New laws giving homeowners more time and resources to get help on their mortgage payments may be slowing the rate of foreclosure filings in the Chicago area, according to the latest Woodstock Institute analysis of Chicago region foreclosure filings.
However, these interventions will only have a long-term effect if homeowners are able to take advantage of the extra time to seek out HUD-certified housing counselors—and more resources are made available to these counselors so they can meet the increasing demand for their services.
Chicago region foreclosure filings increased in the first half of 2009 from the first half of 2008. However, within the first half of 2009, filings dropped sharply from the first to the second quarter. This drop is not likely a sign of the end of the foreclosure crisis, but the result of two pieces of new state and federal legislation signed in April and May.
The Homeowner Protection Act (S.B. 2513), signed on April 6, amended Illinois mortgage foreclosure law by placing restrictions on foreclosing lenders and servicers as to when they are allowed to take legal action on a homeowner in default, and lenders were unable to proceed with any new foreclosure action until at least 30 days after notifying the defaulting homeowner of their right to seek HUD-certified housing counseling. The federal Home Affordable Modification Program, which went into effect on May 4, creates a structure to facilitate loan modifications for borrowers who meet certain criteria by giving incentives to lenders to put troubled lenders into sustainable modifications, as well as giving incentives to borrowers for staying current on their loans after they have been modified.
As recent research from Woodstock Institute demonstrates, HUD-certified housing counselors are struggling to meet the increasing demand for their services. The Chicago Tribune reported that the Illinois Department of Financial and Professional Regulation is receiving 2,000 calls a month from homeowners trying to find HUD-certified counselors. Acting Secretary Brent Adams told the Tribune that counselors are “stretched to the brink.” Additionally, servicers and lenders have, in the past, often modified loans on unsustainable and unaffordable terms. If more resources are not made available to these counselors, and servicers are not more proactive about putting borrowers in sustainable loan modifications, the declines in foreclosure filings seen in the second quarter of 2009 will likely remain a blip on the radar as foreclosures return to, or even surpass, previous levels.