By Becky Yerak
Tribune staff reporter
Nearly 29,000 foreclosures were filed in the six-county
Chicago region in 2006, a one-year jump of 36 percent and the highest level in
at least eight years, amid a meltdown in the subprime lending market and the
growing use of adjustable rate mortgages, according to a study released
Wednesday by a Chicago-based housing policy group.
“The popularity of these complicated and risky
products, combined with loose mortgage underwriting standards that often
include no documentation of borrower income, have driven foreclosures to record
highs” in the region and the city, said Geoff Smith, research director for
the non-profit Woodstock Institute.
The 28,997 foreclosures in Cook, DuPage, Kane, Lake,
McHenry and Will Counties
in 2006 surpassed the previous eight-year peak of 25,882, set in 2002, and is
up from 17,705 in 1999. The institute’s report did not include pre-1999
figures, but Smith estimates that with rising rates of mortgage lending, the
latest number is likely a record.
Much of the blame for the foreclosure spike, up from
21,300 in 2005, was pinned on the ongoing crisis in the subprime lending market
and to the growing popularity of ARMs, which can offer low initial monthly
payments but reset to higher levels after a few years. Weak home prices and
rising interest rates have made it increasingly difficult for borrowers to keep
up with their payments.
The share of mortgage originations that are so-called
option ARMs rose from 8.4 percent in 2005 to 12.3 percent through May 2006, the
report said. Such loans allow borrowers to choose whatever monthly payment they
wish, even if it means paying back less than the loan’s interest rate.
had a total of 19,522 foreclosures, up 35 percent from 14,506 in 2005 and up
from its previous peak of 18,162 in 2002.
But the pain was widespread, as all counties in the
region saw double-digit increases in foreclosures.
DuPage and Lake
Counties, generally considered to
be affluent, saw the number of foreclosures climb by 46 percent and 36 percent,
respectively, to 1,886 and 2,219.
“Adjustable rate mortgages and no-interest mortgages
have also gotten affluent people in trouble,” said Jeff Metcalf, chief
executive of Kaneville-based Record Information Services Inc., which tracks
foreclosures. He looked at the summary of Woodstock’s
“Interest rates were so low for so long,”
Metcalf said. “Something had to give.”
Meanwhile, the higher-growth counties of Will, McHenry
and Kane saw foreclosure rates jump by 45 percent, 25 percent and 38 percent,
respectively, to 2,742, 1,014 and 1,614.
Overall, the City of Chicago
had 18.4 foreclosures per 1,000 mortgageable properties, the Woodstock
report found. Within the city, however, there was substantial variation in
foreclosure levels by neighborhood.
There was some good mortgage news Wednesday.
Federal Reserve Chairman Ben Bernanke said the growing
troubles in the subprime mortgage market, which makes loans to people with poor
credit or low incomes, does not appear to be spreading to the overall economy.
“At this juncture … the impact on the broader
economy and financial markets of the problems in the subprime markets seems
likely to be contained,” he said, according to The Associated Press.
Bernanke told lawmakers he is open to working with them
on ways to address problems with lenders and borrowers.