Foreclosures in Chicago

This transcript is based on a talk given by Michael Van Zalingen at a panel called “The Mortgage Lending Crisis: Implications for our Communities.” The panel was sponsored by the University of Illinois’ Great Cities Institute. For more information, visit www.uic.edu/cuppa/gci/. Van Zalingen is the Director of Home-ownership Services at Neighborhood Housing Services of Chicago www.nhschicago.org —Micah Maidenberg, co-Editor

That’s where the homeowner could do nothing and the case went to judicial auction. Someone bought the home and the homeowner had to leave or was removed by the Cook County Sheriff. In the first half of 2007, there have already been 3,500 completed foreclosures and the reason for this is because options for homeowners at risk of foreclosure are shrinking very quickly.

Up until the beginning of 2007, if you were in one crummy sub-prime loan you were behind on, you could just go get another crummy sub-prime loan, take some cash out and escape for six months. That option is off the table. One hundred and seventy-seven sub-prime lenders have gone out of business since January of 2007. There’s just not that kind of access anymore. And also because of flatness or depreciation in housing values, selling a home is much more difficult. Some homeowners facing foreclosure can’t even afford a real estate agent and are stuck trying to work with their servicer, a company hired by the owner of the loan to collect the monthly payments.

The servicer take a cut of the payments and sends the rest to investors. If there’s a problem with payment, they do the collections. If there’s a real 60- or 90-day problem then it goes to a lawsuit or litigation department.

We try to help those homeowners who are dealing with their servicers. Our counselors will assess the homeowner’s problem, figure out why they got behind and calculate their real monthly budget to determine whether or not they actually can afford their home. If they could possibly afford it, we work with the servicer to develop a repayment plan. This would be like a forebearance, a temporary suspension of payments or loan modification, a change in the terms of the loan where the interest rate gets dropped, or you take late fees and other costs associated with delinquency and capitalize them or put it on the end of the loan.¬† The principal could be reduced. If the homeowner can’t succeed with any of those options then it’s time for them to go.

If they can, they can try to sell the house with what’s called a short sale. They owe $200,000 on the loan but if they can get a real estate agent who will offer $160,000 or $175,000, something like that, the bank will take that and say, OK, fine, I’ll take that and forgive the rest of the loan.

And then there’s a deed in lieu foreclosure, which is essentially when the homeowner mails in the keys and says, ‘Take it.’

Statistically, 50 percent of homeowners never call a servicer, and ask for help, never try to explore their options. That’s pretty scary. They will call a trusted intermediary like the City of Chicago. People trust the City of Chicago. They don’t trust non-profits, they don’t trust their pastors, but the trust the city. They will call 311 and tell the operators every intimate detail about their lives.

People don’t think the servicer can help them keep up with their payments or keep up with the loan but they think the city or a counseling agency has this magic in a bag, but all we’re doing is trying to bring the homeowner and servicer together.

But servicers have a lot of problems. They made their money pricing their services based on a projected delinquency rate of something like two to five percent. They’re seeing delinquency rates of anywhere from 15 to 30 percent. They’ve got big problems with cash flow. If you call them, you’re going to get a busy signal. You’re going to wait, and then work with inexperienced people on the servicer’s side.

In looking at the people who call us, and we see about 10 percent of the people in foreclosure in Chicago, 40 percent of them are in loans where their net monthly income is the same as their mortgage payment, and 40 percent of the people who call us have a mortgage, just principal and interest, that is the same as their net monthly income. And there’s nothing anybody can do for them. They can call the servicer all they want, nothing is going to happen. They can call HUD, me, 311. Nobody has a solution for them. ♦


Illustration by Neil Brideau

chicago foreclosure index

Number of new foreclosures started in Chicago last year: 14,250

Percentage increase in foreclosures started between 2000 and 2007: 115

Number of neighborhoods on the south side in the top 10 list of new foreclosure cases in 2007: 8

Number on the south side in the top 20: 14

Number in the 20 top on the west side: 5

Foreclosures per square mile in West Englewood: 223

Foreclosures per square mile in Bridgeport: 25.4

Percentage increase in sub-prime loans that went into foreclosure between 2000-2007: 322

Chance that a new foreclosure case was on a loan with an adjustable rate mortgage with/or balloon payment features: 3/4

Factor by which African Americans were more likely to get a high-cost loan than whites and Asians: 3

Factor by which Latinos were: 2

Sources: National Information and Training Center; The Chicago Reporter