Economy, not speculators and adjustable mortgages, is depressing market in Ohio & Michigan

[Amerigo Vespucci]

No housing bubble popped in Ohio, Michigan
Economy, not speculators and adjustable mortgages, is depressing market

http://www.msnbc.msn.com/id/22300698/



DETROIT - Michigan and Ohio share something with Florida and California — some of the nation's highest rates of foreclosed homes and delinquent mortgages. But the reasons for their woes are as different as their climates. Battered by a declining manufacturing base, stagnant population growth and low demand for housing, Michigan and Ohio rank No. 1 and 2 on mortgage finance company Fannie Mae's list of states with the largest credit losses through Sept. 30.

Fannie Mae, which finances or guarantees one of every five home loans in the United States, listed losses — loans written off as having no chance of being recovered — of $185 million for Michigan and $101 million for Ohio — two similar states in many respects with strong ties to the auto industry. By contrast, California saw $30 million; Florida, $21 million.

"The underlying economies of Michigan and Ohio are that bad relative to California and Florida," said Doug Duncan, chief economist for the Mortgage Bankers Association. Michigan had the nation's highest unemployment rate in October at 7.7 percent; Ohio's rate was 5.9 percent. Both are above the national rate of 4.7 percent.

And jobs and income are all-important in keeping the housing market alive. Nationwide data from Countrywide Financial Corp., the nation's largest mortgage lender, found the No. 1 reason its customers have been defaulting on mortgage loans is because their income was cut. That accounted for almost 60 percent of its loan defaults in the first 10 months of this year. Once illness and divorce are factored in, cash-flow problems caused 80 percent of mortgage defaults nationwide, according to Countrywide's data; payment adjustments alone accounted for only 2 percent.

[flashl]

1. Why did lenders continue to give loans in depressed areas?

Lenders Didn't Bank on Fatal Results; Cleveland, Detroit Among Cities That Need Help to Re-establish Safety After Foreclosures


Borrowers managed to pay the deceptively low initial payments but fell into foreclosure when the monthly payment later ballooned --- a hallmark of the predatory loan. The sad truth is that for many of these buyers, responsible homeownership was simply out of their economic reach.

...

Don't think we didn't try to halt the trend. In 2001 and 2002, the city councils of Dayton, Cleveland and Toledo all passed anti-predatory lending laws. But lobbyists for the real estate industry would have none of it. In February 2002, an army assembled in Columbus, the state capital, to overturn the cities' efforts --- dozens of lobbyists representing mainstream banks, mortgage banks, brokers, Realtors, title companies, appraisers and Wall Street firms. They overwhelmed consumer advocates, and the Ohio Legislature passed a bill pre-empting the right of municipalities to enact predatory lending legislation.

Lawmakers promised to address the problem that the city ordinances had sought to correct, but they sat tight for four years. The tsunami of foreclosures forced the Legislature's hand in 2006, when lawmakers passed a bill that reined in brokers and appraisers. But by then, the crisis had engulfed Ohio's cities and even its suburbs. More than 13,600 private mortgage foreclosures were filed in Cuyahoga County in 2006 --- again, the worst in the nation.

In June, the Mortgage Bankers Association blamed the nation's high foreclosure rate in part on the hemorrhaging of manufacturing jobs in Ohio, Michigan and Indiana. This shouldn't have come as news to anyone. But I'd like to ask mortgage bankers why they continued making loans to people who would never be able to pay them off.

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