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Report gives lawmakers snapshot of housing crisis impact

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By The Staff

Last Thursday, Kentucky got the latest snapshot of just how much we have been affected by the nation’s ongoing housing crisis.

While the news could certainly be better, the report approved that day by the General Assembly’s Program Review and Investigations Committee found that Kentucky is nonetheless seeing fewer problems than many states, especially those along or near the coasts.

During the first three months of 2009, for example, Kentucky was fifth-best nationally when comparing year-to-year home-sale prices.  That says a lot, since our average sale price actually dropped slightly during that time.  Still, it was far worse in Nevada, where home prices were nearly a third lower.

Foreclosures in Kentucky are relatively small. During the last three months of 2008, the Mortgage Bankers Association found that it was about three-quarters of a percent of those they sampled.  However, that rate is four times greater than it was in the 1990s, and we were ahead of the national average this decade until the housing crisis hit in 2007.

Last year in Kentucky there were more than 16,000 residential and business foreclosure cases referred for sale, but that number could be even greater since some cases may involve multiple properties.

As devastating as this process can be for families, the effect is felt all around.  The committee’s report cited research showing that a one percent increase in foreclosures leads to a 2.3 percent increase in violent crime.

The Center for Responsible Lending, meanwhile, said foreclosures will directly or indirectly lower the value of 520,000 Kentucky homes by the end of the year, with the average loss about $1,100.  That’s more than $600 million overall, and could cumulatively top $2.2 billion by 2012.

One area where Kentucky is very close to the national average is the percentage of mortgage holders who have missed at least one regular payment.  It is now approaching 8 percent, which is all the more telling since the state and the nation had briefly approached 6 percent only once since 1979.

There are several main reasons why this crisis has come about.  For one, mortgage companies that in the past would have held onto mortgages until they were paid off began selling them to investors, creating the incentive to issue even more, potentially riskier mortgages.  Increases in home prices, interest rates and unemployment have also played major roles.

Over the last 18 months, exactly half of the states have taken action in trying to reduce the pain foreclosure can bring.  Here in Kentucky, my colleagues in the legislature and I created the Kentucky Homeownership Protection Center, which is a central location for at-risk homeowners.  For free of charge, this center will contact the mortgage holder in an effort to help the home-owner keep their home.  

Next year, there is a good chance legislators will look at giving the attorney general more power in targeting those businesses that prey on people involved in foreclosures.

There is increasing hope that the worst is now behind us, both when it comes to housing and to the economy in general, but it is too early to tell. It may be toward the end of the year before we know for sure.

I encourage you to continue letting me know your views on issues involving state government.  You can always write to me at Room 366B, Capitol Annex, 702 Capitol Avenue, Frankfort, KY 40601.

You can also leave a message for me or for any legislator at 800-372-7181.  For the deaf or hard of hearing, the number is 800-896-0305. I hope to hear from you soon.

Representative Rick Rand