May 21, 2007
Editor's Note: Chicago
saw its rate of home forclosures reach its highest level in a decade.
Statistics indicates those earning above the median income level are
contributing to the spike in foreclosures.
As Wall Street and fair housing advocates keep a watchful
eye on the rising tide of loan defaults among the poor, a tidal wave of
foreclosures is crashing ashore from the middle class.
There were nearly 29,000 foreclosures in the Chicago
region last year; the highest level of foreclosure in the last eight years,
reports the Woodstock Institute, a nonprofit research organization that
promotes community economic development.
And the fair-lending advocate organization, National
Training and Information Center (NTIC), reported that foreclosures spiked in
middle-class neighborhoods with three of the highest jumps occurring on the
Near North Side (65% increase); Jefferson Park/Northwest Side (89% increase)
and Bridgeport on the South Side, (113% increase).
Bob Palmer, policy director of Housing Action Illinois,
contends that the plight of the middle class has put Illinois'
staggering 55 percent foreclosure increase on the radar. "Unfortunately,
it's taken skyrocketing foreclosure rates, and more middle class homeowners
being foreclosed on, to get the federal and state government to take proactive
measures to stop [abusive lending] practices," he says.
There's no official, universal definition of "middle
class," yet the U.S. Census Bureau estimates the average median income for
Illinois residents is $48,008. A
closer look at foreclosure statistics indicates those earning above the median
income level are contributing to the spike in foreclosures.
Neighborhood Housing Services (NHS), a non-profit
organization specializing in foreclosure prevention, has pinpointed where the
bulk of the foreclosures are coming from-Black neighborhoods.
NHS identified eight red zones where foreclosures are
seven times the national rate: Auburn Gresham, Back of the Yards, Chicago
North Lawndale, Roseland, South Chicago,
Park and West Englewood.
Of these areas, seven are overwhelmingly Black, and residents of Chicago
Roseland and Gresham on average,
earn above the state's median income level.
The numbers are numbing. According to the National
Training and Information Center,
in 1993 there were 4,923 foreclosures initiated in Chicago;
in 2002, there were 9,431, representing a 91 percent jump.
The 2006 report states: "In the eight neighborhoods
NHS serves, the foreclosure rate was nearly seven times the national average of
1.2 percent. Six of NHS' neighborhoods experienced foreclosure rates in excess
of 10 percent.
Of the nearly 10,000 foreclosures that were initiated in
2001, nearly 3,100 families lost their homes in completed foreclosure actions.
Forty percent of these completed foreclosures were in the
eight NHS neighborhoods on the city's West and South sides. In these communities,
entire blocks changed hands – from long-term homeowners to speculators and
Thus, the new face of foreclosures in Chicago
is Black and middle class. So, what's driving the trend?
At least one researcher points to mortgage-rate racism.
In response to the foreclosure epidemic in minority
neighborhoods, Geoff Smith, project director for the Woodstock Institute,
testified before the members of the Federal Reserve Bank about mortgage rates
and racism last June.
Smith reported that a low-income African American
borrower was over 3 times more likely to receive a high-cost loan when compared
to a low-income white borrower; and an African American earning more than
$135,000 annually was over five times more likely to receive a high cost loan
compared to a comparable white borrower.
The result, Smith said, is that "over 40 percent of
conventional single family mortgages to African Americans were high cost,"
but "only 10 percent of such loans to whites were high cost."
Other analysts theorize that during the housing boom,
many homeowners took out sub-prime loans and low-interest Adjustable Rate
Mortgages (ARMs) in order to purchase their dream homes or refinance their
current homes for extra cash. Interest rates for ARMs remain low for the first
few years but will eventually reset with the current market rate. "One
percentage point increase can mean an additional $50-$200 a month for
mortgage," explains Christopher Smith, Neighborhood Director of the NHS
For some families, the perfect storm of a cooled housing
market and resetting ARMs is resulting in "rate shock" and the surge
of foreclosures; and these foreclosures can rock the neighborhood and the
As soon as the boarded windows spring up, the economic
and emotional well-being of the entire neighborhood goes down.
According to the Fannie Mae Foundation, a foreclosure
started on a home lowers the price of nearby single-family homes, on average,
by 0.9 percent.
Further, the economic ramifications of foreclosure
include the loss of tax revenue; increased policing, fire department activity
(due to arson), and an increased need for social services.
Depending on the nature of the foreclosure, financial
institutions can also expect to absorb the costs of building inspections, legal
expenses, and demolition.
Foreclosures affect the safety of the neighborhood too,
often leading to safety problems, due to vandalism or property
abandonment-fertile ground for crackhouses.
"Our research has shown that foreclosures can
negatively affect neighborhood property values and lead to increases in violent
crime," Geoff Smith of the Woodstock Institute tells the Chicago Defender.
"Foreclosed properties, especially in lower-income communities, can become
vacant and derelict and serve as a magnet for criminal activity. Major impacts
are seen when there are clusters of foreclosures on the same block. The above
effects will be multiplied."
Some middle class homeowners facing foreclosure have
managed to dodge the tsunami of re-setting ARMs, but fall victim to a drastic
change in career status.
Still, at-risk homeowners do have options.
David Zeigler, a mortgage broker, earned $100,000 a year,
and owned a $200,000 condo on South Shore Drive.
Overworked, Zeigler quit his job for what he thought was a better offer-it
"I went from earning $100,000 a year to $35,000 a
year," he says. "I couldn't handle my bills anymore."
Realizing that his $900 paycheck wouldn't cover his
$1,488 monthly mortgage, Zeigler alerted the bank two weeks before his mortgage
was due, but the bank wasn't cooperative.
"The bank was grossly unhelpful. When they stopped
taking my calls, I called Neighborhood Housing Services."
Zeigler found a better paying job, but was unable to
catch up with the mortgage-he fell behind by $20,000-and foreclosure was
Through its foreclosure prevention initiatives, NHS
helped Zeigler to restructure the loan and saved his condo, just one day before
it was to be sold.
the collapse of Enron put Angela Freeman–at the time, a $148,000-a-year Arthur
Anderson consultant–on the brink of foreclosure.
"I couldn't afford my $1,500 mortgage," Freeman
recalls. "I was in a tough situation."
Freeman and her lender developed a loan modification
program where a payment of $12,500 would prevent foreclosure. Freeman went to
her community for help.
"I mailed 700 letters to sorority members, alumni,
everyone that I had been networking with, until I raised the money I
needed," she says. Today, Freeman is the CEO of Solutions Consulting Group
Inc., and she still owns her beloved home.