Mike the Mad Biologist

The subprime loan disaster is starting to hit suburbia. And as you might guess, the taxpayer is left to pick up the externalized costs of lenders. From the NY Times (italics mine):

In a sign of the spreading economic fallout of mortgage foreclosures, several suburbs of Cleveland, one of the nation’s hardest-hit cities, are spending millions of dollars to maintain vacant houses as they try to contain blight and real-estate panic.

In suburbs like this one, officials are installing alarms, fixing broken windows and mowing lawns at the vacant houses in hopes of preventing a snowball effect, in which surrounding property values suffer and worried neighbors move away. The officials are also working with financially troubled homeowners to renegotiate debts or, when eviction is unavoidable, to find apartments.

“It’s a tragedy and it’s just beginning,” Mayor Judith H. Rawson of Shaker Heights, a mostly affluent suburb, said of the evictions and vacancies, a problem fueled by a rapid increase in high-interest, subprime loans.

“All those shaky loans are out there, and the foreclosures are coming,” Ms. Rawson said. “Managing the damage to our communities will take years.”….

Here in Ohio, there are more than 200 vacant houses in Euclid, a suburb of Cleveland north of here. In the last two years more than 600 houses in Euclid have gone through foreclosure or started the process, many of them the homes of elderly people who refinanced with low two-year teaser rates, then saw their payments grow by 50 percent or more.

Euclid has installed alarm systems in some vacant houses to keep out people hoping to steal lights and other fixtures, drug users and squatters. The city has hired three new building inspectors, bringing the total to nine, to deal with troubled properties and is getting a $1 million loan from the county to cover the costs of rehabilitation, demolition and lawn care at the foreclosed houses. (When the properties are sold, such direct maintenance costs will be recovered through tax assessments.)

The Euclid mayor, Bill Cervenik, said the city, with a population of 53,000, was losing $750,000 a year in property taxes from the empty houses.

At greatest risk in Cleveland’s suburbs are the low- and moderate-income neighborhoods where subprime lending has soared. The practice involves lenders issuing mortgages at high interest rates for people with lower incomes or poor credit ratings, usually involving adjustable rates and sometimes no down payment and no investigation of the borrower’s circumstances.

“What makes the subprime mortgages so devastating from a community perspective is that they’re so concentrated geographically,” said Dan Immergluck, a professor of city planning at the Georgia Institute of Technology….

Ms. Yates, preparing for the worst, has learned that she can move into a subsidized apartment for retirees. But the thought is devastating.

“When folks pay for a home, they expect to die in it,” she said, breaking into tears.

In a report for Shaker Heights, Mark Duda and William C. Apgar of Harvard University found that expensive refinancing deals had been aggressively “push-marketed” in the city’s less affluent west and south sides, bordering Cleveland. They said that “the rising number of foreclosures threatens to undermine the stability” of those areas.

“The moral outrage,” Ms. Rawson, the mayor, said, “is that subprime lenders have targeted our seniors and African-Americans, people who saved all their lives to get a step up.”

…In the late 1990s, Mr. Rokakis said, the flight of manufacturing jobs was the major cause of rising foreclosures but around 2000, the surge in careless lending began to wreak havoc.

Mr. Rokakis estimated that more than three-fourths of the current foreclosures in Cuyahoga County involved subprime loans, some of them blatantly unwise or dishonestly portrayed to buyers. Only last year did Ohio tighten its laws to require more complete disclosures to borrowers.

With so many homeowners running into trouble, the City of Cleveland has been unable to keep track of the number of vacant houses, said Mark N. Wiseman, director of the county prevention program. He estimates that 10,000 of the city’s 84,000 single-family houses are empty.

This is going to be as bad as the S&L fiasco.

Comments

  1. #1 Grouch
    March 23, 2007

    Nothing to get exercised about. The government always gives special protection and support to the wealthy at the expense of the great unwashed. What’s the point of having a government if everybody gets to benefit?

  2. #2 Grouch
    March 23, 2007

    The term ‘subprime loan’ sounds like it describes lending rates lower than prime rate, but actually it’s code for ‘usury’.

  3. #3 Orac
    March 23, 2007

    This is truly depressing to read. I used to live near the Moreland area of Shaker Heights, except that I actually lived on the Cleveland side of the border. It’s right near Shaker Square. There are all sorts of beautiful old houses and apartment buildings in the area; it was a pretty nice neighborhood when I lived there, although I will admit that if you wandered further into Cleveland the neighborhood started to get dicey fairly quick, and that was 11 years ago.

  4. #4 Connecticut Man1
    March 23, 2007

    We got hit early on in this disaster as our ARM skyrocketed from a manageable $1600 per month to the $2500 per month we are at now… With no relief in sight.

    We have resigned ourselves to losing our house and starting over again. We will likely be moving in July when the kids finish school. At least the foreclosure judge gave us that much time, and much to the chagrin of the noted mortgage scammers Countrywide. They screwed us over.

    C’est la vie. AND live and learn. :)

  5. #5 Reed A. Cartwright
    March 23, 2007

    We recently bought a townhouse (at the height of the market), and these stories scare the crap out of me. But luckily, my father financed the mortgage, so we got a good deal.

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