(Source: Mary Ellen Podmolik Chicago Tribune (MCT) — The Federal Housing Administration said Wednesday it has tapped the Chicago area, along with three other housing markets hit hard by foreclosures, for a pilot program designed to stabilize neighborhoods and slow the increase in abandoned homes.
The agency’s Distressed Asset Stabilization Program is a complicated effort. Pools of defaulted, FHA-backed loans already in foreclosure will be sold to investors at market-determined prices but generally for less than the amount due on the mortgage. The loans’ new investors must delay foreclosure proceedings for at least six months so the mortgage’s new servicer can try to find an alternative to foreclosure, such as a loan modification or a short sale.
Of the 3,500 defaulted mortgages for sale in September in the four metropolitan areas — Chicago, Phoenix, Newark, N.J., and Tampa, Fla. — the Chicago area has the most, with 1,500. They could be single-family homes or one- to four-unit buildings. The FHA has contacted Chicago and Illinois officials about targeting specific neighborhoods, said acting FHA Commissioner Carol Galante.
“These are all communities where there is a high concentration of FHA loans in the pipeline for foreclosure,” Galante said. “These are also in metropolitan areas where there is significant interest by both nonprofit and for-profit investors. And these are communities that allow the FHA to test the strategy in what I would call different geographies with different market conditions, both markets where the market is recovering more rapidly and in areas where it is still weak.”
The U.S. Department of Housing and Urban Development and the FHA had conversations in December with Illinois officials about including the Chicago area in the pilot program, said Mary Kenney, executive director of the Illinois Housing Development Authority. “We are going to look at what HUD is making available and align it with existing efforts,” she said.
The Illinois Housing Development Authority is already working in six Cook County communities — Berwyn, Maywood, Park Forest, Riverdale, Chicago Heights and South Holland — to ease foreclosures. The city of Chicago has centered its foreclosure recovery program in nine neighborhoods, mostly on the city’s West and South sides.
Last year, more than 64,000 residential properties in Cook, DuPage, Kane, Lake, McHenry and Will counties went into foreclosure, according to the Woodstock Institute. Foreclosure actions were completed on more than 20,000 additional properties, and 93 percent of them became bank-owned.
Chicago, Newark, Phoenix and Tampa were chosen for the program because each has a large number of seriously delinquent loans that could boost an already high number of bank-owned properties. No more than 50 percent of the loans sold in the four cities can be vacant bank-owned properties.
The program’s goals are to assist homeowners, lower the number of vacant buildings and shift the cost of dealing with these properties, vacant or not, from the FHA to qualified private investors and nonprofit groups with a record of success in neighborhood preservation efforts.
An FHA-backed loan can be assigned to the agency if the homeowner is at least six months behind on mortgage payments and in foreclosure, the borrower is not in bankruptcy, and efforts to preserve the loan have been exhausted.
The FHA began selling distressed loans to investors in 2010, and more than 2,100 have been sold to date. Plans for a formalized, national loan pool sale effort were announced in June, when the FHA said it planned to sell 5,000 loans per quarter. Because of interest by potential bidders, that number has been raised to 9,000 this quarter, Galante said.
©2012 the Chicago Tribune
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