The spillover affects and costs of foreclosureBy Nisa Islam Muhammad -Staff Writer- | Last updated: Dec 5, 2012 - 11:35:06 AM
“We felt sorry for our neighbors that were experiencing foreclosure. We’ve helped them pack up and move away. Some just abandoned their property. But now that we want to refinance, we really feel sorry for ourselves because our property value has decreased significantly,” Harold Livingston told The Final Call.
“Our wonderful neighborhood has changed right before our eyes and we keep waiting for some super hero or government agency to come and fix things but it isn’t happening. We would move too but we owe more money on our home than it’s worth. So we’re stuck,” he added.
Foreclosures across the United States have drained nearly $2 trillion in property value from surrounding households, more than half of it from Black and Latino homeowners, according to a new study from the Center for Responsible Lending.
The $2 trillion figure estimated in the report represents only part of the total cost of foreclosures, since the spillover costs do not include equity lost by families who are foreclosed on, nor the billions of dollars drained from communities as a result of lost tax revenue, vacant properties, increased crime, and lower school performance by children.
“CRL’s report is troubling evidence of how much the economic costs of foreclosures are spilling over into communities all over America,” said Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights.
“Communities of color, which have been targeted for years by predatory lenders, and abused for years by mortgage servicers, have been practically drowning. Until policymakers get serious about reducing foreclosures and restoring meaningful home ownership in all communities, a full economic recovery will likely remain out of reach,” Mr. Henderson warned.
The report’s key findings, based on loans that entered foreclosure between 2007 and 2011 are:
- $1.95 trillion in property value has been lost or will be lost by residents who live in close proximity to foreclosures. These losses include both the spillover impact of homes that have completed the foreclosure process and future losses that will result from homes that have started but not yet completed the foreclosure process.
- Over one-half of the spillover loss is associated with communities of color. Minority neighborhoods have lost or will lose $1 trillion in home equity as a result of spillover from homes that have started the foreclosure process, refl ecting the high concentrations of foreclosures in neighborhoods of color.
- On average, families affected by nearby foreclosures have already lost or will lose $21,077 in household wealth, representing 7.2 percent of their home value, by virtue of being in close proximity to foreclosures. Families impacted in minority neighborhoods have lost or will lose, on average, $37,084 or 13.1 percent of their home value.
Importantly, according to the report, these losses represent only the wealth that has been lost or will be lost as a direct result of being in close proximity to homes that have begun the foreclosure process.
It does not include in the total loss in home equity that has resulted from the foreclosure crisis, estimated at $7 trillion, the negative impact on local governments, from lost tax revenue and increased costs of managing vacant properties, or the non-fi nancial spillover costs, such as increased crime, reduced school performance and neighborhood blight.
“The wealth drain triggered by foreclosures is continuing unabated, hurting Latino families and other vulnerable communities the hardest. We’re calling on policymakers to show strong leadership in stopping the foreclosure crisis and making fair and sustainable housing a national priority,” explained Janet Murguia, president and CEO of the National Council of La Raza.
The foreclosure of a home is so much more than just the loss of a property, according to the report. The massive number of foreclosures that have occurred during the current economic crisis has undercut the economic progress and security of families across the country.
When families lose their homes, the resulting damage is multi-faceted. First, there are the immediate fi nancial consequences. Costs include physical displacement, drained savings and retirement accounts and devastated credit.
Second, there are the longer-term fi nancial consequences of foreclosure for these families. Families who lose a home cannot tap home equity to start a new business, pay for higher education or secure retirement.
Loss of a home also removes a fi nancial cushion against unexpected fi nancial hardships, such as job loss, divorce or medical expenses, and eliminates the main vehicle for transferring wealth inter-generationally.
A new wave of foreclosures and housing scams coming (FCN, 04-23-2012)