Ohio has big obstacles before it can recover from the widespread foreclosures, sluggish sales and squashed values of the housing collapse.
In a report released Wednesday, the Federal Reserve Bank of Cleveland notes that Ohio’s housing woes pre-dated the housing crisis that started five years ago for two reasons: First, many of Ohio’s older, industrial cities have been suffering from population exodus and limping economies for years. So the supply of housing has far exceeded the demand. In addition, the state’s foreclosure rate was already high before the last recession.
“These developments make Ohio a special case that does not fit neatly into the more familiar boom-bust narrative observed on a national scale,” the report said.
The Cleveland Fed does make five significant recommendations that it says could help the state bounce back. The recommendations are based on years of research and discussions with Ohio bankers, community development leaders and others in the housing market.
• Speed up the foreclosure process.
“It takes a long time – an average of one to two years – for mortgage loans to go from delinquency through the foreclosure process in Ohio,” the report said. Long, drawn-out foreclosures can mean damage to the property, crime, a declining in housing values in the neighborhood and money wasted on legal affairs.
A fast-track for foreclosed properties that are abandoned would help mitigate these problems.
Several states, including Indiana, Illinois, New Jersey, Wisconsin and Colorado have passed laws to accelerate foreclosures for non-tax foreclosures if the home is abandoned. They allow for a sale within 35 to 120 days.
• Eliminate minimum-bid requirements.
Ohio law now requires bids at the first auction to be at least two-thirds of the home’s appraised value. “Unfortunately, minimum bids may have the unintended consequences of pricing some helpful property rehabbers out of the market,” the report said.
Frequently, buyers of foreclosed properties are the banks themselves because they don’t have to put up cash. It might be better to open foreclosure auctions to more property investors and helpful rehabilitators, the report said. This would eliminate the banks serving as the middle man, which would save money and time.
• Eliminate harmful speculation.
Some entities buy low-priced homes with no intention of investing in it or paying property taxes. This is allowed to happen because a corporation can buy a property without being registered to do business in Ohio. This means the state isn’t able to go after the property owner for code violations or failure to pay back taxes.
This could be addressed if prospective property buyers were required to register with the Ohio secretary of state and pay back taxes or correct code violations before low-priced properties could be transferred to new owners.
• Expand access to land banks.
The Ohio law passed in 2009 to create modern land banks has been good, but access should be expanded, the report said. Land banks are nonprofit organizations created by a county to acquire vacant properties and either rehabilitate it or demolish it, which can reduce the oversupply of housing.
The law was initially aimed at Cuyahoga County and was later amended to include 41 additional counties. Only 15 of those have established land banks. Each county should have the ability to create a land bank if one is needed, the report said.
• Improve data collection.
Information about properties, including home sales, property tax information and more is collected and stored in a variety of ways by different communities statewide. A standardized, electronic format would help everyone understand the market better and make better decisions.
The Cleveland Fed has no authority over the entities that could act on its recommendations, such as the Ohio General Assembly or county governments. Typically, legislators and other decision-makers take Fed reports under consideration.
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