Report: Foreclosures cost neighbors $1.95 trillion

Study seeks to quantify the equity lost by homeowners from nearby foreclosures betwen 2007 and 2011. Minority communities have suffered disproportionate losses, according to the report.

By Teresa at MSN Real Estate Oct 31, 2012 12:01PM

© moodboard/CorbisWe all know that foreclosures inflict "collateral damage" and drag down property values for the entire neighborhood.

 

The Center for Responsible Lending has now quantified the cost: Americans have lost nearly $2 trillion in equity from nearby foreclosures, according to a new report, "Collateral Damage: The Spillover Costs of Foreclosures."

 

That’s just the equity lost by the neighbors from homes that entered the foreclosure process between 2007 and 2011, not the losses incurred by the foreclosed homeowners themselves or the costs to communities in lost tax revenue and higher crime rates. It’s estimated that Americans have lost $7 trillion in equity during the foreclosure crisis.

 

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"CRL’s report is troubling evidence of how much the economic costs of foreclosures are spilling over into communities all over America," Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights, said in a news release. "Communities of color, which have been targeted for years by predatory lenders and abused for years by mortgage servicers, have been practically drowning."

More than half that $1.95 trillion in lost equity came from minority homeowners, the group said, whose neighborhoods have suffered disproportionately from the foreclosure crisis and the scourge of bad subprime loans.

A number of lenders have faced legal action for failing to maintain foreclosed properties in minority neighborhoods.

 

According to the center’s calculations, the average loss of equity from nearby foreclosures is $21,000, or 7% of median home value. In minority neighborhoods, the average loss was $37,000, or 13% of median home value.

Other research has found that foreclosures also contribute to a rise in crime and a decline in health.

 

"Once you get one or two or three foreclosures on a block, you start really creating all kinds of negative spillover effects on the neighborhood, and crime is just one of them,” Georgia Tech professor Dan Immergluck said last year in a report on the MarketPlace radio program. Immergluck has studied foreclosure effects on communities and is the author of "Foreclosed: High-Risk Lending, Deregulation, and the Undermining of America's Mortgage Market."  

 
21Comments
Dec 3, 2012 7:20AM
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Papa Joe, you know nothing about the free market.  Real Estate companies have NO control over the cost of housing.  They simply work within the market forces.  Please explain how a realtor can manipulate the price of a house.

 

Victo34455, This WAS happening under the Bush administration, true, but it was Dodd/Frank who were directly overseeing the process and they are the ones who have the responsibility for what happened.

Dec 1, 2012 9:08PM
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You can thank George Bush for this. He belongs in prison for what he did.
Dec 1, 2012 8:43PM
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Nobody lost any "equity" the housing bubble was created by greedy real estate shysters artificially inflating the value and stupid gullible ignorant "greedy" people who jumped into the ponzi style scheme "pyramid scheme" too close to the end.

As Gump's mommy said: "Stupid is as stupid does."

Dec 1, 2012 6:58PM
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You don't own or have equity in anything.  YOU RENT IT FROM THE GOVERMENT.  Remember you didn't build it. 
Dec 1, 2012 5:31PM
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planyjaney, you are right.  I'm an investor also.  The Fed forced banks to make high risk loans to people who had little chance of paying them which created the bubble and subsequent bust.  Barney Frank and Chris Dodd should be thrown in prison.  They were the ones overseeing the whole process because of their stupid idea that everybody deserves to own a home, whether they qualify or not.  Now these homes are on the market and it's hard for investors to get them.  I buy trashed homes, fix them up to look beautiful inside and out and sell them for a profit. Everyone wins, the buyer gets a nice house, I make money on the transaction, the neighborhood is improved, and the realtor makes a commission.
Dec 1, 2012 5:09PM
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the problem is ,that the bankers & realtors got together and scratched each others back. they knew the people who tried to get a loan  " could not afford it"  BUT they talked it over ,at lunch and said , you know we both can make money out of this .so they just approved the loans and said ,that it is the owner problem if they cant pay for the house ,and when they gave loans to everybody " knowing they could not make it " they figured it not our problem now, let the government take the fall .as they did, and even bailed out the banks ,gave them more money ,now it has come back to bite them in the butt. and all the people who played by the rules GOT BURNed,,, i for one did. but I'm not moving and plan to stay in my house .i know my house is not worth the $260.00 i paid,, its may not be worth $230.00  or less , but i have a roof over my head & i know that some time in time it will come back to the $260.00 so I'm not dwelling on this . but with that said ,,,,i think all the people who made all that money should go to jail or do some type of service to help all the people that they burned and all the downfall they caused our country.  so the moral of the story is  UNITED WE STAND DIVIDED WE FALL.    you can take that to the bank ........
Dec 1, 2012 3:16PM
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If you see homes like this, contact me.  I want to buy them and fix them. 

 

Dec 1, 2012 2:30PM
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Silly neighbors, how dare they end up next to a house that foreclosed?

Their fault entirely for taking out a mortgage...

 

 

Um, BTW, things are entirely different in Iceland where the Bankers were punished and the Homeowner who dared to take out a mortgage were helped if they needed it...

 

How come no stories to this effect, MSN? I'd like to know that data, too.

Dec 1, 2012 2:23PM
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plaineyjaney please tell the whole truth. For example the republicans are in bed with the bankers, all of Wall Street, big oil, big pharma, the insurance industry, defense contractors, etc., etc., etc. The K Street talking points that seem to blame liberals for everything while ignoring the actions of conservatives that have been absolutely detrimental to the USA is absurd and solves nothing.

Dec 1, 2012 10:56AM
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A house is a place to live, to provide you and your family shelter.  It really isn't an investment, it should be veiwed as a liablity for the average American.  Until we all realize this, the housing market will not get any better.
Dec 1, 2012 8:48AM
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Realtor here that flips houses. I try to buy these properties to fix them up and resell. A win win for everyone. The trouble is Fannie and Freddie have programs in place that only allow owner/occupied to purchase. So they sit, and financing falls apart several times before they actually are closed - all at the neighbors expense. In MN it takes over a year to foreclose on, and the owners get to live there and run them down in the meantime. So...for all you liberals - you are making everyone pay the price. Obama truly in bed with the bankers on this one. Don't blame me, I didn't vote for more welfare.....I work for a living.
Dec 1, 2012 7:59AM
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@38Super, you are 99% right. There are  a few people who lose their houses to other circumstances, however, and I truly feel bad for them. As for most people, the ones taking exotic loans in order to get a house, HAD to know that when the truth in lending statement they had to sign to get the house told them their payments would quadruple, or that they would owe a giant balloon payment at the end of a loan, that they were going to lose the house. I don't know how they couldn't have seen it.

 

It isn't just about minorities, though. It's about everyone who wants more than the can afford, and who isn't willing to wait until they can.

Dec 1, 2012 7:31AM
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Well there is no one to blame but the home buyers themselves.  Most could not afford what they bought.  During the bubble the scam was purpetrated by the Government i.e.. Fanny, Freddie, VHA, and banks.  Wall street saw a way to rip everyone off and did so.   So who got baied out the above aforementioned because they were ll in bed together.  I'm tired of hearing about the por minorities, most should have never been allowed to buy a house in the first place because they could not pay the mortgage.  Majority of home buyers were way in over their heads and barely living pay check to paycheck, with credit cards maxed out or close to it.  There is a sucker born every day.  All of a sudden now banks are want what they should have wanted all along, reasonable down payments, good credit history, monhtly incomes much greater than the mortgage payments and etc.  Did any of these homebuyers think about what if I loose my job can I continue to pay my mortgage?  I feel sorry for some buyers but most I do not, because they should have never been allowed to buy in the first place.

   

Dec 1, 2012 6:12AM
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God I wish people would understand what happened. This article is one of many stupid articles. The foreclosure rate and or area is not what lost equity on housing. The Equity was false. It was not a real appreciation therefore not real money.

Many people who got foreclosed on did so because of this false equity. They went to refi to get out of there problem and found they owed more than they where worth.

 Property increase at rates of 15 and 20% A Freaking YEAR, from 2003 till 2007. This was not a true indicator of value. There was never a housing shortage and never a value increase. REALTORS for the most part started turning houses like a deck of cards. and with ever re-sale added another 7% to the property to cover there FEE. That is a 7% increase on every 100k of value when the national average was 4%. The Banks would loan based on Credit and appraisal value. Yes they where giving away money, But it was based on false equity. NO ONE in America was protected from this. Most people are upside down today and don't even know it because the are current and have no reason to move or even get a value on there home.

Dec 1, 2012 5:15AM
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I couldn't agree more RiseUpAmerica!  I just tried to refi my house a month ago, paid $450 for the appraisal and guess what?  I am barely at a break even point.  In 2006, I had more than 30K in equity.  In the past 2 years I have completely remodeled my house, new hardwood floors, new carpeting, new kitchen (cabinets, countertops, fixtures), put up crown molding, new fixtures throughout the house, new bathroom, etc, etc...  Spent around $30K and guess what, I would be under water if I had to pay the realtor fee to sell the house.  Why?  All the foreclosures in my area.  I live just outside a major city in an area where many of us live on 5 acre tracts.  Those around me have kept up their homes.  I'm sick and tired of my equity being squashed because of other homes around me.  Buying real estate was SUPPOSED to be an investment!  And, because my home is not owned by the government (Freddie Mac/ Fannie Mae), I can't do any of those HARP or streamline programs.  My own lender has stopped doing refinancing- THANK YOU HSBC- YOU SUCK!!!  I have never paid late and that's the thanks I get! 
Dec 1, 2012 3:24AM
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Why are the banks not held accountable for maintaining the properties???!!!  The time is now for counties, cities, and Homeowner's Associations across America to start enforcing all the codes, violations, and liens! MAKE THE BANK MAINTAIN THE PROPERTY JUST AS THE HOMEOWNER HAS TO!  If I as a homeowner violated all the responsibilities and let my house go, I would have all these authorities on me like flies on sh**!  AGAIN, WHY DO THE BANKS GET AWAY WITH THIS!!!  If all these foreclosures were maintained properly by the bank(which is by law their responsibility), The houses would not go down in value and would sell! Then there would not be a difference between a bank owned house and a conventional house; thus, no difference in value between the two keeping all values level.
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