Meanwhile, once-thriving, middle-class neighborhoods are being undermined by vacant homes, vandalism, and declining property values.
If we’re going to continue our economic recovery, we need to address the issue that put our economy on the brink of collapse: the housing crisis.
When it comes to the housing crisis, there is plenty of blame to go around. But before the recession, too many fast-talking mortgage brokers steered Americans into unfair loans that helped put the U.S. economy on the brink of collapse – costing millions of Americans their homes and jobs. Federal regulators were asleep on the job – failing to ensure that responsible mortgages were being underwritten and then managed properly by financial institutions.
Now, after American taxpayers bailed them out, Wall Street banks are walking away from their bank-owned properties, leaving behind homes that are often vandalized and left to dilapidate. As a result, Ohioans are seeing their property values plummet as abandoned homes are stripped of copper and anything else of value. Broken windows are not always boarded up. Busted pipes are not always fixed.
According to a Policy Matters Ohio report, one in three Ohio homeowners in 2010 owed more on their loans than their homes were worth. Instead of approving these sorts of “short sales,” banks are foreclosing on homes, but then declining to take possession of them – sometimes because legal fees and maintenance costs often exceed the real estate value. The result is needless evictions – forcing Ohioans from their homes only to have the banks later abandon the property. These so-called “bank walkaways” leave communities – and local taxpayers – to deal with the blight.
I’m demanding solutions. Nearly 14 months ago, the Government Accountability Office (GAO) issued a report – that I requested – on bank walkaways. The report found that bank walkaways, though not a common practice nationwide, are concentrated in economically struggling areas and distressed urban areas of particular cities, including those with low-value properties and sub-prime loans. Cleveland, Ohio, experienced the third most bank walkaways in the nation, while Akron, Columbus, Dayton, Youngstown, and Toledo were all among the 20 communities with the most abandoned foreclosures.
For too long, banking regulators have looked out for the big banks’ bottom lines, at the expense of families in already hard-hit communities. In December, the Treasury Department’s Office of the Comptroller of the Currency (OCC) issued guidance to the banks instructing them on how to properly walk away from their properties. In response, I wrote to the OCC – which oversees the five largest mortgage servicers – outlining the devastating effect that bank walkaways have on low-income and middle-class families and their neighborhoods.
The Federal Reserve Bank of Cleveland has found that vacant homes in a neighborhood lower surrounding property values by 3.1 percent – in an already sluggish housing market. We need stronger standards that will help keep Ohio families in their homes and protect communities from having to pay thousands in maintenance fees on abandoned homes.
In addition to demanding additional action from OCC, I’ve also introduced the Foreclosure Fraud and Homeowner Abuse Prevention Act, which would require mortgage servicers to work with homeowners to modify their mortgage prior to foreclosure. Preventing foreclosures is the best way to protect Ohio communities from the harm caused by abandoned properties.
Earlier this month, I met with a Cleveland Heights resident who lost her job after the company she worked for downsized. Then she lost her home. Jeanette Smith was forced to move to an apartment as the bank initiated foreclosure. But, without alerting her, the bank stopped the Sheriff’s sale. Without being able to back out of the lease, Ms. Smith was hit with a double disadvantage: local vacancy fines for a property she thought she no longer owned and a rent check she now had to pay.
If the banks are not willing to work with a struggling homeowner to prevent eviction, then the banks should be accountable for maintaining the foreclosed property. If they don’t, then they should pay a penalty as would a homeowner who allows a roof to collapse or fails to repair broken windows.
Ohioans are seeing their property values plummet as abandoned homes on their block or in their neighborhood are stripped literally to their foundations. Meanwhile, local cities and counties are left footing the bill because a bank has abandoned its responsibility. The only party that wins when homes are abandoned is big banks. We should not allow this practice to go on any longer.
Now is the time Main Street stops paying for the financial and housing crisis it did not create.
Sherrod Brown is a United States Senator from Ohio.