Cities Demand Federal Aid To Cope With The Foreclosure Epidemic

Posted on January 29th, 2008 by saman

The top concern aired by the nation’s mayors at the winter meeting of the United States Conference of Mayors has been the collapse of the subprime mortgage market and the effect the foreclosures have had on their cities.Our nations cities have suffered from the collapse in the subprime mortgage market, the foreclosures have lead to vacant houses which further depress the property values as well as leading to harder to get credit and city budgets that are in crisis.

Cities are suffering from reduced tax revenue on abandoned buildings and the general decline in property values attributed to the number of vacant and abandoned houses in their neighbourhoods. A study released by the conference in December estimates that home values may drop by as much as $1.2 trillion in 2008. (State revenues are also beginning to feel the pinch it has been announced that 16 states expect combined budget shortfalls of over $30.1 billion for 2009.) The cities also have to deal with the added costs of maintaining these buildings .

Former Treasury secretary Robert E Rubin addressed the mayors at the conference urging them to aggressively pressure Washington for strong federal action to revive the housing market. He also stated that the federal government need to provide more aid to assist homeowners who are struggling under the weight of mortgage payments.

Many cities are being forced to make hard decisions to cut services to try and patch gaps in their budgets. Sacramento has ordered a freeze to all hiring and is cutting discretionary spending. Fairfax County Virginia are considering cuts to school districts.

Some cities such as Baltimore and Cleveland have also began legal action against lenders, citing the loss of revenue and the increase in costs associated with the high foreclosure rates on the cities. Mayor Sheila Dixon of Baltimore is quoted as saying “It is our responsibility to do what we can to stop it”.

Baltimore has announced plans to sue Wells and Fargo Bank citing that a wave of foreclosures was due to the bank’s discriminatory lending practices to black borrowers.

Cleveland has started legal action to seek monetary damages from 21 different lenders.The conference has not taken an official stand on the issue of cities taking legal action against lenders. Mayor Palmer of Trenton the president of the conference said Trenton did not think litigation was prudent as it would take at least two years.

Mr Palmer did make another comment that has been met with agreement by his fellow mayors. He said that he believed that cities should require the lenders who foreclose on properties to pick up the costs associated with the upkeep of abandoned properties after the foreclosures.