Thursday, January 17, 2008

Bill Evans

If 2008 is the year for you to buy a new home, read on because this column will help you prepare.

As I’ve said in previous weeks, we are in a buyers’ market and will continue to be through 2008. Throughout this year, buyers will find more deals and may be able to purchase a home that was out of their budget at one point in time.

The start of the new year is when people think about what they want to improve in their life or change, and if you are thinking about buying a home there are definitely things to think about now.

With the mortgage industry still in a bit of a slump, it’s important that you make sure your credit and finances are in order. Work to pay off those credit card debts, because having a high amount of debt may lower the amount of mortgage a lender may be willing to give you. Make sure you know your credit score. It’s the law that the main credit reporting bureaus provide you with a free copy of your credit report once a year, so make sure you obtain that, read it and understand it.

Another thing you must understand before starting to search is how much you can afford to spend on a home. There are different ways to figure that out. You can ask a lender who can pre-approve you or you can go online. Every major mortgage lender has a Web site that can help you out.

If you work with a lender, he or she will look at your income, debt, assets and liabilities and come up with a dollar amount of what you can afford to spend.

After you know and understand what you can afford, it will save you time and stress in the long run because you won’t be looking at homes that aren’t in your price range.

When you decide you are in the market, it’s time to choose a Realtor. A good Realtor will help you avoid common pitfalls, make wise home-investment decisions and bring order to the entire home-buying process.

When looking for a Realtor, search for someone who has easy-to-use tools that will make the process easy and fun for you. Having your own page on a Web site devoted just to you and your search — one that lists property photos, open houses and offers easy communication with your Realtor — will make this important process more enjoyable.

So, now that you know what you can afford and you’ve chosen a Realtor, start looking. Remember that a house is more than just a roof over your head. It’s a home, and with a home comes a neighborhood. It’s important that you take a look around the neighborhood and make sure that it is a fit for you and your family.

If you have made the decision that this is the year to buy a new home, always remember that all real estate is local. So when reading reports about the 2008 real estate market, remember that what is reported nationally may not be accurate for your hometown.

Like I’ve stated in previous articles, the Columbus market is in a much better position than the national market.

By DAVID RUNK – 6 hours ago

DETROIT (AP) — Rising foreclosures will lead to billions of dollars in lost economic activity next year in the nation’s major metropolitan areas, but homeowners and financial institutions have the ability to work together to contain the effects, according to a report compiled for the U.S. Conference of Mayors.

The report was released Tuesday ahead of a meeting of mayors from across the country in Detroit, where they hope to create policy recommendations to help address the nation’s housing crisis.

Prepared by forecasting and consulting firm Global Insight, the report said weak residential investment, lower spending and income in the construction industry and curtailed consumer spending because of falling home values will combine to hold back the nation’s economic activity.

“The wave of foreclosures that has rippled across the U.S. has already battered some of our largest financial institutions, created ghost towns of once vibrant neighborhoods — and it’s not over yet,” the report said.

The biggest losses in economic activity are projected for some of the nation’s largest metropolitan areas. New York is expected to lose $10.4 billion in economic activity in 2008, followed by Los Angeles at $8.3 billion, Dallas and Washington at $4 billion each, and Chicago at $3.9 billion.

The report estimates U.S. gross domestic product growth in 2008 will be 1.9 percent, coming in about $166 billion — or one percentage point — lower as a result of mortgage problems. GDP is the value of goods and services produced and is considered the best barometer of the country’s economic fitness.

The report also projects property values will decline by $1.2 trillion in 2008, due in part to the foreclosure crisis, with drops in home prices across the U.S. averaging 7 percent. And it said the loss of property, sales and real estate transfer taxes will hurt local and state governments.

But homeowners, banks, holders of mortgage-backed securities and loan servicers can work together to ease the economic effects, the report said. Agreeing to new payment terms on some loans, for example, could make the difference between a family keeping a home and losing it in foreclosure.

“Such actions will help to lessen the number of foreclosures thereby avoiding the further negative effects on local housing markets and on the broader economy,” according to the report, titled “The Mortgage Crisis: Economic and Fiscal Implications for Metro Areas.”

The National Forum on Homeownership Preservation and Foreclosures, organized by the Conference of Mayors, includes discussions about the state of the mortgage industry, ways homeowners can avoid foreclosure, and strategies to keep foreclosed properties from dragging down the quality of life in neighborhoods.

Recommendations developed at Tuesday’s forum, which is closed to the media, are to be presented at a Conference of Mayors meeting in January.

“We’re coming to Detroit with a dogged determination to fight for the families in our cities, our cities and the national economy,” said Douglas Palmer, mayor of Trenton, N.J., and president of the mayors group. “We’re optimistic that we’re going to come up with models that will work.”

In addition to Palmer and Detroit Mayor Kwame Kilpatrick, who is hosting the gathering, mayors expected to attend include Jerry Abramson from Louisville, Ky.; Michael Coleman from Columbus, Ohio; Richard Kaplan of Lauderhill, Fla.; Brenda Lawrence of Southfield, Mich.; and Elaine Walker of Bowling Green, Ky.

The housing market slump has made it harder for financially strapped home buyers to sell their homes and avoid missing payments or losing their homes in foreclosure. Increasingly, many borrowers who took out adjustable-rate mortgages and other loans with monthly payments that increase after an initial period also are finding they can’t afford the higher payments.

Jim Diffley, managing director of Global Insight’s regional services group, wrote the report with his team and was to discuss the forecasts during the mayors’ meeting. He said the goal was to provide a broad look at the effect of foreclosures, a problem mayors are keenly aware of locally.

“This is not a new issue,” Diffley said. “We’ve know about it. It’s been swelling up.”

The developers of a Downtown condominium building plan to offer many of the units at auction next month, a fire sale that reveals at least some cracks in the urban housing market.

Partners in Urban Loft Ventures say they want to sell 24 of the 54 units at Carlyles Watch, 100 E. Gay St., at auction on Oct. 28.

The reason: They need money to pay off lenders and don’t want to hold units that they can’t sell. So far, only 19 of the units have sold or are in contract in the eight-story building at the corner of Gay and 3rd streets that was completed in early 2007.

The partners say they will hang onto at least 21 of the units and will use the auction to set their prices, which already have been cut.

“I don’t want to be throwing darts at the wall to determine how much I should cut my price,” said Paul Sherlock, one of Urban Loft’s three partners. “I feel this auction is going to be a pretty good determiner of what my units will be valued at.”

Like other parts of central Ohio, the Downtown housing market has slowed this year.

The Columbus Board of Realtors said homes sales are down 4.7 percent in central Ohio through August, and the average sale price of existing homes during that period has dropped 1.2 percent to $175,120.

What’s happening at Carlyles Watch is a logical outcome of the ailing market, said Harrison Smith, chairman of the Downtown Commission.

” Slowed is the relevant word,” he said. “It doesn’t mean what people take it to mean, that the thing is a total flop and bankrupt.”

Nor does it mean all Downtown housing projects are suffering from a lack of buyers.

Nationwide Realty Investors’ Burnham Square, for example, sold the last of its 98 condos this month, well ahead of schedule. Nationwide’s Arena Crossing has a waiting list for its 252 apartments. While construction isn’t finished on Nationwide’s Condominiums at North Bank Park, more than a third of the 109 units are spoken for.

But it isn’t only Carlyles Watch that’s suffered from a sales slump.

At Miranova, 23 condos priced from $379,900 to $1.7 million are on the market. That’s roughly one in five.

Since early this year, developers have advertised giveaways and price cuts as ways to lure buyers. At the Hartman Building on 4th Street, developers have responded to the market by reducing the size and price of condos in the second phase of the building.

Kevin Wood, president of the Downtown Residents Association of Columbus, said this summer that he talked to three couples in one day who wanted to move Downtown but couldn’t find buyers for their suburban houses. That ripple effect has bogged down sales for most of this year.

Sherlock believes the auction could affect future Downtown condo sale prices but only minimally because they appeal to different buyers. Condos in the Arena District, for example, could retain their value because of the location.

An auction is a sales tool that other Downtown developers have not resorted to in order to boost sales.

“It’s not the ideal situation for sales,” said Kyle Katz, who’s developing the Buggyworks condo project near the planned baseball stadium, Huntington Park. “But it does, hopefully, take these units off the marketplace and puts people Downtown.”

Other developers also like the fact it could reduce supply and increase demand.

Bill Shelby, who said he has sold more than half of the 48 units at his CityView at 3rd project, said he expects the auction to create a buzz that will help CityView.

“People already are calling me that we wouldn’t have gotten before,” he said. “I don’t know what’s going to happen at the auction, but if they knock it over the fence, that might be a good strategy.”

Dan Schmidt, who has developed several condo properties Downtown, doesn’t think the auction will set a precedent.

“This is a once-in-a-cycle opportunity for people to take advantage of a pricing and situational opportunity,” he said. “They have inventory and decided to liquidate to stimulate sales.”

The owners of Carlyles Watch say some units could sell at a deep discount. Urban Lofts partner Tom Fortin said he expects to sell units that originally were priced at $265,000 “for something close to $210,000.” An advertisement for the auction says the suggested opening bid is $70,000 each for two condos originally listed at $250,000.

Fortin said the main reason for the auction is to lower the cost of carrying debt on the units, not to dump them.

“This isn’t a financially motivated sale,” he said.

“(Developers) are experiencing a sale of maybe one or two units per month. We have 35 remaining units and we’d have to carry for 24-36 months. We’d rather save the carrying costs by giving consumers a discount now.”

The auction will use a buyer’s-choice bidding system, which means similarly sized and priced units will be separated into groups. Winning bidders will get their choice of units in a group.

Eight of the units will sell no matter the bid. The developers reserve the right to accept or reject bids for the other units.

Mike Berland, with auctioneer Chartwell Group of Cleveland, said he expects the auction to create significant recognition for Carlyles Watch.

“These guys are thinking outside the box,” he said. “The auction gives them the ability to sell a substantial amount of units in one day at a discount.”

New reports of weakening sales suggest that consumers – facing numerous pressures – are pausing before spending.

NEW YORK (CNNMoney.com) — After months of speculation about how long American consumers can stay resilient to housing and credit woes, economists said Friday that last month’s retail sales weakness shows households are rethinking their spending habits.

The Commerce Department reported that total retail sales last month rose 0.3 percent, short of economists’ forecasts of a 0.5 percent rise. Stripping out volatile auto sales, retail sales actually fell 0.4 percent versus forecasts of a 0.2 percent increase.

The numbers fueled worries that American consumers are feeling the pressure of an ongoing slump in the housing market, mortgage turmoil and also higher energy costs.

“This [August report] is not a disaster but it was unexpected. What matters now is the extent of any fall rebound,” Ian Shepherdson, chief U.S. Economist with High Frequency Economics, wrote in a report Friday. “We expect a clearly slowing trend. Lower confidence and the accelerating housing collapse will hurt.”

Compounding that concern, a new survey of American consumers from RBC Capital Markets on Friday said subprime worries, softening job markets, rising gas prices and an unstable stock market have taken a toll on consumer sentiment.

This was the result of the monthly RBC CASH(consumer attitudes and spending by household) Index, which measured the attitudes of 1,000 Americans polled from Sept. 10 to 12.

The report said the overall RBC CASH Index stands at 71.1 for September, down more than 18 points from August’s 89.3 level and the lowest level in 16 months.

“The magnitude in the drop of consumer confidence is not surprising given the rocky economic ride consumers are experiencing,” T.J. Marta, economic and fixed income strategist for RBC Capital Markets, said in the report.

“Americans have a dim view of their current financial situation and an even bleaker view of their future prospects,” he said. “Although some of the factors weighing on consumers could dissipate in coming weeks, the decline in confidence is consistent with our view that U.S. economic growth will moderate through the remainder of the year.”

While the August numbers were weak, the government also revised July’s retail sales higher, helping to mitigate some of the disappointment.

“The upward revisions in July helps to balance out the negative tone to August’s numbers,” said Michael Niemira, chief economist with the International Council of Shopping Centers (ICSC).

“While last month’s picture is troubling, when you strip out the volatile components of gas and building materials, the best case scenario is that consumer demand is weakening but it still showed a modest increase,” he said.

For now, Niemira said strong income growth was helping to prop up consumer spending. To that end, many large chain stores including Wal-Mart (Charts, Fortune 500), Target (Charts, Fortune 500) and Nordstrom (Charts, Fortune 500) logged better-than-expected same-store sales in August.

The Commerce Department report showed that building materials and gasoline station sales were among the biggest drags to overall sales growth last month.

Gas station sales declined 2.4 percent while sales of building materials sales fell 1 percent. But excluding those two categories, core retail sales actually rose 0.1 percent.

Clothing sales dipped 0.1 percent in August while sales at department stores fell 0.2 percent. Grocery store sales slipped 0.2 percent.

That said, auto sales posted a strong 2.8 percent increase in August, and furniture and electronics purchases also saw modest increases.

At the same time, Niemira fears that retail sales growth will trend lower in the months ahead due to a weakening macroeconomic environment.

Any pullback in consumer spending immediately raises a red flag for the broader economy since consumer spending accounts for two-thirds of the nation’s economic growth.

What’s more, if Americans curtail their spending further in the weeks ahead, it could threaten the upcoming holiday sales season which accounts for as much as 50 percent of retailers’ annual profits and sales.

If the subprime mortgage meltdown makes creditors tighten their lending standards across the board, including consumer loans, the real concern for retailers is that both low-to-middle income shoppers will start to pull back.

“Consumers will ask ‘how aggressive do I want to be with my spending,” said Nigel Gault, U.S. economist with forecasting firm Global Insight.

“There’s good reason for spending to pull back in the months ahead. It won’t provoke a recession because the job market is holding up and real wages are up,” Gault said.

Still, if nervous consumers start saving more of their wages and spending less then “I think the holiday season will most likely be a subdued one,” he said.

Before Freeda Parson moved into her new house in a Hilltop neighborhood a year ago, her family tried to talk her out of it.

The neighborhood was too dangerous, they told her.

But she replied that there’s no such thing as a bad neighborhood.

You have bad people, bad neighbors, the 67-year-old Parson told them.

If you treat people right, she said, they’ll treat you right.

But her sunny outlook wasn’t the sole reason she moved to the neighborhood off Sullivant Avenue.

She lives on Lechner Avenue, a street with three new houses where city tax breaks mean owners of new homes don’t have to pay property taxes for 15 years.

In the past five years, 97 homes have been built or rehabilitated under the tax-abatement program started by Mayor Michael B. Coleman. But attracting for-profit developers has been a challenge because even with the breaks, building in poor neighborhoods carries significant risk.

Habitat for Humanity built Parson’s house.

The new homes have generated $10.3 million in investment in five designated areas, plus a cluster of 10 homes along Gibbard Avenue and Bliss Street, according to city documents. An additional 46 homes are in the process of being approved for abatements, Coleman said Friday.

Parson said there’s no way she could have afforded to move into her home without the abatement.

“Not on a fixed income,” the retired Sears worker said.

But none of the tidy houses along Lechner near Sullivant was built by for-profit developers.

And that’s part of the story, too.

The developers are for the most part nonprofit groups, such as the Columbus Urban Growth Corp. and the Columbus Housing Partnership.

Inner-city development is hard. Old industrial sites need to be cleaned up. Potential homebuyers must be convinced that they’ll be safe. Commercial builders want to avoid costly risks.

Just three years after announcing splashy plans to build a neighborhood of 106 entry-level homes on the Hilltop, Dominion Homes bowed out of the project in January.

The homebuilder’s cost to clean up the site was more than anticipated after crews found old foundations and rubble, said Tom Hart, a Dominion vice president.

It is difficult to persuade a for-profit developer to build in the inner city because the cost forces the builder to list prices higher than the market can bear, said Stephen Torsell, executive director of Homes on the Hill.

The city is working hard to attract more for-profit developers, Coleman said. Nonprofit developer MiraCit Development Corp. is working with Sovereign Homes to build 28 energy-efficient “green” homes in one of the abatement areas off Woodland Avenue on the North Side.

Coleman said he hopes that and the other homes show for-profit developers there’s a market in the central city. He pointed to the Columbus/Franklin County Affordable Housing Trust and his $25 million Home Again program to rid the city of blighted houses and create livable homes.

“It all fits together,” he said.

The city created two new tax-incentive areas this year: In Weinland Park north of Downtown, Campus Partners plans to build 500 condominiums and apartments. In Franklinton, a Los Angeles developer wants to build 130 condominiums and apartments at the crumbling B&T Metals site along W. Town Street.

The city chooses areas facing declining population, declining or unstable school enrollment, and a lot of vacant land and substandard housing, said Audrey Owens, city economic-development supervisor.

The largest concentration of homes built under the program is in an area north of Broad Street on the Near East Side. The Columbus Housing Partnership has sold seven new homes on N. 21st Street and is building more.

The for-profit development that former heavyweight boxing champion James “Buster” Douglas says he will build along E. Main Street is in one of the five districts.

His partner, Joseph Recchie of National Community Builders, said the abatements played a part in his decision to get involved. They won’t help him, but they’ll be attractive to potential buyers.

Up the street from a cluster of new tax-abated homes on the Hilltop, Cecil Mickens Sr. of 329 Lechner Ave. said the new homes make the worn-looking neighborhood look a little better.

“It’s helped,” Mickens said.

Jim Proctor, who has lived on N. 21st Street for 30 years, said the Columbus Housing Partnership needs to build more new homes on his street. He points across a vacant lot to the broken windows of a vacant brick duplex. Kids keep breaking them out.

“One family at a time,” the Columbus Housing Partnership’s Amy Klaben said.

Or one person who is convinced she made the right decision.

“I feel really safe in this neighborhood,” Parson said.

Bad weather in February hampers home showings
By Marilyn Miller
Beacon Journal business writer
Summit County housing sales were down by 12 percent during the first quarter of the year compared to a year ago, according to Akron Area Board of Realtors President Tom Campensa.

Sales were down across the board throughout Ohio, he said after meeting with Realtor presidents from Columbus, Cincinnati, Dayton and other Ohio cities in his role as a director of the Ohio Association of Realtors.

“Northern Ohio took a bigger hit than Southern Ohio,” said Terry Hankner of Comey & Shepherd in Cincinnati. “Generally, Ohio is one of those places that doesn’t have fantastic climbs or horrible lows compared to the rest of the country.”

Bad weather in February prevented people from visiting homes for sale, further weakening March closings, Campensa said.

Sales for March were down 28 percent from the previous year. In 2006, 538 homes were sold, compared with 384 sold in 2007.

“Although sales are down, it is still a lucrative market,” Campensa said.

Campensa said that in Summit County, there was a 15 percent decrease in listings in the first quarter. Total listings were 1,070, compared with 1,263 last year.

“There was a bigger inventory of houses on the market and a better feeling among people about the economy,” Campensa said. “With foreclosures up, many people are fearful to take action and are staying where they are.”

In Stark County, there were more homes on the market in March (2,729) than in the previous year (2,515). That is an increase of 8.5 percent. The average time a house was on the market in March was 90 days, but only 83 days last year during the same time frame.

There were 334 homes sold in March 2007 in Stark County, down 4 percent from the 348 in March 2006.

Figures for the three-month quarter of 2006 in Stark County were not available. Individually by month, sales in Stark County have totaled 243 homes sold in January, 253 in February and 334 in March.

The average price of a home in Stark County in March was $124,753, down less than 1 percent from $125,668 in March 2006.

Realtors say it is still a buyer’s market and because there are some good buys out there, some homes sell quickly.

“I urge buyers if they are going to buy and find the house they really want, they have to make a decision,” Campensa said. “I showed 35 homes to a first-time buyer… by the time he made up his mind, five or 10 of them had already sold.”

Campensa said the housing market is moving in the right direction.

“Ohio is suffering from too much inventory right now, but it will catch up,” Hankner said. “There is an increase in the number of showings of properties. There is a lot to choose from, but people have incredible choices and good rates right now.”

Subprime-mortgage lenders nationwide are in the midst of a meltdown, and the effects are starting to ripple through Ohio.Mortgage lenders are closing offices and getting pickier about who can qualify for a loan, while regional banks are facing deflating bottom lines and selling their subprime-mortgage divisions.

It’s clear that the subprime-loan market, which often involves lending money to those with questionable credit and has been blamed for Ohio’s skyrocketing foreclosure rate, is shrinking.

“The mortgage industry is experiencing a significant contraction,” said Brendan McDonagh, CEO of HSBC Finance Corp, in testimony to the Senate Banking Committee.

“The subprime market has lost 20 percent of its origination capacity” just from lenders going out of business, he said. That doesn’t include loss from stricter underwriting, banker-speak for lenders getting pickier about who qualifies for a loan.

New Century Financial Corp., the company that’s become the poster child for questionable lending practices, closed its four Columbus offices recently and laid off 60 employees in Ohio, mostly in Columbus and Akron. The company said it plans to lay off 3,200 employees nationwide, or about 54 percent of its work force.

New Century was the nation’s second-largest subprime lender by volume last year. In March, Ohio authorities secured a temporary court order to stop New Century from making loans or foreclosing on homeowners in the state.

Other lenders also are scaling back.

Ace Mortgage Funding, a mortgage company based in Indianapolis, closed its Dublin office March 1, telling employees in a memo that the move was because of “tough market conditions in the Columbus area and very restrictive regulation” of mortgage brokers.

Last month, National City wrote off $11 million in losses related to its $8 billion portfolio of subprime mortgages. The Cleveland-based bank is considering adding $50 million to reserves to cover additional losses. The problems stem from loans originated by First Franklin, National City’s subprime-mortgage unit, which the company sold to Morgan Stanley in December for $1.3 billion.

National City kept some First Franklin loans and is having trouble collecting the mortgage insurance on those that have defaulted. It also can’t sell about $1.6 billion worth of the loans, as it originally had anticipated.

Subprime mortgages have less favorable terms than traditional, fixed-rate mortgages. Many “exotic” loans, including adjustable-rate, interest-only or payment-option adjustable-rate mortgages fall into this category.

These loans were in big demand as the housing market boomed for much of this decade.

Brokers and finance companies such as New Century were the source of about 75 percent of Ohio’s subprime loans, said Mike Van Buskirk, president of the Ohio Bankers League.

They aren’t subject to the same regulations as banks, and until Ohio’s predatory lending law went into effect this year, there was little to stop companies from pushing buyers into subprime mortgages, even if they qualified for cheaper, prime loans.

To shady lenders, the message was “Ohio was open for business,” said Bill Faith, executive director of the Coalition on Homelessness and Housing in Ohio. Some of the “subprime industry’s worst offenders did a lot of business in Ohio” before the meltdown.

Ohio has a higher percentage of subprime loans than the nation as a whole, said Richard DeKaser, chief economist with National City. Nationally, it’s 13.7 percent. In Ohio, it’s about 15 percent.

“Lack of job growth and lower income growth compared to the rest of the country created more demand in Ohio for subprime loans,” he said.

Subprime mortgages accounted for 28 percent of new home loans in Ohio in 2005, up from 16 percent in 2004. Ohioans owe about $24 billion on those mortgages, according to the Center for Responsible Lending.

Even though Ohio banks are responsible for only about 25 percent of these loans, they’re being squeezed.

Subprime problems are deflating the bottom lines of Ohio banks, DeKaser said. “Loan losses are increasing, and it’s getting tougher for them to recover money on foreclosed properties.”

In its annual report, Huntington Bank said a decline in home values in Ohio could hurt business, causing higher loan losses as more homeowners default on their home-equity loans and mortgages.

Lower home values are a side effect of foreclosures. Each foreclosure in a neighborhood lowers the property value of nearby homes by about 1 percent, according to the Center for Responsible Lending.

About 18 percent of all outstanding mortgages in Ohio are subprime, yet they account for 63 percent of all new foreclosure filings statewide, according to the Coalition on Homelessness and Housing in Ohio.

Despite foreclosures and an already tight banking market, the problems in the subprime sector won’t be devastating to local banks, DeKaser said. Banks sell most of their mortgages to investors in the form of mortgage-backed securities, which insulates them from financial meltdowns

Homeowners probably won’t fare as well. Until the predatory-lending law went into effect, “it was the Wild West” in the mortgage business, Faith said. “Exotic mortgages became mainstream offerings during the housing boom.”

Adjustable-rate mortgages with low teaser rates that expire after two or three years are the most common subprime loans in Ohio.

Many borrowers didn’t fully understand these loans or that their payments would go up steeply when the interest rates reset. Lenders “preyed on people’s inexperience,” said Dan DeLawder, CEO of Park National Bank. “Too many people decide if they can afford something based on the monthly payment” without reading the contract’s fine print.

The often deeply discounted introductory interest rates made some of those loans seem too good to be true, he said.

Adjustable-rate mortgages were a quick-fix to the affordability gap, because housing prices in the past few years have outstripped income growth, making houses less affordable, said Sandor Samuels, executive managing director of Countrywide Financial.

It put homeownership into reach, he said. Countrywide was the nation’s largest subprime lender by volume last year.

But when the housing market began to slow and housing prices flattened, lenders eased up even more on credit guidelines, allowing more “fringe” buyers to qualify for loans, to grab more business in a shrinking market.

Fringe borrowers typically are those who are young or have bad credit, bankruptcies or fluctuating income.

“Lenders were making too much money, and they thought the bubble was never going to pop, that home prices would keep increasing,” said Paul Bellamy, a fair-housing advocate in Cleveland. “A lot of homeowners were underwater before the ink dried on their paperwork.”

Rapidly increasing home prices were a life raft for people who couldn’t afford their mortgages. They gave them the equity to refinance into a better loan. But that life raft deflated. House prices in Ohio appreciated about 2 percent last year, compared with 10 percent nationally. “For those with 0 (percent) to 5 percent equity, it’s a bad situation,” Bellamy said.

For many Ohioans, reality is setting in, DeLawder said.

Ohio ranked No. 1 in the nation in foreclosures in 2006, clocking a 24 percent increase, according to a recent report by Policy Matters Ohio, a public-interest group in Cleveland. Affluent Delaware County had the fastest-growing foreclosure rate in the state, at 49 percent.

There will be more foreclosures down the road.

“A tremendous number of adjustable-rate loans were written in Ohio after 2004,” Bellamy said. “Since the payments on most subprime adjustable-rate loans reset after two or three years, we’re in store for a flood of new foreclosures” this year.

“I wouldn’t be surprised if the 79,000 foreclosures in 2006 looks good compared to the end of 2007 and 2008,” Faith said.

If you’re looking to buy a house, now may be the perfect time to find the best deal.  There is an abundance of homes on the market.  Realtors say the latest reports show home prices have bottomed out.  That’s good news for buyers, not as much for sellers.