When the bubble bursts, people get hurt. It happened before, you remember. There was the dot.com bubble. And the stock market bubble. And now the real estate bubble. We know that all artificially inflated bubbles will burst someday, and yet there is a seductiveness about them that is almost irresistible. Everyone knew that the hyper-inflation of the real estate market could not last, yet no one wanted to lose out on the easy money that, for a time, was there for the taking. Everyone wanted a piece – giddy first-time homebuyers and conservative pinstriped bankers, small-time entrepreneurs and Wall Street investors. And when the bubble, expanding precipitously from the frenzy of unexamined investments, finally did pop, the blast impacted everyone. The shock waves have radiated around the globe. In South Atlanta, as in a thousand other urban communities, foreclosure signs now line the streets. Boarded up houses are the sad remains of the American Dream turned nightmare. Families lured into over-valued homes by nothing-down-pay-later schemes have simply walked away. No point in trying to re-negotiate their loan. That paper is long gone, bundled and sold to anonymous investors in a global market. The agents that service the loans for a fee have little discretionary latitude. And so the houses just sit, a magnet for night time scavengers who strip them of their copper, free lodging for vagrants, a blight on the community.
The complexities involved in righting this fiasco are daunting. Who actually owns these houses? It’s difficult to determine. Unlike the days when your local banker held your mortgage and serviced your loan, the paper today is quickly unloaded to a secondary market. Fanny Mae and Freddy Mac buy most of these bundled loans, securitize and repackage them, and sell them to assorted pension funds, real estate investment trusts, banks, Wall Street investors and a host of other buyers all over the world. To untangle the ownership is mind-boggling. And so the houses sit. And then there is the tax assessment problem. A foreclosed house that the unfortunate buyer borrowed $200,000 for may be actually worth only half that amount. (Little wonder that a first-time homeowner who has invested very little of his own money in the house will choose to walk away when his mortgage payments escalate beyond his means.) A prospective new buyer may spy a bargain only to discover that the property taxes are based on the inflated $200,000, not the corrected lower value. And so the house sits.
Congress is working feverishly to find solutions to slow down the foreclosure tsunami. Corrective legislation is being debated that could provide refinancing relief to qualified borrowers. For many homeowners, however, and their communities, this will be too little too late. The bubble has already exploded and the devastation litters the landscape. At the grass-roots neighborhood level, the wounded must be cared for and clean-up efforts must begin.
This year our ministry will build no new affordable houses. Rather we will focus on one foreclosure-devastated community – South Atlanta. 50 houses are currently sitting vacant; others are teetering at a foreclosure’s precipice. We will assemble a blue ribbon team of real estate professionals, lenders, deal-makers, investors, remodelers, elected officials, community organizers and neighbors to take on the challenge. A number of simultaneous actions will begin: the painstaking work of tracking down ownership, tighten security on vacant houses to prevent more vandalism, determine the negotiating limits of lenders, secure donations, grants and loans to purchase and rehab vacant houses, mobilize teams of volunteers to assist with rehab work, appeal for property tax reassessment, screen new renters, begin home-owner training classes, increase our property management capacity…the list goes on.
With concerted effort we may be able to turn a lemon into lemonade in at least one community. To be sure, the blast from the bubble has done irreparable damage to some. But we may be able to reclaim the lost houses, save the dreams of some worthy homeowners, and encourage others to struggle to their feet and begin rebuilding their lives. And if we are successful, we may be able to inspire other communities to follow suit. It’s worth our best effort.