Hidden Costs of the Foreclosure Crisis

Even though statistics indicate that foreclosure activity has slowed, it is anticipated that the foreclosure crisis is only halfway over. The Center for Responsible Lending expects that there will be 3 to 5 million more foreclosures in the next couple of years. This drawn out foreclosure crisis has long lasting effects for families that lose their homes as well as the communities in which they reside.

To comprehend the severity of the ongoing foreclosure crisis, check out these stats: In 2003, one out of very 38 homeowners was seriously delinquent (90 days or more past due on their mortgage payments) or in foreclosure. Today, that number is one out of ten.

Some repercussions of the foreclosure crisis are easily visible. The displacement of families, crime issues as properties go vacant, shattered credit scores, falling home prices, and the loss of equity can all be seen and felt. Other consequences are less immediately obvious but have lasting impact.

Bruce Lesley, president of First Focus, an advocacy group for children and families, said, “The bad thing about this recession: It’s been long and deep. One of the interesting things is that it has given people time to look at the secondary effects of things.”

The effects are devastating for children. Eight million children, or one in ten children, will be directly affected by the foreclosure crisis before it is over. This includes children of homeowners as well as children of renters evicted due to a foreclosure.

Julia Isaacs, of the Brookings Institution, called children the “invisible victims” of the foreclosure crisis. In addition to the emotional trauma of leaving home, there are implications in educational development as well. Lesley says, “Dislocation is like missing a whole month of school.” When children are dislocated, the chances of being held back or dropping out increase dramatically.

Foreclosure also has negative health impacts on children and families. Nutrition is often sacrificed when a family is cash- strapped and visits to the doctor are less frequent. There is also a correlation between the increase in foreclosures and increase in medical visits for mental health, preventable conditions, and stress- related complaints. It is estimated that 2.82 million foreclosures in 2009 led to 4.18 million additional non-elective hospital and ER visits among those aged less than 65. These ER visits cost an average of $2,521 per visit, which makes a total of $10.5 billion spent on additional visits in 2009 alone.

Finally, the foreclosure crisis has affected many communities. James Brooks from the National League of Cities says that the loss of property tax revenue due to foreclosures has lead to cuts in services, such as swimming pools and senior centers. Budget cuts have also resulted in less community policing. At the same time, vacant foreclosure properties are destabilizing neighborhoods and vacant buildings can be a magnet for crime.

While it is easy to see the immediate impact of foreclosure, these are lasting impacts that will have repercussions on children, families, and communities for years.

For more information, read Amy Hoak’s article “Three Hidden Costs of the Foreclosure Crisis.” 

The Generational Wealth Gap

If you graduated from college in the last few years, then you know how tough the job market is. Young adults have been among the hardest hit by the Great Recession. This generation, commonly referred to as “millenials,” have faced one of the worst job markets since the Great Depression. Many struggling graduates have been forced to take part- time jobs or jobs with uncertain futures. As a result, their ability to build wealth has diminished.

In recent years, there has also been a large increase in "boomerang kids" or young adults who live at home. Many are forced to live at home out of financial necessity. According to Pew Research Center as many as 3 in 10 young adults now live at home. In 1980, only 11% of young adults lived at home. Now, nearly 30% of 24 to 34 year old adults live at home.

All of these factors have contributed to the generational wealth gap: older Americans continue to gain wealth while the net worth of younger Americans is decreasing, which David Francis writes about in his article, “The Far- Reaching Effects of the Generational Wealth Gap.”

The Pew Social and Demographic Trends Report found that the average net worth of people under age 35 decreased from $11,521 in 1984 to $3,362 in 2009, a 68% drop. Compare that to an increase of 42% in average net worth among people 65 and older during the same time.

Paul Taylor, executive vice president of the Pew Research Center, says that the inability of young people to build wealth has resulted in a nationwide case of arrested development. Young adults who cannot find work are returning home and opting not to get married. “These are patterns that are decades in the making and they were accelerated by the bad economy,” Taylor says.

You may have heard the term “funemployment” used to described this time in young adults’ lives. Funemployment is defined as “a happy time in one’s life when one is not employed and not wanting to be employed.” However, this is not an accurate portrayal of the current economic climate. Most young adults would like to find a decent job but graduated during a time with a gloomy employment outlook. When they do find jobs, they are less willing to take risks, and they value security.

Can you see effects of the generational wealth gap in your household? What challenges have you faced as it has become more difficult to find employment?

Homeownership Offers Social and Economic Benefits

A study conducted by the UNC Center for Community Capital finds what New Century IDA has been promoting all along. Homeownership brings a wide range of social and economic benefits to low income communities.

Even though homeownership has long been thought of as a way to revitalize neighborhoods and build household wealth, the foreclosure crisis has caused some to question this in recent years. But this new study confirms that homeownership offers many benefits to a community.

For example, there is a clear link between homeownership and how low income homeowners perceive the level of crime in their community. Homeownership leads residents to take steps to protect and secure their neighborhoods which reduces crime levels. 

Mark R. Lindblad, the center research director, stated that “The housing downturn and foreclosure crisis have raised questions about the role of homeownership in stabilizing low- income communities. Our findings demonstrate that, when coupled with traditional, fixed- rate mortgages, homeownership reduces residents’ perception of crime as a key problem for their neighborhood.” Perceptions of crime are important because they affect residents’ mental and physical health.

Homeownership has faced critiques amidst the mortgage crisis, and some critics have said federal housing policy has unwisely promoted homeownership for lower- income households. However, there are several problems with this critique. One problem is that it neglects more compelling causes of the housing downturn and foreclosure crisis, particularly the lack of financial regulation of mortgage products. The root cause of the foreclosure crisis was not homeownership, but unfavorable subprime mortgages.

The second problem is the tendency to conflate lower- income homeownership with sub- prime mortgages. While lower- income and minority families did receive disproportionally higher rates of subprime mortgages, the unfavorable mortgage terms were largely to blame for the higher rates of mortgage delinquency among subprime borrowers. Research has found that low- income households with traditional, 30 year, fixed rate mortgages do sustain homeownership.

Since its beginning in 1999, New Century IDA has promoted homeownership as a means to build wealth and break the cycle of poverty. This study conducted by UNC affirms that homeownership does produce socially desirable outcomes for lower- income households. The study concludes that it is in everyone's best interest to develop policies and practices that promote homeownership.

For further reading, results of the study can be found in the article "Sense of Community and Informal Social Control Among Lower- Income Households: The Role of Homeownership and Collective Efficacy in Reducing Subjective Neighborhood Crime and Disorder" published in the American Journal of Community Psychology.

North Carolina Community Development Association Spring Conference

The North Carolina Community Development Association (NCCDA) will hold its Spring Conference May 16-18, 2012. For anyone involved in community development work, this conference will be a great event with many learning and networking opportunities.

The NCCDA was formed in 1979 to provide a unified voice for community development officials across North Carolina. As stated on their website, the purpose of the NCCDA is to:

• Provide recommendations to federal and state agencies regarding policy and/ or program guidelines
• Provide a forum for the exchange of information and experience among agencies concerned in all areas of community development
• Cooperate and coordinate with other professional associations involved with community development
• Examine, evaluate, and recommend alternatives to existing and proposed legislation which directly or indirectly affect local community development activities

The conference is a great opportunity for New Century IDA to network with other groups who are passionate about community development, and we hope you will consider attending as well.

A few of the sessions that are scheduled for the Spring Conference are “The Role of Incubators in Fostering Economic Development,” “Collaborating with Habitat for Humanity,” and an open forum on “Community and Economic Development: Are They Really Separate Functions?” Click here for the full agenda.

To add to the excitement, the conference will be held at the Grove Park Inn in Asheville, NC! During the conference, there will even be an opportunity to take a bus tour of Asheville learn more about projects in the area.

Grove Park Inn, Asheville, NC

To register for the conference, visit http://nccda.net/events.php or contact Debora Steenson, Association Manager, at manager@nccda.net or 919-418-1325. We look forward to seeing you there!