Foreclosure Impacts Foreclosure Impacts and Strategies and Strategies

Alan Mallach Alan Mallach

Nonresident Senior FellowNonresident Senior Fellow

The Brookings InstitutionThe Brookings Institution

Mortgage delinquencies and Mortgage delinquencies and foreclosures are still going upforeclosures are still going up

Mortgage Delinquencies and Foreclosures 2006-2009

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1

2

3

4

5

6

7

8

9

10

Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09

Quarter/Year

% o

f al

l m

ort

gag

es

Delinquency rate

In foreclosure process

……but not evenly across the United but not evenly across the United

StatesStates

North Carolina

North Carolina is not immuneNorth Carolina is not immune

Foreclosure filings in North Carolina 1998-2009

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10000

20000

30000

40000

50000

60000

70000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Nu

mb

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f fi

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Foreclosure f ilings

……and is being affected by and is being affected by

foreclosuresforeclosures ►As a % of owner-occupied stock, some As a % of owner-occupied stock, some

areas are particularly hard hit areas are particularly hard hit (foreclosures from 1/2005-7/2009)(foreclosures from 1/2005-7/2009) Dare County – 24.2%Dare County – 24.2% Mecklenburg County – 21.6%Mecklenburg County – 21.6% Franklin County – 17.3%Franklin County – 17.3% Durham County – 15.1%Durham County – 15.1%

Things may be getting worseThings may be getting worse

►Statewide filings increased 43% from Statewide filings increased 43% from August 2008 to August 2009August 2008 to August 2009

►Filings declined from November Filings declined from November through February, but have been through February, but have been rising steadily since then. rising steadily since then.

► In Mecklenburg County, filings In Mecklenburg County, filings increased 80%, to 1,316 in August increased 80%, to 1,316 in August 2009. 2009.

…….particularly in the Charlotte area.particularly in the Charlotte area

Foreclosure filings in Mecklenburg County 1998-2009

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2000

4000

6000

8000

10000

12000

14000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009EST

Year

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Foreclosure f ilings

Projectionbased ondata throughAugust 2009

What does this mean? What does this mean?

►Thousands of families are being Thousands of families are being affected – both homeowners and affected – both homeowners and tenantstenants

►Thousands of houses are becoming Thousands of houses are becoming vacant and abandonedvacant and abandoned

►Neighborhoods are being destabilized Neighborhoods are being destabilized – with loss of property value, safety – with loss of property value, safety and quality of life. and quality of life.

Protecting homeowners and tenantsProtecting homeowners and tenants

►Making Home Affordable (HAMP)Making Home Affordable (HAMP)►Tenant protections in Helping Families Tenant protections in Helping Families

Save their Homes Act of 2009Save their Homes Act of 2009►Going further? Going further?

More extended tenant protectionsMore extended tenant protections Allowing owners to remain as tenantsAllowing owners to remain as tenants

Protecting propertiesProtecting properties

►Strengthen code enforcement and Strengthen code enforcement and nuisance abatementnuisance abatement

►Provide for effective collection of liens Provide for effective collection of liens and judgmentsand judgments

► Impose habitability standardsImpose habitability standards►Make lenders responsible for Make lenders responsible for

maintaining vacant propertiesmaintaining vacant properties►Work with investorsWork with investors

Stabilizing neighborhoodsStabilizing neighborhoods

►What is neighborhood destabilization?What is neighborhood destabilization? Foreclosures undermine local housing Foreclosures undermine local housing

markets and increase vacant housingmarkets and increase vacant housing Market deterioration and vacant housing Market deterioration and vacant housing

lead to neighborhood destabilization lead to neighborhood destabilization Once destabilization begins, it can trigger Once destabilization begins, it can trigger

a chain reaction of destabilizing events.a chain reaction of destabilizing events.

Destabilizing events include:Destabilizing events include:

► Increase in number of foreclosure filings and Increase in number of foreclosure filings and foreclosure salesforeclosure sales

► Increase in vacant and abandoned propertiesIncrease in vacant and abandoned properties► Increase in crime Increase in crime ► Increase in number of properties coming on Increase in number of properties coming on

marketmarket► Too few home buyers for available supplyToo few home buyers for available supply► Declining house pricesDeclining house prices► Reduced property maintenanceReduced property maintenance

How does one stabilize a How does one stabilize a neighborhood?neighborhood?

► Foreclosures and abandoned properties can Foreclosures and abandoned properties can trigger destabilization – but dealing with trigger destabilization – but dealing with those problems alone may not be enough to those problems alone may not be enough to restore stability. restore stability.

► Neighborhood stabilization is about Neighborhood stabilization is about rebuilding confidence and fostering rebuilding confidence and fostering market recovery. market recovery.

► Market recovery happens when the effects Market recovery happens when the effects of stabilizing actions exceed those of of stabilizing actions exceed those of destabilizing events. destabilizing events.

Stabilizing actions include:Stabilizing actions include:

► Reducing the number of REOs coming onto Reducing the number of REOs coming onto the market the market

► Reducing the number of foreclosure filings Reducing the number of foreclosure filings ► Increasing the pool of home buyers Increasing the pool of home buyers ► Reducing the number of vacant and Reducing the number of vacant and

abandoned properties abandoned properties ► Stabilizing house pricesStabilizing house prices► Reducing crimeReducing crime► Improving property maintenance and Improving property maintenance and

neighborhood appearance. neighborhood appearance.

What should neighborhood What should neighborhood stabilization strategies include ?stabilization strategies include ?

► Reducing future foreclosures Reducing future foreclosures ► Reducing the link between foreclosures, Reducing the link between foreclosures,

disinvestment and vacancydisinvestment and vacancy► Putting vacant properties back in Putting vacant properties back in

productive useproductive use► Addressing other forces destabilizing the Addressing other forces destabilizing the

neighborhoodneighborhood► Restoring confidence and fostering Restoring confidence and fostering

market recoverymarket recovery

They should leverage other tools and They should leverage other tools and resourcesresources

►Property acquisition toolsProperty acquisition tools►Code enforcement and nuisance Code enforcement and nuisance

abatementabatement►Public/private sector housing assistance Public/private sector housing assistance

and mortgage financingand mortgage financing►Legal tools to minimize foreclosure Legal tools to minimize foreclosure

impacts and prevent future foreclosures impacts and prevent future foreclosures ►Outreach, marketing and other activities Outreach, marketing and other activities

to build confidence and rebuild market to build confidence and rebuild market demanddemand

Neighborhood stabilization efforts Neighborhood stabilization efforts should….should….

►Target resources strategicallyTarget resources strategically ►Reduce the link between Reduce the link between

foreclosures, disinvestment and foreclosures, disinvestment and vacancyvacancy

►Align with market realitiesAlign with market realities►Build partnershipsBuild partnerships

Target resources strategicallyTarget resources strategically

►Target areas where market conditions Target areas where market conditions make impact possible or where make impact possible or where strategic location or assets make it strategic location or assets make it critical. critical.

►Target areas where organizational Target areas where organizational capacity exists to carry out strategy. capacity exists to carry out strategy.

► Make sure each target area receives Make sure each target area receives enough investment to make impact enough investment to make impact possiblepossible

Align strategies with market Align strategies with market dynamicsdynamics

►Understand the marketUnderstand the market Trends in properties coming onto marketTrends in properties coming onto market Price trends/affordability of houses on Price trends/affordability of houses on

marketmarket Level and type of home purchase activity Level and type of home purchase activity Size and characteristics of home buyer Size and characteristics of home buyer

poolpool

►Build strategies based on market Build strategies based on market conditionsconditions

Market conditions fall along a Market conditions fall along a continuumcontinuum

Market Market correctioncorrection

Demand increases as prices Demand increases as prices fall to affordable levels, and fall to affordable levels, and supply/demand equilibrium is supply/demand equilibrium is restoredrestored

Market Market destabilizatiodestabilizationn

Demand potentially exists, Demand potentially exists, but may need but may need public/nonprofit intervention public/nonprofit intervention to trigger effective demandto trigger effective demand

Market Market collapsecollapse

Weak demand and large Weak demand and large supply creates surplus that supply creates surplus that cannot be absorbed by cannot be absorbed by marketmarket

Market-sensitive strategies: acquisitionMarket-sensitive strategies: acquisition

Market Market correctioncorrection

Market Market destabilizatidestabilizationon

Market Market collapsecollapse

Acquire Acquire properties properties only when only when specific specific property is an property is an impediment to impediment to market market recoveryrecovery

Acquire Acquire properties to properties to create create opportunities opportunities for reuse and for reuse and neighborhoodneighborhoodstabilizationstabilization

Acquire Acquire properties to properties to land bank for land bank for future future redevelopmeredevelopment nt opportunitiesopportunities

Market-sensitive strategies: reuseMarket-sensitive strategies: reuse

REUSE REUSE OPTIONSOPTIONS

Market Market correctiocorrectionn

Market Market destabilizatidestabilizationon

Market Market collapsecollapse

Market saleMarket sale Subsidized Subsidized sale or sale or lease-lease-purchasepurchase

SubsidizedSubsidized

rentalrental

Land Land bankingbanking

Build partnershipsBuild partnerships

►Government agenciesGovernment agencies►CDCs and non-profit service CDCs and non-profit service

providersproviders►Foreclosure prevention entitiesForeclosure prevention entities►Real estate industry playersReal estate industry players►Local and regional institutions Local and regional institutions ►Residents and civic organizations Residents and civic organizations

A final word….A final word….

In the end, neighborhood In the end, neighborhood stabilization is not about how many stabilization is not about how many units are acquired, rehabilitated or units are acquired, rehabilitated or demolished. It is about restoring demolished. It is about restoring stability, in the sense of healthy stability, in the sense of healthy market conditions and the market conditions and the confidence of residents and confidence of residents and homebuyers, to the neighborhood.homebuyers, to the neighborhood.

Alan MallachAlan MallachPO Box 623PO Box 623Roosevelt NJ 08555Roosevelt NJ 08555609.448.5614609.448.5614amallach@comcast.netamallach@comcast.net