Foreclosures have drained nearly $2 trillion in property value from neighborhoods across the U.S., according to a new report from the Center for Responsible Lending (CRL). The report, titled ‘Collateral Damage: The Spillover Costs of Foreclosures,’ updates CRL's research on the economic harm that homeowners suffer by living near foreclosed properties, also known as the ‘spillover’ cost. The research examines the disproportionate impact of the crisis on minority neighborhoods.
‘The spillover cost of loans that entered foreclosure between 2007 through 2011 has affected homeowners in neighborhoods all over America, the report finds, but African American and Latino communities have been especially hard hit,’ says the CRL report. ‘A $1 trillion drain in home equity from minority neighborhoods represents a huge economic setback for homeowners living there. Overall, the average spillover cost per affected family is or will be $21,000 in lost household wealth, representing 7% of home value. In minority neighborhoods, the average loss is or will be $37,000, or 13% of median home values in those neighborhoods.’
The CRL notes that the $2 trillion dollar figure estimated in the report represents only part of the total cost of foreclosures, since the spillover costs do not include equity lost by families who are foreclosed on, nor the billions of dollars drained from communities as a result of lost tax revenue, vacant properties and socioeconomic issues that are prevalent in blighted neighborhoods, including increased crime levels.
‘CRL's report is troubling evidence of how much the economic costs of foreclosures are spilling over into communities all over America,’ says Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights. ‘Communities of color – which have been targeted for years by predatory lenders, and abused for years by mortgage servicers – have been practically drowning. Until policymakers get serious about reducing foreclosures and restoring meaningful homeownership in all communities, a full economic recovery will likely remain out of reach.’
The full report is available online.