Why the local government is keen on stemming the city’s foreclosures
Like most troubled cities teeming with a vast supply of houses with very few takers, Cleveland is also on the verge of collapsing. The Forest City’s median home values dropped by 75 percent this year from $62,000 to $15,500 according to Cleveland.com . Property taxes in the area can also fetch up to $1,102. What used to be a city once touted by The Economist as one of the most livable places in the United States now finds itself pounded by the economic crisis that started in the property sector. Beginning in the middle of last year, the financial disaster has already demolished the real estate industry of the Cleveland when foreclosure filings started to rise and has since then failed to go down.
And just like any crisis-stricken city, Cleveland’s downturn began in the subprime lending activity that took a peak two years ago. Homeowners who were not qualified to take a mortgage were suddenly granted with loans as worked out by the mortgage broker who facilitated the notorious ballooning of home values. Some buyers on the other hand, were aware of their dubious finances but still decided to push through with the loan. In the end, they now face high-interest loans that started with low principal but soon got back at them with enormous monthly payments. And because most loans were subprime, it didn’t require borrowers to document their income. The result is a surge of 88 percent in foreclosures by the end of last year. Today, foreclosed houses are still awaiting buyers but these people are also facing problems with homeownership. For example, banks in Cleveland would want to remain secure by screening mortgage applicants and granting only potential buyers with very high credit scores. Also, businesses in the city particularly financial and insurance firms like the National City Bank have remained unstable as they deferred expansion plans even if these are business headquarters.
To address this issue, the city passed a bill that would allow the government to purchase foreclosed properties, renovate them and turn them back to owners. In a Businessweek report, the move will put an end to housing speculators who buy and resell houses who did not undertake any improvements at all. The proposal is yet to be approved by Ohio’s lawmakers. It’s a temporary solution to a long-term problem but it can be an impetus for more plans in lobbying.