Communities, Mortgage Servicers Tackle Urban Blight

Sorohan, Mike msorohan@mba.org

February 23, 2016


ORLANDO--In the aftermath of the biggest housing crisis in this country's history, preserving and improving once-vibrant neighborhoods has become a major priority for both housing officials and mortgage servicers.

Panelists here at the Mortgage Bankers Association's National Mortgage Servicing Conference & Expo said the ability to preserve properties in neighborhoods, curb urban blight and restore a sense of pride in homeownership is top of mind.

"The amount of crime that takes place in these blighted communities is unmentionable," said Ed Delgado, president and CEO of the Five Star Institute, Dallas. "There is an emerging epidemic of these abandoned properties that lead to urban blight."

Robert Klein, founder of Community Blight Solutions, Cleveland, Ohio, said his organization has had "boots on the ground" for the past 25 years. "We need to address how we prevent this from happening again," he said. "A property is not like a bottle of wine--it does not get better with age."

Richard Monocchio, executive director of the Housing Authority of Cook County (Ill.), noted 90 percent of abandoned/blighted buildings occur in just one-tenth of 1 percent of all U.S. Census tracts. "What we've seen in Chicago is the aftermath of the housing crisis," he said. "When I was housing commissioner in Chicago, I spend half of my time dealing with abandoned properties."

James Taylor, senior vice president of asset management and preservation with Wells Fargo Home Mortgage, San Francisco, said lenders and servicers have to see what is going on. "Servicers have a tendency to look at a green screen and see a property, a name and an address," he said. "When you go to the neighborhood itself, you get a whole different perspective."

Taylor said Wells Fargo executives make frequent trips to communities. "We operate on a litmus test," he said. "We look at a property and say, ‘how would we like this property next to our home, or in our neighborhood?"

"We work hard to make sure that we have no blighted properties in our portfolio," said Gina Metrakas, director of urban revitalization with Rock Ventures LLC, Detroit, a division of Quicken Loans. "One blighted property can bring down the property values of an entire neighborhood."

Metrakas said in Detroit, a city of 140 square miles, 70 percent of neighborhoods have blighted homes. In 2014, the average sales price of blighted properties in Detroit was just $25,000. Renovations improved that figure to $36,000 in 2015. "We've found that improving one blighted home can improve the quality of homes in a four-mile radius," she said.

Taylor said many of these properties are already in distress--in low-to moderate income neighborhoods with deferred maintenance. "Another problem is that when we arrive at these properties, they've already been stripped or damaged," he said. "It's hard for a servicer or a preservation company to make the decision to renovate."

Demolition is one solution to ridding blighted properties, Monocchio said, but other steps are necessary. "We've boarded up some homes five or six times," he said. "This legacy of plywood is not healthy for neighborhoods and has a tendency to stereotype these neighborhoods."

Metrakas noted that Rock Ventures is working with the city of Detroit to target specific neighborhoods. In these neighborhoods, blighted homes are demolished and in some cases, replaced. "When we fix the properties, we work with the city to improve the infrastructure as well, such as street lights," she said. "It helps bring back a sense of community."

Metrakas said demolition, while drastic, "stops the decline in property values in the neighborhood. "You can make the argument that it can stop additional foreclosures in certain communities."

So, who is responsible for the property: the bank or the government? "When there's 50 or 60 thousand structures in a city of 450,000, the answer is ‘everyone,'" Monocchio said.

And do lengthy foreclosure processes in judicial states, such as New Jersey and Florida, make the problem worse? "It gets to policy making decisions at every level of government," Metrakas said. "In Detroit, 60,000 properties were foreclosed on last year. Everyone has to work together to balance the rights of the homeowners and the needs of the neighborhood.

"There is no question in my mind that the length of time it takes to foreclose a property is a major cause of property blight," Klein said. "It used to be just in the judicial states; not anymore. Even in non-judicial states, you can't tell me that a property that has been vacant for two years isn't going to have an impact on the neighborhood."

Klein said when a property is clearly vacant, "there is no reason for it to remain vacant. It becomes a cancer on the community."

Taylor noted that vacant properties continue to accrue fees and tax liabilities. "When we find out about a property that's in delinquency, one of the first calls we make is to our short-sales team," he said. "It's better to get a buyer for that property before it becomes abandoned. It's hand-to-hand combat, but it's effective."

Klein noted legislation passed the Ohio House of Representatives that mandates if a property is declared vacant, the foreclosure process is streamlined to six months; the bill awaits debate in the Senate. "This could be a blueprint across the country," he said. "It could help clear vacant properities everywhere and get people into these homes."

Taylor said public-private partnerships could also improve neighborhoods. "We simply have to get some pilot programs going," he said. "We have to figure out what the best combinations are available and make them work."

Trust, however, remains an issue. "When Cook County began property renovation programs, the amount of trust between local government and the banks was zero," Monocchio said. "Now, it's different. We identify a property and call the bank and say, ‘we have a property that we've targeted for demolition--what do you want to do?' The result has been some good outcomes."

"We have to learn from what happened," Monocchio added. "When we boarded properties, our safety officials were thrilled that we'd made it safer, but we also made it harder for communities to recover. As we dig ourselves out of the huge problems we have, we can adopt what we've learned to we can help these neighborhoods recover."

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