Mortgage Crisis Reverses Tide of Urban Renewal

Some communities already are overwhelmed. In Detroit, the vacancy rate jumped from 10 percent of addresses in December 2005 to 16 percent in March, according to Todd Richardson, a Department of Housing and Urban Development official asked by Congress to identify cities with high concentrations of vacancies due to foreclosures.

Unless a property attracts a nuisance complaint, vacancy is difficult to track. But by mapping data on subprime loans alongside information on unused addresses collected by the Postal Service, Richardson was able to pinpoint big spikes in vacancy rates in cities across the industrial Midwest, Florida, Southern California, Arizona and Nevada.

Not every foreclosure leads to a vacancy. Some places have weathered skyrocketing foreclosure rates without widespread decay. Prince George's County, for example, the nation's wealthiest majority black jurisdiction, is awash in high-cost loans and has recorded more foreclosures than any other jurisdiction in Maryland. But the foreclosures are widely dispersed, the market remains reasonably strong, and the houses generally are not vacant for long, Richardson and other analysts said.

The story is similar in the District. A quarter of home loans in 2006 were high-cost, according to LISC data, and the city has seen more than 2,000 foreclosures since the beginning of last year. But HUD data show no significant increase in vacancy. Deputy Mayor Neil Albert said that because house prices in the District are still rising, most foreclosures are quickly repurchased.

Vacancy appears to be more of a problem in Northern Virginia, where Fairfax County officials recently voted to purchase foreclosed properties to stabilize hard-hit neighborhoods, though HUD data do not show big spikes there, either.

Compare that with Baltimore, which ranks high on LISC's list of jurisdictions at risk for concentrated foreclosures. In 2006, 47.4 percent of all home loans in Baltimore were high-cost loans. (The city has sued Wells Fargo Bank, claiming that it targeted poor neighborhoods with predatory loans.) Over the past year, more than 4,500 properties have fallen into foreclosure, and the vacancy rate has jumped from 5.9 percent in 2005 to 8 percent in March.

Reservoir Hill is Graziano's biggest disappointment. Long riddled with drug dealers and vacant properties, the neighborhood has many positive attributes, including proximity to downtown, Druid Hill Park and the MARC train station. It is also filled with gracious brick townhouses.

About five years ago, the city used tax liens to gain control of dozens of troublesome properties and sold them to a handful of developers, whose rehabs drew a steady stream of new homeowners to the neighborhood. The average home price doubled, from $70,900 in 2001 to $145,000 in 2006, with some rehabs selling for more than $400,000.

"It just needed some intervention to prime the pump," Graziano said. "It was one of the biggest success stories in the city in terms of transformation."

But then the subprime crisis hit, and work ground to a halt. Through April, 95 properties had fallen into foreclosure, nearly 7 percent of the area's addresses. Many were investors who couldn't afford to complete renovations. Among the victims: A six-unit building on Callow Avenue, in the heart of Reservoir Hill, that now stands empty, one new front window shattered, another pocked with bullet holes.

The empty buildings make it impossible to interest buyers. No sales have been made on Callow Avenue in months, said Carl Cleary, director of neighborhood development at the Reservoir Hill Improvement Council. "Realtors say it's an uphill climb just getting folks out of the car," he said.

Three blocks away, developer Chukes Okoro can point to four foreclosed properties from his backyard deck. Earlier this year, he bought and renovated one of them. But no one has responded since he listed it for sale at $395,000 two months ago.

Last year, a similar townhouse sold in a single day for $465,000, Okoro said, adding: "I try not to think about what's happening to the property value."

Nonprofit developers have approached Graziano about buying foreclosures and fixing them up for low-income home buyers. But the banks that hold the properties have so far refused to offer them at a discount, meaning the nonprofits would need city subsidies. But with the slowdown in the housing market, Graziano said, deed transfer taxes have plummeted and the city's budget is tight.

White House officials say that an infusion of federal funds into a place like Baltimore would only enrich the banks, which continue to demand prices the market no longer will bear. Graziano sees it differently. "We know that vacant houses have a profound impact on neighborhoods," he said. "If we could intervene, we could stop the bleeding."