Study links part of trend to predatory lending increase

By Laura A. Bischoff
Columbus Bureau

COLUMBUS | The number of home foreclosure filings more than doubled statewide between 1994 and 2001, a trend that researchers blame partly on predatory lending, according to two studies released Friday.

"We don’t think it’s a (one) year problem, but a problem over the last several years and not tied to the economy, but tied to a rise in subprime lending," said Bill Faith, executive director of Coalition on Homelessness and Housing in Ohio.

In 2001, more than 43,000 foreclosures were filed statewide, and more than 24,000 Ohio families lost their homes to sheriff’s sales. Those sheriff’s sales of foreclosed properties statewide increased by 200 percent since the mid-1990s. In 1995, one in 520 Ohio households lost its home to a sheriff’s sale, but in 2001 it was one out of every 181 households, according to a study by Policy Matters Ohio, a Cleveland-based think tank.

In Montgomery County, foreclosure filings increased 207 percent between 1994 and 2001 when they reached 3,152 and sheriff’s sales climbed 220 percent between 1996 and 2001, 2,126 homes were sold at sheriff’s auction.

Foreclosure filings are reported by county clerk of courts to the Ohio Supreme Court. Actual foreclosures, or sheriff’s sales, are carried out by county sheriffs.

Foreclosure filings and sheriff’s sales increased dramatically during the economic expansion of the 1990s as well as during the recent recession, the study showed. The foreclosures are occurring in urban, suburban and rural areas, researchers said.

While homeownership increased from 64 percent to 67 percent since the mid-1990s, the trend does not account for the dramatic increase in foreclosures, Faith said.

Paul Bellamy, executive director of the Lorain County Reinvestment Coalition, concluded that subprime lending is the leading factor in Ohio’s growing foreclosure problem. Bellamy studied foreclosures in Lorain, Summit and Montgomery counties and found subprime loans are three times as likely as standard loans to result in default.

Subprime lenders give loans to people with bad credit and charge a higher interest rate. Predatory lenders are a subset of subprime lenders. Predatory loans often come with big fees, high interest rates, prepayment penalties and balloon payments.

Nationally, subprime lending increased 900 percent between 1993 and 1998 and in 1999 Ohio had the third-highest volume of subprime refinanced loans in the United States, Policy Matters Ohio said.

This year, Ohio adopted a law that strips local governments of the power to outlaw predatory lending practices. The law came after Dayton passed such an ordinance and other cities began to consider them.

The banking industry feared it would face a patchwork of lending regulations. Consumer groups opposed the law, saying it offered little consumer protections, and cities objected because they said it would encroach on their Home Rule powers.

Policy Matters Ohio researcher Kent Smith said he hoped studies such as the two released Friday will prompt lawmakers to pass consumer protection laws against predatory lending.

"This is a problem Columbus seems to be ignoring," he said. "You have more protection in the state of Ohio when buying a toaster than you do buying a home. That is the legal truth."

Policy Matters Ohio and Lorain County Reinvestment Coalition urged lawmakers to remove a provision in state law that exempts mortgage brokers and lenders from the Consumer Sales Practices Act. Policy Matters Ohio also recommended that local governments be given the power to enact their own predatory lending regulations.

Mayors of Dayton, Columbus, Cincinnati, Akron and Toledo said Friday that predatory lending is an issue in their cities. Each of those cities has passed or has considered local ordinances to address the problem. Dayton’s ordinance is now undergoing a court challenge.

[From the Dayton Daily News: 10.05.2002]

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