January 11, 2008
Exactly friggin’ right:
But Cleveland’s suit is even more unique because the city has based its complaints on a state law that relates to public nuisances. The suit also is far more wide-reaching than Baltimore’s in that it targets the investment banking side of the industry, which feeds off the mortgage market.
Investment bankers at these companies buy subprime mortgages from lenders, then sell mortgage-backed securities to investors. It is a legal practice, known as securitization, that became increasingly popular during the housing boom earlier this decade.
Jackson and city Law Director Robert Triozzi said Cleveland should have been excluded from the frenzy. They pointed to housing prices that remained relatively flat as real estate values jumped elsewhere, as well as a manufacturing downturn and widespread poverty.
The suit claims that even though these issues were well documented, investment bankers continued to feed loans to hungry investors at the expense of borrowers buried in interest.
“Ultimately, they’re responsible,” Triozzi said of the investment banks. “They knew the economic conditions in which they were operating here. They decided that didn’t matter.”
Now I remember why I voted for Frank Jackson.
P.S. You can download the City’s actual filing here (pdf). Recommended reading!
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October 24, 2007
Foreclosure Exposure 2, an ACORN research report released yesterday. Here’s a Beacon Journal story about the Akron version.
October 18, 2007
The New York Times reports today (“Housing Downturn Takes Toll on Cities’ Revenue”) that in Cleveland “revenue from building permits has fallen about $450,000 short of projections this year. Further, foreclosures have limited the city’s ability to borrow money, because municipalities borrow against the assessed value of their property base, said Sharon A. Dumas, the director of finance. Cleveland had hoped to borrow about $45 million this year for capital projects, Ms. Dumas said, but now the number will most likely be closer to $35 million.” While Dumas notes that increased baseball ticket sales may produce an additional $1 million in revenue, this obviously does not make up for the thousands of foreclosures the City is facing.
While the decrease in building permits and the accompanying revenue is difficult, it doesn’t even start to reflect the cost of foreclosures in the community. A 2005 study by the Woodstock Institute in Chicago found that by their “most conservative estimates … each conventional foreclosure within an eighth of a mile (essentially a city block) of a single-family home results in a 0.9 percent decline in value. Cumulatively, this means that, for the entire city of Chicago, the 3,750 foreclosures in 1997 and 1998 are estimated to reduce nearby property values by more than $598 million, for an average cumulative single-family property value effect of $159,000 per foreclosure.” While the impact of each foreclosure in Cleveland is likely less, our foreclosure rate is much higher than Chicago’s and the total impact on property values and tax revenue here is huge.