State takes aim at lenders
Subpoenas set after mortgage relief rejected

The state is going on the offensive against lending companies that have declined to become part of a plan to modify subprime loans instead of foreclosing on homeowners.

More than a dozen civil subpoenas are expected to be issued as soon as today to "multiple companies in multiple levels of the industry," seeking evidence of violations of antitrust, civil-rights and consumer-sales-practice laws, Attorney General Marc Dann said.

The failure of subprime-mortgage servicers to become part of the plan "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," Dann said.

The attorney general estimated that 25 percent of subprime foreclosure cases involve some fraud.

Gov. Ted Strickland had set a deadline for the biggest holders of subprime loans in Ohio to agree to work with consumers on modifying problem loans.

But that deadline passed Wednesday without a single loan servicer agreeing to the plan, so Strickland and other state officials yesterday announced a get-tough policy.

Updated state regulatory rules are being pursued by the Ohio Department of Commerce. They would include requiring that borrowers be notified six months before interest rates are scheduled to rise, said Kimberly A. Zurz, the department's director.

Subprime loans generally have adjustable rates that rise a number of times, sometimes leaving consumers with monthly mortgage payments that are hundreds of dollars a month more than when they first signed.

"We have no choice but to take an aggressive plan of action," Zurz said.

Strickland said the door is still open for loan providers to talk with his administration.

Chief Justice Thomas J. Moyer, who appeared at a news conference with Strickland, Dann and Zurz, also announced a test project in Franklin, Cuyahoga and Montgomery counties that would provide lawyers to serve as mediators to resolve foreclosure cases before they are filed.

The governor last month asked the 11 largest subprime loan providers to agree to make home preservation a priority by using methods such as offering to switch homeowners with adjustable-rate mortgages to fixed-rate loans at lower interest rates.

Strickland told the providers they had until Wednesday to sign a "compact" to work with customers to modify subprime loans.

The Ohio Mortgage Bankers Association sent a written response to the governor outlining its position, spokesman Jeff Wherry said. He declined to release the letter.

Strickland said the association response was not adequate and that the administration wants to deal directly with loan servicers.

Chase spokesman Jeff Lyttle said the bank supported the mortgage association's response and sent the governor one of its own.

Chase said it "understands the intention behind the (Ohio) compact," but thinks a "consistent national approach to foreclosure prevention is the most effective way" to help consumers, according to a letter to Strickland signed by James Miller, a senior vice president at Chase.

The move to have the mortgage-loan providers agree to the compact is part of the Strickland administration's response to the growing subprime mortgage crisis in the state.

Subprime loans typically are offered to consumers with less-than-ideal credit histories and carry higher interest rates.

Ohio ranked No. 5 in the nation based on the rate of foreclosure in the third quarter. A total of 46,818 homes went into foreclosure during that period, representing one foreclosure filing for every 107 households.

There are signs that the situation in Ohio could grow worse.

Billions of dollars worth of adjustable-rate mortgages -- many of them subprime loans that have rocked the housing industry -- will be resetting in coming months, potentially leaving thousands more families facing foreclosure.

"The industry has ignored the diplomatic efforts of the governor to partner in a joint effort," said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. "This is devastating our communities."

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