By Fran Spielman
August 13, 2012
Should Chicago use its sweeping condemnation powers to help stem the foreclosure epidemic — paving the way for underwater mortgages to be written down and repackaged under terms more affordable to struggling homeowners?
The City Council’s most powerful alderman believes it’s a concept worth considering, which is why the Finance Committee chaired by Ald. Edward M. Burke (14th) will hold a joint committee hearing on the controversial idea on Tuesday.
“Given the size of the foreclosure epidemic in Chicago, the city should explore every possible avenue to keep families in their homes and reduce the number of vacant properties that breed crime and erode the stability of our neighborhoods,” Burke, chief sponsor of the resolution, said in a new release distributed on the eve of the hearing.
The chairman noted that nearly 667,000 Chicago area homes were “underwater” — the definition used to describe homes worth less than the amount still owed on the mortgage. An estimated 13 percent of those homeowners were three months or more behind on their mortgage payments, he said.
“Renegotiation of underwater mortgages by the private sector has failed to keep pace with this epidemic,” Burke said.
“Even with record-low interest rates, many homeowners have found it difficult to refinance, due to newly tightened lending standards and depressed home values.”
Burke’s proposal is patterned after a concept under consideration in San Bernardino County, Calif.
Chicago would use its sweeping powers of eminent domain to seize underwater mortgages. The effort would involve creating “securitized packages of loans” that would be offered to private investors at a “steep discount.” Loans would then be “written down to a fair market value” to create a new mortgage with a reduced principal and lower monthly payments more affordable to struggling homeowners.
Tuesday’s hearing is expected to feature testimony from city department heads, legal experts, the Woodstock Institute and by a company involved in the San Bernardino County plan.
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