A Slow Road Ahead in Housing Market Recovery: Cities, States Struggle to Help Homeowners and Neighborhoods

2.14.12 | Last week the government and big banks announced a $26 billion settlement to bring some relief to homeowners facing housing foreclosure, but only some. Under the deal, lenders will reduce the principal for borrowers who owe more than their house is worth or homeowners may be able to refinance at lower rates. Some homeowners who’ve already lost their homes to foreclosure will receive $2000. Yet, many feel the settlement gives banks too good a deal and is too little, too late.

Several recent pieces I read last week drew attention to the obstacles still facing homeowners trying to avoid foreclosure and to the challenges facing state and local governments who have limited capacity to help, even now years into the crisis.

The New York Times reported last week on the logjam in processing mortgage foreclosure cases in New York state courts. (The Woodstock Institute created a visual of this logjam.) Despite aggressive efforts to protect homeowners from foreclosure, New York state still faces an astounding 100,000 foreclosure cases, according to the Times, with thousands more expected. In another story from last year, the Times quotes LPS Applied Analytics, a real estate data firm, who finds it would take lenders 62 years at their current pace, the longest time frame in the nation, for New York state to repossess the 213,000 houses now in severe default or foreclosure.

The Times’ William Glaberson visits the State Supreme Court in Queens and finds low-income homeowners facing massive red tape, state officials struggling to untangle complex subprime mortgages, and banks’ lawyers resisting compliance with new state regulations designed to try to protect low-income homeowners and hold banks accountable.

The hearings that form the core of New York’s approach — special settlement conferences, which are required to try to modify mortgages to make them affordable — have become comic exercises slowed by endless paperwork, requests for additional information and the mysterious loss of documents.

And writing at the Atlantic Cities, Mark Bergen reports on skepticism from local policymakers about recent federal plans to allow investors to buy pools of foreclosed homes backed by the government and turn them into rental units.

Realtors and those working at housing organizations are concerned about how to ensure quality. In weak housing markets like Atlanta, for example, local planners worry that foreclosed properties bought too quickly could end up vacant again in a few years. And in places like Chicago’s Englewood neighborhood, those on the ground are skeptical they can attract quality investors who can comply with city ordinances.  Some are concerned about an influx of absentee landlords, and stressed local governments lack  the capacity to oversee the large amount of properties under consideration.

“Local governments really aren’t prepared,” Dan Immergluck, an urban planning professor at the Georgia Institute of told Atlantic Cities. “The problem is that you give them these resources, but they don’t have the staff.”

BRR Research has been examining how regions are recovering from the collapse of the housing market. In a series of case studies that examined the responses of six different metro regions, Todd Swanstrom and colleagues found that local community resilience was important in how well a region was able to recover from the collapse.

The most resilient metropolitan areas had strong housing nonprofits and a history of collaboration across economic sectors.

“Resilience arises from the capacity of public, private, and nonprofit entities to collaborate effectively,” Swanstrom said in a recent Q&A at HUD. “It is very important to have strong housing nonprofits that are in touch with each other, governments, and other private entities, and so are better able to influence local housing policy.”

In a forthcoming chapter, “Resilience in the Face of Foreclosures: How National Actors Shape Local Responses,” Swanstrom argues that while local government has the neighborhood expertise to more effectively respond to the foreclosure crisis, they need federal support. Swanstrom calls for more federal funds so metros can pursue their own targeted recovery strategies and build the capacity of local governments to take advantage of these federal dollars. I blogged about this research here.

The chapter was recently published in Regional Resilience:  Urban and Regional Policy and Its Effects, vol. 4., edited by Harold Wolman, Margaret Weir, and Howard Wial from the Brookings Institution Press.

Photo by get directly down.

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