Thursday, November 06, 2008

Foreclosures Epidemic Calls For Dramatic Interventions

President-elect Barack Obama, as part of the urban agenda that he proposed during his campaign, promises to create a White House Office of Urban Policy, and it can't come too soon.

We have written often about the neglect, no longer benign, that has characterized the federal governments' relationship with American cities. Routinely ignored although they remain the engine for the U.S. economy, there's hope that cities will return prominently to the agenda of this nation, and that new federal policies will be defined by seeing cities as places of opportunities rather than problems. More importantly, we hope that there is a greater understanding of the realities of our national economy - so goes our cities, so goes our country.

We were reminded again of the need for more leadership by the federal government - in areas like land banking - about three weeks ago in a briefing about foreclosures in City Hall. It was sobering. From 2000 until now, there were 58,000 foreclosures in Memphis.

The Main Points

The first point: we were already in trouble before the Wall Street meltdown so unless something fundamental is done, things could get even worse.

The second point to keep in mind: national data indicate that the public cost of each foreclosure is $20,000. In other words, the cost of the foreclosure crisis in Memphis has been about a $1.2 billion problem since 2000.

Memphis Mayor Willie W. Herenton said that Memphis is in the top 10 of U.S. cities in foreclosures, and Shelby County Mayor AC Wharton described the situation as the “perfect storm” and said if there is an issue that should unite city, county and state governments, it should be attacking the sources of predatory lending.

A Biblical Struggle

“It’s a David and Goliath struggle,” the county mayor added, calling strongly for a class action lawsuit against the most egregious subprime lenders. “It’s about making a social statement, not just a legal statement.”

Mayor Herenton called for actions to “freeze” foreclosure actions until homeowners are given more time to work out the financial problems caused by the “current un-level playing field.”

The “to do list” developed by local government and housing organizations as a result of this crisis includes the coordination of databases that are now disparate, development of a response team that targets geographic areas, recycling foreclosed properties, stronger code enforcement for vacant properties, counseling and foreclosure mitigation, mortgage assistance and developing a model intervention program with the $12-14 million received by city and county governments from the federal government.

Public Impact

The epidemic of foreclosures could not have come at a worse time for local governments. Already faced with predictions of a reduction in the assessed value of property, the local tax base is further eroded by the lost property tax revenues from the foreclosures.

Government public services are also affected, because foreclosures tend to cluster, and high subprime lending in a neighborhood predicts high foreclosure in about eight out of 10 neighborhoods. We’ve mentioned previously that in more than a dozen Memphis city schools, 50% of the students move during the year, yet another effect of the foreclosures.

In Shelby County, one-third of all zip codes had subprime lending rates of at least 50% in 2006, and for zip codes within Memphis, it was one out of two.

Trouble Signs

And if you think things are improving, in the past two weeks, The Daily News reported that there have been 542 foreclosure notices.

Since 2000, Frayser has led Memphis in the number of foreclosures - 5,743, followed by Westwood with 5,107 and Parkway Village with 4,305. However, no area of Memphis is immune although downtown was at the bottom of the list with 179 foreclosures.

Foreclosures By Zip Code

Here’s the zip codes and the number of foreclosures:

Zip code 38127 – 5,743 foreclosures

38109 – 5,107

38118 – 4,305

38128 – 4,209

38141 – 3,560

38111 – 3,367

38106 – 3,282

38116 – 3,281

38115 – 3,239

38114 – 2,753


38125 – 2,514

38108 – 2,097

38122 – 2,031

38107 – 1,883

38134 – 1,674

38018 – 1,394

38112 – 1,373

38016 – 1,361

38133 – 1,034

38135 – 1,001


38117 – 998

38104 – 928

38119 – 683

38126 – 295

38105 – 284

38120 – 253

38103 – 179

38131 – 1

The Deadly Count

As for the trend line, it's moving up. With a bullet.

In 2000, there were 4,425 foreclosures. In 2001, 4,753 foreclosures. In 2002, 6,272 foreclosures.

In 2003, 6,854 foreclosures. In 2004, 7,115 foreclosures. In 2005, 7,746 foreclosures. In 2006, 9,837 foreclosures

In 2007, there have been 8,046 foreclosures; and this year, more than 4,000 foreclosures so far.


Anonymous said...

One slight bit of clarification, it is not exactly clear the exact number of foreclosures that have happened since 2000. There are various ways to define and types of foreclosure. The one thing for certain is foreclosure notices. There have been 58,000+ foreclosure notices issued in Shelby County and we had one of the highest levels of foreclosure in the entire nation prior to the subprime meltdown.
Besides the economic effect decimating the city, the huge number of foreclosures is ripping the social fabric of the city apart. Families are displaced, kids have to change schools multiple times, social problems and blight increase, and like you said tax revenues decline. Why have areas like Hickory Hill declined so fast? A large part of it was subprime lending and foreclosures. It's been like economic carpet bombing.

Anonymous said...

a White Office of Urban Policy, and it can't come too soon.

He's Gonna do WHAT?

Hey, whats David Duke up to?
Maybe HE can run it!

Anonymous said...

I think it's clear, anon, that he meant to say White House Office of Urban Policy. It's called a typo.

Anonymous said...

You mentioned that the trend is climbing, but according to your statistics it peaked in 2006 and is now declining. Not exactly a cause for celebration but certainly a light of hope in this depressing situation.

Anonymous said...

As for the $12-14 million received by Memphis/Shelby County, I guess it depends on what you mean by "intervention". If you're referring about the money allocated by Congress earlier this year under Title III of the Housing and Economic Recovery Act (HERA), it will presumably do nothing direct to prevent foreclosures among existing homeowners.

The money is instead supposed to be directed towards purchasing foreclosed properties, redeveloping or rehabilitating the properties, and renting or selling them.

I point this out not to negate the other comprehensive efforts under way by The City, County, and nonprofit community. However, people don't need to be under the mistaken impression that the HERA funds can be used to assist distressed homeowners.

You can read all about the program here:

Smart City Consulting said...

anonymous 12:15 p.m.: we wondered about that, but the handout from the organizations did not qualify it as foreclosure notices. When we checked census information to compare housing status in 2000 and 2006, it raised a question in our minds, because we would have expected a precipitous decline in owner-owned housing.

We would argue that Hickory Hill has declined so fast because we allowed developers to build neighborhoods whose quality would not survive the first mortgage - materials were inferior, the quality of life wasn't good, and the planning and execution for the area were nonexistent. It became ground zero for predatory lending.

Smart City Consulting said...

anonymous 6:28 p.m.:

Thanks for the clarification. You are right about Title III of the Housing and Economic Recovery Act (HERA), which is a badly flawed piece of legislation.

There's so much to be done, and this comes up short.

antisocialist said...

I made the anon 6:28 comment re: HERA. I screwed up the identity thingee when I posted.

Amazingly, we agree on something again - that HERA is a badly flawed piece of legislation. To begin with, the funds are only a drop in the bucket.

Where we would probably disagree is on the role of the federal government with respect to doing anything about this problem.

Smart City Consulting said...

In double checking whether the 58,000 referred to foreclosures or foreclosure notices, according to the report, more than 90,000 notices were issued.

For example, in 2007, 11,500 notices were mailed but 8,500 resulted in actual foreclosure sales.

Chris said...

I was intrigued by the fact that only one foreclosure had occurred in the 38131 area code, so I googled it. It's the airport area. According to this, there was only one house in the 38131, and it was apparently foreclosed on.

Anonymous said...

Yes there was fraud and deception during the housing bubble. Want an example; search Mykisha Williams on the Shelby County Register’s site. Look at the history of 744 Melrose, make your own conclusions. Its still going on. Stopping such fraud should be a high focus priority.

We must also however be sure that we properly spread the blame for the foreclosures. Its not always completely the lenders fault. Did the person making $30,000/year really think they could afford that $250,000 house? Did they really think they could get something for nothing? I do not think folks are that stupid. Should we bail them out? If there was clear and evident fraud, then yes proper recourse should be applied. Think the government will really be able to sort this all out?

What about the person who lost her job, should the government stop her foreclosure? If it does what message is it sending? It may sound cold, but if a loan was taken out, she is not the homeowner. She signed a deed of trust/contract saying she would pay that money back. If you take away or “freeze” the bank’s only recourse what will be its reaction? Will it continue to make loans? We want the bank to continue to make loans don’t we? If it stops making loans, what will be the affect on homeownership rates? On the flip side, if the bank knows the government will “guarantee” the mortgage, why should the bank care about the worthiness of the applicant? If she defaults, the taxpayers will bail me out. Furthermore, why should the loan applicant care about paying the mortgage, the taxpayers will bail her out too.

The point is that hearts are often in the right place, but we need to understand that in the economics world for every action there is a reaction, and what we think may be helping, may actually be causing more harm. We must examine the long view as well as the short term “we have to do something!” Look at how increasing the money supply for housing (we wanted to increase home ownership, supposedly a good thing) actually created an inflationary and distorted housing bubble that burst with quite a bang. So I am not sure that putting our hard earned tax dollars here will not cause more harm than good.

Your zip code listing gets to the heart of the problem. Match that list up with a map of statistics related to poverty and it will become clear. The “fundamental” problem is the poverty and the absence of sophistication and knowledge (for lack of better words, understand that I am not saying they are stupid) that come with being in poverty. Foreclosures are only a symptom and I question if the city/county becoming a real estate investor and landlord will actually address the proper problem and not create more. Look at previous times the city has been a landlord. Did that experiment and expenditure of tax dollars solve the problem or create new ones?

Sorry to be so long winded, had a lot to say. I enjoy your blog, please keep it up.

fedin said...

It's the foreclosures, Stupid! While the US Treasury Secretary, The Fed, The Bush Administration, Congress, Barack Obama and John McCain are concerned about buying out "toxic mortgages" bundled up in complex investment securities as the solution to the housing crisis, the idea of simply allowing homeowners in the foreclosure process to apply for bankruptcy and have the bankruptcy judge renegotiate their mortgage to a payment that will allow them to stay in their homes is rejected, an idea that would cost taxpayers nothing, stop the foreclosure epidemic and stabilize housing prices.

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