CINCINNATI (Reuters) - Federal Reserve Board Governor Randall Kroszner said on Wednesday that the Fed would work with a national affordable housing group to help stabilize neighborhoods with high foreclosure rates.
Kroszner, in remarks to a training conference sponsored by NeighborWorks America in Cincinnati, did not address Fed monetary policy or the Fed's broader outlook for the U.S. economy.
Kroszner announced a partnership with NeighborWorks America to help teach the affordable housing umbrella group's local affiliates and other nonprofit community organizations how to acquire, rehabilitate and manage foreclosed homes, known as "real estate owned," or REO, on bank balance sheets.
"The ultimate goal is to return REO to productive use, for example, to provide affordable rental housing or to supply new, sustainable homeownership opportunities in low-and moderate-income communities," Kroszner said.
Kroszner said Federal Reserve banks would help develop training resources, best practices and strategies for the sale and effective use of foreclosed properties in individual markets.
Kroszner said foreclosure rates likely rose further in the first quarter of 2008 after lenders initiated some 1.5 million foreclosures in 2007, up about 53 percent from the prior year.
This increase has helped push the home vacancy rate up to about 2.9 percent in the first quarter of 2008, according to the U.S. Census Bureau. Kroszner said neighborhoods with high concentrations of vacant homes drive away potential buyers, reducing the value of surrounding properties.
Vacant properties also drain the coffers of local communities who must secure them from crime.
"For example, the chief of regional development for the City of Cleveland estimates that the city will spend $65 million each year for five years to address costs related to abandoned properties," he said. "Not only are these costs high, they come at a time when tax revenues are generally decreasing because of declining home values."
He said the Fed was still reviewing more than 4,000 comment letters on stricter proposed rules for the mortgage industry aimed at stamping out unfair and deceptive practices.
Kroszner also said a plan to allow the Federal Housing Administration to increase its scale to reach a wider range of borrowers was among legislative proposals that would complement the Fed's housing mitigation efforts.
But he did not specifically address a bill expected to be considered on Wednesday by the House of Representatives that would see the government buy up to $15 billion of abandoned homes and help an estimated 500,000 homeowners avoid foreclosure. The Democratic plan would provide a new FHA mandate to guarantee up to $300 billion of home loans in which part of the loan amounts have been erased.
(Reporting by Andrea Hopkins in Cincinnati and David Lawder in Washington, Editing by Andrea Ricci)
