Halting Foreclosure is Good Investment

Gov. Brewer should work with state officials to make sure that Arizona truly invests in foreclosure-prevention efforts. This will provide relief to distressed homeowners -- and it will also pay off in huge dividends for all Arizonans.

May 10, 2012

Published in The Arizona Republic.

The government recently negotiated a $25 billion settlement with the nation's largest banks over "robo-signing" and other foreclosure abuses. At the heart of this settlement is the promise of $2.5 billion in funding for new state foreclosure-prevention efforts.

But legislators in some 15 states -- Arizona among them -- are breaking this promise by diverting some or all of these funds to other uses. Experience shows that foreclosure prevention is a smart investment in our hardest-hit communities, which will lift state budgets and our national economy.

Gov. Jan Brewer, having signed the state budget, should work with the Attorney General's Office to ensure that settlement money is used, as intended, for foreclosure prevention.

The final state budget sweeps $50 million from the foreclosure settlement into the state's general fund. This is despite the fact that Arizona posted the highest foreclosure rate in the nation in March, with an astonishing one out of every 300 housing units receiving a foreclosure notice.

Republican lawmakers have defended the use of settlement funds to balance the state's budget, explaining that money for new services has to come from somewhere. But this argument is short-sighted, because the evidence shows that foreclosure prevention more than pays for itself.

The personal and public costs of foreclosure are staggering. A study of 140 ZIP codes in 13 states found that foreclosure can cause property values within 300 feet to drop by 1.3 percent. This means that a foreclosed home is not only losing its own value -- it's also dragging down neighborhood values by thousands of dollars.

Preventing a family from losing its home saves significant dislocation costs, such as the need for children to move to new (and often lower-performing) schools. And foreclosure prevention is also proven to decrease crime and policing costs. According to one study, a single vacant foreclosed home on a block can lead to a startling 5.7 percent increase in violent crime.

All of these costs to lenders, homeowners, neighbors and government add up -- to nearly $80,000 per foreclosed home, according to a 2007 study by the U.S. Senate Joint Economic Committee. With the cost of foreclosure so high, it is no wonder that prevention saves money. In New York, for example, a statewide network of legal services and housing-counseling providers has saved over 14,000 homes from foreclosure -- avoiding an estimated loss of $3.4 billion in property value and tax base.

The benefits in Arizona could be comparable. The Arizona Housing Alliance estimates that $50 million could provide 75,000 troubled homeowners with housing counseling and 10,000 homeowners with legal assistance. That investment would more than pay for itself by strengthening communities, boosting property values and helping to restore the state's economic health.

Arizona's action defies the spirit of the foreclosure settlement, which ordered banks to pay these funds to prevent unnecessary foreclosures, help struggling families, and deter predatory lending practices. But even worse, Arizona is violating the legal terms of the agreement, which unequivocally directs that the state "shall" use the funds for foreclosure-related purposes only.

Instead of misappropriating settlement funds, Arizona should follow the lead of states finding creative and cost-effective ways to invest in foreclosure prevention. States like Colorado and New Mexico are using their funds to support loan-modification programs, to expand free legal services and housing counseling, and to increase access to affordable housing.

Gov. Brewer should work with state officials to make sure that Arizona truly invests in foreclosure-prevention efforts. This will provide relief to distressed homeowners -- and it will also pay off in huge dividends for all Arizonans.