As Foreclosures Rise, Mayors Brace For Fallout

Local governments are on the front lines of the sub-prime mortgage meltdown. The Wall Street Journal takes a look at what cities are gearing up for nationally.

While the immediate impact is, of course, financial - there are going to be other longer lasting effects of this financial crisis. Abandoned homes, increasing crimes and transiency, lost sales tax revenue on top of property tax shortfalls - call it the "mortgage meltdown multiplier" - and to this point little more has been done than a calling of town hall meetings on how to deal with your lender if your facing foreclosure.

Please.

The ultimate solution will invariably be to increase liquidity in the mortgage market - which can occur in a multitude of ways. Simply freezing rates is bad fiscal and social policy for many reasons. Like all financial crisis, the key is to grow out of the problem. The Fed has started to move in the right direction, slashing rates at the risk of inflating an already weak dollar and sending a signal that the housing market is on the ropes.

So what can cities do? Make noise. Lots of it. When local governments start to make a stir about the social affects on top of the financial, policy makers at the federal level will respond. As the WSJ article notes - its already beginning to happen. Drop a note to your member of Congress or the National League of Cities - let them know local government can't afford to take this sitting down.

Comments

[Fundamentals]

"Like all financial crisis, the key is to grow out of the problem." You mean shield the financial sector from the mess they catalyzed and drive the value of the dollar further down creating a diffuse tax on responsible Americans?

[California City News]

Well...not exactly. It's too simplistic to say that financial institutions are greedy and have caused this problem in its entirety - surely consumers played some role.

Im trying to find a solution here and it seems to me that we cant "30 year fixed" our way out of this paper bag. Nor does finger pointing prevent the loss of homes.

More liquidity can mean finding new ways to repackage mortgage backed securities on the secondary market, for example. It doesnt mean we should just cut rates (though that can - and should - be part of the solution).

Incidentally, it wont just be financial institutions that are "shielded" - it will be homeowners, cities, and communities. We all have a role in figuring this one out.