By Diane Eastabrook
July 20, 2010
TOM HUDSON: Many communities around the country are dealing with the problem of foreclosures. Some of them are dealing with it using money from Uncle Sam. The Federal government has set aside $6 billion in grants to buy up foreclosed properties and resell them. The question is: will people want to buy in neighborhoods where foreclosure has become an epidemic? Diane Eastabrook reports.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the Chicago lawn neighborhood, a duplex is getting a new lease on life with help from developer Karry Young.
KARRY YOUNG, DEVELOPER: We put in hardwood floors. We put plywood and then we came with carpet.
EASTABROOK: This duplex is one of 80 foreclosed properties the city of Chicago purchased, rehabbed and hopes to re-sell to low and middle income buyers. The city paid $22,000 for this building, which Young gutted and completely overhauled inside and out. How much do you think you could possibly get for it?
YOUNG: I think this building is appraised somewhere around $200,000.
EASTABROOK: Chicago is funding this effort with $55 million in grants from the government’s neighborhood stabilization program. The program rehabilitates neighborhoods hard hit by foreclosures. This neighborhood — which covers about four square miles — has had more than 7,000 foreclosures in the past couple of years. Still, deputy commissioner of community development Ellen Sahli says the area has a lot going for it.
ELLEN SAHLI, DEPUTY COMMISSIONER, CITY OF CHICAGO: We have some of the best housing stock in some of the neighborhoods that we’re working in and with the other kinds of city investment that’s happened in those neighborhoods, it does make it an appealing and attractive home to purchase.
EASTABROOK: Buying up foreclosed properties may be one of the few options left to communities trying desperately to stabilize at risk neighborhoods. Here in Chicago lawn, loan modification really isn’t working anymore because too many homeowners are either unemployed, underwater on their mortgages or both. Last winter, we told you about volunteers going door to door in Chicago lawn, encouraging at-risk homeowners to restructure their loans through the government’s home affordable modification program or HAMP. Roughly 90 homeowners got their mortgages modified — about a fifth of the number the volunteers tried to contact. That was a disappointment for Donna Stites, whose not-for- profit helped coordinate the effort. Her community group is now thinking of buying foreclosed properties and reselling them, but she believes the idea is risky.
DONNA STITES, GREATER SW DEVELOPMENT CORP.: Ultimately, you have to be able to know that you can purchase the property, rehab it and sell it at a cost that at least allows you to break even.
EASTABROOK: Geoff Smith of Chicago’s Woodstock Institute says there also have to be potential buyers. He’s been tracking foreclosures in the city for nearly a decade. He wonders if potential buyers will want to live in areas where boarded-up homes dot nearly every block or if buyers will even be able to get loans.
GEOFF SMITH, SR. V.P., WOODSTOCK INSTITUTE: There are a lot of people out there who are trying to buy properties, but they just don’t qualify for mortgages. And the people who do qualify are perhaps not interested at this point in buying because they don’t see quite the end of the turmoil in the housing market and they don’t want to invest in a property and in two or three years, see it still be worth less than what they paid for it or about what they paid for it.
EASTABROOK: So far, the city of Chicago hasn’t sold any of the foreclosed properties it purchased and rehabbed, but it says buyers are within days of closing on a handful of homes. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
GHARIB: A real “Catch-22” not just in Chicago, but many other communities around the country, such a shame.
HUDSON: We’ve seen that nationwide, unemployment and the difficulty in paying those mortgages.
GHARIB: Really serious problem.