CRL Looks at Spillover from Foreclosures

The Center for ResponsiblernLending (CRL) estimates that between 2007 and 2012 some 12.5 million homes inrnAmerica have been put into the process of foreclosure.   Beyond the harm this has done to thernfamilies who have lost or face the loss of their homes there is a spilloverrneffect on the neighborhood and the larger community.  In an update to a report issued in 2012, CRLrnhas just published a brief on the economic impact on the larger community whenrna home in the area is foreclosed.  </p

CRL based its analysis on mortgage data collected by the government underrnthe Home Mortgage Disclosure Act and by Lender Processing Services.  It estimated the number of foreclosures inrneach community, the number of affected neighboring properties, and the loss inrnvalue to those properties applying a the 2008 estimate derived by Harding,rnRosenblatt, and Yao of a 0.744 percent house price depreciation to every homernwithin 1/8 mile of a foreclosure.  Therndepreciation amount was then aggregated at various geographic levels to arrivernat the total of spillover losses.</p

The Center estimates that about 95 million homeowners have lost equity whenrna nearby home has gone into foreclosure. rnThe aggregate property value lost by these homeowners is estimated at arnstaggering $2.2 trillion.   The averagernloss for families, both already suffered as well as estimated future losses,rnaverage $23,150 in household wealth or 8.8 percent of their home’s value.  </p

The brief, one of five that CRL has published updating arnstudy published in 2012, found that over half of the spillover losses have beenrnfelt in communities of color.  About $1.1rntrillion in property values has occurred in minority neighborhoods, reflectingrnthe higher concentrations of foreclosures in those communities.  In communities of color the average currentrnand future losses (based on homes that have entered but not completedrnforeclosure) is estimated at $40,297 or 16 percent of the homes’ value. </p

CRL based these estimates only on the losses suffered byrnthose in close proximity to homes in foreclosure.  They did not include the estimated total ofrn$7 trillion in home equity that resulted from the housing crisis, the negativernimpact from loss tax receipts and increased costs of managing vacant andrnabandoned property that has fallen on local governments, or the non-financialrnspillover costs such as increased crime, and neighborhood blight.</p

CRL said that research suggests that thernspillover impact increases during the year leading up to the foreclosure sale,rnafter which the negative effect stabilizes. rnGiven that there is a variation depending on the stage of foreclosurernthe property is in, CLR said it recognizes that the full spilloverrnimpact of all ofrnthernforeclosure startsrnmay not have materialized yet.  </p

Finally, spilloverrnloss, like any lossrnin homernequity, may berntemporary and therernis somernevidence that propertyrnvalues may eventually rebound months orrnyears after foreclosed properties are purchasedrnby new owners.  Despite this<beventual rebound, CRL saidrnthey believe it isrnimportant to capture the aggregaternloss in wealth incurred by nearby homeowners throughout therncrisis, even if somernof that equity may havernbeen restored.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.