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With empty homes, lenders lie low

Marketplace Staff Apr 17, 2007

With empty homes, lenders lie low

Marketplace Staff Apr 17, 2007

TESS VIGELAND: A few weeks ago, the Governor of Ohio met with 11 top mortgage lenders to try and sort out the Buckeye state’s mortgage meltdown. Ohio has the highest foreclosure rate in the nation. As more loans go bad, banks wind up with more and more property nobody wants. Cleveland and its suburbs are spending millions to maintain these homes. But come billing time, lenders are making themselves scarce. From WCPN in Cleveland, Mhari Saito explains.

MHARI SAITO: It used to be that if a mortgage went bad, the local bank took back the house. And that local bank had to pay if the city maintained the house to keep up its resale value.

But these days, just try finding the owner. In the 1990s, banks started bundling loans and selling them as securities to investment, hedge and pension funds. Add that to the convulsions in the subprime industry, and you’ve got a noxious mix when it comes to Ohio’s ability to recover millions of dollars.

Cleveland City Councilman Tony Brancatelli:

TONY BRANCATELLI: There’s been numerous mortgage companies that are going out of business, then filing over to a receiver and that receiver’s going out of business. So when we’ve been trying to get attention it’s been difficult to even find these mortgage companies.

Take the abandoned 1950s home six blocks away from me. Here’s who foreclosed on it: the Bank of New York Trust UA Dated 12/1/01EQCC Trust 2001-1FO C/O Fairbanks Capital Corporation. My new neighbor is the Bank of New York, right?

The bank’s Patrick Tatie says I’m wrong.

PATRICK TATIE: The bank of New York doesn’t physically own the loan. It’s always the underlying mortgage servicer who actually owns the loan.

The servicer collects the mortgage payments. In this case, it’s a Utah company called Fairbanks. After a $40 million settlement for illegal loan servicing practices and a buyout, it’s now SPS Financial.

I call them up. A lot.

SAITO:: Hi, it’s Mhari Saito calling from WCPN . . . good. Is Mr. Bullock in? . . . OK . . .

SAITO (attempted call 2): Hi, Is Mr. Bullock in? OK. OK, thanks.

SAITO (attempted call 3): Hi, It’s Mhari Saito again. There isn’t anyone else I could ask, is there?

He never did call me back.

Welcome to our world, says Ron O’Leary, who works at the Cleveland Department of Building and Housing. He says the city has stopped bothering trying to get through to lending companies. The city just calls the local attorney representing the lender. And even that doesn’t always work.

RON O’LEARY: The response that we get back is “We’re several layers removed from the actual client.” We try not to let them off the hook that easy, because they’re the only ones we really know where they are and we’ll just keep finding them.

Just try getting an owner to maintain a home if you can’t find them. What happens next is these boarded properties become magnets for criminals who trash them and gut them for any metal they can sell. That devastates resale value.

Larry Litton Jr., a loan servicer in Dallas, says lenders are stuck. Even if a property had some resale value, there’s virtually no market for it.

LARRY LITTON JR: There’s some markets whenever you sell real estate, the only buyers may be investors. That perpetuates the problem. Because an investor buys a house, they put a tenant in the house, the house may not get fixed up. It becomes a cycle.

As the homes decay, owners listed on the deed are getting dragged into court for violating city codes.

But Judge Raymond Pianka says he’s repeatedly calling in owners who lost their homes in foreclosure and are now long gone. That’s because real owners don’t want to be found. After foreclosing, lenders are taking months and even years to file deeds. That, Pianka says, lets them duck tax and maintenance bills.

RAYMOND PIANKA: We’ve seen banks and mortgage companies hold off on filing the deeds until they find a buyer. Then all of a sudden, all the deeds are filed in the same day and it’s a detriment.

Meanwhile, Cleveland is floating a $6 million bond to tear down hundreds of dangerous, abandoned homes.

Councilman Tony Brancatelli says that’s only a fraction of what’s needed and it’s time for lenders who made billions on Wall Street selling those subprime loans to step up to the plate.

BRANCATELLI: They need to come to the table and make us whole, and they need to help recover from the problems that they created.

At the end of 2006, absentee owners owed Cleveland $4 million for cutting grass and boarding up homes. Officials say banks owe most of that. Lenders say the city needs to do a better job of figuring out the real owner.

Cuyahoga County Treasurer Jim Rokakis doubts taxpayers will ever see much of that money.

JIM ROKAKIS: I think you’re going to begin to see some of these companies making a decision — an economic one to walk away. How much more do you invest? At the end of the day, all you’re going to have is a vacant lot in a city like Cleveland, or Detroit, or Cincinnati, or take your pick of Midwestern cities where this is happening.

In Cleveland, I’m Mhari Saito for Marketplace.

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