New Guide Helps City Leaders Mitigate Effects of the Ongoing Mortgage Foreclosure Crisis

by Mark Perlman

The ongoing strain on the housing market continues to be significant, even in the wake of a $25 billion consumer financial protection settlement with the nation's five largest mortgage lending institutions to reduce principal amounts for borrowers underwater on their mortgages. The decision to use settlement money for principal reduction highlights foreclosure prevention as an important strategy for mitigating the effects of the ongoing mortgage foreclosure crisis. 

In order to help city leaders engage in foreclosure prevention efforts, NLC's Center for Research and Innovation has created Managing Foreclosures and Vacant Properties, a Municipal Action Guide that includes strategies for preventing vacancy, managing vacant property, rehabilitation, and re-use of vacant lots after demolition.

Since 2008 nearly 4.1 million homes have been foreclosed upon and over $22 billion in federal money spent on homeowner refinancing and neighborhood stabilization programs. Yet foreclosures continue, and despite a slowly improving housing market, there is some indication that the number of foreclosures for 2012 will exceed that of 2011 in the wake of the settlement. In order to avoid having an increasingly large number of real estate owned properties in their care, some lending institutions have engaged in programs to convert their properties to rentals.

Bank of America recently began a pilot project to sell nearly 1,000 of its foreclosed-upon properties in Arizona, Nevada and New York to investors for conversion to rental. They will allow the current occupants to remain in their homes for up to three years as renters, paying at or below market rental rates. Since 2009, Fannie Mae has set a similar precedent with its "Deed-for-Lease" program, in which instead of vacating their house after foreclosure, borrowers can stay in their homes as renters in the now real estate owned property.

These initiatives are supplements to mediation programs that have been enacted in a number of cities, with the intent of helping borrowers and lenders come to a refinancing agreement. Why try to keep delinquent or underwater borrowers in their homes? Doing so can sidestep the greater and more expensive challenges that arise from managing vacant housing, as well as social welfare issues that can arise with displacement. As many cities and states struggle to balance their budgets and the economic recovery continues to be slow, investing in these preventive measures can save a great deal of time and money in the long term.

While these initiatives can do a great deal to stem the tide of foreclosures, the scope of the crisis is broad. Furthermore, different cities have experienced the crisis in different ways. Many cities must focus on preventing vacant properties from becoming blighted. Others must consider the most effective way to rehabilitate a deteriorated property for re-use. Still others must focus on demolition of property that is beyond repair. Where city leaders focus their efforts and how they implement their response is dictated by the context of their city's experience with foreclosures.

Awareness of the city's vacant housing stock, its foreclosure rate, its growth patterns and overall economic condition all play into city leaders' ability to address the foreclosure crisis in ways that can potentially create a path towards renewed economic growth.

Details: You can access Managing Foreclosures and Vacant Properties on the Housing & Community Development page of the NLC website. For more information on the Center for Research and Innovation's work on housing and community development issues, contact James Brooks at