Everybody Suffers

Obviously we are all concerned about the devastation that losing a home has on the people and families directly involved. But we are equally concerned about the social and economic damage on the surrounding families, and their properties and communities.

Cherokee's community development initiatives have always sought to bolster "at risk" communities, and create or preserve quality affordable housing. This mission has taken on added urgency as a result of the real estate market decline, and the surge in prime and subprime mortgage defaults.

This credit and real estate crunch is claiming more victims than just the thousands of borrowers facing the prospect of losing their homes. The ripple effects will have wide-ranging impact, especially as the subprime mortgage crash, and the credit crunch spread into "prime" loans, has an impact not only on the economy, but on society at large.

Renters

Social service agencies say homeless rates are on the rise not only as families lose their own homes to foreclosure but also as renters are evicted after their landlords default. Displaced tenants are an example of a new kind of homeless, those that are completely innocent victims.

RealtyTrac, a company specializing in foreclosure property information, estimates that more than 20% of residential foreclosures involve investment properties. When landlords lose those properties, their tenants lose a roof over their heads, and their security deposits, often with little warning. There's not much they can do except move.

Local Governments

Analysts warn that state and local governments will soon feel the pinch of sharply reduced property tax revenue.

Government agencies that can help stricken families are also facing a bind, economists said, because the high number of foreclosures removes property tax payers from the rolls.

"The housing market has put a big negative for local government revenues across the board," said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. The nonprofit Center for Responsible Lending said California could lose nearly $3 billion in property tax revenue and another $1 billion in sales and transfer tax revenue thanks to foreclosures.

"Property tax revenues are going to be a lot less than local governments built into their budgets, and there are going to be tough times at the local level," Levy said.

Atlanta City Council member Mary Norwood said property tax revenues would also take a hit because foreclosed homes drive down property values in a neighborhood, leading to lower assessments on people who do pay up. The Center for Responsible Lending put that price tag at more than $17 billion nationwide.

"You have a lot of vandalism, the house deteriorates, that drags down the neighborhood," Norwood said. "It affects property values of other homeowners in the community."

Mortgage fraud hurts everyone. Mortgage Fraud is involved in a disproportionate number of foreclosures. You can help fight it, and thereby help fight foreclosures in your community. This will help stabilize property values and the tax base.

To learn more about how "Board-Ups" negatively impact entire communities, not just the immediate owners and neighbors, please see Renovating Board-Ups

Additional Resources

Who Gets Hurt by Foreclosures?

Most directly, the millions of people losing their homes, including many who took out subprime loans. (See One Street's Story)

BUT ... millions of other families, who are paying their mortgages on time, will also be hurt by declines in property values spurred by nearby foreclosures and a weaker housing market. See the New York Times article Can the Mortgage Crisis Swallow a Town? (September 2007)

Here are select research papers on this topic:

• There Goes the Neighborhood: The Effect of Single-Family Mortgage Foreclosures on Property Values. This Woodstock Institute report examines the significant negative effect that foreclosures have on neighborhood property values. (June 2005, 31 pages, PDF, 689 KB)
• Vacant Properties: The True Costs to Communities. Data presented in this report shows that vacant properties are an expense that local governments simply cannot afford. The report summarizes the many costs that vacant properties impose upon communities and highlights ways communities are finding to bring vitality back to once blighted neighborhoods. (August 2005, 24 pages, 613 KB)
• Vacant Homes Create Problems for U.S. Cities describes the problems faced by communities due to the surge in vacant homes and abandoned properties. These properties not only depress all property values, but they depress the public psyche and create gloomy expectations. First published in the Seattle Times in February 2008, download the reprint here. (PDF download)
• Collateral Damage:The Municipal Impact of Today's Mortgage Foreclosure Boom (May 2005, 26 pages PDF, 245 KB)
• The External Costs of Foreclosure:The Impact of Single-Family Mortgage Foreclosures on Property Values (Published in 2006. The Fannie Mae Foundation, PDF Download)
• The Municipal Cost of Foreclosures: A Chicago Case Study (February 2005, 57 pages PDF 590 KB)

Resources for Municipalities from the FBI

The Federal Bureau of Investigations has a variety of programs designed to help build stronger communities.