Thursday, July 06, 2006

Prime Loan Defaults Surge In Chicago

The Chicago Business site has this report on foreclosures. "Home foreclosures rose last year in middle-class and gentrifying Chicago neighborhoods, as the combination of rising interest rates and adjustable-rate loans drove a citywide increase in problem mortgages. The highest jumps came in areas like the Near North Side (65% increase in foreclosures), Jefferson Park on the Northwest Side (89% increase), Rogers Park on the Far North Side (49% increase) and Bridgeport on the South Side (113% increase), according to a new study."

"The numbers lead Jack Markowski, commissioner of the Chicago Department of Housing, to believe that adjustable-rate mortgages (ARMs) with initially low pricing are playing a big role in the foreclosure surge. 'We're very concerned about teaser rates and artificially low payments,' he says. 'I think there has to be a waking-up among the lenders, and borrowers as well.'"

"In Chicago, foreclosures on prime-rate mortgages, home loans for borrowers who qualify for market interest rates rather than the higher rates paid by those with spotty credit, increased 43% in 2005, the survey shows. More alarmingly, the analysis found a 93% increase in foreclosures on prime-rate mortgages that had been issued less than two years before. Some 82% of those problem mortgages were ARMs or loans with scheduled payment increases, known as balloons."

"'This suggests to me that people are getting into loans they don't understand and can't afford,' says David Rose, author of the report on foreclosures in Chicago. 'As housing prices increase, incomes haven't necessarily kept up. I think more and more people are making that stretch.'"

"The big jump in prime-rate mortgage foreclosures contrasts with a 6% decline in foreclosures on subprime loans, mortgages with higher-than-market interest rates. Mr. Rose credits the third consecutive decrease in foreclosures on such loans to state 'predatory-lending' restrictions that took effect more than two years ago."

"Mortgage lenders say more borrowers are struggling to cover rising monthly payments as interest rates have increased and made ARMs more costly. Many of these homeowners used option ARMs, mortgages that give borrowers a very low minimum payment in the first year and then increase annually or even monthly as rates rise."

"'We have several clients (seeking refinancing) who didn't quite understand or didn't think the market would increase so fast,' says Jo Ann Grayson, chief operating officer of a Chicago-based mortgage banker."


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