Foreclosures and underwater homes still a crisis in Detroit
The report entitled “Underwater America: How the So-Called Housing Recovery is Bypassing Many Communities”, released by the Haas Institute on Thursday, May 8, clearly shows that the foreclosure crisis continues to ravish communities of color and that Detroit continues to be amongst the hardest-hit cities. The report’s recommendations essentially support the “Save Detroit—Save Our Homes” Campaign initiated by Detroit Eviction Defense. The campaign calls for a moratorium on foreclosures and evictions, principal reduction to current market value of outstanding mortgages, and the sale of repossessed homes to occupants at fair market value.
Remedies, including damages, paid for by the banks for the destruction of so many Detroit neighborhoods, are absent from the “Plan of Adjustment” from Emergency Manager Kevyn Orr. Any plan to exit bankruptcy that fails to address the continuing foreclosure crisis and decline in property tax receipts in Detroit is doomed to fail. The Campaign to “Save Detroit—Save Our Homes” must be implemented immediately!
From a new report from the Haas Institute, Underwater America: How the So-Called Housing Recovery is Bypassing Many Communities: Download the full report here.
Nationally, there are widespread reports about a housing recovery. However, the Haas Institute’s report, Underwater America: How the So- Called “Recovery” Is Bypassing Many American Communities, shows that this recovery has left behind the hardest-hit neighborhoods in cities like Detroit. In these housing “hot spots” too many homeowners are still underwater on their mortgage, which means they owe more than their homes are worth. These communities have already seen millions in wealth wiped out as a result of the foreclosure crisis, but for the homeowners who live in these hot spots, there is no relief in sight.
Moreover, even within these cities, working class communities of color are bearing a disproportionate share of the impact of the ongoing crisis. The same communities that were targeted for predatory mortgages in the first place and saw generations of wealth stripped away through foreclosures, are now concentrated in these housing hot spots, where they are more likely to be underwater on their mortgages.
Key facts about the housing crisis in Detroit
- 47 percent of Detroit homeowners were still underwater on their mortgages at the end of 2013, making it the hardest-hit city in the country with more than 500,000 people, and the fifth hardest-hit with more than 100,000.
- Detroit home prices remain 57 percent below their peak levels.
- Nearly 5,000 homeowners in Detroit went into default or foreclosure in 2013.
- African Americans and Latinos account for more than 90 percent of the population of Detroit. Across the country cities like Detroit, with large communities of color, have been disparately impacted by the housing crisis.
- Low-income communities have also borne a disparate share of the impact of the housing crisis. Detroit’s hard-hit neighborhoods are overwhelmingly low-income. The median household income in the city is just $26,955, just over half of the national median.
RECOMMENDATIONS FROM THE REPORT
1. Loan holders—banks, government sponsored enterprises (i.e., Fannie Mae and Freddie Mac, which are regulated by the Federal Housing Finance Agency, FHFA), and investors—should reduce the principal on underwater mortgages to current market values.
2. If loan holders are unwilling or unable to reduce the principal on underwater mortgages to current market values, they should allow these loans to be purchased by publicly-owned or nonprofit entities that are willing to restructure them with fair and affordable terms.
3. Local municipalities should use all options at their disposal to facilitate the goal of resetting mortgages to current market values, including the use of “reverse eminent domain” (the program proposed in Richmond, California and elsewhere) to acquire mortgages in order to restructure them with fair and affordable terms.
4. Banks, government sponsored enterprises like Fannie Mae and Freddie Mac, and investors that own vacant homes that have already been foreclosed upon should sell them to publicly- owned or nonprofit entities that can convert them to affordable housing units for residents of the community instead of selling them to speculators.
5. Local municipalities should use all options at their disposal to facilitate the goal of turning vacant, foreclosed homes into affordable housing. This includes the use of “reverse eminent domain” to acquire properties in order to convert them to af- fordable housing units for residents of the community and to prevent them from being purchased by speculators.
The Detroit Eviction Defense campaign, “Save Detroit—Save Our Homes”:
The federal government can throw Detroit’s working families a lifeline by changing policy at Fannie Mae & Freddie Mac, the federally run mortgage giants that own or guarantee more than half of all U.S. mortgages.
1) Stop Foreclosures and Evictions from Owner-Occupied Homes. In a city saddled with bankruptcy proceedings and emergency management, homeowners are threatened with yet another wave of layoffs, service cutbacks, pension reductions, and wage concessions. Fannie Mae and Freddie Mac have declared moratoriums on foreclosure and eviction in areas devastated by Hurricane Sandy. We need that helping hand in Detroit, where vacant homes are targeted by scavengers who strip the home and leave it a worthless hulk.
2) Reduce Mortgage Principal on Underwater Homes. The speculative and fraudulent practices of the mortgage banking industry caused the collapse in home values. Fannie Mae and Freddie Mac should modify mortgages by resetting principal at market value to help families struggling with unemployment, rising medical bills and other hardships. According to the Congressional Budget Office, principal reduction will lower the default rate on loans held by Fannie and Freddie, saving taxpayer’s money. (CBO, May 2013)
3) Sell Repossessed Homes to Owner Occupants at Market Value. Instead of selling foreclosed homes to investors and speculators for a fraction of their worth, Fannie and Freddie should first offer to sell repossessed homes at market value to owner- occupants, either directly or through non-profit intermediaries.