Five myths about the foreclosure crisis

Cleveland Plain Dealer - January 2, 2011

by David Rothstein, in The Cleveland Plain Dealer 

The November elections yielded a new slate of policymakers across Ohio. Given that 2009 marked
Ohio’s 15th straight year of record home foreclosure filings, it is critical that future policymakers spend
more time on this issue. Given Cleveland’s dubious place at the epicenter of the foreclosure crisis, it is
essential that our new county executive and County Council enter office ready to address this issue.
Here is a primer that can help new officeholders understand some common myths, and be prepared to
take on this calamity.

Myth 1: Foreclosures are decreasing with new federal and state programs. Make no mistake,
the foreclosure crisis in Ohio is just that — a crisis. Last year, Ohio saw more than 89,000 new
foreclosure filings, roughly one for every 56 housing units. The Mortgage Bankers Association indicates
that 16 percent of all mortgages are delinquent or in foreclosure, indicating a slowdown is unlikely.
Cuyahoga County leads Ohio in both total foreclosures (14,000) and foreclosures per population (11
for every 1,000 people) for the fifth straight year. Even homes not in foreclosure are taking serious
losses in property value. Nearly one in every three Ohio mortgage holders is “under water” or has a
home with negative equity.

The Ohio “Save The Dream” effort along with nonprofit housing counselors have made a dent in
helping homeowners, but federal programs are structurally inept and current state laws are
inadequate to deal with the complications of the foreclosure process. Ohio ranks at the bottom of
states (48th) for successful mortgage modifications under the federal HAMP program in large part
because banks are not required to participate despite taking billions of dollars in bailout funds.

Myth 2: Foreclosures are an inner-city, urban problem. The majority of new foreclosure filings
are in suburban and rural counties. In the last three years, nonurban counties have seen a 25 percent increase
in new filings compared with a 5 percent increase by urban counties. Inside Cuyahoga County, the first suburbs
and outer-ring suburbs are witnessing double-digit percentage increases in filings. Most counseling agencies
indicate that only one in three clients live in the city of Cleveland.

Myth 3: Foreclosures only happen to people with adjustable-rate or risky subprime loans. In
the late 1990s, the majority of foreclosures were linked to subprime loans with adjustable interest
rates or “no money down” loans. Many of these foreclosures were second lines of credit, stripping
equity from homeowners. Today, housing counselors report most of their new clients have fixed-rate,
prime loans. ESOP, the largest counseling agency in Ohio, reports that only 2 percent of its clients
have predatory loans. Job loss, declining and stagnant wages and rapidly shrinking property values
create an entirely new demographic of clients.

Myth 4: Foreclosures can be easily averted by working with a lender or servicer. Modifying a
mortgage is a complicated and involved process. It is not remotely similar to calling a utility company
and requesting the waiver of a late fee, a common misconception. Instead, the process involves
myriad paperwork, phone calls, program selection and, above all, incredible persistence from the
borrower. The process is flawed; servicers often have incentives not to complete workouts, and the
modification often does not lower the principal loan balance. To be clear, there is nothing easy about
this process.

Myth 5: All housing counselors and groups can help. Sadly, just as subprime lenders and
mortgage brokers took advantage of working families, so do for-profit companies that charge for
mortgage modification assistance. Many of these scams involve upfront fees followed by monthly fees
where borrowers are told not to communicate with their lenders. Using a quick Google search turns up
dozens of these companies. This situation rarely, if ever, works out for the borrower. Working with a
certified HUD counselor recommended by the Cuyahoga County Foreclosure Prevention Program or
through Save The Dream is definitely a much better bet for struggling homeowners.

Policymakers have the ability to help homeowners. The Ohio House of Representatives passed several
foreclosure-related bills in 2010, but not one has passed in the Senate. There are few regulations for
mortgage servicers, and not one law that prevents mortgage foreclosure scams. Additionally, securing
funds for foreclosure prevention counseling is paramount to helping families save their homes. There
are dozens of ways that local, state and federal policymakers can intervene, but the choices become more
limited the worse the foreclosure crisis gets. Policy Matters Ohio stands ready to work with our
elected officials and policymakers to develop comprehensive and effective strategies to combat the
foreclosure crisis that has gripped this state for more than 15 years and shows no signs of abating
anytime soon.


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