New foreclosure filings in the Chicago metro area have returned to first-quarter 2009 levels after a slowdown in the second quarter, says the latest Woodstock Institute analysis of regional foreclosure activity. This sharp increase likely reflects federal and state interventions that delayed new filings in the second quarter until the third quarter.

 

The six-county region showed an 18 percent increase in filings from third quarter 2008 to third quarter 2009, while there was a 67 percent increase in filings from second quarter 2009 to third quarter 2009. In the second quarter, the Illinois Homeowner Protection Act was signed into law, requiring that lenders notify homeowners of their right to seek HUD-certified housing counseling 30 days before initiating foreclosure action. The federal Home Affordable Modification Program (HAMP) also began during this period, which provides incentives to lenders to modify loans for troubled borrowers down to sustainable levels. The introduction of the two laws likely shifted a number of foreclosures that would have happened in the second quarter to the third. Despite these interventions, foreclosures continue to rise year-over-year—the first nine months of 2009 saw 12% more filings than the first nine months of 2008.

The report also found that the rate of new filings is increasing in collar counties and decreasing in Cook County. Cook County saw a 4.6 percent decrease in new filings from last year, primarily in the City of Chicago (down 9.6 percent) and South Cook County (down 25.3 percent). All collar counties saw at least a 53 percent increase in new filings from last year. Kane County experienced a 96.6 percent increase in new filings—the biggest increase of the six-county region.

This increase in the suburbs reflects a broader trend of the foreclosure crisis shifting to middle- and higher-income communities. As previous Woodstock research shows, subprime loans were largely concentrated in the City of Chicago and South Cook County. National data indicate that foreclosures are moving from the subprime market to the prime market. Additionally, most neighborhoods that have seen recent foreclosure declines historically have had long-term foreclosure problems.

“There are simply fewer and fewer mortgages to foreclose on in lower-wealth communities,” says Geoff Smith, Vice President of Woodstock Institute. “That does not mean, however, that the foreclosure crisis is over in these neighborhoods. Lower-wealth neighborhoods continue to have high levels of foreclosure and face challenges associated with high concentrations of vacant properties, such as increases in violent crime and dropping property values.”