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Abstract
This brief, a companion to the Housing in the Nation's Capital 2009 report, describes the impact of the foreclosure crisis on the Washington metropolitan region, examining the level and trends of foreclosures, outlining potential secondary effects for families and neighborhoods, and looking towards the future of the region's housing market. It concludes with policy implications in four areas: foreclosure prevention, neighborhood stabilization, recovery assistance for displaced households, and services for children in foreclosed homes.
Introduction
Housing in the Washington, D.C. metropolitan area might not be in
freefall, but it’s proving to be a hard ride down from the top of the
bubble. In just seven years, starting in mid-2000, the median price
of existing single-family homes in the Washington, D.C. region shot up an
incredible 106 percent. Since the summer of 2007, prices have fallen by about
30 percent in real terms. Foreclosures skyrocketed more than eightfold. The
unprecedented growth in foreclosures was initially dominated by riskier subprime
loans, but the problem is now spreading rapidly into the prime market
as the economy worsens. Although the housing market shows early signs
of bottoming out, the foreclosure crisis will continue to have widespread effects
on households and neighborhoods throughout the Washington region.
And foreclosures are likely to have a disproportionate impact on the many
minority families and communities that had gained—and are now losing—a
new foothold on the American dream during the boom.
How big is the foreclosure problem?
According to data published by RealtyTrac, 13.7 of every
1,000 Washington, D.C. metropolitan area housing units
were listed in a foreclosure filing during the first half of
2009, which slightly exceeded the national average of
11.9 and ranked 55th out of 203 metropolitan areas. Las
Vegas topped the list with about 74.5 filings per 1,000
units—more than five times the Washington area rate.
Foreclosures began to rise rapidly in our region in spring
2007. Loan performance data collected from major loan
servicers enable tracking of the region’s “foreclosure inventory,”
or the cumulative number of mortgages that
have entered foreclosure but have not yet been remedied,
paid off by a sale of the property, or had the title transferred
to the lender. From January 2007 to June 2009,
the number of loans in foreclosure increased eightfold
from only 4,000 to 33,600 out of 1.2 million loans. As of
June 2009, about 2.7 percent of all mortgages in the
Washington region were in the foreclosure inventory, comparable
to the national rate of 2.9 percent.
Subprime loans are most likely to be in default; about 12
percent of them in June 2009 had begun the foreclosure
process (Figure 1). These risky loans drove the initial surge
in the region’s foreclosures and are still disproportionately
represented in the foreclosure inventory. Subprime loans
accounted for about 11 percent of all mortgages in the
region, but about half the mortgages in foreclosure.
Prime loans make up another third of the loans in foreclosure.
While the prime loan foreclosure rate was still low
at 1.2 percent, the number of these loans in foreclosure
began to accelerate in fall 2008. Another 5,800 loans, or
17 percent of the inventory, were Alt-A, which have a foreclosure
rate (7.2 percent) between prime and subprime loans. The remaining 1.7 percent of the foreclosure inventory
were government-backed loans, such as those insured
through the Federal Housing Administration (FHA).
With fewer than 600 loans in foreclosure in June 2009,
these loans consistently have the lowest foreclosure
rate—only 0.5 percent. Even though they were created
to serve households with financial profiles similar to subprime
borrowers, the government required full income
documentation, and its guarantee enabled FHA lenders
to offer loans with low fixed rates and much more affordable
payments than subprime loans.
(End of excerpt. The full brief with references is available in PDF format.)
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