It seems that whenever I travel to conduct trainings, I find interesting items in the local press for this blog. My trip to Troy, Michigan last week for SEMBOIA was no exception. The Detroit Free Press had a very good article about using demolition wisely to target high crime areas. http://www.freep.com/article/20100421/NEWS05/4210312/Vacant-Detroit-homes-where-crime-thrives-the-first-to-go It seems the local agencies worked to determine which vacant buildings were located in areas with the highest concentration of homicides, assaults, rapes, robberies and arsons. Instead of tearing down vacant buildings here and there throughout the city, this approach recognizes that vacant buildings breed crime and that targeting specific areas is a better use of the funds available. At a time when funds for demolition quickly run out, it’s an approach that is very smart.
There is a very disturbing report, The Multifamily Housing Market and Value-at-Risk Implications for Multifamily Lending, just released by DePaul University’s Institute for Housing Studies regarding the impact of recent property price declines and foreclosure on multi-family housing mortgages in Cook County, Illinois. The study found that 42% of small rental buildings (2 to 6 units) are in danger of default because they are upside down on their mortgage debt. The study said that if the trend is similar across the nation, it would be on par with the subprime mortgage meltdown. In Cook County, the property value of small rental buildings have fallen to 46%. Few lenders want to provide financing for these types of buildings leaving only Freddie Mac and Fannie Mae as lenders of last resort. For many owners, the income from their buildings are less than the operating expenses. Here’s what’s of concern for local jurisdictions:
The point, in any case, is that a significant amount of disinvestment could occur in this environment, particularly in
those markets where the housing inventory has been vastly overbuilt. The usual argument is that negative equity
and declining rents will fuel foreclosures, which in turn will force down multifamily property prices, setting off a
downward spiral, particularly if credit is tight and lenders (including Fannie Mae and Freddie Mac) are unwilling
to make loans. A side implication, of course, is that, other things equal, as rents decline, the quantity of space
demanded should increase. But where there are requirements that multifamily units meet some minimum building
standards, investors will generally find operating these units financially infeasible when rents fall below this
operating cost threshold level. Thus, at or below this point the property will generally be vacated or abandoned.
You can download the entire report at http://ihs.depaul.edu/ihs/
There are 2 interesting trends in the foreclosure crisis. One involves people walking away from properties even though they can pay the mortgage. Their homes are no longer worth what they were and they’ve decided it’s no longer financially wise to continue to pay off their debt. http://rismedia.com/2010-03-30/fed-up-homeowners-who-can-pay-the-mortgage-dont/
The other group of people are hiring attorneys who specialize in delaying foreclosure judgments. Terry Savage, a financial reporter for the Chicago Sun-Times reported yesterday that many buyers have sought to renegotiate their mortgages only to run into an maze of difficulties with their lenders. They are turning to attorneys who know the tricks of the trade in slowing down the process such as demanding to see the original note. Because of the convoluted ways the mortgages have been packaged, it’s often difficult for the lender to produce it. http://m.suntimes.com/suntimes/db_10085/contentdetail.htm;jsessionid=10E297B0365455E3B8572667CA7882FA?contentguid=8Vu8eLDC&detailindex=16&pn=0&ps=20&full=true
Both groups feel morally justified in taking the route they have because of the actions by the lenders in creating this crisis. Some borrowers feel that lenders are still going about their business making money and receiving help from the government to stay in business. People who feel they were duped by predatory lending, feel justified in fighting back.
The result of this type of behavior remains to be seen for those of us involved in preserving neighborhoods.