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Ohio Still Waiting on Millions of Dollars Needed to Deal with Mortgage-Mess Blight, Senators and Advocates Say

cleveland.com | September 17, 2014

By Stephen Koff

WASHINGTON, D.C. – Feeling forgotten and still in need, a coalition of Ohio housing activists, mayors and Congress members hope to tap into a national $16.65 billion mortgage fraud-and-abuse settlement so they can use some of the money to alleviate the state's widespread housing blight.

The latest request from the Ohioans, for $100 million, involves a Bank of America settlement with the Justice Department over the sale of mortgage securities that misled investors. But it builds on an effort from late last year to tap into a similar settlement with JPMorgan Chase – a settlement that left Ohio empty-handed when it came to money for bulldozing ugly, empty houses.

There could be additional federal settlements with other mortgage lenders accused of fraud, so if the Ohio coalition doesn't succeed now, it says it won't give up.

"They keep trumpeting these settlements. Where are the hard dollars for the communities that were hit the hardest?" asked Jim Rokakis, director of the Thriving Communities Institute at the Western Reserve Land Conservancy. Rokakis has led Ohio's land bank movement and is prominent in the drive to tear down raggedy, abandoned property to improve neighborhoods.

He and other Ohioans say they have learned a lesson. They also may have played a small role in requiring banks that settle mortgage abuse or fraud claims to be more responsive to local needs. It is too soon to know, however, whether the Ohio coalition will get the $100 million in wants for housing demolition, rehabilitation, mortgage counseling and green space.

Ohio had 369,729 foreclosures from 2009-13, according to U.S. Sen. Sherrod Brown, an Ohio Democrat. No county was hit harder than Cuyahoga, with 58,796 foreclosures during that time.

And many of those properties still sit vacant, some boarded up, some stripped of anything that scavengers could carry. Cleveland alone has 14,000 vacant structures, and 8,000 are in such poor shape that they should be razed, says the Thriving Communities Institute, which is working with Ohio mayors and Congress members.

Brown, fellow Sen. Rob Portman, others in Congress and a coalition of 21 Ohio mayors, including those of Cleveland, Akron, Columbus and Cincinnati, want banks to help the scarred communities recover. With settlement money, civic and government groups say they could turn vacant lots into green plots, ready for redevelopment and parkland. They say that neighbors would no longer suffer from the declining housing values and sense of desolation that dilapidated, vacant housing creates.

When JPMorgan Chase settled its mortgage fraud case with the federal government for $13 billion last November, the Ohioans, promoting what they called "The Ohio Plan," asked if they could get $140 million in cash for home demolition, plus more for related activities. But the settlement did not specifically require the bank to hand out cash for that purpose. And the settlement allowed the bank to count toward its settlement value the amount of its home-debt reduction, or reductions in outstanding loan balances that exceeded a home's value.

Rokakis, a former Cuyahoga County treasurer, said he agrees that helping underwater homeowners is worthwhile. But banks were doing that anyway. It was one of the only ways they could recover some of their loans without risking more foreclosures and greater losses.

"I'm not saying they don't deserve credit on some front," Rokakis said. "But we're more interested in hard cash."

After the J.P. Morgan Chase settlement failed to yield help for the Ohio effort, the Thriving Communities Institute and its growing coalition took their complaint to Steven Dettelbach, the U.S. attorney for the Northern District of Ohio. In turn, Dettelbach brought their concerns to others in the Justice Department and arranged a meeting with the special master, or appointed overseer, helping to structure the then-pending Bank of America settlement.

That may have played at least some small role, Rokakis said, in stricter settlement language when the Justice Department announced the Bank of America settlement on Aug. 21.

As Frank Ford, senior policy adviser at the Thriving Communities Institute, put it, "there has been a progression" in the requirements made of banks in settlements since the one with J. P. Morgan Chase.

For example, Ford said, a Justice Department settlement in July with Citibank, worth $7 billion, includes a provision for Citibank to spend at least $25 million on activities associated with land banking, or the assembling of properties by organizations that can demolish homes and put the land to new use. This was far more specific than the settlement with J.P. Morgan Chase, which had no such requirement.

The Bank of America settlement, announced last month, calls for at least $50 million for land banking, said Ford, who chairs Cleveland's Vacant and Abandoned Property Action Committee.

The settlement will also provide almost $1 billion to state retirement funds in California, Delaware, Illinois, Kentucky, Maryland and New York. Like the Justice Department, attorneys general in those states said the funds were misled when they bought bonds that turned out to be backed by sinking mortgages sold by Countrywide Financial and Merrill Lynch. Bank of America acquired those companies and absorbed their liabilities.

The Citigroup and Bank of America settlements both provide a big incentive for the banks to help the land bank initiative.

Every time one of those banks gives away $1 worth of property for this purpose, they can account for that as $2 toward their broader settlement obligations to provide $7 billion worth of consumer relief. The $2 credit for every $1 spent provision is in other parts of the settlements, too, suggesting that the announced value of the settlements was based as much in public relations as in reality. But the Ohioans who want to get rid of blight are not complaining.

Brown and Portman wrote to Bank of America on Sept. 12 to note that its settlement "authorizes credits for activities that fight foreclosure and blight, including: demolition costs; real-estate-owned (REO) property donations; financial contributions to non-profit organizations performing rehabilitation; and donations to housing counseling and legal aid organizations."

They continued, "As you develop a plan to allocate consumer relief, we urge you to work with the Ohio community groups who have led neighborhood stabilization efforts in their communities, which are among the hardest hit communities in both the state and the nation."

A Bank of America spokesman has not yet returned a call to address whether Ohio will see some of the money. It may be too soon for the bank to have such a specific plan.

But Brown today said he is hopeful.

The funds won't reverse the mortgage crisis that hit Ohio particularly hard. Brown last year moved into an area of Cleveland whose zip code, he said, had the nation's highest foreclosure rate in 2007. And Cuyahoga County still suffers from other economic problem and has a foreclosure rate that is 2.5 times the national average, Rokakis said.

But banks made billions in profits, Brown said, and "it's time for them to return some of that to the community."

 

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