EAST PRICE HILL - Diane Swain's house serves as a sanctuary in a life filled with challenges.
Her husband died young in 1990. A car wreck left her with an injured leg, a bad back and a daily regimen of expensive drugs. Her 31-year-old son hangs around the house, too severely autistic to work.
To pay for food, medical care, utilities and the mortgage on her century-old house on West Eighth Street, Swain squeezes every last penny from a $1,400-a-month Social Security check.
But her difficulties don't end there. Now a mortgage company in Southern California is foreclosing on her house.
Ameriquest Funding says Swain fell behind on a $91,000 loan. Her lawyers at the Legal Aid Society of Greater Cincinnati counter that predatory lenders and mortgage brokers duped her into a series of six loans saddled with high closing costs, suspiciously high appraisals and escalating monthly payments.
Swain, 56, wants to keep the house for her son, Jimmy, whose autism requires familiar surroundings.
"I'm going to fight for the house till the day I die," Swain said. "If I lose it, where are Jimmy and I going to live?"
While Swain's circumstances are especially dire, similar foreclosure notices were tacked to the front doors of more than 10,000 homeowners in almost every neighborhood of Greater Cincinnati and Northern Kentucky last year.
For the seventh straight year, foreclosure filings hit record highs not only here but in all of Ohio and Kentucky.
Record foreclosures were also a national phenomenon, and Ohio, Indiana and Kentucky were at the front. Through Sept. 30, Ohio led the nation with 3.32 percent of its home loans in foreclosure, according to the Mortgage Bankers Association.
Indiana was second at 2.9 percent; Kentucky, fifth at 1.76 percent. The national average was 1.05 percent.
Economists, lenders and consumer advocates blame the upswing on a stew of culprits: an unemployment bubble in the Midwest, an unquenching thirst for consumer debt, and mortgage scams on low-income homebuyers.
The unemployment rate stood at 5.1 percent in Ohio and 5.2 percent in Kentucky at the end of November, compared with a national rate of 4.3 percent. In the Cincinnati-Middletown market, the rate was 4.8 percent.
"What's going on in the job market is the most important factor in foreclosure and (loan) delinquency rates," said Mike Fratantoni, a senior economist with the Mortgage Bankers Association. "In the Midwest, unemployment rates have been higher in the rest of the country, in the automotive industry in particular. If a homeowner loses his job in a market that were strong, he could quickly sell his home" instead of losing it to foreclosure.
Jim Russell, managing director of core strategies and assets management at Fifth Third Bank, said Ohioans are vulnerable to the vagaries of the auto industry.
"Ohio has the second-largest exposure to automobile manufacturing in the United States," he said. As the Big Three close plants and cut jobs, "this creates job loss pressure, especially in the northern part of the state," Russell said.
Foreclosures rose disproportionately across Greater Cincinnati in 2006. The number of new filings rose an estimated 27 percent in Butler County and 22.8 percent in Clermont County, but less than 9 percent in Warren County.
Butler County bore the brunt of AK Steel's lockout of 1,800 workers in Middletown last February. The county's unemployment rate averaged more than 6 percent from March to September, when the steelworkers' joblessness benefits ran out. Unemployment stood at 4.8 percent in November.
Jim Tyler, a spokesman for Local 1943 of the International Association of Machinists and Aerospace Workers at AK, said he knows of "quite a few" foreclosures among the rank and file.
"A lot of them have gone from not having a paycheck to losing their homes and having their cars repossessed," Tyler said.
Banks can lose, too
Homeowners aren't the only losers when foreclosures happen. Banks themselves stand to lose a bundle on loans that go bad and collateralized homes worth barely more than the ground they stand on, said Kirk Sampson, a Cincinnati lawyer who has filed foreclosure cases for lenders for 32 years.
"Lenders are getting killed by this stuff," Sampson said. "There's no lender out there that wants a foreclosure. Lenders lose a lot of money on foreclosures. By the time they complete the foreclosure process in Ohio, they take a huge bath - 50 cents on the dollar sometimes."
Among lenders, the biggest losers are those that lend to the riskiest customers, so-called "subprime" borrowers with the worst credit. As of Sept. 30, 12.56 percent of all subprime mortgage loans were delinquent, compared with 2.44 percent of loans made at prime interest rates to people with good credit, according to the Mortgage Bankers Association.
"Banks are choking on what is know as real estate owned," Sampson said. "It's generally junk property that needs a lot of work."
If foreclosed homes aren't sold at public auction, they end up in the listings of real estate brokers such as Butch Magner of Huff Realty in Fort Mitchell. He sells foreclosure homes in "as is" condition for about 10 lenders. Most properties, he said, fetch less than their previous selling price. Most bring down the value of homes around them.
"For the most part, they're in fair to poor condition," Magner said.
"Over 2½ years, foreclosures have tripled or quadrupled," he said. "They're everywhere, from the inner city of Covington and Newport up to Edgewood and Burlington and Fort Mitchell."
Sampson said lenders work with defaulting customers by putting them on a repayment plan. But for now, the combination of easy credit and free spending is fuel on the foreclosure fire. "It's a social epidemic, but one that will eventually run its course because lenders will realize that their rate of return on these loans is not what they expected and they'll stop making these types of high-risk loans," Sampson said.
The mill grinds steadily
Nick DiNardo gags at the notion of out-of-town lenders working to keep struggling homebuyers out of foreclosure. A lawyer with the Legal Aid Society, he blames home-flipping, deceptive lending and mortgage fraud for the rash of foreclosures. The victims are typically unsophisticated working-class people buying their first house, responding to home-equity loan pitches or rent-to-own schemes.
Trying to negotiate a modified repayment plan with a lender is futile most of the time, he said. "It's almost impossible to get a person to talk to you."
"There've been times when the client had the money, but we couldn't get ahold of the attorney to see how much was needed to resolve the case," he said. "The way these things work in court, it's almost like a mill. There's almost nothing that can slow the process down."
In Swain's case, Legal Aid couldn't find the mortgage broker who handled four of her six loans. But it was able to help in the case against her in Hamilton County Common Pleas Court.
The nonprofit organization filed a counterclaim against eight lenders, brokers, salespeople and an appraiser. It alleges fraud, negligence, conspiracy, unjust enrichment and violations of various state laws.
The appraiser valued Swain's house at $90,000 in 2003, almost four times its current appraisal of $25,000. Most of the $91,800 that Swain borrowed went toward the payback of her original mortgage, medical expenses and home improvements required by the city of Cincinnati's building department. But $23,300 of it was paid out in loan closing costs and prepayment penalties.
"It' never crossed my mind that I could lose the house," Swain said.
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