The Chicago region housing market is likely to remain weak, and serious concerns about the performance of Alt-A and prime mortgages will take center stage in 2009.

Although the worst of the wave of foreclosures tied to the highest risk mortgages such as subprime hybrid adjustable rate loans may have passed, there remain significant concerns about the financial condition of homeowners. The continued weakness in the local housing market combined with the declining local and national economy have led to increased default and foreclosure rates for Alt-A (loans considered riskier than prime, but less risky than subprime) and prime mortgages. These conditions are expected to continue through 2009. Additionally, there are concerns about the performance of other types of higher-risk loans such as payment option ARMs and the re-default of unsustainable loan modifications conducted in the past year.

Direct assistance to homeowners will remain a top priority for Congress, and the Obama administration. One factor that may lead to declines in foreclosure filings in 2009 is the effectiveness of interventions implemented by both private financial institutions and the federal government. In the fall of 2008, a number of large financial institutions including Bank of America, JP Morgan Chase, Citibank, Fannie Mae, and Freddie Mac announced more systematic and substantial loan modification programs and, in some cases, foreclosure moratoriums. While the success of these interventions is unclear to date, they may lead to a decline in foreclosure filings. Additionally, there have been substantial discussions on ways in which the federal government can be more directly involved in aiding distressed homeowners. One proposal would use part of the $350 billion remaining in the Trouble Asset Relief Program (TARP) to aid home owners. While the TARP program was initially designed to aid troubled financial institutions, there have been signals that Congress and the new administration may focus some of the remaining funds on direct aid to consumers.