CLEVELAND – Residents appealed to Congress May 21 to end the epidemic of home foreclosures wrecking their city. Community leaders, public officials, researchers and banking experts charged in testimony at a Congressional hearing that the Federal Reserve Bank had abdicated its regulatory responsibility and was complicit in the raping of inner city neighborhoods especially in the African American community.
“It is heartbreaking to see the devastation,” said Barbara Anderson of the Predatory Lending Action Committee of Empowering and Strengthening Ohio’s People.
“Five of the ten homes on my street are vacant,” she said. “You can walk up and down virtually any street in my neighborhood and you will find a similar situation.”
Not only do vacant home reduce property values, she said, “what is more devastating is that I can’t allow my grandchildren to play outside because squatters, usually high on drugs, are now occupying some of these homes as they sit wide open.”
Noting that Ohio has the highest foreclosure rate of any state – three times the national average – Anderson said the crisis cannot be simply attributed to the area’s rust belt economy. It is “a result of years of neglect by local banks and regulators.”
Over the past decade, she charged, depository banks have pulled out of inner city neighborhoods and the vacuum has been filled by unscrupulous loan sharks, check cashing shops, payday lenders and mortgage brokers, many of which are connected to the regulated banks.
National City and Key Bank, she charged, are examples of financial institutions that “pulled out because they could make more money vis-à-vis their sub-prime affiliates,” which avoid regulation. The sub-prime loans are sold to people desperate for credit “with low initial ‘teaser rates’ that are fixed for the first two years. Beginning in year three, the interest rate increases as often as every six months, so the monthly payment grows dramatically.”
Underscoring Anderson’s statement, Cuyahoga County Treasurer James Rokakis, testified that close to half the subprime loans in the area are currently in foreclosure or delinquent. In the last 12 years, he said, foreclosures have more than quadrupled in the county and are expected to reach 16,000 this year.
“Unscrupulous telemarketers” have especially targeted the elderly, he said, to refinance their homes “stripping their equity out of their property and saddling them with a debt level they cannot afford.”
The Federal Reserve Bank, he charged, has failed to use its authority “to ban all the practices that have fed this mortgage craze and led to this foreclosure frenzy.” This includes allowing loans without documentation of the borrower’s income and failing to require the escrow of taxes and insurance when high-rate loans are made.
“I don’t believe the Federal Reserve Bank will take the measures they need to take,” Rokakis said. “Congress must act…to rein in the excesses of the mortgage industry because the market has proven itself to be greedy, unreliable and willing to destroy cities like Cleveland.”
Over 100 residents attended the hearing called by area Congressman Dennis Kucinich, chairman of the House Subcommittee on Domestic Policy of the Committee on Oversight and Government Reform. Rep. Darrell Issa (R-Calif.), the ranking minority member, also participated in the two and a half hour event held at the Carl B. Stokes Federal Courthouse in downtown Cleveland.