By Micah Maidenberg

March 22, 2011

One of the striking moments during a legislative hearing about home foreclosures that State Rep. Karen Yarbrough (D-Broadview) convened in Chicago yesterday occurred when panelists representing the banking industry took questions from the several lawmakers in attendance.

A representative from JP Morgan Chase said she was hopeful that policy tweaks to the Obama administration’s Home Affordable Modification Program (HAMP), a mostly voluntary initiative meant to prod lenders into modifying distressed loans, would result in more mortgage modifications for borrowers. HAMP has largely failed at its intended goal.

In response, State Sen. Jacqueline Collins (D-Chicago) said she worried that such changes would prove too little and too late for many homeowners. Collins then contrasted the help she’s been able to secure for borrowers when she steers them to the community liasons the big banks have on the ground in Chicago with what homeowners seeking assistance deal with when they call the big banks directly. Take a look:

So if a distressed borrower can reach the banks’ community reps (Collins references Bank of America’s Pat Holden and JP Morgan Chase’s Daniel Sprehe in the above clip), they might have a better chance at working out a deal to keep their home. If they can’t, borrowers are “caught in the vise,” as Collins put it, of lost paperwork and one-way communications with the bank’s staff.

Depending on the intervention of a state legislator and one of the bank’s local representatives to solve a mortgagor’s financial crisis makes for a less-than-systematic approach to dealing with Illinois’ foreclosure problem. In any case, this kind of a response hasn’t exactly worked to stopping foreclosures so far. Since HAMP was introduced, for example, there have been 132,289 foreclosure filings in the greater Chicagoland region, according to the Woodstock Institute.

The inability to staunch the foreclosure crisis has led to blighted blocks and abandoned homes with no clear owner. It has meant depressed property values and forced local government agencies to grapple with a problem of serious magnitude.

During the hearing, another striking statistic mentioned by Chicago’s Department of Buildings Commissioner Richard Monochio was the $12 million the city residents spent demolishing dilapidated buildings in Chicago in last year. It was three times the amount the city spent in 2009, and this year the costs are expected to run even higher. Here’s a clip from Monochio’s testimony:

A number of bills meant to staunch the foreclosure crisis have been introduced into the General Assembly’s current session; Progress Illinois wrote about three of them last Friday. In addition, Chicago Democratic Sen. Martin Sandoval pushed a bill that would created hefty fines for fraudulent foreclosures and one that would have created a Neighborhood Stabilization Fund filled by a $1,000 monthly fee that plaintiffs in foreclosure cases would pay for vacant homes they take into court. He and several Senate colleagues have also backed SB 16, which would authorize the Illinois Housing Authority to create a foreclosure prevention fund.

Another idea that came up Monday was changing state code so that a lender can take quicker possession of a home in foreclosure after the suit has been filed.

“When we file a lawsuit against you for foreclosure, you are the owner and you are the owner until the transaction is completed at the time of the judicial sale,” said Bank of America’s Holden. “We are being told by our legal staff that in order to protect ourselves from lawsuits — we have two pending today in Cook County, for trespass — we must go to municipal court and we must get a mortgagee in possession, which is similar to a receivership. That would then allow us to go in and board and secure the property.”

But getting a mortgagee in possessions, she said, can take up to 60 to 90 days, plenty of time for scavengers to strip the house of its salable metals or for criminal elements to take over the structure.

Other officials spoke of better coordinating various non-profit, government, and industry efforts to fight foreclosures, continuing to provide financial literacy education, and increasing resources to Cook County’s foreclosure mediation program.

More broadly speaking, organizations like Housing Action Illinois want HAMP to be reformed to, among other measures, mandate principle reductions for distressed borrowers.

Until a better group of solutions emerge, there will be plenty of deeply-felt frustration with how the banks acted during the housing boom, and then during the bust. Diane Limas, a leader with the Albany Park Neighborhood Council, gave voice yesterday to communities that have seen vacant, foreclosed properties fester. Here’s what Limas had to say:

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