Subprime foreclosures are resulting in a severe drain on property values—even for families paying their mortgages faithfully every month—and will cause 44.5 million homes to lose a total of $223 billion in wealth over the next few years, most of it in 2008 and 2009, according to the Center's report.
In addition to foreclosed homeowners, the $223 billion drain—which amounts to $5,000 per nearby household—will have a severe impact on many cities and communities, because lower property values translate into less revenue to fund schools, hospitals, and other vital community organizations at the county level. The research finds that, as a result of subprime foreclosures, 42 counties and about half the states will lose more than $1 billion each in reduced property values.
"These losses are particularly tragic when you consider that most subprime foreclosures never should have happened," said Martin Eakes, CEO of the Center and also head of Self Help, a credit union and non-profit lending fund. "The subprime industry became intoxicated with large fees from dangerous loan products. Unfortunately, lenders and Wall Street aren't the only ones suffering through the hangover—forty-four and one half million innocent bystanders are feeling the pain, too. The subprime problem has become everyone's problem."
Shanna Smith, president and CEO of the National Fair Housing Alliance, noted that diminished property values will have a disproportionate impact on communities of color. "Many of these [subprime] foreclosures are concentrated in African-American and Latino neighborhoods," said Smith. "This research documents the costs of lending abuses we see every day, resulting in the tragic theft of hard-earned wealth in communities that already have the lowest rates of homeownership."
The report is based in part on foreclosure projections that the Center released last December assessing how homeowners have fared with subprime home loans. ("Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners,"available at http://www.responsiblelending.org/pdfs/FC-paper-12-19-new-cover-1.pdf.) Today's report ("Subprime Spillover: Foreclosures Cost Neighbors $223 Billion; 44.5 Million Homes Lose $5,000 on Average") also relied on data collected by the Federal Reserve and the Census Bureau along with other published research. The full report is available at www.responsiblelending.org.
The report is being released as civil rights, consumer and housing advocates seek meaningful and lasting solutions to reckless lending and fair treatment for homeowners. Currently, Congress is considering proposals to address the subprime crisis, both to try to help families now facing foreclosure because of abusive loans and to ban the practices that caused the problem in the first place.
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