Cuyahoga County Treasurer Jim Rokakis has a national reputation for his understanding of the foreclosure crisis. He discusses predatory lending and targets SB 117 as weakening the penalties for fraudulent lending. This page shows only the parts of his report that discuss the state's response and how SB 117 has weakened it. For the whole report on our site, click here. To see it on the site of the Northeast Ohio Municipal Leader, click here.

Ohio’s Foreclosure Crisis ...and one county’s successful intervention By Jim Rokakis Cuyahoga County Treasurer   Jim Rokakis in front of an abandoned home

"Northeast Ohio is in the throes of the greatest housing crisis since the Great Depression. Ohio leads the nation in private mortgage foreclosures and, unfortunately, Cuyahoga County has the highest rate of foreclosures in the state. The statistics are sobering and the increases over the past ten years are best reflected by the following chart."

....  "Most of these foreclosures are in the subprime market—loans at a higher interest rate offered to consumers with less than perfect credit. This sector now represents 20 percent of all loans in the country totaling more than 1.2 trillion dollars of outstanding mortgages.

When we hear talk of foreclosures, we often hear the term “predatory lending,” and people often ask me to define that term. Simply put, a predatory loan is a loan that a borrower cannot afford. Not all subprime loans are predatory. The interest rates on fair subprime loans are higher, but they are affordable and made to borrowers who demonstrate the ability to repay the loan. There is a place in the market for subprime loans, but the explosion in foreclosures in this country has been largely the result of predatory loans and questionable lending practices that should have been stopped by federal and state regulators a long time ago."  ....

State Response

"The lack of response by State Government during the Taft Administration is one of the major factors that has led to Ohio having the highest foreclosure rate in the nation. Local communities frustrated by state inaction acted on their own to slow down this runaway train of foreclosures. In 2002 Cleveland, Toledo and Dayton passed their own anti-predatory lending laws that attempted to fashion a municipal response to the foreclosure crisis that had already started to grip the largest cities on Ohio.

Mortgage industry response was swift. Within 60 days the Ohio Legislature passed legislation preempting the right of local communities, citing among other reasons the inability of the banking community to deal with a patchwork quilt of local ordinances and the need for uniformity. The legislature promised to address the grievances of local governments, but didn’t act until 2006 when they passed S.B. 185, a tough bill that, for the first time, brought home mortgage transactions under the protections afforded Ohio’s consumers by the Consumer Sales Practices Act.

In addition, SB 185 created licensure requirements for appraisers, stricter professional requirements for individual loan officers and allowed for increased diligence by the Division of Financial Institutions in how it regulated individual loan officer behavior. SB 185, it seemed, represented the fact that the Ohio legislature recognized the insidious nature of predatory lending, the potential that it had to damage our economy and exactly what had to be done to provide a fix.

This victory for Ohio consumers was short-lived. The lame duck Ohio Legislature, in one of its final acts, passed S.B. 117 which effectively gutted S.B. 185, as well as the rest of the Consumer Sales Practices Act by altering the CSPA’s decades-old language on damages. The part of SB 117 that is relevant here added a provision to the CSPA that placed a limit on a consumer’s “non-economic damages” to $5,000. While this is not an insignificant amount of money, it harms Ohio’s CSPA in incalculable ways. Once a supplier (whether they are providing a mortgage loan, or some other consumer good) knows that even the most egregious case will not cost them any more than $5,000, the punitive damages (or big verdict) deterrent no longer exists." ....

Where Do We Go From Here?

"This is going to be an extremely difficult 24-36 months as the foreclosure rate peaks and we here in Northeast Ohio are left to deal with the fallout of this reckless and irresponsible behavior in the mortgage industry.

First, we must take steps to ensure that the practices that led to this mortgage meltdown are outlawed. If we don’t, greed and corrupt behavior will win out and we will find ourselves in this same predicament again." ....

Note from YOR: We added all the emphasis (bold type) on this page.
For the complete Rokakis article, click here.