The Housing Chronicles Blog: Cities stepping in to stop foreclosures

Tuesday, June 17, 2008

Cities stepping in to stop foreclosures

Having grown impatient with the federal government's solutions to the rising levels of foreclosures, some cities are stepping into halt foreclosure proceedings and help their residents keep the homes. From an AP story via

Philadelphia is just the latest in a growing number of cities — including Los Angeles, Baltimore, and Trenton, N.J. — that are taking matters into their own hands to help stop the nation’s housing crisis within their borders.

With more than a half-million foreclosed homes on the market, and over 3 million borrowers behind on their mortgages, more cities are aggressively reaching out to residents and filing lawsuits against lenders.

While politicians debate in Washington, many cities are on the front lines of the foreclosure crisis: fielding calls from desperate homeowners, and fighting vagrancy and crime around vacated properties.

“We can’t wait on the federal government,” said Douglas Palmer, mayor of Trenton, N.J., and the president of the U.S. Conference of Mayors. “We’re taking action.”

Cities are under the gun to act: A report released by the U.S. Conference of Mayors last November projected economic losses of $166 billion this year for 361 metropolitan areas. These stem from lost tax revenue and jobs as well as slower consumer spending that come with home equity declines, and don’t even include the financial toll of increased crime, fires and building code violations.

To try to recoup part of that money, some cities are suing lenders. But it’s not easy to go after federally regulated companies.

In January, Cleveland took the public nuisance route and sued 21 major investment banks and lenders, charging that their subprime lending practices devastated neighborhoods and hurt property values and city tax collections. Baltimore sued Wells Fargo & Co., alleging a pattern of predatory lending practices in its poorest neighborhoods. Minneapolis and Buffalo, N.Y. are engaged in similar litigation.

“Why would these mortgage lenders continue to enter deals with these people who they knew could not afford their loans?” said Robert Triozzi, Cleveland’s director of law. “To suggest (these financial institutions) didn’t know the consequences just defies logic.”

He blamed Wall Street greed and said the players relied on a scheme that could only work if home prices continued to rise.

“We’re going to hold them accountable for actions they have done here,” said Triozzi, who is seeking hundreds of millions of dollars in damages.

Wells Fargo said the lawsuit has no merit...

This week in Jacksonville, Fla., — where the foreclosure rate is three times the national average — officials are launching a campaign to promote the city’s interest-free loans. Distressed homeowners can get up to $5,000, which will be forgiven if they stay in their homes for at least five years, said Dayatra Coles, manager of housing services.

Louisville, Ky., also is giving out up to $5,000 in loans. The loans will be forgiven if the homeowner stays put for a decade. The city has teamed up with the United Way to offer access to housing help in addition to the charity’s social services...

Los Angeles, meanwhile, is adding foreclosure counselors in neighborhood centers for jobs and city services. The city also is tapping neighborhood councils to fight blight. L.A. is watching other cities’ plans to buy up foreclosed properties and possibly use them for affordable housing, but in an area where homes can easily cost over $500,000, the cost of such a plan is a huge obstacle, said Gil Duran, spokesman for Mayor Antonio Villaraigosa.

Cities don’t have the financial or regulatory strength to stem the crisis, and need firmer backing from the federal government, said John Taylor, president of the National Community Reinvestment Coalition in Washington.

The federal government has taken several steps to prop up the housing market, but critics say Bush administration-backed efforts to help borrowers avoid foreclosure are falling short.

The government has expanded the authority of the Federal Housing Administration to allow more borrowers to refinance their loans, and to help home buyers purchase a foreclosed property.

In May, House lawmakers passed a bill to send $15 billion to states to buy and fix up foreclosed property. Proponents say the measure, opposed by President Bush, will prevent blight in neighborhoods plagued by abandoned homes. Lawmakers are also considering housing tax credit of up to $7,500 for first-time home-buyers.

Still, calls are growing for more government intervention, in the form of a plan for the government to guarantee as much as $300 billion in new loans to help borrowers refinance into cheaper, fixed-rate mortgages.

No comments: