MORTGAGE MANIA
Aggressive lending has long-term impact as neighborhoods suffer from foreclosures
With one of the worst economies and job markets in the nation, it is no surprise that more people here fall behind on mortgage payments and lose their homes. But the foreclosure rate in Ohio is three times the national average, making this state the nation’s leader in home foreclosures.
The foreclosure spike began in 1997, years before the state’s economic nose dive. No part of the state was spared, not even white-collar Columbus, home to state government and the nation’s largest university. The foreclosure problem cut across every type of mortgage, from riskier loans for low-income buyers with spotty credit to conventional loans for uppermiddle-class suburbanites.
We wondered: How could that be? Then we found a common thread: predatory lending.
We discovered people were being lured into taking out loans they could not afford by aggressive mortgage brokers, appraisers and others who profited regardless of whether the buyers ultimately succeed or fail. It was a ticking time bomb.
Suburban blight
The four-day series, “Brokered Dreams,” came into focus after mapping sheriff’s sales data with Arc View.
Foreclosures in Ohio typically end with the property being sold at weekly auctions at the county courthouse. Reporter Jill Riepenhoff obtained five years of sales data from the sheriff’s department, and Projects Editor Doug Haddix mapped them.
Seeing the dots - nearly 12,000 of them - scattered across the county was jaw dropping. It did not seem possible in prosperous and stable Columbus, Ohio.
Foreclosures were predictably concentrated in poor, inner-city neighborhoods. But, surprisingly, clusters of dots circled the outskirts of the city, in the newest subdivisions of suburbia.
It soon became obvious suburban foreclosures were disproportionately in neighborhoods built by Dominion Homes, a publicly traded company based here that serves as the mortgage broker for its customers.
Riepenhoff hand-searched hundreds of county auditor and recorder records, tracing sales and deed transfers to identify the homebuilder for newer houses that had gone to sheriff’s sale.
Dominion was No. 1, accounting for nearly a third of all houses built since 1998, more than larger competitors.
A federal database called Neighborhood Watch that tracks default rates among lenders who make Federal Housing Administration loans proved to be a smoking gun. The database (www.hud.gov/offices/ hsg/sfh/lender/nw_home.cfm) showed Dominion led the state in the number of homeowners who defaulted on FHA mortgages within two years of closing on the loans.
It also allowed us to discover that Dominion had the worst default rate in the nation among its peers - builders with their own financing divisions.
U.S. Department of Housing and Urban Development audits, which took six months to obtain through a Freedom of Information Act request, documented Dominion’s questionable lending practices.
The company gave loans to buyers with shaky credit, income and savings. Dominion shielded from customers its ownership in a title agency that closed their loans.
The Dispatch also found that Dominion’s “free” down payments also contributed to foreclosures among its customers.
Dominion rolled the cost of the freebie into the price of the house. The company funneled the down payments through a national charity that did nothing but collect a processing fee and issue the down payment “gift.”
In a sidebar, we profiled the California-based charity, Nehemiah Corp. of America, and its partnership with Dominion.
Because these were FHA loans, an insurance fund bailed out lenders when the mortgages went bad. Dominion faced no financial consequences when foreclosures hit.
The story “Suburban Blight” focused on one neighborhood, where one of every six houses was either in foreclosure, bankruptcy or both.
Residents of the Galloway Ridge subdivision who were able to pay their bills found themselves surrounded by vacant houses with weed-infested yards. They were stuck in a neighborhood where their brand-new houses were worth less than they paid for them, while Dominion was still building houses in the 804-lot development.
Flipping frenzy
Real-estate speculation and predatory lending have ravaged poor neighborhoods for years. But we had never seen or heard of anything quite like the deals involving Stillwater Capital Partners, the focus of one day of the series.
Last year, Stillwater began showing up in county records as the lender holding the mortgages on some of the city’s worst vacant houses. By crunching county sales data from the auditor’s office and deed transfer data from the recorder’s office, reporter Geoff Dutton ultimately identified nearly 400 vacant houses in Columbus financed by Stillwater.
Further digging uncovered more than 100 others around the state, mostly in Akron.
Stillwater’s 90-day rehab loans were designed to help investors buy, fix up and quickly resell houses. But many of the purchases appeared to be flips to begin with - property that had been quickly resold at large markups after few if any improvements.