By Mary Morrison
January 10, 2012
Chicago is near the top of one list that won’t generate much civic pride: the number of foreclosed homes the federal government owns and has and put up for sale.
The Chicago area is among six U.S. metropolitan areas with the most foreclosed homes that have been taken over by Fannie Mae, Freddie Mac and the Federal Housing Administration and are on the market, according to a recent Federal Reserve report.
The Atlanta area leads the pack, with about 5,000 homes for sale, followed by five areas with between 2,000 to 3,000: Chicago; Detroit; Phoenix; Riverside, Calif., and Los Angeles, according to the report, released last week.
The report cited the cities as places where a proposal to rent out federally owned foreclosed homes might work. The paper identified the various forms such programs could take, including scenarios where the lender rents the properties directly, sells the properties to a third-party investor or enters into a joint venture with investors.
“In theory (an REO-to-rental program) makes a lot of sense,” said Geoff Smith, executive director of the Institute for Housing Studies at DePaul University. “You have a lot of properties that are vacant, and you have a need for affordable housing in the region. The right solution could help create a new supply of affordable rental housing.”
What to do with the flood of homes repossessed since the market crash has become a central concern in the housing industry, as a steady flow of new foreclosures threatens to drive prices even lower. One in every 427 housing units in Illinois received a foreclosure filing in November, the eighth-highest rate in the country, according to Irvine, Calif.-based RealtyTrac Inc.
Federal initiatives such as the Neighborhood Stabilization Program, which gives municipalities federal money to buy up and rehab vacant properties, or demolish them, have been effective but can’t fully address the problem, said Katie Buitrago, policy and communications associate at Chicago-based Woodstock Institute.
“It’s a great program, but there’s just not enough money to deal with scale of vacant properties,” she said.
Plus, investors still have a hard time obtaining financing to buy and rehab foreclosed homes, even if they’re working with housing groups, she said.
The Fed report did not include the exact number of Chicago-area foreclosed properties for sale by Fannie, Freddie and the FHA. There are about 900 government-owned homes for sale in the city of Chicago and just under 4,000 in Illinois, according to a database maintained by the U.S. Department of Housing and Urban Development.
The Fed report also did not show the number of foreclosed homes as a percentage of each metro area’s housing stock, making it hard to compare Chicago, the nation’s third-largest city, with smaller cities on the list.
The idea of renting out foreclosed homes is gaining traction in the Chicago area in part because suburbs are having more success working with lenders, said Robin Snyderman, vice-president of community development at the Chicago-based Metropolitan Planning Council.
“Now that the towns have prioritized areas where they want to invest in redevelopment, if the financial institutions help provide some of the (housing) inventory for that and even rehab dollars, that would jumpstart their efforts,” she said.
But one of the biggest challenges facing rental programs, according to both the Federal Reserve paper and housing experts, is property management.
“Anyone could buy a property, and anyone can redevelop it, but it’s all about how you manage that property,” said Jim McClelland Sr., owner of Tinley Park-based Mack Cos., which buys, rehabs and rents out foreclosed single-family homes in the south suburbs. The company has 530 homes in its portfolio, Mr. McClelland said.
One housing advocate doubts holders of foreclosed properties, particularly lenders, are up to the challenge.
“If banks still hold the property, they might not be managing it well or in the best interest of the community,” said Mary Lu Seidel, housing coordinator for the Northwest Suburban Housing Collaborative. “They haven’t managed vacant properties well. How are they going to manage a property with people in it?”
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