Baltimore May Use 'Robo-Signing' Money To Level 700 Homes


How do you heal a housing market plagued by neglected homes? Destroy them.

At least that appears to be the thinking behind Baltimore's plan to use its $10 million allotment of the $25 billion "robo-signing" settlement recently reached between the nations' five largest mortgage servicers and most states.

Baltimore Housing intends to use the $10 million windfall, drawn from the $60 million allocated to Maryland under the settlement, to level about 700 homes in the city, The Baltimore Sun reports.

The anti-blight measure represents one of many applications of settlement funds that may puzzle some industry observers, who expected fines levied on mortgage servicers for forging documents and illegally foreclosing on homeowners to flow exclusively to distressed borrowers. After all, such observers might say, distressed borrowers are the group that suffered at the hands of the five servicers and prompted an investigation into foreclosure improprieties in the first place.

Baltimore's $10 million allocation comes out of a $2.5 billion cash penalty on the servicers that will be distributed among 49 states. The money is only a small portion of the $25 billion settlement, much of which will reach homeowners in the form of principal write-downs. But the $2.5 billion piece of the pie has come under scrutiny recently due to reports that some states don't necessarily intend to use their share to help homeowners.

In Georgia, for example, the state will use its $99 million to draw business to the state, while in California, Gov. Jerry Brown has proposed using most of the money to pay down the state's debt, The New York Times reports.

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Critics like Mark Calabria, director of Financial Regulation Studies at the Cato Institute, say use of the funds for purposes other than mortgage relief was "absolutely predictable," since "no strings were attached" to the $2.5 billion portion of the settlement.

"This reinforces in my mind that this was just a shakedown [of the banks] by the states without actually guaranteeing that anyone who was harmed would actually be compensated," he says.

But while Baltimore's plan seems to veer from direct aid to homeowners, it's certainly not completely unrelated to housing aid, like some others states' intended use of funds. In fact, demolition could actually prove a source of relief to distressed borrowers, experts say.

Demolition is one of several "non-development" approaches to combating deteriorating, bank-owned homes. Such homes, often left vacant, attract vandals, squatters and other forms of blight, dragging down property values and eroding the character of communities.

Demolition eliminates these insidious structures and leaves behind empty space that is often converted into green space. That may ease downward pressure on the value of homes in neighborhoods plagued by the vacant, bank-owned houses.

"Where redevelopment is infeasable, this type of strategy can be a low-cost and relatively quick means of transforming pockets of neighborhood blight into community assets," the 2010 Federal Reserve report on neighborhood stabilizations says.

Julie Day, deputy commissioner of the land resources division at Baltimore Housing, says that taking the wrecking ball to clusters of dilapidated bank-owned homes is an efficient way of eliminating excess housing supply in a city that has shrunk in recent years.

"It leaves sizable cleared green space that will create different opportunities."

See also:
Cities With The Most Homes in Foreclosure

Housing Prices and Existing-Home Sales Rise in April

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