Home Insecurity Rising in Ohio

Demos - July 8, 2005
   

Guest Columnist Zach Shiller of Policy Matters Ohio addresses the state’s housing boom– in foreclosures.
Demos

As national print headlines celebrate a record housing boom, a disturbing trend is receiving far less attention than it should. Here in Ohio, homeowners are losing their homes in increasing numbers to foreclosures and ensuing sheriff sales. Across the state, more than 59,000 new foreclosures were filed with Ohio courts last year. While the weak economy has played a part, so have weak consumer protections that fail to protect homeowners from predatory lending.

Policy Matters Ohio, a nonprofit research institute based in Cleveland, surveyed county sheriff departments in Ohio last year and found that more than 36,000 properties were put up for sale by sheriffs in 2003. In most instances, that means the families that once lived there no longer do now. The figure represents a 26 percent increase from 2002 and a 57 percent increase from just two years earlier.

Foreclosures usually occur when a borrower, unable to meet mortgage payments, defaults on a loan. Sheriff sales are the actual auctions of the foreclosed homes.

The number of foreclosure filings last year equated to roughly one for every 76 Ohio
households. Though these numbers include some non-mortgage filings and not all filings lead to actual foreclosures, in which borrowers lose title to their property, they point to escalating trouble. Overall, filings have more than doubled since 1998, and more than tripled since 1994.

Led by Montgomery County (Dayton) and Cuyahoga County (Cleveland), big urban counties lead the way in foreclosure filings. However, this problem is not restricted to urban counties.

Over the past decade, foreclosures have grown dramatically nearly everywhere in Ohio; the number of filings at least doubled in 81 of the state’s 88 counties. In 53 counties, the number of foreclosure filings at least quadrupled during that time period.

Why are we seeing such increases? Partly, it’s Ohio weak economy, which has never recovered from the recession. Among 57 sheriff departments that responded to a Policy Matters survey question last year asking about what was behind the foreclosures, 16 ranked job loss or a weak economy first among the factors.

However, foreclosures and sheriff sales multiplied even during the better economy of the late 1990s. Nearly twice as many sheriff departments–31–cited predatory lending, or deceptive, high-cost loans with excessive interest rates, fees and penalties, as the top reason for foreclosure growth. Minority and elderly borrowers often have been targeted.

Predatory lending has grown with subprime loans, which are offered at higher cost than
conventional loans to customers who have had credit problems. Such loans have allowed some families to buy homes that otherwise would have been unable to do so, but they also figure prominently in Ohio’s foreclosure problems. According to a survey by the Mortgage Bankers Association of America, more than one in every nine subprime loans in Ohio was in the process of foreclosure proceedings as of the first quarter of 2004.

There are some signs of improvement in this bleak picture. Overall, new foreclosures grew by 3 percent last year, the same as in 2003 and a smaller increase than in recent years.

However, foreclosure rates remain far above historical levels, raising the prospect that this
loss, which has ripple effects for families and whole communities, has become a permanent
feature of the landscape.

So far, the Ohio General Assembly has not gone far enough to curb predatory lending
practices. While it has passed some modest reforms, it also has bowed to the financial
industry and restricted municipalities from reining in predatory lenders. A few cities, including Cleveland and Dayton, have passed their own protective ordinances, and these are now being tested before the Ohio Supreme Court.

Two years after a Predatory Lending Study Committee created by the state legislature issued its report, no bill has even received a hearing on the subject. Two bills were introduced last year that would have provided additional protection against abusive lending practices — one in the House, one in the Senate. The House bill, reintroduced this year, would require licensing for appraisers, as well as other measures that the study committee said the General Assembly should seriously consider.

However, that doesn’t go far enough. The legislature should approve broader protections.

At the least, they should cover mortgage lending under the state Consumer Sales Practices Act, as proposed in a Senate bill last year. This would prohibit unfair, deceptive and unconscionable acts between mortgage lenders and their customers and give consumers the right to bring private suits for lending fraud. In the meantime, more research is needed to examine the role played by new, creative financing in the state’s foreclosure problem.

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