Panel: Foreclosures and Externalities
(Housing & Community Development)

Saturday, November 10, 2012: 8:30 AM-10:00 AM
Preston (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Organizers:  Rachel Meltzer, The New School
Moderators:  Claudia Sharygin, Urban Institute and Lauren Lambie-Hanson, Federal Reserve Bank of Philadelphia
Chairs:  Ellen Janes, Federal Reserve Bank of Richmond

Foreclosures have received no shortage of attention in recent years, but there is still much to learn about their impact on local economies, communities and individuals. This panel includes four papers that, together, address the various ways that foreclosed properties can impact the places and people surrounding them. All of the papers use unique and rich datasets to test the presence of (and outcomes from) different types of externalities. The first paper, by Gerardi et. al., uses a comprehensive identification strategy to pull apart the price effects of foreclosures on neighboring properties. In particular, they isolate the effect of the physical condition of the distressed property and how its negative effect can be exacerbated by extended delinquency-to-foreclosure transitions. The second paper, by Cheung, Cunningham and Meltzer, exploits membership in an HOA to disentangle the mechanisms behind post-foreclosure price effects. The analysis tests whether the HOAs’ targeted and cooperative governance can temper the negative spillover effects from foreclosed properties, or whether the extra burden from carrying delinquent neighbors can actually make the HOA properties more vulnerable than non-member properties. The third paper, by Ingrid Gould Ellen, Josiah Madar and Mary Weselcouch, sheds light on the “REO problem” by studying the volume and characteristics of properties entering bank ownership, the length of time they stay in bank ownership, and what happens to those properties after they are sold to private owners. They analyze properties in three cities with very different market conditions: Atlanta, Miami and New York City. The fourth paper, by Lonnie Berger, J. Michael Collins and Tim Smeeding, examines the effect of foreclosures on families, and specifically on their job retention, reliance on public benefits and at-home safety and stability. Together, the papers demonstrate that foreclosures can lead to consequences for the owners of the foreclosed property, their neighbors, their children, and the public sector at large. The papers also each recognize the temporal nature of foreclosure, in that it is a process that can be lengthy and path-dependent; together the papers address the impacts of foreclosures at each stage of the process. In addition, they document these effects in various geographical contexts. Cheung et. al. and Berger et. al. look at single states (Florida and Wisconsin, respectively), but each presents a markedly different economic, political and institutional context for analysis. Ellen et. al. and Gerardi et. al. conduct analyses across multiple cities and metropolitan areas, providing a more national perspective. This collection of papers promotes a more holistic understanding of foreclosures and their outcomes. It offers the opportunity to reflect on policy choices that can also be comprehensive in their approach and to contemplate support systems for all of the various stakeholders in the process (i.e. not solely homeowners, and including local governments).

Foreclosure Externalities: Some New Evidence
Kristopher Gerardi1, Eric Rosenblatt2, Paul Willen3 and Vincent Yao2, (1)Federal Reserve Bank of Atlanta, (2)Fannie Mae, (3)Federal Reserve Bank of Boston

Homeowner Distress, House Price Declines and the Role of Homeowners' Associations
Rachel Meltzer, The New School, Ron Cheung, Oberlin College and Chris Cunningham, Federal Reserve Bank of Atlanta

The Foreclosure Crisis and Community Development: Exploring REO Dynamics in Hard-Hit Neighborhoods
Ingrid Gould Ellen1, Josiah Madar2 and Mary Weselcouch2, (1)New York University, (2)Furman Center for Real Estate and Urban Policy

Spare the Home, Spare the Child? Foreclosure and Child Welfare Outcomes
Lawrence Berger, University of Wisconsin - Madison, J. Michael Collins, University of Wisconsin and Timothy Smeeding, Institute for Research on Poverty

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