Some farsighted cities tried to build firewalls against foreclosures and abandonments, even before the current crisis hit. In Chicago, Neighborhood Housing Services and the city government have an early-warning system to identify impending foreclosures and offer the homeowners repayment plans or small loans to keep the roofs over their heads. Boston, similarly, has a hotline for residents at risk of foreclosure, and also offers counseling and help through a homeownership-preservation fund worked out by the city with several banks.
But there’s a pressing need for a federally supported effort to help cities bolster their housing markets against downward price spirals and more foreclosures. Just such a plan has been proposed by the Center for American Progress and Enterprise Community Partners, and it seems to make eminent sense.
The idea is to create a Great American Dream Neighborhood Stabilization, or GARDNS, Fund. Its goal: to provide money quickly and efficiently to local nonprofits or cities to purchase foreclosed or vacant absentee-owned homes and offer them, as quickly as possible, for sale to qualified low- and moderate-income families on affordable terms.
Where no appropriate homebuyer is promptly available, the local stabilization buyer could rent out the home at affordable rents, with preference given to rent-to-own arrangements.
Mortgages would be fixed-rate — no more dangerous adjustable-rate instruments. They’d be “shared equity” mortgages — requiring a division of future price gains so that the homeowner can increase family wealth but not reap a windfall profit at the public’s expense.
Funding — $10 billion is the suggested figure — could flow quickly through a special appropriation of block-grant money under the Department of Housing and Urban Development’s established HOME or Community Development Block Grant programs.
The GARDNS idea is particularly appealing because it’s tailor-made for action by the community-development corporations and other nonprofits that know their neighborhoods intimately and have created such a strong record of housing progress over the past quarter-century.
A companion fund could take temporary control of foreclosed rental buildings and stabilize them for their tenants — it’s absurd to evict paying renters just because the landlord’s gone broke and the mortgage has been sold off to distant and ill-informed investors.
The bottom line is compelling: Let’s get rolling — as a nation, and in our cities and counties — to prevent the collapse of housing prices and community-destroying vandalism that waves of foreclosure can trigger.
Neal Peirce’s column appears alternate Mondays on editorial pages of The Times. His e-mail address is email@example.com