Understanding Government

The Chicago metropolitan area has the largest inventory of foreclosed homes in the country, according to the California company RealtyTrac.  Bridget O’Shea and James O’Shea of the Chicago News Cooperative report that the large number of foreclosed homes is, ironically, due in significant part to the legal safeguards Illinois has on the foreclosure process: homes sit in limbo instead of immediately being taken over and resold by banks. This might be part of the explanation, but a bigger problem seems to be the failure of the Obama administration’s foreclosure prevention policies.

According to RealtyTrac, the Chicago metropolitan area — which includes 9.6 million people — had 119,000 homes in May 2011 either owned by banks or in the process of being taken over because the owners could not make monthly mortgage payments. By comparison, the L.A. metro area — which has 12.9 million — is 2nd in total inventory of foreclosed homes, with 86,745. The foreclosed homes problem is widespread enough that local housing experts say it has led to an overall decline in home prices and home sales in almost every Chicago neighborhood.

One culprit the authors cite is that “Illinois is a judicial state that requires banks to go through a court system to foreclose on a property rather than simply file a notice to a borrower.” Compounding the problem of the slow motion foreclosure is that the “robo-signing” scandal gave homeowners the chance to challenge banks that try to take over their property. In other words, the protection of one group of consumers — homeowners who have entered foreclosure — is apparently hurting other groups of consumers — Chicago property owners and potential homebuyers.

But another issue is what happens to the homeowners before they enter foreclosure.  Here is where the federal government has failed. The Making Homes Affordable program, the Obama administration’s main foreclosure prevention program, was supposed to help 3-4 million distressed homeowners when it was rolled out in the spring of 2009. It has helped 700,000. Smaller scale foreclosure programs have also been a bust. And roll out of the latest Housing & Urban Development foreclosure prevention plan was delayed for months, and now HUD has just until September to allocate $1 billion in its Emergency Homeowner Loan Program.

So there is a disconnect in policy: the federal government has not done enough to prevent foreclosures, and the state government, consequently, seems to step in too late.  And now the whole issue is being discussed in the past tense — but it’s not too late for new efforts to fix the problem.