logo

Housing bubble's trickle-down effect on California communities

image
Author: Chris Hinyub
Created: 14 April, 2011
Updated: 13 October, 2022
4 min read

One in five U.S. foreclosures is occurring in California, the state with the highest number of foreclosures. The ongoing foreclosure crisis is impacting more than just mortgage holders who've fallen behind, it is negatively affecting California communities. According to a new report by the Alliance of Californians for Community Empowerment (ACCE), the value loss on foreclosed and surrounding homes has cost homeowners a minimum of $632 billion. Taken together with losses in property tax income and foreclosure-related costs to local governments, that number could be as high as $1 trillion – at least a $337,379 value loss per foreclosure to the surrounding community.

 

From 2008 through 2012, there will have been an estimated 2 million California homes in foreclosure. The decline in value on foreclosed homes alone, the report states, will reach $207 billion (each one losing about 22 percent of its value). These down-spiraling home values drag neighboring home values down with them. The result will be an additional $424 billion in real estate value loss.

 

IVP Existence Banner

California has more “underwater” mortgages than any other state. Almost a third of golden state borrowers now owe more on their mortgages than their homes are worth. Mark Fleming, chief economist of CoreLogic, points out that negative equity “holds millions of borrowers captive in their homes, unable to move or sell their properties.”

 

Equity investments for residents aren't the only casualty of the housing market bubble. Local governments are directly injured by depressed property values. Almost $4 billion in property tax revenue will be lost to the malaise, forcing already overstretched government districts to either downsize, or come up with creative (and often unpopular) ways to generate revenue.

 

IVP Existence Banner

     “With the continued foreclosure crisis and property value declines coupled with the lag in the new lower property assessments, the property tax losses being reported are just the beginning,” says the study. It continues:

 

     “California communities have been struggling with a dysfunctional fiscal system that has limited property tax revenue and over-relies on residential taxes. The foreclosure disaster has exacerbated this revenue crisis. California’s communities depend on property tax as a primary source of revenue for vital services provided through their counties, cities, school districts and community colleges, and special districts.”

 

IVP Existence Banner

Hardest hit by lost income to counties are schools and community colleges which rely on 53% of property tax allocations. California county tax assessor data reveals a $627 million loss in property taxes for the 2009-2010 fiscal year alone. Propositions 8 and 13 are mentioned as drivers in the revenue decline as they allow unlimited reduction in property value assessments to market values and place a 2 percent cap on annual property value increases respectively.

 

Local governments must pay $17.4 billion in foreclosure costs through multiple agencies that are responsible for various things such as maintenance of blighted properties, inspections, trash removal, sheriff evictions and public safety issues attached to abandoned or squatted-in homes. Cities and counties pony up an average $19,229 for every foreclosure.

 

IVP Existence Banner

According to Los Angeles City Councilmember Richard Alarcon:

 

     “Abandoned properties are draining the City’s dollars at a time when we can least afford it. A single foreclosure can cost up to $34,000 for local government agencies in the form of costs such as inspections, court actions, unpaid water and sewage charges, trash removal and LAPD intervention."

 

IVP Existence Banner

Don't expect lawmakers to be proactive about protecting homeowners and strengthening communities during these tough times. A related study by ACCE has shown that banks are spending heavily to lobby against consumer-friendly legislation. As reported by the LA Times, Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley, as well as the California Bankers Assn., the California Independent Bankers and the California Mortgage Bankers Assn. have given state representatives upwards of 70 million reasons since the start of the housing crisis to let bills such as AB 935, SB 729, and AB 1321 fail. These laws, respectively, would impose fees on foreclosing banks to lessen the economic impact on local governments, require loan servicers to consult homeowners about loan modification options before beginning foreclosure proceedings, and (last but certainly not least), make sure that the foreclosing party has the legal right to foreclose by mandating that the mortgage note be filed prior to issuing a Notice of Default.

 

Kevin Stein, associate director of an advocacy group for low-income borrowers, the California Reinvestment Coalition, told the Times, "The reality is the banks are stronger in the Legislature than the consumer groups.” He added:

 

     “In a time of unprecedented crisis in mortgage lending and foreclosures, we should have seen better and more legislation from the folks in Sacramento."

IVP Existence Banner

 

Since 2008, there have been 1.2 million foreclosures in California. It is estimated that 800,000 more homes will be foreclosed on over the next 2 years. Foreclosures in 2011 will likely exceed 2010 levels.

Latest articles

votes
Wyoming Purges Nearly 30% of Its Voters from Registration Rolls
It is not uncommon for a state to clean out its voter rolls every couple of years -- especially to r...
27 March, 2024
-
1 min read
ballot box
The Next Big Win in Better Election Reform Could Come Where Voters Least Expect
Idaho isn't a state that gets much attention when people talk about politics in the US. However, this could change in 2024 if Idahoans for Open Primaries and their allies are successful with their proposed initiative....
21 March, 2024
-
3 min read
Courts
Why Do We Accept Partisanship in Judicial Elections?
The AP headline reads, "Ohio primary: Open seat on state supreme court could flip partisan control." This immediately should raise a red flag for voters, and not because of who may benefit but over a question too often ignored....
19 March, 2024
-
9 min read
Nick Troiano
Virtual Discussion: The Primary Solution with Unite America's Nick Troiano
In the latest virtual discussion from Open Primaries, the group's president, John Opdycke, sat down ...
19 March, 2024
-
1 min read
Sinema
Sinema's Exit Could Be Bad News for Democrats -- Here's Why
To many, the 2024 presidential primary has been like the movie Titanic - overly long and ending in a disaster we all saw coming from the start. After months of campaigning and five televised primary debates, Americans are now faced with a rematch between two candidates polling shows a majority of them didn’t want....
19 March, 2024
-
7 min read