What Is It?

The mortgage foreclosure crisis that has unfolded over the past several years has, for many, turned homeownership into more of a nightmare than a dream. Beginning in 2006, housing prices in the United States took a downward turn after a decade of seemingly unstoppable growth. A combination of bank deregulation, subprime loans, loose underwriting standards, declining home values, and rising job losses has led to the worst spike in mortgage foreclosures since the Great Depression.

While the foreclosure crisis has hurt both homeowners and renters – across the nation, certain places and certain groups of people have been disproportionately impacted. In 2007, almost half of African Americans who moved out of their homes did so through foreclosure rather than sale. Between 1998 and 2006, African American borrowers lost an estimated $92 billion of wealth and equity from subprime loans, while Latino borrowers lost an estimated $98 billion. This amounts to the greatest loss of wealth for people of color in modern U.S. history, reversing recent progress in homeownership.

Foreclosures have clustered in distressed and “on the edge” neighborhoods in older cities such as Cleveland and Philadelphia as well as in new communities in high-growth areas including Phoenix and Florida. In the highest cost housing markets in the nation such as the San Francisco Bay Area, foreclosures followed working families out to the far edges of regions where they “drove until they qualified” for mortgages on homes they could afford.

The foreclosure crisis has further devastated poorer neighborhoods with weak housing markets. In more affluent neighborhoods where home values are strong, foreclosed properties are quickly absorbed by the market. But in neighborhoods that are not typically homebuyers’ first choice, foreclosed properties are likely to remain vacant, barring some kind of intervention. Unoccupied, those homes become magnets for vandalism and crime, driving the neighborhood’s property values down. A study in Philadelphia found that the presence of just a single boarded up home on a block reduced the value of neighboring properties by $6,500 each; a national study by the Center for Responsible Lending calculated a reduction of $5,000.

In the face of this crisis, housing counseling and advocacy groups, local and state governments, public housing authorities, community development corporations, community land trusts, citizen advocates, and other community stakeholders are rallying to respond by reclaiming vacant, foreclosed properties and returning them to productive use:

• In Providence, Rhode Island two local nonprofit housing developers and a statewide organization are partnering to acquire foreclosed properties in two of the city’s hardest-hit neighborhoods and place them in a community land trust to provide permanently affordable housing for lower-income residents. (See Case Study section).
  
• In Cleveland, Neighborhood Progress, Inc. and the Cleveland Housing Network are collaborating on the Opportunity Homes strategy to stimulate market recovery in six Cleveland neighborhoods. The strategy is three-pronged: 1) rehabilitate vacant homes as energy-efficient homes; 2) demolish blighted homes that cannot be rehabilitated; and 3) partner with community groups such as Empowering and Strengthening Ohio’s People (ESOP) and others to prevent families from losing their homes to foreclosure in the first place. (See Case Study section).
  
• In the Twin Cities, a statewide group, the Minnesota Foreclosure Partners Council, is coordinating efforts to gather data, create financing tools, implement recovery strategies, and enact policy changes to combat the foreclosure crisis. Minneapolis and St. Paul are also acquiring properties in targeted neighborhoods and participating in the National Community Stabilization Trust’s First Look program to preview and acquire foreclosed properties. (See Case Study section).

This tool provides a framework for developing a comprehensive foreclosure recovery plan and showcases the most innovative and promising strategies for the acquisition, maintenance, management, and transfer of these properties to low-income renters and homeowners, or for other beneficial neighborhood use. Communities can use this information to develop effective foreclosure recovery plans and compete for the additional $2 billion in new funding available in the federal stimulus package’s Neighborhood Stabilization Program (NSP). Funding applications are due July 17, 2009.

Quick Guide to Tool Sections:

• Getting Started presents 11 key action steps for developing a foreclosure recovery plan.
• Menu of Strategies describes acquisition, disposition and stewardship strategies for foreclosed properties.
• Choosing a Strategy prioritizes strategies based on neighborhood market strength.