Why You Should Care about Foreclosure

As foreclosures surge into the millions, it’s worth taking a step back and examining how it affects you. In this case, I’m not necessarily talking about your own (potential) foreclosure; those of you for whom this is a realistic threat don’t need to be persuaded that it is both inconvenient and extremely stressful. I’m not going to use this column to berate you for being irresponsible, nor to advise you on how to avoid foreclosure.

 

Rather, I would like to argue in favor of caring about the foreclosures of other people. Obviously, there is a strong moral case not only for caring about “victims” of foreclosure but also for using public money to help others avoid it. As one columnist wrote, “When we replaced debtor prisons with bankruptcy laws, we became a forgiving society that offered people who had erred second chances and fresh starts. It is a long-standing tradition that has served the country well.”

 

I’m willing however to put pathos and politics aside, however, and instead argue based on self-interest. That’s right; it’s in your own self-interest that others avoid foreclosure. This applies most directly to homeowners, especially those in any stage of the process of selling. According to a recent report by the Center for Responsible Lending, “Foreclosures will cause an estimated 69.5 million nearby homes to suffer price declines averaging $7,200 per home. The loss in property value could total $500 billion.” This is absolutely astounding, considering that this very report built its model on the assumption of (only) 10 million foreclosures. This would imply a “ripple-effect” loss of $50,000 for every foreclosed home!

 

Homes located within viewing distance foreclosures represent the most obvious casualties. Think about it- if you were shopping for a home, would you want to buy one that was surrounded on all sides by foreclosed properties? Then, there is the notion that foreclosed properties probably aren’t being properly maintained (after all, what incentive is there to maintain them?), which means that on top of the psychological impact, there is also an aesthetic downside. Peeling paint, unkempt landscaping, uncut grass, etc.

 

Regardless of the character of the borrowers, foreclosed properties exact an enormous toll on the housing market, leading to lower values for everyone- even those who make their mortgage payments on time. “Every foreclosure we can prevent now, even if the borrower we help is a greedy speculator or a profligate spendthrift, means one fewer house being thrown on the market, which ultimately will prevent the layoffs of three people.”

 

But of course every transaction has two parties- a buyer and a seller, right? If the seller loses (in the form of a lower sale price), than the buyers must be winning, right? In theory, this is a reasonable argument. In practice, these “buyers” often tend to be that same class of speculators/investors, who can afford to pay cash as well as outbid legitimate homebuyers. Moreover, (fear of) oversupply has created competition “so stiff…that buyers have to overbid in order to have a shot at landing a bank-owned home.” It sounds like the only people benefiting are the banks and the speculators; what a surprise.