Foreclosures on the Rise in Ohio

Mount Vernon News - November 8, 2005

Predatory lending a factor into the rise
by Dylan McCament

Mount Vernon News

MOUNT VERNON — The occasional glance at the classifieds will indicate foreclosures in the county are on the rise, and they’ve been on the rise for some time. The number of filings given by the Ohio Supreme Court back up that observation. But it’s not just the county. Ohio’s foreclosure rate is the highest in the country, and the number of filings have doubled, tripled, even quadrupled in some counties.

Zach Schiller, research director of Policy Matters Ohio, a research group based in Cleveland, said Knox County is in relatively good shape, considering the number of filings “only” doubled from 1994 to 2004. Knox County ranked 81 among other counties in the growth rate over the 10-year period. In 2004, Knox County averaged one filing per 227.5 people, ranking 41st in the state. Between 1994 and 2004, the number of filings increased from 120 to 254, according Ohio Supreme Court information cited by PMO.

According to the Ohio Supreme Court, 230 foreclosure cases were pending in Knox County at the beginning of 2005. From January to the end of September, 202 new cases were filed, leaving 238 cases pending at the end of September. At the state level, 42,725 cases were filed between January and September, compared to 59,007 in all of 2004. The filing rate increased 3.4 percent from 2003 but statewide filings have doubled since 1998 and tripled since 1994.

“In short, growth has leveled off, but at an extremely high level,” stated the report.

In 2004, there were 4,002 filings in Montgomery County and 1,028 in 1994. The county ranked at the top in terms of filings per person in 2004 — one per every 137.4 people. Athens County faired the best, with one filing per 526.6 people. Near the middle is Knox County.

Schiller said PMO conducted a survey of county sheriffs across the state, and a majority who responded cited predatory lending as the leading cause of foreclosures.

Knox County Sheriff David Barber also cited predatory lending as one of the major causes for increased foreclosures in the county, but he said the blame lies with out-of-county, “fly-by-night mortgage companies” that extend credit at very high interest rates to people who probably should not receive it because of their credit history or lack of stable employment. Local established lenders such as First-Knox National Bank are not the problem, he said. Many of these operations — some of which he called “legal loan sharks” — come very close to misleading people and put them in bad financial circumstances.

“They’re basically trying to bait someone into a loan,” Barber said. “They know full well [the borrower] is never going to make the payments.”

A sluggish economy has also played a role in the rise of foreclosures in the county, Barber said.

According to the Ohio Department of Commerce, Division of Financial Institutions, some “unscrupulous lenders and brokers” take advantage of consumers by placing borrowers in “unnecessarily costly and inappropriate loans for their own financial gain.” This is defined as predatory lending.

“While subprime lending is not bad in and of itself, it becomes a problem when predatory lending practices, or ‘tricks,’ become part of the deal,” according to the DFI Office of Consumer Affairs. The group names “overinflating the appraisal” as one such trick.

Flint Holdbrook, owner of Rainbow Mortgage, said there are certainly “crooks” out there, and said investors who buy rundown houses, slap on a coat of paint and get their own appraiser to inflate the value ought to go to jail. He said he feels the same about lenders who charge fees under the table.

However, he said, the term “predatory lending” gets thrown around a little too often and should not be lumped together with “nonconforming loans” or subprime lending. These loans come with higher interest rates and fees than those of “prime loans.” For people with damaged credit looking to buy a home, a nonconforming loan may be the only option.

Holdbrook said he takes lengths to explain the details of loans to borrowers, and advises them to take the next 12 to 24 months to improve their credit to put themselves in a better position to refinance later. He said lenders can’t be blamed if individuals knowingly enter into such loan agreements, and then fail to pay their bills on time. The worse a person’s credit is, the less quality of loan they will receive. The better the credit, the more options one has.

Would-be home buyers need to shop around before committing themselves to any loan, prime or subprime, Holdbrook said. Nonconforming loans go to a “riskier class of people.”

He said Ohio got heavy into nonconforming loans about seven years ago, and these are one reason why the state’s foreclosure rate is high. Previously, it was more difficult to get a home loan with bad credit.

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