The carrot didn’t work, so the state is turning to the stick to address the state's high foreclosure rate.
Gov. Ted Strickland set a deadline for the biggest holders of subprime loans in Ohio to voluntarily agree work with consumers to modify those loans rather than foreclose on them. That deadline has passed without any servicer agreeing to the plan, so Strickland and other state officials plan a crackdown on lenders.
Attorney General Marc Dann said he plans to issue more than a dozen civil subpoenas as soon as tomorrow to “ multiple companies in multiple levels” of the mortgage industry seeking evidence of possible violations of antitrust, civil-rights and consumer-sales-practice laws.
Dann said the failure of subprime mortgage servicers to sign the proposed agreement “speaks volumes about their crass disregard for the people they have hurt and the communities they have destroyed, house by house, street by street, block by block.”
The attorney general estimated that more than 25 percent of subprime foreclosure cases involve some fraud by lenders.
Kimberly Zurz, director of the Ohio Department of Commerce, also said she is pursing new state regulatory rules for lenders that would include requiring a six-month notice to borrowers that their interest rates are going up.
“We have no choice but to take an aggressive plan of action,” she said.
Strickland said the door is still open for loan providers to talk with his administration, and Chief Justice Thomas J. Moyer announced a test project in Franklin, Cuyahoga and Montgomery counties that would provide lawyers to work as mediators to resolve foreclosure cases before they are filed.
The governor last month asked loan providers, such as JPMorgan Chase, Ameriquest Mortgage, CitiGroup, HSBC, Wells Fargo Mortgage and Washington Mutual, to agree to make home preservation a priority, including the possibility of switching homeowners to fixed-rate loans at lower interest rates.
Strickland told the mortgage loan providers they had until Wednesday to agree to a compact with the state saying they would work to modify consumer subprime loans or face possible legislative action that would force such measures.
The agreement was supposed to be signed between the state and the mortgage servicers today.
According to the Ohio Housing Finance Agency, quoting numbers from financial-services giant Credit Suisse, $14 billion worth of adjustable-rate home loans in Ohio are expected to reset at a higher interest rate by the end of 2008, bringing higher monthly bills to 200,000 Ohioans.
The Columbus Dispatch : State to get tough on lenders that foreclose