Rosengren urges holistic approach to foreclosures

Robert Gavin, Globe Staff

Federal and state policy makers should take a broader approach to the foreclosure crisis, not only adopting measures to prevent foreclosures and stabilize housing, but also providing aid to help the hardest hit communities address underlying social and economic issues, said Eric Rosengren, president of the Federal Reserve Bank of Boston.

In these communities, high foreclosure rates appear symptomatic of deeper problems such as poverty, crime, and failing schools, said Rosengren, speaking today at a Federal Reserve conference in Washington. As a result, Rosengren said, a solution to the foreclosure crisis might be to send more money to local governments and nonprofits to tackle these broader challenges.

"Too little focus has been on community problems because the focus has been targeted to housing and foreclosures,'' Rosengren said. "Rather than treating the symptom -- the high [foreclosure] problem -- we need to better understand how to resolve the more general problems in communities that lead to higher concentrations of [foreclosed properties] and exacerbate the effects."

Rosengren was among several officials from Federal Reserve, local government, and community groups participating in the two-day conference focusing on stabilizing neighborhoods blighted by record foreclosures that have left many vacant, deteriorating buildings. Foreclosures remain at high levels even years after the housing bubble burst.

In Massachusetts, for example, completed foreclosures soared nearly 80 percent in July from a year earlier, according to the Warren Group, a Boston firm that tracks real estate. Lenders initiated fewer foreclosure proceedings compared to a year ago, but they remain at high levels.

Rosengren said that policy makers have tended to view the crisis as primarily a foreclosure and housing problems, and focused on approaches aimed at mitigating foreclosures or helping people become long-term homeowners, or at providing financial education, or efforts to prevent predatory lending.

While acknowledging the importance of such efforts, Rosengren called for a "holistic" approach that also tackles broader social and economic issues in communities hardest hit by foreclosures. Rosengren cited a recent Boston Fed study that analyzed foreclosed properties in New England by zip code.

The study found that areas with the highest concentration of foreclosed properties also had higher rates of unemployment, property crime, low birth weight babies, school drop outs, and small business closings. For example, zip codes with more then four foreclosed properties had higher unemployment rates before the housing bubble burst, 4.6 percent in 2005 in high foreclosure areas compared to 3.8 percent in others.

Property crime rates in high foreclosure areas were nearly double those of the other areas in 2006. The high school drop out rate in high foreclosure areas was more than triple that of other areas in 2005-to-2006.

All this indicates that addressing foreclosure and housing issues alone is not enough, said Rosengren. He suggested a federal revenue sharing program that would focus on high foreclosure communities to provide money to improve schools, code enforcement, policing, and other services.

"If these are community problems, we may need to search for community solutions,'' Rosengren said. "If a more holistic approach is needed, states and the federal government may need to examine the most effective and efficient ways to address the broader problems in these communities."