Policy Briefings: Are Delays to the Foreclosure Process a Good Thing?

The United States faces a foreclosure crisis. The Mortgage Bankers Association reported that slightly more than four percent of the loans in the United States are in the foreclosure process as of the third quarter of 2010. RealtyTrac reported in January 2011 that nearly three million homes received foreclosure filings in 2010. In addition to the current foreclosures, there exist a substantial number of potential foreclosures that will occur in the next several years. Goodman (2010) estimates that there may be another seven million homes that will face foreclosure. CoreLogic estimated that nearly 23 percent of all mortgages are underwater as of the third quarter of 2010. This number spikes in the areas hardest hit by the mortgage crisis. The sheer volume of actual and pending foreclosures coupled with a slowdown in the foreclosure process due to legal and political wrangling has increased the time that a home is in foreclosure. The purpose of this policy briefing is to analyze the economics of delaying the resolution of the foreclosure process. We review the literature relating to the macroeconomic effects of delaying foreclosures. We begin by identifying four types of potential costs of delay. First, foreclosure delays inject uncertainty in the consumer balance sheet, which leads to unnecessary and economically damaging delays in consumption. This reverse-stimulus alone could dwarf any further plausible price effects of delaying foreclosures at this stage of the business cycle. Second, delaying foreclosures could impede new housing construction. Housing construction is predicated upon a positive and consistent upward price gradient in the housing market, which will not be established until the market is cleared of delinquent homes. Third, and similar to a consumer’s balance sheet, delaying foreclosures creates uncertainty in banks’ balance sheets, potentially blocking channels of credit and undermining lending. Fourth, delinquent homes that are heading to foreclosure have been shown to aggravate neighborhood blight.

Estimating the effect of mortgage foreclosures on nearby property values: a critical review of the literature

In response to the wave of residential mortgage foreclosures in the past few years, federal, state and local government intervention programs have aimed to reduce the presumed social costs of foreclosures. Before the recent crisis, there was little economic research documenting foreclosure spillover effects. ; This article takes a critical look at the recent literature that seeks to estimate the negative effects of residential mortgage foreclosures. This review suggests that foreclosed properties sell at a discount, likely because such properties are in worse condition than surrounding properties. What's more, very nearby foreclosures appear to depress the sales prices of nondistressed properties, but this effect diminishes rapidly over physical distance and time ; The author suggests that the considerable variation in foreclosure discount and spillover estimates that occurs from study to study may be related to data limitations (specific places and times) and poorly specified empirical models in some studies. He notes that studies using a repeat-sales approach seem to hold greater promise than those using hedonic regressions; the former approach is more likely to hold property and neighborhood characteristics constant and make it easier to examine multiple geographies and longer time periods.

Decision Models for Foreclosed Housing Acquisition and Redevelopment: A University of Massachusetts Multi-Campus Collaborative Project - Processes and Findings to Date

The recent housing foreclosure crisis has had devastating impacts on individuals, communities, organizations and government. In response, several community development corporations (CDCs) have sought new ways to assist neighborhoods suffering from the myriad effects of high foreclosures, including neighborhood instability, increased vandalism and crime, lower property values, and economic disinvestment. This research project focuses on activities of community-based organizations that acquire and redevelop foreclosed properties to support neighborhood stabilization and revitalization. However, the costs of pursuing this strategy far exceed the resources available to typical CDCs. Thus, our project seeks to solve the following decision problem: What subset of a large number of available foreclosed properties should be acquired for neighborhood stabilization and revitalization? What activities should be pursued with which properties, when should they be pursued, and to what degree? The decision models we intend to develop will yield acquisition policies that are more efficient, effective, and equitable for CDCs and their community residents. Our goal is to develop theory, models and methods that benefit from the knowledge of practitioners while providing practitioners with novel tools and perspectives that enable them to better achieve their organizations’ missions. This document lays out our knowledge to date on the scope and magnitude of the foreclosure crisis, the policy responses and actions by local CDCs to mitigate the effects of foreclosures, and the next steps in our research project, which include applying our expertise to the experiences of community partner organizations to develop models and inform theory and practice

Short-Term Own-Price and Spillover Effects of Distressed Residential Properties: The Case of a Housing Crash

Most previous empirical studies of price spillover effects of foreclosure on no-default transactions are based on data from a stable housing-market period. In this paper, we use 2008 transactions from a housing market with a relatively large number of REO/foreclosures. Our overall results indicate that: (1) REO and in the process of foreclosure have the same spillover effects, but short sales do not produce a spillover effect; (2) models that control for the overall market trend produce smaller spillover effects; (3) the marginal effect of an REO is 1%; (4) the cumulative effects of multiple distressed neighbors can be as severe as 8%; and (5) excluding transactions of homes that were sold under distress from the sample increases the estimated marginal spillover effect to about 2% and the cumulative effects to about 21%.

Contextualizing Location Affordability: Urban Sprawl and Foreclosure

Location affordability is a policy concept that links housing costs with transport costs, recognizing that assessing affordability should consider the combined costs incurred by a given location choice. As a more holistic perspective on affordability than traditional thresholds of housing costs alone, location affordability opens new possibilities for applied analyses that suggest a need for stronger coordination between housing and transport sectors in policy, planning, and project development. A range of housing and transport system configurations can result in affordable locations. For example, it may be that high housing cost burdens in densely developed urban markets can be softened by the use of low-cost transportation services, such as public transit, cycling, or walking. Intensely urban areas are usually more compatible with low-cost transport modes because distances are shorter and density concentrates people so as to make public transit feasible. Conversely, in areas where there is little pressure on land markets and development is at low densities, housing prices are usually lower. Yet such areas are inefficient and expensive to serve by public transit; at the same time, long distances between work and residential locations make walking or cycling infeasible. As a result, households rely on private automobiles for transport, which require substantial investment to purchase, maintain, and operate one or more vehicles. Between these two extremes are a variety of patterns where households' housing and transport costs reflect the joint configuration of the land development and transport systems in a city. This joint configuration, or urban form, creates an influential backdrop for household location decisions and affects household cost structures. In recent decades, scholars have focused on the phenomenon of urban sprawl, broadly understood to be ex-urban, low-density development, with segregated land uses and an orientation toward automobile use. Although there is general agreement on what sprawl is, there is weak consensus on a consistent definition appropriate for use in empirical studies. This is not merely an academic problem: If research is to provide evidence on location affordability to policy- and decision-makers, a coherent and clear conceptualization of the relevant dimensions of urban form is needed to identify specific strategies that support affordability. This paper makes two contributions to the affordability literature. First, it operationalizes location unaffordability using Census tract-level mortgage foreclosure rates during the recent housing crisis as an outcome measure. From this perspective, foreclosures are an observable effect of some combination of factors that resulted in a dwelling unit becoming unaffordable such that the homeowner defaults on a home mortgage. This is in contrast to typical methods that accept normative thresholds for affordability (i.e. 30% of household income). Second, it uses multi-dimensional measures of urban form - recently developed by Andrea Sarzynski, George Galster, and Lisa Stack (2014) - to estimate the effect of particular patterns of development on affordability. These data are combined with demographic and household cost data in a series of spatial regression models for 35 US cities that exhibited the greatest changes in their development patterns over the preceding decade (1990s).Series: SRE - Discussion Paper

Impact of Evictions and Tourist Apartments on the Residential Rental Market in Spain

In recent decades, the analysis of residential rental prices in Spain has gained increasing attention. From a socio-economic viewpoint, the increase in long-term rentals compared to new home purchases by the new generations has led researchers to examine phenomena such as the growth of the tourism sector or foreclosures. This paper uses a panel data model to analyze the influence of the rate of foreclosure evictions and number of tourist apartments on residential rental prices in 50 provinces of Spain for the period 2015-2018. The results show that an increase in the number of tourist apartment vacancies increases residential rental prices, while an increase in the rate of foreclosure evictions causes residential rental prices to fall.This work was conducted within the framework of a research project FQM-150 and financed by Andalusia Government

The Spanish mortgage crisis: Evidence of the concentration of foreclosures in the most deprived neighbourhoods

The Spanish mortgage crisis has resulted in a massive process of home dispossession through foreclosures. This process forms part of the logics of accumulation by dispossession supported by the Spanish financial and real estate model. The article uses the city of Lleida as case study to show that the effects of this phenomenon has tended not to be spatially homogenous, but rather to be more concentrated in the most deprived urban areas.The analysis has been focused on two approaches: (1) identifying the characteristics of housing affected by foreclosure processes that have resulted in evictions, and; (2) defining the spatial distribution patterns of this housing. This work demonstrates how evictions due to mortgage foreclosures have followed very clear patterns. Firstly, they have predominantly been focused on lower quality housing (identified in this study as the cheapest and smallest properties). Secondly, Getis-Ord Gi* spatial statistic has been used to show that they have been concentrated in the most deprived areas of the city. Both issues confirm the central hypothesis of our study: the Spanish mortgage crisis has exacerbated existing urban disparities

Induced earthquakes and house prices: the role of spatiotemporal and global effects

This paper contributes to the existing literature on the explanation of housing prices. First, our proposed methodology accounts for cross-sectional dependence, both locally and globally, using individual data of more than 200,000 transactions in the three most northern provinces of the Netherlands over the period 1993–2014. Second, the selection of houses within each focal house’s sub-market is not only based on distance and time, but also on their degree of similarity. Third, global cross-sectional dependence is not modeled by time-fixed effects, as in previous studies, but by cross-sectional price averages. Fourth, we accumulate the strength and frequency with which earthquakes affect each focal house before it was sold into one single measure using a seismological model and then subdivide it into different bins to account for nonlinear effects and to determine a threshold below which earthquakes have no effect. This way we are able to investigate the propagation of the detrimental impact of earthquakes on housing prices over space and time without the need to select a reference area in advance, which potentially might also have been affected by earthquakes

The Effect of Foreclosure on Vacancy at the Neighborhood Level

An Applied Research Paper Submitted for (Partial) Fulfillment of the Degree: Master of City and Regional PlanningAfter the U.S. foreclosure crisis and the larger financial crisis it precipitated hit the economy of the U.S. since 2006, people paid more attention to foreclosures than before. In 2010, about 2.9 million properties were reported receiving foreclosure filings, an increase of nearly 2 percent from 2009 and an increase of 23 percent from 2008. Figure 1 shows the trend of increased There are two interesting approaches to study causes of foreclosures. One states that properties foreclose because they are in worse condition than surrounding properties (Scott Frame, 2010). Many studies focus on the physical condition of properties and modeling the foreclosure behavior. The other approach focuses on the owner, rather than the physical characteristics of the properties. They think that minority homeowners are more likely to experience foreclosures than white borrowers (Ryan Allen, 2011). That may because of they are more likely to have less financial literacy (Kristopher Geradi, Lorenz Goette, Stephan Meier), or they are more likely to lose their jobs. Many empirical analyses have been done on the relationship between foreclosure rate and the characteristics of homeowners. Although it is important to investigate the causes and mechanics of foreclosures so that policy makers can learn from it and improve the current policy. However, it is also necessary to understand the consequences of residential foreclosures. The markedly increasing foreclosures made people lose their homes, but more than that, the ripple effects or externalities of foreclosures “impose a wide array of costs-both financial and nonfinancial- on a variety of individuals, organizations, and communities” (Immergluck, p.133). Foreclosures can cause “tremendous reduction in the value of nearby properties” (Frame, 2010), and lead to vacant or even abandoned properties, which hurt our communities. “Foreclosures of single-family homes have been viewed as a serious threat to neighborhood stability and community well-being” (Immergluck, 2006). Many studies have been analyzing the causes and consequences of foreclosures, and many of which focus on the externalities of foreclosures on individuals, nearby property values and communities. Foreclosure will cause high vacancy rate, which will make neighborhoods suffered from abandonment and high crime rate (Dan Immergluck, 2006). After being hit severely by the 2006 – 2008 subprime crises, we need to estimate the effect of foreclosure on our communities. This paper analyzes the effect of foreclosures on vacancy in the census tract level of 20-county metro Atlanta area by incorporating spillover effect of foreclosure into regression models. The basic model is estimated with neighborhood economic and demographic characteristics to measure the effect of foreclosure on vacancy rate. And then location variables are included to estimate the second model which measures if there is a significant difference of that effect from inner city than suburbs. At last but not least, to estimate how long it will take to transfer effect of foreclosures to neighborhood vacancy, variables measuring foreclosures in different time period are entering the model. The results suggest that controlling neighborhood economic and demographic characteristics, vacancy rate increases with foreclosure rate, but increases at a slower rate at higher foreclosure rate levels. One more foreclosure filings per mortgageable property2 will increase the vacancy rate by about 2.2%. And vacancy rate of census tracts located inside the ten core counties is 1.2 percent lower than census tracts located outside the ten core counties, which shows suburb neighborhoods have a higher vacancy than central city neighborhoods during the period of 2006 to 2010. Census tracts whose closest employment center is downtown or Buckhead have the highest vacancy rate, followed by census tracts closest to the airport employment center. Census tracts whose nearest employment center is Perimeter area have the lowest vacancy rate. And the subprime crisis in 2007 and 2008 do affect neighborhood vacancy, and its effect may last until 2009. This paper is organized into six sections. After the introduction, section two of the paper is literature review, which is organized by the two different theories of causes of foreclosures and three types of consequences of foreclosures. Based on the reviews of other studies, section three raises three research questions and includes establishments of three models to address those research questions, respectively. Section four introduces variables used in this study and how geography conversion is conducted. Section five includes results of three regression models and interpretation of variables. Finally, section six presents the conclusion of this paper, innovations and limitations of the methodology as well as possible further studies.Dan Immergluc