In Chicago and Philadelphia, Obama’s trips were intended to boost turnout in the Democratic-leaning cities to tip the scales for Senate candidates Rep. Joe Sestak (D-Pa.) and Alexi Giannoulias (D). While Obama’s approval rating has stubbornly remained below fifty percent in both states, he enjoyed a warm welcome in the cities, especially his hometown:

He traded high-dollar fund-raisers for free rallies; in his hometown of Chicago on Saturday night, 35,000 turned out to see him in an outdoor park. He doffed his tie and shouted himself hoarse, tweaking his standard stump speech — the one with the laugh lines about Republicans “drinking a Slurpee” and driving the economy “into a ditch” — into a more affirmative, upbeat vision of why voters should elect Democrats, and not just reject Republicans. He suffered hecklers. He persevered. [...]

Harking back to his own election, he conceded that times have changed.

“Some of the excitement of Inauguration Day — you know, Beyoncé was singing and Bono was up there and everybody was feeling good — I know that good feeling starts slipping away,” he said Saturday night in Chicago. The crowd interrupted him, shouting, “Nooooo!”

Ohio Attorney General Richard Cordray (ohioattorneygeneral.gov)

James Jones has spent the past five years trying to prevent foreclosures in Cleveland. Recently, his work as director of foreclosure prevention at the East Side Organizing Project, a community organizing group dedicated to improving neighborhood life in the city, has focused on targeting predatory lenders and trying to prevent banks from foreclosing on cash-strapped low-income borrowers.

[Economy1] “I’ve seen the foreclosure issue go from predatory loans, to subprime loans, to predatory loans, to an economic situation where folks have been laid off,” Jones explains. “And now we’re back to problems with paperwork.”

Ohio — and especially Cleveland — was hit earlier and worse by the foreclosure crisis than other states, due to widespread problems with predatory lending, an early economic downturn stemming from the loss of manufacturing jobs, and weak consumer-protection laws. Now, it is at the forefront of the foreclosure fraud crisis, with housing advocates and politicians calling for banks to halt evictions immediately and stop seizing homes.

The fraud scandal is complex. In September, a court case brought to light the existence of one Jeffrey Stephan, who worked for GMAC Mortgage, part of Ally Financial. Stephan attested that he signed as many as 10,000 foreclosure documents a month — one every minute or so. Soon, other revelations about banks using such “robosigners” to OK foreclosure documentation came to light.

The problem is, in 23 states, those robosigned documents went to a judge, who approved a final foreclosure, wherein the bank evicts a family and reclaims a house. Stephan and other signatories were meant to be carefully checking the information within and were giving the documents to the court as an affidavit, the equivalent of sworn testimony. The documents were not checked — meaning that the signers, and the banks they worked for, were defrauding the court. A judge ruled any such foreclosures to be illegitimate, sending a shudder through the housing markets. Banks started halting foreclosures in the 23 states that require judicial review. And the scandal has spiralled from there.

Officials in Ohio were among the first and the most aggressive in going after the banks making fraudulent foreclosures. On Sept. 30, Ohio’s secretary of state, Jennifer Brunner, told the state’s boards of elections not to use foreclosures to disqualify voters, under the premise that hundreds or even thousands of foreclosures in the state might be illegitimate. Then, last week, Richard Cordray, Ohio’s attorney general, filed a lawsuit against GMAC, seeking $25,000 for every violation of the state’s consumer-protection laws. It was the biggest and boldest legal action taken against mortgage companies since the crisis started unfolding.

“Some ugly revelations have recently come to light about how foreclosures are bring processed in this country,” Cordray said at a press conference on Wednesday. “It appears that, on a mass scale, many homeowners are being deprived of their property based on phony affidavits and without the due and proper processes of law. It is now becoming clear that fraud, deception and an utter disregard for accuracy are in part to blame for our national foreclosure disaster.”

In an interview with TWI, Cordray stressed that the problems were systemic and the violations serious. “What we’re talking about here is not just sloppy paperwork,” he said. “We’re talking about fraud in a court of law. The [foreclosure document signers] were lying under oath, to a judge. And there is evidence that this company has illegally ousted people from their private property, violating their property rights.”

Cordray did not just sue GMAC, but also wrote letters to other major banks, calling on them to investigate their foreclosure processes and to stop evicting families immediately. In intervening days, banks have stopped selling their previously repossessed properties, and have mostly halted the foreclosure and eviction process in Ohio.

The scandal came as no surprise to housing advocates in the state. “We had 90,000 foreclosure filings last year, and another 100,000 this year,” explains David Rothstein of the non-partisan think tank Policy Matters Ohio. “When we look at those statistics, and put our thinking caps on, you have to say, how were they processing all of these claims without bigger legal staffs and bank staffs? This wasn’t a surprise.”

He continues: “And there’s a tragic irony here. For five or ten years, the banks have said that the foreclosure crisis in this state is the borrowers’ fault. They bit off more than they could chew. It’s all their fault for buying expensive houses and then losing their jobs.

“But look at this! They’re taking people into foreclosure, without the right to do it! It is tragic. They were committing fraud, and were completely giving up their fiduciary responsibilities.”

Jones agrees. He explains that ESOP, which negotiates on behalf of borrowers undergoing eviction, demands to work with a qualified individual at a bank, and often manages to work out a solution other than foreclosure. But most Ohioans do not have an organization like ESOP on their side. “Foreclosure is not a quick process,” he says. “Most of the servicers — your Chases, your Wells Fargos — have these black holes. You send paperwork in, and it is months before you even find out where it went.

“They’re not set up to modify loans, or find other solutions. They’re not set up to do what needs to be done to help homeowners. A lot of things fall through the cracks. And that’s what the big problem is. They don’t have enough eyes, enough checks and double-checks. Not when they’re getting the volume they’re getting. So when you don’t have an advocate, look what happens.”

The question is now what the foreclosure fraud scandal might mean for homeowning Ohioans — and residents of every state across the country. Already, the foreclosure situation has rocked the housing market and hurt families in the state. In the first half of the year alone, there were 45,930 properties undergoing foreclosure, enough to impact one in every 100 households. Bank-repossessed homes are flooding the market in many areas. And, according to RealtyTrac, they sell for 43 percent less than the average house — the biggest discount of any state.

Housing advocates say that the stall in foreclosures will likely only prolong the pain for Ohio families, even if they are given temporary reprieve from foreclosure and now have assurance they will not be evicted without due process.

The best outcome, Rothstein says, would be for the government to finally step in to help homeowners with more effective programs than the Home Affordable Modification Program, the Treasury’s signature effort to keep families in their homes. (It has helped about one-tenth of the homeowners it said it would and is widely considered a failure.)

“The federal government made good attempts, but were really bank-focused,” Rothstein says. “They never had borrower-centered programs. But if banks are forced to reduce principals on mortgages and to make better loan terms, we might be in a better place.”

OBAMA: I think, I am very confident that if people know what the choice is, if people take a look at what Democrats stand for and what Republicans stand for, who we’re fighting for, and who they’re fighting for, then we will win. And so, my challenge, and the challenge of every Democratic candidate who’s out there is just making sure the people understand there’s a choice here.

STEPHANOPOULOS: And now you’re–

OBAMA: If the election is a referendum on are people satisfied about the economy as it currently is, then we’re not going to do well. Because I think everybody feels like this economy needs to do better than it’s been doing.

This basically encapsulates both party’s positions and best hopes in a nutshell. Republicans will hammer Democratic incumbents over the state of the economy, while Democrats will place an emphasis, as Obama did, on the word choice. They’ll try to remind voters that Republicans haven’t exactly been proposing a lot of bright ideas to make it better (besides returning to the policies of the Bush era).

On generic ballots, it’s clear that Republicans enjoy a big advantage — which might make the GOP wish it had more candidates who were, well, more generic. The only hope for Democrats is that the views of individual Republican candidates like Nevada’s Sharron Angle, Kentucky’s Rand Paul, or Colorado’s Ken Buck will prove too radical or wacky for voters to tolerate.

It’s clear why Charlotte and St. Louis are in the list — North Carolina and Missouri were the two states with the closest margins of victory in the 2008 presidential election. John McCain won Missouri by .14 percent — 3,903 votes. Obama won North Carolina by .32 percent — 14,177 votes.

Ohio was also close, though not to the same degree as Missouri and North Carolina. Obama took the Buckeye State by 4.59 percent — 262,224 votes. Still, Cleveland’s pick as a finalist shows the DNC wants to do everything it can to keep Ohio in the Democratic column. Most unofficial studies indicate Ohio will have two fewer electoral votes in 2012 than it did in 2008 — down to 18.

Obviously, the DNC is hoping it can affect the outcome of the election by holding a convention in one of these states. Unfortunately, there’s little evidence suggesting any relationship between convention site and the state’s eventual vote. Indeed, after examining from several decades’ worth of conventions and elections, Michael Berry and Kenneth Bickers — political scientists at the University of Colorado, Denver, and Boulder — found “no evidence that hosting a national nominating convention has any discernible effect on the ultimate vote in that state.” Any perceived bump (or loss) is best explained by the fundamentals in each state: underlying partisanship of the state, incumbency and economic factors.

That’s not to say that conventions can’t have other political uses — President Obama began his career with a convention speech — but that party officials shouldn’t rely on electoral calculations when deciding where to hold their conventions. It simply doesn’t matter.

Speaking at the Community Stabilization Symposium in Harbor, Md., Duke said that recent increases in foreclosures have only “exacerbated a pre-existing vacancy problem” in certain cities, according to Housing Wire.

“In the most devastated neighborhoods, some lenders do not even complete the foreclosure process or record the outcome of foreclosure sales because the cost of foreclosing exceeds the value of the property,” Duke said.

These “toxic titles,” she added, have placed a large number of properties in legal limbo. High rates of abandonment pushed many cities such as Flint, Mich. and Cleveland to pursue plans to “right size” by demolishing vacant properties and create land banks, Duke said.

The term “toxic titles” was coined by Kermit Lind, a Cleveland State University law professor who deals with abandoned foreclosure cases all the time. The problem never seemed to get the attention it deserved, probably because housing markets in Cleveland and some other Rust Belt cities are very weak.

As we reported nearly two years ago, here’s how a toxic title results when a  bank abandons a property:

The mortgage company retains a lien, or a charge, on the house, but the borrower still is considered the owner. The property sits in limbo, with the mortgage usually exceeding what it would sell for, because of its decline. If the city has to tear it down, it adds its own $8,000 to $10,000 demolition lien. Not surprisingly, potential buyers aren’t exactly lining up. Non-profit neighborhood groups that could fix up the property face long and expensive legal battles to claim it.

But, as Duke points out in her speech, vacant properties are causing problems in stronger markets as well, spreading “into once economically vibrant coastal cities with jobs and growing populations.”

“Vacant properties are creating a different kind of problem in some California markets. Indeed, as investors sense that home prices have bottomed out, they are approaching servicers with cash offers for the bulk purchase of properties,” Duke said. “In fact, community organizations in areas of California complain that investor interest has heated up to the point that qualified first-time homebuyers and local community organizations are being crowded out of the market.”

During this economic crisis, so much of the attention has been focused on executive pay, the Troubled Asset Relief Program, and bank lending — all worthy subjects. But somehow the problems of growing numbers of vacant homes and toxic titles has been mostly overlooked. And that’s a big mistake. As we wrote last spring, decades of work to rebuild and reinvest in communities is being lost to blight caused by foreclosures — or to speculation by real estate investors.

Now that a top Federal Reserve official is making toxic titles a public issue, that may finally change. But Duke is doing more than just highlighting the problem. It appears the Fed is actually doing something about it as well. From Housing Wire:

The Federal Reserve System will provide assistance to neighborhood stabilization efforts. The Community Affairs staff, chaired by Duke, will provide data analysis and technical assistance to state and local governments trying to solve the foreclosure problem in their communities.

Duke said that the Federal Reserve banks of Cleveland, Richmond and Atlanta are collaborating on a series of capacity-building sessions for several communities in Appalachia to help them leverage federal Neighborhood Stabilization funds.

“In addition, we are studying the Neighborhood Stabilization Program and interviewing some 50 program grantees nationwide to learn about the early successes and challenges to this effort to restore health to communities with high foreclosure rates,” Duke said.

The Fed’s actions to address the fallout from the foreclosure crisis is a great example for the rest of the government to follow. Lawmakers long ago should have tied some strings to taxpayer bailout money that would have required banks to take responsibility for their foreclosed properties, not just walk away from them. It should have been a bigger scandal that banks took TARP money and stuck already hard-hit cities with trashed and vacant properties. Good for Duke for speaking up. Now it’s time for Congress to follow suit.

In the preliminary injunction he issued Thursday, Judge Raymond Pianka also required Wells Fargo to prove its foreclosed properties are up to city building and housing codes before the bank can sell any of them for less than $40,000, Cleveland.com reports. Pianka will decide at some point whether to make the injunction permanent. But housing advocates  still consider his initial decision a huge step forward, because it gives a local community – for the first time ever – some legal clout in battling huge global banks that own vacant or dilapidated foreclosed properties in their neighborhoods.

As TWI has reported, a local housing group in Cleveland filed a novel lawsuit last year against Wells Fargo and Deutsche Bank, trying to halt the “death spiral” of falling property values in neighborhoods overwhelmed by foreclosures. The suit asked  housing court to declare blighted and foreclosed properties owned by both banks in Cleveland in violation of public nuisance laws – -and to require the banks to fix them up or tear them down.

In cities such as Cleveland, where home values never appreciated much during the housing boom, banks have little interest in holding on to an increasingly bloated inventory of foreclosed houses. After taking the properties back at sheriff’s sales, lenders unload the houses at fire sale prices, often to speculators and flippers. The public has an interest in stopping the practice because cities are losing huge amounts of revenue as property values fall and neighborhoods are devastated, the neighborhood group and its attorneys argued. And banks, for the most part, have not been held accountable for the damage they’ve left behind.

The Cleveland lawsuit is especially significant because using local nuisance laws to stop foreclosure sales is a new technique — and it could also be tried by other cities frustrated by foreclosures and falling property values.

From Cleveland.com:

“I don’t believe a court anywhere in the country has issued an order that’s this comprehensive against a major financial institution,” said Frank Ford, executive director of the nonprofit housing advocacy group that had sued Wells Fargo over its property conditions.

“The ruling is specific to Wells Fargo, but it sets a precedent that says banks that have foreclosed on property, allow it to go vacant, and don’t maintain it are going to be held to the same standards as any property owner in Cleveland,” he said.

Cleveland housing attorney Kermit Lind told TWI in an email that the court’s decision makes it clear local governments have the right to challenge the business practices of global banks that made subprime loans in cities and left foreclosed properties behind.

“The court is saying that banks are not too big to comply with local laws and they are not protected by preemption from being required to do so. Local governments are not prevented from protecting the public health, safety and welfare from the unlawful business practices of those who deal in housing for commercial gain.”

Thursday’s decision applies only to Wells Fargo’s properties in Cleveland, which numbered about 180 as of April. Both Wells Fargo and Deutsche Bank previously had tried to get the suit reassigned to a federal court. Wells Fargo is trying to get Pianka removed from the case and is challenging the ruling, according to Cleveland.com.

In a written statement issued late Thursday, Wells Fargo spokesman Kevin Waetke said the company believed there was no legal basis for the decision and will consider appealing.

“Wells Fargo has a long history of responsible lending and servicing in our communities,” he said. “We stand by our lending record and practices as we feel it is always in the best interests of the community to have the home reoccupied in order to preserve the neighborhood.”

Wells Fargo separately requested Thursday that Pianka remove himself from the case and suggested that his attendance at a recent conference on vacant properties, the primary issue in the case, created an appearance of bias. Pianka declined to recuse himself.

The suit initially was filed in December. Last month, Pianka issued a temporary restraining order preventing Wells Fargo from selling any foreclosed properties it owns in Cleveland before fixing them up. That order expired Thursday.

As far as Deutsche Bank goes, its part of suit is in the federal court of appeals and scheduled to be briefed over the summer.

The preliminary injunction for Wells Fargo is probably going to be appealed to the state court of appeals in Cuyahoga County. According to Lind, Pianka’s injunction stays in effect until the case is decided finally. That could be months, he said.

In the meantime, other towns struggling with vacancies and foreclosures will no doubt be following this case very closely.

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Last year, TWI detailed the problem of bank walkaways, in which banks decide that the costs of foreclosing on a house with little value isn’t worth it — so, as the name implies, they simply walk away. Cleveland housing professor Kermit Lind, a lawyer in a landmark suit over REOs that we wrote about in the story linked above, calls the result “toxic titles” — the property is left in limbo, with the homeowner gone and unaware he may be still be responsible for the property’s maintenance, while the mortgage company still retains a lien on the property. The city can’t easily seize it, so the costs of demolishing it are added to the lien, and community groups face lengthy and expensive battles to claim it.

Bank walkaways have been going on for a while, especially in places where housing prices never boomed that much. I’ve been surprised and dismayed the phenomenon hasn’t been recognized as the scandal it is.

It looks like that may be starting to change. I wonder if Rick Santelli will rant about moral hazards and those irresponsible banks.

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The suit named Wells Fargo and Deutsche Bank as the biggest foreclosers in Cleveland –  explaining that they sell REOs in bulk, at pennies on the dollar, to speculators and flippers, who often abandon the properties. But those practices are commonly used by other banks as well. If the suit succeeds, other localities could tackle the REO problem by going citing banks as a public nuisance.

The banks immediately fought back and in January got the cases moved to federal court, where the nonprofit would face a far more costly battle. Housing court judges also tend to be more familiar with the problem of neglected bank-owned properties. It looked like the lawsuits might be doomed.

But there’s been a big development, according to Kermit Lind, a Cleveland State University housing professor and one of the lawyers for Cleveland Housing Renewal Project, Inc., the nonprofit filing the suit. Federal court judges recently sent both cases back to housing court, at the request of the nonprofit’s lawyers. That means if housing court concludes that Wells Fargo and Deutsche Bank are violating public nuisance laws by neglecting their REO inventories, the sales could be stopped. The banks would have to either fix up the properties before selling them, or demolish them — anything to stave off the death spiral of plummeting property values. If the banks are smart, they’ll find a way to hand them over to community groups that will find a way to reuse them.

Keep your eyes on this case. If the Cleveland folks are successful, as TWI noted, their tactics could set a standard for other communities. It’s also a sign that cities are figuring out ways to fight back and are no longer willing to stand aside as banks dump their trash and walk away.

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TWI is on Twitter. Follow Mary Kane’s ongoing coverage of the housing crisis here.

The neighborhood group is still trying to get the case back in housing court, but it’s a difficult battle. Let’s see: A neighborhood nonprofit up against the financial resources of two global banks. Whose pockets do you think are deeper?

It’s no surprise those banks wanted the case moved to federal court. It will be much more costly for the neighborhood group to argue its case there. Housing court judges, on the hand, can and do handle these cases quickly and efficiently. They bring the hammer down on banks that leave foreclosed properties behind in cities for the taxpayer to clean up. They often don’t buy the argument that servicers are responsible for the upkeep of the properties.

I remember talking early last year with Cleveland Housing Court Judge Raymond Pianka, who has drawn national attention for holding banks responsible for dumping foreclosed properties. Pianka lives in a Cleveland neighborhood, he told me. There are foreclosed houses on his street. This crisis is part of his everyday life.

The move to federal court is more than just an arcane legal development. The neighborhood group wants the case heard in housing court because it validates what has become increasingly clear in the foreclosure crisis: Banks are property owners, with all the responsibilities that come with it. As they foreclose on houses and their inventories of bank-owned properties swell, banks try to dodge this reality by blaming servicers and paying lawyers to get them out of housing court. The same thing happened in Cincinnati recently, where the local legal aid agency filed suit in housing court, but the case was moved to a federal court instead.

Maybe this tactic will work for a while, but eventually, I think banks are going to have to be held accountable for what they’ve done. Entire swaths of neighborhoods in once-great cities are in ruins – that’s not an exaggeration – as banks fail to secure, maintain or demolish foreclosed properties. Neighbors who pay their mortgages feel the pain as their property values plummet. City coffers and services take a hit. It will take decades to recover from this.

And yet, the banks walk away. The bank argument continues to be that It’s someone else’s responsibility. But banks aren’t just lenders anymore – like it or not, they are property managers. If they didn’t want to be in that position, they shouldn’t have sold high-rate mortgages that they knew people couldn’t pay. So as property managers, they have the same obligation any other landlord would, and they should be subject to housing code violations, just like any other landlord would. It’s too bad policymakers who put together the bailout didn’t put some conditions on it to require banks to do their part.

Instead, they got a free ride. And homeowners in neighborhoods all around the country are paying for it.