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Commentary By Nicole Gelinas

Foreclosure Fix

NEW York's foreclosure rate remains well below the national average. One in every 1,631 households here faced foreclosure in March, compared to one in 538 nationwide, reports RealtyTrac. But that good news may not last.

New York's working- and middle-class real-estate markets only started seeing weakness during the second half of last year, city tax analysts say—more than a year later than much of the country. Citywide foreclosures were up 18 percent in March compared to a year ago, as some people who run into trouble paying their bills can't refinance or sell as the market weakens.

And some New York neighborhoods are harder-hit. On Staten Island, foreclosures are up 103 percent over March 2007, driven by the poorer North Shore. Foreclosures in Queens are up 35 percent, driven by Jamaica and Hollis. And turmoil in Brooklyn neighborhoods such as East New York can't be ignored.

To start addressing the problem before it gets worse, Mayor Bloomberg can look to what Boston is doing on Hendry Street in Dorchester.

It all started with a Boston Herald series on the long-forlorn area—which, like some of New York's toughest neighborhoods, had been enjoying some gentrification before the subprime crisis. But over the last year, Hendry Street has "turned into a blighted urban ghost town as a result of foreclosures, shady real-estate deals and abandonment."

Seven three-family houses on one block were "boarded up or empty," right around the corner from six more boarded-up properties. More than 200 foreclosures have hit Dorchester in the last year, with another always-iffy neighborhood, Roxbury, not far behind.

Driving these mass foreclosures is a dynamic also at work in some New York City neighborhoods: Borrowers who bought three-family fixer-uppers with little or no downpayment, on the assumption that they could refinance or flip, got stuck with mortgages they couldn't pay once the credit party stopped.

But the Herald series pointed out a bigger problem: Boarded-up properties pose a policing challenge. (The Post has reported similar woes in Staten Island.) And a crime-plagued street is even less likely to attract buyers for vacant houses—further harming its chances of recovery.

No one can stop the market forces at work—but Boston Mayor Thomas Menino is doing what he can. Partly in response to the Herald series, he opened a "war room" in City Hall for a new "Foreclosure Intervention Team"—with representatives of the city's police, inspection, public-health, public-works, housing and public-property agencies.

Since the team first met in late February, it has tackled Hendry Street—cleaning up sidewalks and empty lots as well as "securing abandoned homes, removing graffiti, replacing missing street and parking signs and towing abandoned cars," the city says.

Plus, Boston has passed a new ordinance to prevent neighborhoods from plummeting to Hendry Street's level. This requires mortgage servicers and other new owners to register the foreclosed properties promptly with the city and to secure the homes from squatters or vandals. Owners also must contract with a local management firm for maintenance, with that firm's contact information posted in front of the house.

Banks that don't comply or that fail to maintain their properties face $300-a-week fines—strong incentive to revalue the properties and sell them quickly to investors for whom the economics of the investment can actually work (without a real-estate bubble).

Coupled with more aggressive policing in vulnerable areas, this approach is the best hope to prevent protracted, hard-to-reverse decline.

Boston doesn't have all the answers. If banks find the fines too harsh, or can't find buyers in the most forlorn neighborhoods, new owners may abandon homes to the city—which will then have to get the properties back into private circulation quickly.

A tough approach on public safety (plus proper maintenance of streets and other public infrastructure) can help here—building confidence and so lessening the risk that the city could wind up as either the owner of thousands of properties that nobody wants or (just as bad) the landlord to thousands of underclass tenants.

Mayor Bloomberg would do well to start a Menino-style initiative here—complementing the NYPD's long-effective policing strategies in vulnerable neighborhoods.

Police officials and managers at such agencies as sanitation should have data on foreclosed, abandoned property at the ready—so that precinct commanders can know if higher rates of abandonment in some neighborhoods are encouraging crime and dereliction, thus requiring more resources.

But New York needs to go further—because our capacity to "bounce back" is crippled by rent regulations and anti-eviction laws: These make it far riskier to buy a property on the cheap so you can fix it up and rent it for a reasonable return. In a rising market, those risks were less likely to scare off potential landlords, because they figured they could sell for a profit anytime.

But as the real-estate crunch hits home here, they're likely starting to care again.

This piece originally appeared in New York Post

This piece originally appeared in New York Post