Investors Shun Chicago Region Foreclosure Auctions, Says New Report

Huge inventory of foreclosed properties and fewer bidders means lenders on the hook for billions in Chicago region so far

FOR IMMEDIATE RELEASE

Thursday, August 21, 2008

Contact:  Geoff Smith, Vice President, 312-368-0310 

 

Investors Shun Chicago Region Foreclosure Auctions, Says New Report

Huge inventory of foreclosed properties and fewer bidders means lenders on the hook for billions in Chicago region so far

Chicago – According to a new report, the flow of vacant properties is quickening across the region, and in many parts of the Chicago region the overwhelming majority of those properties are now owned by the lender.    

File Icon Foreclosure Fallout: An Analysis of Foreclosure Auctions in the Chicago Region

Property investors, who in previous years helped drive the housing boom, acquired just six percent of the properties being sold at foreclosure auctions, down from nearly 30 percent just three years ago.

“With fewer buyers, these foreclosed properties are reverting to lenders, who are in the business of lending, not managing huge real estate portfolios,” says Geoff Smith, Woodstock Institute’s vice president and author of the report. 

Communities throughout the region are saddled with more and more of these real estate owned (or REO) vacant properties, with the South suburban Cook County and the City of Chicago hardest hit. 

Even areas not previously associated with foreclosure and vacancy, such as North Cook, Kane County, and DuPage County have seen steep increases.  “This poses a significant challenge to cities and neighborhoods struggling to get these properties back into productive use,” says Smith.

Providing detailed 2007 and first half 2008 foreclosure auction results for all Chicago region municipalities as well as City of Chicago community areas and wards, the Woodstock Institute report found that:

1. Recent increases in foreclosure auctions greatly outpace increases in foreclosure filings.  Between 2006 and 2007, foreclosure filings in the Chicago region (excluding Lake County) increased by roughly 32 percent while the number of foreclosures going to auction increased by over 97 percent.

2. As investors shun foreclosed properties, a growing share of foreclosure auctions is going to lenders.  In 2005, 70.5 percent of regional auctions went to the foreclosing lender while 29.5 percent went to a third party investor.  By 2007, this number jumped to 94 percent, with only six percent of properties in foreclosure auctions sold to third party investors.  South Cook County and the City of Chicago had the largest share of properties in foreclosure auctions reverting to the lender with 97.2 percent and 95.8 percent, respectively. 

3. The flow of properties into the REO inventory has increased substantially.  Between 2005 and 2007, the number of properties entering into the regional REO stock increased by 231 percent.  In total, over 22,500 properties entered the REO portfolio of lenders through foreclosure auctions between 2005 and 2007, with nearly 13,000 in 2007 alone.

4. The cost of acquiring 2007 REO properties at auction value exceeded $2.5 billion.  Several proposals to mitigate the effect of vacant properties are under consideration but the key issue is cost.   At the current auction value, this report suggests that the overall cost could be considerable.

5. The City of Chicago and South Cook County have the largest number of REO properties and the highest levels of REO properties per mortgageable properties in 2007.  In 2007, there were over 5,800 REO foreclosure auctions in the City of Chicago and over 2,100 in South Cook County.  South Cook County had the highest level of REO auctions per property in the region at 16 per 1,000 mortgageable properties, almost three times the regional level of 6.2 per 1,000 mortgageable properties.

6. A growing share of REO foreclosure auctions in the City of Chicago are on small multi-unit buildings.  The share of City of Chicago REO auctions that were on small multi-unit rental buildings was 36.5 percent, up from 30 percent of REO auctions in 2005.  Lenders have repeatedly stated that they have no interest in being landlords, suggesting that these properties have been taken off the market, reducing the available rental housing stock.

7. The problem is getting worse.  In the first half of 2008 alone, over 10,000 properties became lender owned.  This was a nearly 98 percent increase over the first half of 2007. 

Beyond reporting raw foreclosure figures, Woodstock Institute advocates policies and practices that reduce the neighborhood impact of the foreclosure problem.  The Institute has released a series of reports tackling issues such as the concentration of high-cost loans in minority communities, lending patterns of defunct mortgage companies, and, most recently, the growing number of multi-family foreclosures.

For more information on our Chicago-region foreclosure research program visit us at:

http://www.woodstockinst.org/programs/foreclosure-research/

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