HousingPolicy.org Forum

Live at the Forum with Todd Swanstrom, Karen Chapple, and Dan Immergluck on Regional Resilience in the Face of Foreclosures

Join us on Tuesday, August 18 from 2 – 2:30 p.m. EDT to learn more about a new report from the Institute on Urban and Regional Development at Berkeley and the MacArthur Foundation Research Network on Building Resilient Regions, Regional Resilience in the Face of Foreclosures: Evidence from Six Metropolitan Areas. After the call, follow the Forum thread through Friday, August 21 to get answers to your questions from authors of the report.

  • Hear about the report: The two-part event begins at 2:00 p.m. EDT with a 30-minute conference call, where Todd Swanstrom will present major findings from the report. The call-in number is (712) 432-1001 and the access code is 498796833#.
  • Interact with the authors: After the call, authors of the report will respond to your questions throughout the week on the online Forum, concluding Friday, August 21. All questions for the authors should be posted to this thread by hitting the Add Reply button. You are welcome to post at any time leading up to, during, or after the call. Questions will be answered on a first-come, first-served basis through Friday, so post early to be sure yours is addressed.

Please note that you will need to refresh your browser periodically during the live event to view new questions and responses.

About the Report
Regional Resilience in the Face of Foreclosures: Evidence from Six Metropolitan Areas looks at foreclosure prevention and response in weak market, mixed market, and strong market metro areas (Cleveland, OH; St. Louis, MO; Chicago, IL; Atlanta, GA; the Inland Empire of Riverside and San Bernardino, CA; and the East Bay area of Alameda and Contra Costa Counties, CA). The report also looks at judicial vs. non-judicial foreclosure processes, the impact of different lengths of foreclosure process on foreclosure prevention as well as on the potential for vandalism due to vacancy, and some keys to stronger prevention and response efforts.

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You mention the difference in experience and capacity among housing non-profits in Cleveland compared with St. Louis. How do you think this will impact their abilities to stabilize neighborhoods through NSP, and do you have any suggestions for cities or regions that need to build their response capacity while trying to meet the demands of NSP? Do you think that the planning capacity in St. Louis will be enough to overcome the lack of strong CDCs there?
These are good questions! I think that regions without strong CDCs are at a disadvantage because CDCs possess the "local knowledge" that is crucial for doing effective neighborhood recovery. Often, opportunities to invest and make a difference vary block-by-block. CDCs will know where a new school is being built or where an "eyesore" is located that if fixed up could make a big difference (take a look at Herb Rubin's book on CDCs to get an idea of their comparative advantage).

On the other hand, CDCs can take a parochial point of view that makes targeting of NSP funds difficult. CDCs need a citywide or better regionwide organization, like NPI in Cleveland, that establishes broader priorities within which individual CDCs operate.

The question of whether the public sector can make up for relative weakness of CDCs in St. Louis is a tricky one. In the City of St. Louis I think there is real potential because the city has the ability to plan for an area of 350,000. It actually has seasoned staff and resources. On the other hand, there is a tendency to spread the money around (the peanut butter approach) because of the power of the 28 Aldermen/women. I read through the City's NSP1 application and I was not sure they had a strategy to target funds and coordinate with other investments. They say they will invest most dollars in Target A neighborhoods -- the worst off neighborhoods. It would seem to make more sense to concentrate on "transitional" neighborhoods -- where marginal investments could prevent the neighborhood from tumbling down. I just don't know how it will turn out.

I do know that the City has partnered with nonprofits and other metro areas on an application for NSP2 that looks very promising.

Outside the city it is a different situation because there are 92 municipalities in St. Louis County and few have much planning capacity. The County is leading the effort here. In the interest of full disclosure, I must say that I and my research center have worked with the County on a cluster analysis to classify neighborhoods and identify transitional areas. The County was sincere about using this to target their monies, but for the most part they are struggling just to get the money out the door and fulfill all the HUD regs. As you know there are major hurdles there that slow down acquistion -- so that private investors, sometimes speculators, beat them to the punch. The Cuonty has no experience purchasing properties -- and has had to rely on nonprofits and the Housing Authority to do the actual hands on identification and purchase. The capacity issue is intense. The County is working with key nonprofits, such as Beyond Housing. BH has a place-based strategy in the Normandy School District area that is very promising. I do not believe that NSP funds are part of a place-based strategy in the rest of the County, but I could be wrong.

Finally, I do not know what the situation is in the counties outside the City and St. Louis Couny, but I am not optimistic. They lack CDCs and the governments generally lack experience working on neighborhood recovery. If the housing market recovers, however, there will probably be little vacancy and abandonment in outlying counties. (But the effects on the families displaced and on the communities will be significant.)

Without getting into a long discussion about what communities can do to improve neighborhood recovery let me just say that governments need to think about building capacity. (Alan Mallach has written extensively on this issue.) Capacity refers to professional staff but it also involves collaborations with nonprofits and private actors and coordinating across the policy silos. It also means drawing on the expertise of area universities. I wrote a short memo on the issue of what I call civic capacity -- and will be glad to share it if you email me: swansttf@gmail.com.
You don’t mention “home rule” status in this report. Do you have any thoughts on the extent to which a state’s home rule status impacts local communities’ willingness and ability to work cooperative to address foreclosures?
The "home rule" question is interesting. I don't see specifically how state laws on home rule would impact the response to foreclosures. (At least we did not study the effect of home rule laws.) In a broader sense, however, home rule may impact the ability of governments in a metro area to collaborate on any issue, including foreclosures. Usually, home rule is interpreted as a hindrance to regional cooperation because municipalities use their control over land use to engage in exclusionary practices. They behave selfishly rather than cooperate as part of a metropolitan housing strategy.

I must confess I have shifted my view of home rule under the influence of work by Gerry Frug and David Barron (see their recent book, City Bound). They argue that home rule is largely a myth, that municipalities are constrained in all sort of ways in how they operate and therefore weak home rule or biased home rule provisions actually make them less likely to cooperate on regional issues. Home rules suggests that municipalities can do whatever they want, but in effect the statues often privilege economic development over affordable housing, for example.

I am also reading a book by Lewis and Nieman, called Custodians of Place, that argues that municipalities are wiling to build multifamily housing and mixed income housing if they see that in their interest or in their vision of the future. Municipalities are not nearly so selfish as critics of home rule often suggest.

In short, I do not think that municipalities have too much home rule -- and that the way to go would be to take power out of municipalities and put more power over housing and land use into a regional authority. I don't think that this is the way to go. We need "better" home rule statutes that encourage collaboration and thinking regionally -- and we need regional institutions where municipalities can deliberate about regional matters. (See Frug's "Beyond Regional Government" in the Harvard Law Review.)
In your opinion, do you think there is a greater potential for those regions that you found to be less resilient and active (i.e., the St. Louis and East Bay regions) to "let down their guard" once the general foreclosure crisis has passed, particularly in some neighborhoods that may remain vulnerable (such as the low-income communities that tend to have been hit hardest)? Or, are some of the changes occurring at the federal, state and local levels that improve the "opportunity space" likely to create lasting changes that will uphold these regions' long-term resilience?
I think promoting sustainable responses that will create long-term resilience is a real challenge. Although much of the focus has to be on dealing with the specific vacant properties, there is a real need to focus on preventing additional foreclosures both in the near and long term, but also to focus on tools for encouraging responsible and sustainable reuse of vacant properties. Merely pushing REO properties into the hands of bottom-feeding investors who may sit on them (and not maintain them) or flip them for a quick profit, will just magnify the problems, not reduce them.

I think this means that there needs to be both a regulatory and community development policy response. On the regulatory front, this means changing state laws that make provide for reducing, to the extent possible given federal preemption issues, the potential for wreckless lending in the future. It means putting in place state and local policies to limit foreclosure rescue or loan modification scams and property flipping. On the community development policy side, it means promoting *responsible* alternative tenure vehicles, nonprofit, fairly structured lease-purchase programs, and scattered site rental programs, while discouraging unregulated, questional lease-purchase programs or land contract purchase schemes that may result in continued instability.

Some change is happening at the federal level, but so far it is limited. The tenant protection provisions passed this past spring should help reduce sudden surges in vacancy in some neighborhoods. In the long term, regulatory reform at the federal level is critical to provide for more stable, risk-limiting real esate markets.
This is a great question -- and certainly we are already seeing groups "let down their guard" since home prices are beginning to recover (esp. in California). Nonprofits that are not single-issue, like CCISCO (the Pico network affiliate in the East Bay), are starting to move on (e.g., to health care reform). Many of the CDCs that were initially active are busy now dealing with their own internal finance issues. On the upside, many of the new relationships that developed out of the crisis -- for instance, new information-sharing among CDBG managers -- remain, and are leading to new, interesting -- and potentially resilient -- policy and program activity on the ground.
In your report, you are careful to note that "resilience is not the same as success" in terms of creating neighborhood stability in the face of foreclosure. Without associating regional policies with outcomes, however, it is difficult to know how important the variations in your paired case studies really are. Would research on resilience benefit from quantitative analysis? And given supporting resources and data, how would you propose linking resilience with success?
We have asked ourselves these questions many times. Though the concept of resilience is proving to be a useful lens through which to investigate policy problems, ultimately nobody will care unless something results beyond the intermediate outcomes (new relationships, new programs, new resources) we talk about.

The quick answer is yes, some quantitative analysis would help. Potential indicators might be a loan modification rate above the average, a shift from negative to positive equity for homeowners underwater, or simply number of affordable units created through acquisition/rehab programs, etc.. The major obstacle to this is the lack of a comprehensive data source (along the lines of the HMDA dataset) on foreclosures, loan mods, and other outcomes -- one that is consistent across regions.

The trick in this sort of research is linking outcomes with the policy intervention, so that we know whether an outcome would have occurred in its absence. In an ideal world (for researchers), we could enact some sort of quasi-experimental design, for instance where foreclosed homeowners get assigned to either a treatment or a placebo group, and we could find out if a nonprofit or a particular program works.

Still, we were able to get at outcomes in a minor way. For instance the Cleveland case does describe a very high loan modification rate. But how can we link that to the "resilient" actors? We would need to do a much more detailed case study of loan mods in that area to be able to make that connection. It would not necessarily have to be a quasi-experimental design; there are ways of doing a robust case study without going the quasi-experimental route.

In our study, however -- our first attempt at the issue -- we went for breadth rather than depth.
Posted on behalf of a caller:

In today's conference call, I believe there was a comment about challenges in home mortgage loan modifications. What might be needed to encourage more lenders to pursue loan modifications? I hear comments from HUD that loan modifications are not happening like they anticipated.
The major obstacles to more loan modifications are the servicers. I have read some of the literature on this and it appears that some servicers make more money if the property goes into foreclosure. The incentives provided in the Obama Administration's $75 billion program have not been nearly as effective as they hoped they would be. The extensive paperwork and perverse incentives are undermining the effort to keep people in their homes. This is especially frustrating because it is clear that the holders of the mortgages have a rational incentive to modify rather than go forward to foreclosure. According to the Mortgage Bankers Association, the average cost of a foreclosure is $50,000 -- so they clearly have some wiggle room to give homeowners a break. It just is not happening at the rate it could, in my opinion.

The example of ESOP discussed in our paper and the Neighbohood Assistance Corporation of
America are interesting -- because they seem to be able to achieve higher rates of loan modifications because they pressured the loan services/lenders to sign agreements to establish a standardized procedure for loan modifications. They used protest techniques to put pressure on the lenders. Unfortunately, these agreements are only available to them. It would be great if the federal government could put pressue on all regulated lenders to have a standardized approach to loan modifications. The so-called cram down legislation, which would have put mortgages into bankrupcty proceedings so that judges could reduce the amount of money that lenders get, would have motivated the holders of delinquent mortgages to modify them. Unfortunately, Congress failed to pass this legislation and it appears it is not a high priority of the Obama Administration.

Unfortunately, without stonger federal legislation or standardized agreements, local foreclosure counsellors are forced to work on a case-by-case basis with lenders who are unprepared and often unmotivated to keep people in their homes. Having said this, I still think investing in foreclosure counselling makes sense for local governments and funders.

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