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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
from . in to . in , more or less tracked the broader U.S. pattern.
James Rokakis, the longtime county treasurer of Cuyahoga County, where Cleveland
is located, told the Commission that the region’s housing market was juiced by “flip-
ping on mega-steroids,” with rings of real estate agents, appraisers, and loan origina-
tors earning fees on each transaction and feeding the securitized loans to Wall Street.
City officials began to hear reports that these activities were being propelled by new
kinds of nontraditional loans that enabled investors to buy properties with little or no
money down and gave homeowners the ability to refinance their houses, regardless
of whether they could afford to repay the loans. Foreclosures shot up in Cuyahoga
County from , a year in to , a year in . Rokakis and other public
officials watched as families who had lived for years in modest residences lost their
homes. After they were gone, many homes were ultimately abandoned, vandalized,
and then stripped bare, as scavengers ripped away their copper pipes and aluminum
siding to sell for scrap.
“Securitization was one of the most brilliant financial innovations of the th cen-
tury,” Rokakis told the Commission. “It freed up a lot of capital. If it had been done
responsibly, it would have been a wondrous thing because nothing is more stable,
there’s nothing safer, than the American mortgage market. . . . It worked for years.
But then people realized they could scam it.”
Officials in Cleveland and other Ohio cities reached out to the federal government
for help. They asked the Federal Reserve, the one entity with the authority to regulate
risky lending practices by all mortgage lenders, to use the power it had been granted
in under the Home Ownership and Equity Protection Act (HOEPA) to issue
new mortgage lending rules. In March , Fed Governor Edward Gramlich, an ad-
vocate for expanding access to credit but only with safeguards in place, attended a
conference on the topic in Cleveland. He spoke about the Fed’s power under HOEPA,
declared some of the lending practices to be “clearly illegal,” and said they could be
“combated with legal enforcement measures.”
Looking back, Rokakis remarked to the Commission, “I naively believed they’d go
back and tell Mr. Greenspan and presto, we’d have some new rules. . . . I thought it
would result in action being taken. It was kind of quaint.”
In , when Cleveland was looking for help from the federal government, other
cities around the country were doing the same. John Taylor, the president of the Na-
tional Community Reinvestment Coalition, with the support of community leaders
from Nevada, Michigan, Maryland, Delaware, Chicago, Vermont, North Carolina,
New Jersey, and Ohio, went to the Office of Thrift Supervision (OTS), which regu-
lated savings and loan institutions, asking the agency to crack down on what they
called “exploitative” practices they believed were putting both borrowers and lenders
at risk.
The California Reinvestment Coalition, a nonprofit housing group based in
Northern California, also begged regulators to act, CRC officials told the Commis-
sion. The nonprofit group had reviewed the loans of borrowers and discovered
that many individuals were being placed into high-cost loans when they qualified for
better mortgages and that many had been misled about the terms of their loans. 
