By Marilyn Kennedy Melia
Special to the Tribune
Published March 19, 2006

On this all agree: For every home that is foreclosed on, an owner descends into financial crisis and neighboring home values suffer.

But there’s considerable disagreement on how to prevent the problem.

Now, 10 Chicago ZIP codes have been designated as sites for a new approach to thwarting foreclosures. Located in Chicago’s Southwest Side, the ZIPs 60620, 60621, 60623, 60628, 60629, 60632, 60636, 60638, 60643 and 60652 were selected because research by the Chicago-based Woodstock Institute showed a relatively large number of people who took mortgages on homes there were charged high interest rates and fees.

Homeowners have more trouble paying these more costly “sub-prime” loans, and there are double the number of foreclosures in those ZIP areas, according to the Woodstock Institute, a housing research group.

State law HB-4050 calls for a pilot program whereby certain borrowers in designated high foreclosure ZIP codes would have to get counseling before closing on a mortgage loan.

Comments posted on the Web site of the Illinois Department of Financial and Professional Regulation (IDFPR) show strong support for the idea that counseling can help consumers make wiser loan choices.

But the mortgage business is opposed.

No other area of the country has a law similar to HB-4050, says Steve O’Connor, vice president for government affairs for the Mortgage Bankers Association. The expense and difficulty of complying with the provisions may prompt firms to withdraw from lending in those areas, he says.

For now, only the ZIP codes have been delineated. There’s still work to be done to implement the law, says Sue Hofer, IDFPR spokeswoman.

Easy money?

The negative press on “negative amortization” appears to be cooling borrowers’ enthusiasm for mortgages that offer “easy” payments.

Anyone studying mortgage choices probably has noticed an arcane term, negative amortization, which describes the risk of “payment option interest-only” loans. These loans are a sub-type of interest-only mortgages, a category that surged in popularity recently as a way to lower monthly payments.

For a certain period, all interest-only loans eliminate the traditional requirement that borrowers must pay a portion of their total principal amount each month. But the payment option variety goes a step further and allows borrowers to elect to pay a bare minimum amount that doesn’t cover the interest charges on the principal balance.

Of course, the missed interest isn’t dismissed. It gets added on to the principal. The amount originally borrowed grows, a phenomenon known as negative amortization.

Some borrowers could end up owing more than they could net from a sale of their home, a warning that’s been widely publicized lately.

The share of people taking loans with a negative amortization feature started to decline towards the end of last year, according to LoanPerformance, a San Francisco research firm.

At the end of November, the share of these loans declined to 8.7 percent, down from 10.9 percent through the first three quarters. In Illinois, only 4.6 percent of loans made through November allowed negative amortization, says LoanPerformance.

Wrong moves

Shopping for a long distance mover via the Internet is a risky short-cut.

That Web warning comes, ironically, from an Internet entrepreneur, the founder of

“The vast majority, 99 percent, of moving companies are honest,” says Tim Walker of Des Moines, who established after he had a nasty run-in with the disreputable 1 percent.

When he relocated from Virginia to Nevada in 2001, Walker says, “I chose a moving company from the Internet. I filled out an online survey, got three estimates,and then chose the lowest: $1,800.”

After the movers packed his belongings on the truck, they handed Walker a bill for $5,200.

“It’s the old bait-and-switch. Once they have your business and the door closes on the truck, the price goes up,” Walker says.

Such scams are most prevalent when homeowners are moving across state lines and they don’t get in-person estimates, he adds. is a for-profit venture, and the site has alliances with some moving companies, but the information and message boards are impartial and can alert relocates to companies that others have had similar troubles with, Walker says.

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