The number of housing foreclosures in Chicago is steadily increasing and financial experts say the situation will get worse before it gets better.

The Chicago Department of Housing reports that foreclosures in the city in the first half of 2007 are up 35 percent from the same time period last year, increasing from 4,695 to 6,329.

Austin is among the hardest hit in the city, according to Michael vanZalingen, director of home ownership services with Neighborhood Housing Services of Chicago. vanZalingen said rising appreciation has helped fuel the number of foreclosures.

“In Austin, the brokers moved in to leverage all of that equity that was growing in the neighborhood,” he said. “The downside of that is the loans they used to finance all of this borrowing were typically-stated income loans, loans in which the homeowner’s true income wasn’t used. It was just an imaginary number to justify the size of the loan.”

He said many homeowners’ payments are now virtually the size of their real income, so they cannot afford their loan under any circumstances.

“It’s not about a willingness to pay or a desire to pay but they have to make the choice between paying their mortgage and eating,” he said.

So-called 2/28 adjustable rate income loans, which are fixed for two years and then adjust every six months, made between 2004 and 2007 are just beginning to kick in, he noted.

“As we move into 2008 and 2009, all of those adjustable rate mortgages, which were typically underwritten at 50 percent of the homeowner’s gross monthly income, when they adjust, you’re looking at a payment that is 90 percent of their real net income,” vanZalingen said. “When that happens they are going to be in the same situation. That’s what’s on the horizon.”

He added that it’s projected that 20-30 percent of the loans in Austin will go into foreclosure in the next few years.

The cooling housing market and increase in foreclosure has prompted the Housing Department to hold a series of public forums, known as Borrower Outreach Days, to provide legal assistance. Workout sessions with lenders and counselors to help individuals avoid losing their homes are also provided.

“What we are doing with this is building on our existing foreclosure prevention program, which is a program called the home ownership Preservation Initiative, also known as HOPI,” said Molly Sullivan, director of communications for the Chicago Department of Housing.

She said HOPI started in 2003 in response to a surge in foreclosures in the 1990s. The program puts homeowners in touch with Neighborhood Housing Services counselors by calling the city’s 311 non-emergency help hotline. Sullivan said HOPI has provided counseling to some 5,500 households and saved more than 1,500 homes from foreclosure.

She said more than 50 percent of the people facing foreclosure never seek help because their lender is threatening to take their home if they don’t pay. She said many homeowners don’t know where to turn.

Sullivan added that foreclosures are most common in low-income communities with those who face catastrophic financial problems such as divorce, health problems or a death in the family.

One man, who declined to give his last name, attended the Borrower Outreach Day on Saturday at the Humboldt Park Field House, 1400 N. Sacramento. Don, 50, said he fell behind on his credit card payments and his mortgage after suffering a heart attack in September 2005. He said it took him about eight months to recover from the heart attack, but late payments shot the interest on his mortgage up from 8 to 13 percent.

“I didn’t even know it,” Don said. “You don’t know until you ask for the paperwork and then you see. And it’s legal and there’s nothing you can do.”

He said that he’s been in his bungalow on the South Side for about seven years, but he faces foreclosure in the next month if he’s not able to work something out.

Don said he bought the house for less than what it’s worth today, so he could probably sell it at enough of a profit to satisfy the value of the loan, but the market is so bad right now no one is buying.

He said that he was skeptical that anything could be done to save his home.

“Instead of somebody coming and talking to you, nobody advises you at the time,” he said. “Then when you talk to them or their creditors or collectors, they have come after you. They don’t care and they don’t have any information.”

The city will hold additional Borrower Outreach Days workshops on Thursday, Jan. 10, at the South Shore Cultural Center, 7059 South Shore Drive, from 3-8 p.m., and Wednesday, Jan. 30 at the Tuley Park Field House, 501 E. 90th Place from 3-8 p.m.

Avoid predatory lenders

City officials warn that many facing foreclosure have fallen victim to predatory lending practices by unscrupulous banks and lenders.
Hector Rodriguez, deputy city treasurer of economic development, was on hand Saturday at the city's Borrower Outreach Days at Humboldt Park.

He said his office has heard stories about borrowers signing incomplete paperwork that the lender said they would fill out later. Others have accepted lending rates of up to 29 percent interest. He said never sign anything without reading the fine print.

Rodriguez said those interested in purchasing a home should be wary of:
• Deceptive marketing practices.
• Lending without regard to the borrower's ability
   to repay the loan.
• Excessive loan fees.
• Financed credit insurance.
• High interest rates.
• "Balloon" payments where borrowers pay lump
    sums at the end of the loan.
• Loan flipping.
• Prepayment penalties.

Rodriguez advises those considering a loan to consult a lawyer or a HUD-approved housing counseling agency.

Those in Austin and greater West Side can get free legal counseling at following HUD-approved locations: Bethel New Life, 4950 W. Thomas, 773/473-7870; ACORN Housing Corporation, 209 W. Jackson, 312/939-1611; Chicago Urban League Development Corporation, 4510 S. Michigan, 733/285-1500.