By Eugene T. Lowe
March 24, 2008

Southfield (MI) Mayor Brenda Lawrence testified on March 7 before the Oversight and Government Reform Committee of the U.S. House of Representatives on the subprime mortgage crisis. The committee, chaired by Representative Henry Waxman (CA), held the hearing to “examine the compensation and retirement packages granted to the CEOs of three corporations deeply involved in the current mortgage crisis.” Lawrence was invited to participate in the opening panel of the hearing to discuss the impact of home foreclosures in her city.

“The mortgage crisis and credit crunch is devastating to both homeowners and our nation’s economy. Over seven percent of all mortgages are delinquent or in foreclosure, the highest rate ever recorded. Almost nine million families now owe more on their mortgages than their homes are worth,” Waxman said in his opening remarks.

Lawrence echoed Waxman’s remarks with specifics about the extent of mortgage foreclosures in her city and neighboring jurisdictions. “We currently have 500 Southfield homes in foreclosure, representing approximately three percent of our single-family residential housing stock. In our county of Oakland, by median income the fifth wealthiest county in the country, 8,000 homes went into foreclosure in 2007 and 47,000 in total in the three-county Detroit metropolitan area. We now have residents whose mortgage balances exceed their home values and they are simply abandoning their homes rather than going through foreclosures.”

The problem will not get any better the mayor said. “Even though we have already reached a critical level, the bad news is that the situation is likely to get worse. With a wave of adjustable rate mortgage resets expected this year the number of foreclosures is certain to accelerate.”

Lawrence cited two major adverse impacts of mortgage foreclosures: abandoned and vacant homes and the reduction in the ad valorem property tax. Several negative outcomes of vacant and abandoned homes include unattractive neighborhoods, possible increase in criminal activity, and potential fire hazards. As for the loss of property tax revenues, Lawrence said, “If foreclosures lead to a continued and prolonged decline in property values with a corresponding decrease in tax revenues, the level and quality of the essential public services local governments provide will inevitably decline.”

To address the subprime mortgage crisis and the negative impact on local governments, Lawrence outlined the recommendations requested during the January Winter Meeting of The U.S. Conference of Mayors: “providing Community Development Block Grant (CDBG) funds to help cities monitor and maintain foreclosed and vacant homes; reforming the Federal Housing Administration (FHA) so that it can help more homeowners in trouble; and increasing the funding for housing counseling agencies.”