New state Treasurer Richard Cordray, who was keynote speaker for a Clinton County Democratic Party fund-raiser on Monday, takes an avid interest in the problem of home foreclosure in Ohio, and as Franklin County treasurer he called a foreclosure summit in December 2005.
Clinton County has not escaped the statewide problem of mortgage default and foreclosure, as shown by the 216 foreclosure filings during 2005 in the county, 241 the year before and 217 the year before that.
Cordray said there are three main factors for the upsurge in foreclosures around Ohio.
One cause is the slow growth in the Ohio economy and job losses, he said. A second key reason, according to Cordray, is that there's never been any real regulation of the mortgage lending industry in Ohio. And a third factor is an increase in the complexity of some mortgage products, leading to a greater need for personal finance education, said the state treasurer.
As for regulation of the mortgage lending industry, Ohio legislators passed Senate Bill 185 last summer, taking effect New Year's Day.
According to Cordray, the new law will tighten up a number of practices in the state and prevent some of "the very aggressive sub-prime lending" that got people into houses but on a short-term basis, with balloon payments and other things that weren't going to last for people.
Credit goes to Bill Faith of the Coalition on Housing and Homelessness in Ohio and to Ron Bridges of AARP (formerly the American Association of Retired Persons) for pushing the Legislature so hard to stop ignoring the issue, said Cordray.
On the need for personal finance education, Cordray said, "We need to do a better job of putting people into position to make good, smart decisions. [And] Not rely on people that are doing business with them and think they have your interests at heart. But to know what they need to know in order to make good decisions about not just short-term financial decisions but long-term decisions."
What's more, Cordray said, there's a further problem looming very large in Ohio.
"A lot of people got themselves into adjustable rate mortgages in the last couple years. A lot of those mortgages are going to be re-setting shortly. And those people, although they knew that this could happen, they weren't prepared for it and some of them will be pushed into foreclosure," Cordray said in an interview at the General Denver.
He said state officials are trying to work up a rescue fund through the Ohio Housing Finance Agency to get some help to low- and moderate-income people who are in adjustable rate mortgages, in an attempt to head off what they see as further escalation of the foreclosure problem that could occur this year.
In Franklin County, mortgage defaults and foreclosures didn't take place only in poorer neighborhoods, said Cordray.
Franklin County foreclosures could happen in new subdivisions or among older housing, "depending on what kind of aggressive practices were being utilized by the lenders," Cordray said.
He said at one point he and others took a look around Franklin County for foreclosures on houses worth $300,000 or more. There was "a discernible foreclosure rate" on those kind of houses as well, he relayed.
"So the problem can exist at any income level if people get too caught up in wishful thinking about their ability to make payments or their ability to carry an interest-only loan for a period of time. Things that aren't going to last, and yet they're not prepared for the fact that things are going to change for the long term.
"So, it's surprising a little bit. It isn't necessarily a function of just people at the bottom of the income ladder. Although I will say that the lending practices were most rugged with respect to those groups," said Cordray, whose educational background is in economics and law.
The foreclosure spike in Ohio occurred in the wake of 9/11 which triggered a mini-recession for about a year and a half, hitting Ohio particularly hard, said Cordray.
He said Ohio was one of only two states in the country that did not subject mortgage lending to consumer protection laws, Virginia being the other. That has changed with the enactment of S.B. 185, which Cordray expects to have some effect.
It used to be the case, he said, that for a lot of loans made to low- and moderate-income home buyers, the buyers were required to have some form of home buyer education before they qualified for the loans.
"So they had some focused attention on what it meant to buy a house, and what their options were and how much a payment they could realistically afford, and a lot of that has gone by the boards in the last few years," Cordray said.
"So that when someone approves them for a loan, or approves them for a mortgage, they assume that that means that that's the right mortgage for them when it may be a real stretch and it may be that they should scale back to something less that they could sustain over the longer term," added Cordray.
Fixing the state's economy would be the most effective solution, he feels. What's most needed, said Cordray, are secure jobs at a sustainable wage where people can raise a family and afford a home.
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