By Angela Caputo
March 4, 2010

As the foreclosure crisis continued to spread and make headlines last year, a handful of Illinois’ lawmakers sprung into action. Specifically, they passed legislation that bought homeowners more time to negotiate with lenders and extended rights to unwitting tenants tangled in the foreclosure mess. At the same time, some legislators focused their attention on revitalizing distressed neighborhoods.

A few months into 2010, there is still lots of work left to be done. Thankfully, local elected officials are once again devoting their attention to the issue.

More Modifications, Please

The newest round of data released by the Woodstock Institute found that foreclosures in the Chicago area continue to surge. During the fourth quarter of 2009, new filings spiked by 21 percent in the six-county region. In real numbers, that’s 24,053 new cases, which marks the highest quarterly figure on record since 2005. State Rep. Mary Flowers (D-Chicago) has introduced a measure that could make it harder for banks to win foreclosure cases. Under the Foreclosure Clear Evidence Act (HB 4680), lenders would have to prove in court that they’re entitled to take back the property.  As has been demonstrated in the New York courts, that isn’t always a snap for them to do.

Meanwhile, state and federal mitigation efforts aren’t keeping pace. No program has been a bigger bust than the federal Home Affordable Modification Program (HAMP).  According to Woodstock’s Katie Buitrago, it managed to transition a paltry 11 percent of the region’s participants into permanent loan modifications. The Chicago Reporter dug into the data this week and offers some explanation for the program’s poor performance:

Through interviews with national and local housing experts and counselors, the Reporter found that banks are understaffed and inundated with applications, making some homeowners wait up to nine months to find out if they’ve been approved. In other cases, banks have routinely lost homeowners’ paperwork, forcing them to apply numerous times, or bank employees have incorrectly entered income data, disqualifying applicants. In addition, some banks are beginning the legal foreclosure process as they weigh whether to approve customers’ loan modification applications. Some people have been lucky enough to get approved for a temporary loan modification only later to find out that it will never become permanent.

A bill floating through Springfield could make this process more transparent. Under State Rep. Deborah Graham’s (D-Oak Park) Foreclosure Loss Mitigation proposal (HB 5735), banks must prove that they’ve processed modification applications before they can settle foreclosure cases. Ultimately, Buitrago tells us, that could boost some long-term modification prospects “because banks might not lose so many applications or sit on them so long that they’re no longer relevant.”

Some Good News For Renters

Last year, State Rep. Will Burns (D-Chicago) established a bill of rights for tenants whose landlords were foreclosed upon. But there’s one loophole in the law that State Sen. Michael Frerichs (D-Champaign) is now trying to close. Under SB 3782, evictions would not be reflected on the credit records of Illinoisans who were unwittingly thrown out of their rental property.

As we’ve reported before, the mortgage mess has also put quite a strain on the rental market, particularly when it comes to affordability. Last week, the Illinois Housing and Development Authority (IHDA) announced some encouraging news that should have a positive impact on low- and moderate- income families struggling to find a place in the tight rental market. The Treasury Department has granted the Prairie State authority to issue $184 million in tax-exempt bonds this year. And an IHDA spokeswoman tells us, that the agency has decided to commit the full amount to preserving affordable units in multi-family buildings. Over the next two years, an estimated 2,300 new units will be leveraged through the bond deal. By cutting out subsidies to homeownership projects, IHDA will be on pace to more than double its 2008 commitment, which preserved a mere 945 seniors and family units.

While the strategy is a step in the right direction, Bob Palmer with Housing Action Illinois (HAI) tells us that it will only put a dent in the affordable housing crisis. As regular readers may recall, HAI reported last year that 49 percent of Illinois households earned too little to afford a market rate apartment (based on a federal guideline that consumers shouldn’t spend more than 30 percent of their income on rent).  To put those figures in perspective, consider that the number of state-subsidized rental initiatives in 2008 represented less than 1 percent of the need. That fails to account for a loss (PDF) of rental units that began before the foreclosure crisis picked up. “[W]e are barely keeping up with maintaining the status quo,” Palmer tells us.

Leveraging Local Resources

Meanwhile, efforts to leverage local resources to jumpstart new projects is underway. State Sen. Susan Garrett has introduced SB 3001, which would allow municipalities to set up affordable housing trust funds. In the spirit of the Illinois Affordable Housing Trust Fund, the measure would give counties and towns authority to create a real estate related surcharge that would be committed to financing new projects. With revenues in the statewide fund in the tank and affordable housing tax credits losing value, the new revenue could finally get long-stalled projects (PDF) going, according to Chicago Coalition for the Homeless’ Julie Dworkin. “At this point, any new resources coming in is critical,” she says.

On that note, the Sweet Home Chicago Coalition, which is keeping the pressure on Chicago aldermen to use more of the city’s elusive tax increment financing (TIF) funds for new housing units, is preparing a big announcement. Stay tuned.

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