Foreclosures: The unnatural disaster

by Broderick Perkins

(11/8/2012) - Foreclosure disasters can be far worse disasters than those even Mother Nature can dish out.

No geographic area is safe, the financial toll can be insurmountable for a generation or more, and, like a storm surge, the ripple effects of foreclosures reache far beyond the eye of the storm.

Foreclosures can:

• Be a hazard to your health.

• Retard kids' educational growth.

• Wreck your financial life and put homeownership out of reach for a decade.

And that's not the worst of it. None of those findings take into account what a foreclosure can do to the neighbors.

The latest study about the collateral damage of foreclosures says homes lost to foreclosure from 2007 to 2011 have drained nearly $2 trillion dollars from the property values of nearby homes.

Hurricane Katrina, the costliest natural disaster ever, cost "only" $81.2 billion.

And, in a common thread that twists through the housing crisis, minority neighborhoods disproportionately suffer most.

Discrimination: The real 'perfect storm'

Of the $2 trillion in foreclosure-spawned financial damage to nearby properties, minority neighborhoods suffered half that amount - $1 trillion dollars.

The Center for Responsible Lending's (CRL) "Collateral Damage: The Spillover Cost of Foreclosures," is the latest study to document foreclosures' domino effect.

On average, the spillover effect costs $21,000 per family, about 7 percent of their home value. In minority neighborhoods the number is nearly double - $37,000 per family or 13 percent of a home's value.

CRL's estimates don't even include resultant losses in property tax revenues, the increased costs of managing vacant properties or non-financial spillover costs, including increased crime, lower school performance by children, mental and physical health effects and general neighborhood blight.

A recent National Fair Housing Alliance (NFHA) study found that lenders exacerbate blight conditions in minority neighborhoods, effectively twice victimizing communities. The report said lenders maintained and marketed foreclosed properties, over the study's period, better in white neighborhoods than they did for REOs in minority neighborhoods.

Following the study, NFHA filed three related U.S. Department of Housing and Urban Affairs complaints against some of the nation's largest mortgage lenders.

Morgan Stanley and Wells Fargo have also been targeted with mortgage-related discrimination suits.

Lingering destruction

And now this.

"CRL's report is troubling evidence of how much the economic costs of foreclosures are spilling over into communities all over America," said Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights.

"Communities of color — which have been targeted for years by predatory lenders, and abused for years by mortgage servicers — have been practically drowning," Henderson added.

He says until policy makers better manage the foreclosure crisis and restore access to home ownership in all communities, a full economic recovery will be slow and painful for years to come.

A large share of the housing boom before the Great Recession was an unprecedented surge in the number of ethnic minorities entering the housing market for the first time.

Their American Dream has become a nightmare.

The immediate financial fallout of foreclosures includes the cost of being uprooted, tapping or draining savings for post-foreclosure housing and credit that's ruined for years.

Longer-term consequences include losing equity to tap for a new business, higher education, retirement or home improvements that can boost the home's value.

Lost homeownership also comes with the loss of that financial cushion to soften the burden of unexpected hardships, including job loss, divorce, medical expenses, the death of a spouse.

The home is often a family's most valuable asset. After foreclosure, there's little left to pass onto the next generation, which suffers the loss of housing's wealth effect.

Beyond the families who lose their homes, an estimated 93 million properties have been or will be affected by foreclosure fallout.