Once again, foreclosures are at the top of the economic news in the State of Ohio. According to a recent Mortgage Bankers Association study, 3.3% of all housing stock in Ohio was in foreclosure for the period of October through December of 2006. This represents the highest percentage of housing stock in foreclosure for any state in the country. Ohio has exceeded the national average every year since 1998 and is currently three times the national average of 1.1%.


Policy Matters Ohio, a non-profit research institute based in Cleveland, reports that filings for foreclosure have quadrupled in Ohio from 1995 through 2005. Most parts of Ohio are experiencing this phenomenon, with the number of new filings increasing in sixty one of Ohio's eighty eight counties.

Cuyahoga County has the dubious honor of being "number one" in the state, based upon filings per person, with Montgomery County coming in second. The ten largest populated counties in Ohio account for 64% of all filings, while only accounting for 53% of the population. In Cuyahoga County, there was one foreclosure filing for every 122.1 people in the county with one filing for every 135.2 people in Montgomery County. The number of foreclosure filings in Ohio in 2005 represents one for every 71 households in the state.


While these numbers are startling, the future picture appears bleak. Borrowers are having problems making their mortgage payments. Approximately 7% of all Ohio mortgage loans were in default in 2006. That represents an increase from 6.1 % in 2005; higher than the national average of 4.5%.

Figure 3 represents a list of the numbers of foreclosure filings for some of our market area. This table shows the increase of filings from 1995 to 2005.

Foreclosure Filings 1995 Vs 2005
County	1995 Filings	2005 Filings	% Change 1995-2005
Adams	25	118	472%
Brown	62	300	484%
Butler	447	2032	455%
Champaign	45	208	208%
Clark	144	925	642%
Clermont	182	812	446%
Clinton	36	216	600%
Darke	45	212	471%
Fairfield	110	622	565%
Franklin	1459	6596	452%
Greene	242	528	218%
Hamilton	1490	5066	340%
Logan	69	271	393%
Madison	96	176	183%
Miami	81	427	527%
Montgomery	949	4050	427%
Preble	96	234	244%
Shelby	44	203	461%
Union	26	237	912%
Warren	112	938	838%

Figure 3

In addition, the number of sheriff sales has grown to an alarming rate. 43,123 properties were put up for sale by sheriff departments in the 71 reporting counties, an increase of 21.3% in these types of sales since 2003.

These counties represent over 86% of the total population in Ohio.

Population to Foreclosure Filings Ohio Top Ten Counties 2005
County	2005 Population	2005 Filings	Population/ Filings
Cuyahoga	1,335,317	10,935	122.1
Montgomery	547,435	4,050	135.2
Summit	546,604	3,744	146
Brown	44,398	300	148
Highland	42,818	286	149.7
Mahoning	254,274	1,692	150.3
Marion	65,932	433	152.3
Clark	142,376	925	153.9
Lucas	448,229	2,903	154.4
Hamilton	806,652	5,066	159.2
Source: Policy Matters Ohio/Ohio Supreme Court/ US Census Bureau

Figure 4

There have been 17 interest rate increases by the Federal Reserve between January, 2004 and December, 2006. Adding to this pressure, Ohio has lost 4.5% of jobs between 2001 and 2003 compared to a national average of job loss at approximately 2%, per National City Bank's chief economist Richard DeKaser¹ . While the country as a whole has seen recovery and increase in the job market, our region has not. A study completed by Harvard University in 2005 pinpoints a problem of affordability among lower and middle-income workers. The problem is exacerbated by stagnant wages and soaring costs.

The interest rates on consumer loans and credit cards have also increased and this adds to the bundle of economic woes faced by homeowners.

Sub prime lending and predatory lending practices are a staggering problem in Ohio. While sub prime mortgages can increase homeownership to those not typically qualified for traditional loans, this can, and does lead to higher costs, misunderstanding of possible changes in rates and monthly payments and future repayment problems. Potential home buyers are placing themselves at extreme financial risk by using non-traditional mortgage products known as "exotic mortgages".

A generation ago, a home mortgage was much easier to understand because choices were limited for the average homeowner. In the 1980's, the ARM (adjustable rate mortgage) market was expanded to reach a greater market share. Thus began the evolution of ARM's to an ever widening array of mortgage choices.

The number of exotic loans increased from less than 2% of all mortgage loans in 2001 to in excess of 30% by 2005 according to Rex Nutting at MarketWatch. These loans have a myriad of options and include the 40 year mortgage; the portable mortgage; the interest-only mortgage; the pay option ARM; the piggy back mortgage;103 and 107 mortgages (103% to 107% of the value is borrowed); the loan modification mortgage and the negative amortization mortgage. Borrowers can opt to get a mortgage loan and pay only the interest; have deferred payments or even negative amortization loans,just to name a few. Some loan payments do not even cover the full interest payment due and home owner can finish with a loan balance at the end of the loan term higher then at the beginning of the loan.

Freddie Mac estimates that over 2 million loans reset in 2006 and 2.7 million are due to reset in 2007. According to Sandra Thompson of the FDIC, some monthly payments could double or triple at reset. If the borrowers cannot afford the new adjusted monthly payment, the consequences can be a devastating blow from which few could recover.

The actual outcome for both borrowers and lenders if this scenario is widespread is unclear. However, one thing remains clear, it is critical that these issues remain at the forefront of economic discussion and scrutiny of both lawmakers and consumers.

The amount of foreclosure activity in Ohio, the Midwest as well as the entire country has been increasing for more than a decade. The foreclosure filings for Ohio in 2005 were just under 64,000. With continuing economic pressures due to job loss and the increasing cost of consumer debt; the looming presence of predatory lending, as well as the availability of exotic mortgages, it is apparent that this trend is likely to continue for the immediate future. As Adjustable Rate Mortgages mature to adjustment and are reset, more home owners will find themselves facing financial crisis.

Stagnant wages and soaring costs create the problem of affordability in lower and middle-income workers. This will affect the housing market by decreasing the "effective demand" and overall population of people able to afford home ownership. Based upon these trends it is possible to project increases in foreclosure filings for Ohio.

¹ Taken from article in the Columbus Dispatch written by Denise Trowbreidge