The spillover effects of foreclosures

Foreclosure sign

Steve Chiotakis: There could be a $20 billion foreclosure settlement in the works between state attorneys general, and the Justice Department and some of the nation's biggest banks. Fox Business reports
there could be a possible deal by early next week over improper mortgage practices.

Meantime, there's a still-to-be-resolved question
of whether homebuyers suffered any financial harm -- surveys show other types of harm, too.

Marketplace Economy 4.0 special correspondent
David Brancaccio is with us now. Hi David.

David Brancaccio: Good morning, Steve.

Chiotakis: So to understand the real costs, we have to measure the right things? Like, what are we talking about?

Brancaccio: Well Steve, you've seen the HBO series "The Wire" about Baltimore, right?

Chiotakis: Sure.

Brancaccio: That show makes it clear that vacant houses breed crime. So it's not just the family in the home getting hurt, or the bank itself -- it's the wider neighborhood. Well, academics set out to measure this, if they could. Dan Immergluck, a professor of city and regional planning at Georgia Tech, was one of those researchers. What he found (PDF) was a big bump in foreclosures caused a big bump in violent crime.

Dan Immergluck: Once you get one or two or three foreclosures on a block, you start really creating all kinds of negative spillover effects on the neighborhood, and crime is just one of them.

Chiotakis: What are these other so-called spillover effects of foreclosures?

Brancaccio: Well it's still a fairly new area of research, but one area that's been getting attention recently is health. The National Bureau of Economic Research has a paper suggesting when there are more foreclosures, there are more hospital visits. Janet Currie, an economist at Princeton, is one of the authors.

Janet Currie: One of the biggest effects with mental health was anxiety or also suicide attempts.

Especially horrible was an increase in suicide attempts -- 100 more foreclosures in a given zip code equaled about a 30 percent increase in attempted suicides.

Chiotakis: So we've got more illness and we've got more crimes. What does this mean for policy?

Brancaccio: This could give ammunition to be people, like for instance, Federal Reserve chairman Ben Bernanke, who just the other day said the Fed will do what it can to nurse the economy back to health, but that it would help if Congress came up with what he called "a path to the future on," in fact, "foreclosures." It's clear that even if our house is OK and if we pay our mortgage on time, we're still paying for the foreclosure crisis in crime, health care costs and other expensive ways.

Chiotakis: Marketplace's David Brancaccio. David, thank you so much.

Brancaccio: My pleasure.

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