It's been said that the first line of defense is a good offense. Thinking around a curve can be a bit of a challenge, but the ability becomes more important for a neighborhood considering how to preserve the progress it has made when foreclosed and problem properties start showing up.
To meet the challenge, residents need to reach a consensus about the existence of problem properties and how it affects them. Neighborhood-based improvement, business, housing, faith-based and other organizations often lead efforts to identify issues and build consensus around them. These groups serve as the primary means to communicate the concerns of the neighborhood to city, regional and state leaders.
To begin building a good offensive strategy may require talking about reasons why foreclosure and problem property intervention and prevention efforts are important. Three basic answers are offered here to help answer the question, "Why does this issue matter?"
Problems presented by residential foreclosures and other types of property issues go beyond the household and spread to the neighborhood. This spillover effect is known in economics as a neighborhood externality. It means that the behavior of an individual homeowner and the wider neighborhood are interdependent. Positive externalities offer a benefit while negative externalities present a cost to the wider neighborhood.
Decades of work and investment by dozens of stakeholders in a neighborhood could be in question, particularly in those areas with concentrations of at-risk properties. Studies reveal that local foreclosures and other serious housing problems like vacancy and abandonment can be related to other issues, including criminal activity, demographic changes, business closures, declining tax revenue, falling home prices and property values, higher municipal costs, and a rise in predatory lending, like foreclosure rescue scams and mortgage fraud. Foreclosures alone mean not only costs for borrowers and lenders but also for neighborhoods, communities and local governments and have been estimated to be about $78,000 per foreclosure. (See Table.)
Neighborhood-based organizations helped break down barriers to lending. Now they play an important role in addressing other issues in the neighborhood, including foreclosure and property problems. They represent the interests of the residents, organize support and develop the capacity to raise capital.
These organizations can be even more effective when they work together. The St. Louis Foreclosure Prevention Task Force is one example. It is a coalition of organizations interested in property asset protection and preservation. The task force will work in 2008 to explore neighborhood actions.
Action at the neighborhood level is necessary because housing markets are local and some neighborhoods are affected more than others by property issues. For instance, home price appreciation has stabilized or declined in some areas and this could translate to an increase in loan-to-value ratios for the homeowners in a neighborhood.
Data and automated information systems help neighborhoods to stay on top of conditions and develop answers to questions like, "What's next?" This is critical because, in dealing with foreclosed and problem properties, the goal for the neighborhood is to intervene as soon as possible and recycle properties in a timely manner.
For additional information about strategies, technical tools and model programs, visit the web site for the National Vacant Properties Campaign at www.vacantproperties.org.
Keep up with what’s new and noteworthy at the St. Louis Fed. Sign up now to have this free monthly e-newsletter emailed to you.
FedCommunities.org is a portal to community development resources from all 12 Federal Reserve Banks and the Federal Reserve Board of Governors.