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 What’s Inside
Highlights
EXECUTIVE SUMMARY
While the housing market shows signs of recovery—with progress even in hard-hit states—the backlog of homes in foreclosure and real estate owned (REO) is still large. This is particularly true on the East Coast, where the duration of the foreclosure process is high due to judicial foreclosure procedures. The volume of distressed properties continues to weigh on housing recovery and general economic improvement. Consequently, there is a compelling need for improved public policy at the state, local, and national level to minimize deadweight losses and externalities resulting from foreclosure and the REO inventory.
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I. ESTIMATING THE VOLUME IN THE FORECLOSURE/REO PIPELINE
INTERACTIVE GRAPHIC:
An Assessment of the Distressed Residential Real Estate Situation October 5, 2012
Recent indicators suggest that, at the national level, the housing market may finally be on the mend. Housing starts and sales of new and existing single-family homes are trending up gradually. Home prices have stabilized and begun to rise after falling roughly 30 percent from their 2006 peak. Serious (90+ day) first mortgage delinquencies have declined to under three percent as of 2012Q3 from a peak of five percent in 2010Q1. While these are certainly positive developments, the nation is confronted with large pipeline of loans which are 90+ days delinquent and in foreclosure.
DOWNLOAD SESSION I
 II. IMPACTS OF FORECLOSURE/DISTRESSED SALES
Since World War II, house prices have tended to significantly affect foreclosures, but not the reverse; foreclosures have historically made little difference for house prices. This changed in the recent downturn because of the sheer volume of foreclosures. Indeed, foreclosures and short sales are among the most important near-term influences on the direction of house prices. Aside from the effect of foreclosures on home prices, there are other collateral costs associated with foreclosures. Among them, this session explored the impacts on neighboring communities, renters living in foreclosed properties, and children living in foreclosed properties.
DOWNLOAD SESSION II III. IMPACTS ON STATE AND LOCAL GOVERNMENT FINANCES
The 2007-08 recession has not only been extraordinarily harsh on homeowners, it has been unusually challenging for local governments. Recent data have shown that the American Recovery and Reinvestment Act's substantial increase in intergovernmental assistance went largely to states and did not trickle down to local governments. At the same time, property taxes—which account for about three-fourths of total local tax collections—have stagnated or declined to a degree not seen since the early 1980s. This session explored the impact of foreclosures on state and local government finances.
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IV. REMEDIES
Throughout the country, cities, states, and the federal government are implementing programs designed to stimulate the housing market, convert distressed properties to productive use, and help borrowers who are in default or on the verge of defaulting on their home mortgage loans. How well these programs work is, at best, difficult to measure, rendering informed policy making a challenge. This session explored how mortgage counseling, certain forms of principal reduction, emergency mortgage assistance, and settlement conferences can be effective measures. DOWNLOAD SESSION IV
Speeches
Dudley: Opening Remarks at the Distressed Residential Real Estate: Dimensions, Impacts, and Remedies Conference, New York City
Governor Duke: Addressing Long-Term Vacant Properties to Support Neighborhood Stabilization
KEY DATA POINTS
Organizers
This conference was a collaboration between the staff of the Federal Reserve Bank of New York—
Joseph Tracy and Dick Peach of the Research and Statistics Group; Diego Aragon and Rae Rosen of the communications group and staff of the Nelson A. Rockefeller Institute of Government—Thomas Gais and James Follain.
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