An increase in foreclosures in the District and surrounding jurisdictions could lead to problems beyond a glut of new houses on the market.
A foreclosure on a home brings down the value of property surrounding it. If a number of houses in an area were foreclosed, it depresses the value of the area, making it less attractive to prospective buyers.
This was the case in Houston in the 1980s. Spikes in oil prices led to an economic boom and a sharp rise in home prices.
When the price of oil fell sharply in the mid-1980s, former homeowners left behind ghost towns of foreclosed homes.
The market there didn’t fully recover until the late 1990s, according to a report from the Federal Deposit Insurance Corporation report.
There are also social welfare concerns, including increases in crime and substance abuse in poorer areas, said Helder Gil, committee counsel on the D.C. Council’s consumer affairs and public services committee.
“The majority of these subprimes are in Wards 7 and 8,” he said. “Worst-case scenario, you’re looking at a rash of foreclosures and that aggravates existing neighborhood problems.”
In addition to a bill to protect homeowners facing foreclosure , Gil said the council has considered introducing a bill that provides protection on the front end of the mortgage process.
“It would require lenders to disclose requirements that consumers are getting into,” he said. “There would be a consumer education process [so borrowers] would know exactly how much they’re paying over a period of time.”
