Ohio on front line in U.S. housing meltdown

CLEVELAND (Reuters) - The U.S. housing meltdown has struck cities and neighborhoods throughout the country, but it has hit few places harder than Cleveland's Slavic Village.

On some streets in the neighborhood - named for the Polish and Czech immigrants who settled here - only one or two houses are occupied. The rest are boarded up and slowly rotting.

"This is what you get when lenders run rampant," said Mark Seifert, executive director of a local nonprofit, the East Side Organizing Project, referring to what critics call "predatory" lending practices prevalent during the U.S. property boom.

Walking the area recently, Seifert pointed out the street corner where on Sept 1, 2007, Asteve'e "Cookie" Thomas, 12, wandered into a gunfight between drug dealers who had occupied empty houses in area. She was on the way home after buying candy. She bled to death on a neighbor's porch.

Local officials said stricter state and federal regulation of mortgage lenders could have prevented mass foreclosures in Cleveland, in the state of Ohio and across the United States.

Cleveland's city council passed an anti-predatory lending ordinance in 2002. But it was preempted by a state law that blocked municipalities from enacting such legislation.

One result: Until January 2007, no qualifications were necessary to become a property appraiser in Cleveland, a factor local officials said helped lead to thousands of questionable mortgages. Thousand of loans were also offered to people who could not afford them, they said.

"What we needed here was meaningful regulation," said Jim Rokakis, county treasurer for Cuyahoga County, which includes Cleveland. "What we got was the Wild West of lending."

Cleveland and other U.S. cities are now blighted with thousands of abandoned homes, most stripped of anything of value. And the rot is spreading to wealthy suburbs.

"We're seeing an increasing number of wealthier people - attorneys, architects, doctors - from the suburbs seeking help," said ESOP's Seifert.

"Cleveland is a microcosm of what's happening across the country," said Cleveland city councilman Michael Polensek. "This is America, just on a much smaller scale. It's outrageous this could happen in America."

HEAVY TOLL

Ohio, a "Rust Belt" state with industries like autos and steel, lost 23 percent of its manufacturing jobs between 2000 and 2007 -- 235,900 jobs. That put many mortgages under strain, but Ohio's overall problem loans are far larger.

The Mortgage Bankers Association's National Delinquency Survey in December said Ohio had the country's highest percentage of homes in the process of foreclosure at 3.7 percent.

The MBA said Ohio was ahead of the other 49 U.S. states in foreclosures for both prime loans - those for people with good credit - and subprime loans - those with poor credit.

"This crisis is detrimental to the economy of this state," said Gov. Ted Strickland, a Democrat elected in 2006.

In Cleveland, the housing crisis has left 10,000 homes abandoned, around 10 percent of the city's buildings. The ESOP's Seifert said that "could easily pass 15,000 this year."

The ripple effects are pronounced. Cleveland property tax collections fell in both 2006 and 2007, a first for the city.

The city estimates it will need $100 million to demolish its 10,000 abandoned buildings. The city's annual demolition budget in 2006 and 2007 was $6 million.

"Never in the history of this country have we witnessed such a massive attack on abandoned properties," Polensek said.

Thieves and scavengers steal metal pipes, copper wiring, aluminum sidings and anything else of value from empty homes, leaving empty shells in places like Slavic Village. Some boarded-up homes here have "No copper, only PVC" painted on the boards to ward of would-be looters.

Vacant buildings are also a magnet for crime.

Efforts are under way to help strained homeowners in Cleveland. Groups like ESOP try to broker deals between borrowers and lenders to arrange affordable, fixed-rate loans.

Local bank Third Federal Savings, a unit of TFS Financial Corp, never sold the interest-only or adjustable rate mortgages that have fueled and worsened the housing crisis. It now offers fixed-rate mortgages to struggling home owners.

"We were disgusted at the way homeowners were lied to and taken advantage of and decided we had to take action," said Marc Stefanski, chief executive of Third Federal.

Local citizen groups like "Bring Back the 70's Street Club" - representing homeowners from East 70th to East 78th streets - want to reverse the tide and revitalize neighborhoods decimated by the housing meltdown. But they say there is much anger.

"Mortgage lenders devastated neighborhood after neighborhood here because they decided that the dollar on Wall Street was worth more than my dollar here on East 76th Street," said club president Barbara Anderson.

Anderson said she wants to hear specific solutions to the housing crisis from the candidates running in the state's March 4 presidential primary. "I want to know who's going to clean up this mess," she said.