Home Insecurity 2013: Foreclosures and housing in Ohio

May 9th, 2013
   

Ohio foreclosures remain at crisis levels, with 70,469 new filings in 2012. While this is a slight decrease from 2011, the number of filings remained more than four times higher than it was in the mid-1990s.

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Introduction

Ohio foreclosures are at crisis levels, with more than 70,000 new foreclosures filed in 2012. This was about the same as in 2011 when the state experienced 71,556 foreclosures. What began as mostly an urban problem in the mid-1990s later erupted into a statewide epidemic. Levels have been, for the past three years, below the peak level of 89,000 in 2009. Despite these recent declines, last year’s rates were still two times higher than they had been a decade before in every Ohio county. The high foreclosure numbers persist despite national, state, and local efforts to stem new filings.

Foreclosures represent a major and ongoing blow against families’ main source of savings and against stability. This report analyzes the new foreclosure filings statistics in Ohio along with some of the latest developments in foreclosure prevention efforts. To add context to the foreclosure numbers, the report provides updates on mortgage defaults and negative equity. It ends with recommendations to better assist individuals, families and communities in becoming more stable.

Data analysis

Ohio foreclosure filings declined last year by 1.5 percent. In 2012, there were 70,469 new foreclosure filings compared to 71,556 filings in 2011.[1] The number of foreclosures in the state remains at crisis levels, higher than in 11 of the last 17 years. (See Figure 1, next page.) Since 1995, the number of filings has at least quadrupled in 51 of Ohio’s 88 counties and has more than tripled statewide. Last year, foreclosure filings grew in 36 counties. Additionally, last year foreclosure filings fell or stayed constant in 51 counties. There was one foreclosure filing for every 73 housing units in the state in 2012.

For the seventh year in a row Cuyahoga County topped the list with nine foreclosures per 1,000 people. Preble (7.3) remained in the top three and Clinton (7.2) rose from the 15th highest ranked to third. Coshocton, Montgomery, and Summit counties followed and all had seven foreclosures per 1,000 people. More than half of the most troubled counties, seven, were also on the list of counties with the highest rates in 2010.

Table 1 shows that the number of foreclosure filings is high in urban, rural and suburban counties alike. Among the top ten counties in filings per person in 2012 were five large urban counties, while in 2007 large urban counties held nine of the ten spots for highest foreclosure filing levels.

The largest decreases occurred in Monroe (58 percent), Coshocton (42 percent), and Holmes (34 percent) counties. Three large counties, Stark (5.4), Lorain (5.8), and Mahoning (5.8), had lower foreclosure rates per 1,000 people than the state average of 6.1. As in the past, Cuyahoga County had the highest number of filings with 11,427 and the highest rate with nine foreclosure filings per 1,000 people in 2012. Table 2 shows foreclosure filings in Ohio’s ten largest counties in 2000 and 2012.

Figure 2 shows that foreclosure filings varied from month to month in 2012, with a state average of 5,872 filings per month.

Several factors related to the current mortgage market and foreclosure process help to explain the small decrease in foreclosure filings. First, many of the urban counties where foreclosures grew for more than 10 years have fewer homeowners to foreclose on. This is increasingly evident by the thousands of vacant and abandoned properties in the inner core of Ohio’s cities. Second, many homeowners are working with housing counseling agencies and court mediation programs that dramatically improve their chances of saving their homes. In the last two years, groups put substantial effort into preempting the foreclosure filing process by providing outreach and education before foreclosure. While many homes are ultimately not saved, the process slows while the homeowner works with servicers.

Additionally, the sheer volume of the delinquent and foreclosed property inventory has overwhelmed mortgage servicers. Housing groups report that families have gone months or even over a year without a foreclosure filed against them despite major delinquency and repeated attempts to get a new loan.[2] These factors all influence the number of new foreclosure filings and as we discuss below, may mask the seriousness of the situation in Ohio.

Additional mortgage trends

Indicators related to housing foreclosures and mortgage delinquencies remain grim. Ohio’s national ranking in new foreclosures has fallen somewhat over the last four years, but the state remains among the most troubled according to the latest survey by the Mortgage Bankers Association, conducted in the third quarter of 2012.[3] The survey found that 8.57 percent of all Ohio mortgages are either actively in foreclosure or past due in their payments by at least 90 days, slightly more than one year ago. The survey also found that new foreclosure proceedings were started on 1.05 percent of home loans during the quarter, ranking Ohio eighth in the nation – up five positions from the prior year. The survey indicates that other states, particularly in the Sunbelt and North Central region, have new foreclosure rates higher than those here. However, it also shows that the share of loans in Ohio that are past due remain high. Without intervention, foreclosures will remain at near peak levels.

First American CoreLogic recently issued its yearly report of highly delinquent and troubled mortgages, noting that Ohio remained unchanged from last year with seven percent of mortgages in serious delinquency.[4] What’s more, the average number of days in serious delinquency and of being in foreclosure has increased in the last several years. The mortgage servicing industry cannot keep up with the new filings and late payments.

Data on home equity in Ohio are also troubling. Figure 3 shows that Ohio ranks seventh in share of home mortgages with negative or near-negative equity, according to the fourth quarter 2012 report by First American CoreLogic. Twenty-five percent of Ohio mortgages have negative equity and more than five percent have near-negative equity.[5]

More than 535,000 Ohio mortgages are “under water,” with debt exceeding current value. This is an increase of approximately 25,000 mortgages from the fourth quarter in 2011. Ohio’s average negative equity amount is considerably lower than other states because of lower home prices and consequently, smaller loans. Figure 4 shows that the loan-to-value ratio in Ohio is more than 76 percent, meaning that Ohio mortgage holders, in total, have less than 25 percent ownership in their home mortgages. Ohio ranks ninth in the category.[6]

Negative equity poses enormous problems for homeowners because they cannot refinance or sell their homes unless they take a financial loss. According to CoreLogic’s four years of trend analysis, properties with negative equity are far more likely to be foreclosed on than homes with more than five percent equity. It is also problematic for communities as it erodes the tax base, leads to vacant properties, and increases the costs of public services for communities. As housing values continue to decline in Ohio, it is unlikely that many of these 500,000 home mortgages will regain positive equity without public intervention. Still, most borrowers continue to pay on their mortgages, indicating that well-planned intervention can keep families in their homes.

The federal HAMP efforts

The largest federal program to curb foreclosures, the Home Affordable Modification Program (HAMP),[7] attempts to help homeowners through a modification process by adjusting the interest rate, lowering monthly payments, and creating a new payment plan. Few homeowners make it from trial modification (the first three months of the program) to the final modification stage. According to the most recent HAMP report through August 2012, only 17,348 Ohioans secured a permanent modification to their mortgage. The report lists 1,507 homeowners in active trials. After more than four years of this program, that represents a fraction of the new foreclosure filings and delinquent borrowers in Ohio. Additionally, only 2 percent of new trial modifications under HAMP are in Ohio. This program is insufficient; innovative state and local policies are needed.

Ohio’s efforts to push modifications have increased in the last several years, but the state continues to do too little. Increased notification of resources for assistance, the establishment of a toll-free state hotline, mediation efforts backed by the Ohio Supreme Court and non-binding compacts with servicers for loan modifications are of modest help, but neglect the root of the foreclosure crisis in Ohio. State laws lack the enforcement provisions to mandate that loan servicers participate in mediation or reduce the principal balance of mortgages. The new federal and state effort, the Hardest Hit Foreclosure Initiative, provided millions of dollars targeting unemployed and distressed homeowners.[8] At least three issues continue to hamper the effort.[9] First, servicers may not need to comply with federal workout regulations because many are not federally-regulated lenders. Second, funding for housing programs is on the decline, making it harder to help homeowners through community-funded programs. Third, divisions remain between servicers, lenders, and federal agencies that have different goals and rules for modifications. These divisions make it hard for a homeowner to receive a loan modification.[10]

Policy recommendations

Housing foreclosures have decimated every Ohio county, and both delinquencies and foreclosures remain at crisis levels. A mix of federal and state policy changes would help to slow housing foreclosures.

Federal: Make mortgage modifications a real priority

We recommend that the federal government continue to provide funding for the Hardest Hit funds program for Ohio. Additionally, it is imperative that servicers conduct principal corrections to reflect the true value of homes; otherwise, programs will continue to fall short. This is especially true for mortgages backed by Fannie Mae and Freddie Mac, who have been resistant to principal mortgage modifications.[11]

Federal efforts are weak because they too often can’t reduce the principal of the mortgage. Instead these programs change the interest rate, create forbearance (a short-term agreement that temporarily changes the interest rate or allows partial payments), or extend the term of the loan. Given the negative equity of nearly one in three Ohio mortgages, these efforts will continue to fall short. However, these federal programs exemplify that there are resources available for states, but there must be flexibility in tailoring funds and programs for specific state needs. What works in states with higher home values is not working in Midwest states like Ohio.

Federal: Pass bill to fund demolition of vacant properties

Closely tied to the problems of bank walkaways are vacant and abandoned properties. A recent estimate of vacant properties topped 100,000 in Ohio.[12] Most of these properties, the end result of foreclosures, are not sellable or suitable for rehab. Rather, the most efficient route is to demolish them at an estimated $8,000 to $10,000 per property. Ohio Attorney General Mike DeWine announced that the state would use $97 million from the 2011 mortgage settlement to demolish vacant and abandoned homes.[13] The last two federal legislative sessions have seen bipartisan bills to sell bonds to raise funds for demolition but neither bill has passed.[14] This is an important effort that needs more capital and attention.

State: Regulate loan servicers

When Ohio codified Senate Bill 185 several years ago, legislators regulated the front end of the mortgage lending process and helped prevent predatory mortgage lending. Yet there are few rules for lenders and servicers as the mortgage process continues after origination. Many servicers of loans are not federally regulated and few banks service their own loans at the local level. There continue to be too few incentives for servicers to modify mortgages when they generate fees from late payments, appraisals, and other actions. There is also no mandate that servicers work with borrowers. Servicer regulation would help prevent the “robo-signing” fiasco from 2010 and would ensure baseline protections such as making sure the lender has the proper authority to file for foreclosure.

At a minimum, we should require servicers to provide updated information to borrowers about their loans and how to prevent foreclosure. The disconnect between the servicer, mortgagee, and homeowner is a substantial impediment to resolving a foreclosure. The increased fees could help provide housing counseling (see below), address vacant and abandoned properties, and deal with other negative effects of foreclosures. Representatives Foley and Driehaus recently introduced House Bill 80, which would require registration of residential mortgage servicers, regulate residential mortgage servicers, and adopt civil and criminal penalties for violations of the bill’s provisions. This bill deserves serious consideration and hearings given the challenges that homeowners face working with loan servicers.

State: Increase funds for counseling

One of the most successful efforts to curtail foreclosures has been having HUD-certified housing counselors assist borrowers in mortgage workouts, short-sales, or other housing options. Housing counselors offer help to bridge the divisions in the mortgage modification and foreclosure process. Counselors effectively serve as guides, walking a homeowner through the foreclosure process. Funding for these efforts has already been decreased and faces more uncertainty. HUD counseling groups estimates a cost of $400 per homeowner, which pales in comparison to the cost of losing a home, vacancy, and demolishing. 

Given the success rate of counseling and the complications of the foreclosure process to borrowers, we recommend that funding for counseling of troubled borrowers be increased.

Mediation efforts for homeowners are improving, but final outcomes remain mixed. Many courts in Ohio already refer foreclosure cases to mediation services. Mediation is often voluntary for the lender and homeowner, the lender has little flexibility, the process occurs late in the foreclosure process, and most mediations end without a new loan agreement.[15] More recent results indicate that many homeowners received a resolution to their foreclosure, but it is unclear if they stayed in their home or averted foreclosure in the long-run.[16] A report by the National Foreclosure Mitigation Counseling (NFMC) program found that homeowners with a counselor were 60 percent more likely to avoid foreclosure compared to those without a counselor.[17] The same study found that counseled borrowers received favorable modifications, reducing their payments by at least $450 per month.

For mediation to work, there must be adequate numbers of counselors.[18] Given the very strong record that counseling has brought about, we recommend an expansion of federal and state resources for counseling, with program design consistent with that recommended in the NCLC study.

State: Forbid bank walkaways

An increasing number of foreclosure filings are initiated by the loan servicer but never result in a transfer of property after a court judgment and sheriff’s sale. The term “bank walkaway” is commonly used to describe situations where the plaintiff gets a judgment from the court but fails to execute on the judgment, leaving the property unmarketable and with no owner. The former homeowner is often under the assumption that the home title has transferred to the lender or sold at auction, only to find later that they are still listed as the legal owner of record. This situation, often called a “toxic title” or “zombie loan,” frustrates local communities because the properties sit vacant and abandoned, largely unable to be sold or rehabilitated. RealtyTrac estimates that 36 percent of foreclosures in Ohio, more than 17,000 foreclosures, are bank walkaways with the title “up in the air.” [19]

Ohio should enact a provision that requires a timetable after foreclosure judgment to take the property to sheriff sale, work out a new deal with the borrower, or remove the judgment lien from the record of title, which would mean the property could be sold and the homeowner’s credit cleared.

State: Forbid foreclosure rescue scams

Sincere efforts by counselors, mediators, and lenders to help homeowners are being abused by groups that prey on troubled borrowers with false claims of securing new mortgages, reducing payments, or eliminating financial debt. Most fraudulent companies charge an up-front or monthly fee for their services with little return or contact after payment. The fees can range from $500 to $3,000, and in some cases the borrower can sign over the title to their home. The other harmful practice is that the companies often tell borrowers not to work with their servicer, lender, or any other counseling agencies during the process.[20] The Ohio Attorney General and federal agencies are pursuing some of these individuals and groups, but there is currently no state law that carries the proper provisions and enforcement mechanisms to deal with this predatory lending practice.[21] Given the number of troubled homeowners, Ohio should pass a strong state law forbidding this practice and banning up-front fees. 

As foreclosures continue to devastate communities and homeowners, the Ohio legislature should pass reforms to encourage real loan modifications, protect tenants, and reduce the foreclosure filing rate.

Conclusion

There is no panacea for this crisis but the current state and federal structures for mitigating foreclosure are wrought with loopholes, exemptions, and dead ends that make it nearly impossible to fend off foreclosure. Even with increased federal and state attention to the issue, foreclosures continue to cripple communities and are not tied solely to subprime or alternative home loans. As a whole, the Mortgage Banker Association numbers show that almost one in six Ohio homeowners with mortgages were delinquent or already in foreclosure as of the fourth quarter of 2012. Since 1995, the average Ohio county saw more than a 350 percent increase in foreclosure filings, with most of the urban counties at higher percentages. Rural and suburban counties are not immune to foreclosure as they have seen the largest growth in the recent years. No area remains unaffected by housing foreclosures. Ohio cannot afford to wait for federal plans to funnel downward. More federal and state action is urgently needed.

A note on the data

There is no perfect measure of foreclosures; the filing data in this report capture the process at one stage, but do not exactly measure the number of families that lose their homes to foreclosure. This report uses data from the Ohio Supreme Court and information compiled by Policy Matters Ohio from the two federal district courts in Ohio. The Supreme Court data are filed by county common pleas courts. They are consistent from year to year, allowing a comparison over time and between Ohio’s counties. As described below, while previous years’ data include federal filings, there are none included after 2008.

The Ohio Supreme Court’s reporting of foreclosure filings includes an unspecified number of non-mortgage foreclosure cases, including delinquent tax foreclosures and others. It also includes double filings that occur if bankruptcy interrupts the process, or if a lender uses the threat of foreclosure as a collection mechanism several times against one borrower. Nonmortgage filings and double filings have not been eliminated from the data. All foreclosure data in this report are for filings. Not all filings lead to actual foreclosures, in which borrowers lose title to their property. On the other hand, filing statistics do not cover all cases in which homeowners lose their property, such as cases in which they give the title back to the lender and walk away from the home.

Policy Matters began compiling federal filings made as of 2004; such cases were not filed in as large numbers prior to that point. After growing significantly, in late 2007, the flow of such cases slowed to a trickle, and the number has not picked up again since. The small remainder included commercial disputes such as alleged non-payment to contractors, filings by the U.S. government for payment in cases of deceased homeowners and a handful of cases by borrowers claiming mistreatment, but virtually no standard filings involving residential properties. Thus, we do not have any federal filings in this report after 2008. As noted in our 2008 report, there is some duplication between state and federal court cases.

In past reports, the previous year’s population data was used because Census estimates were not available for the current foreclosure year. In the 2012 report, the Census population estimates were available and used to calculate foreclosures per 1,000 people.


[1] See note on the data at the end of the report.

[2] Les Christie. “Foreclosure Free Ride,” CNN Money (January 1, 2012): http://cnnmon.ie/suC5ek.

[3] Mortgage Bankers Association, “National Delinquency Survey, Third Quarter 2010,” (September 2010).

[4] First American CoreLogic “National Foreclosure Report” (March 15, 2012): http://bit.ly/10bL0Qj

[5] Near-negative equity refers to mortgages with five percent or less equity in their homes, which are unlikely to recover value given falling home values.

[6] These statistics do not take into account homes with no mortgages.

[7] Making Home Affordable Program “Service Performance Report Through August 2012,” http://1.usa.gov/UNftn9.

[9] See Ohio Housing Finance Agency, “Winter 2012 Newsletter,” www.ohiohome.org/2012WinterNL.pdf.

[10] Diane E. Thompson. “Foreclosure Modifications: How Servicer Incentives Discourage Loan Modifications,” Washington Law Review Association (Volume 86, 2011), http://bit.ly/15NMhBF.

[11] E. Scott Rackard. “Regulators roll out streamlined mortgage modification program” Los Angeles Times (March 28, 2013), www.latimes.com/business/la-fi-mortgage-modification-20130328,0,5188930.story

[12] Ohio Attorney General Mike DeWine. “Foreclosure Settlement Quick Facts for Local Governments and Community Organizations,” at www.ohioattorneygeneral.gov/speakoutohio/foreclosure.

[13] 10TV News. “Mortgage Settlement Could Clean Up Neighborhoods,” (February 9, 2012): http://bit.ly/wUOiMX.

[14] Leila Atassi. “Proposed federal legislation could generate millions of dollars for demolition in Cleveland” Cleveland Plain Dealer (February 20, 2013). http://bit.ly/155AHhr.

[15] National Consumer Law Center “State and local mediation programs: Can they save homes?” (September 2009): www.consumerlaw.org/issues/foreclosure_mediation/content/ReportS-Sept09.pdf.

[16] Elizabeth Gibson. “Foreclosure Mediation Can Help,” Columbus Dispatch (May 15, 2011): http://bit.ly/YFYPbm.

[17] Neil Mayer et al. “National Foreclosure Mitigation Counseling Program Evaluation” Urban Institute (November 2, 2009). www.urban.org/publications/411982.html.

[18] See testimony of Margaret E. Monroe Miller, JD to the Senate Finance and Financial institutions Committee on SB 197 (February 9, 2010).

[19] Kate Berry. “Banks Halting Foreclosures to Avoid Foreclosure,” American Banker (April 23): http://bit.ly/YhmlLz.

[20] National Consumer Law Center “Desperate Homeowners: Loan Mod Scammers Step in When Loan Servicers Refuse to Provide Relief,” July 2009.

[21] Sheryl Harris “Ohio Attorney General shuts down foreclosure rescue scam, “Cleveland Plain Dealer (May 4, 2009): www.cleveland.com/consumeraffairs/index.ssf/2009/05/ohio_attorney_general_shuts_do_2.html