To live through a foreclosure can be very hard on homeowners who have to give up their dwellings and move elsewhere. It certainly has financial implications that can stay with them for a while. And there can be psychological ones as well, which typically are more difficult to measure.
The negative consequences spread much farther than that, though, as they go beyond the individual homeowner. They affect the entire neighborhood and can conceivably string together a patchwork of neighborhoods that have foreclosures in them and then eventually reach across whole communities. This phenomenon is now taking place in many overbuilt cities at least out West and in Florida.
CRL, or the Center for Responsible Lending, has done a study on this timely topic. According to its research, a foreclosure reduces the values of surrounding homes on average by 0.9% and if there is a second foreclosure on nearby streets, an additional 0.9% is gone to the wind. In lower-income areas the percentage decrease is even higher at 1.44%. These numbers make you think.
But the harm done by foreclosures goes still deeper than that. ACORN, or Association of Community Organizations for Reform Now, published a report in October that used information from federal and private sources to outline a prediction on the economic fallout foreclosures can cause. It studied 96 metropolitan areas and estimated that local governments, lenders, property owners and investors are likely to lose about $25 billion.
Property tax revenues inevitably fall and cause budget problems for schools, police and all the other government services relying on them. This aspect is often initially overlooked by local authorities and can bring unexpected funding challenges to the already reeling communities. Beyond the monetary factors are the social costs, among them increased crime and scaled-back social services.
Generally the focus has been mostly on the affected homeowners and the mortgage lenders who have to deal with non-performing loans. It's evident, though, that the issue is much broader and should be better understood while remedial actions are taken.