Foreclosures cost Rhode Island $5.6 billion

PROVIDENCE – The 4,738 foreclosures in Rhode Island during the past two years cost the state’s homeowners $5.6 billion in lost wealth, HousingWorks RI said Tuesday.
The coalition of organizations said the foreclosures predominately struck the state’s urban core but touched every community in the state. Providence led the way, with 1,213 foreclosures between January 2009 and December 2010. Next came Warwick with 556 foreclosures, Pawtucket with 429 and Cranston with 315; Block Island recorded the fewest: just two.
“I do think the numbers speak for themselves […] this is a serious problem for the state,” said HousingWorks RI Executive Director Nellie Gorbea.
HousingWorks said the number of foreclosures is driving down property values and evaporating homeowner equity.
Citing a 2009 report co-authored by professors from Harvard University and the Massachusetts Institute of Technology, HousingWorks said homes within a 300-foot range of a foreclosed home lose, on average, about 1 percent of their value. Applying that rule to Rhode Island, HousingWorks calculated a $5.6 billion loss during the last two years.
Those lower values are not, however, making homes more affordable, HousingWorks said. About 1 in 5 homeowners owe more on their mortgage than their home is worth.
Many foreclosures that could be sold at steep discounts remain in a limbo as lenders seek to clean up how they handle their processes, which came under fire from regulators last year, Gorbea said.
Plus, foreclosures are not necessarily as good a deal as they appear, she added. Foreclosed homes often require the new owner put money into necessary renovations and pay off liens.
On the rental front, the situation is not much better off, HousingWorks said.
The state’s relatively high concentration of multifamily homes has put the squeeze on renters whose landlords are foreclosed on.
Of the 4,738 foreclosures during the last two years, 1,668 were multifamily, including 770 with two units, 636 with three units and 255 apartment buildings. HousingWorks estimated that those foreclosures affected between 4,000 and 4,500 renters.
“Foreclosures are not a problem that affects just a few people but it affects the whole state,” Gorbea said.