Speaking at the Community Stabilization Symposium in Harbor, Md., Duke said that recent increases in foreclosures have only “exacerbated a pre-existing vacancy problem” in certain cities, according to Housing Wire.

“In the most devastated neighborhoods, some lenders do not even complete the foreclosure process or record the outcome of foreclosure sales because the cost of foreclosing exceeds the value of the property,” Duke said.

These “toxic titles,” she added, have placed a large number of properties in legal limbo. High rates of abandonment pushed many cities such as Flint, Mich. and Cleveland to pursue plans to “right size” by demolishing vacant properties and create land banks, Duke said.

The term “toxic titles” was coined by Kermit Lind, a Cleveland State University law professor who deals with abandoned foreclosure cases all the time. The problem never seemed to get the attention it deserved, probably because housing markets in Cleveland and some other Rust Belt cities are very weak.

As we reported nearly two years ago, here’s how a toxic title results when a  bank abandons a property:

The mortgage company retains a lien, or a charge, on the house, but the borrower still is considered the owner. The property sits in limbo, with the mortgage usually exceeding what it would sell for, because of its decline. If the city has to tear it down, it adds its own $8,000 to $10,000 demolition lien. Not surprisingly, potential buyers aren’t exactly lining up. Non-profit neighborhood groups that could fix up the property face long and expensive legal battles to claim it.

But, as Duke points out in her speech, vacant properties are causing problems in stronger markets as well, spreading “into once economically vibrant coastal cities with jobs and growing populations.”

“Vacant properties are creating a different kind of problem in some California markets. Indeed, as investors sense that home prices have bottomed out, they are approaching servicers with cash offers for the bulk purchase of properties,” Duke said. “In fact, community organizations in areas of California complain that investor interest has heated up to the point that qualified first-time homebuyers and local community organizations are being crowded out of the market.”

During this economic crisis, so much of the attention has been focused on executive pay, the Troubled Asset Relief Program, and bank lending — all worthy subjects. But somehow the problems of growing numbers of vacant homes and toxic titles has been mostly overlooked. And that’s a big mistake. As we wrote last spring, decades of work to rebuild and reinvest in communities is being lost to blight caused by foreclosures — or to speculation by real estate investors.

Now that a top Federal Reserve official is making toxic titles a public issue, that may finally change. But Duke is doing more than just highlighting the problem. It appears the Fed is actually doing something about it as well. From Housing Wire:

The Federal Reserve System will provide assistance to neighborhood stabilization efforts. The Community Affairs staff, chaired by Duke, will provide data analysis and technical assistance to state and local governments trying to solve the foreclosure problem in their communities.

Duke said that the Federal Reserve banks of Cleveland, Richmond and Atlanta are collaborating on a series of capacity-building sessions for several communities in Appalachia to help them leverage federal Neighborhood Stabilization funds.

“In addition, we are studying the Neighborhood Stabilization Program and interviewing some 50 program grantees nationwide to learn about the early successes and challenges to this effort to restore health to communities with high foreclosure rates,” Duke said.

The Fed’s actions to address the fallout from the foreclosure crisis is a great example for the rest of the government to follow. Lawmakers long ago should have tied some strings to taxpayer bailout money that would have required banks to take responsibility for their foreclosed properties, not just walk away from them. It should have been a bigger scandal that banks took TARP money and stuck already hard-hit cities with trashed and vacant properties. Good for Duke for speaking up. Now it’s time for Congress to follow suit.

The Washington Post reports Housing and Urban Development Secretary Shaun Donovan will tell the House Financial Services Committee that the agency wants to increase the up-front cash paid by borrowers,  raise minimum credit scores for borrowers, and limit how much money sellers can kick in, including paying closing costs or giving free upgrades.

The proposals for tighter standards come as the FHA handles a much larger share of the mortgage market than in the past, and more of its loans go bad. As we explained, FHA loan volume has quadrupled since 2006, and a rising number of defaults has prompted fears the agency will be the next in line for a government bailout.

From The Post:

In the past, the FHA has resisted raising down payments or insurance premiums for fear of shutting out qualified borrowers and stunting the housing market’s slow but steady recovery.

But Donovan plans to tell the House committee that the exploding volume of loans the FHA is now handling requires stricter risk controls than the previous administration had in place, according to a copy of his prepared testimony. A recent audit shows that the FHA’s financial cushion already has eroded below the level required by law.

It’s important to connect the dots here, from mortgage fraud schemes to the FHA. Investors that commit mortgage fraud while flipping short sales or through other schemes increasingly have been finding ways to fund their deals through the FHA, as we noted. In some cases, they have been evading FHA anti-flipping rules by setting up land trusts to purchase and hold real estate, and to obscure the identity of the actual purchaser.

As Yves Smith at Naked Capitalism explained, the FHA has been put in a difficult position as a result of the financial crisis:

It is really a shame to see what has happened to the FHA. Prior to the subprime bubble, the FHA has a good record with providing low down payment loans to borrowers. Before readers scoff, it had a simple secret: it screened borrowers. And the old-fashioned process was sufficiently time-consuming that the prospective homeowners also had to grapple with whether they could make the payments…But now the FHA has been assigned a role in the “save the housing market” game plan, which means notions of prudence get compromised.

But it’s even more than that. As we reported nearly a year ago, both the FHA and HUD were mostly ignored during the Bush administration — but now are being called on to turn on a dime and play major roles in saving the mortgage and housing markets.

The FHA must turn itself around and operate at its peak, after years of neglect. While the Obama administration tackles the stimulus plan and other urgent problems, government agencies like FHA and HUD, long relegated to the sidelines, are being called on to ramp themselves up and take on greatly expanded tasks. With the financial crisis so severe, the revitalization has to happen immediately – and there’s no Plan B. Getting these agencies back up to speed is an overlooked challenge facing the new White House regime.

Rising fraud in FHA loans is one example of that challenge. The new rules are a step toward addressing the problem. But the administration also needs to make a top priority of providing the FHA with the resources to put in place additional risk controls and other necessary changes to handle its much larger role. Banks that aren’t lending have gotten most of the government’s attention and money, even as rising fraud in FHA loans is threatening the housing market, and the economy, as a whole. It’s long past time to change that.

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With home prices continuing to fall and more foreclosures yet to come, it’s clear that tough times remain for a housing market recovery. And to add to the troubles, another threat to any rebound is emerging: mortgage fraud.

The risk of mortgage fraud in the third quarter of this year on U.S. home loans shot up 11 percent from the previous quarter, according to Interthinx, a firm that provides fraud prevention services to lenders. But unlike the inflated home values and incomes that marked the mortgage fraud common during the housing boom, things are different this time around. Interthinx, which analyzes mortgage fraud nationally, and uses its risk measure to show where it may be increasing the most, found a continuing shift to schemes involving bank-owned foreclosed homes, and short sales, in which an owner sells the house for less than what’s owed on the mortgage and the lender forgives the remaining debt. The firm also reported that real estate agents and other professionals increasingly are involved in the schemes, which are growing in popularity due to the abundant supply of  foreclosures, and the fact that appraisals frequently aren’t required in order to sell distressed properties.

[Economy1]The fraud goes beyond just just ripping off banks. Mortgage fraud leads to more property value declines in hard-hit neighborhoods, leaves homeowners already in distress in even worse shape, and ultimately will end up costing taxpayers, who will be stuck with the costs when loans go bad.

As fraud picks up, a typical scheme increasingly works like this: A homeowner underwater on a mortgage, owing more than the home is worth, arranges a short sale – with a friend or relative as the buyer. The relationship is never disclosed to the lender. The home then gets deeded back or gifted to the troubled borrower shortly after the sale. Or, the bank unwittingly accepts a lowball short sale offer, allowing the new owner to quickly flip the property to a buyer already on standby, willing to pay a higher price. Such schemes amount to fraud because buyers and sellers lie to the bank about the true nature of the transactions. Banks lose more money than they would have, had the short sales occurred at their true market value – the profits go into the pockets of the flippers. Some investors only flip the properties again, saddling the buyer’s lender with a property that’s not worth the mortgage amount.
Flipping foreclosures and short sales is taking off as the latest real estate craze, with numerous web sites popping up to market advice on turning quick profits on distressed properties. And short sales also are expected to only increase as loan modification efforts continue to falter, and borrowers facing foreclosure have few other options. Interthinx expects fraud involving a “straw” borrower – a deceptive stand-in used as cover for a questionable transaction – to also become more frequent as a result.

“Since many large for-profit schemes during the boom were fueled by a steady stream of straw borrowers recruited through ‘investment’ clubs and networks,  the coincidental proliferation of “get rich quick” websites targeting short sale and REO investors and the continuing popularity of “flip this house” programs on TV suggests that there is a significant pool of potentially willing participants, and that left unchecked, the damage could be significant,” Interthinx said.

The problem for neighborhoods with distressed homes is that investors buying them up and flipping them can destabilize a community even further, since some investors may not maintain properties or may walk away from losses. Using relatives for short sale fraud means the bank ends up approving a mortgage that the owner still may not be able to afford, creating more losses, both for the bank and for the neighborhood.

And, increasingly, people involved in fraud schemes are finding ways to finance them through taxpayer-backed Federal Housing Administration loans, an agency already dealing with delinquency problems and and mortgage fraud, said Robert Simpson, president of Investors Mortgage Asset Recovery Co. in Irvine, Calf., a firm that analyzes mortgage fraud. The FHA’s loan volume has quadrupled since 2006, and FHA-backed loans have been beset by rising defaults that some contend put the agency at risk for a taxpayer bailout. Between the FHA, and government-controlled mortgage giants Fannie Mae and Freddie Mac, nearly 90 percent of all mortgages are backed by the U.S. taxpayer. Banks and lenders took the losses, at least initially, the last time around. This time, taxpayers may end up on the hook, he said.

“Anytime there’s money out there, someone will begin trying to figure out a way to get to it,” Simpson said. “Right now, the fraud gets shipped over to the FHA. We’ve got to hope they are being very diligent, because if they are not, the damage will be irreversible.”

Mortgage fraud played a huge role in the mortgage market collapse. Borrowers qualified for loans they couldn’t afford when brokers inflated their incomes, sometimes without their knowledge.These days, fraud revolves less around the origination of the mortgage loan and more with all the different transactions that take place over distressed properties, from sales of Real Estate Owned homes to short sales, said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication that follows the subprime industry. The well-documented proliferation of foreclosure rescue and loan modification scams is a prime example, Cecala said.

Mortgage fraud also is on the rise because former subprime loan officers are out there looking for new jobs, and new ways to make money, he noted.

“Whenever there’s a new transaction, there’s a new way to game they system, and this is exactly what people are trying to do,” he said.

Short sales at first seem an unlikely target for fraud, because they can be a lengthy and difficult process, with banks often taking months to approve sales, if they do at all. For that reason, Cecala said, he believes short sales – at least for now – comprise only a small piece of the mortgage fraud picture. But the Treasury Department is expected to issue guidelines soon on streamlining short sales and offering financial incentives to borrowers and lenders. The push for more short sales, combined with a backlog of foreclosed homes, distressed homeowners, and banks anxious to get foreclosures off their books, will likely make short sale and REO flipping fraud more prevalent.

A recent investigation by the Sarasota Herald-Tribune of sales in two Florida counties, for example, found that banks had lost “untold millions” because of  short sale flippers using questionable appraisals and failing to disclose that a quick sale at a higher price had already been arranged. The report found a small industry of flippers buying distressed properties and reselling them within days. Real estate professionals were a key part of the schemes, participating in both buying and selling properties. All the losses added up, with just the most suspicious sales, where properties were flipped within a day, already costing banks $1.7 million in Sarasota and Manatee counties alone.

Flipping properties isn’t illegal, but it can involved fraud in several ways, explained Ann Fulmer, vice president of business relations for Interthinx. It’s when a seller never mentions higher offers on the table from bona fide purchasers, or fails to disclose that the seller already has a contract with a buyer for a higher price. Red flags sometimes should be raised when borrowers use transactional funding, which means essentially renting someone else’s money for one day, in order to appear in a stronger financial position. Then there’s the the use of land trusts – they’re not illegal, in and of themselves. Land trusts are organizations created to purchase and hold real estate. But short sale gurus are advising investors to set them up to evade FHA anti-flipping rules, and to hide the true borrower’s identity, which can amount to fraud.

“Short sale flips are today’s equivalent of the California gold rush,” Fulmer wrote recently.

She and other mortgage experts noted that banks already are on to some of the schemes. In some cases, banks are requiring everyone involved in a transaction, from the real estate agent to the mortgage broker, to sign affidavits swearing they have aren’t in the flipping business with anyone else involved in the sale. Cecala, of Inside Mortgage Finance, said federal law enforcement agents also are moving more aggressively even on smaller cases of mortgage fraud, unlike during the housing boom, when only major cases drew attention.

But a fraud specialist for a major wholesale lender, who declined to be named, said there’s still plenty of misdeeds going on. Some borrowers are filing amended tax returns showing a much higher income than the borrower’s true income. The borrower pays a penalty to the IRS for unpaid taxes, but uses the higher income figure to qualify for a bigger loan, or for a loan he wouldn’t otherwise have qualified for. In addition, some builders still are offering “silent seconds” to borrowers who can’t afford a home on their own. A silent second refers to a second mortgage, sometimes used for a downpayment, that is not disclosed to the lender of the first mortgage.

Stated income and no documentation loans known as liar loans, may be gone, the fraud specialist said, but some lenders still are seeing borrowers and loan officers still trying to fudge or doctor financial information, a common practice during the pre-liar loan days of the 1980s, he said. “We’re seeing white out again,” he said.

According to USA Today, the Halloween bash at the six-bedroom mansion was a huge success, drawing 1,000 people. It ended only when traffic gridlock got so bad police had to be called.

But the party wasn’t an isolated event. Similar unauthorized parties are taking in place in other cities with vacant homes — evidence of how the problem of empty and foreclosed homes are causing neighborhood blight and other problems. Although some places, like the Phoenix metro area, are showing some signs of progress in dealing with vacancies, there’s been no widespread solution.

As a result, for some neighbors, falling property values from empty homes aren’t the only issue they have to deal with:

In San Diego County, young people have taken over foreclosed houses for late-night rave parties, says Detective Jeff Lauhon of the San Diego County Sheriff’s Office. Lauhon says the culprits were well-organized in some instances: A young couple would get a realtor to give them a tour of a foreclosed house — usually in a rural area on a large property. The woman would distract the realtor while the man surreptitiously left a window open or door ajar. They would then return and invite others for parties that lasted until the wee hours.

At least they’re not pushing dump trucks out of windows.

A party is a temporary way to fill a house, of course. For many cities, the long-term problem of vacant and abandoned foreclosed homes remains a crisis.

As we reported last week, Fannie Mae has a new program to allow owners of foreclosed homes to stay in their properties and rent them back for as long as a year. But filling foreclosed homes with former owners-turned-tenants is also beginning to take hold, on its own, in some of the Sunbelt states that have been hit hardest by the foreclosure crisis, according to Alan Mallach, a visiting scholar with the National Housing Institute and the Brookings Institution.

Mallach told TWI last week that investors increasingly are buying up bank-owned foreclosed homes in the Phoenix area, then renting them back to their former owners. The strategy is to allow the rental for at least five years or so, by which time the investor probably can sell the house again at a profit, while the borrower has a chance to improve his credit. And the best part: Some investors say their plan is to offer the house for sale first to the former owner.

Everybody wins, and if the idea spreads, it may be one way to address the vacancy problem.

Until then, there’s not a lot else out there to clear the backlog of bank-owned homes sitting empty in many neighborhoods.

So in the meantime, unauthorized parties will just have to do.

Detroit has 80,000 abandoned lots and buildings, according to the city’s planning department. Old housing projects, homes, strip malls and even high-rise buildings sit empty across much of the city. Motown has more vacant office, retail and industrial space than nearly every other big city in the country.

Like many of Detroit’s abandoned buildings, though, it’s anything but deserted. Rather, it’s a hive of activity, buzzing with scavengers, vandals, late-night revelers, arsonists, photographers and urban explorers who brave the crumbling buildings’ many hazards and create a good number of their own. The complex remains unguarded.

“Mayhem. That’s what they should call the place,” says John, a 36-year-old telephone-line repairman who spends his spare time exploring Detroit’s legendary industrial ruins. “If you decide you want to push a dump truck out of a window, this is the place to do it.”

There’s more to this. The pranksters’ playground of empty and abandoned properties represents a deep and lasting betrayal of the needs of urban America.  Some cities in the Rustbelt, hit first by the abandonment of their inner cores and then utterly devastated by foreclosures, bear scars from which they are unlikely to recover and that few seem to see. Years after the financial crisis ends, I wonder if we’ll look back at this as a time when we stood by and let some of the country’s once-great communities simply fall into disrepair and die.

In Washington, Congress ceded to the lobbying efforts of powerful interests like the National Association of Homebuilders, and passed an extension of a homebuyer’s tax credit that costs more than it delivers and puts money into the pockets of people who don’t need it. There are no lobbying groups for people who live in neighborhoods with foreclosures that even banks have abandoned because they aren’t worth the expense of taking back.

However, there are some bright spots in the overall dark landscape. As TWI’s sister site, The Michigan Messenger, pointed out last week, urban gardening has taken hold in parts of Detroit, which now boasts more than 700 urban farms within its city limits. The idea behind some of those farms is to present a healthy alternative to the liquor stores, gas stations, and convenience stores where residents often turn for high-cost groceries and fast food.

Like urban gardening, the best solutions to the abandonment crisis will come from the bottom up. But those efforts need government support to take hold and expand. In order to take off, any possible solution requires a sense of urgency among policymakers about the huge problems facing cities like Detroit, Cleveland, Chicago — and even the outer exurbs in the boom markets of California and Arizona, where foreclosures have caused property values to sink and have left communities stuck in a downward spiral.

But there’s  been no big national push for possible solutions like land banks, which would allow local communities to seize and reuse vacant land and buildings. There’s been no national summit to talk about the tragedy of declining neighborhoods due to foreclosures. Treasury Secretary Timothy Geithner apparently picks up the phone and chats with his Wall Street friends several times a day. Hey, Secretary Geithner — How about making a call to a homeowner surrounded by foreclosed homes? Or maybe taking a stroll down one of those blocks in Detroit where every single home is owned by a real estate speculator? In America’s abandoned neighborhoods, they’ve been waiting to hear from you, or from anyone in Washington, for a long time. And they’re still waiting.

The new draft bill is expected to take a tougher stance toward troubled financial firms than the administration’s original plan, and may take out some language that would allow for temporary bailouts.

Robert Reich argues that a stronger approach regarding too big to fail is long past due. It should have been a reality earlier, but was blocked by the fact that Congress and the White House have strong financial and other ties to Wall Street, he contends. Anything short of truly breaking up big banks won’t be enough, Reich writes.

Congress won’t go as far as to unleash the antitrust laws on the big banks or resurrect the Glass-Steagall Act. After all, the Street is a major benefactor of Congress and the Street’s lobbyists and lackeys are all over Capitol Hill.

The Street obviously detests the notion that its behemoths should be broken up. That’s why the idea isn’t even on the table. But it should be. No important public interest is served by allowing giant banks to grow too big to fail. Winding them down after they get into trouble is no answer. By then the damage will already have been done.

Whether it’s using the antitrust laws or enacting a new Glass-Steagall Act, the Wall Street giants should be split up — and soon.

Meanwhile, there has been little talk about the optics created by the massive government response to the problems in the banking system, while many homeowners find themselves on their own. Sen. Dick Durbin (D-Ill.) chastised banks this weekend for causing neighborhood blight by failing to take care of their foreclosed houses, Bloomberg reports. Durbin spoke in Chicago at a “Showdown in Chicago” protest sponsored by labor and community groups, and timed to coincide with the American Bankers Association annual  conference in that city.

“As long as those plywood boarded-up houses are sitting there, we are not going to have an economic recovery,” he said. “These banks have to realize they can’t sit on these neighborhoods, sit on these families and sit on economic opportunity across America.”

But as usual in this crisis, the focus on regulation and speeches has missed what’s actually happening on the ground. And that’s the really scary part, according to the Miami Herald (via Patrick.net). Homeowners in South Florida, the Herald reports, are walking away from their mortgages in droves. The walk-away phenomenon — once more a theory than a reality — is a now a measurable occurrence.

As property values have plummeted by an average of 50 percent, such strategic defaults now make up a sizable chunk of South Florida’s foreclosures. In the fourth quarter of last year, they accounted for an estimated 28 percent of all defaults in Miami-Dade and Broward counties, according to recent research from the credit bureau Experian and Oliver Wyman, a New York-based international consulting firm.

That’s up from 8 percent in the same quarter two years ago. With property values down even further now, researchers are certain the numbers have risen even more.

With the social stigma of foreclosure eroding, experts say it is becoming easier for discouraged borrowers to justify throwing in the towel.

“People are saying, ` Everyone is doing this, and I do not feel any compunction in fashioning my own bailout,’ ” said Roy Oppenheim, a Weston real-estate and foreclosure defense attorney who conducts weekly seminars that discuss strategic defaults and other financial options for distressed borrowers.

Looks like homeowners are deciding they’re too big to fail as well. That can happen when bank executives and employees take home big bonuses after being bailed out by the government — it looks like they’re getting away with something, and any homeowner underwater on a mortgage can see that. Unless the government genuinely cracks down on big banks, it’s not unreasonable to expect that more homeowners will likely rationalize their decisions to strategically default. As things stand now, major financial institutions can make risky decisions knowing full well that, in the end, the government will be a backstop. What message does that send to a troubled borrower struggling to keep making payments on their mortgage?

This post has been updated.

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Cheronda Guyton, a senior vice president responsible for commercial foreclosed properties, broke company rules barring personal use of bank property, Wells Fargo said in a statement Monday.

The Times reported last week that Guyton had been spotted by neighbors spending time at the Malibu Colony home with her family this summer. At a party in August, guests were ferried to the beach house from a yacht, residents of the enclave said.

The property’s former owners were victims of convicted swindler Bernie Madoff’s Ponzi scheme, and lost the home as a result.

This story pretty much has everything you might look for if you’re trying to follow the foreclosure crisis. An expensive second home, taken back by the bank. Bernie Madoff. A top executive of a bailed-out bank capitalizing on someone else’s foreclosure mess. The yacht that brought guests to the party.

And now it has something else as well: Someone at the bank appears to have paid the price for unacceptable behavior. With top executives of companies bailed out by the taxpayers still raking in big paychecks, that’s  definitely something we haven’t seen much in this crisis. Too bad it had to take over-the-top behavior like partying in someone’s foreclosed house for that to finally happen.

As we noted, the time is ripe to try new tactics to combat foreclosures, including encouraging ways to rent foreclosed homes back to former owners. Fixing tax laws that are slowing down some loan modifications might help. Even direct loans to homeowners could be a strategy.

Surowiecki agreed:

If we really want to keep people in their homes, then, nudges and renegotiations probably aren’t going to do it. We need more direct action. One option, which the banking lobby killed earlier this year, would be to allow “cramdowns”: let bankruptcy judges reduce the principal on homeowners’ mortgages. Another, even more direct option is simply to give aid to homeowners: one proposal would have the government make low-interest loans, or even grants, to people who have suffered a steep decline in income and have negative equity in their homes. That would target the aid at the people who need it most: as another Boston Fed paper shows, defaults are most likely to happen not just because interest payments are set too high but because of income shocks (usually after the loss of a job) and plummeting house prices.

Surowiecki pointed out, as we did, that forceful actions to help homeowners might not be popular; no one wants to pay off their neighbor’s mortgage. But as foreclosures continue, the spillover effects on surrounding neighborhoods will become more severe, which may change that attitude.

But in the end, Sur0wiecki says, the Obama administration will have to come to a conclusion it hasn’t reached yet: Fixing the roots of the crisis is going to be costly. The government seems to be in denial on this. The current view is that “we’ll just keep muddling through with the current approach, which offers us the sense that we can get quite a lot without spending much,” Surowiecki said.

Maybe it’ll work. But the housing bubble was very expensive. It’ll be surprising if we can deal with its consequences on the cheap.

More reasons why it’s time for the government and the lending industry to quit trying to just muddle through the crisis and really rethink foreclosure strategies.

But via Felix Salmon, here’s a look at why toxic mortgages spill over onto us all, courtesy of Mike from Rortybomb:

If I was a degenerate crackhead who snuck into your neighborhood and mugged you for $50, the Wall Street Journal Opinion Page would want me thrown in jail. Now imagine that I’m a degenerate crackhead who took out a subprime loan to move next door to you, in an arrangement that I’m likely not going to pay off. I might not even make one payment. If I default you’ll lose 10% of the value of your home from the externality effect. Assuming your home is worth $300,000, there’s a 20% chance I default in 2 years (realistic numbers), and you lose 10%; 300,000*.2*.1 = I’ve just robbed you for $6,000 while the Wall Street Journal Opinion Page cheered me on. And that’s one house – I’ll have a dozen neighbors. Now mind you, the product was great for me – I got to smoke crack indoors, in a house I could never realistically afford, which was a big plus. The subprime lender sold my loan to a pension fund in Denmark for a nice fee. It goes in the win column for us.

Plus, if your crackhead neighbor walks away from the house, and the bank delays foreclosing on it, then you’re sitting there with an abandoned property next door – something that happens all too often these days. That also doesn’t do much for your property values.

All of this also explains  why there’s not exactly a groundswell of opinion pressing Congress to bail out homeowners in trouble. Banks, for whatever reason, don’t come across as badly as the crackhead homeowners do when it comes to possible subprime stories like this. And no one wants to be seen as enabling an addict, even if it means their own property values take a hit.

As Mike detailed, there are some pretty good reasons for labeling these mortgages toxic. And none of them offer much consolation to the homeowner next door.

The movement calls for communities to cordon off mostly vacant areas, cut them off from city services and let the land return to nature. It’s headed by Genesee County Land Bank Chairman Dan Kildee, who has drawn national attention for his efforts. As TWI noted recently, Kildee has been asked by the Obama administration and by a group of charities to explore the shrinking cities approach for other communities beyond Flint.

But urban ideas that play well on the national stage don’t always have the same reception closer to home, the Messenger says.

Businessman Dayne Walling and former state representative and current Genesee County Commissioner Brenda Clack, both Democrats, are facing off against one another in an August election. Both candidates recently expressed some doubts about the movement — and pressed for more details. Walling, for example, noted that there are thousands of houses that need to be torn down, “but we need to make sure that residents have every opportunity to weigh in on the process. Every neighborhood needs a unique solution.”

From the Messenger:

Clack called the shrinkage push a “political bullet,” adding that she is worried about residents who are low income or senior citizens living in properties that the land bank might have its eyes on being left out of a place to live.

“I don’t believe in removing people,” she said. “In some areas there are one or two abandoned homes on a block that need to be torn down, but we don’t even have the money to tear them down.”

Clack said that the shrinkage idea would “not be a top priority” for her if she was elected mayor.

“You re-pattern the city, you don’t shrink it,” she said.

Both candidates said they were concerned over the current lack of specifics regarding the shrinkage push.

“It’s partly controversial because not that much is known about it,” Walling said. “Right now it seems more like a catch phrase, not a plan.”

Former Flint Interim Mayor Michael Brown had jumpstarted the shrinking cities idea by suggesting in March that the city should cut off service to abandoned areas as a way to deal with blight.

Now that the shrinking cities idea is a movement, it could be something that sounds like a great idea — unless it happens to be your neighborhood that’s on the chopping block.