The Foreclosure Report

Subprime, ARM Loans Drive Defaults Higher: Ohio

The Columbus Dispatch has the latest on Ohio foreclosures. "Risky high-interest mortgages have cost record numbers of people their homes, but not just in the big cities. In Ohio, the loans are more common across the state’s farmlands and Appalachian hills. In 2004, people in rural areas were much likelier to sign mortgages with high interest rates, generally above 8 percent, compared with the average of 5 percent for a conventional loan at the time."

"Franklin, Cuyahoga and Hamilton counties, and other urban centers, ranked behind dozens of rural counties in the percentage of borrowers receiving highinterest loans. The state’s biggest concentration of costly loans was in Hardin County, a patchwork of farms and crossroad towns halfway between Columbus and Toledo, where Amish buggies share two-lane roads with tractortrailers."

"Nearly one in three mortgages in Hardin County carried a high interest rate, loans known as 'subprime,' in 2004, the most recent year for which numbers are available. 'They tend to come from big national mortgage lenders,' said Col. Ken Hilty of the Hardin County sheriff’s office. 'Local banks are more cognizant of what’s going on in the community. They know the people; the people know them.'"

"Ohio leads the nation, by far, in the rate at which subprime borrowers fall behind and lose their houses. Nearly 10 percent were in foreclosure between July and September, triple the national figure. The consequences of foreclosures are most visible in compact city neighborhoods pocked by abandoned houses, attracting the attention of researchers, politicians and consumer advocates. But The Dispatch has found that subprime lending and foreclosures are even more pronounced in rural areas."

"'To me, that shows how widespread the problem is in the state,' said Jeffrey D. Dillman, executive director of the Housing Research and Advocacy Center. Dillman, Rice and others said rural residents, like their innercity counterparts, are generally poorer and served less consistently by traditional banks. That would make them a logical market for subprime lenders."

"Bob Niemi, president of the Columbus Mortgage Bankers Association, said they also might have fewer employment options when they lose a job. If deeply rooted in their rural communities, they also could be less willing or able to move elsewhere to find work. So borrowing against their home becomes one possibility. High-rate loans help a lot of people, he said. 'Whether that’s right for them is their personal choice. It’s important they understand what their options are.'"

"Thomas Bier added that the concentration of these loans in rural areas, while surprising, parallels other trends. Lenders, he said, have realized that if they write more loans, 'They can absorb more losses and still be ahead..The only way they could do that is by looking at the whole universe of buyers, not just central cities.'"

"Hardin County registered the eighth-highest jump in foreclosures in Ohio from 1999 to 2004, a spike of 181 percent. A similar acceleration occurred across much of rural and suburban Ohio, according to state Supreme Court statistics. Last year’s numbers haven’t been tallied, but the situation appears to be worsening in Hardin. In January, 24 foreclosures were filed, up from 11 last year. It was the busiest January for foreclosure filings in the seven years for which comparable records are available."

"All but two of the 24 Hardin foreclosures last month were high-interest subprime loans. All but five had adjustable interest rates, which typically offer lower starting rates but go up after two or three years."

"People in rural areas, like those in the city, tend to get into trouble through a combination of financial desperation and marketing bombardment from lenders, said Donald Eager, a fair-housing consultant. 'People are looking for a way out,' Eager said. 'They’re not thinking long term.'"

posted by Ben Jones @ 10:47 AM