Foreclosures and Neighborhoods

This paper explores the root cause of municipal fiscal stress and documents the effects of foreclosures in the United States. The author, Dan Immergluck, examines the household- and neighborhood-level impacts, as well as the spatial distribution of foreclosures across the country and within cities, by drawing on an extensive literature focused on the mortgage crisis. The unprecedented numbers of foreclosures were concentrated in neighborhoods with disproportionately high minority populations and/or high numbers of subprime loans. Immergluck traces patterns of subprime lending that targeted minority homeowners: for instance, the rate of foreclosures on first mortgages originating at the height of the subprime boom was 76 percent higher for African American families than for white families, and 71 percent higher for Hispanic families. Racially and spatially, the most vulnerable families and neighborhoods bore the brunt of the subprime-induced foreclosure crisis. The concentration of foreclosures in small areas intensified negative effects at both the household level (financial condition, health, and schooling) and neighborhood level (property values and crime). Importantly, Immergluck found that many of these negative impacts spilled over to affect even those not involved in the mortgage transactions. He suggests that state and local governments have a role to play in counteracting—or preventing—the consequences of spatially concentrated subprime lending and subsequent foreclosures.

This paper was presented at the Lincoln Institute’s annual Land Policy Conference in 2014 and is Chapter 7 of the book Land and the City.