Ohio ranks 2nd on list of largest credit losses

Job losses push Midwest states to the nation’s lead in home foreclosures.

DETROIT (AP) — Michigan and Ohio share something with Florida and California — some of the nation’s highest rates of foreclosed homes and delinquent mortgages. But the reasons for their woes are as different as their climates.

Battered by a declining manufacturing base, stagnant population growth and low demand for housing, Michigan and Ohio rank No. 1 and 2 on mortgage finance company Fannie Mae’s list of states with the largest credit losses through Sept. 30.

Fannie Mae, which finances or guarantees one of every five home loans in the United States, listed losses — loans written off as having no chance of being recovered — of $185 million for Michigan and $101 million for Ohio — two similar states in many respects with strong ties to the auto industry. By contrast, California saw $30 million; Florida, $21 million.

“The underlying economies of Michigan and Ohio are that bad relative to California and Florida,” said Doug Duncan, chief economist for the Mortgage Bankers Association. Michigan had the nation’s highest unemployment rate in October at 7.7 percent; Ohio’s rate was 5.9 percent. Both are above the national rate of 4.7 percent.

And jobs and income are all-important in keeping the housing market alive. Nationwide data from Countrywide Financial Corp., the nation’s largest mortgage lender, found the No. 1 reason its customers have been defaulting on mortgage loans is because their income was cut. That accounted for almost 60 percent of its loan defaults in the first 10 months of this year. Once illness and divorce are factored in, cash-flow problems caused 80 percent of mortgage defaults nationwide, according to Countrywide’s data; payment adjustments alone accounted for only 2 percent.

Phillip Hubbard of Flint, a town hard hit for decades by plant closings and immortalized by native Michael Moore in his 1989 film, “Roger & Me,” knows firsthand how bad the housing market has become.

Hubbard, 39, said he left his job of 19 years in 2005 at a “mom-and-pop” auto parts store as he dealt with a form of muscular dystrophy and found physical aspects of the job difficult. He managed for nearly two years to pay his 30-year fixed mortgage on a small ranch home he bought six years ago through disability checks and savings, but fell behind as gas prices, property taxes, utility bills and insurance premiums escalated.

He said he tried unsuccessfully to work out a new payment plan with his mortgage company. So he put the house up for sale in the spring and then let it go into foreclosure in October when he couldn’t find a buyer.

Fannie Mae’s report shows the Midwest in general is suffering the largest loan losses. Of the top seven states, five are in the Midwest, with Minnesota ranked third, Indiana fourth and Illinois seventh. California and Florida are ranked fifth and sixth, respectively.

Housing is a lagging indicator of an economic decline, said Duncan, pointing to the 340,000 jobs lost in Michigan and 200,000 in Ohio since 2001.

“People aren’t moving out because of the weather but because of the lack of opportunity,” he said.

Meanwhile, the mortgage problems in Florida and California were caused by a speculative bubble built on excess supply, he said.

“It’s a different story.”

Home foreclosures reached an all-time high nationwide in the third quarter, with Ohio the top state in percentage of loans in foreclosure, and ninth in delinquencies not yet in foreclosure, according to the latest report by the Mortgage Bankers Association. Michigan ranked second in delinquencies and third in foreclosure inventory.

Ohio, Michigan and Indiana were near the top in three important categories: foreclosure inventory and foreclosure starts and serious delinquencies, the share of loans at least 90 days past due or in the process of foreclosure.