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					The FUTURe OF OUR hOmeTOwns AnD The nATIOn

                                       At Issue:
 “Housing stability is a critical link to building success in entrepreneurship, employment, education, family
                     skills, and healthy lifestyles.” — Joe Davis, Alderman, Milwaukee, Wisconsin

The way we talk and think about housing policy in America has changed overnight. The home mortgage
crisis and the coincident failures of various financial institutions have forced a new look at basic issues
such as housing finance and the proper role of government in the housing market. What’s clear is
that the housing finance system, which at one time helped foster a record rate of homeownership,
was insufficient to check the abuses of unscrupulous mortgage brokers; poorly documented, risky
loans; regulatory neglect; and a range of outright predatory banking practices. As a result, millions of
families are losing and still could lose their homes to foreclosure.

Now cities and towns are losing property tax revenues while at the same time having to maintain
housing that is vacant and abandoned due to foreclosures. Many of these properties have fast
become fire hazards and magnets for crime.

Adding to the housing-related strain on cities and towns are limits on the availability of credit. Despite
federal rescue measures, municipalities are incurring higher issuance costs for municipal bonds to
fund worthy public projects.

The National League of Cities believes that decent, affordable housing remains an essential component
of the American dream. Encouraging home ownership for as many people as possible – giving
people a stake in the future of their community – remains a laudable goal. The challenge for the
federal government, working in partnership with state and local governments, is to resolve the crucial
questions raised by the collapse in America’s housing market – questions like what kinds of housing
America needs; how to finance construction, rehabilitation and resale of homes; and how best to
engage the private sector in the work of building houses and revitalizing America’s hometowns. Priority
number one during this period of transition: developing a coordinated and multi-faceted approach
to housing.

The housing crisis is creating serious problems for          the federal government’s leadership on housing issues
America’s hometowns. Until the tide of home mortgage         encouraged local governments to incorporate homeowner-
foreclosures began its steep rise in 2006, federal housing   ship opportunities into community revitalization plans.
policies emphasizing homeownership aligned well with         Municipalities also were able to leverage federal resources
state and local housing goals. Programs such as the Ameri-   to create incentives for private-sector developers to build
can Dream Down Payment Initiative and the HOME In-           owner-occupied housing, even as other important federal
vestment Partnership Program fostered consistent growth      programs, such as the Community Development Block
in rates of homeownership in the United States. Further,     Grant program, lost funding.

             National League of Cities • 1301 Pennsylvania Avenue, NW• Washington, D.C. 20004 • www.nlc.org
    ThE FUTURE OF OUR hOMETOWNs AND ThE NATION                                                                           At Issue: HOUSING

    However, by the end of 2006, major structural changes                        nomic Recovery Act of 2008 constituted a step in the
    in the mortgage finance system were wreaking havoc on                        right direction. Among its provisions, the law provides
    federal policies promoting homeownership over other                          funds for state and local purchase of foreclosed proper-
    forms of housing assistance. For example:                                    ties and counseling services for future home buyers, and
                                                                                 increases the cap on the size of loans that are eligible
    • The success of rising homeownership rates created a                        for insurance from the Federal Housing Administra-
      scarcity of available and affordable housing in many                       tion (FHA). These measures, coupled with the federal
      regions.                                                                   investment in shares of numerous financial institutions
                                                                                 and the Treasury Department’s conservatorship of Fan-
    • The rapid growth of mortgage brokers and indepen-
                                                                                 nie Mae and Freddie Mac, offer a reasonable expectation
      dent mortgage companies supplanted traditional local
                                                                                 that credit will resume flowing between banks and from
      banking institutions with knowledge of and connec-
                                                                                 banks to consumers.
      tions to the local community as the primary provider
      of mortgage loans.                                                         Nonetheless, the trends and changes that have battered
                                                                                 housing and housing finance, and that have stymied lo-
    The number of homes in foreclosure as of October 2008
                                                                                 cal efforts to build sustainable and vital neighborhoods,
    stands above 2.2 million. Cities and towns across the
                                                                                 remain a considerable challenge for the foreseeable
    country are struggling to maintain vacant single-family
                                                                                 future. For example, it will take some time for stable
    homes and protect them from vandalism and deteriora-
                                                                                 and predictable credit markets for housing and other
    tion even as affordable housing options for low-income
                                                                                 types of investments to recover. In the meantime, most
    families remain scarce. For those cities in weaker real
                                                                                 communities will struggle to meet the demand for suit-
    estate markets and with smaller budgets for trying to
                                                                                 able rental housing for so many who were once owner/
    turn things around (such as Cleveland, Milwaukee, and
                                                                                 occupants of their homes. Plus, in a nation that can-
    Detroit), the struggle is to mitigate the damage to neigh-
                                                                                 not adequately house its entire population, the number
    borhoods that are in the midst of revitalization. Because
                                                                                 of homes that will be demolished because of vandalism
    of rising foreclosures, communities that had turned the
                                                                                 or lack of proper maintenance will be a loss that rever-
    corner after decades of investment and hard work are
                                                                                 berates for years to come. At present, the number of
    once again at risk.
                                                                                 chronically homeless stands at 123,000 at of the end of
    The adverse impacts of this crisis at the local level have                   2007, according to figures from the Interagency Council
    been enormous. According to a 2008 National League of                        for the Homeless. Although that number has declined
    Cities survey, nearly two-thirds of city officials said it had               significantly over the last two years, there are indications
    become more difficult for low-income families to become                      from several cities that homelessness is again on the rise.

      “Vacant and abandoned homes break down the community spirit of a neighborhood and open the door to
               crime, isolation, and hopelessness.” — James C. Hunt, Councilmember, Clarksburg, West Virginia

                                                                                 Adding to the challenges facing America’s cities and
    homeowners in their communities during the previous
                                                                                 towns are threats to responsible and successful local
    year. In addition, more than half reported that demand
                                                                                 lending by neighborhood banks to stabilize and revital-
    for temporary assistance for needs other than housing,
                                                                                 ize communities and increase access to credit, in ac-
    such as counseling and food banks, had increased.1
                                                                                 cordance with Community Reinvestment Act. In the
    Federal response targets key issues, but more action                         heated political debate over the causes and consequences
    needed. Federal enactment of the Housing and Eco-                            of the current housing crisis, many observers fail to ac-

    1 Housing Finance and Foreclosure Crisis. National League of Cities. April 2008.
ThE FUTURE OF OUR hOMETOWNs AND ThE NATION                                                          At Issue: HOUSING

knowledge how such investments have mitigated rather          ing that mortgage brokers are effectively regulated and
than fueled the subprime crisis.                              that mortgage loans are well-suited to the financial
                                                              means of the homebuyer.
AGENDA FOR THE NATION                                        • Expand programs focusing on affordable rental hous-
The National League of Cities believes that federal and        ing, including housing vouchers and low-income hous-
local housing priorities, while promoting home owner-          ing tax credits.
ship, must also include a myriad of options that take
into account the various needs of all segments of society.   • Support transitional housing in coordination with
With an overarching goal of building stronger commu-           comprehensive services for the homeless.
nities, cities and towns support federal efforts to:
                                                             • Prevent an appreciable loss of the nation’s affordable
• Ensure the availability of capital for mortgage financ-      housing stock by funding the rehabilitation of aban-
  ing and refinancing and continue to encourage lenders        doned or vacant properties.
  and loan servicers to work-out unsound loans as an
  alternative to foreclosure.                                • Reform the Community Reinvestment Act to encour-
                                                               age genuine partnerships between financial institutions
• Invest in programs that stabilize and enhance neigh-         and the neighborhoods in which they operate; increase
  borhoods, while helping communities minimize the             meaningful investments in cities; encourage broader
  damage caused by the national foreclosure crisis.            access to credit; and strengthen compliance with the
                                                               law by financial institutions.
• Protect homebuyers from predatory lending by ensur-

    “As Mayor of the capital city of one of the counties hardest hit by the foreclosure crisis, I look toward
  proactive local programs including buying and maintaining foreclosed properties and providing extensive
   homeownership counseling to families. I also look to a vigorous federal role and initiatives, such as the
   Neighborhood Stabilization Act, as the best way to work collaboratively on homeownership policy and
                          implementation.” — Ron Loveridge, Mayor, Riverside, California

Housing is a crucial element of a comprehensive community development strategy for our hometowns and our na-
tion. But addressing the housing crisis is about much more than community development. To the extent that we
can limit the damage to American communities posed by rising foreclosures, fix the housing finance system, and
once again ensure that citizens can find decent, affordable homes, we will strengthen not just our communities but
also our local, regional and national economies.

For more information, contact:
James A. Brooks                                              Michael Wallace
Staff Director, Community and                                Senior Legislative Counsel
  Economic Development Committee                             (202) 626-3025
(202) 626-3163

    ThE FUTURE OF OUR hOMETOWNs AND ThE NATION                                              At Issue: HOUSING

              National League of Cities • 1301 Pennsylvania Avenue, NW• Washington, D.C. 20004 • www.nlc.org