How Senate Plan Helps States Deal with Foreclosures

The Senate Bill Provides Fewer Total Funds than the House Bill, but Offers $4 Billion Entirely in Grants, Which Are Far Easier to Use than Loans

June 12, 2008

View interactive map on the House legislation

At the end of the first quarter of 2008, there were an estimated 1.27 million properties in foreclosure in the United States. In addition, there were approximately 350,000 subprime mortgages more than 90 days delinquent where foreclosure proceedings had not yet begun [1]. While Congress must continue to move forward with its commendable efforts to prevent future foreclosures, it must not lose sight of the negative effects that existing foreclosures have on local house prices, including losses in accumulated middle-class wealth built up through home equity.

The Senate version of neighborhood stabilization legislation provides $4 billion in grants—and the House version does even more, providing $15 billion in a combination of grants and loans—to help states and localities stem the housing crisis by reducing downward pressure on local housing markets. Rather than having properties sitting vacant and attracting blight, the funds provided would allow for the bulk purchase of these properties, which would be rehabilitated and offered for sale or rent at affordable prices. In addition to returning these homes to productive use, the rehabilitation process will create construction jobs in an otherwise moribund sector of the economy.

As those funds are leveraged, we estimate that nearly 120,000 properties would be purchased and rehabilitated. Those activities would generate an additional $8.6 billion in economic activity [2] and create in excess of 80,000 new jobs [3]. By restoring properties to productive use, those properties will no longer be a drain on local resources, as municipalities must cover rising costs ranging from trash removal, grass cutting, and boarding up vacant properties to more serious problems of vandalism, increased property and personal crime rates, and arson. Nationally, localities will save nearly $1.2 billion in costs that they would have otherwise faced [4]. And these properties will pay in excess of $200 million in property taxes annually [5].

View interactive map on the House legislation

Endnotes

1. These numbers are based on the Q1 2008 Mortgage Bankers Association’s National Delinquency Survey, which covers an estimated 85 percent of outstanding mortgages.
2. This is based on a multiplier effect of 1.27, applied to $75,000 in rehabilitation costs applied to each property and adjusted for state median house prices. It also assumes the grants will be leveraged at a 2:1 rate, with 85 percent of the funds used for purchase and rehabilitation.
3. Jobs are reported in one-year, full-time employment equivalents.
4. This is based on a conservative estimate of municipal costs of $10,000 per property.
5. Based on National Association of Home Builders’ reported median property taxes per state.