Opportunities and Recommendations for Neighborhood Revitalization after Foreclosures

Although the foreclosure crisis is causing huge and lasting amounts of pain for families, neighborhoods, and regions, no upheaval is without its opportunities. The crisis provides a window for governments, nonprofits, lenders, funders, and the entire development community to rethink neighborhood revitalization, foreclosed and vacant properties, and regional and neighborhood planning.
This is a time for new models of urban development and sustainability. The very neighborhoods that are suffering and emptying out due to foreclosure could be a centerpiece for more environmentally friendly, lower-carbon, smarter growth living. But, that recovery is only possible if action comes soon enough to preserve their physical, human, commercial, and historic assets.

Specific recommendations include the following broad categories:
1.Minimize the physical deterioration of foreclosed properties.
This can be done by keeping housing occupied through and after foreclosure, which will discourage thieves and vandals and reduce the chances of disasters like burst pipes and fires, and aggressive code enforcement and nuisance abatement, with the power to assess punitive fines.

2. Create a streamlined REO transition process.
This can be done by through legislative changes to speed foreclosure of abandoned properties, coordination between all the stakeholders, lender commitment to a long-term view, standardized use of value calculations, and aggressive development of land banking capacity

3. Level the playing field between responsible investors and those who intend only to flip properties.
This can be done by increasing requirements and oversight for purchasers of foreclosed property and owners of vacant property, reducing restrictions on federal NSP grantees, and funding the recovery effort to scale.

4. Facilitate the rapid transition of the community development industry to new models that address rapidly changing conditions. This can be done by supporting capacity building and shifting funding strategies

Specific recommendations for local and state governments, federal government, philanthropic institutions as well as servicers and lenders include the following:

Federal Government
The federal government must have FHA and Government Sponsored Enterprises such as Fannie Mae and Freddie Mac take the lead in implementing creative stabilization, promoting REO tenancy, maintenance, and disposition programs, such as the servicer recommendations listed below.
Additionally, the federal government must adjust securitization rules.

Philanthropic Institutions
These institutions must fund advocacy efforts to improve federal government response to the
crisis. They must also fund data systems, technology, and capacity building to allow overburdened localities to clear up clogged court systems and make code inspections and enforcement swift and efficient. Also they must fund capacity building for community development organizations that are shifting their financing and development models to deal with the present crisis. Finally the philanthropic institutions must seek out and continue to support models that standardize and streamline the REO transfer process

Servicers and Lenders
The servicers and lenders must create a standardized, efficient mechanism for transferring REO
properties in bulk. They must commit to a strategic, long-term approach to REO disposition These servicers must develop protocols for encouraging renters in foreclosed properties to remain as tenants of the servicer until there is a purchaser who wishes to move in.
Also they must develop protocols to encourage former owners to stay on as long-term renters until they can reclaim the property or there is a purchaser who wishes to move in.
The servicers must work with localities and local nonprofits to develop creative approaches for regular maintenance of vacant properties.
Additionally the lenders must work with local brokers, local community organizations, and the National Community Stabilization Trust to reach agreements on value formulas as a basis for determining pricing for government/nonprofit/NSP purchase.
Finally these lenders must accept back-up offers while an REO property is under contract and make available rehab loans for those qualified.

Reference
Communities at Risk: How the Foreclosure Crisis Is Damaging Urban Areas and What Is Being Done About It.