Foreclosure affects more than individual families; it also can diminish the quality of life for entire neighborhoods, disrupt the local market for ownership and rental properties, and destabilize the municipal finance system. Many local governments are implementing programs that will counteract the negative effects of foreclosure and relieve the burden on their budgets.
According to RealtyTrak, 1.2 million properties were in some form of foreclosure in 2007, an increase of 75 percent from 2006. Corresponding to national trends, a recent National League of Cities (NLC) survey shows that nearly 62 percent of local elected officials report that foreclosures have increased in their communities over the past year. Thirty-three percent of city officials surveyed say that abandoned and vacant properties have increased. In addition, 34 percent also report that the values of homes have declined in the past year.
Not surprisingly, cities are seeing the effects on their budgets. According to the NLC survey, 33 percent of respondents report that city revenues and/or revenue estimates have decreased in the past year. Decreased property taxes, losses in collection of home sale fees, and the increased costs of maintaining abandoned properties are causing cities to take steps to close revenue and expenditure gaps, resulting in immediate hiring freezes, halts on discretionary spending, and cuts in city services. Cities also have to step up police presence in areas with abandoned homes because of increased criminal activity.
In response, city officials are creating programs to make sure that residents remain in their homes. Boston city officials have established the Boston Homeownership Preservation Fund to provide outreach and counseling services, emergency mortgage stabilization loans and credit enhancement tools for residents. Chicago; Minneapolis-St. Paul; Louisville, Ky.; and Jacksonville, Fla., also have created programs for families at risk of foreclosure. Charlotte, N.C., has implemented a “Good Neighbor Next Door” program, which encourages public employees — including firefighters, teachers and building inspectors — to purchase properties in foreclosure to help stabilize neighborhoods.
City officials also are working closely with non-profit and civic organizations, state and other local governments, banks and mortgage lenders, churches, and neighborhood associations and groups to respond to the crisis. Bartlett, Tenn.’s Family Assistance Commission helps residents with home repairs and mortgage problems directly or through non-profit organizations and churches. In addition, Thornton, Colo., officials are working with the Adams County Housing Authority to offer foreclosure workshops and compile data about residents in the foreclosure process that will be used to provide services in targeted areas. This year, the city authorized the distribution of $20,000 from its Community Development Block Grant funds to support telephone-counseling services for homeowners facing foreclosure.
Although many cities are helping their communities, ultimately, federal intervention in the housing finance system is required to minimize the damage to families and neighborhoods and to reform the rules that allowed unsound and predatory lending practices.
The authors are managers with the Washington-based National League of Cities.