Are you trying to find a foreclosure prevention counselor? Are you wondering how the foreclosure mess has impacted renters? Maybe you’re trying to track proposed housing-related legislation in Springfield?

There’s now a one-stop-shop web site that pulls together this information – plus lots of other stuff on the foreclosure crisis – for the Chicago region. It’s http://www.regionalhopi.org/ and it just launched yesterday.  The non-profit Woodstock Institute, known for its research on housing issues and foreclosures, is managing the site. Read the rest of this entry →

When I first heard about Dee Hutchinson’s building in Washington Park, I couldn’t believe it. Out of 27 units in the condo building, only three had been paying assessments for months.

The rest were in foreclosure, or were bank-owned, or had simply been abandoned when the heat and hot water were repeatedly shut off because the gas bill hadn’t been paid.

I produced a story for our series, Facing the Mortgage Crisis, on the efforts of the tiny condo association to turn the building around and get the heat back on. But I couldn’t stop wondering why on earth things had gotten this bad in the first place. Read the rest of this entry →

Lauren and Wolf Peddinghaus are the owners of Haus Financial Services, LLC.

Lauren Peddinghaus wanted to own her own business for a long time. She just wasn’t sure what it would be.
That is, until she sold her condo and bought another one. She had been treasurer of the condo association in her old building.

“I turned over everything to the new treasurer and she was calling me all the time. She was completely overwhelmed,” Peddinghaus says. Wolf Peddinghaus, Lauren’s husband, had a stroke of inspiration. “He said, if she’s having these problems, there are probably others, too.”

And a new business was born: Haus Financial Services, LLC. The wife-and-husband team manage the books for condo associations – everything from collecting assessments to preparing the budget to hiring vendors to cut the grass at their clients’ buildings. Lauren Peddinghaus got her first client in February 2008. Now, they have 23 clients and have hired a part-time bookkeeper and a handyman. Read the rest of this entry →

I’ve talked off and on over the years with Lyletta Robinson, whose nom de blog is “The Woodlawn Wonder.” She’s been blogging for years about her experiences as an urban pioneer buying a condo in Woodlawn, a neighborhood still trying to recover from white flight and gangs that took hold decades ago. The neighborhood experienced a brief gentrification wave during the recent housing boom and is now slipping backwards because of foreclosures.

She was corresponding recently with my colleague, Natalie Moore, about possible story ideas and sent her this email: Read the rest of this entry →

The American Bankers Association is holding its annual convention in Chicago starting on Monday. They’ll talk about things like “Unwinding Government Intervention” and “Managing Liquidity in Troubled Times.” Here’s a list of their convention sessions. But if they were hoping for a quiet gathering, that may be elusive.

A group affiliated with activist filmmaker Michael Moore and labor unions like AFL-CIO and SEIU Illinois is planning three days of protest that they’re calling Showdown in Chicago. On Monday, they’re planning to ask Goldman Sachs to donate its bonus pool (estimated to possibly reach $23 billion by the end of the year) to “prevent every foreclosure in America in 2010 AND lift one million families out of the poverty and joblessness.”

They’re protesting the banks’ multibillion-dollar effort to fight financial reform at the same time that more people are slipping into foreclosure and being laid off.

It’s easy to think there’s something cursed about the Block 37 retail site that’s been in the works since the 1970s. Now it’s been foreclosed on by a group of banks.

But it could just be the opening salvo of the next real estate crisis. Financial experts are increasingly worried about a growing number of commercial loan defaults that could trigger even more bank failures. WBEZ’s Chip Mitchell reported on this aspect of the foreclosure crisis back in August. Since then, it’s becoming even more apparent that the real estate sector is in for still more pain.

A recent Wall Street Journal article highlights how banks are trying to postpone facing reality. Here’s a snippet:

These days, many U.S. banks have adopted a policy of extending loans when they come due even if they wouldn’t make those loans now. In some cases, values of the underlying property have fallen below the amount of the loan.

“There’s been an extend-and-pretend philosophy by banks to forestall hits to their balance sheets that might occur,” says Patrick Phillips, new chief executive of the Urban Land Institute, a real-estate industry group.

Matthew Anderson, a partner at research firm Foresight Analytics, adds: “It’s like taping paper over a hole in the wall.”

So what’s triggering this? First of all, banks loosened their lending standards for commercial loans just like they did for residential. Then, the recession hit.

Companies are now laying people off. They need less space. And just like the homeowners who took out too many equity loans and then got saddled with a mountain of debt, commercial property owners also overleveraged. That means they’re walking the razor’s edge. When less rent comes in, they can’t make their loan payments.

But why does it lag behind the general housing market crash? I called up Matt Anderson of Oakland, California-based Foresight Analytics to get more context. (He was quoted in the Wall Street Journal article above.) He says different sectors of the commercial market have been hit at different times.

“The lodging sector was hit earlier because that income varies by day. The retail sector took an earlier hit with the downturn in consumer spending,” Anderson says. “You’re starting to see the impact now on the office market.”

He says the office market lags longest because leases are typically on a 5- to 10-year time frame. Now that they’re coming up for renewal, tenants are negotiating lower rents or renting less space as they lay off workers. Some tenants that have gone out of business give up the space entirely.

What’s the outlook? Anderson says delinquencies will probably keep rising throughout much of next year. He says his group estimates commercial mortgage delinquencies to rise to the 7-8 percent range by late next year compared to an estimated 4.7 percent in the third quarter of this year.

And Chicago is faring particularly badly, according to Foresight Analytics. In the second quarter, Chicago’s commercial mortgage delinquency rate ranked fourth out of 100 metro areas. Its rate was 6.2 percent – compared with a national rate of 4.1 percent.

I live just a couple blocks away from this four-plus-one building at 5411 N. Winthrop and walk by it all the time with my son on the way to the playground. Every time I do, I want to know what the heck were they thinking? They wanted to make condos out of this hideous 1972 building?

Well, too bad the developer didn’t ask me my opinion a few years ago, because now it’s in foreclosure. Crain’s Chicago Business reported in June that First Mutual Bancorp of Illinois foreclosed on the 98-unit building after the developer allegedly failed to pay off the $15.1 million loan. The developer was Ilie Venter of Venter and Associates. According to Crain’s, he left a string of failed projects all over the North Side.

I tried to find a working phone number for Venter and couldn’t.

So to find an answer to my question – what the heck where they thinking? I called Erik Maassen, one of the real estate agents listed on the board outside.

“It was kind of one of those things that’s half-baked,” Maassen told me. “It’s hard to eat a half-baked brownie.”

He says the developer did start doing the gut rehab. (Let me interject – I think this building needed more than its gut rehabbed. Take a look at that 70s-era stonework and the concrete peaks.) Venter put in hardwood floors and in-unit washers and dryers. He put in central air conditioning. But when Maassen and colleague started selling this place in spring 2008, no one bit.

“The market was about as dead as a doornail,” he says. “I remember being in that building in September of 2008 when the market crashed. People thought this was the end of the world.”

But even without that calamity, Maassen says the building proved to be a tough sell. Some people who had rented apartments there before Venter bought it came back to look at the units. He says they were impressed with the improvements but not impressed enough to turn in a contract to buy.

The units were small. Maassen says they ranged from studios to two-bedroom, in the 700 to 1,000-square-foot range. He says they were listed at about $100,000 to $260,000.

“I think the biggest problem is that someone would walk in and say, ‘I don’t want to be the first one in,’” Maassen says. “It’s just hard to get that domino to fall.”

But it looks like Venter wasn’t very well regarded in the community. Neighborhood groups, including the Edgewater Beach Neighbors Association, were on the warpath over it. Here’s an excerpt from the EBNA blog from 2007:

This condominium conversion of multi-unit building has been a long-time target of ECC, EBNA block club and 48th ward due to shoddy construction and lack of permits. At last hearing on Sept. 6, developer Ilie Venter was ordered to send engineering report to the City for review, because of concerns about the safety of the support columns in the garage and on the 1st floor. Developer was also ordered to get new plans approved by the City, to get proper permits and to come up with a reasonable time frame for the work to be completed. Stop Work order has been lifted and evidently work has resumed on the building.

Request made to City Attorney and DOB on Oct. 30 for new inspection to make sure all work is being done up to code.

So now the whole building is listed as a short sale for $7.5 million. I left a message for the current realtor to find out more and haven’t heard back.

I’m curious to see what happens with it. In the meantime, there’s trash and leaves strewn in front. An old stop service sign from the electric company hangs on the front door. The inside lobby looks like someone rampaged through and beat a hasty retreat. Just a little slice of the foreclosure crisis in my ‘hood.

First, banks started failing because of subprime loans turned bad. Now, it’s construction and commercial real estate loans that are bringing down major financial institutions.

It wasn’t exactly a surprise, but the federal government’s seizure of Chicago-based Corus Bank last Friday made clear that the crisis is nowhere near over. And it shows that when South Florida and Las Vegas catch pneumonia, so does Chicago – at least the parts of Chicago that lent to the most overheated real estate markets in the country. The New York Times called the company “the great enabler of condo madness.”

Here’s an excerpt from an interesting Wall Street Journal article about Corus that portends this failure won’t be the last:

Corus’s failure is the latest sign that banks, particularly small and midsize regional lenders, face a new round of pain beyond deteriorating home mortgages. Construction loans accounted for 88% of Corus’s outstanding loans at the end of the first quarter, the largest share among any U.S. bank with more than $100 million in loans, according to Foresight Analytics.

Other commercial real-estate sectors are also beginning to get clobbered by the recession as evidenced by the bankruptcy filings by General Growth Properties Inc. and Extended Stay Hotels. Commercial real-estate loans could trigger an additional $100 billion in losses at more than 900 small and midsize banks if the economy deteriorates further, according to an analysis by The Wall Street Journal conducted earlier this year.

Everyone keeps talking about a wave of foreclosures still to come. But the latest numbers, at least here in Illinois, seem to indicate a decline. So what’s really going on?

Foreclosure filings in Illinois fell 10 percent in August from July, according to the foreclosure data firm RealtyTrac. In Cook County, the number was even more dramatic – a 32 percent drop from July.

All of this seems like good news. There are some new state and federal policies that may be delaying and possibly preventing some foreclosures. One is a state law called the Homeowner Protection Act signed into law by Illinois Governor Pat Quinn earlier this year. That law provides for a grace period of up to 90 days for homeowners who enter loan counseling. The other is the federal government’s Home Affordable Modification Program (HAMP), which encourages banks to lower mortgage payments for homeowners who are struggling.

But Geoff Smith of the housing policy research group Woodstock Institute cautions not to get too optimistic quite yet. He says his research indicates that, if anything, we can expect foreclosures to keep rising. He says the troubled economy combined with certain adjustable-rate mortgages will likely result in more defaults. He points to so-called option adjustable-rate mortgages, or option ARMs, which allow a homeowner to pay less than the interest for a certain period of time. He says that teaser period of time is coming to an end and the payment levels will start to jump in the next couple of years.

Here’s an excerpt from an interesting recent story in the New York Times:

When Harvey Clavon took out an exotic mortgage to refinance his home in Santa Clarita, Calif., three years ago, he thought he knew what he was doing.

Mr. Clavon, 63, was planning to sell the home in a few years and retire to Palm Springs. So he got a loan called an option adjustable rate mortgage, or option ARM, which allowed him to pay less than the interest for the first five years.

On his annual salary of $100,000 as a television camera operator, he could afford the $2,200 initial mortgage payments. And he planned to sell the home before the mortgage reset.

Now Mr. Clavon is part of what many economists say is a looming threat to a housing recovery: more than a half-million option ARMs scheduled to reset in the next four years, at rates many homeowners cannot afford. His mortgage payments have risen to $2,700 a month because of a clause he did not notice on his contract, and are scheduled to rise above $4,000 in two years.

Since February, default and foreclosure rates on option ARMs have passed those of subprime mortgages, according to the research firm First American CoreLogic, in part because so many subprime mortgages have already failed.

Because Mr. Clavon made only minimum payments on his mortgage, his balance has risen to $680,000 from $618,000, on a house worth closer to $400,000.

Drive through some Chicago neighborhoods and you’ll see boarded-up house after boarded-up house. Sure, the family probably couldn’t afford to pay the mortgage, and the bank followed through on its right to take back the home. But is that really in the best interest of the family, the bank and the community at large? Probably not, at least not for the family or the community. Vacant homes have been shown to lead to increased crime and decreased property values.

So some people are proposing that banks go through with foreclosures but then allow the occupants to rent out their homes. This would mean less upheaval – kids changing schools, homes sitting empty and vulnerable to vandals.

Senator Dick Durbin of Illinois said yesterday that he is considering legislation that would give struggling homeowners the right to temporarily pay fair-market rent to their lender and stay in their homes. This “right to rent” is something that the Washington-based Center for Economic and Policy Research has been advocating.

Here’s an excerpt from a recent op-ed that Dean Baker, co-director of the center, wrote for the Los Angeles Times:

In the markets affected most by the housing bubble bursting, the current rents would be 30 percent to 50 percent less than the monthly mortgage payments for homes purchased near the peak of the bubble. This means that many families that cannot afford their mortgage payments would likely be able to afford the market rent.

Although they would lose ownership of their homes under “right to rent,” the residents would be able to stay in their homes, neighborhoods and schools.

This would provide families facing foreclosure with needed stability and housing security.

Further, “right to rent” would enable more families to stay in their homes as owners, by giving banks an extra incentive to pursue mortgage modifications.

Currently, in spite of the various government programs, most banks have little incentive to pursue modifications. In fact, the Treasury Department reported that as of July, Home Loan Services Inc., with more than 30,000 delinquent loans, was among those that had yet to initiate a single modification under the government’s Making Home Affordable Program. While a bank would still be able to sell a home after a foreclosure, the “right to rent” would attach to the home, so that a new owner would have to honor it. This could deter the sale of a home, because a home is much less marketable if it comes with a long-term tenant. If lenders know that they could get stuck with a tenant for five to 10 years, foreclosure would be a much less attractive option.

By keeping homes occupied, “right to rent” would also be a boon to communities that have been especially hard-hit by foreclosures. Often foreclosed homes are abandoned, with unkempt lawns, broken windows and other property damage. Such homes can attract squatters or become havens for drug use and other crimes, which endangers the neighborhood and brings down property values.

“Right to rent” could even slow the general decline in home prices by reducing the volume of homes that are foreclosed and resold on the market. The current rate of almost 2 million annual foreclosures is equal to almost 40 percent of demand for new and existing homes. If this plan helps reduce the supply of foreclosed homes coming on the market, it would help to stem the slide in home prices.

And while I’m at it (and as someone who’s only ever rented), I think his column on owning versus renting is very thought-provoking. Check it out.