November 18, 2007

By: Sally Duros

An analysis by Chicago’s Woodstock Institute of subprime lending patterns in metro Chicago suggests the percentage of troubled loans held by real estate investors — those buying real estate for speculative purposes or as rental properties — was about 9 percent in 2006.

“We mapped the percent of mortgages that were on non-owner-occupied properties in 2006, and it was 9 percent,” said Geoff Smith, research director at the Woodstock Institute. “Those are loans on nonowner-occupied mortgage units. It could be an investment property. It could be rented out.”

He said loans on second properties could be first to go if the property owner finds himself short of cash. Still, the estimated number of investors for Chicago is less than what has been tracked nationwide.

“Nationally the numbers we’ve seen have been larger. The last number we saw nationally was 27 percent of mortgages were on investment properties.”

Smith said some neighborhoods, such as Englewood, West Englewood, New City/Back of the Yards, North Lawndale, Riverdale, the Loop, and the Near North Side show a larger percentage of non-owner-occupied mortgages.

His research also looked at the areas that failed lenders, such as Fremont and New Century, had been operating in. “If a borrower has a loan with one of these institutions it might be more complicated to reach someone,” he said.

Meanwhile, the latest data from Irvine, Calif.-based RealtyTrac showed foreclosures in Illinois rose a scant 3 percent between the third quarter of 2006 and the third quarter of 2007.

The data found that California, Florida and Ohio were home to more than two-thirds of the 25 metropolitan areas in the U.S. with the highest foreclosure rates as subprime borrowers and property speculators fell behind on their adjustable-rate mortgages.

Foreclosures are increasing as homeowners face higher payments on their adjustable mortgages. Home prices in 20 metro areas declined for the eighth straight month in August, according to the S&P/Case-Shiller home-price index, making it harder for homeowners to sell or refinance without losing money.

The Midwest is home to one city deeply plagued with foreclosures: Detroit, which had one foreclosure filing for every 33 households, an increase of 93 percent.

Meanwhile data from the Mortgage Bankers Association showed that mortgage applications in the U.S. rose last week as refinancing jumped to the highest level in more than two years and filings for purchases rebounded.

And the National Association of Realtors released data that forecast sales of existing homes in the United States will decline to a five-year low in 2007. The trade group also said the outlook for 2008 is worsening. The ninth-straight downwardly revised monthly forecast from the NAR calls for U.S. existing-home sales to fall 12.7 percent this year to 5.66 million.

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