Already faced with budget shortfalls, local governments continue to reel from the consequences of the sharp rise in home foreclosures. As of March, more than 900,000 homes were in foreclosure — a record rate, according to the Washington-based National League of Cities (NLC). The association says that cities alone stand to lose $6 billion in tax revenues because of foreclosures. Despite only a couple of mortgage-related bills having been enacted — including the Mortgage Forgiveness Debt Relief Act and provisions in the administration's economic stimulus package — officials say they are optimistic that Washington will introduce more soon.

So far, the House has passed legislation that would prohibit certain lending practices and would make it easier for consumers to re-negotiate predatory mortgage loans. A similar measure was introduced in the Senate last year. Bills that would help homeowners refinance high-interest, sub-prime loans into government-backed, lower-rate loans have been approved by both the House and Senate, but were not completed before Congress recessed in March.

Also, Congress is considering proposals to reform the Federal Housing Authority (FHA), including ones that would permanently raise loan limits and reduce down payment requirements. In addition, Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn., are planning to introduce a proposal that is more comprehensive and includes FHA reform provisions. “We think the FHA reform bill will move pretty rapidly,” says Mike Wallace, NLC's senior legislative counsel for federal relations.

Local officials also are watching a measure sponsored by Sen. Harry Reid, D-Nev., which would add $4 billion to the Community Development Block Grant program for foreclosure mitigation and assistance. Ed Rosado, legislative director for the Washington-based National Association of Counties, says the prognosis for that funding is a “big question mark,” but in general he expects Congress to address the issue in the next month.

In the meantime, communities are feeling the pinch from the mortgage crisis in several ways, including losing property tax revenues from abandoned homes. Worse, “when a house is in foreclosure and is resold, the price is lower,” says Gerry Hyland, county supervisor in Fairfax County, Va. These homes “have a downward effect on other homes in the area, which reduces the assessments, which reduces the applicable taxes,” he says. Last year, his county had less than 100 foreclosures, but so far in 2008, Hyland says there have been between 5,000 and 6,000.

The cost of keeping foreclosed properties secure and clean has affected communities, and for some, has led to budget cutbacks. For example, Greeley, Colo., has not filled several vacated positions because of increased costs resulting from property neglect, says Rebecca Safarik, Greeley's community development director.

Citing a similar problem in several of its neighborhoods, Boston passed an ordinance sponsored by Councilman Rob Consalvo that forces the banks or lending companies that own foreclosed properties to keep them up and ensure the homes are secured. “These responsibilities are not the city's job. Taxpayers' money should not be footing this bill,” Consalvo says.

The author is the Washington correspondent for American City & County.