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RepoHomeTourChicgo.com brings you the latest news and information about Chicago area real estate
foreclosures. Our team of foreclosure experts have extensive knowledge in foreclosure properties
including bank owned, HUD homes, and pre-foreclosure properties.
| | Focusing on Chicago area and related national housing bubble news. | |
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| | Fri, 25 Apr 2008 20:36:00 +0000 |
| Kimball Hill seeking investors as it files Ch. 11
(Crain’s) — After months of negotiations with its lenders, beleaguered homebuilder Kimball Hill Inc. filed for Chapter 11 bankruptcy protection Wednesday.
Battered by the housing recession and with losses piling up, the Rolling Meadows-based company joins a growing list of homebuilders in bankruptcy court, including Warrenville-based Neumann Homes Inc. With more than $60 million in cash, Kimball Hill plans to continue operations as it restructures its debt.
“The next step in our restructuring is to strengthen our capital structure and position our company to weather the current storm that has hit the housing and capital markets,” Kimball Hill President and CEO Ken Love said in a news release. “We have had significant discussions with potential plan sponsors and our senior lenders already, and we hope to agree on a reorganization plan in the next 90 days. We will continue to sell, build and deliver homes without interruption.”
Kimball Hill disclosed in February that it was considering a Chapter 11 filing as it tried to renegotiate a $500-million line of credit. Talks dragged on, and the firm’s lenders agreed to extend the loan agreement twice, most recently until May 9.
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Kimball Hill lists assets of $795.5 million and debts of $631.9 million, according to a Chapter 11 petition filed Wednesday in U.S. Bankruptcy Court in Chicago. Its largest liabilities include the credit line, which has a balance of $337 million, and $203 million in unsecured notes.
The homebuilder is actively seeking investors interested in buying an equity stake in the company, including private-equity firms, hedge funds and real estate funds, according to a statement by Kimball Hill CFO Edward Madell filed with the bankruptcy court. About 26 parties “continue to actively evaluate the prospect” of an investment in Kimball Hill, the document says.
Kimball Hill attributed its problems to “the downturn in the housing market, severe challenges in the credit and mortgage markets, diminished consumer confidence, increased foreclosures and higher cancellation rates,” according to the news release. The company has responded by cutting jobs and pulling back in certain markets, including Florida, which it plans to exit by the end of the year.
Kimball Hill is the 13th-largest homebuilder in the Chicago area when ranked by local revenues, according to Crain’s 2008 list of largest homebuilders. In addition to Illinois and Florida, the company operates in Texas, Nevada and California. | |
| | Fri, 25 Apr 2008 20:35:00 +0000 |
| West Chicago dangles housing incentive
Tax-exempt bonds from state provide down payments for first-time buyers
Using a state incentive program that once helped West Chicago keep businesses in town, the city is now hoping to put it to use in luring new residents.
The city council voted Monday to give the Illinois Housing Development Authority borrowing ability over its nearly $2.3 million worth of state-offered, tax-exempt bonds to offer mortgages to first-time home buyers.
The bond sales can help finance a variety of economic stimulus programs, but Mayor Mike Kwasman said he wanted to be "proactive" with the housing market in its current state.
"We want to prevent a vacant housing market," he said.
Local real estate experts said West Chicago is in no worse shape than other DuPage County municipalities and lauded the plan.
"It's a great program," said Becky Vander Veen, an agent with Wheaton-based Realty Executives Premiere. "Anytime the government loosens funds for these kinds of programs it does help."
The program will be run by the state agency through partnerships with West Chicago banks.
"There is no fiscal responsibility to the community," said Roger Morsch, the housing development authority's director of business and product development, "though they get all the benefits of the program."
The program works by offering qualified first-time home buyers mortgages with grants equal to 4.25 percent of the purchase price, city officials said. They hope to begin offering the program within the next two weeks.
A portion of the grant goes to pay off the lender for originating the loan, Morsch said. That's about 1.25 percent of the purchase price.
The remaining 3 percent is used as a down payment on the property that must be within the city limits of West Chicago.
The mortgage may come with a slightly higher interest rate, though.
About 20 municipalities are participating in the same kind of program throughout the state, Morsch said.
Aurora offers a similar program, but it's not managed by the state agency. City Finance Director Brian Caputo said other municipalities utilize the city's program as well.
Since its inception in 1997, the Aurora home buyer program has helped secure more than 1,300 mortgages, he said. | |
| | Tue, 22 Apr 2008 02:31:00 +0000 |
| Credit getting even tighter for condominium buyers
WASHINGTON—If you own or plan to buy a condo, a new phase of the mortgage credit squeeze could be looming.
Because of underwriting changes by giant investors Fannie Mae and Freddie Mac, plus new restrictions by private-mortgage insurers, getting a loan on a condo or refinancing one you own could prove tougher than you imagined.
For example, starting May 1, AIG United Guaranty, a private-mortgage insurer, no longer will write coverage on condos in hundreds of ZIP Codes that it designates as "declining" markets. Applicants' credit scores, assets or equity stakes don't matter. Even in the healthiest real estate markets, United Guaranty will require buyers to put at least a 10 percent down and will reject applications in buildings where more than 30 percent of the owners are investors.
Buyers putting 20 percent or more down are not affected by the cutbacks, because they generally don't need the insurance. Others mortgage insurers continue to accept applications on condos in declining markets—with at least 10 percent down.
Fannie Mae, a dominant financing source for condos, has rolled out new procedures that some lenders and mortgage brokers say could tighten the availability of loans to condo buyers. Freddie Mac has issued similar guidelines.
Under Fannie Mae's changes, most of the due-diligence research on condominium projects' key characteristics—legal documentation, association operating budgets, percentage of unit owners late on fee payments, percentage of space allocated to commercial use and percentage of investor-owned units—must be performed upfront by loan officers.
Not only is this time-consuming and costly, the lender also is expected to warrant the accuracy of its research. Some condo project legal documents run hundreds of pages, yet lenders are supposed to take legal and financial responsibility for their accuracy.
"It's ridiculous," said Phil Sutcliffe, principal of Project Support Services of Lansdale, Pa., who helps put together financing for condo developers. Not only does this shift huge paperwork and time burdens to lenders and brokers but it also forces them to make "absolute judgments on things that are not absolute."
For instance, said Sutcliffe, the new Fannie guidance requires loan officers to make certain that at least 10 percent of a condo project's operating budget is reserved for "capital expenditures and deferred maintenance." Sutcliffe, who has analyzed condo budgets for two decades, says there are no wiggle-room provisions in the guidance for "compensating factors," such as when part of the line-item reserves are for important expenditures such as insurance.
Some loan officers will look at the "reserves" item and, if it's less than 10 percent, reject the whole building, said Sutcliffe.
Fannie Mae spokeswoman Marilyn Kornfeld said the procedures are designed to "protect borrowers and manage increased credit risk in the market."
Freddie Mac spokesman Brad German acknowledged that the changes would make condo unit loans "more labor and paper intensive for the lender" but said weak sales, growing numbers of financially troubled projects and declining property values made them necessary.
Jeff Lipes, president of Connecticut-based Family Choice Mortgage Corp., said the Fannie Mae changes combined with other retrenchments mean that when potential applicants inquire about a loan on a condo unit, "we really can't give them a definite answer" because it takes research to determine whether their building qualifies.
"Even if you had an 800 FICO score and 50 percent equity," said Lipes, "you still might not be able to get a condo loan." It depends on whether the underlying project can pass the underwriting tests, whether it is in a declining market and whether there is a lender "concentration" limit on it. Some large private mortgage lenders refuse to finance more than a set percentage of units in a single condo project to limit their exposure to possible losses.
Bruce A. Calabrese, president of Equitable Mortgage Corp. in Columbus, Ohio, said "everybody is really backing off condos" because of the restrictions and changes. He said he owns two—one in Florida, another in Myrtle Beach, S.C.—and "I don't think I could refinance either of them right now if I tried." | |
| | Fri, 18 Apr 2008 18:40:00 +0000 |
| America's Worst-Selling Housing Markets (Forbes)
7. Chicago, Ill.
Median price: $261,000
Percent change: -2.6%
Unsold homes: 72,842
Sales rate: 2.3% per month
"Chicago's market difficulties haven't received a great deal of attention outside of the Midwest, due largely to the fact that it looks healthy compared with neighboring Michigan and Ohio. Still, the market almost doubled its unsold inventory between 2005 and 2008, and that stock has evaporated very slowly." | |
| | Thu, 17 Apr 2008 15:53:00 +0000 |
| Subprime Crisis’s Next Stop: Prime Mortgages
Even the best eggs in the mortgage basket are now beginning to turn rotten. Delinquencies among the nation’s least risky mortgages, known as “prime” mortgages, are rising quickly.
Although large financial institutions have already racked up more than $215 billion in losses stemming from high-risk subprime and “Alt-A” mortgages — the poster children of the mortgage crisis — the data that banks released this week suggests that even borrowers with the safest credit profiles are quickly falling behind on their payments.
At JPMorgan Chase & Co., which reported its earnings Wednesday, nearly 3.5% of the bank’s prime mortgages now stand at least 30 days past due, up more than 200% over a year ago. What’s more, the number of tardy prime mortgage borrowers at JPMorgan is up about 40% since just December.
At Wachovia Corp., which reported earnings on Monday, the number of souring loans within the bank’s “traditional mortgage” business — which emphasizes conservative underwriting guidelines — stands at 1.15% of the business’s $48.9 billion in mortgages, an increase of more than double in the last three months alone.
“It’s a sign of the times,” said Jeff Davis, an analyst at FTN Midwest Securities Corp. “The unemployment rate is starting to drift up, so you would expect to see rising delinquencies.” The nation’s unemployment rate was 5.1% in March, up from 4.8% in February.
Analysts also said the nation’s declining housing market is behind the rise in delinquencies among historically reliable mortgage borrowers, since many owe more in mortgage debt than their homes are worth, leaving them without the option of selling the property and repaying the mortgage.
As a result of lost jobs and evaporating home equity, many of these previously low-risk borrowers are quitting their mortgages. Should borrowers of prime mortgages continue to fall behind in greater numbers, the trend will affect pools of mortgages that are much larger than the now-infamous mountains of subrpime debt.
For example, a survey of lenders by the Mortgage Bankers Association, said the mortgage industry wrote $656 billion in home loans during the first half of 2007, and 69% of those loans were prime loans. By contrast, only 26% of those loans were subprime mortgages. The association said data is not yet available for the second half of 2007. | |
| | Thu, 17 Apr 2008 15:42:00 +0000 |
| Will, Kendall high on foreclosure list
Total foreclosure filings in Will County fell 17 percent last month.
Filings were up 9 percent, however, from a year earlier.
In Kendall County, the rate increased 7 percent from February and jumped a whopping 52 percent from a year ago.
Will and Kendall counties were ranked second and third, respectively, in Illinois for foreclosure filings.
The foreclosure filing total rose drastically in Grundy County, increasing 675 percent from February and 55 percent from a year ago. The actual number of filings in Grundy was small, however. There were four in February, 20 in March 2007 and 31 in March 2008.
The foreclosure data was released this week by Irvine, Calif.-based RealtyTrac., which monitors foreclosure filings -- default notices, auction sale notices and bank repossessions -- in all 50 states.
Nationwide, March foreclosure filings increased 5 percent from the previous month and 57 percent from a year earlier.
In Illinois, filings fell 1.54 percent from February and increased 10.28 percent from a year earlier. | |
| | Thu, 17 Apr 2008 15:38:00 +0000 |
| Wealthy Americans See Slow Housing Market As Buying Opportunity
(Dow Jones) -- Is now a good time to buy real estate? The size of your paycheck likely will play a big part in how you answer that question.
While many average Americans are skittish about the housing market, some of the country's richest citizens see the current conditions as perfect for buying, according to the Annual Survey of Affluence and Wealth in America, released on Tuesday by the American Express Publishing Corp. and Harrison Group, a market research and consulting firm.
Seventy-seven percent of the wealthiest people surveyed think real estate presents a "real opportunity" right now. In the survey, "wealthy" meant having discretionary household income of more than $500,000 a year.
And these high-income earners are putting their money where their mouths are: 40% said they are in the market to acquire real estate this year.
The survey was originally conducted late last year with 1,800 people representing the wealthiest 10% of American households. But the more recent figures are from a follow-up survey with a smaller sample of the original participants, conducted last week to ensure the study reflects rapidly changing market dynamics.
Other survey participants are "upper middle class," with incomes between $100, 000 and $149,000; "affluent," with incomes between $150,000 and $249,000; and " super affluent," with incomes between $250,000 and $499,000.
The wealthy aren't alone in their belief that the real-estate market represents a buying opportunity: 67% of the upper-middle-class participants also agreed with that statement, as did 72% of the affluent and the super-affluent.
"There are bargains out there ... severe price pressure across the board," said Jim Taylor, vice-chairman of Harrison Group. That said, at the very top of the market, there is an abundance of buyers and that is holding prices steady at that level, he added.
Still, the wealthiest were the most committed to buying soon. Only 17% of upper-middle-class participants said they were in the market to buy real estate this year, while 24% of the affluent and 26% of the super-affluent said the same.
Forty-one percent of those in the wealthy category said owning a second home was "almost a requirement" for people of their economic means, according to the survey.
Thirty-three percent of the wealthiest who said they intended to buy this year are now in the market for a second home, and 25% said they are in the market for a finished third home, according to the survey.
"They're treating it as a portfolio play, rather than a recreation play," Taylor said. "They've moved off the notion that it's just pleasure real estate," he said, adding that the wealthy use second homes to help balance their overall investment portfolio.
Seventy-nine percent of the survey's respondents said the country is in a recession now, but 88% said they are confident that property values will eventually rebound. Still, 18% of respondents said the equity in their home is worth less than what they owe.
Many respondents expressed significant anxiety over the recession, Taylor said. That was especially true of the upper-middle-class and affluent groups, he said.
But not everyone is worried about their own financial stability. Taylor said he expects the number of millionaires to increase by another 6% this year. | |
| | Wed, 16 Apr 2008 17:21:00 +0000 |
| Notes from a Foreclosure Auction
(ChicagoMag.com) - In January 2003, a modest three-bedroom red brick bungalow in Jefferson Park sold for $269,000. Last Thursday, at a foreclosure auction in a suburban hotel ballroom, that same Northwest Side bungalow sold for $209,625 (which included an auction fee of $14,625). Although he declined to provide his name, the buyer was positively jubilant. “I know it’s worth more than that,” he said. “I just got a nice home for me and my family.”
The man left the hotel beaming with satisfaction. He had just bought a house at 22 percent less than its 2003 sale price. What’s more, when last listed on the conventional real-estate market, the house had had an asking price of $315,000.
It was the chance of finding that kind of bargain that drew about 175 people to the Hyatt-Rosemont on April 10th for an auction of foreclosed homes by Rick Levin & Associates, an auction firm I wrote about two weeks ago. Some 82 houses, condos, three-flats, and townhouses were up for sale that day. The bidders were an equal mix of investors and people simply looking to buy homes for themselves.
I had expected the auction to be loud; I didn’t expect the yelling, clapping, and overall frat-party atmosphere. If I had been there to buy a house, I would have found the pressure nerve-wracking. But because I was only an observer, I agreed with Gerald McQuirter, an Oak Park real-estate investor who was standing near me: “It’s the new form of entertainment,” he said later, away from the noise. “It’s a good show.”
Beneath a screen showing each house as it came up for bid, the auctioneer rattled off the bids; his spotters stalked the room, waving and whooping when a new offer popped up. Bidders filled nearly every seat and lined the sides of the room, some looking tense and worried, others coolly monitoring the spreadsheets and other research materials they had brought with them. Behind the auctioneer were the representatives of the sellers (in this case, mostly banks), who watched the bidding on their properties with one eye and their computer screens with the other. They were looking to see when the bidding passed their “reserve,” the minimum price at which they would let go of the house. (If bidding doesn’t pass that level, the agreement is on reserve, meaning the seller can withdraw from the deal or try to negotiate a higher price with the winning bidder.) When bidding on a house passed the reserve, the sellers’ reps signaled members of Levin’s staff, who clapped and yelled like waiters parading a birthday cake.
The obvious aim of all that chatter and activity was to goose the bidding higher. It helped: the bidding on one house went from $1,000 to $12,000 as fast as the auctioneer could say the numbers. It crossed the reserve line at $32,000 and sold “absolute,” or without being put on reserve, for $45,000. With the 7.5 percent buyer’s premium that was added to the sale price (this money goes to the auction house), the buyers paid $48,375 for a blond brick bungalow in Englewood. In March 2006, that same South Side house had sold on the open market for $170,000.
Levin said the sellers’ reps might have had a reserve in mind for that house as high as $70,000, but understood the mood in the room. “They see how things are going today,” he said. “Prices are a little lower than we thought they would be.” Eager to get all their properties out of their hands, said Levin, the sellers’ reps may have revised their reserve figures downward in the thick of the action.
Prices may have been lower than Levin expected, but they were significantly higher than McQuirter had hoped. An experienced buyer of foreclosed properties (his firm is GMC Capital Realty), McQuirter had come to Rosemont planning to bid on two homes: a two-bedroom condo in Prospect Heights whose last asking price on the open market had been $125,000; and a one-bedroom Oak Park condo last priced at $99,900. He wanted to pay between $35,000 and $50,000 for each property. The Prospect Heights condo went for $96,750 (including the buyer’s premium); the Oak Park condo went for $84,925 (including the premium).
“I blinked and they went up past what I came in planning to pay,” McQuirter said. He held to his budget and dropped out of the bidding, but noted that other bidders, caught up in the noise and the swirl of action, may have wound up bidding higher than they had planned. He suggests that any homebuyer who wants to try buying at auction go in with an experienced real-estate agent or other auction “coach.” “Otherwise,” he said, “it can really catch you up.”
There are two more Chicago-area real estate auctions coming up. One, on May 10th, is an auction of builders’ new and unsold inventory in the south suburbs. For more information, call 708-645-2001 or www.theauctionator.com. The second auction is May 17th, when more than 150 properties will go on the block at the Congress Plaza Hotel downtown. For information, call (312) 334-1300 or go to www.chicagolandauctions.com.
Be prepared. As I wrote in my earlier blog about Levin’s firm, you can’t just walk in on the day of the auction and expect to grab a bargain. You need to do some research on the properties—and on the auction process—in advance of the actual sale event. If you want to buy a house at auction, you need to get started right now. | |
| | Wed, 16 Apr 2008 17:17:00 +0000 |
| Foreclosure suit filed on Monee home development
(Crain’s) — Hinsdale Bank & Trust Co. has filed a foreclosure lawsuit to collect $12.79 million on a loan for a 164-home development planned in far southwest suburban Monee.
The bank alleges that a venture led by Robert J. Loncar failed to pay off a loan for the project near Manhattan-Monee Road and 88th Avenue when it came due Jan. 2, according to a complaint filed March 25 in Will County.
Messages left for Mr. Loncar were not returned. He is president of Royal Assets Inc., a Naperville-based real estate development firm. The company is not a defendant in the lawsuit.
"We're disappointed it's gotten to foreclosure," says Ari J. Rosenthal, a spokesman for the project, called the Preserve at Charlevoix. "But we're optimistic we can work something out."
Messrs. Loncar and Rosenthal are both named as defendants in suit, which alleges that they guaranteed the loan.
The project was slated to have 164 single-family homes on 210 acres. The Naperville-based venture, called Charlevoix of Green Garden LLC, which also is a defendant in the lawsuit, was selling vacant lots where the homes would be built.
Of the 48 lots that were completed as part of the project's first phase, only four have been sold, Mr. Rosenthal said, adding that he expects to sell another four lots this spring.
"We're hopeful the market will come back," he says.
Charlevoix of Green Garden had financed the project with a loan that had an original balance of $8.8 million. The amount was later increased to $13.144 million.
A lawyer representing Hinsdale Bank declined to comment. | |
| | Wed, 16 Apr 2008 17:15:00 +0000 |
| Condo converter to auction 293 unsold units
(Crain’s) — After more than two years of marketing, a condominium converter has hired Inland Real Estate Auctions Inc. to sell 293 unsold units in a large apartment complex in the far northern suburbs.
Capital Acquisitions & Development Inc. hired Inland to auction off nearly three quarters of the 396 units in the former County Faire Village in Grayslake. A buyer could continue the slow-moving conversion program, or shut it down and wait until the for-sale market recovers. A buyer also could keep the units as apartments.
The remaining units have a projected annual net rental income of $1.9 million. The auction is scheduled for June 5.
A large sale of so many unsold units in a condo conversion project, sometimes called a “reversion conversion,” is rare in the Chicago market.
“There is no scientific formula to these,” said Frank J. Diliberto, president and CEO of Inland Real Estate Auctions, a unit of Oak Brook-based Inland Group of Cos. “There are risk components, and we are in a market climate that we haven’t seen in many years.”
A sale price is difficult to predict, but could be in the high $20 millions range, he said. The units would be sold as a group.
An investor group led by Palos Hills-based Capital Acquisitions paid about $38 million for the development in August 2005, with plans for a quick conversion of the rental project, located at the corner of state routes 120 and 45.
But Stanley Smagala, president of Capital Acquisitions, now candidly predicts that the for-sale housing market will take several years to recover.
“It’s going to take two years before we find out what’s going on, three years before the values start going up again,” he said.
Since the conversion project began, a little more than 100 units have been sold, at prices ranging from $107,000 to $157,000, Inland said.
Mr. Smagala said he is under no pressure to sell from the project’s lender, but added, “We have a couple (minority) partners that want to get out.”
Renamed Grays Pointe as part of the condo conversion effort, the complex offers a wide variety of features, including a nature walk, picnic areas, a pool, tennis courts and playgrounds and a clubhouse. The complex is near the former Lake County fairgrounds, which is being developed into a lifestyle center.
The development was built between 1985 and 1990, according to Chicago-based consulting firm Appraisal Research Counselors. | |
| | Wed, 16 Apr 2008 17:10:00 +0000 |
| Foreclosure wave will crest in May, June
The onslaught of homes facing foreclosures has yet to ebb, a research report showed Tuesday, with bank repossessions skyrocketing last month as more troubled homeowners mailed in their keys and walked away.
And the worst isn't over: the wave of adjustable-rate loans resetting to higher rates will crest in May and June. And that's expected to push more homeowners into default and foreclosure in the third and fourth quarters of this year, according to RealtyTrac Inc. of Irvine, Calif.
"Once we're through that batch of loans, the worst will have been worked through the system," said Rick Sharga, RealtyTrac's vice president of marketing.
The number of U.S. homes receiving at least one foreclosure filing jumped 57 percent in March to 234,685, compared with 149,150 properties a year earlier. Filings include default notices, auction sale notices and bank repossessions.
The overall foreclosure rate is 5 percent higher than in February, which saw an unexpected month-to-month decline over January. March marked the 27th consecutive month of year-over-year increases in national foreclosure filings.
That meant one in every 538 households received a filing during the month. Forty-four percent were households that slipped into default for the first time and more than a fifth were homes banks took back.
Lenders took possession of homes at a sharply higher rate, up 129 percent over last year, as more homeowners relinquished their homes, said Sharga. Banks repossessed 51,393 properties nationwide, many of them without a public foreclosure auction.
"In a lot of cases, banks worked something out with the owner in advance and took back the keys and deed. For a homeowner, it's not as embarrassing and it's a little less of a blemish on their credit record compared to a foreclosure," Sharga said.
He estimates between 750,000 and 1 million bank-owned properties will hit the market this year, or about a quarter of the homes up for sale. In some areas, these properties will continue to slow sales and depress prices further.
Declining home prices and stricter lending requirements have exacerbated the foreclosure environment. Homeowners stuck in unmanageable mortgages aren't able to sell their homes or refinance into cheaper loans before their mortgage payments reset higher. | |
| | Tue, 15 Apr 2008 12:51:00 +0000 |
| Statewide foreclosures dip slightly since Feb.
Foreclosures in Illinois rose 10 percent in March from a year ago, but were down 1.54 percent from February, said RealtyTrac Inc. One in every 603 households in the state received a foreclosure filing in March. Foreclosures soared 57 percent nationally from March 2007 and rose 5 percent from February, RealtyTrac found. In Cook County, they climbed 7 percent from March 2007 and 15 percent from February. | |
| | Mon, 14 Apr 2008 13:16:00 +0000 |
| Swept up in credit crisis
How the mess affects a new home buyer and a high school senior
Nicole Flora, a first-time home buyer with good credit, and 17-year-old graduating high school senior Alexandra Torres never expected to be caught up in the mortgage meltdown mess and the credit crunch that resulted.
But the situation is intruding on their lives nonetheless.
Nicole Flora was able to buy this home -- but she had to double her down payment. Roberto Clemente senior Alexandra Torres has a 3.5 grade-point average and has been accepted to Northeastern Illinois. But because of the credit crisis, she could have trouble getting loans to pay for her education.
Last month Flora was all set to close on a $220,000 McKinley Park home for her and her 9-year-old daughter, having secured a 30-year fixed mortgage with a 6.25 percent interest rate, helped by her 681 credit score. She had no problem providing the 5 percent down payment she said she was told would be required. But then after her closing had been scheduled, she got the bombshell news the lending requirements had changed. Instead of the $12,500 she'd planned to put down, she had to come up with $25,000, despite having what the rating agencies classify as a good credit score.
"I was actually told I was good as gold," she said. "Then before I knew it, they never said it was bad. But it wasn't good enough anymore.
"I was highly upset. I had already put an offer on the house. We already had a contract. I already had an inspection. Money was already invested. It was pretty emotional. You can imagine.
"I have always paid my bills on time," she noted. "I think I was pretty much a good candidate to buy a house. I absolutely didn't expect this."
Flora decided to proceed with the purchase although it depleted her savings.
She'd been pre-approved for a much bigger mortgage: $275,000.
After her experience, her advice to first-time buyers in these uncertain times is: "What they tell you today it might not be the day of closing. Anything can happen."
Meanwhile, Roberto Clemente High School student Torres, who's been accepted at Northeastern Illinois University, knows her parents can't afford to pay for her college education. So armed with a 3.5 grade-point average, she is in the process of applying for scholarships and has completed the Free Application for Federal Student Aid form to pave the way for access to college aid and, if needed, loans.
"I've just been saving up as much as I can in order to pay at least something," she said. "Whatever I can't pay, maybe I'll think about getting student loans."
Torres, who plans to major in biology to pursue her dream of becoming a veterinarian, said she hasn't followed news of continuing problems in the housing market and the credit crunch that's resulted.
But Andrew Davis, executive director of the Illinois Student Assistance Commission, has. He's worried students like Torres will face challenges because lenders have been withdrawing from government-backed student loan programs and private loan programs because of their inability to access funds to lend in the wake of the credit crunch. And while there are plenty of lenders still in the market, he predicts, "there will be issues that will range from less choice to less desirable terms on which the loans will be offered."
Qualifying for private loans will be more difficult and fees will be higher, he said.
And while the federal direct student loan program, which gets its funding directly from the federal government, hasn't been impacted, he doesn't believe that program is immune from potential problems.
"The direct loan program does about 20 percent of the overall federal lending effort," he said. "A number of schools are moving to the direct program because they see that as a way to safeguard their access to money for their students. The Department of Education has said they believe they have the ability to double the amount of lending business they do from a processing standpoint. If they go from 20 percent to 40 percent, that's great for the 40 percent." | |
| | Fri, 11 Apr 2008 17:43:00 +0000 |
| | Yesterday the Zip Realty Chicago Metro inventory climbed over 100,000 for the first time this year. That's a full two months sooner than it reached the same point last year. It peaked last year at around 105,000. It's low point last year was around 72,000 in early January. In early January this year it was around the 85,000 mark. I'll be curiuos to see where it peaks out at this year. | |
| | Thu, 10 Apr 2008 13:26:00 +0000 |
| More Homeowners Using Short Sales as an Alternative to Foreclosure
(ChicagoMag.com) - Hoping to avoid foreclosure, some financially strapped homeowners are taking advantage of what until recently had been a little-used option. When they find they can no longer afford their homes, they negotiate with their lender to accept a short sale—a transaction where a bank or other lender allows the house to be sold for less than the amount owed on it.
According to the records of Midwest Real Estate Data (MRED, which until recently was known as the Multiple Listing Service of Northern Illinois), at least one of every ten houses that sold in the Chicago area over the past month went as a short sale. The figure is far lower for condos: only about one in 25 went as a short sale.
Of the 466 house sales I studied, 47 were flagged as short sales—which means that 10 percent of the people who sold their houses left the closing with no equity to transfer to their next home. It also meant that the banks holding those mortgages also lost at least some of their investment. And because a home sale is identified as a short sale in MRED’s system only if the seller agreed to have it flagged, there is no way to know for sure the exact number of short sales locally.
Marki Lemons is a Rubloff Residential agent on the board of the Chicago Association of Realtors (CAR) who teaches classes on short sales to CAR agents. She estimates that the total number of short sales actually comprises about 15 percent of local sales. She blames the problem in part on overly optimistic or outright fraudulent appraisals in the past several years, and in part on the willingness of lenders to finance up to 100 percent of the appraised value of a house. “Some people borrowed more than their house was ever really worth,” she says.
Marc Shudnow also points to the recent explosion of home equity loans, which tended to drain out any equity in a home before the market stalled. “A lot of people used their homes as ATMs for three or four years,” Shudnow says, “When the market stopped going up, they got in trouble.”
Like the foreclosure numbers, short sales are at present more concentrated in lower-priced homes. Of the 47 short sales among houses that I looked at, all but two involved homes that sold for $400,000 or less (the other two both went for more than $1 million). Among the 336 condo sales over the past month, only 15 went as short sales—and each of those condos sold for less than $400,000.
Marki Lemons attributes the lopsided concentration to aggressive predatory lenders stalking lower-income neighborhoods over the past several years, talking people who “really could not afford to own a house” into easy credit that often lumped in extra cash to pay off car loans or other debts. Once the market and lending terms changed, explains Lemons, and the inflated appraisals deflated, the borrowers had little choice but to let go of their houses.
Another explanation for the large number of low-priced short sales is that several housing agencies have been actively introducing their counseling and other programs into low-income neighborhoods where predictions called for an epidemic of foreclosures. Counselors may have steered troubled borrowers toward the short-sale option.
Short selling is better than foreclosure, explains Shudnow, because the lender saves money and the sellers don’t end up with a foreclosure judgment against them and don’t get kicked out of their homes until the time of sale. In a short sale, Shudnow or another agent negotiates with the bank to find out precisely how low it’s willing to go—how much of its investment it is willing to lose in order to recoup the rest—and then prices the house accordingly. The house becomes a bargain then, which ought to encourage a quicker sale.
Typically the lender ‘loses about half as much in a short sale” compared to any loss in a foreclosure, Shudnow says. But the bank usually ends up carrying the house for a shorter time; it also saves money by not having to pursue the homeowner through legal channels or having to board up or otherwise secure an empty property. As for homeowners, they not only get to live in their homes up to the sale date, but their credit record takes a lesser hit. While short selling is still reflected in your credit history, Shudnow says, “it’s not a lien against you, and you have nothing to pay back.” A short sale also signals that a homeowner about to lose his home is willing to work with the bank to get it sold, rather than throwing in the towel.
As for the rarity of short sales among condo sellers, Shudnow points to the appraisal process. Because of the different number of rooms, the types of finishes, and countless other variations, it is often tough to compare one house to another, which can lead to widely varying appraisals. But condos, particularly within one building or complex, are often very similar and more easily comparable—which may have reduced the number of inflated appraisals in that segment of the market.
Because MRED only began flagging short sales in late February, I couldn’t compare this recent data with transactions in past months and years. (Based purely on his experience, Shudnow, who has been specializing in short sales for eight years, estimates that the number of Chicago-area short sales has at least tripled this year.) The change at MRED came at the urging of real-estate agents and real-estate appraisers who said it would more clearly identify houses that were sold for less than the market norm because of owners’ financial problems. That should distinguish them from houses that were sold at lower prices because of the declining market, according to Sarah Burke, MRED’s supervisor of rules and regulations. That distinction is going to be crucially important for tracking the rise or fall of local home prices in the future. “You’re going to see discrepancies between the last sale price of this house and the one before, and you’re going to need to know why,” Burke says. | |
| | Thu, 10 Apr 2008 13:25:00 +0000 |
| Assessor wants new formula for city property values
Cook County Assessor James Houlihan proposed lower assessment levels Wednesday for homes and commercial and industrial buildings.
He said his initiative would not lower tax bills, but would clearly align assessments with each property's realistic market value. Cook County homes, currently assessed at 16 percent, would be assessed at 10 percent under his plan.
Assessment rates on commercial and industrial property would be cut from 38 percent and 36 percent, respectively, to 25 percent.
The Cook County Board would have to approve the plan for it to take effect. Many experts say the current assessment levels are tied to estimated market values that are too low. | |
| | Wed, 09 Apr 2008 21:55:00 +0000 |
| Madigan sues firm for alleged mortgage scam
Attorney General Lisa Madigan has sued a Chicago-based company for allegedly bilking five homeowners out of their houses in a "mortgage rescue" scam. Victory Consulting and Investments Inc., which formerly operated at 2255 S. Michigan Ave. and at 2600 S. Michigan Ave., is accused of violating the Illinois Consumer Fraud and Deceptive Business Practices Act.
Victory allegedly billed itself as a "faith-based organization" and its members called themselves "Reverend," "Bishop" or "Pastor" to gain consumers' trust, according to the lawsuit filed in Cook County Circuit Court. Victory's general manager, Walter C. Armstrong, is also named as a defendant.
The homeowners were charged $600 for the mortgage rescue services and another $400 for attorneys' fees, the lawsuit said. Some homeowners were told to send their mortgage payments to Victory; others unwittingly transferred the title of their home to someone else, the lawsuit alleges.
Madigan is seeking restitution for the victims, a $50,000 civil penalty, a $50,000 fine for each violation and a $10,000 fine for each homeowner 65 or older who was scammed. | |
| | Wed, 09 Apr 2008 20:02:00 +0000 |
| Homebuilder scraps downtown condo project
(Crain’s) — Lennar Corp., the big Miami homebuilder, is pulling the plug on another downtown Chicago condominium project, the 221-unit Parc Huron in River North.
Lennar is seeking buyers for the development site at 469 W. Huron St. and has talked to several apartment developers about the property, sources say. A Lennar spokesman declines to comment, but the Parc Huron has been removed from the company’s Web site. The project’s sales office was locked up and dark Tuesday afternoon.
Amid a sluggish market for new condos, more developers are scrapping projects and trying to sell off their properties. That includes Lennar, which dropped plans for 1,000 condos on a South Loop property last year and sold the development site to AvalonBay Communities Inc., an Alexandria, Va.-based apartment real estate investment trust.
The Parc Huron was to be a 21-story, 221-unit building. Lennar began marketing units in it last October, but had signed up buyers for just five units by the end of the year, according to a report by Chicago-based consulting firm Appraisal Research Counselors. Lennar paid $9.5 million for the development site in March 2007, property records show.
Lennar’s last remaining downtown project is Library Tower, a 184-unit building under construction at 550 S. State St. Buyers had signed contracts for 125 units, or 68% of the total, by the end of 2007, according to Appraisal Research. | |
| | Wed, 09 Apr 2008 18:02:00 +0000 |
| Trouble in Shangri-La
In Chicago, living in "Shangri-La" has been a hard sell. Shangri-La, a novelist's invented name for an elusive Asian utopia, in this case means the Shangri-La Hotel and the 90-story building it's supposed to anchor at 111 W. Wacker. A mix of standard condos and hotel rooms for sale to investors, the building appears to passersby to be under construction.
But progress on the building, marketed as Waterview Tower, has been excruciatingly slow. Sources said the the developer, Teng & Associates Inc., has been unable to secure about $320 million in construction financing and may be forced to stop work. With the shell of the lower floors in place, it's possible the structure will serve merely as a multilevel parking garage until the market for high-priced housing revives.
Five contractors have filed liens on the property since January. The most significant appears to be a claim by Thatcher Engineering Corp. for $207,000. One lien can indicate just a payment dispute; several indicates a project is in trouble and creditors are protecting their interests in case of a bankruptcy or property sale.
Teng is an engineering firm that bought the property at Wacker and Clark for $12 million in 2006 and used its own architect, Thomas Hoepf, to design Waterview. The plans received critical praise. Teng started signing condo sales contracts and a deal with Shangri-La International Hotels Inc. during a roaring economy. With its own money and later a $20 million stopgap loan from LaSalle Bank, Teng started construction in 2006.
Its foray into development now looks like a disaster. The project was in the same high-end league as the now-scrapped Canyon Ranch high-rise in Streeterville and the proposed Mandarin Oriental condo and hotel tower at Lake and Stetson, where the developers have yet to secure funding. But at least investors in those deals didn't make the costly mistake to begin construction.
Sources said Teng has been trying to arrange financing through a German bank, WestLB AG. But the credit crisis has made bankers notably more conservative. "It's getting so you have to put up 30 percent to 40 percent equity," said Chicago developer Michael Reschke, who said third parties have solicited his interest in a stake in the Teng deal but that he's declined.
Reschke has his own hotel plans. He's renovating the landmark 208 S. LaSalle building to include a JW Marriott operation. The Teng building on Wacker "sits on a small site. You need ballroom meeting space, and I don't know how it can accommodate that," Reschke said.
Hoepf said he wasn't aware of plans to stop construction on his building and referred questions to the project's manager at Teng, Sean McMahon. McMahon and Teng President Ivan Dvorak did not return calls made over several days.
Stephen Darling, a regional vice president of the Shangri-La chain, said the company has no control over the construction but has a long-term commitment to the site. | |
| | Wed, 09 Apr 2008 16:19:00 +0000 |
| WaMu to close mortgage offices in Chicago area
(Crain's) — Washington Mutual Inc. will close seven retail free-standing mortgage offices in the Chicago area as part of a nationwide move to provide home loans out of its bank branches.
A WaMu spokesman said he had no information yet on how many local jobs would be lost as part of the consolidation, but noted that the area could gain jobs as WaMu consolidates eight mortgage processing offices nationwide into just three, including a facility in Downers Grove. The company said it will lay off 3,000 nationwide.
In addition, WaMu no longer will make mortgages through outside brokers, a channel that helped fuel the Seattle-based thrift’s tremendous growth in the earlier part of the decade and led to its more recent troubles as home-loan credit quality has declined sharply.
WaMu will continue to make mortgages, but will focus on its bank branches. There are 121 of those in the Chicago area, down from a peak of around 172 a few years ago following WaMu’s rapid-fire entry into Chicago.
Meanwhile, WaMu, which has been hit hard by rising delinquencies and defaults on mortgages, said Tuesday it will receive $7 billion in new capital from an investment group led by private equity firm TPG but will post a wider-than-expected loss for the first quarter.
The company said it will lose $1.1 billion during the first quarter and take a provision for loan losses of $3.5 billion — $1.5 billion more than previously expected. Wall Street had forecast a loss of $344.3 million, according to Thomson Financial survey of analysts.
Washington Mutual will sell equity securities to an investment fund managed by TPG Capital and to other investors in order to raise the funds. Washington Mutual did not disclose the names of other investors, though the bank said they include top institutional shareholders.
TPG founding partner David Bonderman, a former WaMu director, will also rejoin Washington Mutual's board as part of the agreement.
"I think it's enough capital to get them all the way through," said D.A. Davidson & Co. analyst Jim Bradshaw, citing the cash raised Tuesday, the company's plan to cut its dividend and $2.9 billion raised late last year in a stock sale.
But, he said, "I suspect the company is going to be smaller a year from now, maybe dramatically smaller."
The mortgage and credit crises have forced leaders of other troubled financial institutions to step down, but so far Washington Mutual Chief Executive Kerry Killinger's job seems secure.
Killinger, at the helm since 1990, received compensation valued at $14.4 million last year, despite the thrift's struggle with the fallout from a weakening mortgage market, especially among subprime mortgages, or loans given to customers with poor credit history.
WaMu is one of a group of large mortgage lenders, including Countrywide Financial Inc., that has struggled for survival amid a widespread downturn in home prices and spike in failed mortgages. | |
| | Wed, 09 Apr 2008 14:33:00 +0000 |
| Pending home sales hit a new low
Homeowners and investors hunting for any indication that the housing market has bottomed out didn't get it Tuesday, as the latest home sales data from a real estate trade group moved that sign further down the road to recovery.
The National Association of Realtors said pending U.S. home sales fell in February to the lowest reading since the index began in 2001. The trade group's seasonally adjusted index of pending sales for existing homes fell to 84.6 from January's upwardly revised reading of 86.2. A year earlier, the index stood at 107.6.
Wall Street economists surveyed by Thomson/IFR had predicted the index would inch up to a reading of 86.3.
A reading of 100 is equal to the average level of sales when the index started. The previous low was August's reading of 85.8, recorded at the height of the credit crunch.
With house prices falling and credit continuing to tighten, many economists say the housing market is likely to worsen in the coming months, though some remain hopeful about a recovery in the second half of the year.
''The question was whether things were starting to stabilize,'' said Global Insight economist Patrick Newport. ''Apparently they're not.''
Newport predicts home sales will fall by another 5 to 10 percent before picking up at the end of the year, while the Realtors group forecasts sales will remain flat in the first half of the year before rebounding strongly in the second half.
The Realtors report gives an early indication of how existing home sales are likely to fare for March, because of the typical lag of a month or two between when a buyer signs a home sales contract and the closing of the deal.
Moody's Economy.com forecasts sales of existing homes will fall 1.6 percent in March to an annual rate of 4.95 million units, down from 5.03 million units in February. That month's 2.9 percent increase in home sales was the first increase since last July.
''Despite recent steps to provide more liquidity to the mortgage market and ease financing constraints for potential buyers, access to credit remains restricted, especially for marginal buyers,'' Aaron Smith, senior economist at Economy.com, wrote. If job losses prove worse than expected as the economy slows, ''the floor forming under home sales could begin to cave in.''
Lawrence Yun, the Realtors' chief economist, said in a statement that the pending home sales dip ''implies we're not out of the woods yet, though an era of successive deep sales declines appears to be over.''
The Realtors group maintained its prediction that the housing market would pick up in the second half of the year, forecasting improved availability of loans for more expensive houses. It forecasts the median price of a U.S. home -- the point at which half homes sell for more money and half for less -- will fall 1.4 percent to $215,800.
Some analysts say lower home prices are luring bottom-fishers to look for cheap deals, but that activity isn't a guaranteed industry booster.
''We'll have to see if these pending transactions can actually close,'' Mike Larson, a real estate analyst with Jupiter, Fla.-based Weiss Research said in an e-mail. ''My concern is that stingier lending standards are leading to more deals falling apart.'' | |
| | Wed, 09 Apr 2008 13:25:00 +0000 |
| Affordable housing harder to find
A new report indicates a minimum-wage earner would have to work 97 hours a week, 52 weeks a year, in order to afford a modest two-bedroom apartment in the Chicago area.
Mimi Chedid of Housing Action Illinois contends that as rents continue to rise across Illinois, workers are spending more of their income on housing, leaving less money for food, clothing, transportation and other basic needs. .
She says the persistent shortage of affordable rental housing, combined with the current economic slowdown, threatens the economic security of Illinois families. .
In the Chicago-Naperville-Joliet metropolitan area, the monthly fair-market rent for a two-bedroom apartment is $944.
By traditional measure, housing is no longer affordable when individuals or families must spend more than 30% of their gross income on the expense. | |
| | Tue, 08 Apr 2008 13:47:00 +0000 |
| Critics say Senate tax plan won't help stem foreclosures
It's touted as easing the foreclosure crisis and boosting demand for housing, but critics warn that a bill before the Senate might actually encourage foreclosures and drive down house values.
At issue is a proposal to award a $7,000 tax credit to people who buy foreclosed homes or homes on which foreclosure has been filed, one piece of a broader measure that awards tax breaks to homebuilders and banks yet offers little for families in foreclosure. It's chiefly sponsored by Republicans, but it has gotten a chilly reception from the Bush administration, as well as Democrats in the House.
The $7,000 credit is aimed at helping get foreclosed homes off the market, thereby stabilizing home prices and keeping blighted houses from dragging down neighborhoods.
However, economists say that making it easier to buy foreclosed homes makes it easier to sell them. Banks could be more inclined to foreclose on a house instead of renegotiating new terms with a homeowner behind on their payments.
At the same time, economists say, the $7,000 credit could distort the market by making foreclosed homes owned by lenders more attractive to buy than other homes. That has the effect of lowering the value of homes occupied by people who are up to date with their mortgages.
''A bank that owns a foreclosed house will get a big selling-price advantage over the single mom who lives next door and has been faithfully paying off her loan,'' says Howard Gleckman of the Tax Policy Center, a joint project of the Urban Institute and the Brookings Institution.
''Indeed, because lenders would expect a higher price when they put a foreclosed house on the market, such a law might even encourage banks to repossess properties more quickly,'' Gleckman adds.
Proponents of the idea reject the critique.
''All these houses in foreclosure are doing a whole lot more damage to the (house) value of the homeowner who's making their payments than having a $7,000 tax credit to induce people to absorb those foreclosures,'' counters Sen. Johnny Isakson, R-Ga. ''It helps you to fix the bottom of the market so the market can turn around.''
The Bush administration opposes the foreclosure purchase tax credit, though it's been circumspect in its public statements. In an unusual step, the White House did not issue an official policy statement as it does with most important legislation.
''Some of the proposals we've seen might have the potential to distort the market,'' said Treasury Department spokesman Andrew DeSouza.
While people entering the housing market would benefit from the $7,000 credit, as would lenders owning big stocks of unoccupied, foreclosed homes, it would do nothing for people who have already lost their homes or are threatened with foreclosure.
''What this does is not to help anyone who has problems with their mortgage. All this does is to make those homes easier to sell once the home has gone into foreclosure,'' said David John, an economist for the conservative Heritage Foundation. ''It benefits the lender. It doesn't benefit the borrower.''
''Foreclosed and vacant houses are a blight on the neighborhood. They drag down home prices,'' said Finance Committee Chairman Max Baucus, D-Mont. ''Congress should encourage people to purchase those properties. That would help stabilize home prices and get the housing industry back on track.''
The $7,000 tax credit has a relatively small cost of $1.6 billion over the next several years. The same can't be said of a plan that awards homebuilders, lenders and other money-losing businesses a big tax break.
That provision, dropped from February's stimulus measure after critics said it was unlikely to generate substantial new investment, would permit homebuilders and other businesses absorbing heavy losses now to reclaim taxes paid when times were good.
The so-called operating loss carryback plan would lengthen from two to four years the period for which businesses suffering losses can reclaim previously paid taxes. It would cost $25 billion through 2010, though its price tag falls to $6 billion over a 10-year window.
House Democrats aren't planning to include either the foreclosure tax credit or the business tax refunds in a housing bill they expect to start putting together this week.
Meanwhile, the bill contains another provision that would allow people who don't itemize their deductions claim a $500-$1,000 deduction on their property taxes. It would chiefly benefit homeowners who have paid off their homes and can't claim a deduction on mortgage interest.
But people who have paid off their homes are, by definition, not at risk of foreclosure, critics say. Most have also built up considerable equity in their homes over the years, despite the recent downturn.
In addition to these provisions, senators are scrambling to add others. Some are connected to the crisis, but others are not, such as a plan by Sens. Maria Cantwell, D-Wash., and John Ensign, R-Nev., to add $6 billion worth of tax breaks for renewable energy producers.
Sen. Ben Cardin, D-Md., wants to give a temporary $7,000 credit to first-time home buyers to try to boost the housing market.
Sens. Bill Nelson, D-Fla., and Norm Coleman, R-Minn., are pressing to let homeowners who are late on their mortgage payments withdraw money penalty-free from their retirement accounts to avoid foreclosure. | |
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managing editor
