Foreclosure Fever Is Forecast To Reach Into The Trillions
Tuesday, November 27, 2007SUSIE GHARIB: The nation`s major metropolitan cities will lose billions of dollars in revenues next year because of the housing crisis. That`s the conclusion of a report released today from the U.S. Conference of Mayors meeting in Detroit. Also today, a separate report issued by Global Insight predicted foreclosures could reduce U.S. property values by $1.2 trillion in 2008. Half of that drop in value would come in California. But as Diane Eastabrook reports, foreclosures are spreading well beyond the golden state.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This brick two-flat on Chicago`s south side goes on the auction block this week. It is among 100 foreclosed properties in and around the city that Rick Levin and Associates will be selling.
RICK LEVIN, PRESIDENT, RICK LEVIN & ASSOCIATES, INC.: Certainly, there is a lot of potential here for an investor to pick this up, hopefully at an attractive price for them.
EASTABROOK: But Levin`s optimism that a buyer will bid on this property is tinged with caution. The building is located down the street from two other boarded up homes, also the victims of foreclosure and that makes this property a tougher sell.
LEVIN: One of the realities of the real estate market in certain pockets of the United States is that there is not just one troubled property in the neighborhood, but there are several.
EASTABROOK: Chicago is hardly the poster child when it comes to soaring foreclosures. The city didn`t see the huge amount of investment in real estate the way cities like Las Vegas did, nor has it fallen on tough economic times the way cities like Detroit and Cleveland have. Experts say what is happening in Chicago is happening in a lot of communities. Consumers, especially in lower income neighborhoods, purchased homes with sub-prime adjustable rate mortgages. When interest rates on those loans adjusted upward, the borrowers couldn`t afford the payments and defaulted on their loans. As a result, there are entire blocks in some Chicago neighborhoods with several vacant homes. Geoffrey Smith, research director for Woodstock Institute, has been studying the impact of foreclosures on the city. He says one foreclosure on a city block can decrease the value of properties around it by 1 percent and several foreclosures can ripple through the entire community.
GEOFF SMITH, RESEARCH DIRECTOR, WOODSTOCK INSTITUTE: We have also documented that increases in foreclosure rates can lead to increases in violent crime in a community. We have also seen that increases in foreclosures have an effect on the property tax base of various communities across the region.
EASTABROOK: One local bank is trying to prevent future foreclosures. Shorebank estimates up to 10,000 families on Chicago`s south side could be at risk of foreclosure. A few months ago, it launched a rescue loan program which helps at-risk borrowers with adjustable rate loans lock into fixed rates. Shorebank President and CEO Joseph Hasten says the program helps the bank and the community.
JOSEPH HASTEN, PRESIDENT & CEO, SHOREBANK: Our bank is founded on the notion that you can pursue private gain such that it is not incompatible with doing social good. So, our mission is to maintain and improve the vitality of the neighborhoods we serve.
EASTABROOK: So far, Shorebank`s rescue loan program has helped 30 borrowers. Hasten hopes his bank can reach even more homeowners before foreclosure reaches them. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
