Bankruptcy

What Can a City Do?

By Elizabeth Warren

Because subprime lending was not evenly spread around the country (or even around a state or city), individual neighborhoods are bearing the brunt of the meltdown.  When several homes in one community go into foreclosure, a neighborhood can rapidly shift from a safe, comfortable area with well-tended lawns to a place where no one wants to live.  Mayors are on the front lines in dealing with the fallout.

Like most academics, we at Credit Slips tend to talk about what the federal government could do to deal with the subprime crisis.  The feds have the power, if not the will, to make some big changes.  But what about mayors?  Can anything be done at the city level? This isn't an academic question, so put on your thinking caps and volunteer some ideas.  Here's mine: 

A mayor could appoint a Foreclosure Investigator.  Announce that any person anywhere in the city who has received a notice of foreclosure or similar document should immediately call the city officer who will investigate all the paperwork to make certain that every aspect of the mortgage and the mortgage foreclosure comply with the law--at no expense to the homeowner. 

This would be a powerful tool for three reasons:  1)  Many of the worst mortgages have bad documentation, illegal provisions, etc.  But if homeowners don't know that, and if they don't go to very good lawyers, the mortgage companies will foreclose and the homeowner's rights will be lost.  2) Even if the mortgage paperwork is in order, any push back from a homeowner makes is more likely that a deal can be negotiated to keep the homeowner in the house (if the homeowner really can afford it). A Foreclosure Investigator can inform the homeowner about a range of options. 3) If one city has the reputation as a lousy place to bring a foreclosure action, mortgage companies have lots to do right now, and they may put that city's foreclosures lower on their to-do lists.  I realize the last point simply externalizes the problem, but for a mayor working hard to save neighborhoods in his or her city, that may be an issue for another day.

What are your ideas?  What other tools are available?  If a highly motivated mayor asked you what to do, what would you suggest?

Full post as published by Credit Slips on January 07, 2008 (boomark / email).