CORRECTION: The original version of this story incorrectly identified Jim Rokakis as Ohio's state treasurer. He is treasurer of Cuyahoga County in Ohio.

TEXT OF STORY

TESS VIGELAND: The foreclosure crisis here in Cuyahoga County is staggering. Right now -- according to RealtyTrac -- nearly 15,000 homes are in some stage of it throughout the county. Ten thousand of those are in Cleveland proper. Ohio was hit earlier than many of the places we hear about, including Florida and Vegas. Part of that is because of unemployment in the manufacturing sector. But a recent study comparing this state to neighboring Pennsylvania suggests there were other factors at play as well.

Marketplace's Rico Gagliano reports.

Rico Gagliano: One ironically sunny afternoon I take a sobering ride with Mike Polensek. He's councilman for Cleveland's 11th Ward.

Mike Polensek: This corner, we have taken down three abandoned houses here.

Gagliano: In how much time?

Polensek: In the last year. Take a left right here.

Polensek's showing me an area he represents called Collinwood. He points out home after home, boarded up or demolished. Almost all of them, he says, the result of foreclosures due to predatory lending -- lenders peddling risky mortgages to people who clearly couldn't afford them. The fallout is devastating.

Polensek: Now here's this corner house right here -- stop right here -- is my mother-in-law. Both of these houses next to her are abandoned. The house across the street, that was abandoned, we tore it down. The house behind her is abandoned. Here she is, 90-year-old, the real estate agent told us if we could get $25,000 for her house we'd be lucky.

This level of foreclosure isn't unusual in parts of Cleveland these days. But it is unusual just a two-hour drive away, in Pittsburgh, Penn. That caught the attention of the Federal Reserve's regional office in Cleveland. In a recent report, it compared North Collinwood to a neighborhood in the Pittsburgh area, called Braddock.

Fed researcher Lisa Nelson explains why.

Lisa Nelson: Statistically, they have similar characteristics: Same percentages of subprime lending, similar educational attainment levels, similar credit scores, similar poverty rates. Everything else about them seemed very similar.

Except, the report found, their foreclosure rates. North Collinwood's rate in 2007? Almost 21 percent. Braddock's? 5 percent. Both places should have been equally hit by foreclosures, but the Ohio community got hit harder.

Gagliano: And the question is why.

Nelson: And the question is why.

The Fed figures since local characteristics are the same, there must have been some difference between these states that accounts for the disparity. What could that be? That's what the Fed's researching now. But some decision-makers are already posing their own hypotheses.

Jim Rokakis is Cuyahoga County's treasurer.

Jim Rokakis: I think it's really a matter of state regulation. Pennsylvania had it and as a result, they suffered this foreclosure crisis a lot less than we did.

He says Pennsylvania covered mortgages under its consumer protection law. Up until 2007, Ohio was one of only two states that didn't. And he says unlike Ohio, Pennsylvania actually enforced predatory lending regulations on the books.

Rokakis: We became the wild west of lending. There was no regulatory sheriff in town. And in the old days when there was no sheriff in town, people would rob the banks. Here it was a little different -- the banks were robbing the people.

Fed Advisor Joseph Ott says the jury's still out on the ultimate cause of the two states' foreclosure split. But he says as the crisis deepened, Pennsylvania's regulatory sheriff -- the Department of Banking -- did get especially active. It doubled its staff, created a new division specifically to investigate lenders and started fining them.

Joseph Ott: From about 2003 to 2006, the Pennsylvania Department of Banking increased their annual rate of fines from about 20,000 to about a million annually.

Over the same three years, Ohio handed out only about half a million dollars total. Ohio enforcers eventually got more aggressive, but not until later in the crisis. And Pennsylvania may've benefited from doing something else early, too. Namely, going through its own foreclosure crisis decades ago.

At a Pittsburgh steel mill: Sound of mill exhaust

That's the exhaust from one of Pittsburgh's last remaining steel mills. There used to be dozens of them, but when they folded in the early 1980s, the job loss was staggering.

Randi Lowe is with Pittsburgh Community Reinvestment, a group that encourages local development.

Randi Lowe: Block on blocks of houses were being foreclosed, whole neighborhoods were being gutted, and the state came up with this program to try to help resolve that, and it's been in place ever since.

Simply put, that program -- known by the acronym HEMAP -- provides temporary loans to some homeowners in danger of foreclosure. No other state has a program like it -- and the Fed's investigating whether these loans helped Pennsylvania avoid Ohio's foreclosure mess.

If so, according to Lowe's co-worker Bethany Davidson, Pennsylvania lawmakers should take heed.

Bethany Davidson: We are the last state in the country to pass a budget, which means we haven't passed a budget. The proposals on the table to bring them back to a balanced budget all have significant cuts to HEMAP.

Which brings up a larger question. Whatever Fed researchers eventually conclude -- whatever Pennsylvania did which softened the subprime blow -- the state's actions probably cost money. At a time when state and federal dollars are hard to come by, who's going to pay?

Meanwhile, Councilman Mike Polensek says for neighborhoods like North Collinwood, any regulation will arrive too late.

Polensek: It's like the Titanic. It's sinking, you know it's sinking, and the problem is, the damage is done.

He says the city of Cleveland will spend $16 million this year tearing down abandoned homes.

In Cleveland, I'm Rico Gagliano for Marketplace Money.