By Amy Gardner
Washington Post Staff Writer
Tuesday, July 1, 2008
Fairfax County approved a landmark housing program yesterday to buy foreclosed properties for middle-income families, becoming one of the first communities in the country to tackle the nation's growing mortgage crisis while also addressing the region's increasing demand for affordable housing.
County leaders said the program, through which Fairfax will purchase some properties outright and help families buy others through subsidized loans, takes advantage of a unique moment when thousands of homes are entering foreclosure and available for purchase at below-market prices. The program will expand the county's stock of affordable housing and help stabilize areas where clusters of abandoned, unkempt properties in foreclosure threaten the value and vitality of surrounding neighborhoods, county officials said.
"Fairfax, like the rest of the country, is facing a foreclosure crisis that's unprecedented," said county Board of Supervisors Chairman Gerald E. Connolly (D), who proposed the idea. "The county has to use its resources and influence to try to stem the tide."
Although other communities are addressing the housing crisis primarily through counseling and such financial help as utility payment assistance, Fairfax is plunging deeper into the issue by agreeing to spend more than $10 million in tax revenue toward the purchase of as many as 200 foreclosed houses. The county will purchase 10 houses outright; the rest will be purchased by qualifying buyers with the help of government-backed, low-interest loans. Buyers will be eligible for subsidized mortgages as well as low-interest second trusts up to $70,000. Most of the assistance will be directed to first-time buyers earning as much as $75,600, or 80 percent of the area's median income. Most purchases will be limited to $385,000 and exclude condominiums. All of the money in the first year would come from existing housing programs.
"It's a good idea," said John McClain, a senior fellow at George Mason University's Center for Regional Analysis. "It's been talked about nationally, and I hope that it will make a dent."
The region's, and the nation's, foreclosure crisis ballooned in part because a large stock of homes was sold to many first-time home buyers under loans with adjustable rates. When their monthly payments increased, some owners were unable to keep up, leading to foreclosures.
A recent report said the problem is growing more rapidly in the Washington region than in most other metropolitan areas. According to the report, commissioned by the Metropolitan Washington Council of Governments and mortgage giant Freddie Mac, 15,613 homes went into foreclosure in the Washington region during the year ending in February -- a sixfold increase in the foreclosure rate over the previous year. Fairfax, with 1,700 foreclosures in the past year, is behind Prince William and Prince George's counties, which lead Virginia and Maryland in the rate of foreclosures. But several of Fairfax's neighborhoods, including Herndon, Centreville, Vienna and Falls Church, are already identified as or at risk of becoming foreclosure clusters, the report said.
Communities across the region have sought to address the crisis by hosting counseling programs and partnering struggling homeowners with banks to help refinance to save their houses, townhouses or condominiums. This spring, the Maryland legislature passed one of the nation's most comprehensive packages designed to help ease the foreclosure problem with new laws that increase penalties for mortgage fraud and give homeowners more time to catch up on their bills before losing their homes to foreclosure.
Prince William has offered to invest as much as 5 percent of its investment portfolio in banks that offer low-interest loans to county employees seeking to live there. Although not targeted directly at foreclosed properties, the program will address that issue, too, because of the glut of foreclosed houses on the market.
"Our first objective here is to give some of our employees a chance to buy into the county," Prince William County Executive Craig S. Gerhart said. "We're making it available to all county and school employees, but our particular focus is on first responders, to make them more available to us in the event we need to call them back."
Similarly, one of Fairfax's primary goals is to expand its affordable housing stock, officials said, particularly the category known as workforce housing, which is intended for such middle-income professionals as teachers, police officers and firefighters who otherwise couldn't afford to live in one of the nation's most affluent jurisdictions. The county, whose median home prices are among the highest in the area, has long struggled to increase the supply of affordable housing, particularly for municipal employees.
The Fairfax program is not without its detractors, and even the eight supervisors who voted for it disagreed on the range of challenges it is intended to address. Supervisors Pat S. Herrity (R-Springfield) and Michael R. Frey (R-Sully) voted against the program, saying they think the market can manage the crisis by attracting private buyers to foreclosed properties. "This is a solution in search of a problem," Herrity said.
Supervisor Jeff C. McKay (D-Lee) also worried that the 10 homes to be purchased outright would be concentrated in the county's worst pockets of foreclosures.
And Supervisor John W. Foust (D-Dranesville) wondered whether more resources should be directed toward helping families avoid losing their homes instead of helping purchase homes already lost. Connolly noted that yesterday's action included approval of new counseling for homeowners in distress to address that problem.
Connolly said he hopes the program can be a model for the nation -- and also a beginning, capable of expanding if Congress approves legislation addressing the foreclosure crisis. Legislation before Congress would help more than 400,000 distressed borrowers trade mortgages with rapidly rising payments for more affordable government-backed loans if their banks forgive a portion of their debt.
"There could be an infusion of outside resources that would allow us to do more," Connolly said. "The federal bill is still winding its way through Congress. Fairfax would have a program in place to qualify, which is very much on our minds as well."