Rolling the dice on foreclosure

Posted On: July 2007

Earleda and Kevin Parrish were looking for a home for seven or eight months before they found the one they wanted in Carpentersville.

It had the country kitchen Earleda was dreaming about. It had the basement Kevin wanted -- one where he could tinker around. It had a swimming pool, with which the couple's son fell in love. It had a big, fenced-in backyard. But by March 2007 -- not quite two years after they bought their dream home on the 1700 block of Kingston Circle -- the family's belongings were being moved out to the front yard and the Parrishes were being evicted.

"We literally lost everything," Earleda Parrish said.

It was not just the house, but many of the things inside that they couldn't fit into the storage container they'd rented.

"It's kind of hard to watch people from the neighborhood walking away with your stuff," she said.

After 48-year-old Kevin was diagnosed with diabetes and 46-year-old Earleda lost her job at Comcast after nearly 12 years, they couldn't make the $1,500 monthly mortgage payments to Washington Mutual. The Parrishes became part of a trend -- locally, in the Chicago area and nationally -- of rapid increases in foreclosure rates.

'A perfect storm'

Foreclosures in Elgin and South Elgin for the first half of 2007 are up about 32 percent over the same time period in 2006, according to Kaneville-based data compiler Record Information Services Inc. In other areas of the county, foreclosure numbers through mid-July 2007 nearly are surpassing what they were in all of 2006.

The alarming growth rate begs the question whether prospective home buyers are spreading their finances a bit thin. But the slowdown of the economy combined with changes in the lending industry in the last five years are the major factors for this trend, according to one local source.

"What we ran into now is what I'd call a perfect storm," said Mike Hawley, senior vice president for commercial lending at First Community Bank of Elgin.

In recent years, there have been more options for home buyers than the conventional 30-year fixed-rate mortgage. New products such as interest-only loans and a variety of adjustable rate mortgages helped lead to the spike in foreclosures, Hawley said.

"What (the new mortgage products) allowed people to do is qualify for larger loans," he said. "The problem with that is, a lot of the more liberal products out there, once you get into the loan a couple of years, the payments increase on you."

With more clients qualifying for loans, it wasn't just the borrowers who were going out on a limb.

"There was a leap of faith in the past with some of the loan products" on the part of lenders, too, Hawley said.

Another local expert, North Aurora-based real estate and tax attorney John Duggan, said these new loans have made it so that equity is no longer a requirement for buying a property, which also can contribute to the increased number of foreclosures. With no equity, there's nothing to lose by foreclosing, he said.

"They ride the foreclosure into bankruptcy," Duggan explained. "You just keep your house until they take it away from you."

Borrowers overextended

Both Hawley and Duggan agree that many -- maybe even the majority -- of borrowers are overextending themselves as they sign onto the bigger loans that have become available in the last few years. Some call it irresponsible, but Parrish -- who bought her home for what she called a very manageable $169,900 -- said it's the lenders who are allowing and encouraging people to get in over their heads.

"They'll give you all the credit you want if you've earned it," Parrish said. "That doesn't mean you can afford it. You have to look at what you can honestly afford, not what they're telling you you can afford."

The common way to avoid foreclosure is to sell the home and downsize or move to a rental property. But finding a buyer is not as easy as it once was. All the new residential construction -- especially in Kane and the other collar counties -- might make it tougher to sell a home, Hawley said. A homeowner trying to sell has to compete with thousands of newly built units, which can drive prices down.

And it's not just the borrowers themselves having trouble selling. According to Crain's Chicago Business, foreclosure auctioneers are having trouble unloading repossessed properties. In fact, the Parrishes' dream-home-turned-nightmare has yet to be sold by the noteholder -- now Fannie Mae -- even after sellers knocked the asking price down to less than $150,000.

The 2007 numbers are on pace to dwarf those for 2006, but the rate should be peaking, Hawley said.

"I don't think it's going to get much worse locally," he said.

'It was just our home'

For the Parrishes, who are back renting in Elk Grove Village as they did before buying the Carpentersville home, the firsthand experience was enough to deter them from purchasing again, at least for the foreseeable future, Earleda Parrish said. Though they looked into buying back the Kingston Circle home after Earleda found work again, Fannie May's asking price was too high -- not to mention that the property is being sold "as is."

But that wouldn't bother the Parrishes any, Earleda said.

"I would still take it back in a heartbeat," she said. "It was just our home."

For more information on mortgage foreclosure rates and homeownership, visit www.public-record.com.

By DAVID GIALANELLA Staff Writer
Suburban Chicago News

Posted On: July 2007

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