© Krishnan Anantharaman/Wall Street Journal
Mitt Romney's boyhood home is among 3,000 derelict structures Detroit plans to demolish by the end of September as it attacks blight and crime.
Detroit riddled with repossessions from height of housing meltdown

More than a quarter of homes whose loans failed at the height of the foreclosure crisis in 2006 and 2007 have already been razed or are on the demolition list, becoming a huge obstacle to the city's rebirth, a Detroit News analysis shows.

In neighborhoods on the far west side and the northeast corner of the city, as many as two-thirds of the properties that went into foreclosure just five years ago are in the city's crosshairs or already on the ground. The worst-hit areas almost mirror perfectly parts of the city where the most subprime mortgages were issued before they helped trigger the collapse of the banking industry.

And more vacancies could be on the way: Although the rate has slowed, lenders have foreclosed on 28,000 more homes since 2007, according to records from RealtyTrac.

"I don't think you can engage in any credible program for economic recovery if you let this foreclosure crisis go unchecked," said Steve Babson, a retired Wayne State University labor professor and East English Village resident who is a local leader in an effort to halt bank takeovers.

Mayor Dave Bing has made reshaping the city one of his top priorities, and his Detroit Works Project is focusing on fixing targeted neighborhoods. But increasing vacancy squeezes the city's already feeble tax base, diminishes the quality of life and undercuts the city's recovery efforts.

In parts of the city least able to absorb abandonment, evictions are almost instantly followed by strippers who can gut properties in days.

"It makes everyone want to leave," said Armando Wilson, 30, who lives on Vaughan Street, near McNichols and Evergreen roads. Vacant, burned-out homes dot his neighborhood, and home strippers appear almost daily. "Everybody is leaving Detroit. They feel there is nothing in Detroit anymore."

Detroit has struggled with abandoned homes for years, and its population fell 25 percent to 713,777 from 2000 to 2010. But foreclosures from 2006 and 2007 alone have added 7,600 homes to the demolition list. Now, there are an estimated 38,000 homes in some stage of demolition, a number equal to 10 percent of all housing units in the city.

Lee Rhymes also lives on Vaughan, a block north of Wilson. Many of the homes around Rhymes are vacant - more than a dozen worthy of demolition are within 100 yards and eight of those recently fell into foreclosure. Strippers appear almost the day a home is vacated, he and others say.

"It's a constant battle with them," said Rhymes, 65.

For a cash-strapped city well aware of the problem, razing homes has proven difficult.

The city has knocked down 4,200 homes since 2010 and hopes to get to 6,000 more, which could take another three years at its current pace. That doesn't take into account the 1,800 homes the Detroit City Council has targeted for demolition, or the 26,300 homes that are in the process of being considered for demolition.

If foreclosures continue to increase vacancies, the city will be hard-pressed to keep up with demolitions. City leaders are working with banks and other institutions to find ways to preserve occupancy, said Karla Henderson, Detroit's group executive of planning and facilities.

"Keeping the family or resident in the home is the No. 1 priority," she said. "It's like hemorrhaging; we've got to stop it."

Banks view foreclosure as a "last resort," particularly in Detroit, said Gail Madziar, a vice president at the Michigan Bankers Association. Banks try to modify mortgages and maintain homes that are foreclosed, but many are damaged during the foreclosure process that can take up to a year, Madziar said.

"It's not simple," Madziar said. "It's a very complicated process. If it's a situation beyond repair, it's almost impossible to secure it."

Subprime loans key

The News found that the worst-hit areas are those where mortgage lenders poured the most high risk subprime loans.

In Wilson's west side neighborhood, for instance, roughly four of every five loans in 2006 had an interest rate that was 6 percentage points higher than the average rate, according to federal mortgage data. Those rates - often part of adjustable-rate, balloon-payment mortgages that would trigger far higher payments - led to thousands of delinquencies.

For the past few years, critics have complained about the lenders who offered the subprime loans craved by Wall Street financiers, often issued with little documentation on income, employment and home values. A lapse in lending standards opened the gates to billions in loans in Detroit - and tens of thousands of failures.

"Detroit is like ground zero for all the devastation created by these terrible loans," said Ira Rheingold, executive director of the National Association of Consumer Advocates. "Nobody who made these loans cared if they performed."

After charges of improper lending and foreclosure were leveled against some of the nation's largest lenders, the five largest loan servicers agreed in February to a $25 billion settlement with 49 states, including Michigan. The lenders are to reduce loans for nearly 1 million homeowners and will distribute checks of $2,000 to Americans who lost homes in improper foreclosures over three years.

Michigan will get $790 million from the settlement that state Attorney General Bill Schuette said will help with foreclosure counseling, assist foreclosure scam victims and protect current homeowners.

The state - and Detroit in particular - were among the hardest hit by the recession and the foreclosure crisis. Its effect on Detroit is seen in the thousands of crumbling homes and empty lots all across the city.

Down the block from Rhymes, a home on Vaughan sits without a roof. A sign out front says it's for sale, but real estate agent Jason Megie said that was before a fire damaged the home. The asking price had been $648.

"We're selling them (foreclosed homes)," he said. "But they're selling low. "

Rhymes' neighbor, James Mack, 35, said he chases strippers away every day and is tired of living around so many abandoned homes. "It's crazy. They need to come out and take care of these homes," he said.

Henderson said the city is making difficult choices: It is working first in neighborhoods with some viability and stability. That may mean that a neighborhood like Mack's and Rhymes' will have to wait a little longer. But the city has no choice - with limited funding, it has to spend its money where it will have the most impact. "It's kind of like triage," Henderson said.

Stepping up to help

In many neighborhoods, residents are taking matters into their own hands.

On Berkshire Street on the east side, neighbors have shooed away the scrappers from one home, put up windows on it and continue to tidy up around several other abandoned homes.

On Manning Street in northeast Detroit, William Malone has mowed vacant lawns and called city officials to turn off water in abandoned homes. Malone said the foreclosures in the neighborhood near Eight Mile and Gratiot have held him "hostage to a no-win situation."

Five years ago, the block was entirely occupied, said the 62-year-old Chrysler retiree. Today, 18 of the 31 properties are vacant or demolished. That includes a dozen on the demolish list that went into foreclosure in the time period The News reviewed.

"If I did what the banks did, they would have called me a crook," said Malone, who has owned his brick bungalow with his sister for 20 years.

"Instead of working with people, they kicked them out and left the houses empty. Now the houses have been torn up."