Tuesday, March 20, 2007

Bought with easy credit, homes lost in foreclosure

By Tim Jones

The Chicago Tribune

CLEVELAND -- This is the city where John D. Rockefeller made his fortune, where fullback Jim Brown bowled over hapless defenders and where the Rock and Roll Hall of Fame bestows cultural immortality on fabled musicians.

Today Cleveland, with a rapidly growing stable of vacant and boarded-up homes, is known for mortgage foreclosures.

Between 1,200 and 1,300 foreclosure filings land every month on the desk of Cuyahoga County Treasurer Jim Rokakis --including a recent one for his childhood home, which his family sold years ago and was auctioned off last week for $19,000.

All those homes, with the lion's share coming from Cleveland, represent the equivalent of a city neighborhood going bust every month.

While subprime mortgage defaults have rocked Wall Street, the regional disparities are stunning. Economically struggling Ohio and Michigan, according to a recent report, accounted for a combined 15 percent of the nation's foreclosures in January.

Perhaps no place in the Midwest has been hit harder by foreclosures than Cleveland. In Illinois, Cook County reported a total of about 4,260 foreclosure filings in January and February, about 1,700 more than Cuyahoga County, over the same time period. But Cook County, with 5.3 million residents, has roughly four times the population of Cuyahoga County, which includes Cleveland.

"This just empties out the city," said Rokakis, who is scheduled to testify Wednesday in Washington before a congressional subcommittee on foreclosure prevention. "For a lot of neighborhoods, the tipping point has passed."

People who have analyzed the bleak figured say the reasons for Cleveland holding such a dubious and outsized status are many: a poor economy, predatory lending tactics, weak consumer protection laws, people trying to exploit the loosely regulated subprime market for their personal gain, and financially unqualified people obtaining home loans. The cooling housing market has accelerated foreclosures.

There is no indication that subprime loans--mortgages that typically carry higher interest rates and looser standards--are more plentiful in the Midwest than the rest of the nation. The combination of forces in Cleveland often is described as a perfect storm.

"It's blighting whole communities, and it's going to get worse," predicted Zach Schiller, research director of Policy Matters Ohio, a Cleveland-based public interest group, and author of a 2006 study on the growth of foreclosures in Ohio.

"It is a statewide issue--not just urban. It's all over the place," Schiller said.

More often than not, foreclosures are measured nationally in terms of numbers, such as the millions of Americans who will lose their homes and as much as $164 billion because of foreclosures, according to the Center for Responsible Lending, a non-profit think tank. Ohio has an estimated $24 billion in subprime loans, and Rokakis said about 40 percent of those could go bad. Rokakis speculated that 30 percent to 40 percent of the mortgage loans in Cleveland are subprime.



Neighborhoods vulnerable

The effects on neighborhoods from foreclosures are more visual. Once a home is empty, plywood sheets cover windows and doors. That is, unless squatters, drug dealers or arsonists get there first. Scavengers break in and strip the house of copper pipes, wooden molding, plumbing fixtures and lighting. Someone else rips off the aluminum siding because there is a booming market for scrap.

"Then it's open season," said Mark Wiseman, director of the Foreclosure Prevention Program in Cuyahoga County. "At that point there's really no saving the house."

The battle for the house --indeed whole city blocks--is raging in an old ethnic enclave on Cleveland's southeast side, called Slavic Village.

County officials call this the epicenter of the foreclosure storm, the section of the city that has reported the highest number of defaults. Once part of Cleveland's steel-based economy, Slavic Village, founded by Czechs and Poles, is a blue-collar neighborhood in transition, with weathered, wood-frame homes. The ward's councilman said there is not a block in the neighborhood that doesn't have at least one vacant or boarded-up house.

In the past several years, the proportion of senior citizens in Slavic Village has dropped while the numbers of single women and their children have grown to represent about 45 percent of the ward's population, said Council member Anthony Brancatelli. As the seniors died or moved out, houses became available.

"We've seen a migration a large families come in because it's a good place to live," Brancatelli said.

Brancatelli estimates that 60 percent to 70 percent of the foreclosures in his ward involve people who tried to manipulate the subprime mortgage system and bought several homes with the intent of renting or quickly selling, or people grasping for their piece of the American Dream--home ownership--without the financial means of making regular payments.

The remainder of those foreclosed were victims of a bad economy or personal problems, such as divorce or health issues.



Perpetrators, suckers, victims

"Some are perpetrators, some are suckers, some are victims" Brancatelli said. "And we're getting hit hard. We're losing value and its sucking the equity out of other homes."

As he drives around the ward, Brancatelli points to the efforts to battle the blight. Volunteers work to clean up yards. A program called "Mr. Blue" has artists painting blue or green drapes on the plywood that covers windows, while the wooden coverings over front doors feature Martian-looking creatures poking their heads to the side, as if answering the door.

"See, there's Mr. Blue peeking out," Brancatelli said as he drove by.

In this and other neighborhoods, community activists have seen the decades-long fight against redlining--financial institutions refusing to grant loans in certain areas--shift to the problem of too much credit being available.

Until a few years ago there were only 100 vacant or boarded-up houses in the ward. Now there are 1,000, and only a tiny percentage have been visited by Mr. Blue. Many, many more have been stripped of sidings.