Cleveland: Subprime's 'Epicentre'

"Cleveland...has become the epicentre for the problems plaguing the U.S. housing sector. For months, many economists hoped that the troubles would be contained to that market, but it is now clear that the pain is spreading throughout the U.S. economy.

Foreclosures in Cleveland have soared from less than 200 in 2003 to 7,583 in 2007, one of the highest rates in the United States. On average, 20 Cleveland homeowners faced foreclosure every day last year. The defaults have depressed property values, cut local tax revenue and left many streets lined with vacant buildings. Most have been stripped of windows, doors, siding and even copper wiring and pipes. Some vacant homes carry signs saying, "No Copper. All PVC Piping," in an attempt to stave off looters.

Over the next two years, 1.8 million more subprime mortgages, those aimed at riskier borrowers, are expected to reset at higher interest rates, prompting many experts to say the worst is yet to come. It is expected that as many 1.2 million of the loans will go into foreclosure and even those who don't default will barely get by after making their payments.

So how did it get this bad? How could a bunch of loans in a place like Cleveland end up slowing down the entire North American economy?

Mortgage brokers and lenders became aggressive salesmen, even going door to door in some neighbourhoods. In Cleveland, brokers would show up at houses with lists of purported building-code violations and coax the owners into taking out loans to fix the problems. One woman in a poor Cleveland neighbourhood ended up with a $70,000 loan after being convinced that her garage needed repair. Some brokers worked with corrupt building inspectors - when the inspector told a homeowner to fix a structural problem, the broker would follow, offering a loan. Later, the two would split the fee."