Addressing the scope of foreclosures
On Aug. 9, hundreds of people turned out for the U.S. House Financial Services Committee hearing on predatory lending at the Minneapolis Central Library. Committee Chairman Rep. Barney Frank surveyed the standing-room-only scene as speakers told of how boarded-up homes are blighting their communities.
From St. Paul Mayor Chris Coleman to Minneapolis City Council Chairwoman Barb Johnson (Mayor R.T. Rybak was attending to the I-35W bridge disaster) to Minnesota Housing Commissioner Tim Marx, all stories had one thing in common: the insidious nature of the problem. Foreclosure’s reach has gone far beyond what many imagined, touching individuals, neighborhoods and entire communities.
A single foreclosed property affects neighboring landowners, businesses government agencies and more. Vacant houses, many already suffering from deferred maintenance by cash-strapped owners, create visual blight and lower the values of surrounding properties. Empty buildings attract crime and pose safety risks, such as fires resulting from stolen copper gas lines. Land values continue to drop as the character of the area changes. Previously friendly neighborhoods become hostile environments.
Cities suffer as they try to secure properties with budgets cramped by shrinking state aid. Municipal expenditures rise for services such as site cleanup, fire suppression and increased police protection. Local governments also lose revenue as families stop paying property taxes. A study by the Homeownership Preservation Foundation pegged the cost to taxpayers of one foreclosure as high as $30,000.
Making matters worse, predatory lending focuses disproportionately on low-income and minority households, resulting in foreclosure clusters that hit entire neighborhoods like falling dominoes. At the hearing, Rep. Keith Ellison showed a map of foreclosures in his north Minneapolis neighborhood. There wasn’t one block untouched.
One can’t help but wonder how the foreclosure crisis, with its focus on low-income and minority families, will affect the huge homeownership gap between white and black Minnesotans. Although Minnesota as a whole leads the nation in homeownership, it ranks 45th among the states and the District of Columbia for African-American homeownership.
After a home is foreclosed, the occupants still must find a new place to live. This proves particularly difficult if their credit goes south and their life’s savings evaporate with the loss of their home. They no longer qualify to buy a home and may not even have the first and last month’s rent available to sign a lease. With Minnesota already short by more than 300,000 units of affordable housing, finding an apartment may prove harder than buying a house in the first place. In many rural communities, rental housing does not even exist.
Owner-occupied homes are not the only ones being foreclosed. Approximately 40 percent of foreclosed properties in urban counties are rental. In the metro area, with median rents approaching $900 per month, this may multiply housing hardship as the displaced are forced to move into unaffordable accommodations.
Eventually, this will lead to tighter vacancy rates and upward pressure on rents, especially for low- and moderately-priced units. In addition, there are no laws protecting tenants from their landlords’ mistakes. Many tenants learn of their landlords’ financial troubles and move on very short notice whether they need to or not, unaware of their rights.
The shortage of affordable housing is magnified as more low-income households enter into the rental market. Ironically, many foreclosed buildings stand vacant while low-income families — both those that have suffered foreclosure and those that haven’t — find it harder and harder to find places to live.
Reps. Ellison and Frank offered three ideas to address this problem. First, we need to keep people in their homes thru pre- and post-purchase counseling. Second, strengthen laws prohibiting predatory lending and do a better job of mortgage screening. Last, and perhaps most important, we must make a significant investment in affordable rental housing to avoid an increase in homelessness and to provide families with safe housing options.
While Congress seeks to address the foreclosure crisis through increased regulation of financial institutions, we in Minnesota can attack the problem by investing in affordable housing.
Chip Halbach is executive director of the Minnesota Housing Partnership, which works with the nonprofit, government and business sectors to help create and preserve homes affordable to low- and moderate-income Minnesotans. For more information about affordable housing issues in Minnesota, visit MHP’s Web site.
Rep. Ellison and Sen. Charles Schumer of New York have introduced predatory lending bills (H.R. 3081 and S.1299) that will be taken up after Labor Day.