By Mary Ellen Podmolik
February 4, 2010

More Chicago-area homeowners defaulted on their mortgages during the final three months of 2009 than in any other quarter since the housing crisis began in 2006.

The year-end figures, scheduled to be released Thursday by the Woodstock Institute, paint a picture of a local housing market brutalized by foreclosures over the past three years. Last year, more than 70,000 homeowners in the six-county area, including 24,053 in the fourth quarter alone, received initial notices of mortgage defaults, the first step in the foreclosure process, and those defaults increasingly were in more affluent neighborhoods, the report showed.

What the data doesn’t show, but what is widely predicted, is that there will be no slowdown in foreclosures this year. Despite almost yearlong efforts to stem the tide of foreclosures, high unemployment rates are causing more homeowners to miss mortgage payments. Some observers expect both the number of people in foreclosure and the number of vacant properties on the market to increase as consumers fall out of loan mitigation programs and lenders release their foreclosure inventory onto the real estate market.

“Lenders are continuing to proceed with foreclosures while also trying to negotiate, in theory, the loan modifications and do the trial mods,” said Geoff Smith, Woodstock senior vice president. “My sense of what’s going to happen is the economy is still weak, you still have the underwater homeowner issue, and there’s concern that any modest recovery of the housing market will go away with the [homebuyer] tax credit.”

Woodstock found that for Chicago, initial foreclosure filings increased by 10.2 percent, but the activity varied widely by neighborhood. Some of the largest percentage gains last year were in Lincoln Park, up 103 percent; Near South Side, up 46 percent; and Near North Side, up 37 percent.

At the same time, some of the communities hardest hit by the first waves of the foreclosure crisis — neighborhoods such as Austin, Hyde Park, Auburn Gresham and Englewood — reported fewer foreclosure filings last year than in 2008.

“In ’06, ’07 and early ’08, the main driver was badly written loans,” Smith said. “As those loans cycle out of the system through the foreclosure process, the economy hasn’t improved, you see that [unemployment] is maybe more of a factor.”

At the end of October, almost 10.5 percent of mortgages in Illinois were at least one month past due but not yet in foreclosure, and another 10 percent of loans were in foreclosure and at least 90 days delinquent, according to the Mortgage Bankers Association.

Local housing counselors continue to marshal their resources to accommodate delinquent borrowers, but organizations say borrowers still must wait several weeks for an appointment.

Aware of the trends, the city will increase to six the number of fix-your-mortgage events this year, compared with two last year, said Ellen Sahli, first deputy commissioner of Chicago’s Department of Community Development.

Meanwhile, Chicago’s efforts to revitalize neighborhoods most affected by foreclosure are just getting off the ground.

The city has received more than $150 million in Neighborhood Stabilization Program funds since July to rehab more than 2,000 foreclosed homes into affordable housing in targeted neighborhoods. Forty-three developers are participating in the program, and renovations are under way on the first few homes.

“This is going to be a long-term issue,” said William Goldsmith, regional president of Mercy Portfolio Services Inc., which is coordinating Chicago’s program. “If you don’t hold onto the urban core, what’s that going to do to the market? Isn’t that 90 percent of what we’re trying to do here, protect consumer confidence?

“In this environment, that’s about the best you can do unless the federal government gives you $2 billion.”

Chicago mirrors the patterns being seen in other major metropolitan areas. A report last week by a State Foreclosure Prevention Working Group found six out of 10 seriously delinquent borrowers are not receiving loan modification assistance.

“We’re going to experience more, not less, foreclosures and abandoned properties in 2010 than we experienced last year,” said Craig Nickerson, president of the National Community Stabilization Trust. “In 2009, it was almost a calm before the storm. Many of the things that slowed down (foreclosures) will become a reality in 2010. Almost every financial institution has told us that.

“The resources pale in comparison to the problem.”

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