This post is part one in a three part series about the effects of the Foreclosure Crisis in New York City.
When you think about cities ravaged by the foreclosure crisis, places like Arizona, California, Nevada and Florida often come to mind…and understandably so, given their role in the housing collapse and the devastation it wrought. One city, however, that is often overlooked when discussing the debilitating effects of foreclosure is New York.
But did you know that New York City has more underwater homeowners than Baltimore and Atlanta combined? Here in New York, we have more foreclosures and underwater homeowners than most places in country, and they are often ignored. Not only is this hurting the families losing their homes, it’s costing all of us – big time: to the tune of $1.8 billion in tax revenue over a five-year period.
At a time when we’re told the programs and services we rely on are broke, and year after year we’re faced with cuts to our school budgets and affordable housing programs, the city can certainly find a better use for almost $2 billion.
In a report released last week, New York Communities for Change highlights the ways the foreclosure crisis is draining much-needed resources from the city and how taking government action would create an economic stimulus large enough to create nearly 15,000 new jobs, right here in the city. (Click here to read “How the Foreclosure Crisis is costing New York City millions and the Economic Stimulus that would result from local Government Action”)
How Does the Foreclosure Crisis Drain City Resources?
Every home that goes into foreclosure has a ripple effect, decreasing the value of not just the foreclosed property, but each neighboring home as well. So New York City isn’t just losing property tax revenue that would have been generated by the more than 80,000 homes that have gone into foreclosure in the past five years; we’re losing revenue from all of the other homes in the neighborhood, too!
And of course, the cost doesn’t end there. Once vacant, foreclosed homes increase the neighborhood’s crime rates by providing space for criminal activity and, left uncared for by the banks, collect litter, causing blight and serious safety hazards in the community. The serious decline that foreclosure causes in communities requires the city to then allocate even more resources for police and other safety and emergency services in areas with a significant number of foreclosed homes.
How Can Ending the Foreclosure Crisis Create Revenue for City?
Mortgage modifications that include principal reductions are proven to prevent foreclosures. According to a report released by Amherst Securities Group in 2012, only 12% of homeowners who received mortgage modifications with principal reduction defaulted on their mortgages in 2011, while 23% of homeowners who received modifications with interest rate reductions (but no principal reduction) defaulted, and 30% who received forbearance, which simply postpones their debt repayment, defaulted that same year.
Mortgage modifications with principal reductions aren’t only statistically more likely to keep homeowners in their homes; they also put more money back into the pockets of homeowners. This would not only stop the loss of tax revenue to the city, but also pump money back into the economy.
“Cash-strapped homeowners would likely spend at least some of their savings generated by modifications, in turn creating a direct consumer-spending driven stimulus. The payments would function similarly to the tax cuts for personal consumption used by the federal government in 2008 to stimulate the economy. The New York Times reported that consumer spending was elevated in the months following the 2008 stimulus. Consumers spent 50-90% of their 2008 economic stimulus payments on durable or non-durable goods. Many underwater homeowners are currently struggling to make their payments; a modification that lowers their payments would have the same economic impact as receiving a check in the mail. “The economic stimulus created by providing the 80,000 underwater homeowners in New York City with principal reductions would be large enough to create 13,286 new jobs.
Putting Working Families First:
Since the beginning of the financial crisis, middle- and low-income New Yorkers have been asked to shoulder the burden of the big banks’ malfeasance. In September 2012, Mayor Bloomberg demanded that all city agencies cut their budgets by a collective total of $2 billion, marking 12th round of cuts to the city’s budget since 2007. Had Bloomberg taken action to hold banks accountable for the foreclosure crisis, it’s likely that 12th round of budget cuts would not have been necessary.
What is hard to believe is that our city hasn’t taken action to stop this vicious cycle by using city funds and contracts as leverage to compel the banks to provide homeowners with mortgage modifications. Click here to sign the petition demanding that 2013 NYC Mayoral Candidates pledge to stop doing city business with banks that don’t provide mortgage modifications with principal reductions.
Withholding city funds from the big banks as a form of protest is not unprecedented. As part of a New York Communities for Change campaign, cities, villages, counties and towns across the state, including Buffalo, Binghamton and the village of Hempstead, have removed close to $100 million from JP Morgan Chase in protest of the bank’s mortgage modification policies.
At the very least, New York City’s $70 billion budget shouldn’t be generating wealth for the same bank executives that put the city in this grim position in the first place.