(AFP) – Jun 2, 2008
WASHINGTON (AFP) — The economic blight of mounting home foreclosures in some American communities could take years to heal, according to government officials and housing advocates.
Tens of thousands of financially stretched Americans face the prospect of having their homes repossessed in coming months, more than two years after the property bubble burst, triggering one of the deepest housing market slumps in decades.
Rising foreclosures have acted as a drag on economic growth and some cities are struggling to cope with increased trash and crime tied to abandoned properties and, in some cases, entire streets.
"The large number of multi-family dwellings entering foreclosure presents a serious challenge to cities," the president of the Federal Reserve Bank of Boston, Eric Rosengren, warned in a speech Friday.
The nationwide downturn has particularly affected California, Illinois, Michigan, Nevada, Ohio and Florida.
"We anticipate that by this time next year, whole neighborhoods and whole communities will be greatly impacted by vacant property issues," said Marietta Rodriguez, the national director of home ownership programs for NeighborWorks America, which was created by Congress in the 1970s to help boost home ownership.
The problem has become so acute that NeighborWorks set up a special foreclosure operation last year aimed at minimizing home repossessions. A similar Treasury-backed program called HOPE NOW has also been established.
Economists predict that the housing market will eventually rebound, but recent surveys suggest this will not happen anytime soon.
A May 14 report by the research firm RealtyTrac said US foreclosure actions struck a record 243,353 cases in April, a 65 percent jump from a year ago.
Some 1.5 million foreclosures were initiated in 2007, marking a 53 percent spike from the prior year, according to the Federal Reserve.
"The Federal Reserve views the current high rate of mortgage foreclosures as an urgent problem," Fed governor Randall Kroszner said at a NeighborWorks forum in Cincinnati, Ohio, several weeks ago.
Kroszner urged banks to adopt "workout arrangements" to help troubled homeowners stay in their homes, and said that in extreme instances banks should consider writedowns on outstanding mortgage loans.
The central bank is helping NeighborWorks and its network of over 230 community-based groups identify the worst-affected communities so trained mortgage counselors can be deployed more effectively.
The city of Boston has taken matters into its own hands and started buying up empty homes to stop them falling into disrepair. Officials elsewhere are blaming banks and mortgage firms for creating an urban blight.
The cities of Baltimore and Cleveland, which have been plagued by home foreclosures, are suing more than a dozen banks and lenders claiming they pushed predatory and high-interest rate home loans on unsuspecting borrowers.
A January report by the United for a Fair Economy advocacy group claimed some mortgage firms targeted minorities and Americans with low incomes during the housing boom as the "best candidates" for subprime loans with devastating economic consequences.
Hundreds of thousands of subprime loans, loans granted to people with poor credit histories, helped inflate property sales and prices before the market imploded in early 2006.
Analysts say the crisis has been exacerbated because many subprime loans were marketed with low "teaser" interest rates which subsequently jumped significantly, making it hard for people on low incomes to make repayments.
Big financial institutions, including Citigroup, Merrill Lynch and Morgan Stanley, have lost billions of dollars from their subprime mortgage investments and dozens of mortgage firms have gone bust.
Housing advocates like NeighborWorks's Rodriguez say the problem of adjusting a borrower's loan has been complicated because Wall Street banks traded mortgage portfolios around the world, sometimes selling them to foreign banks.
"It's a huge issue, it's an enormous challenge, it's further complicated because it's not just one holder of the mortgage," Rodriguez explained.
She expects the foreclosure tidal wave to wash into 2009, but said banks have become "much more willing" to consider loan modifications in recent months.
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