Foreclosures Spur States to Rescue Homes From Default (Update1) By Brian Louis http://www.bloomberg.com/apps/news?pid=20601109&sid=agJcJoWYtKEM&refer=home May 17 (Bloomberg) -- Willis Blackshear combs through Ohio mortgage filings looking for time bombs to defuse. The Montgomery County recorder, who oversees real estate filings in Dayton, is searching for loans with balloon payments, or interest rates that may soon rise to unaffordable levels. He has found more than 3,100 in Montgomery where 540,000 residents possessed the state's second-highest foreclosure rate last year. ``It's crazy,'' said the 46-year-old Blackshear. ``I knew it was bad, but I didn't know it was this bad.'' The worst housing slump since the Great Depression is driving Ohio and 20 other states to propose consumer protection laws and bond sales that would help homeowners stem the escalating defaults. Ohio, with the third-highest foreclosure total in the U.S. last month, is raising $100 million to help homeowners refinance risky mortgages. New York, New Jersey and Pennsylvania are planning similar sales. ``We don't have much time to lose,'' said Ohio Governor Ted Strickland, in an interview. The foreclosure rate has ``escalated rather dramatically.'' Strickland, the former Democratic congressman from Lisbon, Ohio, who became governor in January, created a task force of public and private officials to keep borrowers solvent. Foreclosures Rise Mortgages in foreclosure across the country rose 62 percent to 147,708 in April from a year earlier, according to a May 15 report by Irvine, California-based RealtyTrac Inc., which sells information on defaults. The median U.S. home price fell 1.8 percent in the first quarter, according to the Chicago-based National Association of Realtors. As many as 2.2 million Americans are at risk of losing their homes, the Center for Responsible Lending in Durham, North Carolina, said in a December study. The foreclosures have ``the possibility of making economic conditions worse, because they will shrink consumer spending,'' said Weihong Song, professor of finance at the University of Cincinnati. The 2007 median price for an existing home likely will drop 1 percent to $219,800 from 2006, the realtors association said in a May 8 report. The last time the national median declined probably was during the Great Depression in the 1930s, Lawrence Yun, the group's senior economist, said. Housing accounts for about 23 percent of the U.S. economy, when taking into account purchases of furniture, appliances and items for new homes, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts. The U.S. economy grew at a 1.3 percent annual pace in the first quarter, the slowest in four years. Subprime Crisis Ohio Attorney General Marc Dann said on May 15 that he wants to sue Wall Street firms because their bond sales enabled consumers to get mortgages they couldn't afford. Ohio has already won the right through a lawsuit to review foreclosures by New Century Financial Corp., the bankrupt California-based lender. Dann may add investment banks and credit-rating firms to the case or bring new suits, perhaps using Ohio's civil version of the federal Racketeer Influenced and Corrupt Organizations Act. At least 50 subprime mortgage lenders have halted operations, gone out of business or sought buyers in the past year, making it more difficult for consumers with limited or poor credit records to get loans. Ohio Sales Fall Ohio home sales fell 5.8 percent in the first quarter and the average price declined 1.5 percent to $143,383 from a year earlier, according to the Ohio Association of Realtors in Columbus. Ohio had 11,431 default notices, auction sale notifications and repossessions by banks in April, 39 percent more than in March and 135 percent more than a year ago, according to the data from RealtyTrac. Only California and Florida had more. As residents struggle to make payments, states are seeking policy solutions. The State of New York Mortgage Agency may offer mortgages that would let borrowers replace risky home loans with a fixed rate through participating lenders, said spokeswoman Tiffany Berns. New Jersey state Senator Ronald Rice, a Newark Democrat, introduced legislation this week to allow the state Housing and Mortgage Finance Agency to borrow up to $500 million and offer 40-year fixed-rate loans to owners in troublesome mortgages. Pennsylvania's Housing Finance Agency may sell up to $50 million in bonds to help subprime borrowers. Texas, Indiana In Texas, state Representative Eddie Lucio Jr. introduced a bill to require people taking out mortgages of less than $125,000 to first get mortgage counseling. Indiana Republican Governor Mitch Daniels signed a bill to provide consulting for people who defaulted or are in danger of losing their homes. In Colorado, some legislators want to require mortgage brokers to make a ``reasonable inquiry'' about a borrower's income before providing a loan. ``The states that are vulnerable should be looking to intervene to slow, if not reverse, this spiral,'' said Susan Wachter, a real estate professor at the Wharton School at the University of Pennsylvania in Philadelphia. The U.S. House Financial Services Committee is working on legislation to assist subprime borrowers if mortgage lenders don't, said Chairman Carolyn Maloney, a Democratic Representative from New York. U.S. Senator Hillary Clinton of New York, a Democratic candidate for president, has called for subprime borrowers to be given new loans at lower rates. `Saving' People Blackshear of Montgomery County isn't waiting for federal action. The county plans to send letters to residents alerting them of potential risks in their mortgages. He has identified 3,178 mortgages by eight subprime lenders that may have rising payments or rates that will reset. The mortgages were taken out from 2004 until March this year. ``It's unbelievable,'' Blackshear said. ``If we catch it early, we have the best chance of saving and helping people. If we help 100 people save their homes, to me we've done a good deed.'' Foreclosure filings rose 24 percent to 79,072 last year from 2005, according to Policy Matters Ohio, a nonprofit research group with offices in Cleveland and Columbus. In Cuyahoga County, which includes Cleveland, filings soared 96 percent from 2001 to 2006.