Middle Class and Homeless, Unlikly families face foreclosure

Illinois Foreclosure News & Information

by Zondra Hughes
May 18, 2007

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 Lawn-Gage Park, North Lawndale, Roseland, South Chicago, West Humboldt Park and West Englewood. Of these areas, seven are overwhelmingly Black, and residents of Chicago Lawn-Gage Park, 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 absentee landlords."

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 Roseland office.

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 entire community.

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 wasn't. 

"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 imminent.

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.

In Chatham, 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.
 

Strategies to
FIGHT FORECLOSURE

By Zondra Hughes

Many homeowners facing foreclosure are reluctant to alert their lender, or are unaware of their options. Here, foreclosure prevention experts give you strategies to avoid losing your home.

Educate yourself.

"Our typical client is uneducated about mortgage financing, and sometimes unscrupulous lenders prey on them.  Education is the key to everything. We do more than foreclosure prevention; we also offer free homeownership education classes and individual consultations on credit, budget and home purchase. Seek out information before taking out a loan. Call us."

--Christopher Smith, Neighborhood Director of Neighborhood Housing Services, Roseland Division, 773-568-1020, www.nhschicago.com

Notify your lender of trouble--immediately.

"Contact your lender and ask for help in getting current. The lender may offer a range of options, including a repayment plan for the late payments or refinancing the existing loan into a new one that is more affordable. Selling a home is a last resort, but it is better than a foreclosure.  Seeking help creates the chance to save the home or come out of a bad financial situation with your credit record in better shape than if a foreclosure occurs." --Doug Robinson, spokesperson for NeighborWorks America, a national nonprofit organization created by Congress to provide financial support, technical assistance, and training for community-based revitalization efforts.
 www.nw.orgLocal affiliate: NHS of Chicago, Inc., 1846 West 47th Street
Chicago,, IL 60609, 773-579-0032

Choose your foreclosure-counseling agency wisely.

Regretfully, once your house is on the chopping block, you're desperate, and the scam artists will come in for the kill.

Consumer fraud investigator Steve Tripoli has identified three common foreclosure rescuer scams:  Rescuers overcharging consumers for meaningless phone calls and paperwork; rescuers convincing owners to sign over property rights and become a renter on their own property, erroneously assuming that they can buy their home back later; and finally, rescuers tricking owners into signing away their property rights.
Usually the homeowners don't realize the rip-off until sheriff shows up to evict them.

 "We are currently supporting state legislation developed by Attorney General Lisa Madigan, House Bill 1478, which strengthens the Residential Mortgage License Act by allowing the Attorney General to enforce any violation of the law and allowing a borrower to seek damages against a lender who violates the law. The legislation also places limitations several common predatory lending practices, including prepayment penalties, changes in loan terms without notice, inaccurate estimates of total monthly payments, withholding of appraisals from borrowers, verbal promises to refinance on terms that are more favorable, excessive delinquency charges, equity stripping and loan flipping. 

Homeowners facing foreclosure should seek the assistance of a HUD-certified counseling agency to find out what options are available to them to avoid foreclosure or at least reduce the harm caused by a foreclosure.  A list of HUD-certified agencies is available at  www.hud.govor by calling 1-800-569-4287."--Bob Palmer, Policy Director, Housing Action Illinois, 11 E. Adams, #1601

Last but not least, swallow your pride and seek help.

"For many middle class families, there's a stigma associated with foreclosure, it sends the message that you can't take care of your business or that you don't pay your bills.  Foreclosure can happen to anybody. Don't be ashamed or too proud to seek help."   --Christopher Smith, NHS

 "I was faced with losing my home of five years. It was through networking with my sorority, Delta Sigma Theta Sorority, Inc., family and friends, and writing letters to my lender that finally turned things around. Do not be too proud to ask for help."

 --Angela Freeman, IT Consultant, downsized by Arthur Anderson, but managed to save her home

Article Source http://www.chicagodefender.com/page/local.cfm?ArticleID=9411