The View From The Ground

The subprime crisis in Cleveland (h/t Undiplomatic):

“All over Cleveland, lenders from across the country were pouring money into communities that not long before had complained about being redlined.

Much of that money, from National City and other banks, found its way to Slavic Village, the childhood home of Rep. Dennis J. Kucinich (D), which local officials call ground zero for the foreclosure crisis. For decades, the neighborhood, which abuts a steel mill in the city’s southeast, was a struggling working-class community with an aging population and few new residents. But Slavic Village underwent a dramatic change beginning in the late 1990s as the tide of mortgage money flooded the area with new homeowners, lifting prices to unprecedented heights. Thousands of the neighborhood’s small wooden homes turned over, with investors selling to new buyers at multiples of their purchase price, sometimes within months, and often after making only cosmetic repairs.

“The deals became toxic immediately,” said City Council member Anthony Brancatelli, who for 17 years headed the Slavic Village Development Corp. “What should have been $20,000 or $30,000 homes became $80,000 or $90,000 homes with toxic loans.”

The result has been a rush of foreclosures. The number of foreclosure sales in the five-square-mile neighborhood swelled from 114 in 2001 to 840 last year. In the first six months of this year, 316 Slavic Village properties have been through foreclosure, according to figures compiled by the development corporation.

The story has been repeated to varying degrees throughout Cleveland, and the result has been the virtual collapse of the city’s housing market. Livable homes can be had for as little as $6,000 or $7,000, while many others have tumbled into complete disrepair, leaving city officials in a desperate battle against the resultant blight. In Slavic Village alone, more than 50 arson fires have been set this year, while many of the vacant homes are ravaged by scavengers, looking to cash in on the copper wiring and plumbing and aluminum siding that they sell as scrap metal. It is a stunning decline that is sure to shrink the city’s property tax base for years to come.”

According to that article, “nearly 10 percent of the city’s properties have gone into foreclosure.” That’s staggering. I’m trying to imagine being someone whose home is in Slavic Village, who has worked hard, been responsible, and made all her mortgage payments, and who sees her property values plummet because of the burnt out and boarded up houses all around me. In particular, I’m trying to imagine my reaction to Alan Greenspan saying that he had “found a flaw” in his ideology, or to the news that “the bailout is now the hottest lobbying game in town.” Unfortunately, it’s unprintable.

And it’s not just homeowners, of course. Under the best of circumstances, many cities have tax problems. They have higher tax rates than the surrounding suburbs; as a result, people who can move to those suburbs do so; as a result, the city’s tax base shrinks, and it has to raise taxes some more; rinse and repeat. When nearly ten percent of homes go into foreclosure and property values fall drastically, that problem gets much, much worse. And it’s not as though people considerately stop committing crimes, going to school, or in some other way drawing on municipal services until the city’s budget problems are over. On the contrary: their needs go up at the precise time when cities cannot pay the bills.

We’re in for a world of hurt.