The Foreclosure Crisis, Foreclosed Properties, and Federal Policy Some Implications for Housing and Community Development Planning

Problem: Foreclosures surged during the 2007 to 2009 national foreclosure crisis and federal policymakers failed to respond quickly and forcefully to the problem. The large numbers and geographic concentration of foreclosed properties have posed a particular problem for many planners. Purpose: I aim to describe the intra-metropolitan distribution of foreclosed properties at the zip code level, the often anemic or delayed federal policy response to rising foreclosures, and the potential effects of likely changes in federal policy and housing finance for metropolitan housing, development patterns, and local housing and community development planning. Methods: I used archival research and secondary and media resources to document the federal response to the foreclosure crisis. I analyzed a proprietary data set to describe the problem of the accumulation of foreclosed properties across and within metropolitan areas. Results and conclusions: Foreclosed properties were already accumulating in metropolitan areas with weak housing markets by 2006, but formerly hot markets such as Riverside, CA, Las Vegas, NV, and Phoenix, AZ, had many more by mid-2008. Within metropolitan areas, foreclosed properties were disproportionately concentrated in central city neighborhoods, although suburban zip codes with long commute times also had relatively high levels. The federal response to rapidly worsening foreclosures was faltering and timid. More conservative finance following the crisis will put downward pressure on housing consumption, potentially shifting demand to smaller homes. However, financing may be difficult or expensive to obtain for condominium buildings, and lenders and investors may shy away from less conventional projects, due partly to higher risk premiums. Takeaway for practice: In the short run, local governments must confront the problems of foreclosed properties, especially when they are highly concentrated in certain neighborhoods. More conservative mortgage markets are likely to persist for some time, with potential impacts on housing demand. Planners should strive to diversify tax bases by promoting more diverse land use and housing patterns to make their communities more resilient in future crises. Federal policymakers may move toward greater mortgage market regulation, but this will be vigorously debated. Policymakers will also consider the ongoing federal role in secondary markets, without which long term stability is unlikely. Finally, Congress may extend the Community Reinvestment Act to nonbank financial institutions given the federal support they have received during the crisis.