WASHINGTON, DC — Today, the Government Accountability Office (GAO) released a report requested by U.S. Senator Sherrod Brown, Chairman of the Economic Policy Subcommittee of the Senate Committee on Banking, Housing, and Urban Affairs, on the practice of "abandoned foreclosures," also commonly referred to as "bank walkaways." This is the practice whereby banks decline to take possession of properties after initiating the foreclosure process, most often because the costs — from legal fees to maintenance — exceed the value of the real estate.
“When banks abandon foreclosed properties, everybody pays the price,” Brown said. “Today’s GAO report sheds new light on troubling practices by lenders who abandon properties. Too many servicers are foreclosing first and asking questions later – often foreclosing without evaluating local neighborhood conditions and economic impacts. When banks abandon foreclosed properties, they needlessly evict Ohioans from their homes while footing taxpayers with the bill when these vacant properties require clean-up or monitoring. In this difficult time, we should be doing all that we can to help American families stay in their homes, and this is yet another area of the mortgage servicing industry where a few common sense reforms could potentially help thousands do just that.”
Among the GAO study's findings:
- Though the data is relatively scarce, there were an estimated 14,000 to 34,000 abandoned foreclosures from 2008-2010. They are concentrated in areas of extreme poverty and disproportionately affect those who live in economically distressed urban areas – including Cleveland, Toledo, Akron, and Youngstown – and own the lowest-value properties.
- Foreclosure initiation is correlated with property vacancy, even in cases where the foreclosure process is not completed.
- Bank walkaways drag down neighborhood property values; increase crime rates; decimate the personal finances of homeowners forced to pay back taxes and fees on properties they didn't know they still owned; and impose substantial costs on municipalities left to deal with abandoned properties and lower tax bases.
- There are ways to prevent thousands of families from needlessly being forced out of their homes:
- Improve property valuations conducted by servicers prior to foreclosure. Too many servicers are foreclosing first and asking questions later – often foreclosing without evaluating local neighborhood conditions and economic impacts. They should be required to obtain updated property information prior to filing foreclosure.
- Improve basic information sharing at servicers. Some servicer departments are failing to provide each other with basic property information prior to foreclosure.
- Improve servicer disclosures. Miscommunication and inadequate information are causing significant problems. Servicers should be required to notify borrowers of their rights prior to foreclosure, and to inform local governments of their decisions to abandon foreclosures.
Brown called for a federal investigation following a Cleveland Plain Dealer report exposing lenders or mortgage companies that leave homeowners and communities to deal with blight after walking away from a foreclosed property.
As a member of the Senate Committee on Banking, Housing, and Urban Affairs, Brown is a champion of foreclosure mitigation efforts. When the Senate passed a housing bill in 2008, Brown successfully passed an amendment that provided an additional $80 million in mortgage counseling funds. He is also working to improve the federal loan modification program so that more Ohioans can lower their monthly mortgage payments and stay in their homes. In February, Brown wrote to U.S. Treasury Secretary Timothy Geithner to suggest improvements to the House Affordable Modification Program (HAMP) so that more Ohio families avoid foreclosures.
In February, Brown also sent a letter to President Obama urging that Treasury’s Hardest Hit Fund (HHF) program to help states combat foreclosures be expanded to include Ohio. To date, Ohio has received more than $570 million in HHF funding. Recently, Brown sent a letter to Obama Administration officials, including Treasury Secretary Tim Geithner and Fed Chairman Ben Bernanke, urging action following recent news reports of widespread improprieties and mistakes in the foreclosure processes employed by mortgage servicers. This request followed a letter that Brown sent to the executives of the nation's four largest banks conveying the difficulties that Ohioans are facing in the mortgage modification process, and calling on the banks to work with responsible homeowners to avoid foreclosure. In September, Brown joined Neighborhood Housing Services of Greater Cleveland to commemorate the one millionth customer served through the National Foreclosure Mitigation Counseling Program and to outline ongoing efforts to address the housing crisis. Brown is also a leading proponent of providing assistance to communities affected by the housing crisis and population loss. He fought for the creation of the Neighborhood Stabilization Program (NSP) in the Housing and Economic Recovery Act of 2008 and the continuation of the program in the American Recovery and Reinvestment Act (ARRA) of 2009.
Brown recently introduced the Livable Communities Act of 2010. It would improve the coordination between housing, community development, transportation, energy, and environmental policies to help create better places to live, work, and raise families. The bill will promote sustainable development and enable communities to cut traffic congestion; reduce greenhouse gas emissions and oil consumption; protect farmland and green spaces; revitalize existing Main Streets and urban centers; spur economic development; and create more affordable housing. For more information on the Livable Communities Act of 2010, please click here.