Housing Advocacy

Despite Promises of Relief, Foreclosure Crisis Still Escalating

In the Chicago metro area as across the nation, even with various public, private and nonprofit relief efforts underway, the foreclosure crisis continues to snowball. Foreclosures and foreclosed buildings going […]

In the Chicago metro area as across the nation, even with various public, private and nonprofit relief efforts underway, the foreclosure crisis continues to snowball.

Foreclosures and foreclosed buildings going into real estate ownerships (REO) and hence likely remaining vacant have continued to rise, according to the latest analysis by the nonprofit Woodstock Institute. There was a 52 percent increase in foreclosure filings in the Chicago metro area between 2007 and 2008; building on a 100 percent increase between 2006 and 2007.

While all types of foreclosures have risen, in the Chicago area there has been a recent spike in foreclosures of condos. Condos made up 19 percent of area foreclosures in 2008, compared to 12 percent in 2007. The Chicago neighborhoods of Rogers Park and Uptown — economically and racially diverse, relatively affordable neighborhoods on the city’s north side — were particularly hard hit.

Woodstock Institute Vice President Geoff Smith said that many of the condo foreclosures were likely “mom and pop” owner conversions, wherein the owners of a six- or three-flat unit converted it to condos but then were unable to rent them due to the housing slump or found the process more costly and complicated than they had expected. Some of the condo foreclosures were likely on units that were not occupied; others surely resulted in evictions. In a multi-unit condo building, the foreclosure of several units puts an added burden on remaining residents since their assessment fees (to cover building maintenance) would increase substantially.

Government agencies and nonprofits are working to deal with the crisis on two levels: preventing new foreclosures and addressing the growing number of vacant foreclosed upon buildings, which are especially heavily concentrated in a number of low-income African-American neighborhoods on Chicago's south and west sides. The vacant buildings depress surrounding property values and lead to increased violent crime, as several studies have shown. Meanwhile in smaller suburban municipalities with high levels of foreclosures, the tax base is being seriously degraded by the decrease in property taxes, real estate transfer taxes and general economic decline caused by the foreclosure crisis.
Chicago suburbs like Country Club Hills may have to significantly reduce public services, and schools which rely largely on property taxes are likely to see long-term harm from the crisis.

The foreclosure relief component of the TARP (Troubled Assets Relief Program) is expected to be announced in the next week or so, offering hope to homeowners, local governments and housing agencies. President Obama and Democratic senators voiced anger that the first half of the TARP bank bailout did little to address the foreclosure crisis or aid homeowners)

But it remains to be seen what kind of impact the TARP program will have and how quickly it will take effect. Smith said so far other public and private relief efforts, including some banks' promises to modify loans and undertake temporary foreclosure moratoriums, have not shown results on the ground in Chicago yet. “From our conversations with housing counselors, despite all these announcements there are not a lot of loan modifications going on,” he said. “It's still very difficult to get a service provider to engage in a loan modification.”

Meanwhile many relief programs are aimed at subprime loans and exploitative adjustable rate mortgages, which sparked the mortgage crisis. But now many of these loans have already gone into foreclosure or been adjusted to fairer terms, while the larger economic crisis means increasing numbers of people with fixed rate, “fair” mortgages are no longer able to make their payments.

“You could have someone who’s had a fixed rate mortgage for 30 years but has been without a job for six months now and can't afford it anymore,” said Smith. Few programs exist to help these homeowners.

The Woodstock Institute and other advocates are hoping for a bill to be passed which would give bankruptcy courts the power to make loan modifications (currently they cannot do this). That would mean that when someone is in bankruptcy, a bankruptcy judge could adjust the terms of their loan so that they owe less. This would give mortgage providers an incentive to modify loans in favor of homeowners, to avoid a more aggressive action by a bankruptcy judge in the future. This bill has been discussed but not introduced; Democratic proponents hope to attach it to larger legislation. Meanwhile another federal bill which has been introduced could also facilitate loan modifications by giving lenders and mortgage providers immunity from lawsuits by investors over loan modifications. (Bank of America has already faced such lawsuits). The investors essentially own the loans, usually sold in bundles of mortgage-backed securities, so they do not want to see the value of the loan reduced. However loan modification proponents argue that if modifications make the loan more likely to be paid off, they are in everyone's best interest.

Meanwhile the city of Chicago is also in the process of receiving $55 million in federal dollars from the 2008 Housing and Economic Recovery Act creating Neighborhood Stabilization Programs.

The money will be used largely to acquire foreclosed properties and redevelop them as rental housing, with 25 percent designated for low-income families. This could have a significant effect in hard-hit neighborhoods where the city will likely concentrate its efforts. But Smith noted the amount is still small compared to the scope of the city’s problem, with 58,000 foreclosures in the metro area in 2008 alone.

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