December 07, 2009

Mandel School Professor Testifies Before U.S. House Subcommittee on Foreclosure Crisis

Claudia Coulton, co-director of Case Western Reserve University's Center on Urban Poverty and Community Development at the Mandel School of Applied Social Sciences, in testimony Monday before a congressional committee suggested steps to ease to nation's foreclosure crisis.

She referred to data the Center has gathered in Cleveland to track the housing crisis over the past decade, as she appeared before the Domestic Policy Subcommittee of the Congressional Oversight and Government Reform Committee, chaired by U.S. Rep. Dennis J. Kucinich.

"The foreclosures have spawned a surge of related problems," she told the committee, meeting at the Carl B. Stokes United States Federal Courthouse.

Among those problems are overwhelmed courts, vacant and vandalized properties, and confusion about who owns and is responsible for the foreclosed property, and sales to out-of-state owners who become delinquent taxpayers. The end result is a further devaluing the overall housing base in the areas hardest hit by the crisis.

Coulton calls for interventions at every stage of the foreclosure process, from loans to maintaining vacant properties.

She suggested:

  • Implementing mechanisms to enforce responsibility by the lenders and servicers.

  • Shoring up consumer projection and promoting fair lending.

  • Preserving affordable housing options, including sustainable homeownership and rental opportunities.

  • Supporting strategic use of resources for neighborhood stabilization and land reuse in shrinking cities.

Coulton described current efforts underway to turn around the crisis through coordinated efforts like the Cuyahoga County Foreclosure Initiative and the United's 2-1-1 First Call for Help hotline for owners needing foreclosure counseling . The outcomes have had a 53 percent success rate in preventing foreclosures for people seeking foreclosure counseling.

At the federal level, the Neighborhood Stabilization Program supports demolition and renovations, but Coulton says it does not go far enough.

Also stemming foreclosures are the National Community Stabilization Trust and the REO Clearinghouse for communities hard-hit by the foreclosures, but the scale is still small.

Coulton talked about the extent of the problems facing the city and county.

"Cleveland is an example of historic industrial cities with relatively weak housing markets that have been very hard hit by subprime lending and foreclosure," she said.

The foreclosure crisis became evident in 2003.

By 2006, one in five homes were being lost to foreclosure in the hardest hit areas—primarily those on the east side of Cleveland and the inner-ring suburbs. African Americans were hit harder than other ethnic groups with similar income levels and accounted for nearly half of the foreclosures from subprime loans.

Coulton said the strongest predictor of foreclosure from the Center's research and study of data was whether the mortgage was financed with a subprime loan.

Home purchases that were subprime had an eight times higher change of going into foreclosure than other loans," says Coulton, adding that 65 percent of the subprime loans from independent mortgage companies through unregulated independent mortgage brokers foreclosed within three years.

The foreclosure crisis has also changed the way houses return to the market through foreclosure sales. Once private buyers or local real-estate owners picked up foreclosed homes, but those markets dried up, and now national lenders or government agencies make purchases. Many times these properties sit vacant and untended at risk for vandalism for as much as a year and then selling at "distressed prices" well below estimated market values.

The drop in home values for these foreclosed homes was a "debilitating blow to neighborhoods," said Coulton.

What is happening in the region is "dumping" or the selling of homes for $10,000 or less. The top five sellers of these real estate owned properties account for half of the sales and are conducted by Deutsche Bank National Trust, Wells Fargo, U.S. Bank National Association, Fannie Mae and Bank of New York.

These financial institutions hire mortgage servicers to manage their mortgages, so it is those companies that are typically involved in selling the properties. At times, the properties are sold in bulk to out-of-state owners who have never seen the properties and become delinquent taxpayersLooking ahead, Coulton noted efforts like the City Planning Commission's "Re-Imagining a More Sustainable Cleveland" have potential to help restructure the city and revitalize neighborhoods.

For more information contact Susan Griffith, 216.368.1004.

Posted by: Kimyette Finley, December 7, 2009 01:39 PM | News Topics: Community Outreach, Faculty, Mandel School of Applied Social Sciences, Research, news

Case Western Reserve University is committed to the free exchange of ideas, reasoned debate and intellectual dialogue. Speakers and scholars with a diversity of opinions and perspectives are invited to the campus to provide the community with important points of view, some of which may be deemed controversial. The views and opinions of those invited to speak on the campus do not necessarily reflect the views of the university administration or any other segment of the university community.