Dan Immergluck

The external costs of foreclosure: The impact of single‐family mortgage foreclosures on property values

Abstract To measure the impact of foreclosures on nearby property values, we use a database that combines data on 1997 and 1998 foreclosures with data on neighborhood characteristics and more than 9,600 single‐family property transactions in Chicago in 1999. After controlling for some 40 characteristics of properties and their respective neighborhoods, we find that foreclosures of conventional single‐family (one‐ to four‐unit) loans have a significant impact on nearby property values. Our most conservative estimates indicate that each conventional foreclosure within an eighth of a mile of a single‐family home results in a decline of 0.9 percent in value. Cumulatively, this means that, for the entire city of Chicago, the 3,750 foreclosures that occurred in 1997 and 1998 are estimated to have reduced nearby property values by more than

The Impact of Single-family Mortgage Foreclosures on Neighborhood Crime

598 million, for an average of

Measuring the Effect of Subprime Lending on Neighborhood Foreclosures Evidence from Chicago

159,000 per foreclosure. This does not include effects on the value of condominiums, multifamily rental properties, and commercial buildings.

From the Subprime to the Exotic: Excessive Mortgage Market Risk and Foreclosures

Foreclosures of single-family mortgages have increased dramatically in many parts of the US in recent years. Much of this has been tied to the rise of higher-risk subprime mortgage lending. Debates concerning mortgage regulation, as well as around other residential finance policies and practices, hinge critically on the social as well as personal costs of loan default and foreclosure. This paper examines the impact of foreclosures of single-family mortgages on levels of violent and property crime at the neighborhood level. Using data on foreclosures, neighborhood characteristics, and crime, the study found that higher foreclosure levels do contribute to higher levels of violent crime. The results for property crime are not statistically significant. A standard deviation increase in the foreclosure rate (about 2.8 foreclosures for every 100 owner-occupied properties in one year) corresponds to an increase in neighborhood violent crime of approximately 6.7 per cent. The policy implications of these findings are discussed.

Job Proximity and the Urban Employment Problem: Do Suitable Nearby Jobs Improve Neighbourhood Employment Rates?

Since the early 1990s, there has been a very large growth in mortgages made by so-called subprime lenders, which specialize in lending to borrowers with credit history problems. One reason for concern about this trend is that it has been associated with a large and simultaneous rise in foreclosures, which can entail significant costs not just for those directly affected but also for surrounding neighborhoodsand larger communities. This study usesmultivariate estimations to quantify the impact of subprime lending on neighborhood foreclosure levels. After controlling for neighborhood demographics and economic conditions, the authors find that subprime loans lead to foreclosures at far greater rates than do prime loans. Moreover, subprime lending appears to account for a substantial share of foreclosure activity in high-foreclosure neighborhoods.

Large Redevelopment Initiatives, Housing Values and Gentrification: The Case of the Atlanta Beltline

Problem: The recent rapid growth of high-risk mortgage lending raised the financial risk profile facing not only the American homeowner but entire neighborhoods. From the perspective of planners, the problem of increased and geographically concentrated foreclosures is the most critical outcome that has resulted from high-risk mortgage markets. Purpose: This article analyzes recent trends in mortgage finance in order to recommend what local planners can do to reduce the negative consequences of high-risk home lending for their own communities. Methods: I plot public and private data, much of it readily available for little or no cost, to discover where in the nation recent mortgage foreclosures are concentrated, and describe how similar analysis could be used prospectively and at a local scale to anticipate future problems. Results and conclusions: Numbers of subprime, exotic, and zero-down-payment mortgages have all been growing. Where they are spatially concentrated they are linked to rising and geographically concentrated home mortgage foreclosures. I find evidence that subprime lenders achieve greater market penetration in metropolitan areas with less educated residents, and that higher-risk lending is more prevalent where housing prices are high and increasing. I also find that when local housing markets are hot, even high levels of subprime lending are associated with only slightly higher foreclosure filing rates, but foreclosure rates rise quickly when hot markets cool. Takeaway for practice: Although foreclosures are less likely to be a severe problem in very strong real estate markets, when prices in previously hot markets stagnate or decline, foreclosures can quickly follow. This is a serious concern given recent trends in mortgage financing that have extended credit to more economically vulnerable populations and generally weakening housing markets in many metropolitan areas. These foreclosures tend also to be spatially concentrated within metropolitan areas, particularly stressing housing markets in neighborhoods where the higher-risk products are more prevalent. I recommend that planners: (1) track local lending and foreclosure patterns; (2) promote healthier mortgage markets in vulnerable areas; (3) fund targeted foreclosure prevention and counseling; (4) develop refinancing/restructuring programs; (5) redesign programs to promote sustainable homeownership; (6) get foreclosed properties reoccupied quickly; (7) recognize the effect of foreclosure surges on rental housing markets; and (8) be proactive in policy debates on lending regulation and foreclosure processes. Research support: None.

The Foreclosure Crisis, Foreclosed Properties, and Federal Policy: Some Implications for Housing and Community Development Planning

Due to a scarcity of small-area jobs data, much of the spatial mismatch literature has not directly addressed the impact of nearby jobs on neighbourhood employment rates. Such analysis is particularly needed when considering the probable effects of neighbourhood-targeted economic development. Moreover, the occupational mix of jobs and their match with resident skills have not been dealt with adequately. A consistent measure of job proximity is found to have a significant but modest effect on neighbourhood employment and unemployment rates, with a standard deviation increase resulting in an increase in the employment rate of approximately six-tenths of a percentage point and a reduction in unemployment of approximately three-tenths of a percentage point. When considering occupational match and the average occupational level of nearby jobs, the effect of nearby jobs is larger. Race and educational attainment are found to have the largest effects on employment rates.

Neighborhoods in the Wake of the Debacle: Intrametropolitan Patterns of Foreclosed Properties

This paper examines the announcement effects on property values of a large, multipurpose development initiative in Atlanta, Georgia called the “Beltline” which has received substantial public attention. The project involves the redevelopment of an abandoned rail line that encircles the central area of Atlanta. The 6500-acre project will be funded by tax increment financing bonds and will include the development of light rail, greenspace and real estate projects. By examining home sales from 2000 to 2006, the paper identifies changes in price premiums for locations in various geographical buffers around the Beltline and compares the timing of such changes with coverage in the local newspaper. It is found that there are large increases in premiums for homes near the lower-income, southside parts of the Beltline TIF district between 2003 and 2005, which corresponds to the initial media coverage of the planning process. The findings suggest that planning for the Beltline induced substantial speculation and gentrification.

Distressed and Dumped Market Dynamics of Low-Value, Foreclosed Properties during the Advent of the Federal Neighborhood Stabilization Program

Problem: Foreclosures surged during the 2007 to 2009 national foreclosure crisis and federal policymakers failed to respond quickly and forcefully to the problem. The large numbers and geographic concentration of foreclosed properties have posed a particular problem for many planners. Purpose: I aim to describe the intrametropolitan distribution of foreclosed properties at the zip code level, the often anemic or delayed federal policy response to rising foreclosures, and the potential effects of likely changes in federal policy and housing finance for metropolitan housing, development patterns, and local housing and community development planning. Methods: I used archival research and secondary and media resources to document the federal response to the foreclosure crisis. I analyzed a proprietary data set to describe the problem of the accumulation of foreclosed properties across and within metropolitan areas. Results and conclusions: Foreclosed properties were already accumulating in metropolitan areas with weak housing markets by 2006, but formerly hot markets such as Riverside, CA, Las Vegas, NV, and Phoenix, AZ, had many more by mid-2008. Within metropolitan areas, foreclosed properties were disproportionately concentrated in central city neighborhoods, although suburban zip codes with long commute times also had relatively high levels. The federal response to rapidly worsening foreclosures was faltering and timid. More conservative finance following the crisis will put downward pressure on housing consumption, potentially shifting demand to smaller homes. However, financing may be difficult or expensive to obtain for condominium buildings, and lenders and investors may shy away from less conventional projects, due partly to higher risk premiums. Takeaway for practice: In the short run, local governments must confront the problems of foreclosed properties, especially when they are highly concentrated in certain neighborhoods. More conservative mortgage markets are likely to persist for some time, with potential impacts on housing demand. Planners should strive to diversify tax bases by promoting more diverse land use and housing patterns to make their communities more resilient in future crises. Federal policymakers may move toward greater mortgage market regulation, but this will be vigorously debated. Policymakers will also consider the ongoing federal role in secondary markets, without which long term stability is unlikely. Finally, Congress may extend the Community Reinvestment Act to nonbank financial institutions given the federal support they have received during the crisis. Research support: None.

The accumulation of lender-owned homes during the US mortgage crisis: examining metropolitan REO inventories

The problem of growing numbers of foreclosed, vacant homes in U.S. neighborhoods during the mortgage crisis rose on the national policy agenda during 2007 and 2008. This paper describes the intrametropolitan accumulation of foreclosed homes (often referred to as “REO” properties) at the depths of the crisis in late 2008. After describing city and suburban patterns of REO across different types of metropolitan areas, a model of REO accumulation from late 2006 to late 2008 at the zip code level is estimated. In addition to declining housing values and increasing unemployment, a variety of other factors are found to be associated with increasing REO, especially the origination of high-cost mortgages during the subprime boom. Other factors include poverty rate, the median age of the housing stock, central city location, and state foreclosure processes. After controlling for these other factors, the proportions of a zip code’s population that are black or Hispanic are found to be negatively associated with REO growth, although only the relationship with proportion Hispanic is found to be statistically significant.