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					Understanding Mortgage Foreclosure Trends

         in Shaker Heights, Ohio
About This Report

This report was commissioned by the City of Shaker Heights‘s Fair Housing Review
Board, with funding from U.S. Department of Housing and Urban Development through
its Fair Housing Assistance Program. The research was supervised by William Gruber
and Lisa Gold-Scott at the City. The report responds to ongoing concerns about the
causes and consequences of mortgage foreclosures in metropolitan Cleveland, the State
of Ohio, and the nation as a whole. The report was written and researched during the
summer and fall of 2006. The analysis presented is based on data from a variety of
sources, including the US Census Bureau‘s 2000 Decennial Census, the Home Mortgage
Disclosure Act, and Cuyahoga County‘s Land Sales Database. The report was authored
by Mark Duda and William C. Apgar.


Report Authors

Mark Duda. Mr. Duda is a consultant working on issues at the interface between
mortgage markets and community development. He has written widely on single-family
mortgage finance and homeownership in both the U.S. and China. Mr. Duda is a
Research Affiliate of Harvard University‘s Joint Center for Housing Studies, where he
previously worked as a Research Analyst. He holds a PhD in Economic Geography from
Clark University.

William C. Apgar. Mr. Apgar is a Senior Scholar at the Joint Center for Housing Studies
of Harvard University, and a Lecturer in Public Policy at Harvard‘s John F. Kennedy
School of Government. He previously served as the Assistant Secretary for
Housing/Federal Housing Commissioner at the U.S. Department of Housing and Urban
Development, and also chaired the Federal Housing Finance Board. Mr. Apgar holds a
PhD in Economics from Harvard University.
Executive Summary

Mortgage foreclosures are at critical levels in Ohio, with Cuyahoga County at the
epicenter of the state‘s foreclosure epidemic. To better understand the forces that are
driving the current boom in mortgage failures, this report reviews foreclosure trends and
patterns in Shaker Heights, setting them in the context of conditions in the state and
county. Building on this assessment, the report then presents a series of policy
recommendations that will help reduce the number of foreclosures taking place, and
mitigate the consequences of those that do.

The report presents detailed data on foreclosure activity in Shaker Heights between
March 2000 and March 2006. On average, 1.30 percent of all mortgaged units were listed
for inclusion in foreclosure sales annually. Based on full-year data for 2001 and 2005,
the number of foreclosures increased 155 percent during that four year period. Although
foreclosure levels trended upward through out the entire study period, much of this
increase occurred in a single year. Between 2004 and 2005 the foreclosure level rose 76.1
percent. (As explained in detail later, 2005‘s ‗jump‘ is likely to be caused in part by
changes at the county level that sped up the processing of foreclosures.) Data from the
first quarter of 2006 indicate that the trend has continued and that 2006 will be as bad, or
worse, than 2005.

The report‘s examination of the spatial variation of foreclosure activity in Shaker Heights
indicates a striking concentration of foreclosures in specific areas. The neighborhoods of
South Moreland, West Lomond, East Lomond, and Ludlow/North Moreland in the
southwestern corner of the City along the border with Cleveland are hardest hit by the
epidemic. All or most of the census block groups in these neighborhoods have
foreclosure rates exceeding 2.5 percent annually, and one in South Moreland‘s has a rate
just under 5.0 percent. Foreclosure activity declines to the North and East of the City,
being lowest in the Malvern and Mercer neighborhoods. Citywide, the difference
between block groups is extreme - the annual foreclosure rate in block group #6 of South
Moreland is an astounding 60 times higher than that of the #2 block group of Malvern.

Using HMDA data, the report investigates linkages between neighborhood level
foreclosure rates and mortgage loan characteristics. These data show that a larger share
of loans in higher-foreclosure areas is for refinancing than elsewhere. This finding is
consistent with literature on the prevalence of non-prime refinancing in high-foreclosure
areas that is ‗push marketed‘ to residents of lower-income areas. And, indeed, high-
foreclosure neighborhoods in Shaker Heights also have higher shares of non-prime
lending, with the three highest foreclosure neighborhoods also having the highest non-
prime shares in the City.

High-foreclosure areas also have relatively large shares of government-backed lending
(FHA and VA loans). Since these loans also generally serve borrowers with less than
perfect credit and carry higher costs than prime rate loans, they can be grouped with non-
prime loans into the share of lending that is ‗not conventional prime.‘ This share reaches
its peak in the highest foreclosure neighborhood, South Moreland, at nearly half of all
loans. In contrast, low-foreclosure neighborhoods have shares of conventional prime
loans that exceed 90 percent.

The final empirical section of the report looks at the relationship between foreclosure
rates and neighborhood income and racial characteristics. The analysis shows that, at the
neighborhood level, income is closely related to foreclosures. As a way of summarizing
this relationship, the report presents annual foreclosure rate data for neighborhoods above
and below the median household income for Shaker Heights. The below-median areas
have a foreclosure rate more than 3.4 times higher than the above median group.

Equally striking is the relationship between block group racial characteristics and
foreclosures. The foreclosure rate in areas where minorities constitute at least 80 percent
of the population is 9.0 times higher than in places where they make up less than 20
percent. In these high minority block groups, 3.6 percent of mortgaged homes are
involved in foreclosure sales each year. Further, the 5 block groups with minority shares
above 80 percent contributed 38.2 percent of the net increase in foreclosure in Shaker
Height between 2001 and 2005, despite having only 16.0 percent of the City‘s mortgaged
units.

Given these findings it is incumbent upon city officials, community groups, and mortgage
industry participants to address the foreclosure problems facing the City. The final
section of the report lists a series of proposals designed to improve the capacity to
monitor foreclosure activity, to limit the prevalence of foreclosure-prone lending, and to
improve the chances that borrowers in trouble can recover or exit their homes gracefully.
Pursuing some or all of these approaches will help mitigate the inevitable problems
resulting from the continued rise and ongoing concentration of foreclosure activity in
Shaker Heights.




             A Note on the Mortgage Foreclosure Concept Used in This Report

 Analysis of foreclosure activity is typically based on ‗foreclosure filings‘ and/or ‗foreclosure
 sales.‘ Filings are the initial stage in the process - the mortgage noteholder files a legal
 document indicating its intent to foreclose. In contrast, foreclosure sales (sometimes called
 ‗sheriff sales‘ or ‗foreclosure auctions‘) are the final stage in this process - the home is offered
 for sale in order to repay the mortgage noteholder for unpaid principal, interest, and
 penalties/fees. Because only a subset of all foreclosure filings ultimately results in foreclosure
 sales, foreclosure sales are an indicator of much more severe degree of mortgage failure than
 filings. Although some of the background discussion of foreclosure activity in Ohio and
 Cuyahoga County (Page 1 of the report) uses foreclosure filing data, all of the analysis
 pertaining to Shaker Heights uses foreclosure sales data. Specifically, we use the County‘s
 database of properties listed for inclusions in foreclosure sales.




               Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                        ii
                                      Contents

Executive Summary                                                       i
Introduction                                                            1
Background on the City of Shaker Heights                                3
Foreclosure Trends and Patterns in Shaker Heights                       6
Foreclosure Rates and Mortgage Characteristics                         10
Neighborhood Demographic Characteristics and Foreclosure Activity      14
  Neighborhood Income                                                  14
  Neighborhood Race/Ethnicity                                          15
  Summary                                                              17
Policy Recommendations                                                 18
  Response 1: Reduce the Flow of Foreclosure-Prone Lending             18
  Response 2: Mitigate the Consequences of Inevitable Foreclosures     21
  Response 3: Improve Monitoring of Foreclosures                       24
  Conclusion                                                           27
Appendix: Benchmarking Foreclosure Trends in Shaker Heights            32
Appendix: Data and Methods                                             35




                              List of Figures and Maps

Figure 1: Ohio’s Foreclosure Filing Rates Lead the Nation               1
Map 1: Neighborhood Map of Shaker Heights                               3
Table 1: Shaker Heights Neighborhood Characteristics                    5
Figure 2: Foreclosure Growth, 2001-2005                                 6
Map 2: Block Group Level Map of Foreclosure Rates                       7
Figure 3: High Foreclosure Growth Block Groups, 2001-2005               9
Table 2: Mortgage Characteristics and Foreclosure Rates, HMDA 2004     10
Figure 4: Foreclosure Rate Increases with Refinance Share              11
Table 3: Mortgage Interest Rates and Foreclosures, 2004                12
Figure 5: Fewer Foreclosures in Higher Income Neighborhoods, 2000-06   15
Figure 6: Block Group Foreclosure Rates Increase with Minority Share   16
Figure 7: Block Group Racial Composition of Forecl. Growth, 2001-05    17
Appendix Table 1: Foreclosure Levels and Rates in Shaker Heights       28
Appendix Table 2: Neighborhood Income and Foreclosure Rates            29
Appendix Table 3: Block Group Level Demographic Characteristics        30
Appendix Table 4: Leading Plaintiffs at Foreclosure Sale, 2000-2006    31
Map 3: Municipalities Surrounding Shaker Heights                       32
Appendix Figure 1: Annual Foreclosures per Owner-Occ. Housing Unit     33
Appendix Table 5: Municipal Foreclosure Counts and Rates               34
Appendix Table 6: Estimating Tract Level Units with a Mortgage         36
Introduction

Mortgage foreclosures are at critical levels in Ohio. According to the Mortgage Bankers
Association, fully 3.3 percent of all Ohio mortgages are at some point in the foreclosure
process. This includes 1.3 percent of prime loans, 5.0 percent of FHA loans, and 10.8
percent of subprime loans. The state, in fact, leads the nation in foreclosure rates for these
three types of lending. As shown in Figure 1, Ohio‘s foreclosure rates (represented by the
black bars on the Figure) substantially exceed both its region and the US as a whole.
Further, Cuyahoga County is the epicenter of Ohio‘s foreclosure epidemic. In 2005,
foreclosure filings (i.e., the number of properties on which foreclosure proceedings were
initiated) reached 10,935, more than twice as many as in the next highest county, and up
12.1 percent from 2004‘s already high level.1


                                                Figure 1: Ohio’s Foreclosure Filing Rates Lead the Nation

                                                                 United States       East North Central   Ohio

                                       11. 0


                                       10 . 0
    Share in Foreclosure Process (%)




                                        9.0


                                        8.0


                                        7.0


                                        6.0


                                        5.0


                                        4.0


                                        3.0


                                        2.0


                                        1. 0


                                        0.0
                                                  A l l Loa ns            P r i me                FH A           S ubpr i m e



Note: East North Central Region includes Ohio, Indiana, Illinois, Michigan, and Wisconsin.
Source: Mortgage Bankers Association National Delinquency Survey, 2006:1.



In Shaker Heights, over the five-year period 2001 to 2005, on average 1.3 percent of all
mortgaged homes in the City were listed for inclusion in foreclosure sales each year.
Concentrations in specific neighborhoods were far higher. Such trends are problematic
for municipalities such as Shaker Heights not only because of their impacts on individual
homeowners, but also because elevated rates of foreclosures can impose substantial costs

1
 These figures are based on county data compiled by Policy Matters Ohio in their reports
Foreclosure Growth in Ohio: A Brief Update and Foreclosure Growth in Ohio 2006, available at:
http://www.policymattersohio.org/pdf/Foreclosure_Growth_Ohio_2005.pdf and
http://www.policymattersohio.org/pdf/foreclosure_growth_ohio_2006.pdf.
on nearby businesses and residents. Further, they often cost municipal governments
thousands of dollars in the form of added police, fire and other foreclosure-related
services, as well as via lost tax revenue.2

In this context, the City of Shaker Heights has undertaken a study of foreclosure activity
occurring within its boundaries. The goals of the study are as follows: (1) to understand
the growth of foreclosures over time; (2) to understand the spatial pattern and
concentration of foreclosures in the City; (3) to understand the characteristics of groups
and areas within the City that are disproportionately affected by foreclosures; and (4) to
seek explanations for the level and pattern of foreclosures detected in the analysis.

Results presented here are based on analysis of data from three sources: Cuyahoga
County Land Sales database (i.e., ‗Sheriff Sales‘), the 2000 Census of Population and
Housing, and the Home Mortgage Disclosure Act (HMDA) data. Methodological issues
and choices involved in preparing and analyzing the data are discussed in the
Methodological Appendix. Unless explicitly noted otherwise, in this report the term
‗foreclosure‘ refers to a property that is scheduled for inclusion in the Sheriff Sale,
regardless of whether the property finds a buyer at that sale or is withdrawn prior to sale
(due, for example, to the homeowner filing bankruptcy). These records are for the period
March 2000 to March 2006, unless otherwise noted. It is worth noting that this study is
innovative in that it examines foreclosure trends at the level of the census block group
and in doing so reveals finer scale patterns and relationships than is the case in any
previous studies of foreclosure activity.




2
 For a discussion of the impact of foreclosures on municipalities and other stakeholders see Collateral
Damage: The Municipal Impact of Today’s Foreclosure Boom, available at
http://www.hpfonline.org/PDF/Apgar-Duda_Study_Final.pdf.


                Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                    2
Background on the City of Shaker Heights

Shaker Heights is located on the eastern border of Cleveland, Ohio in Cuyahoga County.
The City has 29,405 residents, of which 28.1 percent are under age 20, and 15.6 percent
are over 65 years of age. Shaker Heights is relatively well-off. At the time of the most
recent Census, its median household income of $63,983 was well above the $39,168 for
the remainder of the county. Nonetheless, 2,004 (6.8 percent) of the City‘s residents were
living below the poverty line, including 628 children. Shaker Heights is racially mixed,
mostly between whites and blacks/African Americans, who constitute 59.9 and 34.1
percent of the population, respectively, with Asians the next largest group at 3.2 percent.
The presence of Hispanics/Latinos is limited - only 339 (1.2 percent) of the population
reporting Hispanic/Latino ethnicity in 2000.

The City‘s homeownership rate is 64.9 percent. Of Shaker Heights‘s 12,994 housing
units 58.7 percent are single family attached or detached, with another 12.9 percent
containing four units of or less. Relatively large multifamily properties are common, with
21.4 percent of all housing units located in buildings with 20 or more units. Further, most
of the stock is relatively old, with 40.7 percent built prior to 1940, 84.3 percent built prior
to 1960, and 93.8 percent built prior to 1970.


                     Map 1: Neighborhood Map of Shaker Heights




Shaker Heights contains eleven Census tracts. These tracts neither cross City boundaries
nor omit any portion of the City. The eleven tracts correspond roughly to the City‘s




              Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio              3
neighborhoods, as shown on Map 1 by the names above the tract numbers.3 These
neighborhoods are further divided by the Census Bureau into a total of 32 block groups.4

Table 1 shows that these block groups are quite diverse in terms of key demographic and
housing stock characteristics. The minority share of all residents (middle column of the
table), for example, ranges from a low of 4.0 to a high of 98.1 percent across the 32 block
groups. Minority composition also varies within neighborhoods. Fernway, for example,
contains 5 block groups with minority shares between 12.9 and 63.2 percent. Median
household income (second column from left) also varies across neighborhoods.5 South
Moreland has the lowest income, at just 64.0 percent of the citywide average of $63,983,6
whereas Malvern and Mercer households earn almost double the city median. There is
also variation in homeownership rates, with the share of owner occupiers ranging from
less than 20 to almost 100 percent. The three block groups in the Boulevard
neighborhood, in fact, have owner occupier shares of 18.9, 81.5, and 97.1 percent.
Variation of this magnitude in neighborhood characteristics that previous studies have
linked to foreclosure activity suggests that variation in foreclosure levels and rates will be
significant across the City of Shaker Heights.




3
  Although much of the analysis is conducted in terms of Census tracts, we use neighborhood names to
refer to the tracts in order to make the report more intelligible to residents of the City.
4
  Census tracts are small, relatively permanent statistical subdivisions of a county. Tracts typically have
between 1,500 and 8,000 people, with an optimum size of 4,000. When first delineated, tracts are designed
to be relatively homogenous with respect to population characteristics, economic status, and living
conditions. Block groups are clusters of blocks within a census tract and generally contain between 600 and
3,000 people, with an optimum size of 1,500. (http://www.census.gov/geo/www/tiger/glossry2.pdf)
5
  The Census Bureau does not release income data at the block group level so variation is likely even
greater than these results indicate.
6
  Median income is from 2000 Census which collects data on household income for 1999. This figure is
therefore for 1999 and in 1999, as opposed to current, dollars.


                Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                        4
                   Table 1: Shaker Heights Neighborhood Characteristics

                                                                                          Owner
                       Census       Block       Minority Share           Median Income   Occupiers
  Neighborhood
                       Tract        Group                                 (% Shaker
                                                      (%)                  Median )        (%)
                                       1              14.5                                 97.1
     Boulevard           1831          2              22.7                   0.85          81.5
                                       3              53.9                                 18.9
                                       1              12.4                                 78.0
      Malvern          1832.00         2               4.0                   1.95          99.7
                                       3              12.9                                 97.7
                                       1              12.3                                 97.9
                                       2              20.0                                 99.2
      Mercer           1833.00         3              15.6                   1.97          97.9
                                       4              13.1                                 72.1
                                       5              11.2                                 99.5
                                       1              24.2                                 97.4
      Onaway           1834.01                                               1.24
                                       2              40.5                                 67.0
                                       2              66.1                                 47.0
  Ludlow/North
                       1834.02         3              98.7                   0.74          50.4
    Moreland
                                       5              85.2                                 96.9
                                       1              26.5                                 52.1
  Thornton Park        1835.01         2              42.5                   0.74          24.7
                                       3              28.1                                 52.4
                                       3              63.2                                 34.6
                                       4              12.9                                 96.5
     Fernway           1835.02         5              24.2                   1.11          78.9
                                       6              42.9                                 27.6
                                       7              16.6                                 97.8
                                       5              96.8                                 67.8
 South Moreland        1836.03                                               0.64
                                       6              98.1                                 69.4
                                       5              68.6                                 50.4
  West Lomond          1836.04                                               0.86
                                       7              81.0                                 80.0
                                       1              57.3                                 23.1
       Sussex          1836.05                                               0.87
                                       2              31.5                                 85.5
                                       1              46.3                                 49.8
   East Lomond         1836.06                                               0.95
                                       2              53.6                                 72.8
 Total                                                40.7                   1.00          64.9

Note: Income given as share of Shaker Heights median household income.
Source: Census 2000 SF-1, SF-3.




                 Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                   5
Foreclosure Trends and Patterns in Shaker Heights

Like the rest of Ohio, Shaker Heights has seen dramatic growth in foreclosures recently.
Figure 2 shows that the number of foreclosures climbed steadily between 2001 and
2005.7 In fact, 2005‘s level of 125 was 155 percent higher than just four years earlier
when there were 49 foreclosures. Another way to consider this growth is as a share of all
mortgages outstanding. In 2001, just 0.84 percent of outstanding mortgages reached the
Sheriff Sale, compared to 2.13 percent in 2005.

It is important to be aware, however, that an unknown share of the growth between 2004
and 2005 is caused by an acceleration of foreclosure processing at the county level.8 That
is, 2005‘s foreclosure level of 125 is a composite of actual year-over-year growth and the
fact that the county began actively working through its backlog of foreclosures in that
year as well. Because growth prior to 2005 was still significant (foreclosures increased
44.9 percent between 2001 and 2004) and because the national, statewide, and county-
wide trends show substantial increases in foreclosure activity between 2004 and 2005 it is
safe to assume that the upward trend continued over the entire period.


                              Figure 2: Foreclosure Growth, 2001-2005


    140


    120


    100


    80


    60                                                                                                 125

    40
                                                                                  71
                                       59                   62
                 49
    20


     0
                2001                  2002                  2003                 2004                  2005


Note: Some properties are not sold at the Sheriff Sale for want of buyers, the borrower declares bankruptcy, or because
other legal requirements for sale have not been met.
Source: Cuyahoga County Land Sales database.



7
  As noted earlier, the Sheriff Sale is the end product of a legal process in which a plaintiff brings suit
against the mortgage borrower. These plaintiffs can be noteholders, trustees, or servicers, or play some
other role in the mortgage process. The leading plaintiffs are listed in Appendix Table 4 and include
primarily large national and regional financial institutions.
8
  For a full discussion of the changes see Weinstein, A.C., Hexter, K.W., and Schnoke M. 2006.
Responding to Foreclosure in Cuyahoga County an Assessment of Progress. Prepared for Cuyahoga
County Board of County Commissioners. November, 20.


                  Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                                  6
It is further worth noting that the accelerated processing of foreclosures begun in 2005
has no impact on the overall annual foreclosure rates presented in the study. These rates
are constructed by dividing the total level of foreclosure activity by the number of years
in the study period and in this sense accurately represent the annualized rate of
foreclosure activity. The same is true for comparison across census tracts and census
block groups, which are not based on specific comparisons by year.

                Map 2: Block Group Level Map of Foreclosure Rates




Foreclosure activity is not occurring uniformly across the neighborhoods of Shaker
Heights. The Boulevard neighborhood, for example, recorded only 12 foreclosures in the
6 years from March 2000 to March 2006, whereas South Moreland had more than 6 times
as many. (Totals for each neighborhood are given in the ‗Foreclosure Counts‘ columns of
Appendix Table 1.) There is also substantial variation in foreclosure rates – the number
of foreclosures per outstanding mortgage - across neighborhoods in the City. The area
where mortgages are least likely to be foreclosed upon is Mercer, in which 0.34 percent
of mortgaged homes were brought to the Sheriff Sale annually between March 2000 and
March 2006. The equivalent figure in South Moreland is 4.26 percent. (The right-most
column of Appendix Table 1 lists foreclosure rates.)




              Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio          7
Foreclosure activity even differs within neighborhoods. This is illustrated, for example,
by Thornton Park, where block group 2 has an annual foreclosure rate of 2.96 percent,
compared with 0.46 and 0.91 percent in the two other block groups in the neighborhood.
In South Moreland, the overall rate of 4.26 percent is a result of one block with a 3.02
percent rate and another one that is a substantially higher 4.98 percent.

The best way to understand the pattern of foreclosure rates is by mapping them. Map 2
presents the foreclosure rate for each block group. The map generally shows foreclosures
highest in the southwestern portion of the City along the border with Cleveland, and
decreasing to the North and East. In some cases the block group level view is fairly
nuanced, showing pockets of low-foreclosure rates amid higher rate neighborhoods, and
vice versa.

The concentration of foreclosure activity is further evident from the distribution of
foreclosure growth across block groups in the City. Figure 2 showed that Shaker Heights
experienced 76 more foreclosures in 2005 than in 2001. This change is largely a function
of growth in just 8 block groups. These 8 each had between 5 and 10 more foreclosures in
2005 than they did in 2001. In the other 24 block groups, the number of foreclosures was
virtually unchanged – none experienced an increase of more than 2 or a decline of more
than 1 foreclosure over the study period. Said another way, almost three-quarters of the
growth in foreclosures was concentrated in one-quarter of Shaker Heights‘s block groups.

Figure 3 emphasizes the fact that foreclosure activity in the City is geographically
concentrated. The middle bar labeled ‗2001 Foreclosures‘ shows that the 8 high-growth
block groups contained about half of all foreclosure activity in that year. By 2005 share
had risen to 64.0 percent, as these 8 block groups accounted for 73.7 percent of all
growth in foreclosures over the period (right hand bar). As shown in the two left-most
bars in Figure 3, despite their disproportionate share of foreclosure activity, these 8 block
groups do not have an unusually large share of owner-occupied housing or mortgages
outstanding. In fact, they contain just 24.1 percent of mortgages outstanding and 20.9
percent of owner occupied housing in Shaker Heights.9




9
 The eight high-growth block groups are portions of the following neighborhoods: Ludlow/North
Moreland (1834.02.3 and 1834.02.5), South Moreland (1836.03.5 and 1836.03.6), West Lomond
(1836.04.5), Sussex (1836.05.2), and East Lomond (1836.06.1 and 1836.06.2).


               Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                8
                  Figure 3: High Foreclosure Growth Block Groups, 2001-2005

        percent
   80

   70

   60

   50

   40
                                                                                                     73.7
   30                                                                            64.0
                                                           49.0
   20

   10             20.9                24.1

    0
         Mortgaged Units       Ow ner-Occupied      2001 Foreclosures     2005 Foreclosures        2001-2005
                                    Units                                                     Foreclosure Grow th


Note: High foreclosure growth block groups one-quarter of the total (8 of 32).
Source: Cuyahoga County Land Sales Database, Census 2000 SF-1, SF-3.

Taken together, the information presented in this section makes one point consistently –
that foreclosure activity varies considerably across, and often within, Shaker Heights‘
neighborhoods. These differences are large enough to suggest that foreclosure trends are
likely to be related to variation in the characteristics of the mortgage contracts, housing
stock, and residents in each area. The subsequent sections examine these issues.




                    Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                               9
Foreclosure Rates and Mortgage Characteristics

As a result of changes to the mortgage market over the past fifteen years there is
substantial interest in potential linkages between mortgage characteristics and foreclosure
activity. The analysis below compares foreclosure rates at the neighborhood level with
characteristics of mortgages contained in data released pursuant to the Home Mortgage
Disclosure Act (―HMDA data‖). Because interest rate, the variable of greatest interest
contained in the HMDA data, has only been reported for a single year (2004) for which
data are currently available, the analysis is based on data for this year only. Results are
presented at the tract/neighborhood level because HMDA data do not include property
address information that would allow them to be geocoded to the block group level.


         Table 2: Mortgage Characteristics and Foreclosure Rates, HMDA 2004

                                                                 Loan Purpose             Lien Status         Loans
                                       Fore-
                                                                                                                to
                           Census     closure   Loans    Home        Home                        Subord-
     Neighborhood                                                               Refi.   First                 Owner
                           Tract       Rate              Purch.     Imprv.                        inate        Occ.
                                        (%)       (#)      (%)       (%)        (%)     (%)        (%)         (%)
 Mercer                    1833.00     0.34        206      49.0       6.3       44.7     91.3        7.8       97.6
 Malvern                   1832.00     0.54        117      40.2       7.7       52.1     93.2        6.8       93.2
 Boulevard                 1831.00     0.55         70      47.1       8.6       44.3     91.4        7.1       97.1
 Fernway                   1835.02     0.72        178      43.3       8.4       48.3     83.7       15.7       93.8
 Onaway                    1834.01     0.91        123      49.6       7.3       43.1     87.0       12.2       96.7
 Thornton Park             1835.01     0.97        120      47.5       3.3       49.2     93.3        6.7       93.3
 Sussex                    1836.05     1.02        133      50.4       6.0       43.6     85.7       13.5       97.7
 E. Lomond                 1836.06     2.17         76      28.9       6.6       64.5     92.1        7.9       78.9
 Ludlow/N. Moreland        1834.02     2.92         86      34.9       8.1       57.0     87.2        9.3       77.9
 W. Lomond                 1836.04     2.93        138      29.0      12.3       58.7     87.7       11.6       81.2
 South Moreland            1836.03     4.26        100      28.0        6.0      66.0     92.0          6.0     85.0

 Total                                    1.30  1,347        41.8        7.3     50.9      89.2        9.9      91.3
Notes: Only for originated loans on 1-4 family properties. Lien status percentages do not total 100% because 12 of the
1,347 loans in the dataset are unsecured.
Source: 2004 HMDA data, except foreclosure rate from Cuyahoga County Land Sales database for March 2000-2006
and Census 2000, SF-1, SF-3.



The first set of HMDA results are presented in Table 2, which contains a series of
tract/neighborhood level panels splitting the data by loan characteristics. The table is
arranged so that the tract with the lowest foreclosure rate is at the top and the highest rate
at the bottom. The first issue considered in the table is the purpose of the loan. The table
shows that, overall, slightly more than half of Shaker Heights‘ loans in 2004 were for
refinancing, 41.8 percent were for home purchase, and the remaining 7.3 percent were for
home improvement.

Comparison across neighborhoods not only demonstrates that the share of each type of
loan varies from one neighborhood to the next, but that higher levels of home refinance


                  Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                                  10
activity are highly correlated with elevated foreclosure rates. In South Moreland, which
leads the City in foreclosure activity, fully 66.0 percent of loans are for refinancing. In
contrast, low-foreclosure areas such as Mercer (44.7 percent) have comparatively low
refinance lending shares.

Figure 4 shows the relationship between refinance and foreclosure activity. Each dot on
the Figure represents the refinance share (horizontal access) and foreclosure rate (vertical
axis) for each tract. The line is a summary of the relationship between refinancing and
foreclosure rates in Shaker Heights. The fact that the line slopes upward indicates that
foreclosure rates are generally higher in neighborhoods where refinance loans make up a
larger share of the total.


                                 Figure 4: Foreclosure Rate Increases with Refinance Share

                      3.5
                                                                                                                        S. Moreland

                      3.0


                      2.5                                                                Ludlow /N. Moreland
   Foreclosure Rate




                                                                                   E. Lomond
                      2.0

                                                                                                                    W. Lomond
                      1.5


                                                                 SHAKER HEIGHTS
                      1.0
                                   Onaw ay
                                                          Thornton Park
                                   Sussex            Fernw ay
                      0.5
                                         Boulevard                  Malvern
                                          Mercer
                      0.0
                            40           45              50                   55               60              65                     70
                                                                   Refinance Share (%)


Source: 2004 HMDA data, Cuyahoga County Land Sales March 2000-2006, and Census 2000, SF-1 and SF-3.

The next two panels of Table 2 consider lien status and owner occupancy. With respect
to the former, there appears to be little relationship between the share of junior lien loans
extended in 2004 in a neighborhood and the foreclosure rate there. The story with respect
to owner occupiers is somewhat different. In the seven tracts with foreclosure rates below
1.0 percent annually, 95.7 percent of loans went to owner occupiers, compared with only
81.0 percent in the four tracts with foreclosure rates above 1.0 percent. This suggests a
linkage to foreclosure rates because investor-owners typically have a lesser incentive to
repay their mortgage than owner-occupiers, for whom the mortgaged unit provides
shelter as well as potential investment returns.

The final loan characteristics of interest are loan type and interest rate (Table 3). As
noted earlier, 2004 was the first time that mortgage originators were required to report



                                 Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                                         11
interest rate information in their annual HMDA filings. Data in Table 3 (first lien
mortgages only) shows that in each tract a majority, ranging from 60.0 to 97.2 percent of
loans extended in 2004 had APRs less than three points above the comparison US
Treasury rate (Table 3). These loans can loosely be considered ‗prime‘ whereas the
remainder can be considered ‗non-prime‘.

Table 3 shows that neighborhoods with greater non-prime lending shares (column
entitled ‗Interest Rate Spread >3.0 Points‘) generally have higher foreclosure rates. Low
foreclosure rate areas such as Mercer and Malvern have the smallest non-prime shares,
whereas South Moreland has both the highest foreclosure rate and the highest non-prime
lending share (40.0 percent). Such findings are consistent with non-prime lending‘s focus
on less creditworthy and, hence, riskier, mortgage borrowers.


                 Table 3: Mortgage Interest Rates and Foreclosures, 2004

                                                              Interest
                                              Foreclosure       Rate          Government      Share Not
                                 Census          Rate          Spread           Share        Conventional
         Neighborhood
                                 Tract                       >3.0 Points                        Prime
                                                  (%)            (%)             (%)             (%)
 Mercer                        1833.00            0.34                  5.9            1.0              6.9
 Malvern                       1832.00            0.54                  2.8            0.0              2.8
 Boulevard                     1831.00            0.55                 11.3            2.9             14.1
 Fernway                       1835.02            0.72                  9.6            1.7             11.3
 Onaway                        1834.01            0.91                  9.3            0.0              9.3
 Thornton Park                 1835.01            0.97                 12.8            2.5             15.3
 Sussex                        1836.05            1.02                 11.7            2.3             14.0
 E. Lomond                     1836.06            2.17                  9.1            5.3             14.4
 Ludlow/N. Moreland            1834.02            2.92                 30.6            3.5             34.0
 W. Lomond                     1836.04            2.93                 21.7            4.3             26.1
 South Moreland                1836.03            4.26                 40.0            7.0             47.0
 Total                                            1.30                 13.6            2.4             16.1
Note: Only for originated, first lien loans on 1-4 family properties.
Source: 2004 HMDA data, except foreclosure rate column which is calculated from Cuyahoga County Land Sales
database for March 2000-2006 and Census 2000, SF-1 and SF-3.



The next column of Table 3 presents the share of loans that are government-guaranteed.
The table shows that foreclosure rates are higher in neighborhoods where government-
backed lending is a higher share of the total. This result is also unsurprising, considering
that government lending is more costly than conventional prime lending. Government-
backed loans therefore generally go to borrowers that cannot obtain prime rate loans –
that is, less creditworthy mortgage applicants. As shown earlier in Table 1, Mortgage
Bankers Association data show that foreclosure rates on government loans are
substantially higher than on prime loans, though not as high as on subprime loans.




                Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                        12
The final panel in Table 3 combines the non-prime and government lending shares into a
‗not conventional prime lending‘ category. This column captures the share of mortgage
borrowers in each neighborhood that do not access credit on the best rates and terms
available in the marketplace. The results are particularly striking in highly foreclosure-
prone areas. In South Moreland where the foreclosure rate is highest, prime conventional
lending accounts for only slightly more half of all mortgages, and West Lomond and
Ludlow/North Moreland, which have the next highest foreclosure rates, also have the
next lowest shares of conventional prime lending. Conversely, Mercer and Malvern have
both the lowest foreclosure rates and highest prime conventional shares.

In summary, comparing loan characteristics to foreclosure rates at the neighborhood level
reveals several clear correlations. Areas with lower shares of refinance lending, fewer
investor loans, and fewer non-prime loans and government-backed loans had lower
foreclosure rates. The share of junior liens appears not to be an important determinant of
foreclosure rates across neighborhoods in Shaker Heights. Having looked at relationships
between loan characteristics and foreclosure rate, the analysis now turns to an
examination of the role of neighborhood demographic characteristics.




             Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio         13
Neighborhood Demographic Characteristics and Foreclosure Activity

Research in other cities typically reveals a correlation between the income and
racial/ethnic characteristics of a neighborhood and the foreclosure rate there.10 This
section undertakes similar comparisons, looking separately at the income and racial
composition of the neighborhood. Although other studies have examined differences in
foreclosure activities across racial groups controlling for income, Shaker Heights is
geographically too small to conduct this sort of analysis.

Neighborhood Income

Overall Shaker Heights is well-off relative to its environs. Its median household income
at the time of the last Census was $63,983, compared with $39,168 for Cuyahoga County.
Detailed comparisons of foreclosure activity and income (shown in Appendix Table 2)
indicate a relatively clear relationship between neighborhood foreclosure rates and
income levels, with lower-income areas having higher foreclosure rates. The
neighborhood with the highest foreclosure rate, for instance, South Moreland, also has
the lowest median household income. Foreclosure rates are also generally high in other
places - such as Ludlow/North Moreland and West Lomond - with low income levels
relative to the rest of the city. Conversely, Malvern and Mercer, with the highest median
incomes have the lowest foreclosure rates. In this sense Boulevard is an interesting
anomaly - although its neighborhood income is relatively low, it also has one of the
lowest foreclosure rates.11

In general, however, the relationship between income and foreclosure rate is quite
distinct. This can be seen by simply dividing Shaker Heights into neighborhoods above
and below the median income and comparing foreclosure activity between the two
groups. As shown in Figure 5, doing so reveals that both the number of foreclosures (left
panel) and the foreclosure rate (right panel) are substantially higher in the below-median
income neighborhoods. In fact, the 4 neighborhoods below the median household income
had 3.4 times as many foreclosures as those above the median.12 Similarly, the combined
foreclosure rate for these 4 was more than 3 times as high as in the remaining 7
neighborhoods.




10
   See Mortgage Foreclosures in Atlanta: Patterns and Policy Issues. M. Duda and B. Apgar. 2005.
(http://www.nw.org/network/neighborworksprogs/foreclosuresolutions/documents/foreclosure1205.pdf)
11
   As can be seen in Table 1 presented earlier, this likely stems from the vastly different shares of owner-
occupied housing in the three block groups in the Boulevard neighborhood. While block groups 1 and 2
have more than four-fifths owner occupiers, block group 3 has more than four-fifths renters, suggesting that
the large number of renter households in this area is pulling down the median income level. In fact, at the
time of the last Census renters‘ median household income ($35,127) in the neighborhood was only about
one-third that of owners ($113, 956). (Figures in 1999$.)
12
   Note that Figure five is based on data for the six year period March 2000-March 2006. Figures dealing
with time trends are based only on five years of data (2001-2005) because of the need to capture full
calendar years. As a result the number of foreclosures is higher (476) on this figure than, for example, on
Figure 2.


                Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                        14
                     Figure 5: Fewer Foreclosures in Higher Income Neighborhoods, 2000-2006


                     400                                                                         2.00

                     350




                                                                   Annual Foreclosure Rate (%)
                     300                                                                         1.50
     Sheriff Sales




                     250

                     200                                                                         1.00         2.00
                                 356
                     150

                     100                                                                         0.50

                      50                            101                                                                           0.58

                       0                                                                         0.00
                           Below City Median Above City Median                                          Below City Median   Above City Median


Note: Foreclosure counts are Cuyahoga County land sales for the period March 20, 2000 to March 1, 2006. Mortgaged
units are estimated from Census 2000 SF-3 data.
Source: Cuyahoga County Land Sales database and Census 2000, SF-1 and SF-3.



Neighborhood Race/Ethnicity

The relationship between neighborhood minority composition and foreclosure rate is
even more distinct than that with income. The race comparisons are done at the block
group rather than the tract level. (This is possible because the Census Bureau releases
race/ethnicity data at smaller geographic levels than it does for income data).

Minority share varies widely across block groups, ranging from a low of 4.0 percent to a
high of 98.7 percent (see Appendix Table 3 for detailed data).13 For purposes of
comparison, the population of Shaker Heights as a whole is 59.3 percent non-Hispanic
white and 40.7 percent minority, most of whom are non-Hispanic black/African
American.

Looking at the highest foreclosure block groups shows that foreclosure levels are higher
in areas where minorities make up a larger share of the population. Strikingly, both block
groups in the South Moreland neighborhood where foreclosure rates are highest are home
almost entirely to minority residents (96.8 and 98.1 percent). Further, within
neighborhoods, block groups with higher minority shares often have higher foreclosure
rates. Fernway, for example, which has an overall foreclosure rate of 0.59 percent
annually, contains 2 block groups with substantially higher rates (1.65 and 0.94 percent)
and 3 with far lower rates (0.28, 0.45, and 0.47 percent). The minority shares in the
Fernway block groups with high foreclosure rates are 63.2 and 42.9 percent, respectively,
compared to values between 12.9 to 24.2 percent in the lower rate groups. This pattern of


13
   ‗Minority‘ here is defined as all respondents except those that identified as ‗white alone‘ and ‗not
Hispanic‘ on the 2000 Census. ‗Non-Hispanic Black‘ includes only ‗black alone‘ and ‗not Hispanic‘
respondents.


                               Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                                                15
higher foreclosure rates in higher-minority share block groups within neighborhoods also
exists for Boulevard, Ludlow/North Moreland, and Sussex.


                                  Figure 6: Block Group Foreclosure Rates Increase with Minority Share


                                 4.0
                                                                                                             3.56
                                 3.5
   Annual Foreclosure Rate (%)




                                 3.0
                                                                                                2.54
                                 2.5

                                 2.0
                                                                             1.63
                                 1.5

                                 1.0
                                                           0.69
                                         0.40
                                 0.5

                                 0.0
                                         <20%            20-40%            40-60%              60-80%       80-100%
                                                                  Block Group Minority Share


Source: Cuyahoga County Land Sales database and Census 2000, SF-1.

Figure 6 summarizes the relationship between block group minority share and foreclosure
rates. It groups Shaker Heights‘ 32 block groups into 5 categories based on minority
composition and then computes the foreclosure rate for each. The Figure shows a rapid
increase in foreclosures as minority share rises, from just 0.40 percent annually in mostly
white areas to 3.56 percent in predominantly minority areas. That is, the foreclosure rate
in mostly non-white block groups is roughly 9 times higher than in mostly white block
groups.

Further highlighting the linkage between race and foreclosure activity, the change in
foreclosures over time is also related to neighborhood minority composition. Figure 7
shows the share of foreclosure growth between 2001 and 2005 that is contributed by
tracts with varying minority shares. The Figure shows that block groups with minority
shares over 80 percent are home to 38 percent of the increase in foreclosures between
2001 and 2005. Yet, these 5 block groups have only 16.0 percent of all mortgages
outstanding. Similarly, tracts with minority shares between 60 and 80 percent
experienced 13.2 percent of foreclosures despite having only 5.9 percent of outstanding
mortgages. Things are reversed in mostly white areas. Block groups with less than 20
percent minorities accounted for 2.6 percent of foreclosure growth despite having 37.3
percent of mortgages outstanding.




                                        Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio             16
   Figure 7: Block Group Racial Composition of Foreclosure Growth, 2001-2005

                                                   3%


                                                              13%
                  38%

                                                                              Minority
                                                                               Share
                                                                                 <20%
                                                                                 20-40%
                                                                                 40-60%
                                                                                 60-80%
                                                                                 80-100%




                                                                   33%


                           13%


            Note: Total foreclosures increased by 76 between 2001 and 2005.
            Source: Cuyahoga County Land Sales database and Census 2000, SF-1 and SF-3.

Summary

The results presented in this section indicate that strong correlations exist between the
income and racial/ethnic characteristics of Shaker Heights‘ neighborhoods and the
foreclosure rates there. Foreclosure rates were more than three times higher in
neighborhoods with incomes below the City median than above it. Similarly, as
neighborhood minority composition rises, foreclosures become increasingly common. In
fact, the foreclosure rate in predominantly minority block groups is 9 times higher than in
mostly white areas.




              Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio            17
Policy Recommendations

Shaker Heights faces a significant and growing foreclosure problem in some
neighborhoods and a stable, modest one in others. Between these extremes there are
neighborhoods in which foreclosures are edging upwards and may reach problem levels
in coming years. Problem areas are, for the most part, grouped in the southwestern part of
the City along the Cleveland border. These neighborhoods have relatively high shares of
refinance loans and low share of conventional prime lending. They also have
comparatively low median incomes and disproportionately high shares of minority
residents.

These trends and patterns are part of a larger market dynamic that has led government
officials in Shaker Heights, Cuyahoga County, and the State of Ohio, along with
interested citizens, business leaders, and civic organizations to craft a series of policy
solutions to stem the foreclosure tide that is adversely impacting communities across the
region. Though programs and polices initiated to date are many and diverse, these
interventions fall into three broad areas: (1) reducing the flow of foreclosure prone
lending; (2) mitigating the individual and social consequences of foreclosures; and (3)
better monitoring of foreclosure activity. The following discussion highlights some of the
efforts completed to date and offers some suggestions to reduce the number of loans
going to foreclosure, as well as minimizing the costs associated with the flow of
foreclosures that will inevitably accompany a robust system of mortgage credit provision.


Response 1: Reduce the Flow of Foreclosure-Prone Lending

The first set of policies is designed to intervene at the outset of the mortgage process on
the assumption that the best way to lower foreclosure rates is to reduce the flow of
unnecessarily foreclosure-prone lending. Shaker Heights already is an active partner in
the Cuyahoga County‘s ‗211 Don‘t Borrow Trouble Program,‘ an effort designed to
educate potential mortgage borrowers about marketing practices that can entice
consumers into over-priced loans or those containing otherwise abusive and/or deceptive
terms. The City also makes a special effort to help property owners with code violations
(who are particularly vulnerable to victimization by predatory lenders) gain access to
reputable sources of home repair financing. This proactive approach includes distributing
information with the code violation notice mailed to residents and publicizing similar
information through the City‘s Neighborhood revitalization program.

The enactment of Ohio Senate Bill SB 185 - an anti-predatory lending law designed to
protect consumers from unscrupulous lending practices – also provides Shaker Heights
with access to new tools to confront abusive lending practices. The bill broadens the
reach of existing consumer protection law to include mortgage brokers, loan officers and
lenders that are not already covered by federal banking regulation. In particular, it
authorizes the Ohio Attorney General to intervene on behalf of homeowners and allows
consumers to sue over fraudulent loan transactions. The bill also limits the use of
prepayment penalties on small home refinance loans (those less than $75,000), requires



              Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio         18
the lender to consider the ability of the borrower to repay the loan in its approval
decision, and outlaws attempts by lenders to encourage appraisers to inflate the value of
homes subject to financing.14

Scheduled to take effect on January 1, 2007, the new anti-predatory lending legislation
provides Shaker Heights residents with substantial new protections against the type of
abusive lending practices that lead to foreclosure. The City, working with community
partners and Cleveland Area housing advocacy organizations, should take every
opportunity to disseminate information about the new protections. The recent forum –
Implementing Ohio‘s New Anti-Predatory Lending Law – held on November 3, 2006
represents a sound initial step. In addition, Shaker Heights should consider the following
activities to enhance the initiatives that are already underway.

Expand Efforts to Promote Consumer Awareness. The new ‗anti-predatory lending
law‘ provides a timely opportunity for the City to expand its program of consumer
education and outreach. Given the concentration of foreclosures in South/North
Moreland, East/West Lomond, Ludlow and Sussex neighborhoods, special effort should
be made to partner with community associations in these areas to ensure that owners
faced with foreclosure do not fall victim to a new round of abusive lending. Efforts along
these lines should expand and improve outreach efforts by placing ads in locations where
potential homebuyers and mortgage refinancers congregate, such as supermarkets,
schools, and places of worship. By working through locally trusted networks, a targeted
outreach campaign can reach those missed by broader existing campaigns such as the
county-level ‗211 Don‘t Borrow Trouble Program.‘

Focus on Deceptive Practices. In addition, it is important to put a spotlight on deceptive
or misleading advertising campaigns deployed in Shaker Heights‘ neighborhoods. One
novel approach would be to hold a contest in which City residents enter items that they
receive in the mail, or see on TV that are wholly unrealistic in an ―If it‘s too good to be
true…‖ campaign. Advertisements that were investigated and found wanting could be
featured in local media as a way of alerting residents to be wary of deceptive ‗push
marketing‘ campaigns and the source of such deceptive advertising. Such a campaign
would not only raise awareness but potentially push aggressive mortgage tactics
underground.

Consider Adapting a More Aggressive Approach to Marketing ‘Good Loans’
While consumer education and outreach can help, unfortunately even counseled
borrowers can fall victim to the aggressive tactics of mortgage brokers and realtors. To
respond to these tactics, Shaker Heights should consider more aggressive ‗push
marketing‘ of its own programs. For example, perhaps working with community
partners, Shaker Heights could host homebuyer fairs in which a pre-screened group of
mortgage brokers and lenders would participate. The goal would not only be to provide

14
   McGlinchey Stafford Inc., Ohio’s New Anti-Predatory Lending Law: An Analysis of SB 185, at
www.mcglinchey.com/email/anti_predatory_lending_06-30-06.htm. See also AARP Ohio Advocacy:
Ohio’s      Homebuyers’      Protection     Act      Passes    at    www.aarp.org/states/oh/oh-
advocacy/ohio_homebuyers_protection_act_passes.html.


              Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio             19
general information on the mortgage process but also to link prospective borrowers to
lenders committed to providing products that meet the consumer‘s needs. Such an effort
would be a highly effective intervention because available evidence suggests that when
households attending such fairs do not sign up to work with a ‗legitimate‘ lender on the
spot they often fall victim to an unscrupulous lender later.

Support CBOs as ‘Buyer’s Brokers.‘ Some for-profit and not-for-profit organizations
have developed mortgage brokerage businesses with the explicit goal of using their good
standing in the neighborhood to become a ‗buyer‘s broker.‘ These organizations earn a
small fee for which they not only ensure that borrowers avoid abusive loans and lenders
but provide all the services of a ‗normal‘ mortgage broker. A buyer‘s broker would stand
in for the trusted advisors available to many higher-income borrowers, providing lower-
income residents and those from backgrounds without strong homeownership traditions
access to information on mortgage terms and pricing, and the nuances of the homebuying
process more generally. Buyer‘s brokers would help borrowers qualify for and procure a
loan but, unlike mortgage brokers, would have incentives that ensure they work wholly
on behalf of the borrower.

Improve Borrowers’ Ability to Access Credit on the Best Terms Available. Not all
mortgage borrowers shop aggressively for the best loan terms and even those that do face
challenges in identifying what constitutes a suitable mortgage in light of the ever
increasing complexity of mortgage pricing and terms. As a result, a mechanism that
helped consumers find the best credit prices for which they qualify would be a valuable
resource to prospective borrows. Along these lines, the Ford Foundation recently
provided funding to support the development of ‗The Mortgage Grader,‘ a privately
owned system that will provide a link between national brand lenders and community
counseling organizations. With Mortgage Grader, community based agencies will have
access to loan quotes that will match the best loans that participating lenders offer in the
market place. Working to enable borrowers or their trusted advisors to be better shoppers
and resist deceptive marketing practices would go a long way to not only reducing the
incidence of predatory lending, but also to stemming the growth of foreclosures that
inevitably follow in the wake of these same predatory lending practices.

Simplify the ‘Second Opinion’ Process for Refinancers. Historically, consumer
counseling efforts have focused on assisting first time homebuyers. This report‘s finding
that there exists a link between foreclosures and refinance lending, however, points to the
need to expand counseling efforts to existing homeowners. The City might consider
setting up a ‗second opinion system‘ for households considering refinancing their home.
Much like the system of free foreclosure counseling (described in next section) that has
been introduced nationwide by the Homeownership Preservation Foundation (HPF), this
system would give consumers access to experts who can assess the reasonableness of
their loan terms before they sign a refinance contract. The system would operate by
phone and would involve consumers providing only a few key details about their credit
background, property, and prospective mortgage – things they would be aware of prior to
signing the mortgage contract. Based on this information the counselors could advise




              Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio          20
borrowers if they might be better off to ‗keep shopping.‘ The City should consider
participating in preliminary efforts by HPF to deploy such a system.

Monitor the Appraisal Process. Some mortgages go to foreclosure because the amount
owed on the mortgage exceeds the market value of the mortgaged property. Such
problems often reflect the over-appraisal of properties at either the purchase or refinance
stage, a fraudulent practice specifically targeted by the new statewide ‗anti-predatory
lending‘ legislation. Lacking information about home values, many borrowers often pay
more attention to monthly payment, giving less attention to appraised value of home.
This is a mistake. To the extent that the mortgage is based on an unrealistically high
appraisal, at time of sale the homeowner may find out that they owe more money than the
house is worth, a situation that often triggers a delinquency and subsequent foreclosure.
Using automated valuation systems, the City should work with community associations,
reliable local lenders and mortgage brokers to provide homebuyers and homeowners
access to free or low cost estimates of value. In addition, the City could monitor real
estate transactions to generate a list of those properties that appear to be ‗overvalued‘ at
time of purchase, develop a list of those appraisers involved in these transactions, and
begin to develop the data needed to support consumers and consumer attorneys in making
full use of the new anti-appraisal fraud elements of the new consumer protection law.


Response 2: Mitigate the Consequences of Inevitable Foreclosures

The increase in foreclosures in Cuyahoga County has tested local governments‘ ability to
efficiently and effectively intervene in the foreclosure process on the behalf of
stakeholders damaged by concentrated foreclosures. Better data on foreclosure trends
(discussed in the ‗Response 3‘ section) could help identify problem zones before they
develop into foreclosure ‗hotspots.‘ Early intervention will help homeowners on the brink
of foreclosure in hotspot areas remain in their homes and limit the costs to the City and
the neighborhood that result from the foreclosure process. In addition, even when
foreclosures do occur, effective management and coordination of the foreclosure process
can ensure that much of this ‗collateral damage‘ is avoided.

Shaker Heights has a long tradition of working to stabilize neighborhoods experiencing
economic distress. Like many ‗first ring suburban areas‘ Shaker Heights has an ample
supply of good quality but older and smaller single family and two family homes.
Though once a mainstay of efforts to promote homeownership in the post-war period,
neighborhoods dominated by these older housing types are now transitioning because
incomes, tastes and preferences are changing, while more widespread automobile use and
decentralization of employment also reduce demand for this kind of housing in
comparison with that for housing located in newer suburban areas. These changing
market forces have not only adversely impacted Cleveland‘s inner ring suburbs, but they
are a noticeable feature in metropolitan areas throughout the Northeast and Midwest
including Chicago, Minneapolis/St. Paul and Philadelphia.15

15
  Northeast Ohio First Suburbs Consortium, Two-Families: Unit Design and Neighborhood Improvement
Concepts, November, 2002, p. 2.


               Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio              21
Because of its reputation for excellent schools system and attractive and well planned
neighborhoods, Shaker Heights has managed to avoid much of the serious disinvestment
that is present in many other inner ring suburbs. Nevertheless, the City is working
cooperatively with the Northeast Ohio First Suburbs Consortium to better understand the
changing demand patterns, and identify methods to strengthen the appeal of Shaker
Heights in the overall housing market, and in doing so affirmatively market the City‘s
generally high quality housing stock and attractive neighborhoods.16

At the same time, the rising number of foreclosures threatens to undermine the stability
of selected neighborhoods, especially those located along the City‘s western and southern
borders. Building on its long standing policy for aggressive nuisance abatement, the City
uses a series of ‗carrots and sticks‘ to insure that properties experiencing economic
distress do not become a blighting influence on entire neighborhoods. For example,
Shaker Heights‘ nuisance abatement ordinance allows the City to identify those
properties that threaten to have a blighting impact on nearby properties, and has the City
hire contractors to make the needed repairs when the owner is unwilling or unable to
comply with the nuisance abatement order. The City is then authorized to place a lien on
the property and collect the costs of repairs on subsequent property tax assessments.
Note that to reduce the impact that this program has on the City‘s operating budget,
Shaker Heights initiated an innovative program whereby the County Treasurer purchases
City bonds to finance nuisance abatement work, which are then repaid when the tax lien
on the property is collected.

In addition, the City is now seeking state approval for a plan that will offer partial
property tax abatement for the construction of new single-family homes and/or
substantial rehabilitation of existing homes in five ‗Community Reinvestment Areas.
(CRAs).‘ Generally co-terminus with areas experiencing the highest rates of foreclosure,
these reinvestment zones experience relatively high levels of property disinvestment and
code violations. If implemented, this program will help provide a ‗carrot‘ to complement
the ‗stick‘ of nuisance abatement to ensure that isolated instances of property
disinvestment and foreclosure-related vacancy do not lead to more sustained economic
disinvestment and decline.

Though these measures provide a solid foundation that will help to minimizes the adverse
implications of rising levels of foreclosure, the City should also consider taking some or
all of the following actions:

Connect Distressed Homeowners to Impartial Credit Counseling. Many distressed
borrowers could save their loans, homes, and credit standing if they knew where to turn
for help. Effective counseling can make the difference between saving and losing their
homes. Building on existing hotlines similar to the 211 system now available in

16
   For example, through its program Certified Shaker the City assists the marketing efforts of the owners of
older rental units by recognizing rental properties which meet or exceed the City of Shaker Heights'
standards of excellence.



                Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                        22
Cuyahoga County, Chicago and Dallas recently put in place a system that allows callers
to receive a wide range of foreclosure avoidance counseling through the Credit
Counseling Resource Center (CCRC), a coalition of non-profit, HUD-approved
counseling agencies. Since the CCRC has an ongoing relationship with participating loan
servicers, as well as with various state and local sources of foreclosure avoidance
assistance, callers can either get general counseling information directly from CCRC, be
put in contact directly with the entity servicing their own mortgage loan to explore
‗workout‘ options, or be referred to local sources of resources of assistance if appropriate.
Although it is not possible to avoid foreclosure in every instance, early experience
suggests that as many as half of all program participants achieved ‗successful outcomes‘
(defined as any resolution of the situation that did not result in the property becoming
vacant and abandoned). Working in partnership with Neighborworks America, the
Homeowners Preservation Foundation (HPF) is now bringing this innovative foreclosure
avoidance initiative to Ohio. Shaker Heights would do well to join the Ohio Campaign,
and encourage distressed borrowers to contact the toll free hot line for assistance. The
track record established in Chicago and Dallas suggests that this step would help a
significant share of delinquent homeowners regain control of their finances and save their
homes.

Transfer Distressed Properties to Local Builders and Developers.                      When
homeowners are too deeply indebted to be rescued, the best approach from the
neighborhood/ municipal perspective is to turn the foreclosed property from a source of
blight into a community asset. Unfortunately foreclosed properties sold through the
Cuyahoga County‘s Sheriff Sale process can fall into the hands of speculators that either
quickly resell the property ‗as-is‘ to unsuspecting buyers, or convert the unit to rental. In
doing so, these speculators erode the homeowner base of already fragile neighborhoods.
Working with County Officials under the newly developed HB 294 process, the City now
is able to secure title to vacant and abandoned properties and then work with local
builders and developers to rehab the property and return it to productive use.17 Here, the
tax abatements now anticipated once the ‗Community Reinvestment Area‘ program is
approved by the state could be combined with other City housing funds to encourage
these local builders and developers to substantially rehab homes in a manner that is both
compatible with community design standards and affordable to new first time
homeowners.

Sell Foreclosed Properties to Lower-Income Homebuyers. Community groups can
also work to provide lower income buyers the information and assistance needed
(including access to appropriate rehabilitation funds) to purchase homes directly through
the foreclosure auction process. Even more promising would be a program through which
prospective owners are able to buy the home directly from an owner facing foreclosure.
By negotiating a pre-foreclosure sale, the program would avoid the many unnecessary
costs to the existing owner, mortgage noteholder, municipality, and neighbors that accrue

17
  Alan C. Weinstein, Kathryn W. Hexter, and Molly Schnoke, Responding to Foreclosures in Cuyahoga
County: An Assessment of Progress, a report prepared for the Cuyahoga County Board of Commissioners,
November 20, 2006, page 9. (Hereafter referred to as ‗The Cleveland State Report.‘)



               Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                 23
during the foreclosure process. Because such a sale would greatly reduce the cost of
foreclosure for the noteholder and potentially the servicer as well, mortgage industry
participants should be willing to participate.

Create a Fund to Pay for the Social Costs of Non-Prime Lending. The recent increase
in foreclosures has provided amble evidence that a single mortgage foreclosure—
especially one that leaves the home vacant and unsecured—can impose thousands of
dollars of costs on cash-strapped public agencies. Cuyahoga County has already taken a
step to rectify this situation by raising the fee required to file a foreclosure action, a move
designed to offset the growing court costs linked to the recent foreclosure boom. Shaker
Heights should work with community partners to expand on this effort by establishing a
fund to help offset municipal costs of foreclosure as well. One solution to this problem
builds on a proposal by the Coalition for Fair and Affordable Lending, a national
organization representing non-prime lenders. Under this approach, Congress would
require that non-prime lenders pay a reasonable fee into a central fund when they
originate a mortgage. Absent federal action, Ohio could enact a similar fee provision at
the state level. This fund could then be used to defray the municipal costs associated
with foreclosure, support state and local efforts to streamline the foreclosure process, and
expand local foreclosure avoidance initiatives.


Response 3: Improve Monitoring of Foreclosures

The results of this study show that over the past five years Cuyahoga County in general,
and Shaker Heights in particular, have experienced a substantial increase in foreclosures.
Unfortunately, this increase overwhelmed the County‘s capacity to process foreclosure
cases in a timely fashion. The situation came to a head when during a series of pubic
meetings held in the summer of 2005 suburban mayors and others pointed to the
substantial harm caused by the fact that in many instances foreclosure proceedings could
extend for years. As a result, properties in foreclosure were sitting vacant and abandoned
for years, both undermining nearby property values, and limiting the ability of
municipalities to collect on local property tax liens.

In response, the Cuyahoga County Commissioners presented a series of initiatives
designed to generate both faster and fairer foreclosure proceedings. Immediate action
steps included adding parcel numbers and addresses of properties subject to foreclosure
to the public docket maintained by the Clerk of Court of Common Pleas. The
Commissioners also recommended that the Courts place first priority for default hearings
and disposition to foreclosure cases identified by municipal officials as involving
potentially harmful vacant and abandoned properties. Finally, the Commissioners
recommended a series of operational improvements and called for additional personnel
and other needed resources to expand capacity of key county offices involved in the
foreclosure process. 18

18
   Cuyahoga County Ohio Commissioners, Commissioners’ Report and Recommendations on
Foreclosures, August 25, 2005. See also Supplement Update of the Commissioners’ Report and
Recommendations on Foreclosures, October 6, 2005.


              Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio             24
Within a year, this initiative is already making remarkable progress.19 For example, over
the period October 2005 to October 2006, there was a 189 percent increase (from 493 to
1426) in Orders for Sale processed, and the time required for the Sheriff to issue a deed
was cut from four to two months. As a result, for the first time in years, the number of
pending foreclosure cases fell. By October 2006, the time required to process a
foreclosure fell to less than a year, a figure that complies with Ohio Supreme Court
guidelines. At the same time, the County created new vacant property lists for both tax
delinquent and mortgage delinquent abandoned and vacant properties, and initiated the
fast track processing of foreclosed vacant and abandoned properties.

Even with this remarkable progress, the foreclosure problems facing Shaker Heights and
other municipalities in Cuyahoga County remain. Though preliminary, recently released
data suggests that the number of new foreclosure filings continued to grow in 2006,
increasing countywide from 847 filings recorded in October 2005 to 1239 filings
recorded in October 2006. Moreover a recent assessment of the foreclosure reform effort
raised the concern that progress could slow in the future since it was possible that the
easier cases may have been cleared off the docket first, leaving the more time consuming
and resource intensive cases.20 And finally, there remains the concern that the
foreclosure wave has yet to crest. In particular, the recent flood of adjustable rate loans
that will reset over the next several years may throw many additional mortgage borrowers
into crisis.

Given these concerns, Shaker Heights should work to take full advantage of the recent
foreclosure reforms undertaken at the county level and consider taking some or all of the
following actions:

Raise Awareness of the Municipal Costs of Foreclosures. Foreclosures impose
numerous costs that extend well beyond the simple issue of paying off a mortgage debt.
For example, to the extent that foreclosed properties are boarded up or otherwise not well
maintained, they may undermine the appeal and, ultimately, the market value of other
properties. A recent study in Chicago reported that each additional foreclosure occurring
in an area of concentrated foreclosure could impose direct costs on local government
agencies totaling more than $33,000 and indirect effects on nearby property owners (in
the form of reduced property values and home equity) of an additional $220,000.21 The
fact that municipalities and residents living near foreclosed properties bear a significant
portion of the aggregate cost imposed by mortgage failures is an unintended consequence
of efforts to attract mortgage capital to previously underserved areas. The result,
however, is that local taxpayers and area residents are forced to shoulder burdens that are
rightfully the responsibility of borrowers, lenders, and others that are direct parties to the
mortgage transaction. While a similar study does not exist for Shaker Heights, such an

19
   For details see Cleveland State Report, page 6.
20
   See Cleveland State Report, page 12.
21
   William Apgar and Mark Duda, Collateral Damage: The Municipal Impact of Today’s Mortgage
Foreclosure Boom a report prepared for the Homeownership Preservation Foundation, May 11, 2005.
Available online at www.hpfonline.org.


              Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio             25
assessment could help to focus attention on the public costs of foreclosure that extend
beyond those suffered by the borrower and investor, and rally support for efforts that
vigorously confront the adverse consequences of the Shaker Heights‘ foreclosure boom.

Create Shaker Heights Foreclosure Data Base. Until recently, there has been little
empirical analysis of foreclosure trends or their causes in Shaker Heights or other cities
and towns in Ohio.22 This is due in large part to the absence of readily available data on
foreclosure activity for individual municipalities and neighborhoods. Even the Sheriff‘s
Office information on foreclosure sales used in this report is not routinely released and
has only recently been computerized and made available to entities charged with
monitoring foreclosure. Shaker Heights should work to develop a database that merges
recently automated county level foreclosure and property tax delinquency data with
municipal information on code violations, building permits, and annual curb appeal
surveys to create a hot spot foreclosure data base. Such a database would not only assist
in better managing efforts to revitalize existing areas of concentrated foreclosures, but
also detect emerging foreclosure hotspots as they develop.23 Access to this database and
associated early warning system would enable Shaker Heights officials – working in
partnership with local community based organizations as well as interested mortgage
lenders and servicers - to take appropriate remedial action to minimize the adverse
consequences of concentrated foreclosures.

Create an Expanded Foreclosure Hotspot Initiative. Given the high external costs
associated with concentrated foreclosures, efforts to continuously monitor foreclosure
patterns are essential for detecting potential new foreclosure hotspots as they emerge.
Working in cooperation, government, industry, and community leaders in Shaker Heights
should develop a ‗foreclosure hotspot protocol,‘ a plan formulated in advance of problem
detection that describes specific actions that will minimize the negative consequences of
extreme foreclosure levels. The protocol would help Shaker target resources and
intervene early to minimize the social and economic costs of concentrated foreclosure.
Tracking hotspots is particularly important in the Cleveland metropolitan area. As noted
throughout the report, the increase in foreclosures in the western part of Shaker Heights
reflects at least in part spillovers from neighboring areas of Cleveland.24

Assess the Role of Absentee Landlords. As noted earlier, Shaker Heights
neighborhoods with elevated foreclosure rates appear to also have relatively higher shares
of absentee owners than other City neighborhoods. The higher incidence of absentee
ownership is potentially problematic in that some such owners have less incentive to
properly maintain their properties than owner-occupiers. This is compounded by the fact

22
   One prominent exception is Alan Mallach, Lisa Mueller Levy and Joseph Schilling, Cleveland at the
Crossroads: Turning Abandonment into Opportunity. A Report Prepared for the Neighborhood Progress
Inc, and National Vacant Property Campaign, June 2005.
23
   One way to start would be to build on the database development effort now underway at the Northeast
Ohio, Community and Neighborhood Data for Organizing (NEO CANDO) a program of the Case Western
Reserve University‘s Mandel School of Applied Social Sciences.
24
   For further discussion of ‗Hotspot Initiatives‘ see William Apgar, and Mark Duda. 2004. Preserving
Homeownership: Community-Development Implications of the New Mortgage Market. A report prepared
for Neighborhood Housing Services of Chicago.


               Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                   26
that a substantial portion of the absentee-owned inventory consists of older two-family
structures, a critical component of the Shaker Heights housing inventory that historically
has been owner-occupied, but now appears to be losing market appeal. Just recently, the
City noted the potentially adverse implications of absentee ownership of two family
homes as part of its effort to solicit permission from the state to initiate a special tax
abatement program in what the City labeled as ‗Community Reinvestment Area E‘ (CRA
E). Located in the western portion of the Boulevard neighborhood, over half of the
housing stock in CRA E consists of two family homes, and of these only just one in four
are owner-occupied. In interpreting these trends, the City argued that higher rates of
absentee ownership of two family homes translated into less investment, more exterior
code violations, and lower curb appeal for this area.25 Though hopefully this is an
isolated instance, Shaker Heights would benefit from using the newly created foreclosure
database to monitor trends in the disposition of two-family homes just now coming out of
the foreclosure pipeline. Such an effort could provide a useful early indicator of potential
increases in absentee ownership, and related disinvestment pressures that may appear in
other portions of the City.


Conclusion

The growth of foreclosures over the past five years presents serious challenges to cities
and towns throughout Ohio. Shaker Heights is no exception. Fortunately, the growing
foreclosure problem has spurred significant new policy responses at the state, county, and
local government level. Given its history of active engagement in helping to develop and
preserve good quality housing opportunities in stable residential communities, Shaker
Heights should continue its proactive approach to community problem solving.
Hopefully initiatives now underway, along with the implementation of some or all of the
recommendations presented in this report, will serve to minimize the adverse
consequences of the ongoing foreclosure boom by among other things reducing the
number of foreclosure prone loans made in the first place, and helping the City identify
and manage new foreclosure hot spots that may emerge in the years ahead.




25
     See www.shakeronline.com/dept/revite/CommunityReinvestmentAreas.asp.


                 Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio       27
           Appendix Table 1: Foreclosure Levels and Rates in Shaker Heights


                                                                             Foreclosure Rate     Annual Foreclosure
                               Foreclosure Counts     Mortgaged Units       for Six Year Study          Rate
 Neighbor-hood
                      Block                                                     Period (%)               (%)
     Name/
                      Group
    Tract ID
                                          Block                  Block                  Block                 Block
                                Tract                 Tract                  Tract                 Tract
                                          Group                  Group                  Group                 Group

                        1                   3                      200                   1.50                     0.25
    Boulevard
                        2        17         1          512         160        3.32       0.63       0.55          0.10
     1831.00
                        3                   13                     153                   8.49                     1.42
                        1                   11                     176                   6.24                     1.04
     Malvern
                        2        18         1          551         199        3.27       0.50       0.54          0.08
     1832.00
                        3                   6                      176                   3.42                     0.57
                        1                   1                      195                   0.51                     0.09
                        2                   3                      173                   1.73                     0.29
     Mercer
                        3        21         8         1,043        268        2.01       2.98       0.34          0.50
     1833.00
                        4                   4                      148                   2.70                     0.45
                        5                   5                      259                   1.93                     0.32
     Onaway             1                   20                     301                   6.64                     1.11
                                 28                    512                    5.47                  0.91
     1834.01            2                   8                      211                   3.79                     0.63
    Ludlow/N.           2                   10                      97                  10.36                     1.73
    Moreland            3        58         26         331          99       17.50      26.33       2.92          4.39
     1834.02            5                   22                     136                  16.15                     2.69
                        1                   14                     255                   5.48                     0.91
 Thornton Park
                        2        26         8          447          45        5.82      17.79       0.97          2.96
    1835.01
                        3                   4                      146                   2.73                     0.46
                        3                   7                       71                   9.88                     1.65
                        4                   3                      176                   1.71                     0.28
    Fernway
                        5        34         8          791         224        4.30       3.58       0.72          0.60
    1835.02
                        6                   7                      107                   6.56                     1.09
                        7                   9                      213                   4.22                     0.70
   S. Moreland          5                   26                     143                  18.14                     3.02
                                 99                    388                   25.53                  4.26
      1836.03           6                   73                     244                  29.87                     4.98
   W. Lomond            5                   34                     181                  18.80                     3.13
                                 87                    495                   17.58                  2.93
    1836.04             7                   53                     314                  16.87                     2.81
     Sussex             1                   9                      124                   7.27                     1.21
                                 30                    490                    6.12                  1.02
     1836.05            2                   21                     366                   5.73                     0.96
   E. Lomond            1                   12                      96                  12.50                     2.08
                                 39                    300                   13.00                  2.17
    1836.06             2                   27                     204                  13.24                     2.21
           Total                 457        457       5,861       5,861       7.80       7.80       1.30          1.30

Note: Correspondence between neighborhood and tract boundaries is inexact. Foreclosure counts are from Cuyahoga
County land sales for the period March 20, 2000 to March 1, 2006. Records appearing more than once are removed
from the database. Mortgaged units are estimated from Census 2000 SF-3 data.
Source: Cuyahoga County Land Sales database; Census 2000, SF-1 and SF-3; and City of Shaker Heights
neighborhood data.




                   Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                        28
             Appendix Table 2: Neighborhood Income and Foreclosure Rates

                                                                                 Median Household Income
                                                                Annual
          Neighborhood                  Census Tract          Foreclosure                       Share of
                                                                 Rate            (1999$)
                                                                                                Median


 Mercer                                         1833.00                  0.34       125,977            1.97

 Malvern                                        1832.00                  0.54       124,846            1.95

 Boulevard                                      1831.00                  0.55        54,231            0.85

 Fernway                                        1835.02                  0.72        71,205            1.11

 Onaway                                         1834.01                  0.91        79,121            1.24

 Thornton Park area                             1835.01                  0.97        47,384            0.74

 Sussex                                         1836.05                  1.02        55,357            0.87

 E. Lomond                                      1836.06                  2.17        60,556            0.95

 Ludlow/N. Moreland                             1834.02                  2.92        47,100            0.74

 W. Lomond                                      1836.04                  2.93        55,208            0.86

 South Moreland                                 1836.03                  4.26        40,972            0.64

 Total                                                                   1.30        63,983            1.00

Note: Median income levels are for City of Shaker Heights for 1999 (in 1999$).
Source: Census 2000, SF-1 and SF-3.




                  Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                    29
          Appendix Table 3: Block Group Level Demographic Characteristics


                                                                      Population Percentage
                   Census      Annual
                                           Population
 Census Tract      Block     Foreclosure
                                            Counts                   Non-                      Non-
                   Group        Rate                                                All
                                                         Total      Hispanic                  Hispanic
                                                                                  Minority
                                                                     White                     Black
                      1             0.25           753    100.0           85.5        14.5           9.0
  Boulevard
                      2             0.10           651    100.0           77.3        22.7          15.5
   1831.00
                      3             1.42         1,635    100.0           46.1        53.9          34.4
                      1             1.04           814    100.0           87.6        12.4           9.2
   Malvern
                      2             0.08           956    100.0           96.0         4.0           1.6
   1832.00
                      3             0.57           776    100.0           87.1        12.9           6.8
                      1             0.09           853    100.0           87.7        12.3           7.9
                      2             0.29           629    100.0           80.0        20.0          11.6
    Mercer
                      3             0.50         1,103    100.0           84.4        15.6          10.7
    1833.00
                      4             0.45           717    100.0           86.9        13.1           8.6
                      5             0.32         1,130    100.0           88.8        11.2           7.2
   Onaway             1             1.11         1,258    100.0           75.8        24.2          17.6
   1834.01            2             0.63         1,006    100.0           59.5        40.5          31.5
  Ludlow/N.           2             1.73           567    100.0           33.9        66.1          57.0
  Moreland            3             4.39           687    100.0            1.3        98.7          94.5
   1834.02            5             2.69           540    100.0           14.8        85.2          77.2
   Thornton           1             0.91         1,371    100.0           73.5        26.5          20.1
     Park             2             2.96           543    100.0           57.5        42.5          28.0
    1835.01           3             0.46           858    100.0           71.9        28.1          21.8
                      3             1.65           552    100.0           36.8        63.2          57.2
                      4             0.28           605    100.0           87.1        12.9           9.1
   Fernway
                      5             0.60           966    100.0           75.8        24.2          19.2
   1835.02
                      6             1.09           910    100.0           57.1        42.9          34.7
                      7             0.70           833    100.0           83.4        16.6           8.9
 S. Moreland          5             3.02           681    100.0            3.2        96.8          94.9
    1836.03           6             4.98         1,077    100.0            1.9        98.1          95.3
  W. Lomond           5             3.13         1,295    100.0           31.4        68.6          63.6
   1836.04            7             2.81         1,439    100.0           19.0        81.0          76.4
    Sussex            1             1.21         1,295    100.0           42.7        57.3          48.2
    1836.05           2             0.96         1,358    100.0           68.5        31.5          24.2
  E. Lomond           1             2.08           624    100.0           53.7        46.3          37.8
   1836.06            2             2.21          923     100.0            46.4       53.6          47.3
 Total                              1.30        29,405    100.0            59.3       40.7          34.0

Source: Census 2000, SF-1.




                 Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                30
         Appendix Table 4: Leading Plaintiffs at Foreclosure Sale, 2000-2006


                                     Plaintiff                     Number of Cases
                Bank One                                                         29
                Wells Fargo                                                      24
                JP Morgan Chase                                                  17
                Provident Bank                                                   15
                Bank of New York                                                 14
                National City                                                    14
                Third Federal                                                    13
                Bankers Trust                                                    12
                Countrywide                                                      12
                Mortgage Electronic Registry System                              12
                Deutsche Bank Trust                                              11
                Ameriquest                                                       10
                Citi                                                             10
                LaSalle Bank                                                     10
                Principal Residential                                            10
                Chase                                                              8
                Fleet                                                              8
                Aames                                                              7
                ABN AMRO                                                           7
                Equicredit                                                         7
                Firstar                                                            7
                US Bank                                                            7
                Argent                                                             6
                Associates                                                         6
                Charter One                                                        6
                Federal National Mortgage Assoc.                                   6
                INC Mortgage                                                       6
                Ocwen                                                              6
                Conseco                                                            6
                Altegra                                                            5
                Equivantage                                                        5
                Fifth Third                                                        5
                Subtotal for plaintiffs with at least 5 cases                   321
                All others                                                      136
                Total                                                           457

Note: Covers the period March 2000 to march 2006. Plaintiffs may be noteholders, servicers, and trustees
to the mortgage contract. Entities that are part of the same bank holding company and/or merged at some
point in the study period are not grouped.
Source: Cuyahoga County Land Sales database.




                Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                    31
Appendix: Benchmarking Foreclosure Trends in Shaker Heights

Due to the amount of difficulty involved in (1) cleaning the Cuyahoga County Land Sales
database and (2) constructing the ‗mortgages outstanding‘ denominator for the
foreclosure rate computation, benchmarking the performance of loans in the City of
Shaker Heights relative to those of other municipalities in Cuyahoga County in terms of
the main data point used to compare foreclosure activity across tracts and block groups
within Shaker Heights (i.e., annual foreclosures per mortgaged unit) in the report is
beyond the scope of this study. A less precise but nonetheless useful benchmark can,
however, be produced by using raw counts from the land sales database and a
denominator of owner-occupied housing units that is readily available from the Census
Bureau at the municipal level. This appendix uses this approach to provide information
that sheds light on the prevalence of foreclosure activity in Shaker Heights relative to that
of its neighbors. Map 3 shows that Shaker Heights is bordered to the south and west by
Cleveland, and by a series of smaller municipalities to the north, east, and southeast.


                  Map 3: Municipalities Surrounding Shaker Heights




             Note: The entity on Shaker Height‘s northern border labeled ‗1‘ on the map
             is University Heights. The entity labeled ‗2‘ inside Warrensville Heights to
             the south of Shaker Heights is North Randall.
             Source: http://en.wikipedia.org/wiki/Cuyahoga_County,_Ohio.



Appendix Figure 1 shows the annual rate of foreclosures per owner-occupied housing
unit across ten municipalities that either border or nearly border Shaker Heights.
Cleveland has the highest rate and Pepper Pike and Beachwood, to Shaker‘s east, have
the lowest. The Figure shows that, overall, Shaker Heights occupies roughly a mid-point
among nearby municipalities in terms of foreclosure rates.




              Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio             32
    Appendix Figure 1: Annual Foreclosures per Owner-Occupied Housing Unit

       percent
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     2.0

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Note: Data are for the period March 2000 to March 2006, duplicates not removed.
Source: Cuyahoga County Land Sales database and Census 2000.



The level of foreclosure activity also varies substantially among the municipalities, as
shown in Appendix Table 4. With 505 foreclosures, Shaker Heights was third behind
only Cleveland and Cleveland Heights over the study period. This seems, however, to be
mostly a reflection of the City‘s larger amount of owner-occupied housing units (the third
column of the table indicates that it also has the third largest number of owner-occupied
units).

Finally, there may be some interest in comparing municipalities‘ foreclosure rates by
income, on the theory that places that attract higher income residents tend to have more
sound housing markets. The inverse relationship between foreclosure activity and income
level is generally supported by the data in Appendix Table 5. The lowest foreclosure rate
occurs in the place with the highest median income (Pepper Pike) and the highest
foreclosure rate in the place with the lowest median income (Cleveland). Among cities
with median incomes roughly similar to that of Shaker Heights, both have lower
foreclosure rates. That of Beachwood (0.26) is about one-quarter of Shaker‘s (1.06) and
that of University Heights (0.66) is about three-fifths as high.




                     Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                                 33
               Appendix Table 5: Municipal Foreclosure Counts and Rates

                                                                Annual              Household
                                               Owner-         Foreclosures           Median
                               Total
      Municipality                            Occupied        Per Owner-             Income
                            Foreclosures
                                               Units           Occupied           (thousands of
                                                               Unit (%)              1999$)

 Pepper Pike                           19            2,106              0.15              133.3

 Beachwood                             50            3,266              0.26               65.4

 Orange                                29            1,120              0.43               89.7

 Woodmere                               5              133              0.63               32.1

 University Heights                   153            3,879              0.66               61.6

 Highland Hills                         8              146              0.91               31.7

 Shaker Heights                       505            7,935              1.06               64.0

 Cleveland Heights                  1,222           12,989              1.57               46.7

 North Randall                         13              131              1.65               28.2

 Warrensville Heights                 443            3,036              2.43               37.2

 Cleveland                          14,941          92,535               2.69              25.9
Note: Data are for the period March 2000 to March 2006, duplicates not removed.
Source: Cuyahoga County Land Sales database and Census 2000.




                 Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                34
Appendix: Data and Methods

Census Data

The research presented in this report is based on multiple sources of data. The first of
these is the 2000 Census of Population and Housing. The City of Shaker Heights is
entirely defined by 11 census tracts, which are divided into a total of 32 block groups.
The research uses tract and block group level population and housing data from SF-1.26
Throughout the report, Hispanic ethnicity is irrespective of race. That is, regardless of
the race class or classes selected by the respondent, all of those who self-identify as
Hispanic of Latino are considered Hispanic and excluded from other categories such as
‗white,‘ ‗black,‘ and ‗Asian.‘ (In practice this is a relatively minor issue as Hispanics are
only about one percent of the population.) Other groups are defined based on race using
the one-race counts and dropping multiple race respondents. Those classified as ‗white,‘
for example, are all respondents that self-identify as ‗white alone‘ and do not also
identify themselves as ‗Hispanic or Latino.‘ In addition to population data, the report
uses SF-1 variables for total housing units, occupied housing units, and owner-occupied
housing units.

The analysis also uses Census data from SF-3 (also called ‗long form‘ data). These are
sample data and go into additional depth relative to the SF-1 results.27 The report uses
SF-3 for income data at the tract level only, because the Census does not release income
data for Shaker Heights at the block group level. It also uses SF-3 to determine the
number of housing units with a mortgage in each tract (again, the Census Bureau does not
release this information at the block group level).

In order to meaningfully examine the variation in foreclosure activity across geographic
units (i.e., tracts and block groups), it is necessary to compare foreclosure rates rather
than simply the number of foreclosures. This is the case because, for example, the impact
and policy relevance of 20 foreclosures in an area with 100 mortgaged housing units (a
20 percent foreclosure rate) is far greater than in an area with 1,000 housing units (a 2
percent foreclosure rate). The report uses mortgaged units as a denominator in the
calculation of foreclosure rates. For this purpose it is necessary to combine the SF-1 and
SF-3 data as follows. SF-3 data for the number of mortgaged units and the number of
owner occupied units at the tract level are used to determine the ratio of mortgaged units
to owner-occupied units. This ratio derived from ‗long form‘ (i.e., sample) data is then
applied to the actual number of owner-occupied units from SF-1 to get an estimate of the
number of mortgaged units in each tract. Appendix Table 6 shows the ratios and the
differences between SF-1 and SF-3 data at the tract level.

The same tract level ratio is then applied to SF-1 data for the number of owner-occupied
units at the bock group level to produce an estimate of the number of mortgaged units in
each block. This number then serves as the denominator in the block group level

26
 SF-1 data are based on the ‗short form‘ of the Census. That is, these are not sample or ‗long form‘ data.
27
 See http://www.census.gov/Press-Release/www/2002/sf3compnote.html for a discussion of the
methodological implications of the differences between SF-1 and SF-3 data.


                Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                        35
foreclosure rate calculations. This methodology is imperfect to the extent that the share of
mortgages per owner-occupied unit varies among block groups within the same census
tract, which has not been examined by any published studies. In general, however, it
produces block group estimates of mortgaged units that are not biased in one direction or
another and as such are the best publicly-available source for this figure.


              Appendix Table 6: Estimating Tract Level Units with a Mortgage

                                                                  Ratio of
                                                                Mortgaged to
                       Owner-               Mortgaged                                  Owner-               Mortgaged
      Tract                                                       Owner
                    Occupied Units            Units                                 Occupied Units            Units
                                                                 Occupied
                                                                   Units
                                                                                                             Authors'
 Source -->               SF-3                  SF-3                 SF-3                 SF-1               Estimate

 1831.00                          615                   520                 0.846                 606                   512

 1832.00                          794                   547                 0.689                 800                   551

 1833.00                         1,472                 1,044                0.709                1,471                 1,043

 1834.01                          656                   487                 0.742                 690                   512

 1834.02                          494                   356                 0.721                 460                   331

 1835.01                          697                   418                 0.600                 745                   447

 1835.02                         1,035                  824                 0.796                 993                   791

 1836.03                          379                   314                 0.828                 468                   388

 1836.04                          737                   531                 0.720                 687                   495

 1836.05                          621                   516                 0.831                 590                   490

 18360.6                          459                   324                 0.706                 425                   300

 Total                           7,959                 5,881                0.739                7,935                 5,861

Note: SF-3 data are estimates by the Census Bureau based on long form responses. 'Authors' Estimate' is derived by
multiplying the ratio derived from Census Bureau estimated data (SF-3) to Census Bureau actual count data from SF-1.
Source: 2000 Census SF-1 and SF-3.

HMDA

Preparation of the 2004 HMDA data was straightforward. We began with the Ohio file
and dropped all records not in Cuyahoga County (county ‗035‘). We then dropped all
loans not in the 11 Shaker Heights census tracts. At this point the data set contained
2,957 records, including many applications for loans that were ultimately not originated.
Limiting the dataset to originated loans whittled it down to 1,355 records, which were



                  Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio                              36
reduced to 1,347 by excluding loans for the purchase of multifamily property (7 loans)
and manufactured housing (1 loan). These 1,347 loans formed the base dataset, for which
characteristics are presented in Tables 2 and 3.

Cuyahoga County Land Sales Database

The key resource that we had access to in calculating foreclosure levels and rates is the
Cuyahoga County Land Sales database. This is a record of all properties scheduled for
sale at a foreclosure auction, as well as the disposition of the property (sold or not) at the
auction. The database covers the period from March of 2000 to March of 2006 (records
from previous years are not computerized). It contains records for properties that are
scheduled for auction but which are withdrawn prior to the actual auction date because,
for example, the owner has declared bankruptcy. Because not all such withdrawals result
in a long delay, and because properties offered at auction do not always sell, there are
some instances in which the same mortgaged property with the same owner and lender
appear multiple times in the database.

In devising a solution to deal with these duplicate records we had to balance several
concerns. The first of these is the impact of simply doing nothing on the foreclosure
levels and rates we report. Clearly this is unsatisfactory because of the tendency to
overstate foreclosure rates on an annual basis. Devising an appropriate solution is not
straightforward, however. If, for example, we eliminate all but the last appearance of
property/borrower/lender combination in the database, any foreclosure trend will appear
to be steeper than it really is because only records from early years will have had a
chance to appear multiple times and thus be eliminated from the database. Likewise,
discarding later appearances of duplicate records results in the dampening of any time
trend, as duplicates are identified and carved out of later years but not earlier years.

We ultimately decided on a strategy of eliminating duplicate records only if they
occurred in the same calendar year. This has the advantage of allowing year over year
comparisons to be ‗apples to apples.‘ It also means that the definition of foreclosure rate
in the study is the share of mortgages outstanding that are scheduled for Sheriff Sales in
each year.

The original Cuyahoga County Land Sales Database contained 505 records that listed
Shaker Heights in the ‗city‘ field. Because we wanted to geocode these records to the
block group level we had to assess the quality of the property address information. This
was generally good beginning in 2003, though for earlier years the property description
and address fields were combined, resulting in the need to review each record and
separate the two data points manually. Following this, we geocoded the data using Tele
Atlas‘s EZLocate batch geocoding engine.28 Of the 505 records, 497 actually coded to
Shaker Heights and all but one of these 497 records was an exact address match. The
geocoding provided tract and block group data for each property in the Land Sales
database, allowing us to link sales data to HMDA and Census data.


28
     https://www.etakcentral.com/EZ_Locate/ez_subscribe.html.


                  Understanding Mortgage Foreclosure Trends in Shaker Heights, Ohio        37