By Steven Ross Johnson

May 23, 2010

Many have called it the great housing bubble — a period during the early to mid-2000s when there seemed to be no end to the rise in home values.

But as is the nature of any bubble, it burst — and with it came a wave of foreclosures that swept through the country, leaving a lasting effect on many families, neighborhoods and municipalities.

Many have cited the flood of homes bought with sub-prime or second-chance mortgages as one of the catalysts for the rise in foreclosures. The volatility of adjustable rate mortgages made it even more difficult for borrowers unable to qualify for more traditional mortgages due to poor or limited credit histories to keep up with payments.

Although the effects were felt locally — with an average rate of one foreclosure for every 939 homes in Illinois — the overall impact remained relatively small in comparison to such a states as Nevada, California and Arizona, which continue to lead the country in the total number of new foreclosure filings.

Recent reports, however, tend to show a very different picture: While the pace of foreclosures throughout the country has slowed, places that once were considered to have been affected only slightly, such as Illinois and the Fox Valley, have seen sharp increases.

According to an April foreclosure report prepared by RealtyTrac Inc., Illinois ranked eighth in the U.S. among states with the fastest rate of new foreclosure filings — one for every 280 homes, a 38 percent rise compared to April 2009. Nationally, the rate of foreclosures for the month of April actually went down by 2 percent, with one new filing for every 387 homes.

Kane 2nd in state

A look at the numbers across the state showed Kane County ranking second, with a rate of one foreclosure for every 125 homes.

“We have seen bigger increases in Illinois probably over the past six months,” RealtyTrac spokesman Darren Blomquist said. “It’s almost as if there are some areas that are playing catch-up with some of the harder-hit areas of the country.”

Particularly hard hit was the city of Elgin, which recorded 348 new filings during the month of April, the second highest total in Kane County.

According to information obtained from the city of Elgin, between Jan. 1 and April 19 of this year alone, the city recorded more than 1,000 foreclosures, which included new filings, homes that were auctioned off and those that were seized by banks. At that pace, Elgin could end up with nearly as many foreclosures as the city recorded from Jan. 1, 2007, to September 2009.

Blomquist said one reason for the shift could lie with a change in the leading cause behind what many are calling a “second wave” of mass foreclosures.

“I think unemployment is driving a lot of what we’re seeing in Illinois,” he said. “That issue has caused some areas that were somewhat insolated early on from foreclosures to get hit pretty hard in recent months.”

Another leading factor for the current wave, according to Geoff Smith, senior vice president for the Woodstock Institute, a Chicago-based, nonprofit research and policy organization, is the increased number of “under water” homeowners — those who owe more on their mortgages than their property is worth.

New filings aside, what is of greater concern for Smith has been the increased number of individuals who have gone through the entire foreclosure process, which he estimated to have risen by as much as 56 percent during the first three months of 2010 compared to the same time last year.

“In 95 percent of those cases, you’re seeing the properties becoming bank-owned,” he said.

Effects felt citywide

Elgin Mayor Ed Schock said it was hard to separate the effects home foreclosures have had on the city, which saw declines in all of its revenue streams over the past year, from the overall effects of the recession.

Reports have estimated that a foreclosed home can cause the property values of remaining houses in the neighborhood to drop by at least 1 percent.

Even in the face of such declines, Schock said the true economic impact may never be known when it causes a family to move out of the city.

“It’s one of the questions that we regularly ask ourselves,” he said. “We know it has a negative impact — you take those people out of your town, they’re not spending money, they’re not buying things. Oftentimes, that foreclosure is the result of them not working.”

In spite of the current numbers, there are signs that indicate Elgin might be poised to recover faster than some surrounding communities.

“Elgin is one of the better housing markets in all of Chicagoland,” said Chris Huecksteadt, director of Metrostudy, an Elgin-based real estate marketing research firm. “In terms of new home construction, there were more new homes started in Elgin than in any other suburban area within the Chicagoland market” between April 2009 and April 2010, he said.

Huecksteadt conceded the number of new home starts this year, estimated at around 120, was a far cry from the booming days of just a few years ago, when as many as 1,200 homes were being built annually.

He believes that in addition to the efforts of city leaders to attract more businesses to the area, the numbers — however small — put Elgin on pace to start seeing signs of a recovery by next year.

“It’s getting ready to plateau, with this year and last year being the worst,” Huecksteadt said about the foreclosure rate. “I think it’s as bad as it’s going to get.”

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