Report finds major impacts on property values, tax revenues

You think you’re insulated from the subprime fallout just because your credit rating is good and you have a fixed rate mortgage? Think again.Foreclosures on loans to those with shaky credit are resulting in a severe drain on property values — even for families paying their mortgages faithfully every month.

According to the Center for Responsible Lending, such defaults will cause 44.5 million homes to lose a total of $223 billion in wealth over the next few years, most of it in 2008 and 2009.

In addition to foreclosed homeowners, the $223 billion drain — which amounts to $5,000 per nearby household — will have a severe impact on many cities and communities, because lower property values translate into less revenue to fund schools, hospitals, and other vital community organizations at the county level.

The Center’s research finds that, as a result of subprime foreclosures, 42 counties and about half the states will suffer a loss of more than $1 billion each in reduced property values.

“These losses are particularly tragic when you consider that most subprime foreclosures never should have happened,” said Martin Eakes, CEO of the Center and also head of Self Help, a credit union and non-profit lending fund.

“The subprime industry became intoxicated with large fees from dangerous loan products. Unfortunately, lenders and Wall Street aren’t the only ones suffering through the hangover — forty-four and one half million innocent bystanders are feeling the pain, too. The subprime problem has become everyone’s problem,” Eakes said.

Shanna Smith, president and CEO of the National Fair Housing Alliance, noted that diminished property values would have a disproportionate impact on minority communities.

“Many of these [subprime] foreclosures are concentrated in African-American and Latino neighborhoods,” said Smith. “This research documents the costs of lending abuses we see every day, resulting in the tragic theft of hard-earned wealth in communities that already have the lowest rates of homeownership.”

The report is based in part on foreclosure projections that the Center released last December assessing how homeowners have fared with subprime home loans, as well as on data collected by the Federal Reserve and the Census Bureau along with other published research.

The report is being released as civil rights, consumer and housing advocates seek meaningful and lasting solutions to reckless lending and fair treatment for homeowners.

Congress is “considering proposals to address the subprime mess, both to try to help families now facing foreclosure because of abusive loans and to ban the practices that caused the problem in the first place.

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