The Mortgage Crisis: How It May Affect You

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Across the country, in all kinds of neighborhoods, the mortgage crisis continues to unfold on all levels. Even Fairfax County, Virginia—the wealthiest county in the U.S. on a per capital household income basis—has housing troubles. In the first quarter of 2008, it had 3,518 foreclosures compared with 4,527 in all of 2007. Realtytrac, the leading online marketplace for foreclosure properties, reported that one in every 464 U.S. households received a foreclosure filing during July 2008 alone. Areas of Concern Several states and communities, recognizing the problems that this situation brings, have developed or are creating programs to counter the effects. The U.S. Congress and President Bush approved the American Housing Rescue and Foreclosure Prevention Act of 2008 in July (see sidebar for more information). Experts suggest that there are several concerns springing from the mortgage crisis. Here’s a look at some of them. The quality of life is damaged in neighborhoods. Areas with foreclosed and empty homes attract criminals and experience more vandalism and crime. Additionally, various building and sanitary code violations often occur when there is no one on-site for long periods. Together, these situations bring a deterioration of the quality of life in those neighborhoods. Property values decline. Residents who live next to foreclosed properties often see declines in the values of their properties as the foreclosures sit empty or are sold through short sales, in which they are purchased for less than their value. In looking at just foreclosures on subprime loans originated in 2005 and 2006, the Center for Responsible Lending—a nonprofit, nonpartisan research and policy organization—has projected that approximately 40.6 million homes will experience devaluation because of nearby subprime foreclosures. It also estimates that homeowners living near foreclosed properties will lose approximately $5,000 on the value of their homes, and that approximately $200 billion in house values and tax base will be lost from nearby foreclosures. The housing value decline also means many Americans’ accumulated wealth has dropped. A July report by the Center for Economic and Policy Research (CEPR)—an independent, nonpartisan think tank based in Washington, D.C.—projects that if house prices stay the same through 2009, the median household headed by a person between the ages of 45 and 54, those in their prime earning years, will have 24.7 percent less wealth than did the median household in this age group in 2004. “Coupled with a very low personal savings rate, this means that many people, especially those near retirement, will only have Social Security and Medicare to rely on once they leave the workforce,” says Dean Baker, co-author of the report. With many properties in foreclosure, communities may see reduced tax bases but there will be increased community need for local services for foreclosed properties and for people now without homes or apartments.

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