Addressing Foreclosures: A Great American Dream Neighborhood Stabilization Plan
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Listen to Dr. Laura Tyson, David Abromowitz, and Michael Barr discuss strategies to address the housing crisis:
For the first time in 40 years Americans across the country are finding their homes on average are worth less today than they were just the year before. Foreclosures are rampant, up 75 percent nationally last year over 2006, and the number of lender-owned homes nearly doubled in the fourth quarter of 2007 over the same period last year. Among the scores of communities with a growing glut of vacant, lender-owned homes are Stockton, California; Fort Lauderdale, Florida; and Las Vegas, Nevada, all of which had more than one in every 50 homes foreclosed on in late 2007.
As the dramatic effects of rapid housing deflation become more and more apparent, debating whether subprime borrowers were more at fault than unregulated mortgage companies is no more productive than arguing about whether the negligent camper or the neglected forest clearance practices contributed more to the rapid spread of a wildfire—the first order of business is putting out the fire before it consumes more homes.
On the ground in hundreds of communities, it is apparent that any delay in acting could lead to far greater costs and devastation later. “We don’t have the luxury of picking and choosing what issues we focus on when people lose their homes, when the grass isn’t cut, when property taxes aren’t collected and when property values drop,” said Douglas Palmer, mayor of Trenton, N.J., and president of the U.S. Conference of Mayors, whose winter meeting ended on January 25. “Mayors are on the front line.”
Indeed, sudden drops in home prices have community-wide ramifications and widespread human costs that boast large and lasting ripple effects—unlike a purely financial market correction where some sophisticated investors make educated bets and lose while others have an offsetting gains. These properties attract vandalism, arson, and crime as they sit vacant, and they drag down local property values, making it very difficult for local real estate markets to operate normally.
That’s why the Center for American Progress presents an effective strategy in this paper to address the glut of foreclosed properties in communities across the United States. We propose to establish a Great American Dream Neighborhood Stabilization, or GARDNS Fund to provide money quickly and efficiently to local non-profit organizations or municipalities to purchase foreclosed properties and offer them for sale to qualified low- and moderate-income families on affordable terms. Proceeds from the sale would be used to purchase additional properties, thus multiplying the purchasing power provided by this new fund.
Before detailing the policy guidelines that would govern our proposed GARDNS Fund, however, a closer look at the increasing devastation wrought by the foreclosure crisis is in order. The cascading foreclosure crisis threatens to engulf more and more American communities in the coming months unless Congress and the Bush administration act swiftly and surely with targeted federal funds.
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David M. Abromowitz