Subprime creep: From city to burbs
Cleveland's wealthier suburbs are seeing an explosion in foreclosures as the crisis spreads from the city's poorer center.
NEW YORK (CNNMoney.com) -- Cleveland's foreclosure crisis is no longer a problem that's just for the poor.
In the city's central neighborhoods, it's been common for years: Low-income homeowners living on a financial edge were also preyed on by abusive lenders during the nation's recent housing bubble.
But now the mess has spread to Cleveland's wealthy suburbs, where delinquency filings have exploded over the past year despite residents' relative prosperity and supposedly higher education levels. The numbers are even beginning to eclipse those of the city.
In Shaker Heights, the model of an affluent Midwestern suburb, the problem "is huge," said Mark Seifert, executive director of the East Side Organizing Project (ESOP), a community advocacy group in Cleveland.
Foreclosure filings in its 44118 ZIP code nearly tripled to 910 in the first 10 months of 2007 from 334 during the same period a year ago, according to RealtyTrac. But the foreclosure rate in Cleveland proper, while still among the highest in the nation, has slowed down, although filings have doubled over the same period.
ESOP clients coming in for foreclosure counseling are much more likely to be from the suburbs than in the past, according to Seifert. Last year, about a fifth of them came from outside the city limits. Today, "It's upward of 40 percent," he said, "approaching 50 percent."
Mark Wiseman runs the foreclosure prevention program for the Treasurer's Department of Cuyahoga County, which includes Cleveland and many of its suburbs. "A lot of suburbs," he said, "especially the ones that border the city, mirror the city's problems. The lending problems are the same."
But suburban families, with more assets and income, tend to be a little more insulated from immediate default triggers. They may have been able to refi one more time and temporarily push foreclosure back. Many Cleveland city dwellers have fewer resources to tap to stay in their home.
Simple geographical progression is also to blame, according to Wiseman. Foreclosures lowered property values around inner-city homes and spread out from the center as Cleveland's economy stagnated.
And with a nationwide drop in home prices, a slowdown in sales and a rise in inventories, greater Cleveland's wealthy homeowners are now feeling the pinch like everyone else. The typical home in the metro area sells for about 4.2 percent less than it did a year ago, according to the National Association of Realtors.
By themselves, price drops can cause foreclosure jumps. When prices were high, borrowers could buy with low down payments or refinance their old homes. But when prices fell, many homeowners found themselves owing more than their homes were worth.
And when that happens, no matter how wealthy the neighborhood, many simply turn the keys over to their lenders or do a short sale where they unload their houses for what the market will bring,
Wiseman reported that on his block in University Heights, a solidly middle-class suburb, there have been two sheriff sales this year and four houses are vacant. "About 40 percent of the homes on the block are for sale," he said.
Lakewood is a densely populated town on the shore of Lake Erie. Scene, a local magazine, rated it as the Cleveland area's best city to live in. Filings tripled in its 44107 ZIP code to 572 from January to October, compared with a year ago.
In working-class Maple Heights, RealtyTrac recorded 1,165 foreclosure filings through the first 10 months of this year in zip code 44137 for a rise of 168 percent.
And in Parma, another close-in community south of central Cleveland, foreclosure filings totaled just 190 in the first 10 months of last year but blew up to 1,159 for the first 10 months of this year, for a 510 percent spike.
Three years ago, Seifert tried to enlist some of the city's inner-ring suburbs in the fight against foreclosures. But, he said, his attempts at outreach fell upon mostly deaf ears.
"The responses ranged from 'We're really not interested' to 'How dare you suggest that,'" said Seifert. The general attitude was "We've got it under control."
Six months after his first overtures, one suburb, Warrensville Heights, invited him to give a presentation about foreclosure prevention counseling before town officials.