WASHINGTON, DC - May 7 - Two essential elements of an effective federal
response to the foreclosure crisis are stabilizing communities hard hit by
foreclosures and helping renters who lose their homes to foreclosure through no
fault of their own. The Neighborhood Stabilization Act (H.R. 5818), which the
House plans to consider today, would help address the first of these issues and
deserves support. The House should also act quickly to address the second issue
as part of a more comprehensive foreclosure package.
Stabilizing communities. In communities across
the country, concentrated foreclosures have left thousands of properties vacant,
contributing to a downward spiral of falling property values and rising crime.
As a result, local tax bases in many areas have weakened even as the costs of
public services such as police protection and trash collection have increased.
H.R. 5818 would give grants and loans to hard-hit
states and localities to purchase foreclosed properties and rehabilitate them
for resale or rental, at a federal cost of $8.4 billion. The funds would be
distributed on the basis of actual and likely future foreclosures in communities
where subprime loans, mortgage defaults, and mortgage delinquencies are
Lenders would benefit from the purchase of their
foreclosed properties but not excessively so, since buyers would purchase the
properties at a discount from their current value. Homeowners in these
communities who are not facing foreclosure will also benefit, as local home
prices will fall less, and neighborhood conditions will become more stable, than
in the absence of the bill.
At the same time, the bill seeks to ameliorate
the nation’s severe shortage of affordable housing by requiring that a large
share of the properties rehabilitated under the bill be affordable to low- and
Protecting renters. More than one in four
foreclosures affects renter households. These families have paid their rent but
face eviction because the owners of their homes have defaulted on their
mortgages. (Lenders typically evict renters precipitously after repossessing
homes, rather than act as landlords.) They often cannot get their security
deposits back, making it harder for them to find the funds to obtain other
That calls for two remedies:
- a requirement that foreclosing lenders give
renters a reasonable amount of time to relocate, and
- funds to help low-income families avoid
homelessness. For example, an estimated 100,000 renters with incomes below
$15,000 reside in units that face likely foreclosure. For $300 million, each
such household could get $3,000 to help cover relocation expenses.
In particular need of federal protection are
renters with federal “Section 8” housing vouchers whose homes face foreclosure.
They are among the most vulnerable of families affected and risk losing their
housing subsidies as well as their homes if they are unable to find another unit
to rent with their voucher within the time period set by the voucher program.
As Congress continues to refine its response to
the foreclosure crisis, it should include measures to ameliorate the harm to
innocent renters. For example, Rep. Michael Capuano (D-MA) has proposed a
measure to ensure that these families be allowed to remain in their homes
through the remaining months of their lease.
Residents of hard-hit communities and renters of
foreclosed properties represent the “collateral damage” of the foreclosure
crisis. They are not responsible for the actions of lenders and homebuyers and
should therefore have a strong claim on any public resources provided to help
address the foreclosure crisis.