The Foreclosure Homeless Problem
Causes and solutions.
This morning, the New York Times has a feature length article about how foreclosures have increased homelessness. Because homelessness is such an irresistible sensationalist topic for most journalists, I'm highly skeptical of most new stories about it. This article, however, did a fair job of mixing human interest stories with some studies done by homeless aid organizations. To the extent that this is a real problem, there might be some simple policy responses that could be considered.
First, here's some of those statistics that the NY Times provides:
Only three years ago, foreclosure was rarely a factor in how people became homeless. But among the homeless people that social service agencies have helped over the last year, an average of 10 percent lost homes to foreclosure, according to "Foreclosure to Homelessness 2009," a survey produced by the National Coalition for the Homeless and six other advocacy groups.
In the Midwest, foreclosure played a role for 15 percent of newly homeless people, according to the survey, reflecting soaring rates of unemployment -- Ohio's reached 10.8 percent in August -- and aggressive lending to people with damaged credit.
The Legitimate Problem
In some foreclosure situations, homelessness is almost certainly predictable. For example, think about a single parent with a few kids who is laid off for an extended period of time. After unemployment benefits have run out that person likely won't be able to make rent, well, anywhere without significant savings. In many cases such individuals likely turn to relatives for assistance, but that's not an option for everyone. This is the most legitimate situation where a policy response is warranted. It should be noted, however, that the culprit here isn't the housing market -- it's the employment situation. If you have no income, you can't afford to pay rent or a mortgage.
The cry of homelessness alarmists is as follows: "Oh no! Millions of homes are being foreclosed! These people are being kicked out of there homes, and many will end up on the street!" Nonsense.
Foreclosure does not come out of nowhere. Homeowners facing foreclosure always know at least several months in advance that their time is up. When these individuals realize that their home will be foreclosed on, they should begin making other arrangements. They should be seeking out rentals that they can afford or trying to get friends or family to help. Again, if you're unemployed and your benefits have run out and have no savings or relatives, that's a different story. But this is a relatively small portion of Americans right now.
Some of these "homeless" individuals are temporarily homeless, because they didn't plan ahead before foreclosure. They probably just hoped that by some miracle or bailout, they would be able to remain in their home. In many cases, banks are accentuating this problem by not foreclosing in a methodical enough manner. That might give these homeowners a false sense of hope, because they are not kicked out of there home for weeks or months after they should have been evicted.
The idea that these individuals might be employed, but can't afford rent anywhere seems rather doubtful. I've written a few times about the ailing rental market. Rents are decreasing. That should make it easier for these former homeowners to rent. Even if their credit is awful, landlords are becoming increasingly desperate, and almost certainly more willing to look past that, as vacancies are soaring.
Foreclosing On Renters?
Speaking of rentals, there's an interesting observation I found in the first of the studies that the NY Times notes above, from National Coalition for the Homeless (opens .pdf). It found the following about the homeless population it identified:
Renters were more heavily represented than the owner-occupiers of foreclosed units.
This should seem counterintuitive. The public perception of the housing crisis is that homeowners faced foreclosure. But the little told story is that many renters were also affected. First, a large number of foreclosures were for second homes or investment properties, which the mortgagees leased to unsuspecting renters. But when the jig's up, those renters are suddenly thrown out.
Second, some crafty homeowners who are facing foreclosure have stopped paying their mortgage and moved out of their homes, into rentals. Meanwhile, they began renting out their underwater home to unsuspecting tenants until eviction begins. This is particularly common problem in some of the worst markets where I previously noted there is likely a large shadow foreclosure inventory. I have heard many stories of this happening in South Florida, for example. This, of course, also results in sudden eviction for the renters.
So to the extent that homelessness resulting from foreclosure activity really is a problem, I believe that there are only three major causes: no income stream or relatives, irresponsibility and deadbeat landlords causing unsuspecting renters to be suddenly evicted.
The first of these causes is a serious problem. Congress has already extended unemployment benefits to address this, but that might not be enough. Unemployment is likely to remain high for an extended period of time. According to the Bureau of Labor Statistics' most recent national unemployment report, 5.4 million Americans have been unemployed for more than 27 weeks, more than double the number from a year ago.
The second cause does not conjure up much sympathy from me. But if you really want the government to address it with a policy response, then the government could create an information packet sent out to anyone 60+ days delinquent. It would urge those facing foreclosure to be ready eviction with a plan, and ideally, have them out of the home before eviction even takes place. It could also include information about public housing options.
Finally, what can be done to prevent renters from unexpected eviction? First, landlords should be required to notify their renters when their property is facing foreclosure. They need to allow their renters with significant time to find a new home to rent. Second, it should be illegal for anyone who owns a home in foreclosure to rent out that home, and stiff criminal consequences should follow.
As mentioned, I'm rather cynical about whether or not homelessness resulting from foreclosure is a legitimate problem that needs a policy response. But in some situations, particularly targeting deadbeat landlords, legislation wouldn't hurt.