Cleveland contributed to foreclosure crisis according to investigation
The city of Cleveland contributed to its foreclosure crisis by helping low-income people buy homes with mortgage payments they couldn’t afford, a newspaper investigation found.
The city provided loans of up to $20,000 through the federally funded Afford-A-Home program but did not check whether recipients could afford to stay in the homes, The (Cleveland) Plain Dealer reported Sunday.
Cleveland, which has one of the nation’s worst foreclosure problems, did not change its policies even as hundreds of people defaulted on their mortgages.
The city is making changes to its practices, while the federal government will review Cleveland’s program.
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“This administration is committed to making certain that federally funded homebuyer assistance programs support sustainable home ownership,” said U.S. Department of Housing and Urban Development spokesman Brian Sullivan in a statement. “When done well, we know that these programs work.”
The newspaper’s review of more than 50 Afford-A-Home files in Cleveland found that some recipients of the loan program made as little as $15,000 a year.
An analysis of property and loan records from 2000 to 2007 found that many of the hundreds of loan recipients, mainly low-income people, defaulted on their mortgages within two years of receiving the loans. Over eight years, nearly half of the 584 homes sold by the three largest for-profit companies who participated in the program have entered foreclosure — and more than one-third of those have been sold at a sheriff’s sale or are abandoned.
They largely became a lost investment for the city, and represented a loss of tax dollars of $2.3 million, the review found.
The for-profit companies that are the driving forces behind the loan program — such as Cresthaven Development Corp., Rysar Properties Inc. and Pebblebrook Properties Inc. — are responsible for sending prospective buyers’ Afford-A-Home applications to the city.
From 2000 to 2007, nearly half the 305 properties Cresthaven sold with Afford-A-Home loans have gone into foreclosure. The city lost $1.2 million on the properties.
Records indicated that 73 of the 185 — or more than 39 percent — of the homes sold by Rysar with help from the program have entered foreclosure.
“It’s indicative of the people who are buying from us,” said Rysar President Ken Lurie. “It’s not because we did something wrong.”
The nonprofit Cleveland Housing Network has seen a foreclosure rate of 21 percent on the homes it has sold as part of the Afford-A-Home program.
A Cresthaven founder, Juraj Dedic, said the responsibility for approving loans is on the shoulders of banks and mortgage lenders.
City officials have suspended Cresthaven from the program while they investigate problems with paperwork from two sales.
City officials accepted some of the blame for the program’s failure and said they will now determine whether buyers can afford to stay in the homes they are purchasing.
“Quite frankly, I’m not happy with the way this program has been managed on a number of fronts,” said Chris Warren, Cleveland’s chief of regional development. “We’re not helping people if they don’t have the ability to pay. We’re hurting them.”
Source: http://www.daytondailynews.com/news/ohio-news/newspaper-cleveland-aided-foreclosure-crisis-446646.html
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