FORECLOSURES IN HAMILTON COUNTY
Ohio has the highest foreclosure rate in the country. In the last ten years, the number of foreclosure filings in Hamilton County has skyrocketed by more than 200%. In 1995, Hamilton County saw 1,490 foreclosure filings. By 2005, the number of annual foreclosure filings had reached 5,066 -340% of 1995's numbers.
This foreclosure epidemic in Hamilton County comes at a great cost to all of us. Foreclosed homeowners lose stable housing and have damaged credit ratings, making it difficult for these families to obtain other housing. Neighbors of a foreclosed property experience decreased property values and a loss of equity from their homes as they find themselves suddenly living next to a boarded-up building. Foreclosures cost our lending institutions the expense of maintaining the properties after foreclosure and the many costs involved in a failed loan.
Foreclosures also cost us the future health of our communities. All too often a foreclosures result in vacant, problem buildings in our neighborhoods. These buildings attract criminal activity and detract from the perception of the neighborhood as a place of stability and growth. While we struggle to find ways to reverse the population decline occurring in parts of our county, we are losing thousands of homeowners a year to foreclosure.
WHY ARE FORECLOSURES INCREASING?
Experts agree the rise in foreclosures is due to three primary factors.
- Relaxed credit standards have made it possible for people with marginal income and little or no downpayment to get a mortgage to buy a house. Any unexpected increase in expenses, like a medical bill or house repair, or temporary decrease in income because of a few weeks off a job will result in a default on the mortgage.
- The economy has resulted in plant closings and other layoffs that make it impossible for a family to keep up a mortgage. Many families can only make the mortgage payment with two incomes coming in. If one income is lost due to unemployment, a medical problem, or divorce, a foreclosure results.
- Predatory lending and "alternative" loan products make foreclosure inevitable in some cases. The simple definition of a predatory loan is one made with no consideration of the borrower's ability to repay.
In addition to very high interest, predatory loans may have inflated appraisals making the mortgage more than the actual value of the house. Even if the owners sold the property, they would not get enough to pay off the mortgage. The predatory loans may have large pre-payment penalties which make it impossible to refinance into a loan with better terms. Or they may have reasonable payments in the beginning, but a large balloon payment after a number of years that is impossible for a moderate income family to make. The League of Women Voters actively supported a bill passed last year to control predatory lending. The new law is just now going into effect and will reduce some of the worst abuses. However, foreclosures on the old loans will be with us for years.
Although not necessarily predatory, Adjustable Rate Mortgages (ARMs) pose another serious challenge to homeowners as interest rates rise. Some homeowners, who could handle the monthly payments when they entered into the loan, may not be able to afford the payments when interest rates rise. Across the country, there is increasing worry that an expected significant rise in interest rates will trigger a new flood of foreclosures.
COMMUNITY RESPONSE TO THE FORECLOSURE CRISIS
The League of Women Voters is a member of the Hamilton County Homeowner Preservation Group, a group of community leaders and organizations concerned about the effect of foreclosures on our families and neighborhoods. The group led a forum at Xavier University in May 2006 to discuss a community response to foreclosures, followed by bi-monthly meetings on how our community can work to reduce foreclosures, particularly in the hardest-hit low-to-moderate income neighborhoods.
The group proposes a multi-faceted approach to begin immediately reducing foreclosures in our county based on a nationally recognized model that started with NeighborWorks America in Chicago: the Homeownership Preservation Initiative (HOPI). This Initiative uses the strategies of aggressive outreach to homeowners in default on their mortgage payments, quality, face-to-face counseling to these homeowners; and direct assistance to these homeowners. HOPI has succeeded in saving hundreds of homeowners from foreclosure each year since its inception in 2003. It has been replicated in other communities and is considered a best practices model for reducing foreclosures.
Members of the Hamilton County Homeowner Preservation group are meeting with elected officials to develop ways to address the problem in our area. The City and County have funded mortgage default counseling in the past, but not at levels needed to address the current foreclosure crisis. When homeowners are threatened with foreclosure, the community pays a large price. Research from Xavier University's Community Building Institute found that in low-to-moderate income neighborhoods in Cincinnati a single foreclosure results in a loss of more than $60,000 in decreased property values for the surrounding homes. Local government funding to prevent foreclosures is a good investment. The Homeownership Preservation Group has established the goal of saving 300 homeowners in 2007 and 400 in 2008 through loss mitigation, preservation loans, refinancing, and alternative property disposition strategies.
HOW TO AVOID FORECLOSURE
- SHOP around for mortgage loan. Don't just ask about interest rates; get pre-qualified by several lenders and compare the terms. Even if your credit is not good, don't take the word of only one broker or lender that what they are offering is the best you can do. Take home-buying classes from the nonprofit agencies listed below.
- If you miss a mortgage payment, TALK to your lender's "loss mitigation" department. Explain your situation and see what can be worked out. It is natural to try to avoid bill collectors, but banks say many foreclosures could have been avoided if the home owner had only called and talked with them.
- Contact a nonprofit housing counseling agency as soon as you have missed the first payment. BE CAREFUL; there is a whole industry making money on foreclosures. Advertisements and salesmen claim they can help save your house, only they end up with the profit and you end up a loser. The following are local nonprofit agencies you can trust:
REFERENCES
"Homeownership - Is it a Fading American Dream?" a study of foreclosures in Hamilton County by Working in Neighborhoods, March 2006.
"Foreclosure Growth in Ohio 2006," Policy Matters Ohio, May 2006, www.policymattersohio.org
"The 'Foreclosure Factories' Vise," Business Week, December 25, 2006
Parts of this report were published in the November 2006 VOTER. Contributors include Sarah Petrie, Legal Aid Society of Greater Cincinnati, and Elizabeth Brown, Housing Opportunities Made Equal and LWV Housing Committee.
March 2007
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