On Nov. 27, the U.S. Conference of Mayors and the Council for the New American City released "The Mortgage Crisis: Economic and Fiscal Implications for Metro Areas," a study of the impact of the subprime-mortgage crisis on cities across the country. The report speculated that, as a result of the crisis, there might be more than 500,000 jobs lost in 2008, along with a $1.2 trillion decline in U.S. property values. Douglas H. Palmer, mayor of Trenton, is also president of the mayors' conference. Palmer spoke with The Inquirer about the crisis and the consequences he and other mayors say they are already seeing in their towns.

The Inquirer:

You've spoken with mayors across the country. What are the concrete effects they're telling you about?

Douglas H. Palmer:

We are beginning to see a sight in certain cities that used to be very uncommon: abandoned properties in middle-class and affluent neighborhoods. For years, we've seen urban blight, the concentration of poverty, boarded-up properties in poorer neighborhoods - and our cities and towns have long been maintaining such properties. But when you start seeing boarded-up housing in strong, stable neighborhoods, it gives you pause. The mayor of Lansing, Mich., told me that boarded-up houses like this have pockmarked middle-class neighborhoods throughout his city.

Inquirer:

But what effect does this trend have on the fiscal health of cities?

Palmer:

When you see something like that, you know immediately that property values in neighborhoods around those houses will go down. The need for greater public scrutiny, security and law enforcement in these areas goes up, because vandals could strip the properties and further drive down their value. And, whereas it already costs cities a lot to preserve and maintain abandoned properties, now suddenly you have many more to preserve and maintain; that saps your city budget. After they are abandoned, of course we make every attempt to find out who really owns them. But often, the banks have sold and resold the properties down the line, so we can't even find the present owners. Even when we do, those institutions often don't have the resources to maintain them. So the cities once again have to put the up-front money in city budgets that are already stressed. That's what mayors are talking about and seeing. Not to mention that, in the future, there will be losses in revenues because now these abandoned properties don't pay taxes.

Inquirer:

Are you seeing effects already in Trenton?

Palmer:

Good question. The true extent of the impact may be disguised or delayed, because we know that up to 50 percent of people facing foreclosure don't even call the lenders, because they're embarrassed, or they're afraid contacting the lender would speed up the foreclosure, or perhaps they are frustrated by being put on hold or phone tag with the companies. In our community, it

is

being whispered about, and we are seeing more and more foreclosures, so one feels it's coming. Right now, we're working with the City of Trenton and with Brian Hughes, county executive of Mercer County, to assess how many foreclosures there really are now and in the near future by zip code, to see how invasive this is in city and county. And we are working to get out the word to worried homeowners that they can get advice and help. We're working with all sorts of agencies, including faith-based agencies, to reach out to people, get out the word to seek help. We're working with the New Jersey Housing and Mortgage Finance Agency to get more counselors who can help. And several banks have agreed to fund the HOPE Hotline [1-888-995-4673], which helps owners with mortgage payment strategies.

Inquirer: Beyond the region, are there wider impacts?

Palmer:

States like New Jersey and others that use realty and transfer taxes to fund affordable housing . . . that money is now dried up. As a result, housing and construction will be harder, which reduces the number of jobs you can produce in your city and your region. As property values fall, people aren't getting equity loans as much, which means that money they might get to fix up their houses and get new appliances isn't there . . . and that hurts other businesses and jobs. It hurts all the way around. This crisis has a pervasive effect on every aspect of the economy.

Inquirer:

On Thursday, President Bush announced a deal with major mortgage lenders to freeze mortgage rates for certain homeowners with adjustable-rate mortgages whose rates would otherwise jump significantly between now and 2010. What do you think of that initiative?

Palmer:

The mayors are certainly encouraged by the announcement; this is a good first step. But the deal is narrowly focused on only certain homeowners; we are looking at ways that more can get help. For 72 percent of ARM holders, being able to modify mortgages and hold them steady will be a help. But for about 28 percent, little short of an act of God will be needed.

Inquirer:

How'd we get here?

Palmer:

There's a lot of blame to go around. Both lenders and buyers were trying to take advantage of the housing market. Four years ago, we mayors tried to push for strong reform of the Federal Housing Administration in Congress, but it didn't happen. This summer, we called on the Federal Reserve to reform the standards for subprime. We wish we'd been listened to. People were asleep at the switch on this thing. It was like a movie with the title

Brokers Gone Wild.

Providing mortgages to low-income people is admirable, but you need to counsel people before you do this. The lenders knew they had many "no-doc" applicants for subprime loans - folks who had had no documentation on income - but they let them put down almost any info on the forms. And that's just a disastrous business decision to make, as well as unethical. Also, a good percentage of people who got ARMs didn't have to go that route; they could have qualified for regular mortgages. And many things conspired: the collapse of the housing market, a housing glut, loss of value. It was a perfect storm, and this is the result. All of us can learn from it.