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Foreclosure Impacts and Strategies Alan Mallach Nonresident Senior Fellow The Brookings Institution Mortgage delinquencies and foreclosures are still going up Mortgage Delinquencies and Foreclosures 2006-2009 10 9 % of all mortgages 8 7 6 Delinquency rate 5 In foreclosure process 4 3 2 1 0 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Quarter/Year …but not evenly across the United States North Carolina North Carolina is not immune Foreclosure filings in North Carolina 1998-2009 70000 Number of filings 60000 50000 40000 Foreclosure filings 30000 20000 10000 0 1998 1999 2000 2001 2002 2003 2004 Year 2005 2006 2007 2008 2009 …and is being affected by foreclosures ► As a % of owner-occupied stock, some areas are particularly hard hit (foreclosures from 1/2005-7/2009) Dare County – 24.2% Mecklenburg County – 21.6% Franklin County – 17.3% Durham County – 15.1% Things may be getting worse ► Statewide filings increased 43% from August 2008 to August 2009 ► Filings declined from November through February, but have been rising steadily since then. ► In Mecklenburg County, filings increased 80%, to 1,316 in August 2009. ….particularly in the Charlotte area Foreclosure filings in Mecklenburg County 1998-2009 Projection based on data through August 2009 Number of foreclosure filings 14000 12000 10000 8000 Foreclosure filings 6000 4000 2000 0 1998 1999 2000 2001 2002 2003 2004 Year 2005 2006 2007 2008 2009 EST What does this mean? ► Thousands of families are being affected – both homeowners and tenants ► Thousands of houses are becoming vacant and abandoned ► Neighborhoods are being destabilized – with loss of property value, safety and quality of life. Protecting homeowners and tenants ► Making Home Affordable (HAMP) ► Tenant protections in Helping Families Save their Homes Act of 2009 ► Going further? More extended tenant protections Allowing owners to remain as tenants Protecting properties ► Strengthen code enforcement and nuisance abatement ► Provide for effective collection of liens and judgments ► Impose habitability standards ► Make lenders responsible for maintaining vacant properties ► Work with investors Stabilizing neighborhoods ►What is neighborhood destabilization? Foreclosures undermine local housing markets and increase vacant housing Market deterioration and vacant housing lead to neighborhood destabilization Once destabilization begins, it can trigger a chain reaction of destabilizing events. Destabilizing events include: ► Increase in number of foreclosure filings and foreclosure sales ► Increase in vacant and abandoned properties ► Increase in crime ► Increase in number of properties coming on market ► Too few home buyers for available supply ► Declining house prices ► Reduced property maintenance How does one stabilize a neighborhood? ► Foreclosures and abandoned properties can trigger destabilization – but dealing with those problems alone may not be enough to restore stability. ► Neighborhood stabilization is about rebuilding confidence and fostering market recovery. ► Market recovery happens when the effects of stabilizing actions exceed those of destabilizing events. Stabilizing actions include: ► Reducing the number of REOs coming onto the market ► Reducing the number of foreclosure filings ► Increasing the pool of home buyers ► Reducing the number of vacant and abandoned properties ► Stabilizing house prices ► Reducing crime ► Improving property maintenance and neighborhood appearance. What should neighborhood stabilization strategies include ? ► Reducing future foreclosures ► Reducing the link between foreclosures, disinvestment and vacancy ► Putting vacant properties back in productive use ► Addressing other forces destabilizing the neighborhood ► Restoring confidence and fostering market recovery They should leverage other tools and resources ► Property acquisition tools ► Code enforcement and nuisance abatement ► Public/private sector housing assistance and mortgage financing ► Legal tools to minimize foreclosure impacts and prevent future foreclosures ► Outreach, marketing and other activities to build confidence and rebuild market demand Neighborhood stabilization efforts should…. ►Target resources strategically ►Reduce the link between foreclosures, disinvestment and vacancy ►Align with market realities ►Build partnerships Target resources strategically ► Target areas where market conditions make impact possible or where strategic location or assets make it critical. ► Target areas where organizational capacity exists to carry out strategy. ► Make sure each target area receives enough investment to make impact possible Align strategies with market dynamics ► Understand the market Trends in properties coming onto market Price trends/affordability of houses on market Level and type of home purchase activity Size and characteristics of home buyer pool ► Build strategies based on market conditions Market conditions fall along a continuum Market correction Demand increases as prices fall to affordable levels, and supply/demand equilibrium is restored Demand potentially exists, but Market destabilization may need public/nonprofit intervention to trigger effective demand Market collapse Weak demand and large supply creates surplus that cannot be absorbed by market Market-sensitive strategies: acquisition Market correction Market Market destabilization collapse Acquire properties only when specific property is an impediment to market recovery Acquire properties to create opportunities for reuse and neighborhood stabilization Acquire properties to land bank for future redevelopment opportunities Market-sensitive strategies: reuse REUSE OPTIONS Market Market Market correction destabilization collapse Market sale Subsidized sale or leasepurchase Subsidized rental Land banking Build partnerships ►Government agencies ►CDCs and non-profit service providers ►Foreclosure prevention entities ►Real estate industry players ►Local and regional institutions ►Residents and civic organizations A final word…. In the end, neighborhood stabilization is not about how many units are acquired, rehabilitated or demolished. It is about restoring stability, in the sense of healthy market conditions and the confidence of residents and homebuyers, to the neighborhood. Alan Mallach PO Box 623 Roosevelt NJ 08555 609.448.5614 [email protected]
