The Human Face of Foreclosure
When Cleveland’s East Side Organizing Project has a beef with a lender they settle it the old fashion way: They get some 2,500 people to show up at a CEO’s nice home and quiet neighborhood to express their claims of loan sharking.
ESOP has worked with a number of lenders to save several hundred homes from foreclosure, an impressive result for a neighborhood organization. More importantly, they’ve hammered out agreements with lenders that will prevent many future foreclosures.
What’s happening in Cleveland is a symbol of the growing tension between lenders and borrowers, but it’s also something more. While headlines and news reports focus on such things as dollars, Wall Street and congressional hearings, the real foreclosure crisis concerns millions of people in local neighborhoods who will lose their homes in the next few years.
“The expression ‘lose their homes’ is so dry, so terribly routine,” says Jim Saccacio, Chairman and CEO at RealtyTrac.com, the nation’s largest source of foreclosure data. “It says nothing about the human cost that foreclosure represents.”
In a foreclosure people become homeless. The savings of a lifetime are lost — and so are the dreams. The scars from such events are real, traumatic and last for decades and generations.
How does anyone explain to a child that a foreclosed family must move? If you lost your home and had to move in the next 30 days where would you live? Where would your kids go to school? What would happen to your business or your job? How could you rent with poor credit? Would there be family and friends to help? Can you picture yourself living in a shelter, a car or someone’s basement?
You hear older people talk about the Depression and the harsh times of the 1930s. It seems impossible to believe. One of every four workers without a job. People selling apples on the street. Banks bulldozing homes when farmers could no longer pay their mortgages. People jumping from buildings.
You listen to such stories and realize that the people who tell them are wounded, that their psyche and soul remain distorted from the events of long ago.
For those now facing foreclosure — in the subprime market alone we’re talking about 2.2 million borrowers in the coming few years according to the Center for Responsible Lending — the damage is no less and the impact no smaller than the harsh events faced by many households before World War II.
Millions of people are about to discover that the American Dream of homeownership no longer includes them. The personal, social and political implications are profound.
It’s not good enough to say that my home is mortgage-free, so why care? It’s not okay to believe that because I have fixed-rate financing the emerging foreclosure crisis is not my problem. Even if I live in the biggest mansion or the highest penthouse, had my luck along the way been any different I too could be among the dispossessed.
We’re all part of an inter-related world. When properties are foreclosed entire communities see a decline in tax revenues. Fewer services can be provided, jobs are lost and the quality of life declines whether your home is mortgage-free or financed to the roof.
Lenders, for their part, would be wise to re-think their goals. They might want to recall the observation of George Santayana, the philosopher, who said fanaticism is when you redouble your effort — and forget your aim.
Yes, a mortgage contract may provide that a home can be foreclosed when a loan is unpaid. But what does a lender do with a foreclosed home? What’s the purpose of foreclosing if it only leads to additional losses?
If few people are foreclosed the lending system works nicely, there’s a balance between lenders and borrowers. But once the number of local foreclosures increases beyond a particular tipping point then the system wobbles. What’s the purpose of foreclosing in Dallas, a city where more than a quarter of the homes now for sale are foreclosed properties that lenders could not sell at auction?
When properties are foreclosed those who service loans no longer have anything to administer so their incomes are reduced. Investors who hold mortgage-backed securities will have a smaller net worth and less interest income. A typical foreclosure — even when a loan is protected with mortgage insurance — still produces a loss. As losses mount and confidence declines, investors ask for higher rates, thus causing additional failures among ARM borrowers, fewer financing options for real estate buyers and reduced sale opportunities for home sellers. Out-of-work lenders, real estate agents, municipal employees and stockbrokers will not be safe from the foreclosure process.
When properties are foreclosed it’s not just those who lose their homes who are impacted. Property values for entire communities drop and the financial and psychological cost is immense. Local business activity declines as people have less equity, less reason to improve their homes and less cash.
We’ve seen this before. The Depression lead to the creation of the Securities and Exchange Commission and the Federal Housing Administration in 1934. Old practices — once common and accepted — were swept away. No longer do lenders bulldoze the homes of borrowers who cannot pay.
“There’s now an opportunity to change the lending system in a way that’s reasoned and rational,” says RealtyTrac’s Saccacio. “Lenders who support change today will likely avoid the radical and extreme shifts which are otherwise certain to come. No less important, they’ll be able to explain to their children that it’s better to maximize the communities where they live rather than the profits they pocket.”
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Published originally by RealtyTrac.com during March 2007 and posted with permission.
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