Housing Losses Spread Through the Economy

Costs are mounting in areas hit hard by the wave of mortgage failures in ways other than personal loss. Where vacant houses are popping up like fleas, housing values fall, the tax base suffers, and businesses lose sales. BBC.com has an interesting analysis of the situation, and notes that bailing out the lenders will not help the communities that are afflicted.

Cleveland, Ohio, is an industrial city on the banks of Lake Erie in the US "rust belt".

It is the sub-prime capital of the United States. One in ten homes in the city is now vacant, and whole neighbourhoods have been blighted by foreclosed, vandalized and boarded-up homes.

Many of these homes are now owned by the banks and investment pools owning the mortgages, and the company making the most foreclosures in Cleveland is Deutsche Bank Trust, which acts on behalf of such investment pools.

Cleveland is facing a rising crime wave, and the cost of demolishing the vacant houses alone will cost the city $100m of its tax base.

According to Jim Rokakis, the County Treasurer for Cleveland's Cuyahoga County, "Wall Street strategies that made the cycle of no-money-down, no-questions-asked lending possible have sucked the life out of my city".
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The only way out, says Ms Gerecke (Director of NY City's Neighborhood Housing Council), would be national loan terms agreed for the whole industry.

One such plan has been proposed by Sheila Bair, head of the Federal Deposit Insurance Corporation (FDIC), one of the key banking regulators.

She told the BBC that sub-prime interest rates should not be reset if the borrower has kept up all payments and is not in arrears.

But such a deal is proving extremely difficult to reach, given that thousands of investors around the world own a share of these sub-prime mortgages.

It's hardly a surprise that the occupied White House is incapable of dealing with the housing crisis intelligently. The crunch will be increasingly felt as the tax base declines. This would be a good time for states to begin planning how to deal with the losses, as they can be sure no help is on the way from the flummoxed executive branch.