Foreclosures Affect Us One and All

Jul 13, 2008 Issues: Economy

A “For Sale” sign in front of a house has usually symbolized transition: neighbors moving on, new neighbors moving in.But a “For Sale” sign today is increasingly not the hopeful symbol it once was.It might mean that a family can no longer afford to stay in their home.The sign might stay up far longer than it would have in the past, bringing anxiety to neighbors worried about what the selling price will say about the value of their own home.Or the worst may happen: There may not be a new neighbor at all, while the home remains vacant and contributes to neighborhood blight.
The scenario is all too common in Michigan.On average, if there are 11 homes on a street, chances are a family in one of them has fallen behind on mortgage payments or gone into foreclosure. Macomb County has been hit particularly hard, with foreclosure rates higher than 97 percent of all counties nationwide according to RealtyTrac Inc.
Trouble in the housing market has affected every region of the country and infected other sectors of our economy.Yet in Washington action continues to be delayed by arguing over who is to blame. Some blame homeowners for behaving irresponsibly and say that they alone should suffer the consequences.Others point to lenders and investment firms for loosening their standards and paying little attention to buyers’ ability to keep up with monthly payments. Many argue that Congress should not get involved.
This country values personal responsibility, particularly when it comes to contracts.
If you sign on the dotted line, you should know what you’re getting into and be prepared to meet those obligations. That same principle should be applied to lenders as well as homeowners. Lending irresponsibly is no better than borrowing irresponsibly.
Certainly there are homebuyers who made poor decisions, just as there are predatory lenders who defrauded homeowners and walked off with their hard-earned equity.
But many ordinary, well-meaning homeowners have also lost their homes to foreclosure, and responsible lenders have lost money on defaulted mortgages.
More important than assigning blame is recognizing that the impact of a foreclosure is not isolated to a single home. If your home is within an eighth of a mile of a foreclosed property, its value could drop by an average of $5,000. Falling property values lead to lower revenues for local governments and school districts, and vacant homes place higher demands on already thin municipal resources. In Michigan, $3.8 billion is projected to be lost from the combined state and local tax base as a result of the housing crisis.
When I met earlier this year with mayors and city managers of Macomb and Oakland County communities, they expressed an overwhelming need for federal action to address this crisis.

Recently, the House of Representatives passed legislation to combat the housing crisis head on. A central piece of the package would help borrowers at risk of foreclosure refinance into affordable fixed-rate mortgages. Another bill would help state and local governments purchase foreclosed homes to help communities avoid the problems associated with empty, blighted properties. The package also includes tax credits for first-time homebuyers and allows more taxpayers to deduct property taxes on their federal income tax return.
This is not a bailout. Under the package, lenders must take a loss, and borrowers must share with the government any profit from the resale of a refinanced home.
The cost of helping these homeowners remain in their homes is less than one-tenth the amount of the government-backed bailout of investment bank Bear Stearns. This is a fair, commonsense approach to help stabilize the market and protect home values.

Yet opponents continue to delay relief, and the president has repeatedly threatened to veto the measure. Meanwhile, more homeowners fall behind every day. By appeasing those who claim we are helping too many, we run the risk of helping too few. We must act before hindsight reveals our missed opportunities.

Foreclosure is not just a crisis for individual households. The ripple effects of foreclosure have been felt across the country and throughout the financial markets, and everyone is vulnerable. Without action at the federal level, the housing crisis could snowball even more than it already has. Congress must complete work on the housing package and the president should sign the bill without delay.