Cleaving Cleveland

From the BBC: Foreclosure wave sweeps America.



Of course, the BBC is spinning the story as, "Look at those stupid people across the Pond" while ignoring the fact that Britain's situation is an order of magnitude worse.

Now, CNN seems to have picked up that story: Where Cleveland went wrong.

What made Cleveland the nation's foreclosure epicenter?

Like most rust-belt cities, it's suffered serious economic setbacks. The city lost jobs at more than three times the national rate during 2001 through 2003 and has not had a meaningful recovery since, according to Richard DeKaser, chief economist at Cleveland-based mortgage lender National City Corp. The state of Ohio recorded a quarter of all U.S. manufacturing job losses since 2001.

Add considerable population shrinkage: With 450,000 people, Cleveland has fewer than half the residents it boasted in 1950, when only six cities in the nation were larger.

As the Treasurer of Cuyahoga County in Ohio, Jim Rokakis spends a lot of his time trying to deal with Cleveland's foreclosure crisis.

According to Rokakis, Cleveland got hammered because lax governmental oversight from the state allowed Wild-West lending. "No one was watching," he said. "There was no sheriff in town. The state legislature was dominated by banking interests."

Cleveland tried to enact local anti-predatory lending ordinances in 2002, but national lenders then abandoned the market, according to Mark Wiseman, who heads the Cuyahoga County Foreclosure Prevention Program, which is part of the county treasurer's office.

One bank representative, speaking under condition of anonymity, said the ordinances would have put local lending criteria well above and beyond the national standards. The lenders wanted no part of that.

For Rokakis, this long-term lack of accountability enabled lenders to continue to make bad loans virtually unchecked. These included many subprime, hybrid ARMs, also called "toxic ARMs," products he considers predatory.

But even the staunchly pro-consumer Rokakis admitted that predatory lending victims are not entirely blameless for their own problems.

With times hard, "People were looking for a way to make a living," he said. "There were all these 'Buy real estate with no credit and no down payment deals.' The way to wealth was real estate."

Rokakis told of a 78-year-old Cleveland woman recently saddled with an unaffordable, 30-year ARM arranged by her minister, a mortgage broker. "I asked him why," said Rokakis, "you would give an elderly woman an ARM. He said, 'She wanted the house.'"

Roakakis shook his head. "I want a date with Uma Thurman," he said, "but you have to be realistic."