Home loss epidemic spreadingPosted On: May 2007
Even upscale areas aren't immune
When the subject of foreclosure arises, Lincoln Park isn't usually the first neighborhood conjured up.
But even that vibrant Chicago community is not safe from the dark loud in the housing industry.
Exposing the downside of record levels of home ownership, the number of newly filed foreclosures in Chicago is up nearly 40 percent through the first four months of 2007, with about four out of five city neighborhoods reporting worsening numbers due to such factors as the impact of rising interest rates on adjustable-rate mortgages, a new study shows.
The raw numbers are small, especially given the short time period involved, but they offer confirmation of a worsening trend, which saw nearly 29,000 foreclosures in the six-county Chicago region in 2006, a one-year jump of 36 percent and the highest level in at least eight years.
In the 2007 results, 11 neighborhoods-including Lincoln Park, where foreclosures have doubled to 20-showed triple-digit percentage increases in the number of foreclosure actions taken against homeowners. They include a 167 percent rise in Mt. Greenwood, from nine to 24 new foreclosures, and a 120 percent boost in Irving Park, from 25 to 55, says Kaneville-based Record Information Services Inc., which compiles real estate data.
The highest number of foreclosures for the first four months came in West Englewood, up 77 percent to 259.
"Our phone I ringing off the hook," said Michael van Zalingen, director of home ownership services for Neighborhood Housing Services of Chicago, a non-profit that arranges financing and offers counseling.
Last year the group counseled 888 people who either were in foreclosure or at risk. In the first quarter of 2007 the agency had already advised 425 consumers in similar situations.
Van Zalingen believes that lending practices by the sub-prime mortgage industry is the chief culprit, blaming in particular "no-doc" loans, in which borrowers provide little if any income documentation to get financing.
"Whatever they say on the application, the lender takes at face value," van Zalingen said. "About 60 percent of borrowers exaggerated by 50 percent and when it came time to make their payment it was larger than their gross monthly income."
In a move that will give on consumer peace of mind, Chicago resident Norma Fields, 43, on Friday turned her adjustable-rate mortgage into a 30 year fixed-rate loan with a 6.6 percent rate.
It comes nearly a year after her lender moved to foreclose on her home.
"I went to court, and I worked out a payment plan with my mortgage company, but they leave you no room to breathe," the insurance claims adjuster said. "My payments were almost $1,700 a month as opposed to $1, 240," at the start.
So she sought help from Neighborhood Housing to stay in her house, a raised-ranch home on 83rd Place where she has lived for 10 years. She expected monthly payments on her ARM, which she got in 2005 to rise to $200 in October.
She asked Neighborhood Housing to lend her additional money, but "they said, 'We're not going to give you a temporary fix because October it's go to increase,'" so they helped her to get a fixed-rate mortgage.
Asked why she signed up for her ARM, Fields said, and "I didn't think I was going to be in the predicament I have fallen into.
"My son was in braces. MY mom was diagnosed with cancer, and the cost of the medication was high. I also have a 21-year old who I was helping out.
"I just fell behind. I went with that particular loan, because I didn't know any better, and at that time a lot of people were not knowledgeable about fixed or ARM rates."
That's no surprise, with home ownership rates at an all-time high, on housing observer said.
"When you have more homeowners you have more foreclosures," explained Jeff Metcalf, Record Information chief executive.
New types of mortgages enable consumers to become homeowners when they might be ill-prepared for the responsibility, or to buy pricier homes than they usually would be able to swing.
"A lot of folks could have looked for alternatives to get out of adjustable-rate mortgages and while the TV commercials say, 'In debt up to your eyeballs? It's not your fault,' yes, it is your fault," Metcalf said.
ARMS are not a problem when interest rates are 4 percent to 5 percent, but homeowners with less financial wherewithal have little wiggle room when ARMs jump to 8 percent, particularly if they are laid off or are hit with rising energy expenses or unexpected health-care costs. And while consumers once had an easy time finding another lender when backed into a financial corner, they are now getting a chilly reception.
"Lenders have tightened up," Metcalf said.
Molly Sullivan, spokeswoman for the Chicago Department of Housing, attributes the rise in foreclosures to ARM resets and other loans such as interest-only that have hit homeowners with higher payments that they were unprepared for and cannot afford.
"In the era of extending homeownership to as many people as possible many loans were issued to people who may not have been prepared for the changes in their terms, and the result has been an increase in foreclosures," she said. "It's a combination of lack of information or misinformation from brokers, or homeowners did not understand or were unprepared when terms changed."
The rise in foreclosures in higher-income areas might be partly attributed to people who bought housing as an investment and then got overextend, she said.
By Becky Yerak Tribune Staff Reporter
Posted On: May 2007
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