Tuesday, September 16, 2008

When Foreclosures First Started Making Headlines Here

Three years ago this week, the Columbus Dispatch ran an excellent series on a problem that was just then beginning to explode: suburban foreclosures due to bad loans made by greedy lenders, and trapped homeowners who were making their payments, but couldn't sell their homes because the rash of foreclosures in their neighborhoods had lowered property values to the point where even owners who were making their payments had significant negative equity.

For many readers, this was the first look at what would eventually become known as the sub-prime mortgage crisis. The highest profile target of the paper's investigation was Dominion Homes:

-Dominion's two-year default rate is the highest in the nation among homebuilders with mortgage divisions that handled more than 1,000 Federal Housing Administrationbacked loans. It ranks fifth among all types of large lenders.

-The company leads the state in the number of homeowners who defaulted on FHA loans within two years of closing: 221 between August 2003 and July 2005.

-11.5 percent of Dominion?s customers in Franklin County have fallen more than three months behind on their FHA mortgages in their first two years of homeownership. That?s nearly 2? times the national figure. At least half of Dominion?s customers have government-backed mortgages.

-Nearly a third of the Franklin County houses and condominiums built since 1998 that have been listed for sheriff?s sales involved Dominion buyers, a Dispatch analysis found. Of the 1,253 new homes sent to public auction, 395 were built by Dominion and 295 by its larger competitor, M/I Homes.

-Since 2000, Dominion is the only central Ohio builder whose mortgage practices have raised red flags at the U.S. Department of Housing and Urban Development, which insures FHA loans. HUD auditors found violations that included false or undocumented income levels for buyers.

When loans go bad, FHA reimburses lenders 100 percent, removing all risks to them and to the brokers who arrange the financing. The reimbursements are paid from insurance premiums paid by every FHA borrower.
As a result of the series, Dominion Homes was subjected to increased HUD scrutiny, lawsuits from customers, and a loss of business. They eventually sold off a majority share of their mortgage business to Wells Fargo.

Even so, the CEO of Dominion Homes was sure to point out at the time the article was published, "that his company operates within the law and remains in good standing with HUD."

Is it possible that Dominion had a friend on the committee that oversees banking and credit?

Someone who introduced a bill to loosen borrowing requirements for government-backed mortgages?


1 comment:

Paul said...

This is the problem in American politics. If you want to understand the agenda of a politician, just look who funds their campaign.

My Dad was a staunch, vote-the-slate labor Democrat. He and I debated for years about regulation vs free markets. When I was younger, I often thought him old fashion and out of date. As I have grown older, I recognize the wisdom of his words.

I remember in particular when the deregulation of the banking industry began. Dad was a child of the Depression, and said that commercial banking, investment banking, and insurance were purposefully separated from each other so that the risks taken in one of those industries was not transfered to the other. The particular interest was to keep the commercial banking system safe (primarily for individuals).

Today, we're seeing what happens when that lesson is forgotten. I'm about as conservative an investor as you can imagine, and today I wake up to news that my funds in money market accounts may be at risk. The only reason they're in a money market fund is that I felt the equity-based mutual fund they were in was too risky, and cashed out a few months ago.

Knowing that this Presidential campaign will cost each candidate upwards of $1 billion, how can we trust that either is really looking out for you and me, and not the big-money interests that funded their campaigns?