Ohio's foreclosure bailout experiment failing
Here's a very important story to look at if you're following the housing and mortgage markets. Ohio is one of the states getting slammed the hardest by the foreclosure wave. Some 1.07% of Ohio mortgages entered foreclosure in the first quarter, the highest share of any state in the country, according to the Mortgage Bankers Association. The national average was 0.58%.
The state tried to combat the problem by designing a foreclosure prevention/bailout program. The plan: Sell $100 million in bonds to finance mortgages that would refinance borrowers out of higher-risk, troubled loans. But now that plan is failing. The state's Ohio Housing Finance Agency is now planning to sell just $25 million in municipal bonds.
The problem, according to Robert Connell, the agency's debt director: "We got a flood of early interest ... However, we found that an overwhelming number of those were beyond the point at which this program could be of any help." In other words, they were already at the point where foreclosure was inevitable or they had past credit problems that disqualified them.
What does Ohio's program failure say about the nation's problem with bad loans? It's an unmitigated mess, that's what. The fact is, many borrowers are in homes they can't afford no matter what happens. They lied about their incomes and/or borrowed at very high debt-to-income ratios. That has left them with little financial breathing room.
Others paid too much for homes that are now worth less thousands of dollars less ... and that will likely stagnate or decline in value for some time. They have every economic incentive to walk away, take the credit hit, and try to get back into the market down the road. Sad. Very sad.
The state tried to combat the problem by designing a foreclosure prevention/bailout program. The plan: Sell $100 million in bonds to finance mortgages that would refinance borrowers out of higher-risk, troubled loans. But now that plan is failing. The state's Ohio Housing Finance Agency is now planning to sell just $25 million in municipal bonds.
The problem, according to Robert Connell, the agency's debt director: "We got a flood of early interest ... However, we found that an overwhelming number of those were beyond the point at which this program could be of any help." In other words, they were already at the point where foreclosure was inevitable or they had past credit problems that disqualified them.
What does Ohio's program failure say about the nation's problem with bad loans? It's an unmitigated mess, that's what. The fact is, many borrowers are in homes they can't afford no matter what happens. They lied about their incomes and/or borrowed at very high debt-to-income ratios. That has left them with little financial breathing room.
Others paid too much for homes that are now worth less thousands of dollars less ... and that will likely stagnate or decline in value for some time. They have every economic incentive to walk away, take the credit hit, and try to get back into the market down the road. Sad. Very sad.
posted by Mike Larson at
3:56 PM
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