Cleveland Rocked

Posted by: Chris Palmeri on January 16, 2008

The City of Cleveland’s lawsuit from last Friday, filed against twenty big mortgage lenders and investment banks reveals some startling stats about the mortgage crisis and the havoc big financial houses are wreaking in communities across the country.

cleveland.jpgA little background. Cleveland has joined Baltimore and judges in other cities such as Buffalo in attempting to hold lenders accountable for homes lost to foreclosure. This story was told superbly in our cover story two weeks ago. The idea here is that these institutions never should have leant to these people in the first place, knowing they could never pay the money back and that in the case of Cleveland’s suit were creating a “public nuisance.” The suit notes some of these lenders don’t even have offices in Ohio or business licenses in the state. Some, like Ameriquest, which accounted for 27% of the subprime loans in the county, are barely in business today.

Cuyahoga County, where Cleveland lies, has about 1.3 million residents and 621,000 homes, according to the U.S. Census. The city’s suit claims foreclosures in the county have jumped from just 111 in 2002, a recessionary year, to 7,500 last year. They’re presently occuring at the rate of 20 a day. Estimates are that some $460 million in property value has been lost as these homes sit empty and uncared for.

Now, more numbers. Here, according to the suit, is who’s responsible for the most foreclosures in the county in the past four years.

Deutsche Bank: 4,750 foreclosures
Wells Fargo: 4,000
Ameriquest: 1,600
Countrywide: 1,300
Washington Mutual 900
Citibank 600
Bank of America 450

Reader Comments

Lane Bailey

January 16, 2008 3:51 PM

This is a seriously boneheaded move by the city of Cleveland. Aside from the absolute illogic of the complaint that these businesses would damage themselves intentionally in order to damage the city of Cleveland, there is the fact that it sets a very unfriendly tone for Cleveland in its relationships with business.

Instead of looking at why the area has not attracted growth, they are just looking to point the finger at someone else.

I have a much longer post, as well as some rebuttals on one of my other blogs at http://activerain.com/blogs/lanebailey

And today I found out that the FHA says that 70% of the loan applications of foreclosed properties contain false information. Perhaps Cleveland should be suing the people that lied to the lenders to get mortgages...

kurtus

January 16, 2008 9:28 PM

I am trying to work out how taking these mortgage companies to court is illogical. There are only two possible avenue for the city to go down, both legal, one to the individual and one to the corporation. Once the corporation starts foreclosure the property is no longer the legal entity of the individual. Hence they cannot be targeted for legal action. This leaves the title holder (the corporation) as the target for legal action. These properties are simply being dumped by the corporation with little regard to the community. They drove the foreclosure (pay or leave) and absolved the individual once they started this process. As for the fact that 70% of people lied is moot, this actually highlights the responsibility of the companies as they lent money to those who could not clearly afford to pay. It is certainly not hard to ascertain whether people lie about aspects of their financial capabilities. In this day and age I could probably find out the balance of your savings account in under an hour if i felt like it. These companies chose not to do appropriate checks to chase the revenues/commissions. Clear cut case, they own the property they need to upkeep it. These actions should hopefully force the banks to accelerate their sales process or offer rental terms to existing tenants whilst waiting for a price rebound to recoup losses.

As for the attracting growth argument, this is illogical aspect, you certainly cannot blame the city of clevland for this crisis.......

ranjan sengupta

January 18, 2008 7:33 AM

Irrespective of the lawsuit, it would help to remember that 'greed' is the cause of this mess. Financial institutions like Citibank are known for their sharp business practices, often bordering on the unethical. Whatsoever happened to risk management that these financial institutions keep swearing by?

Bob

January 18, 2008 4:51 PM

I can't believe the city of Cleveland would do this to these banks. It sends a message to the banks to not conduct business here. It will ultimately result in these banks not offering good opportunities to legitimate people who can benefit from the loan, and who can afford to pay it back. Think about the news articles and scandal if the banks had refused these 13,600 mortgages. The City of Cleveland might sue them for not giving these 13,600 people opportunities to borrow money! The locals were not offered the same opportunity that was offered to people in other states and other cities!

In the end, it was a bad business decision by the banks. And their shareholders are paying for these bad decisions. The last thing they need is a frivolous lawsuit. It does nothing to help solve the problem.

Juke Whimsey

January 24, 2008 1:08 PM

"Follow the Money" if you want to point fingers. We've learned the truth of this axiom. Money - and the greed for more - is the source of the problems wiping out the innocent and nearly innocent in comparison to the investors who grabbed at the chance to invest in relatively "low-risk" mortgage bundles with relatively high returns. The demand for this type of investment was so high, many banks hired mortgage brokers to "sell" their mortgages, sometimes at $1000 or more a pop, just to have more product (mortgages) to bundle up and sell. The greater the demand for product, the lower the standards were dropped for the borrower. The borrower made no money on this deal - whether they lied on their application or not.

Americans believe and the statisitcs bear it out - the key to building family wealth is to own your own home. Given the "opportunity" (word on the street was "any one can buy a house")thousands of Americans took this great finanacial leap for themselves and their families.

Americans put a great demand on the housing market which caused housing prices to rise - and family wealth to rise with it for almost 10 years - on paper. Investors put a demand on the market to provide bundled mortages.

The mortgage brokers "sold" mortgages, the "bundlers" sold mortgages - sometimes several times - with each "seller" making money. No one was concerned with saying. "No" to a borrower when there was so much profit to be made. Thus you have the head of Countywide walking away from his tenure with a $15 MILLION severance package and the highest ever payday on Wall Street in the BILLIONS of dollars.

The continuing "ripple effects" of this cash gluttony are yet to be seen on the American economy and are more likely, rather than less, to reach tsunami proportions before this year is out.

The value of the American family's primary source of wealth, has dropped. This is reflected in billions of dollars already "written off" as losses to many of the players in this cash-grab. The lion's share of these write-offs is the cash value of our homes that is being "written off". (You won't see it unless you try to sell or borrow on the equity you have in your home.)

We don't know how much worse it will get, but I'm willing to guarantee, when all is said and done, it will be the millions of poor, the low-income, the retiree, the disabled who will end up losing what little they had to start with and no opportunity to recover. What happens to the promise of America then? Did we get "fooled again"?

david thompson

August 9, 2008 11:38 PM

where did ameriquest get the moneyt they loaned out?

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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