Post-Foreclosure Community Stabilization Strategies: Case Studies and Early Lessons 2008

In the midst of all the foreclosures sweeping the country, and the turmoil on Wall Street, nonprofit housing organizations are quietly going about the work of stabilizing communities hard hit by the crisis. Most have had frontline responsibility for counseling families threatened with foreclosure. With their assistance tens of thousands of families have restructured their budgets, negotiated with servicers to modify their loans, and saved their homes. Other families, too far along in the foreclosure process to stop it from happening, have received help transitioning to new housing arrangements.While the work with distressed homeowners must continue, nonprofits are feeling increased pressure to deal with the growing foreclosed housing stock. These units are causing incalculable harm to neighborhoods, and any hope of housing recovery must ensure that these units are swiftly put back into productive use or demolished. This collection of 14 case studies outlines strategies that nonprofit organizations across the country are using to begin the process of repairing damaged communities.The stakes are enormous. Vacant housing invites vandalism, and becomes a hub for gangs and crime. Virtually all case study subjects reported that, within weeks of housing becoming vacant, thieves break into the units and strip them of their valuable copper plumbing and wiring, heedless of any destruction they leave in their wake. In Phoenix a half-finished, abandoned subdivision was used as an informal "Home Depot" as other homeowners broke in and helped themselves to fixtures and appliances. In Cleveland, vandals remove not just the copper but the aluminum siding from vacant houses. In photos these houses have a desolate, post-disaster look, like the aftermath of a hurricane. When units get demolished the vacant lots soon sprout grass and trash, adding to the community's forlorn appearance.Vacant, deteriorated units place a downward pressure on housing values that puts nearby neighbors in a bind. In order to sell their units they will have to reduce the price, as no one will pay top dollar to live in a blighted neighborhood. Yet their ability to refinance into a more affordable mortgage may be compromised by the drop in property values; in some cases this leads to additional foreclosures and the downward cycle continues.Intervening in these troubled neighborhoods is challenging. In some markets housing prices are still falling, making it hard to determine the value of the units. Bank asset managers and servicers often lack detailed knowledge of the markets, or even of the units they have in their own inventory. This leads them to overvalue their properties and hold out for more than they are worth, delaying the process of acquiring and renovating them for resale to new homebuyers. Finally, the complex ownership structure of mortgages which were rolled into collateralized debt obligations and other investment vehicles makes it very difficult to establish who owns properties and who has authority to negotiate their sale.0