Pathways to Foreclosure: A Longitudinal Study of Mortgage Loans, Cleveland and Cuyahoga County, 2005-2008

Foreclosure rates in Northeast Ohio have grown exponentially in recent years and present unprecedented challenges for communities, governments and households. The purpose of this study is to take a deeper look at the connection between foreclosures and the circumstances surrounding the mortgage loans that are the subject of these foreclosure filings, by looking at local records and Home Mortgage Disclosure Act (HMDA) data. The study finds that by far the strongest predictor of a loan foreclosing is its status as a high cost subprime loan. These loans were geographically concentrated, fueling additional foreclosures. In addition, African American borrowers at all income levels were much more likely to receive high cost subprime loans than their white counterparts, leading to high rates of foreclosure in this population. It was also found that a small list of lenders accounted for the majority of the foreclosures in Cuyahoga County, most of which were classified by HUD as subprime lenders. These findings suggest several strategies at the local level. First, localities should monitor lending practices in their area using data like the HMDA data set; such information should be made available to localities as a public service to allow them to monitor what is happening in their communities. Individual borrowers should also be educated about acquiring a loan, and access to local banks should be increased. Local governments and nonprofits should help borrowers after a foreclosure is filed so that they can stay in their homes. Finally, localities should receive and hold foreclosed properties until productive development can take place.