Defaulting on the Dream: States Respond to America’s Foreclosure Crisis

Is the American Dream slipping away? One in 33 current U.S. homeowners may be headed toward foreclosure in the coming years because of subprime loans, according to our new report, Defaulting on the Dream. In some states, the crisis is particularly acute—in Arizona, for instance, one in every 18 homeowners could lose their home; in Nevada, the ratio is one in 11. The problem hardly stops there. Because of foreclosures in their communities, an additional 40 million homeowners may see their property values and their municipalities’ tax bases drop by as much as $356 billion in the next two years. Nearly every state is affected: in 47 states and Washington, D.C. the number of mortgage loans entering foreclosure as of December 2007 had increased by at least 20 percent since December 2006. Ten states alone could lose a total of $6.6 billion in tax revenue in 2008, according to a recent analysis by the firm Global Insight. The stakes are incredibly high. Homeownership is the primary vehicle through which American families build financial security. It also is an essential building block of state and local economies. Defaulting on the Dream: States Respond to America’s Foreclosure Crisis is the first-ever comprehensive look at what states have been doing to tackle this critical issue. It showcases approaches in two principal areas: (1) helping borrowers avoid foreclosure and keep their homes; and (2) preventing problematic loans from being made in the first place. This report recognizes that while some states moved quickly to respond, their approaches are not yet proven.