Aired November 3, 2006

Cuyahoga County leads the state in the number of people losing their homes to foreclosure. Experts point to unemployment, a sluggish economy and an active sub-prime lending market. Academics, advocates and legislators meet at Trinity Commons today to talk about how we got here and new legislation they hope will bring some relief. ideastream's Mhari Saito reports.

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For more information regarding foreclosure: Foreclosure Webliography

When John White lost his well-paid white collar job in 2002, he had a daughter in private school, car payments and a mortgage on his Parma home. White - in his fifties - couldn't find a job and unemployment soon ran out. So in June of 2003, he and his wife went to sign closing papers to refinance their home.

John White: I'm looking at the paperwork and everything was different from what we agreed on. It was an adjustable rate mortgage, with a prepayment penalty, we agreed on a fixed rate, no prepayments - the brokers fee was exorbitant - I mean everything we talked about was gone.

So White tried to call his mortgage officer at New World Mortgages in North Olmstead but couldn't get through. That should have been warning, but with bills piling up, he and his wife signed.

John White: We should've got up from that table and walked away and just gone to the courthouse and filed bankruptcy and been done with it. But we didn't.

The Whites ended up with a loan they ultimately couldn't afford, and eventually went into foreclosure. Today, the company's president says the officer that dealt with the Whites is gone and no longer licensed. It's a story Charles Bromley has heard a lot as a fair lending consultant.

Charles Bromley: Too often, too many times people hear oh this is a great deal when its a bad deal and its a quick way for someone to lose their house.

11,000 foreclosures were filed in Cuyahoga County last year - more than triple the number a decade ago. Housing advocates call it nothing less than a crisis - one that began in the 90s when traditional depository banks began to pull out of urban areas. Paul Bellamy of the Lorain County Reinvestment Coalition has documented the trend. In Cleveland in 1995, local depositories held about 60% of the market share of mortgages. By 2005, that number dropped to about 20%. Bellamy says in that ten year period, more-expensive sub-prime mortgages grew fast.

Paul Bellamy: It's almost like a jigsaw puzzle the way it fits together - it's quite startling -
where the depositories are not, the sub-prime lenders are and they are of course the higher price loans and they are also much riskier loans.

In addition, Bellamy mapped the county's foreclosures and found they filled the same areas of the city where the depository banks left, and brokers selling sub-prime loans moved in. Bellamy says banks are ignoring federal requirements to make loans in the areas where they are chartered.

Paul Bellamy: The law is still on the books - it's just not enforced. and local politicians and federal regulators will have to try and bring the banks back to the table.

Critics wonder if politicians have undermined nascent efforts to improve bank performance. In 2002, the city passed an anti-predatory lending law requiring banks seeking lucrative city business to sign affidavits saying they weren't making predatory loans here. The Plain Dealer reported that former Mayor Jane Campbell let the rule slide, pushing banks to sign only when worried about the 2005 mayoral election. Mayor Frank Jackson's office declined to comment except to say that they are still reviewing lending information. Key Bank and National City Bank declined to comment at all. Housing consultant Charles Bromley.

Charles Bromley: As long as the communities are paying fees to lenders there should be an assurance that they are in fact reinvesting in the neighborhood and not just taking the fees and running away from the community.

Fair lending advocates don't want politicians to cave again when a new state law hits the books in January. Senate Bill 185 puts mortgages under the consumer sales protection act. Today, Bromley is organizing a conference to talk about how the anti-predatory lending law could be best used.

Charles Bromley: The key here is absolutely that whoever is elected our next attorney general will look at this law and truly enforce it and make it work.

Lenders say the law goes too far and could hurt small brokers offering legitimate loans. Dayna Baird heads the Ohio Financial Services Association.

Dayna Baird: The law was not the best approach to address removing the bad eggs, the bad actors and the bad practices.

Baird says banks and mortgage brokers are studying the law to see how it might impact the kinds of loan products they can offer and protect themselves from possible litigation. I'm Mhari Saito 90.3.