STEVE INSKEEP, host:
Let's go next to Cleveland, Ohio, where officials are in the midst of an innovative program aimed at dealing with all the foreclosures blighting their region. They are reselling the marketable homes and tearing down the rest. Cities have razed crumbling and vacant houses for decades, but usually they have to pick up the tab. But since the housing crisis, Cleveland officials have been getting banks to pay for the demolition as well.
From member station WCPN, Mhari Saito reports.
MHARI SAITO: Bill Beavers has lived on Cleveland's Dove Street since 1967. But on a recent sunny morning, Beavers is sitting on a neighbor's front porch, watching something he has never seen on his block before.
(Soundbite of excavator tearing houses down)
SAITO: Across the street, a huge excavator is tearing through the front facade of a two-story wooden house. The top half of the house, windows, exterior wall and all, folds as easily as cut weeds and tumbles to the ground. You can see the rooms much like in a doll house.
Mr. BILL BEAVERS: Oh, it's good to see them tear these old structures down because nobody wants to move in them. And it costs too much to fix them up, you know?
SAITO: The house went into foreclosure two years ago. When the family moved out, vandals stole the circuit panel and pipes. Other houses on the block are nicely kept up, but the street is in the 44105 zip code, which in 2007 had the dubious distinction of garnering the highest foreclosure rate in the nation. Saturated with foreclosures, the lender that took back the house couldn't unload it for even $5,000.
Gus Frangos heads the Cuyahoga County Land Bank that oversees these demolitions.
Mr. GUS FRANGOS (Cuyahoga County Land Bank): A property like that on a street that's otherwise relatively stable but depressed market probably needs to come down because it has, you know, way too much need on the inside. If you take these pockmarks out, all of a sudden you, you know, you stabilize the street a little bit.
SAITO: When the land bank started two years ago, Frangos thought the group would have to pay its demolition bill from its own budget. But the economy worsened and the foreclosures piled up, and lenders stuck with crumbling houses found themselves on a hook in Cleveland Housing Court for hundreds of thousands of dollars of code violations.
The Cuyahoga County Land Bank offered lenders a deal: We'll take your worst houses, if you pay to knock them down. This year, some of the country's biggest lenders, like Bank of America, Citibank, Wells Fargo and Fannie Mae, will help pay for half of the land bank's 700 scheduled demolitions. Lenders pay between $3,500 to $7,500 per house.
Wells Fargo's Russ Cross says it's a sensible and responsible business plan.
Mr. RUSS CROSS (Wells Fargo Home Mortgage): We want to make loans on an ongoing basis. Do so we need stable to rising home values. We've got to do whatever we can to protect home values in neighborhoods.
SAITO: Some lenders are looking at starting similar programs in Detroit, Chicago and Milwaukee.
Fannie Mae's P.J. McCarthy says the government-controlled mortgage giant has been donating properties and demolition funds to the Cuyahoga County Land Bank since 2009 because keeping the houses just doesn't make sense.
Mr. P.J. MCCARTHY (Director, Alternative Disposition Programs, Fannie Mae): They're not going to sell on the market for much more than few thousand dollars, and our costs in marketing those properties and preserving them generally exceed the costs, and so the economics of the transaction make sense as well as the intent of the land bank to reduce supply and stabilize the neighborhood.
SAITO: Dealing with foreclosures is a huge headache for financial institutions. RealtyTrac, an online marketplace for bank-owned property, counted more than 1.6 million foreclosures in the U.S. in July. RealtyTrac's Rick Sharga says demolition programs like Cleveland's only start to address the backlog.
Mr. RICK SHARGA (Vice President, Marketing, RealtyTrac): Eliminating a handful of these houses really isn't going to be a cure-all in and of itself. It's one step in a much longer process that's going to be required before the housing market comes back.
SAITO: And in the meantime, cities have to figure out what to do with the newly-vacant land. In South Euclid, an eastern suburb of Cleveland, building inspector Rick Loconti is walking on a brick path through small plots of tomatoes, eggplants and sunflowers and remembers what used to be here.
Mr. RICK LOCONTI (Electrical and Building Inspector, South Euclid): The house was so far gone that we couldn't fix it up and get any kind of a return so we demolished the house and we put in this community garden and it's now become a source of community pride.
SAITO: Loconti concedes there are more vacant lots than demand for community gardens. Municipalities are also offering newly vacated land to neighbors as side lots and putting other plots away for if and when, the housing market improves here.
For NPR News, I'm Mhari Saito, in Cleveland.