Foreclosure Prevention – Maury Seldin

Foreclosure prevention is the topic of a series of my blog entries.  Starting with strategy, consider my essay, “Foreclosure? The Right Way to Play the Suit May be the Wrong Way to Play the Hand: A Strategic Approach to Averting a Crash in the Housing Market and its Fallout.” The idea here comes in two major parts. The first is to avoid a crash in the local market of a subject property. The second is to avoid a cascading of local market housing crashes. At first glance, many people will consider both cases as being remote possibilities, especially the latter. As policy makers could wait until the possibilities seem less remote. The problem is that the longer the wait and the less remote the more difficult it becomes to avert. One could make mathematical calculations that would weigh the chances against the costs, but as with catastrophic events, even low probabilities are of little comfort if the catastrophe strikes. The Black Swan

Thus, prudent decision makers, when insurance policies are not available or realistic, may take preventive action even with probabilities not favoring the odds of caution. The “go-for-broke” strategy takes the chance. The Minimax strategy constrains the level of risk and maximizes within those constraints. In order to develop such a strategy it is essential to work with local data that identifies the high risk areas. The discussion in the essay is a first step in developing such a strategy. cascading, is more difficult to tackle because of the problem of identifying tipping points before they happen. Forecasters do well in extrapolating from the past, but the turning points may arise in different patterns because of differences in people's responses, among other things. It may be a case of emergence. The link to the essay and a follow-up item (Discussion Draft of A Model for use in Averting Market Catastrophe is as follows: Foreclosure Essay with a Strategic Approach

The second in the series of my blog entries on foreclosure is on contagion.  For contagion the start is a quotation of excerpts from a report on contagion research The Contagion Effect of Foreclosures: The Neighborhood Impact of Subprime Lending, Predatory Lending and Foreclosure". The quote is “Some neighborhoods see a concentration of foreclosures, the number of distressed properties in close proximity to a given property also has an impact on home value."

The gist of it is that as housing prices decline from homeowners’ defaults, there is a spillover effect of foreclosures on neighborhoods. “Depending upon variances in time and space, foreclosures can depress home prices by as much as 10 percent. When taking into consideration the number of distressed properties in close proximity to a given residence, the residence will decrease in value by an average amount of 1% per distressed nearby property.”   Based on average home prices, nearby foreclosures reduce the value of each neighboring home by $5,000 on average. “In addition, inner cities and areas where new construction is prevalent appear to be the hardest hit by foreclosure and the related contagion effects. While there is considerable evidence of this contagion effect, there is little evidence of foreclosure cascading -- where the number of foreclosures in a given neighborhood reaches a ˜tipping point and the foreclosure rate begins to increase rapidly. Anecdotal evidence suggests that when foreclosures in a given neighborhood reach this "tipping point" the entire neighborhood can experience hardship due to a lack of residents to generate fees and taxes needed to support basic services.” The article provides links to the research cited. The Black Swan effect has not been revealed in the academic studies, but the localities studies are limited.

My blog entry this week is on justice.  The discussion of justice may be started with this quote from an insert to the ASI newsletter, “Developing policy for dealing with the subprime crisis may be viewed as a matter of justice. There are different views of justice with differences in underlying values. And, the concept of justice is complex. Yet, considering the issues as a matter of justice provides an opportunity for a comprehensive analysis that considers the conflicts of incommensurability. Fall 2008: Developing Policy for Dealing with the Subprime Crisis: A Matter of Justice

In looking at these issues it will be useful to consider the concept of consilience. Edward O. Wilson, in his book, Consilience: The Unity of Knowledge, argues for the fundamental unity of all knowledge. The idea is that, "everything in our world is organized in terms of a small number of fundamental natural laws that comprise the principles underlying every branch of learning." Two links explain the idea. The first is a book review by Maury for an ASPEC session of Books and Ideas.  Notes for Consilience   The second is an essay by John Khosh presented at the seminar. Consilience: A Biological example from Consilience: A Biological Example - John