Senate Democrats

Democrats are Making Urgently Needed Investments in Housing and Community Development

As Democrats work to reverse the Republican Deficit and get the economy working again by making long-term investments, creating jobs, providing middle class tax relief, we have not forgotten the origin of the current recession: the crash of the housing market.  In the coming weeks and months, we will build upon legislation passed in the 110th Congress, the Omnibus Appropriations Act, 2009, the American Recovery and Reinvestment Act of 2009, President Obama’s  “Making Home Affordable” program, and propose new solutions to prevent unnecessary foreclosures, help struggling homeowners, stabilize the financial markets, encourage new and responsible home purchases, and help communities recover from massive home foreclosures. 

Congress is currently considering the Fiscal Year 2010 Budget Resolution (S. Con. Res. 13), a fiscally responsible blueprint for America’s future, which will reflect the President’s housing priorities by investing in community economic development, affordable housing, and housing assistance, including foreclosure mitigation. 

President Obama and Congressional Democrats inherited an epic housing crisis.

The American dream of homeownership is becoming less and less of a reality for millions of Americans and their families.   Years of abuse by the mortgage lending industry, excessive risk taking by investors, lax regulation under the Bush Administration, lack of affordable housing, and poor choices by some homeowners resulted in a nationwide housing crisis that is crippling the entire U.S. economy. 

During the third quarter of 2008, one in ten American homeowners found themselves either behind in mortgage payments or facing foreclosure.[1]  According to the Mortgage Bankers Association, nearly 7 percent of mortgages were 30 days or more past due (an increase of 58 basis points from the previous quarter), a record high.[2]  Disturbingly, this increase was due to the rise in mortgages past due by 90 days or more. 

According to RealtyTrac, more than 2.3 million U.S. properties faced foreclosure in 2008, an 81 percent increase from 2007.[3]  This was added to the 1.3 million properties that faced foreclosure in 2007, a 75 percent increase from 2006.[4]  It is estimated that 1.2 million of the foreclosures in 2008 were on residential properties.  And while Democrats are working to lower this number through aggressive homeowner assistance programs, early forecasts project that overall foreclosures could rise by 2.4 million in 2009 and by 8 million (1 in 9 households) over the next five years as adjustable rate loans continue to adjust higher and Americans grapple with job loss and rising unemployment.[5]

Even homeowners with strong credit, who are in safe, fixed-rate loans are suffering from the reduction in property values and home equity wealth that result from foreclosures in their neighborhoods.[6]  In February 2009, the National Association of Realtors reported that the national median existing single-family home price in the fourth quarter of 2008 dropped 12.4 percent below the fourth quarter of 2007 price.[7]  It is estimated that by the end of 2009 more than 40 million homeowners will have experienced a decline in their home values due to surrounding foreclosures.[8] 

Worse, the current mortgage crisis has dampened the hopes of many aspiring homeowners.  The failure of subprime mortgages, on which many banks and investments firms had placed their economic futures, has resulted in a freeze on the credit markets.  Despite dropping interest rates and housing prices, the ensuing credit crunch has made it more difficult for all but the most credit-worthy to find an affordable home loan.[9]  A Federal Reserve study found that approximately 55 percent of U.S. banks have increased standards for prime mortgage loans, and 85 percent of banks have increased standards for nontraditional mortgage loans.[10]  This month, the National Association of Realtors reported that even while existing-home sales increased during February 2009, sales decreased significantly in January, were down overall by 4.6 percent from February 2008, and the inventory unsold homes increased.[11]

In addition to home loans, the credit card safety-net relied upon by many Americans to cover basic necessities during hard times has all but withered away as financial institutions have tried to minimize their risk, making it even more difficult for homeowners to make mortgage payments and aspiring homeowners to save for a down-payment.[12]

Massive home foreclosures have destabilized surrounding communities.  Cities and towns across America have experienced business closings, increased crime, increased costs, and an undermined tax base due to the inability of homeowners to make mortgage payments and the eventual abandonment of homes in their neighborhoods. 

According to one study, a municipality may incur between $430 and $34,000 in direct costs per foreclosed property due to “inspections, court actions, police and fire department efforts, potential demolition, unpaid water and sewage, and trash removal,” depending on whether the property is secured and the duration of the vacancy. [13]  Even taking the lower number, these increased costs place a strain on communities already struggling to dealing with budget shortfalls (due in part to the reduction in state and local aid from the federal government during the Bush Administration) and devastate lower-income communities which are already vulnerable to economic disruption and are facing the highest levels of home foreclosure.  In addition to these property-focused costs, high foreclosures also place a strain on social programs and public services.  Beyond municipal costs, high foreclosures eviscerate local tax bases.  By the end of 2009, surrounding foreclosures are estimated to decrease home values by $352 billion.[14] 

Moreover, as Americans experience decreasing home values, rising costs for necessities, stagnant wages, sustained job loss, and lowered credit, they are less likely to spend.  The reduction in consumer spending has led to closings and layoffs in consumer driven businesses – small and large, which begets more foreclosures and begins the cycle of economic struggle all over again.

The home loan crisis has only exacerbated the nation’s ongoing affordable housing crunch.  Even as the dream of homeownership has become more elusive, increased demand, cost, and standards for rental housing has made it more difficult for non-owners to rent.  According to the Center for Housing Policy, between 1996 and 2006, housing costs for renters rose by 51 percent, while incomes rose by only 31 percent. In the wake of the housing crisis and rise in unemployment, it is expected that this schism will widen.  It is also expected that rental costs will increase as homeowners of multifamily units deal with their own increased costs and are forced to pass on those costs to their tenants.[15]  That National Low Income Housing Coalition estimates that more than 40 percent of those at risk of eviction due to foreclosure are renters, many of whom do not even realize they are at risk because they are not the property owner.[16]

Democrats are preparing for a comprehensive response to the housing crisis.

The Obama Administration has prioritized adequately funding Housing and Urban Development programs that increase homeownership, support innovating and sustainable community development, and increase access to affordable housing.  This is a marked departure from the Bush Administration, which routinely proposed massive funding cuts to critical housing programs for Americans and communities in need, even as it became clear the nation was in the midst of a housing crisis.

The Democratic Budget Resolution reflects President Obama’s preliminary budget priorities and provides for:

·         Investments in housing assistance to follow up on the Administration’s "Making Home Affordable" initiative, a program to help homeowners whose homes have been devalued due to neighboring foreclosures refinance affordably, and homeowners who are struggling or on the brink of foreclosure modify their mortgage loans;

·         Capitalization of the Housing Trust Fund, which would finance the development, rehabilitation, and preservation of affordable housing for very low income residents; and

·         Increased resources for affordable housing programs, such as the Public Housing Capital Fund, Hope VI Distressed Housing Program, Housing for the Disabled, Housing for the Elderly, and the Section 8 tenant-based Housing Choice Voucher program and the project-based Section 8 program.

The Budget Resolution further provides for increased funding for the Community Development Block Grant (CDBG), the largest source of federal grant assistance in support of state and local government housing and community development efforts as communities attempt to deal with foreclosures and the economic downturn.  The resolution also allots funding for investments in infrastructure, which may include building and improving public housing.

Recognizing that of the subprime mortgage and, now, global economic crisis was caused, in part, by predatory lending, fraud, and corporate malfeasance, the Budget Resolution increases much-needed resources for regulators and law enforcement agencies to aggressively investigate and prosecute financial fraud.  


[1]      Bloomberg, “Mortgage Delinquencies, Foreclosures Rise to Record” (December 5, 2008), available here.

[2]      Mortgage Bankers Association, “Delinquencies Increase, Foreclosures Start Flat in Latest MBA National Delinquency Survey,” (December 5, 2008), available here.  

[3]      RealtyTrac, “Foreclosure Activity Increases 81 percent in 2008” (January 2009), available here.

[4]      RealtyTrac, “U.S. Foreclosure Activity Increases 75 percent in 2007” (January 2009), available here.

[5]      Center for Responsible Lending, “United States Foreclosures: Impact & Opportunities” (January 2009), available here (state by state data on foreclosures is available here), and “Continued Decay and Shaky Repairs: The State of Subprime Loans Today” (January 2009),  available here (citing Credit Suisse). 

[6]      “The fall in home prices has cut into Americans’ home equity and forced many to grapple with mortgages now worth more than the house itself.”  Michael M. Grynbaum, Consumer Confidence Slips as Home Prices Drop, New York Times (April 29, 2008).

[7]      National Association of Realtors, “4th Quarter Metro Area Home Prices Down as Buyers Purchase Distressed Property” (February 12, 2009), available here.

[8]      Center for Responsible Lending, “Updated Projections of Subprime Foreclosures in the United States and Their Impact on Home Valus and Communities” (August 2008), available here (state by state data is included).

[9]      The silver lining, however, is that reduced prices are leading to increased home sales, which rose by 6.5 percent in December 2008 (the largest increase in years).

[10]    Bloomberg News, “Fed: Banks Tightening Standards for loans” (updated February 5, 2008), available here

[11]     National Association of Realtors, “Existing-Home Sales Rise in February” (March 23, 2009), available here.

[12]    Eric Dash, “Banks Trimming Limits for Many on Credit Cards,” New York Times (June 21, 2008), available here; Andrea Coombes, “Say good-bye to credit? Analyst sees credit-card limits cut by $2 trillion, but devil’s in details,” Market Watch (December 7, 2008), available here.

[13]    William Apgar and Mark Duda, “Collateral Damage: The Municipal Impact of Today’s Mortgage Foreclosure Boom” (May 11, 2005), available here.

[14]    Center for Responsible Lending, “Updated Projections of Subprime Foreclosures in the United States and Their Impact on Home Valus and Communities” (August 2008), available here (state by state data is included).

[15]    Center for Housing Policy, “Stretched Thin, The Impact of Rising Housing Expenses on America’s Owners and Renters” (October 2008), available here.

[16]    National Low Income Housing Coalition, “Renters in Crisis” (February 2009), available here.