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Real Estate

Conventional mortgages represent growing percentage of Chicago foreclosures

[Update 1: Clarifies increase in share of conventional loans.]

A growing percentage of conventional, fixed-rate mortgages end up in foreclosure, according to the Woodstock Institute, whose report focused on the Chicago metro area.

In 2011, 68.2% of foreclosed homes came from Federal Housing Administration and Veterans Affairs mortgages and conventional loans — such as Fannie Mae and Freddie Mac — which showed the highest increase. Conversely, 29.4% came from adjustable-rate mortgages and balloon loans, which are generally considered higher-risk products (Click image below to enlarge).

Compare this to 2008, when the foreclosure volume of fixed-rate, conventional and government-backed loans (50.1%) stood evenly beside high-risk loans (49.2%).

“These new data show that even those buyers who took the less risky route of buying a home with a conventional mortgage are not immune from the impacts of the foreclosure crisis,” said Spencer Cowan, vice president of the Woodstock Institute.

About two-thirds of Chicago foreclosures filed during the recession originated mostly from loans made before the economic downturn — between 2005 and 2007. Roughly a fourth of these foreclosures came from mortgages made prior to 2005.

This data suggests that loan underwriting did not guarantee payment as homeowners who afforded payments for six or more years succumbed to foreclosure.

Cowan said the study shows how the crisis hit lower-income areas first, and how the tide of foreclosures reached wealthier neighborhoods in the later stages.

Overall, foreclosures continued their downward trend in the Chicago metro area.

There were 30,943 foreclosure filings in the six county Chicago region during the second half of 2011, compared with 40,775 for the second half of 2010, a decrease of 24.1%.

“Without concerted effort to address the forces that drive foreclosure activity, such as negative equity and unemployment, foreclosures will continue to drain wealth from all corners of our society,” Cowan said.



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