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.” 

Evolving Household Dynamics ("I am Woman, Hear Me Roar")

As the economy and job market have changed over the last several years, it is no secret that family structure and the way families operate has changed in order to adapt. In the latest Time Magazine cover story “Women, Money, and Power,” Liza Mundy writes, “Not since women entered the work force by the millions after WWII has America witnessed economic change on this scale.”

The workforce is changing. It has become common for married women to work and even to outearn their husbands. In 2009, nearly 4 in 10 working wives outearned their husbands, which is an increase of more than 50% from 20 years before. Women also make up 60% of college students and earn a majority of doctorates and master’s degrees. Some experts predict that within the next 25 years professions such as law and medicine will be dominated by females.

There has also been a dramatic increase in the number of single parent families. 41% of babies are now born to single women. Young women are acutely aware of the potential that they may be the sole earner in their household and that supporting a family is a far greater responsibility than just supporting oneself.

As more women are the co-breadwinners and primary breadwinners for the families, assumptions about how the household works are changing. Women’s earnings and financial status give them more economic influence both at home and in public. It is predicted that rates of cohabitation and single living will continue to rise because women can afford to wait. Financially secure single women are a growing market for restaurants, travel, and real estate.

The growing trend of female supported households is evident at New Century IDA. The majority of IDA clients are single mothers. Each of these women have earned income with which they support themselves and their families. A common thread among these women is that they are motivated to participate in New Century IDA and become home owners because of their children. They all want to have a stable environment in which to raise their children, and they want to give their children a better life than they had. Many of them are also proud to show their children what they can accomplish on their own, without the help of a man.

If the present trends continue, by the next generation more families will be supported by women than men. Has your family structure changed over the years? Let us know what you think, then take this quiz to see who holds the power in your household!

Time Magazine Cover March 26, 2012

IDA Success Stories: Laura Bond

Unfortunately, I became disabled in 1995 at 35 years of age, and was forced to live in a housing assistant living apartment. After living there for seven years, I qualified for a Section 8 voucher and was so happy and thankful to get out of that apartment setting and get my own place again.

I never imagined being a home owner. I took the classes IDA offered, and welcomed the education. I learned I can be a homeowner. Although I was on a tight budget I learned ways to budget my money, pay off debt, save for a downpayment [for my home], and that there is home warrantee insurance available if things should break down. I am overwelmed with joy at the thought of having my own house. I couldn't be more proud and thankful for the program.

Sincere thanks for helping me take the steps to have such a blessed future.

Thanks again, Laura Bond

IDA Success Stories: M.M.

Had I been asked to write this success story two months, I would still have a lot to say, and a whole lot more time to say it. I didn’t have house then, but thanks to the IDA program I had already accomplished two things I thought I’d never.

The first was not spending money on things I didn’t need. For years the use of credit cards were my biggest temptation and downfall. The IDA program helped me distinguish between things I needed and things I wanted. Learning about interest rates on credit cards made me realize that the now broken VCR I charged 11 years ago actually cost me $600 dollars. The closet full of clothes I charged (now all too small) cost me four times the good bargain I thought I had found, and with all the money I charged for meals at fancy restaurants (that led to the clothes being too small), I could have almost bought my own restaurant! I was happy to cut the cards up.

Getting rid of them helped lead me to the second accomplishment – saving money. One of the main principles of the IDA program is saving money. And I was able to do it! Believe me, pre-IDA, no bank account of mine had ever seen a four digit balance for more that a couple of days!

That leads me to why I’m short on time today. When my savings account hit $1,000, Sue Simmons told me to start looking for a house. So I looked. And I looked. I looked at houses too small and at houses too big, houses with no closet space, houses with no counter spaces; ugly wallpapered walls, hideous carpeted floors. Until one day, my real estate agent drove me into a perfect driveway that led to a perfect house! I asked her to write the contract to make a bid on it right away.

In a blur, my loan was secured, the house was inspected, and the lawyer was contacted. And at closing, there sat Sue Simmons, along with Mr. Stewart from ESR, providing support and encouragement to the very end, not to mention the checks they passed to the lawyer on my behalf! It was all so simple, and I am so very thankful.

Today, I’m in my home with a garage full of junk waiting to be put away. And every night, I get down on my knees to thank God for that garage and the house to which it is attached, for my family and for the IDA program.

IDA Alumni Stories: Dierdre Davis

My name is Dierdre Davis.  I am a 2004 graduate of the IDA PROGRAM.  In late 2002 I was told about a program that ESR had that would provide assistance for home ownership.  Being a single mom of two boys I knew I wanted to have a home for us, where they could run around like boys do.  After inquiring about the program it seemed to be something that I could benefit from so I enrolled.  At that time I only thought that it was something to help me with the down payment on a home for me and my boys but I got much more out of the program. 

The financial literacy program was an asset to me and I continue to keep what I learned at the forefront of my mind.   I found out that before you purchase a home there were other things that needed to be in order; that it wasn’t just about having a monthly income to pay the mortgage.   I learned that in order to be a successful homeowner there were steps that I had to take to get my finances in order.   Those sporadic trips to the shopping mall or out to eat had to be limited.  To help keep me on track me I taped a picture of my dream house to my favorite credit card.  Every time I pulled it out I would see what I was possibly giving up.  I learned to track every penny that I earned which helped me to really understand how much house I could afford.  

Having the support of my Success Coach, Mrs. Bianca was great because she was with me every step of the way and gave me a lot of encouragement.  Because I was serious about what I wanted, I went into the class wanting to learn.  I definitely got more out of it than what I was expecting.  I feel that the financial literacy program is something that is very much needed and I encourage all the people that I know who plan to purchase a home to look into this program.  If you are educated about preparing to purchase a home and how to keep it once you purchase it, you have a win-win situation.

Stabilizing Communities

Not everyone knows what an IDA program is, or how it can help their community. IDA stands for Individual Development Account, and they are matched savings accounts that are matched either 2:1 or 6:1. That means, for every $1 the client saves, 2, 3, 4, 5, or 6 dollars is put into the account. The end result is a downpayment for the clients dream home.

When you hear, "We help working members of our community become first time homeowners", or "matched savings account", what is the first thing that pops in your head?

A few that are at the top of the list are:
1) "What about subprime loans?";
2) "The housing market crashed, how in the world can this help?";
3) "How do IDAs work; is it just money and houses given away?"

Well, here are the answers to all those burning questions:

1) Not a SINGLE person in the history of the New Century IDA has received a subprime loan. Clients sit with the wonderful loan counselor, Bianca Green, and discuss their options. She works with and for the clients, and always has their best interest in mind. Everyone behind the scenes have the clients interest in mind.

2) Yes, the housing market crashed, but right now is the BEST time to buy a house! Builders have built homes, but they aren't selling; there are foreclosed homes that are not bought; and prices are low. If people buy homes now they are buying them at their lowest prices, and when the market is better they have the option to sell at a higher cost.

And how can this help? How does this NOT help? Families are learning the importance of savings through the financial literacy classes. I was taught my entire life, through school, how important it is to save, but that wasn't enough- I also needed to know how to save.

Financial literacy classes teach clients how to save, cut costs, and reach their dreams. When a parent is taught how to save they pass this knowledge on to their child. Their children then use this knowledge at a young age, and they live their lives saving and spending in a responsible, financially educated manner. Even those without children pass this knowledge to family and friends. As a current client said, "The IDA program is people helping people help people".

Communities benefit from the additional taxes homeowners pay that goes to the fire department, school district, police officers, and other publicly funded institutions. Buying a home is also a process. Builders are receiving pay for building homes, lenders are used for acquiring mortgages, and then there is homeowners insurance (insurance agents receive money), and the ability for the client to spend money on their house because of their newly acquired savings knowledge, and ability to responsibly spend.

Since the inception of the New Century IDA in 1999, less than 10 people have defaulted on their mortgages, and over 440 people have successfully bought houses. The default rate is far below the national average, and those who continue to own homes also continue to reinvest in their communities through savings, responsible spending, and paying their taxes.

3) IDA's are not just money and houses given away. Clients spend months going to financial literacy classes; they are required to save $1500 of their own dollars; and they meet with their success coaches on a required, regular basis.

New Century IDA clients are single parents and couples; they are young, old, and may be hesitant to buy a home because of previous credit issues, and what they read on the news about the job and housing markets.

I recently interviewed a client turned success coach. She shared her experience as a single mother who was not only attending financial literacy classes and meeting with her success coach, but she was also attending night classes at a local University- on top of working full time. This is a normal story for New Century clients. New Century IDA clients are workers, parents, couples or single, their commonality is that they are looking to grab their piece of the American Dream, and they are working very hard to do so!

When you support the New Century IDA (and IDA programs in general), you are supporting responsible economics, breaking the cycle of poverty, and empowerment of the individual and community. Everyone walks away a winner.

Click here for more information on the New Century IDA, or peruse through this blog. You can also ‘like’ us on facebook.

Click here for more information on North Carolina IDA and asset building initiatives

Also check out Asset for Independence, and the Center for Economic Development for more information on the assets movement, and how to become a part of this innovative and life changing movement.

Andriana Bicanin

AmeriCorps*VISTA

the New Century IDA, Housing Department

the IDA & Asset Building Collaborative of N.C.