Outcomes of Foreclosure: Literature Review and Experiences in Lowell, Massachusetts
This brief offers foreclosure outcomes, both in general and for a set of properties in Lowell, MA, including a literature review that points to a range of overall negative effects of foreclosures for households, neighborhoods, and municipalities.
This Issue Brief focuses on the outcomes of foreclosure, both in general and for a set of properties in Lowell, Massachusetts. The first section provides a short overview of various issues pertaining to the preforeclosure period and the recent record of the federal government’s foreclosure prevention programs. The Issue Brief continues with a review of the literature on the outcomes of foreclosure for properties, foreclosed homeowners and renters, and neighborhoods and municipalities. Evidence from this review suggests that foreclosures typically have a range of negative outcomes. Foreclosed properties can remain vacant or abandoned for long periods of time, with a variety of negative effects for the surrounding areas. And, certainly, foreclosure is a traumatic outcome both for owner occupants and for renters of foreclosed properties, who may face displacement sometimes due to no fault of their own. Significantly, foreclosure is certain to create a range of problems, including creating adverse impacts on health and overall well-being, with children being particularly vulnerable.
The final section presents some empirical information about the impacts of foreclosure in Lowell, Massachusetts. This analysis reveals that foreclosed properties are staying vacant for about one year. We estimate that HUD/FHA is likely losing from $46,853 to $81,639 per FHA-insured foreclosed home. We also attempt to assess some of the economic and social costs of foreclosed properties in Lowell by examining police calls, tax arrearages, and linkages to homelessness. Although the findings from Lowell are far from conclusive, the weight of the evidence, especially in the context of numerous other studies, suggests strongly that foreclosure harms the homeowners losing their homes, the surrounding areas, and the municipalities in which the homes are located. Some of the difficulties in producing clearer findings are due to insufficient data disclosure by HUD/FHA. This leads to my recommendation that HUD/FHA be required to keep clear public records concerning the costs to the agency of each foreclosure. HUD/FHA’s monetary loss (or gain) on each foreclosed property is a critical piece of information in developing appropriate policy levers to prevent this unwanted outcome. Additionally, the information needs to be easily accessible through FOIA requests or other transparent reporting mechanisms.