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Foreclosure Response: Develop a Coordinated Response Strategy

In communities across the country, task forces and coalitions formed to coordinate and improve local responses to the foreclosure crisis that began in 2008. This coordination was an essential part of the development and execution of an effective strategy to prevent widespread foreclosures and stabilize communities.

This section reviews the basic approaches that state, regional and local governments adopted, in collaboration with practitioners and advocacy groups, to develop a coordinated response strategy for future foreclosure crises, including actions to:

Get Organized for Foreclosure Response

The first necessary task of getting organized to develop an effective foreclosure response is to identify which organizations are already involved in addressing various aspects of the crisis. Stakeholders will likely include local nonprofit community development agencies and housing counseling agencies, philanthropic groups, local real estate agents and developers, banks, legal aid, advocates and local and state political officials.

Strengthen the State and Local Policy Environment

Many of the policy changes and other necessary actions have to occur at the state level. The state typically controls many of the most relevant legal, regulatory and budgetary levers, and local coalitions need their states to deliver in order to be effective. Key priorities for state action include:

  • Revising laws and regulations to ensure a fair foreclosure process, prevent predatory and deceptive foreclosure “rescue” schemes, move properties into reuse more rapidly and support the creation of entities that can ensure that foreclosed properties will be conveyed to responsible owners;
  • Using state leverage to encourage creditors to pursue alternatives to foreclosure where possible and, when foreclosure does occur, to recognize their obligations to keep properties well maintained while they are in REO status; and
  • Providing more funding and other supports for local counseling and neighborhood stabilization activities.

This component of the work also includes better informing local governments about the evolving nature of the foreclosure crisis and promising responses and then taking steps as needed to encourage revisions in local laws, regulations and policies to be more conducive to realistic solutions. Relevant policies controlled by cities and counties include eviction protection for renters, definitions and enforcement of property code violations and differential tax treatment for vacant properties.

Develop a Local Action Strategy

The main components of a foreclosure response strategy are preventing foreclosures, addressing neighborhood spillover effects and helping families recover. But assigning priorities is no easy task. The nature and extent of foreclosure problems differ dramatically across neighborhoods in most metropolitan areas. Some neighborhoods may warrant higher priority than others, and solutions that work well in one may not prove effective in others.

Finding and Using Good Data

Creating strategies to respond to a foreclosure crisis requires good reliable data. Local coalitions should strive to assemble and evaluate pertinent data at the neighborhood level and use that data to develop strategic guidance for policy change, targeting specific types of mitigation actions to different types of neighborhoods.

Needed data include neighborhood-level information on the numbers of loans and foreclosures as well as on a host of other social, economic and physical characteristics that allow analysts to better interpret the implications of any particular level of “risk of foreclosure.” University institutes and civic groups in a sizeable number of metro areas have already obtained and are using much of the data that may be needed. The National Neighborhood Indicators Partnership works to advance techniques in this field and spread capacity to other cities. The partnership is a collaborative effort by the Urban Institute and local partners to further the development and use of neighborhood-level information systems in local policymaking and community building.

Developing a Neighborhood Typology for Targeting Funds

Even groups that do not have access to local foreclosure or housing market data can get started using nationally available data to begin to understand how the foreclosure problem is playing out in different neighborhoods and how local housing markets are faring.

Local analysts may ultimately develop sophisticated analyses of available data as they work with policymakers and practitioners to craft sensible interventions in differing neighborhoods. It may make sense, however, to start with a fairly straightforward framework that classifies neighborhoods by housing market strength and the risk of being impacted by foreclosures. The following is an example of such a framework developed by the Urban Institute for the Open Society Foundations:

MARKET STRENGTH FORECLOSURE IMPACT RISK
C. Actual high foreclosure density B. High risk of high foreclosure density A. Low risk of high foreclosure density
1. Strong Facilitate rapid sales to sustainable owners, low/no subsidy Lower cost effort to prevent foreclosures and vacancies, low/no subsidy Lower priority
2. Intermediate High payoff/priority, rehab and rapid sale to sustainable owners, target subsidies, neighborhood maintenance High payoff/priority, prevent foreclosures and vacancies, emphasize neighborhood maintenance Lower priority but watch carefully, head off emerging problems early
3. Weak More emphasis on securing/demolishing, land banking to hold until market rebound Lower cost effort to prevent foreclosures and vacancies Lower priority but watch carefully, head off emerging problems early

Source: Developed by the Urban Institute for the Open Society Foundations

This type of framework could help communities tailor strategies and make informed choices about how to target scarce resources. The central goals are to prevent foreclosures from destabilizing sound neighborhoods and to revive those already in decline. In a resource-scarce environment, this means investing time and resources in those neighborhoods where the investments will have the most significant payoff. At the simplest level, Urban Institute researchers suggest that planners might apply guidelines like the following:

  1. Local strategies probably don’t need to invest much in the way of foreclosure response resources in neighborhoods where there is a low risk of many foreclosures, regardless of market strength, although trends should be monitored so that low cost interventions could be mounted in intermediate and weak market neighborhoods to head off problems quickly if risks start to increase.
  2. Likewise, strategies should not have to devote much attention to strong market neighborhoods, even if there are some risks of foreclosure impacts. There are not likely to be many neighborhoods in these categories. If risks increase substantially, however, there will be a need to act quickly to prevent actual foreclosures and then minimize vacancy in any properties where foreclosures do occur. But with modest intervention to do that, the strength of the market should prevent serious further slippage, and no (or hardly any) subsidy funds will need to be applied.
  3. Markets where there is an intermediate level of market demand may be the best target for government investment, since they are susceptible to rapid decline if foreclosures are not prevented or the properties swiftly brought back into reuse. Where many properties are at risk, but foreclosures have not yet occurred, the emphasis should be on prevention. This would include targeted outreach to offer counseling to troubled borrowers, accompanied by priority code enforcement and public maintenance to “keep up appearances” in properties and public spaces not yet directly threatened.
  4. Intervention in intermediate markets where a sizeable number of foreclosures have already occurred is also likely to be urgent. Officials need to continue all the types of actions described for intermediate level markets but also add forceful direct public action to assure restoration of foreclosed properties to reuse as soon as possible. Rehabilitation will be needed in many cases, and some subsidies may be appropriate. Rehabilitation may only be warranted, however, where the market is strong enough that the new owners (investors or owner occupants), taking into account the full costs of rehab as well as available subsidies, will subsequently be able to operate the property in an economically stable manner over the long term.
  5. Neighborhoods with both a weak market demand for housing and high risk of foreclosures represent an even more difficult challenge. Ideally, local stakeholders would hope for large-scale public investments that would move such neighborhoods into the “intermediate” category, but most cities will not have sufficient funding to do that with all affected neighborhoods. Where the market is likely to remain weak for some time, it may be difficult to justify investments in the rehabilitation of homes because the costs of acquisition and rehabilitation will exceed what people are willing to pay for the renovated homes. With such investments, communities may quickly run through available funds and in the end do not have enough funding to successfully stabilize these neighborhoods. In a worst-case scenario, much of this public investment could ultimately be lost.

An alternative approach would be for government to acquire the foreclosed properties, demolish the structures and hold the parcels as a part of a land bank until market conditions rebound enough to justify further investment. This is a difficult decision to make, and significant discussion will be needed with many constituencies to reach a level of community acceptance that will allow this strategy to move forward successfully.

Real neighborhoods, of course, may not fall easily into just one of these boxes. When a neighborhood fits between two of them, a blending of actions will be appropriate.

Also, even though market conditions and concentration of foreclosures are the most important indicators for these purposes, other information should be consulted as well in developing an action strategy. One additional factor to consider is the extent of other investment – both past and present – by the private or public sectors. Some neighborhoods may already have had substantial private and/or public sector investment, in which case no additional funding may be needed. On the other hand, these areas might require new funding to protect the long-term investments that have been made and to prevent the neighborhoods from sliding into decline. Other neighborhoods may have community resources and assets, including anchor institutions or strong community groups that will be able to leverage new public investments to stabilize the neighborhood, even if the housing market data indicates a weaker market. Additionally, certain neighborhoods may have a greater capacity to influence the trajectory of areas that surround them. Any funds targeted to these areas would have a higher impact than funds targeted to a neighborhood that is more economically and socially isolated.

A good example of a strategic planning effort that followed this “different treatments for different types of neighborhoods” approach is one developed in Columbus and Franklin County, Ohio, with technical support provided by Community Research Partners, the local National Neighborhood affiliate. This effort explicitly sought to:

“(1) prevent neighborhood decline associated with foreclosure in traditionally stable markets

(2) address the issue of backslide due to foreclosure in “tipping point” neighborhoods; and

(3) focus resources in neighborhoods traditionally targeted by revitalization efforts, preventing further disinvestment and decline . . .”

“Weak market” neighborhoods were identified and “comprehensive acquisition and holding plans” were devised for each.

Assess Progress

Communities also thought about how to provide data on how the foreclosure crisis was evolving on the ground and how local initiatives were addressing the crisis. Many local governments have automated records on transfers of title that, with GIS technology, can be matched against a list of properties that have received notices of foreclosure. Monthly or quarterly reports could be produced for the city or county, and for individual neighborhoods, on:

  • Number of properties entering the foreclosure pipeline (notices)
  • Disposition of properties in the pipeline (foreclosure canceled or title transferred after sheriff’s sale)
  • Number of REO properties subsequently sold to a new owner (by months since sheriff’s sale)

One report in Cleveland, for example, allows assessments of the probabilities of foreclosure given varying characteristics of the loan. Another report using the Cleveland data system analyzes how long institutional investors are holding properties after foreclosure and the prices at which they are ultimately sold.

Other elements of reporting on this topic relate to data on program activities. For actions taken by the local government on specific foreclosed properties (e.g., demolition, boarding up, rehabilitation), for example, all that may be needed is linking a brief description of what was done (type of action, dates and dollar amounts) to the address, and then GIS technology can add up the results and produce reports for neighborhoods and the jurisdiction as a whole. HUD required this form of electronic address-based reporting for funds spent under the Neighborhood Stabilization Program (NSP).

Key Resources

Websites

Foreclosure Mitigation Toolkit for Communities

The Philadelphia Reserve Bank created this toolkit to provide resources to assist communities in addressing the current turmoil in the housing market and minimize the impact of foreclosures on neighborhoods.

National Low Income Housing Coalition Renters in Foreclosure Toolkit

The National Housing Law Project’s database of State and Local Tenant Protections in Foreclosure Situations

Articles and Reports

Michigan Foreclosure Task Force. 2012. Community Foreclosure Response Toolkit.

Thomas Kingsley, Robin Smith and David Price. 2009. The Impacts of Foreclosures on Families and Communities. Report prepared for the Open Society Institute. Washington DC: The Urban Institute.

Allen, Ryan. 2009. The Unraveling of the American Dream: Foreclosures in the Immigrant Community of Minneapolis.

Federal Reserve Banks of Atlanta and San Francisco. A Resource Guide for Foreclosure Recovery.

Equitable Development Toolkit. PolicyLink.

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