The casual reader of the business press wouldn't be wrong to think that the overall housing market has not only returned to normal after the worst housing crisis in generations but that it is growing. But beneath the headlines there is another real-estate market that continues to deal with foreclosure and little to no price appreciation from the depths of the recession. In April, according to RealtyTrac, there were more than 700,000 homes -- and the borrowers living in them -- in one stage of default or foreclosure or another. That is more than the number of households in Wyoming and Delaware combined.
Every home that is saved from foreclosure helps the overall community. Data from the Department of Housing and Urban Development show that a foreclosed home depresses home values on the street and radiates negative effects blocks away, reducing appraisal values as much as 8.7 percent. Clearly preventing even a single foreclosure helps everyone in the neighborhood.
State and local governments and nonprofits have to continue to work better together to help these families and stabilize neighborhoods. Models of successful collaboration are available and are proven. NeighborWorks America, for example, has been at the center of these efforts for nearly a decade as the manager of the National Foreclosure Mitigation Counseling Program (NFMCP). Since the federally funded program began in 2008, more than two million households have received foreclosure counseling help from trained advisers working for state and local agencies and local nonprofit organizations.
The central strategy of these successful programs -- and what should underpin every program going forward -- is sustaining the methods for homeowners to reach trained foreclosure-prevention counselors and to access mortgage modification solutions that work for the long term. We know from research by the Urban Institute on the NFMCP that early access to the kinds of foreclosure counseling that the program provides increases the chance that a homeowner will not fall back into foreclosure.
NFMCP and similar state-based foreclosure prevention programs enable housing counselors to work with homeowners on their budget and spending plans, establishing a framework that shows lenders how homeowners can stay in their homes and meet their new mortgage obligations. It's not too far off the mark to describe the process as a suite of services that help a borrower explore a variety of sustainable mortgage options best suited for distressed homeowners. State programs such as California's and Maryland's exemplify these kinds of early-intervention efforts.
And in the last couple of years, an exciting new tool has been added to the foreclosure prevention process, one that combines counseling with the purchase of defaulted mortgages. New Jersey Community Capital, a community development financial institution (CDFI) and member of the NeighborWorks network, has successfully purchased and renegotiated the terms for hundreds of defaulted mortgages, keeping families in their homes and maintaining neighborhood stability.
CDFIs generally have lower costs of capital that provide more flexibility than a traditional lender or private mortgage investor might have. And CDFIs are nonprofit mission-oriented businesses that the Urban Institute suggests are more likely to "modify delinquent loans more successfully because they are willing to put more effort into modifications and are more likely to offer principal write-downs and other generous modification terms."
As effective as these approaches are, they can't prevent every foreclosure. The challenge is to mitigate them as much as possible. Everyone in a community has a stake in keeping foreclosures to a minimum, and the tools are there.