Kathy Pettit, coauthor of "Housing in the Nation's Capital 2009," answers five questions about the Washington, D.C., region's foreclosure crisis. The report, the seventh in a series on housing in the Washington metro area, reviews housing market conditions, examines the ripple effects of foreclosures, and recommends ways to stabilize neighborhoods and help households recover.
February 2010
1. How is the foreclosure crisis affecting the Washington, D.C., region? And what do you expect to see in the housing market over the next six months?
Even though we have the strongest regional economy in the country, our foreclosure problem is serious and getting worse. In January 2007, 4,000 home loans were in foreclosure; by September 2009, that number had reached 34,100. We're about on par with the average national rate of foreclosures, but we're much better off than places like Las Vegas, Florida, and California.
As the recession drags on, we'll likely see more trouble. Nearly 117,000 households in the region are behind on their mortgages and half of those are more than three months behind. About half of the area's foreclosures come from subprime loans, but prime loans—which are good, stable, affordable loans—make up another third of the loans in foreclosure. And their share is growing quickly. That means we're seeing more foreclosures stemming from financial problems than from bad mortgages.
We have seen sales market activity pick up though, fueled by lower housing prices, and low interest rates. The first-time homebuyer's credit is attracting more buyers at the lower end, so prices haven't gone up yet to catch up with volume.
While we have many strong, skilled teachers working in schools now, the growing consensus among policymakers and researchers is that schools aren't attracting or retaining the most able teachers or training them effectively—and students lose out as a consequence.
2. County foreclosure rates were highest in Prince George's (5.2 percent), Charles (3.9 percent), and Prince William (3.7 percent)—all higher than the regional foreclosure rate of 2.7 percent. Why?
All three have a high rate of high-cost loans, which have the highest rates of foreclosure. About 80 percent of high-cost loans went to minorities in the D.C. region, and these three counties all have large minority populations. Prince William County saw rapid growth from 2000 to 2008, and a good portion of that growth was Latino buyers using high-cost loans. Prince George's and Charles counties are majority African American. Even when controlling for income, minorities were more likely to have a more expensive loan than white borrowers. These loans were risky and set these counties up for a big hit once housing values came down and people had trouble paying off their mortgages.
Latinos were particularly hard hit because their main job industry for men was construction, which shrunk while home prices were falling and bad loans were coming in.
3. What are the spillover effects of the foreclosure crisis?
Whole neighborhoods are being hurt. Foreclosed homes sell at a tremendous discount, and that undercuts property values in the surrounding area. Sometimes banks will hold onto foreclosed properties, leaving them vacant and neglected. And neighborhoods with high concentrations of foreclosures are more at risk for loitering, squatting, and crime.
Unsuspecting renters are also hurt by foreclosures—particularly in the District, which has a high renter population. Nearly half of the 4,800 D.C. households affected by foreclosure are renters. No regulation requires renters to be notified of foreclosure, so they may not find out until the day the house or building they live in is sold. Also, renters may lose their security deposits and face unexpected moving costs. Washington, D.C., has strong renter's laws preventing eviction, but most renters don't know that. Our housing-counseling partners tell us many renters come in saying that landlords or banks told them they have to leave their homes despite D.C. law.
4. What can policymakers and service agencies do to help the housing market recover and reduce the long-term harm on neighborhoods and families?
We have policy recommendations in four areas that address the region's foreclosure- response system. First, we recommend strengthening our area's underfunded foreclosure- prevention services.
The next phase is neighborhood stabilization so we don't have homes just sitting empty. Governments or nonprofits could buy vacant houses and transfer them to responsible owners or renters. There's federal money available that can be strategically used to upgrade or purchase homes or subsidize downpayments in neighborhoods badly hit by foreclosures. A registry of vacancies and regular monitoring of housing market indicators would make all this easier.
The last two recommendations address issues we think haven't been given enough attention. One is helping households recover. In our analysis of D.C., we found that only 20 percent of the households that started foreclosure were able to keep their homes. That means that even with foreclosure prevention, federal refinancing, and loan-modification programs, most people have lost their homes. These families would benefit from connections to social services and housing search assistance to help them transition to rental homes as smoothly as possible.
And, finally, we want the region to pay attention to the kids caught in foreclosure. There's a lot of evidence that residential and school instability hurts kids' social and academic development. We think the school system should ensure that students who have to move because of foreclosure don't have to switch schools mid-year. That's a protection that homeless students have and students affected by foreclosures should have.
5. This annual housing report came out in October 2009. What has the response been so far?
We're really excited about the activities that have taken place and are coming up. Right now, we're surveying the region's foreclosure counseling agencies to better understand our area's capacity to help homeowners in trouble. The only way to tell what services we need is to figure out how much we have to begin with.
We helped the Metropolitan Washington Council of Governments think through how data could strengthen their neighborhood-stabilization plans in a federal grant proposal. It was great working with county governments to help them identify and target those resources to vulnerable neighborhoods. And we have a whole agenda of work coming up this year, providing more technical assistance to individual governments and the region. Also, we plan to create two quarterly foreclosure reports—one for the District and one for the metropolitan area—which we will post on our NeighborhoodInfo DC web site.
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