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Mortgage Meltdown
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July 18, 2008

America is leading the world in a way it would rather not. The meltdown in the mortgage market has triggered turmoil on Wall Street and in banking establishments around the globe. THE ECONOMIST labels the root of the problem "America's deeply flawed system of housing finance." RealtyTrac Inc., a seller of default data, said that by July 2008, more than 252,000 properties, one in 501 U.S. households, had entered a stage of the foreclosure process. Some blame the banks, some blame the borrowers, some blame the bubble mentality. Was it a matter of giving credit where no credit was due or something more?

On the ground in some American towns and cities the figures related by financial news service Bloomberg on July 10 — Foreclosures Rose 53% in June, Bank Seizures Tripled — are manifestly visible. Correspondent Rick Karr journeyed to Slavic Village, one of the hardest hit neighborhoods in the nation when it comes to the spate of foreclosures caused by the subprime mortgage crisis. There, more than 1,000 homes stand vacant and decaying in a neighborhood that once thrived with families living the American dream of home ownership.

Cleveland city leaders have been dealing with the subprime mortgage fallout for several years and can enumerate the ways it has cost their city:

  • Lost property tax revenues
  • Foreclosures are straining Cleveland's police and fire budgets, too, as drug dealers and addicts gravitate to abandoned homes
  • In 2007 and 2008 the City of Cleveland will have spent $12 million demolishing foreclosed and abandoned homes.
  • The number of homeless students in Cleveland's public schools has increased by 40% over the last year

Cleveland officials tried to address the problems at the state and federal levels. When the Federal Reserve didn't intervene to stop what the city saw as predatory lending practices, the City Council passed an ordinance to ban predatory loans. The Ohio State Legislature rendered it null and void by passing its own law prohibiting cities from regulating lenders: "The state solely shall regulate the business of originating, granting, servicing, and collecting loans and other forms of credit in the state and the manner in which any such business is conducted, and this regulation shall be in lieu of all other regulation of such activities by any municipal corporation or other political subdivision."

  • Read the law

    Cleveland's Lawsuit

    But Cleveland officials didn't give up. They have now filed a lawsuit against 21 investment banks and mortgage companies that have foreclosed on thousands of Cleveland homes. The city contends that Cleveland's high foreclosure rate was "the only possible result of flooding the local market with sub-prime mortgages." The suit continues on to the lay blame at the door of the banks and brokerages: "Simply put, with respect to Cleveland, the purveyors of sub-prime mortgages could have and should have forseen (and in all likelihood actually did forsee) a foreclosure crisis as the inescapable consequence of their conduct." The city seeks redress for the hundreds of millions the crisis has cost the city.

    BILL MOYERS JOURNAL contacted all 21 of the banks listed in the suit. Wells Fargo and HSBC responded.

  • Related Media:
    FBI Domestic Spy PosterGretchen Morgenson
    Financial columnist Gretchen Morgenson on the SEC, the mortgage crisis and other matters fiscal. (June 29, 2007)


    Katherine Newman, photo by Robin HollandThe Downturn on the Homefront
    Sociologist Katherine Newman on the global markets' effect on kitchen table issues. (January 25, 2008)


    ElephantNOW: "Subprime Solution?"
    NOW on PBS takes a look at the non-profit organization Just Price Solutions and the man behind it, Brian Cosgrove. Cosgrove identified a problem: many low or moderate income borrowers were getting steered into subprime scams because they had low credit scores and created an online software application to measure creditworthiness differently.

    ElephantNOW: "Mortgage Mess"
    NOW travels to North Minneapolis to investigate the mortgage meltdown that has left the city scarred with boarded-up and abandoned houses

    References and Reading:
    Cleveland and Slavic Village

    THE CLEVELAND PLAIN DEALER
    Read the PLAIN DEALER's extensive ongoing coverage of the foreclosure crisis.

    Cuyahoga County foreclosure database
    The site also includes a map of foreclosures by neighborhood.

    "Renters squeezed out when landlords don't pay the mortgage"
    Consumer reporter Sheryl Harris writes on the often unnoted effect of foreclosures on renters.

    "Ohio foreclosure filings jumped 88 percent last year," Jim Nichols, CLEVELAND PLAIN DEALER, January 30, 2008.
    Only California and Florida had more filings last year than the 153,196 in Ohio.

    "Mortgages and Madness," Michael Hirsh, NEWSWEEK, May 24, 2008.
    "Questionable lending practices turned a peaceful Cleveland neighborhood into a blighted slum."

    "Foreclosure study says vacant properties cost Cleveland $35+ million," Laura Johnston February 19, 2008.

    "In Cleveland, Foreclosures Decimate Neighborhoods," NPR, May 24, 2008.

    General Resources and Reading

    U.S. Department of Housing and Urban Development
    HUD provides advice for homeowners facing foreclosure and other financial issues. The site also has a good list of local resources for each state.

    The Center for Responsible Lending
    The Center for Responsible Lending is a "nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices." The site includes and assessment of current legislation: HR 3915 Mortgage Reform and Anti-Predatory Lending Act.

    The Mortgage Bankers Association
    The Mortgage Bankers Association is an association representing the real estate finance industry. The Web site includes a Q&A on mortgage banking and the crisis and assistance for owners.

    Facing the Mortgage Crisis
    Public TV station KETC has created an interactive site full or resources for people in the St. Louis area encountering mortgage problems.

    Cleveland ACORN
    The Association of Community Organizations for Reform Now (ACORN) Cleveland Web site has collected resources to aid renters and owners in the area.

    Greater Ohio
    Greater Ohio is engaging in a series of Policy Forums across the state to gather input from a broad range of civic and government leaders about the specific policy changes needed in Ohio’s land use policy.

    THE NEW YORK TIMES
    Read the TIMES's extensive ongoing coverage of the foreclosure crisis. In addition, the TIMES maintains profiles and up-to-date news collections on Fannie Mae and Freddie Mac.

    "Paulson: No Bailout for Fannie Mae, Freddie Mac," ONLINE NEWSHOUR, July 11, 2008.

    "Meltdown Risk, Revisited," COUNCIL ON FOREIGN RELATIONS, July 16 2008.

    "Fighting Foreclosure," NIGHTLY BUSINESS REPORT, August 7, 2007.

    Published July 18, 2008

    Also This Week:

    MORTGAGE MELTDOWN
    THE JOURNAL travels to ground zero of the mortgage meltdown — Cleveland, Ohio. Correspondent Rick Karr takes viewers to Slavic Village, one of the hardest hit neighborhoods in the nation when it comes to the spate of foreclosures caused by the subprime mortgage crisis.

    WILLIAM GREIDER ON WALL STREET
    Veteran journalist William Greider on the current financial crisis and what he calls "the great deflation of Wall Street."

    DEEPENING THE AMERICAN DREAM
    Take part in our Web-only project that features essays and videos of some of Moyers’ notable guests laying out their vision for the future of the American dream.

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