foreclosure and equity loss: overview

How does foreclosure prevention fit into the affordable housing toolbox?

While most communities have programs to help renters become homeowners, many communities do not focus enough on keeping existing homeowners in their homes. Foreclosure prevention programs help homeowners who have defaulted on their mortgage and are in danger of foreclosure or a forced sale that will strip them of hard-earned equity. By providing these families with counseling and access to attractively priced refinancing options, foreclosure prevention can keep families affordably in their homes while preserving home values and stability in the surrounding community.

Click on the thumbnail below to see a foreclosure prevention policy timeline.

Why should communities get involved in foreclosure prevention?

Solutions in Action
Communities across the country are facing rising foreclosures as interest rates reset on adjustable rate mortgages (ARMs) originated between 2004 and 2006. While foreclosures also occur on other mortgages, the adjustable rate mortgages issued by the subprime sector between 2004 and 2006 are particularly vulnerable as many of these loans will reset to very high fixed interest rates. According to one estimate, the number of foreclosures nationally due to interest rate reset may exceed one million (or 13 percent of adjustable rate first mortgages). [1]

Foreclosures affect more than just individual borrowers. Government efforts can help both individual borrowers and the community overall by:
  • helping families stay in their homes and retain their equity,
  • preventing widespread losses in low- and moderate-income homeownership,
  • stabilizing communities,
  • safeguarding local property tax rolls, and
  • protecting nearby homeowners from equity loss.
    For a more thorough explanation of why governments provide foreclosure prevention assistance, click here.

    What policies can help prevent and respond to foreclosures?

    Foreclosure prevention policies can target assistance directly to families in need, or they can focus at the community level on modifying the regulatory environment to reduce foreclosures and their impact on neighborhoods. The policies that can help prevent and respond to foreclosures vary depending on how deep into financial trouble families are.

    Photo courtesy of Neighborhood Housing Services of Chicago

    Chicago's Home Ownership Preservation Initiative (HOPI) is an early example of a one-stop approach to foreclosure prevention that includes both counseling and research efforts to prevent foreclosures now, reduce foreclosure risk in the future, and mitigate the damage foreclosures can cause.

    Neighborhood Housing Services, the organization that administers HOPI, reports that the initiative prevented over 1,300 foreclosures in its first three years.

    Learn more about HOPI...

    This section details a range of policy solutions being implemented at the state and local levels, including policies to:
    • establish a foreclosure prevention task force,
    • connect struggling homeowners with immediate assistance,
    • help homeowners and renters regain stability after a foreclosure, and
    • prevent foreclosures in the future.

    How to Navigate the Foreclosure Prevention Section

    To help you sort through the different foreclosure prevention options, we have developed two options for navigating the foreclosure prevention section on

    OPTION #1: To view and select policies on a graphical foreclosure timeline, click here.

    OPTION #2: Or, to access policies through traditional text menus, click on "Learn more about foreclosure prevention" below.

    Dorchester TowersLearn more about foreclosure prevention.

    Go back to learn about other policies that help residents succeed.

    [1] Mortgage Payment Reset: The Rumor and the Reality. [PDF] 2006. By Christopher L. Cagan. Santa Ana, CA: First American Real Estate Solutions.

    The Center for Housing Policy gratefully acknowledges the input and feedback provided for this policy section by the following reviewers (in alphabetical order): Sonia Garrison, Self-Help; Steve Tuminaro, NeighborWorks America; and Christen Wiggins, Neighborhood Housing Services of Chicago. Please note, however, that the views and opinions expressed on are those of the Center for Housing Policy alone.