Foreclosures and urban blight

Just bumping this back up to the top, to note a new news item on this subject: Wells Fargo, BofA, others sued by city of Cleveland over foreclosures. Quote:

“To me, this is no different than organized crime or drugs,” Cleveland Mayor Frank Jackson told the Cleveland Plain Dealer.

Original post is below the flip.

A pointer (via Calculated Risk) to a story that could be of local interest… Part of the problem of the rising defaults on mortgage payments — aside from people losing their homes — is that America’s debt-financed financial system has become so haphazardly and negligently administered (all in the pursuit of illusory “growth,” as opposed to sustainable growth). And when homeowners default on their subprime mortgages, it turns out that nobody is willing to take responsibility for these abandoned properties.

This BusinessWeek story concerns such a case that happened in urban Buffalo, and how a local prosecutor is dragging the banks to court to force them to accountability for the derelict properties. This isn’t unique to Buffalo; I recall reading a story about an Ohio judge who ruled that Deutsche Bank had to own up to being the “real” holder of the lien on a foreclosed property, and it caused a bit of a stir among the economic bloggerati.

Where the upstate NY angle is concerned, a commenter in one of the Calculated Risk threads wondered if other upstate cities were dealing with this in a similar manner. I don’t know the history of such lawsuits in the Syracuse area. But I admit I like the get-tough, take-charge aspect of this particular story. And it’s not just a depressed-upstate-city problem: it’s happening to cities and towns all over America right now. Maybe depressed Rust Belt areas can lead the way on this.

The thing to remember here is that blight doesn’t just magically happen. Blight is always the result of something that’s profitable for someone. I guess the banks don’t want citizens to realize this, and to continue believing it’s all continuing to happen just because their cities are inherently worthless.

10 Replies to “Foreclosures and urban blight”

  1. The city of Syracuse hasn’t had the cascading effects of mass foreclosures like some other cities, largely because our housing market has been so depressed for so long and our foreclosure rates were higher than average during the boom years.

    Two things happened as a result:
    1) the city housing market is affordable enough to purchase homes without resort to adjustable ARMS, interest only loans and other exotic mortgage products.

    2) Syracuse also created a mortgage foreclosure counseling program in 2004, thanks to the two year pressure campaign put on by SUN. This program helps families with budgeting and renegotiating terms of their loans with lenders. Also, SUN through its affiliation with a national organizing network, helped negotiate review and repair programs for subprime mortgage loans with Citifinancial, Ocwen, JP Morgan Chase and SPS. SUN has helped over 200 Syracuse families reduce interest rates, eliminate bogus fees and receive writedowns on balances and taxes.

    There is still a major problem with subprime loans in our neighborhoods, as the general redlining by mainstream financial institutions has created a lending market that since 1993 has seen subprime lending go from 2% of the market to over 50% of the market.

    The city also struggles with vacant and abandoned houses. For the past decade, the city of Syracuse has had a list of 1,200 vacant houses–a list that has had very little variation, despite the fact that the city knocks down about 200 houses a year. 50% of the city’s vacant houses are found in the south and west side neighborhoods–an area that only comprises 15% of the city’s households.

    The city changed their policy on vacant houses at the beginning of the Driscoll administration. Instead of waiting for a house to become tax delinquent for two years, and thus eligible to be seized under a tax lien, the city takes vacant house owners to state Supreme Court and asks them to show cause why the house should not be demolished. If the owner doesn’t show or doesn’t have a plan to get the house re-occupied, the court can issue a demolition order, giving the city the right to knock ’em down after 30 days.

    This court session happens every other month and between 3 and 15 new houses are on the list each session. Surprisingly few demolitions have occurred recently, after the city knocked down a bunch of long-time eyesores early in the program. The city seems to be dragging fewer houses into court each session–the last calendar had only four houses listed.

    I’d be interested in seeing what effect the mortgage crunch will have on the much more expensive homes out in the suburbs. My initial thought is that the effect will also be negligible. Their homes, while expensive, weren’t subject to the hyper-inflation and investment dodges seen in the “hot” markets of California, Arizona and Florida, so we probably will not see a lot of exotic mortgage products. Neither would borrowers in F-M, Caz, Skaneateles etc. be subject to the predatory loans with high interest rates and hidden fees that have ravaged neighborhoods like Cleveland and Detroit. Syracuse suburbanites have access to mainstream credit.

  2. One additional thought. The northern suburbs might have a problem with forelosures, as the flood of new homes in Clay, Cicero etc. were marketed to folks with less per capita income than the more affluent eastern suburbs. This is an area where a family might have gone to a subprime lender to purchase a more expensive home than their debt-to-income ratio would allow them with a conventional loan.

  3. I’m thinking Baldwinsville and Van Buren too, though probably not to the same extent as Clay and Cicero.

    There was a “subprime loan map” of NYC and upstate NY in the NYT (an interactive feature) recently but I haven’t been able to relocate it. As I recall, there were high rates of subprime in the cities as you would expect, but you’d find pockets of somewhat higher subprime in the burbs too… and I think the Bridgeport area was one of those. So I guess that might be the Clay-Cicero thing you were thinking of?

  4. Ellen– when I clicked on that “subprime loan map” in the NYT, I was disappointed to see that the “upstate” portion only included the Hudson Valley– although NJ and CT are also there. But, here it is:
    http://www.nytimes.com/interactive/2007/10/12/nyregion/20071012_SUBPRIME_GRAPHIC.html

    There is some interesting stuff there… I agree with you both that the suburbs are more likely to be hit in upstate urban areas– am thinking Rochester and Buffalo may be the worst, too.

  5. Robinia – thanks – you found the map I was talking about. If you go to the mini map on the right hand side and drag the colored box around, you’ll see that it offers a town-by-town (or is it zip-by-zip?) map of the entire state.

    Phil- I don’t know what I was talking about when I said “Bridgeport” – I was thinking “Brewerton” – and in any case, the subprime spot I was recalling (now that I see the map again) is indeed located in Cicero. It’s not a great percentage of subprime, but higher than the surrounding burbs. (I wonder what housing developments are in that little area? and who is running them?) And indeed – there are similar spots in Van Buren and rural Camillus, as I suspected.

    Mrs M- So what does Ron Paul think about this? :-)

  6. Well, thank you! I had bookmarked the map, but clearly did not know how to use it! MUCH more interesting now that I can. So, my town has 5% subprime mortgages. Looks like the Southern Tier is pretty high, outside Tioga County.

  7. My initial reaction to the lawsuit is “damn straight, bleed the money men dry.” My second thought is hopefully not going to be an issue: will the companies stop doing any kind of mortgage workouts, freezing of ARM resets etc. because to do so would admit culpability and have an adverse effct on any lawsuit settlement?

    Lawsuits complicate things and exponentially drag the time out for potential settlements. Still its hard to see the chaos in neighborhoods like Cleveland and Baltimore and not want to hit the mofos responsible upside the head. I mean mostly the investment bankers who made packages of subprime loans a fungible financial asset and then ran amok.

  8. If I was a banker looking for a way to avoid having to loan money to low asset value customers this is exactly how I would do it. After all, it’s not redlining if the federales force you to do it.

    Heh.

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