A Toxic Mix in Ohio

The Akron Beacon Journal is reporting High-risk mortgages spread to Ohio's small towns.

COLUMBUS, Ohio - An increasing number of Ohioans who live in small towns and rural areas are losing their homes because of risky, high-interest mortgage loans, records show.

Sub-prime loans, which generally carry interest rates above 8 percent, are designed for people who can't qualify for traditional mortgages because of poor credit, low income or the lack of a down payment.

Mortgage brokers, who for years have marketed high-interest loans in poor city neighborhoods, have expanded their reach into the state's farmlands and Appalachian hills, The Columbus Dispatch reported for a story Sunday.

Ohioans signed 72,909 high-interest mortgages in 2004, about 16 percent of all mortgages signed that year.

That has contributed to Ohio's high foreclosure rate, the worst in the nation. About 10 percent of sub-prime borrowers were in foreclosure between July and September, triple the national figure, according to data from the Mortgage Bankers Association.

The state's biggest concentration of costly loans was in Hardin County in rural north-central Ohio. About 32 percent of mortgages there carried a high interest rate in 2004, a time when interest rates on a conventional loan averaged just 5 percent.

Sub-prime loans can provide a financial lifeline for people who otherwise couldn't buy or refinance a home, but they are also more expensive.

When Sammy and Tracy Bogue of Kenton, 56 miles northwest of Columbus, signed for a 7.5 percent adjustable rate loan, they understood that the rate could go up. In fact, the fine print shows that it will never go lower and could climb as high as 14.5 percent.

A foreclosure notice on their home was published this month in the local newspaper.

More than 59,000 foreclosure notices were filed in Ohio in 2004. In the first half of 2005, 3.3 percent of state home loans were in foreclosure, more than triple the national average, according to the Mortgage Bankers Association.

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.

Ohio lawmakers are considering a predatory-lending bill called the Ohio Homebuyers' Protection Act.

The bill would remove a provision that exempts mortgage brokers and lenders from a state law prohibiting deceptive sales practices.

Doing so would open up brokers and lenders to lawsuits by the attorney general and individual borrowers who think they have been cheated or misled.

The bill also would make disciplinary action against brokers a matter of public record.

Three key sentences:

"Sub-prime loans can provide a financial lifeline for people who otherwise couldn't buy or refinance a home, but they are also more expensive."

"Ohio lawmakers are considering a predatory-lending bill called the Ohio Homebuyers' Protection Act. The bill would remove a provision that exempts mortgage brokers and lenders from a state law prohibiting deceptive sales practices."

"In the first half of 2005, 3.3 percent of state home loans were in foreclosure, more than triple the national average, according to the Mortgage Bankers Association."

Just Two Questions:

1. Are subprime loans more likely to be a lifeline or an anchor?
2. What kind of bill would have exempted mortgage brokers and lenders from deceptive sales practices in the first place?

The Toxic Mix:

• A rust-belt economy and outsourcing of jobs
• Predatory lending
• Incredibly weak laws that seem to encourage deceptive sales practices
• Juicy sub-prime fees
• Ease in passing the loan on to Fannie Mae or other mortgage backed securities buyers

As the economy weakens, expect the affects of this toxic mix to spread.
It's far too late to do much of anything about it.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/