Innovative Responses to Foreclosures: Paths to Neighborhood Stability and Housing Opportunity

This Article argues that the current foreclosure crisis illustrates how economic stability and racial justice are intertwined. Recent research has found that the more racially segregated a metropolitan region is, the higher the number and rate of its foreclosures. Indeed, the high levels of racial residential segregation in the U.S. facilitated discriminatory and abusive lending practices and contributed to instability in regional housing markets. The Article contends that current fair housing laws alone are insufficient to dismantle the economic and political structures that continue to produce segregation, particularly the architecture of fragmented and unequal local governments competing with each other for resources. Responses to foreclosures provide an opportunity to chip away at these incentives for segregation by encouraging regional collaboration and shared-equity homeownership structures. Two promising examples of such collaboration are examined: first, a partnership between local governments and non-profits conducting targeted redevelopment through the federal Neighborhood Stabilization Program; and, second, a joint effort by a community development financial institution and a community development corporation to buy portfolios of distressed notes at a discount in order to rehabilitate scattered-site properties as affordable housing. Building on these examples, the Article proposes that the next significant step toward creating durable solutions is for municipalities to support shared-equity homeownership structures designed to create permanent affordability and neighborhood stability. Innovative responses to foreclosures from federal, state, and local policymakers hold the promise of advancing both economic security and racial justice