FHA foreclosure pilot program for Chicago

Those looking at real estate in Chicago may have been following the recent flurry of developments surrounding the city's foreclosures. With a recent article in the Chicago Tribune detailing the surge in foreclosure activity in the metro area and country-wide attention on a controversial new Federal Housing Administration (FHA) pilot program "pegged" for Chicago, it is clear that the housing market could witness considerable changes in the near future.

An article in the the Chicago Tribune revealed in July that the FHA's new Distressed Asset Stabilization Program, while "complicated," is aimed at slowing the rise in abandoned homes and stabilizing various neighborhoods. The source explained that the Chicago area had the most  of the 3,500 defaulted mortgages tallied by the FHA for sale in September in four metro areas. Acting FHA Commissioner Carol Galante revealed that the agency contacted the city of Chicago and Illinois officials to discuss plans to target specific areas with relief efforts.

The program will take FHA-backed loans that are already in foreclosure and sell them to investors at prices determined according to market value. The Tribune explained that those prices will for the most part be less than the amount that is due on the mortgage. Furthermore, new investors in the loans are required to delay foreclosure proceedings for a period of six months in order to allow sufficient time for trying other alternatives to foreclosure such as short sales or loan modification.

Chicago is just one of the cities that has been eyed for participation in the pilot program to test out the new FHA strategy, the others being Newark, Phoenix and Tampa. These cities were all selected due to their high number of delinquent loans that are thought to be potentially contributing to the cities' large number of properties that are owned by the banks. The pilot program stipulates that loans sold in these four cities for properties owned by banks cannot make up more than half of the total loans sold.

The Tribune said, "The program's goals are to assist homeowners, lower the number of vacant buildings and shift the cost of dealing with these properties, vacant or not, from the FHA to qualified private investors and nonprofit groups with a record of success in neighborhood preservation efforts."

With the Chicago area seeing more than 64,000 residential properties go into foreclosure in 2011, according to the Woodstock Institute, government relief programs such as this could play a significant role in the future landscape of real estate in Chicago.