Next step for bankrupt Detroit: Ending abandoned home crisis

Tue May 13, 2014 3:53pm EDT
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WASHINGTON (Reuters) - The federal government is pushing to eradicate a long-standing symbol of Detroit's massive economic deterioration: the abandoned house.

On Tuesday, the regulator of government-controlled Fannie Mae FNMA.OB and Freddie Mac FMCC.OB announced a pilot program that will begin in coming weeks in Detroit to keep families in their current homes through loan modifications, match distressed properties with non-profit organizations for resales and assist in building demolition.

Federal Housing Finance Agency Director Mel Watt said borrowers who owe more than their home's market value could see "deeper loan modifications" than currently available through a program for refinancing loans owned or guaranteed by Fannie Mae or Freddie Mac.

Severely delinquent loans may be transferred to non-profits to find alternatives to foreclosure and non-profits could buy foreclosed properties or take them as donations, as well, according to a fact sheet.

Years of steep declines in the city's employment and population combined with the national housing crisis to turn Detroit into a near ghost town of empty homes and vacant lots. Many homeowners in the city are "underwater" on mortgages, meaning they owe more than their houses are worth.

Now as the city prepares to exit the largest municipal bankruptcy in U.S. history, it is working to stabilize its housing market.

Currently Las Vegas, Jacksonville, Orlando, Chicago and Tampa all have higher rates of underwater mortgages than Detroit, according to the Haas Institute at the University of California at Berkeley. At the same time, bank-owned foreclosures were down 51.9 percent in March from the same month in 2012, according to RealtyTrac.

Nonetheless, 28 percent of owner-occupied homes in Detroit have mortgages in negative equity compared to 19 percent for the United States as a whole, according to Zillow.

Representative John Conyers, a Democrat from Michigan, quickly responded to the FHFA announcement with a letter to Watt asking that Freddie Mac and Fannie Mae go further.   Continued...

A vacant, boarded up house is seen in the once thriving Brush Park neighborhood with the downtown Detroit skyline behind it in Detroit, Michigan March 3, 2013. REUTERS/ Rebecca Cook